UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

|FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---------------------------------------------------------------------------------------------------------
|ý                                                                                                        
|For the fiscal year ended January 31, 2004                                                               
|Or                                                                                                       
|o                                                                                                        
|For the transition period
from                             to                                            

Commission File Number: 000-24603

---

ELECTRONICS BOUTIQUE HOLDINGS CORP.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State of Incorporation)                                                            |  | 51-0379406(IRS Employer Identification Number)
|------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|931 South Matlack Street
West Chester, Pennsylvania(Address of principal executive offices) |  | 19382(Zip Code)                               

Registrant's telephone number, including area code:610/430-8100Securities registered pursuant to Section 12(b) of the Act:

|Title of Each ClassN/A |  | Name of Each Exchange on Which RegisteredN/A
|---------------------- |  | --------------------------------------------

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value(Title of Class)

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 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 ý    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
the Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). YES ý    NO o

As of August 2, 2003, the aggregate market value of common stock held by non-affiliates of the registrant, based upon the closing sale price as
reported on the NASDAQ National Market of $25.86 per share, was $336,761,950. Shares of the registrant's common stock owned by its executive officers and directors were excluded from this calculation;
however, such exclusion does not represent a conclusion by the registrant that the executive officers or directors are affiliates of the registrant.

At
April 8, 2004, there were 24,397,434 shares of common stock issued and outstanding.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.



---

FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 2004

INDEX

|           |  |                                                                                                                  |  | Page
|---------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|PART I     |  |                                                                                                                  |  |     
|Item 1    |  | Business                                                                                                         |  | 1   
|Item 1A   |  | Executive Officers of the Company                                                                                |  | 15  
|Item 2    |  | Properties                                                                                                       |  | 16  
|Item 3    |  | Legal Proceedings                                                                                                |  | 17  
|Item 4    |  | Submission of Matters to a Vote of Security Holders                                                              |  | 17  
|PART II    |  |                                                                                                                  |  |     
|Item 5    |  | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 18  
|Item 6    |  | Selected Financial Data                                                                                          |  | 18  
|Item 7    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                            |  | 21  
|Item 7A   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 34  
|Item 8    |  | Consolidated Financial Statements and Financial Statement Schedule                                               |  | 36  
|Item 9    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 63  
|Item 9A   |  | Controls and Procedures                                                                                          |  | 63  
|PART III   |  |                                                                                                                  |  |     
|Item 10   |  | Directors and Executive Officers of the Registrant                                                               |  | 63  
|Item 11   |  | Executive Compensation                                                                                           |  | 63  
|Item 12   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 63  
|Item 13   |  | Certain Relationships and Related Transactions                                                                   |  | 63  
|Item 14   |  | Principal Accountant Fees and Services                                                                           |  | 63  
|PART IV    |  |                                                                                                                  |  |     
|Item 15   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                                  |  | 63  
|SIGNATURES |  | 66                                                                                                              

---



PART I

Preliminary Note Regarding Forward-Looking Statements

When used in this Annual Report on Form 10-K, the words "expect," "estimate," "anticipate," "intend," "predict," "believe," and similar
expressions and variations thereof are intended to identify forward-looking statements within the meaning of and subject to the safe harbor created by the Private Securities Litigation Reform Act of
1995. Forward-looking statements appear in a number of places in this Annual Report on Form 10-K and include statements regarding the intent, belief or current expectations of
Electronics Boutique, its directors or its officers with respect to, among other things: (i) trends affecting Electronics Boutique's financial condition or results of operations; and
(ii) Electronics Boutique's business and growth strategies. Readers are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results or outcomes may differ materially from those projected in the forward-looking statements as a result of various factors, including those set forth in
Item 1. "BusinessRisk Factors".

Item 1. Business

General

We are the world's largest specialty retailer of video game hardware and software, PC entertainment software, pre-played video games and related
accessories and products. As of January 31, 2004, we operated 1,528 stores, primarily under the names EB Games and Electronics Boutique, in Australia, Canada, Denmark, Germany, Italy, New
Zealand, Norway, Puerto Rico, South Korea,
Sweden and the United States. We also operate a commercial website under the URL addresswww.EBgames.com. Our compound annual growth rates for sales and
pre-tax net income from fiscal 1999 through fiscal 2004 were 21.7% and 17.8%, respectively.

The
interactive entertainment industry is approximately an $11.1 billion market in the United States that has grown at a compound annual growth rate of 11.3% over the last three
years, according to data provided by The NPD Group. The introductions of Sony's PlayStation 2 in late 2000, Nintendo's GameCube and Microsoft's Xbox in November 2001 and Nintendo's Game Boy
Advance SP in March 2003 represent the most significant video game hardware introductions since 1996. Software sales for these systems exceeded $5 billion in the United States and have
grown at a compound annual growth rate of 59.2% over the last two years. With the growing installed base of these systems, we expect to see increased software sales in the coming year. We believe our
position, as the destination of choice for gamers, will enable us to benefit from this continued industry growth.

We
serve the avid gamer who demands immediate access to new release titles and who generally purchases more video game titles and PC entertainment software than the casual gamer. As a
result, our tie ratio of software units sold to hardware units sold is consistently above the industry average. We believe that we attract both the avid and casual gamer due to our:



We
believe that our vendors recognize the importance of our customer base and, consequently, often grant us disproportionately large allocations of new release titles and products. We
support our

1

---

stores
through a highly effective and centralized inventory management system. This system enables us to execute our
"first-to-market" new release strategy and efficiently manage overall inventory levels in order to maximize the sale of new
products during peak periods and avoid markdowns as titles mature.

We
were incorporated under the laws of the State of Delaware in March 1998 as a holding company for our operating activities. Our predecessor was incorporated in the Commonwealth
of Pennsylvania in 1977.

We
maintain an informational website under the URL addresswww.EBholdings.com. The reports we file pursuant to the Exchange Act
(Form 10-K, Form 10-Q, Form 8-K) may be accessed free of charge through this website following our filings with the Securities and Exchange
Commission (SEC). You may obtain any reports we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549 or by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website atwww.sec.govwhere you may access our Exchange Act reports, proxy
statements and other information.

Risk Factors

Risks Related to the Interactive Entertainment Industry

Manufacturers may fail to introduce or delay the introduction of new products, which could hurt our ability to attract and retain customers.

We are highly dependent on the introduction of new and enhanced video game hardware and software and PC entertainment software by manufacturers for our success.
If manufacturers fail to introduce or delay the introduction of new products, we would have difficulty attracting and retaining customers to buy the products we sell, which could adversely affect our
business. Many of the factors that impact our ability to sell new products are beyond our control, including:



The interactive entertainment industry is cyclical, which could cause significant fluctuations in our earnings.

Demand for video game systems and software fluctuates in relation to the introduction of next-generation hardware and related software titles.
Manufacturers have historically introduced next-generation systems every four to five years. Sales volumes of new video game systems and related software titles are generally higher in the
initial stages of the products' life cycles. As a product reaches the end of its life cycle, demand for the product will generally decline as our customers anticipate the introduction of
next-generation products. If leading video game system manufacturers fail to continue to introduce next-generation systems, or fail to enhance existing systems on a periodic
basis, our sales of hardware systems and related software titles will decrease, which could have an adverse effect on our results of operations and financial condition.

2

---

If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.

The manufacturers of video game hardware and software and PC entertainment software have typically provided retailers with significant marketing and merchandising
support for their products. As part of this support, we receive cooperative advertising and market development payments from these vendors. These cooperative advertising and market development
payments enable us to actively promote and merchandise the products we sell and drive sales at our stores and on our website. We cannot assure you that vendors will continue to provide this support at
historical levels. If they fail to do so, our sales and earnings could be negatively impacted.

If we fail to keep pace with rapidly changing industry technology, we will be at a competitive disadvantage.

The interactive entertainment industry is characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product
introductions and rapid product obsolescence. These characteristics require us to respond quickly to technological changes and to understand their impact on our customers' preferences. If we fail to
keep pace with these changes, our business may suffer. In addition, some of these technological changes, such as the ability to download video games onto PCs or play games over the Internet through
consoles could reduce retail sales of video games and PC
entertainment software. If advances in technology continue to expand our customers' ability to access software through other sources, our sales and earnings could be negatively impacted.

Risks Related to Our Business

If we fail to manage new store openings or renew existing locations as they expire, our operational and financial results could be negatively impacted.

Our growth depends on our ability to open and operate new stores profitably. In fiscal 2004, we opened 399 new stores. We currently intend to open approximately
400 new stores in fiscal 2005. Our ability to open new stores in a timely and profitable manner depends upon many contingencies, including our ability to locate and lease suitable store sites, build
out these sites on a timely and cost-effective basis, hire and train new associates and integrate these stores into our existing operations. We cannot assure you that we will be able to
continue to achieve our planned expansion or that our new stores will achieve sales and profitability levels comparable to our existing stores.

As
of January 31, 2004, approximately 8% of our stores (128 of our 1,528 stores) were operated under leases with terms that expire in less than one year. We cannot assure you that
we will be able to maintain these existing store locations as leases expire or that we will be able to locate suitable alternative sites on acceptable terms.

If we do not compete effectively, we will lose customers and our earnings will decline.

We face intense competition in the interactive entertainment industry and this could lead to reduced sales and profit margins. We compete with:



3

---



Some
of these competitors have longer operating histories and significantly greater financial, managerial, creative, sales and marketing and other resources than we have. We also compete
with other forms of entertainment activities, including movies, television, theater, sporting events and family entertainment centers.

Our operating results fluctuate from period to period, which could result in a lower price for our common stock.

Our business is affected by seasonal patterns. We historically generate our highest net sales and operating income during our fourth fiscal quarter, which
includes the holiday selling season. During fiscal 2004, we generated approximately 41.7% of our net sales and approximately 87.3% of our operating income during our fourth fiscal quarter.
Accordingly, any adverse trend in sales during the holiday selling season could adversely affect our results of operations for our fourth fiscal quarter and our entire year. In addition to our
dependence on fourth quarter sales, our results fluctuate from
quarter to quarter depending upon a variety of factors, most of which we cannot control. These include:



These
fluctuations make the prediction of our financial results on a quarterly basis difficult.

If we fail to obtain products from our domestic and overseas suppliers, our sales and profits will be adversely affected.

We rely heavily upon our suppliers to provide us with new products as quickly as possible. We purchase a significant amount of products from Electronic
Arts, Inc., Nintendo of America, Inc., Sony Computer Entertainment, Inc., Microsoft Corp. and Atari Corp., and often receive shipments of new release
products that are disproportionately large relative to our share of the overall consumer video game market. During fiscal 2004, our purchases from Electronic Arts, Nintendo, Sony, Microsoft and Atari
represented 14.4%, 12.6%, 10.9%, 8.4% and 5.1%, respectively, of our gross purchases. We believe that the loss of any of these suppliers could reduce our product offerings, which could cause us to be
at a competitive disadvantage. In addition, our financial performance largely depends upon the business terms we obtain from our suppliers, including competitive prices, unsold product return
policies, advertising and market development allowances, freight charges and payment terms. If we fail to maintain favorable business terms with our suppliers, our ability to offer products to
consumers at competitive prices could be adversely affected.

During
fiscal 2004, approximately 38% of our domestic product purchases were of products manufactured outside of the United States, primarily in Asia. To the extent that our distributors
rely on overseas sources for their products, any event causing a disruption of imports, including the imposition of import restrictions, could adversely affect our business. Trade restrictions in the
form of tariffs or quotas, or both, applicable to the products we sell could also affect the importation of these products and could increase the cost and reduce the supply of products available to
us.

4

---

If our distribution facilities and systems are inadequate, our business could suffer.

In November 2003, we entered into an agreement to lease or acquire a new 315,000 square foot distribution facility that is currently being constructed in
Coatesville, Pennsylvania. We expect the new facility to be completed in the Fall of 2004 and, if completed on time, to use this facility during the 2004 holiday season. In order to meet this
timeline, the developer of the site for the distribution facility will need to obtain various approvals and construction must be completed on time. If unexpected delays occur, or if we encounter
difficulties with our transition to the new distribution facility, and we are unable to obtain adequate back-up facilities and systems, our business could suffer.

If our management information systems fail to perform or are inadequate, our ability to manage our business could be disrupted.

We rely on a warehouse management system used in our domestic distribution centers and an inventory replenishment system to track sales and inventory. Our systems
allow us to execute our "first-to-market" new release strategy, to keep our stores in stock at optimum levels and to move
inventory efficiently from our distribution centers to our stores. If our management information systems fail to adequately perform these functions, our business could be adversely affected.

Our international operations expose us to numerous risks.

We have international retail operations in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, South Korea and Sweden. Net sales in these foreign
countries represented approximately 25% of our net sales in fiscal 2004. Because release schedules for hardware and software introduction in these countries often differ from release schedules in the
United States, the timing of increases and decreases in foreign sales may differ from the timing of increases or decreases in domestic sales. We are also subject to a number of other factors which may
impair our current or future international opportunities. These include:



We depend upon our key personnel and they would be difficult to replace.

Our success depends upon our ability to attract, motivate and retain key management associates for our stores and skilled merchandising, marketing and
administrative personnel at our headquarters. While we have been successful in maintaining the continuity of our management team, including our executive officers, we cannot assure you that we will
continue to be successful retaining such personnel. If we fail to retain qualified personnel, our business could suffer.

If we fail to successfully complete and integrate future acquisitions, our business could be negatively impacted.

As part of our efforts to grow and compete, we may engage in acquisitions. Our plans to pursue future acquisitions are subject to our ability to negotiate
favorable terms for these acquisitions. Accordingly, we cannot assure you that future acquisitions will be completed. In addition, to facilitate future acquisitions, we may take actions that could
dilute the equity interests of our stockholders, increase our debt or cause us to assume contingent liabilities, all of which may have a negative effect on the price of our common stock. Finally, if
any acquisitions are not successfully integrated with our business, our ongoing operations could be adversely affected.

5

---

On
January 30, 2004, we terminated the services agreement with Game Group Plc (formerly The Electronics Boutique Plc). The termination agreement prohibits us from competing with
Game Group in the United Kingdom and Ireland until February 2006. Additional terms of the agreement prohibit us from entering the French and Spanish markets until February 2005.

Other Risks

The Kim family has significant control of our company and can make decisions that could adversely affect our stock price and prevent a change of control.

EB Nevada Inc., a company indirectly controlled by James Kim, his wife and certain trusts for the benefit of his children, beneficially owns approximately
48.6% of our common stock. Accordingly, the Kim family effectively controls our company and all matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions. This control may have the effect of delaying, preventing or deterring a change in control of our company and could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of any sale or acquisition.

Our status as a holding company and our credit facility restrict our ability to pay dividends on our common stock.

We are a holding company and do not have any material assets other than our ownership interests in our subsidiaries. Our common stock will be junior in right of
payment to all of our existing and future liabilities and obligations and, by virtue of the fact that we are a holding company, our common stock will be structurally junior in right of payment to all
existing and future liabilities and obligations of each of our subsidiaries. We have not declared or paid dividends on our common stock since our initial public offering in July 1998. In
addition, our credit facility with Fleet Capital Corporation restricts our ability to declare or pay dividends on our common stock.

Our income taxes could increase in the future.

Our corporate structure includes the use of Delaware holding companies and subsidiaries that hold our intellectual property and facilitate financing for our
operations. Certain state taxing authorities have changed and others are still reviewing their positions with respect to income tax deductions taken as a result of these structures. If these income
tax deductions resulting from our corporate structure continue to be disallowed in the future, the income taxes we pay could increase, which will negatively impact our earnings.

Our certificate of incorporation and bylaws contain anti-takeover protections, which may discourage or prevent a takeover of our company, even if an acquisition
would be beneficial to our stockholders.

Certain provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if a takeover would benefit our stockholders.

Industry Overview

The interactive entertainment industry is comprised of two primary product categories, video games and PC entertainment software.

6

---



Video games.Based on information provided by The NPD Group (NPD), domestic retail sales of video game software and hardware
systems were approximately $8.8 billion in 2003, down slightly from the prior year. According to International Development Group (IDG), domestic software sales are expected to grow
approximately 2% in calendar 2004. Growth in the industry has been driven by continued improvements in systems technology, substantial growth in the number of titles available across game categories
and the emergence of well-capitalized software publishers with significant advertising budgets to support new releases. Enhanced technological features of new hardware platforms expand
gaming capabilities, encourage existing players to upgrade their hardware platforms and attract new video game players to purchase their first systems.

From
1996 to September 1999, Sony and Nintendo dominated the video game market. Sony introduced the PlayStation in 1995 and Nintendo introduced the Nintendo 64 in 1996. In
September 1999, Sega introduced the Sega Dreamcast. In October 2000, Sony introduced the PlayStation 2, which represented a significant improvement in graphics, processing power and
audio quality over the systems in use at the time. In June 2001, Nintendo introduced the Game Boy Advance, the successor to the highly successful Game Boy. Nintendo's GameCube, introduced in
November 2001, features significant performance enhancements over the Nintendo 64 system and is based on CD technology as compared to the prior cartridge-based technology. Microsoft's Xbox,
also launched in November 2001, provides advanced graphics and Internet connectivity. In March 2003, Nintendo introduced a significantly enhanced design of the Game Boy Advance, Game Boy
Advance SP, and in October 2003, Nokia launched the N-Gage, a mobile gaming device with cellular capabilities.

At
the end of calendar 2003, the domestic installed base of video game hardware systems in the United States totaled approximately 22.3 million PlayStation 2 units,
7.8 million Xbox units, 6.9 million GameCube units and 19.8 million Game Boy Advance units. Hardware manufacturers and third-party publishers produce a wide range of game titles
for each of these major hardware systems. In addition, according to NPD, domestic retail sales of video game systems accessories were estimated to be approximately $1.3 billion in calendar
2003.

PC entertainment software.Based on information provided by NPD, domestic retail sales of PC entertainment software were
approximately $1.0 billion in calendar 2003, a 28.6% decrease from the prior year. According to IDG, domestic PC entertainment software sales are expected to decline 1% to 2% annually over the
next several years. PC entertainment software is generally sold in the form of CD-ROMs and played on multimedia PCs featuring fast processors, expanded memories, and enhanced
graphics and audio capabilities.

Customers.We believe the typical gamer is a single male between the ages of 14 and 34, has a household income in excess of
$50,000 and owns multiple hardware systems. We also believe that these
gamers are often opinion leaders in the interactive entertainment industry, influencing the buying decisions of their friends and family. According to a study conducted by Ziff Davis Media Game Group,
our core customers shop an average of seven times per month for video games. This study also shows that many of them purchase PC entertainment software as well as video games.

Competitive Strengths

We seek to enhance our position as the world's largest specialty retailer of video game titles and PC entertainment software by focusing on the following:

Breadth of title selection.We offer our customers an extensive selection of video game titles and PC entertainment software
at competitive prices. Our typical store offers over 1,500 software stock keeping units ("SKUs"), excluding pre-played games, at any given time from over 60 video game and PC entertainment
software vendors. These titles are also available for purchase on our website. We continuously update our title selection in each store to reflect the tastes and buying patterns of the

7

---

store's
local market. We carry game titles which are compatible with all major video game hardware systems and PCs. In addition to video game titles and PC entertainment software, we offer a
complementary line of PC and video game accessories and peripheral products, including controllers, joysticks, memory cards, DVD remotes, books and magazines. By offering all major video game hardware
systems and providing a broad but focused assortment of video game software and accessories and PC entertainment software, we seek to establish our stores and website as the destination of choice for
avid gamers.

Immediate availability of new releases.We strive to be the first in our markets to offer new video game and PC entertainment
software titles upon their release. We believe that vendors recognize the importance of our video game enthusiast customer base and, consequently, often grant us disproportionately large allocations
of new release products. Our inventory management systems then rapidly move the products from our distribution centers to our stores. New release titles are often preceded by substantial publicity in
the form of print advertisements and reviews in publications and, increasingly, are promoted through television advertisements by the video game and PC software publishers. This publicity tends to
create high levels of demand for new releases among video game enthusiasts, often well in advance of release dates. This demand provides us with an important marketing opportunity to drive traffic to
our stores and our website.

To
assure our customers immediate access to new releases, we offer our customers the "EB Pre-Sell Program" through which they can reserve video games and PC entertainment
software for delivery upon our receipt and release of the product. On average, we introduce 26 new game SKUs in our stores and on our website each week.

Highly effective inventory management system.We have a highly effective inventory management system that enables us to
maximize sales of new release titles and avoid markdowns as titles mature. The system forecasts our inventory requirements on an individual store basis, aggregates our total requirements and manages
the daily replenishment function from our automated distribution centers to our stores. This results in improved in-stock levels in our stores.

Knowledgeable sales associates.We believe that our knowledgeable sales associates, many of whom are avid gamers, and our
higher level of customer service provide us with an important advantage over competitors such as mass merchants, toy retail chains, and office supply, computer product and consumer electronics
superstores. We provide all of our sales associates with training and information on video game and PC entertainment products, system requirements and selling techniques through vendor-sponsored "EB
University" seminars, which are held for store managers and field managers, and through periodic training seminars for our sales associates. We also encourage our sales associates to learn about
customers' game preferences. With this knowledge, sales associates introduce customers to a selection of games and accessories that may suit their preferences and advise them of new releases suited to
their interests, thereby enhancing our customers' overall gaming experience.

Disciplined store operations.Our management team exercises significant control over all aspects of our store operations,
including product research, purchasing, distribution, site selection, store development, Point-of-Sale ("POS") financial reporting and sales training. We believe that this
commitment to operational control enables us to identify opportunities to improve store productivity quickly and to react quickly to shifts in product pricing and consumer purchasing trends. We strive
to increase the productivity of our stores by actively managing our payroll expense and operating our stores as efficiently as possible. In order to display most of our products on our stores'
shelves, we maximize display space on the selling floor by using a combination of tiered and straight shelving. In an effort to enhance our sales conversion rates, in approximately 50% of our stores
we utilize a system, known as ShopperTrak, that electronically measures store customer traffic throughout the day and provides us with an analysis of sales conversion rates by store. We also utilize
our POS reporting systems to assure the best possible match of sales associate floor coverage to customer traffic.

8

---

Value pricing.In an effort to offer maximum value to our customers and discourage comparison shopping, we maintain an
"everyday low price" policy on advertised merchandise. We complement this policy with an extensive selection of merchandise and a high level of customer service. We also offer a pre-played
program which allows customers to save additional money by trading in their used games for credit or cash toward any product sold in our stores. The trade-ins are then resold to other
customers at lower prices than our new products to offer a broader range of products and price choices for our customers.

Pre-played video games.As a result of the proliferation of new titles and the tendency of gamers to seek new
game challenges after mastering a particular title, a growing market for pre-played game titles has evolved. We carry over 1,600 pre-played SKUs in our typical store. We allow
customers to trade in pre-played games in our stores. We believe that the opportunity to trade in games and the availability of pre-played titles in our stores is attractive to
the value conscious gamer and differentiates us from most of our competition, which do not generally accept trade-ins or offer pre-played games. In return for their
trade-ins, customers receive a store credit, which can be applied towards the purchase of new or pre-played products. We also offer cash for trade-ins in most of
our locations. We advertise our trade-in program through numerous in-store promotions and through local and national media outlets. We believe that availability of
pre-played games in our stores attracts our core game enthusiast customer and drives traffic into our stores.

Leadership in e-business.We believe that our customers are generally more familiar with the Internet and with
online retailing than the average consumer. Our website offers over 8,000 new and pre-played SKUs that are available for immediate shipping to our customers. In addition, we have designed
our website to serve our customers by providing product reviews, access to new releases, user-friendly online purchasing and the ability to pre-order video games and PC
entertainment software.

Growth Strategy

New store expansion.We believe that there are domestic and international opportunities for significant new store growth.
Over the last four fiscal years, we have more than doubled our store base from 619 stores at the end of fiscal 2000 to 1,528 stores at the end of fiscal 2004. We plan to open approximately 400 new
stores in fiscal 2005.

Domestic opportunity.We plan to open approximately 300 new stores in fiscal 2005 in the United States. We are continuing our
aggressive expansion in strip and power shopping centers, central business districts and urban areas. We expect our stores in these locations to require lower initial investments, generate higher
gross margins on lower revenue and have a lower operating cost structure than our mall-based stores. These stores, which typically carry a wider assortment of pre-played video
games than our mall-based stores, target the more value conscious gamer.

International opportunity.In fiscal 2002, we began a store expansion program in Europe that included both the opening of new
stores and the acquisition of regional chains. As of January 31, 2004, we operated a total of 378 stores in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway,
South Korea and Sweden. We plan to open approximately 100 new stores in fiscal 2005 in these markets.

The
interactive entertainment industry in Europe is approximately $8.2 billion in size and has consumer demand characteristics similar to the United States market. We believe
retail competition in the interactive entertainment industry is weaker throughout continental Europe than in the United States. There are very few specialty interactive entertainment retail chains in
continental Europe and the existing specialty chains are small and undercapitalized, with little or no investment in distribution and information systems. In Europe, most video games are sold through
general merchandise stores

9

---

that
offer less service and a smaller product selection than our stores. We believe that our store model, merchandising expertise and strong vendor relationships should enable us to gain significant
market share in our targeted continental European markets over the next several years.

Pre-played video games.As a result of the proliferation of new titles and the tendency of gamers to seek new
game challenges after mastering a particular title, a growing market for pre-played game titles has evolved. Pre-played video games have become our fastest growing product
line, as we now carry over 1,600 pre-played SKUs in our typical store. We allow customers to trade in pre-played games in our stores. We believe that the opportunity to trade
in games and the availability of pre-played titles in our stores is attractive to the value conscious gamer and differentiates us from most of our competition, which do not generally
accept trade-ins or offer pre-played games. We believe the growth of our pre-played business will be further enhanced as we continue to focus on establishing stores
in strip-center locations.

Expansion of online retailing.We believe that our core customer tends to be an Internet user, and we strive to meet their
needs through our website,www.EBgames.com, which provides product reviews, access to new release titles, user friendly online purchasing and the
ability to pre-order video games and PC entertainment software.

Retail Operations

As of January 31, 2004, we operated a total of 1,528 stores in the United States, Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto
Rico, South Korea and Sweden, primarily under the names EB Games and Electronics Boutique.

Store formats.Many of our stores are located in high traffic areas in regional shopping malls. As of January 31,
2004, we operated 890 stores under this format in the United States, Canada, Australia and New Zealand. These stores average approximately 1,200 square feet. We believe that our mall-based
stores generate sales per square foot that are among the highest of any mall-based retailer.

In
addition to our mall-based stores, we also operate many stores in strip and power centers, central business districts and urban areas. These stores are generally larger
than our mall-based stores, averaging approximately 1,650 square feet. We began our expansion into these other locations in fiscal 2001, and as of January 31, 2004, we operated 536
stores in the United States and Canada under this format. The remaining 102 stores in operation as of January 31, 2004 are primarily located in Europe and are comprised of multiple formats.

Store economics.The average cost, net of payables, of opening a new mall-based store in fiscal 2004 was
approximately $149,000. This included approximately $124,000 for furniture, fixtures, equipment and leasehold improvements. Pre-opening expenses are minimal and are included in the store's
expenses for the first month of operation.

The
average cost, net of payables, of opening a new strip center store in fiscal 2004 was approximately $90,000. This includes approximately $67,000 for furniture, fixtures, equipment
and leasehold improvements. Pre-opening expenses are minimal and are included in the store's expenses for the first month of operation.

The
cost to open an international store is approximately the same in U.S. dollars as the cost to open a domestic store. Typically, our new stores generate a positive store operating
contribution within the first 12 months of operations. We regularly review the profitability and prospects of each of our stores and evaluate whether any under-performing stores should be
closed or relocated to more desirable locations.

Following
the opening of a store, we utilize inventory management and controls and manage store payroll in an effort to maximize profitability. Our POS and inventory management systems
allow us to

10

---

analyze
merchandise mix and in-stock positions and reduce shrinkage. We also use various payroll management and efficiency systems to improve sales conversions and store profitability.

Store operations.We divide our North American store base (United States, Puerto Rico and Canada) into 12 geographic regions,
which are supervised by our Senior Vice President, President of
StoresNorth America, our Vice President of Store Operations (Canada), Regional Vice Presidents/Directors and District Managers. Our Senior Vice President of International Operations, who
is based in Europe, supervises our international operations other than in Canada. Managing Directors, District Managers and Area Managers supervise our stores in Denmark, Germany, Italy, Norway and
Sweden. A General Manager, Regional Director, District Managers and Area Managers supervise our stores in Australia, New Zealand and South Korea.

Each
of our stores typically has a full-time manager and a full-time assistant manager in addition to hourly sales associates, most of whom work
part-time. The number of hourly sales associates in each store fluctuates depending on our seasonal needs. Our domestic stores are open seven days per week and generally ten hours each
day. We operate our international stores in a manner similar to our domestic stores.

Online Retailing

We launched our e-commerce website,EBworld.com, in August 1997. We changed the name of the
website toEBgames.comin December 2000. Online orders have increased year over year and our e-commerce operating subsidiary has been
profitable since fiscal 2002.

The
Internet represents a complementary channel to our store-based retail business. Our own surveys indicate that our website's detailed product reviews, game previews, new release
schedules, product notification services, industry news and advanced search capabilities appeal to a significant portion of our gamer audience. EBgames.comutilizes our merchandising expertise and
strong vendor relationships to provide online customers with over 8,000 new and
pre-played SKUs that are available for immediate shipping. Further,EBgames.comleverages our distribution and fulfillment capabilities to
provide delivery of new release titles to online consumers on the same day they are available in our stores.

We
believe that Internet broadband technology will play an important role in the future of online retailing. We continue to explore different ways to assume a leadership role in the
online distribution of games. Adoption of this new technology by consumers has been limited to date. However, as adoption of this technology grows and other game delivery technologies emerge, we
expect to actively pursue these opportunities.

Game Group Services Agreement

On January 30, 2004, we terminated the services agreement with Game Group. As part of the agreement to terminate the services agreement, Game Group agreed
to pay us $15.0 million. We
received this payment in February 2004. The termination agreement prohibits us from competing with Game Group in the United Kingdom and Ireland until February 2006. Additional terms of
the agreement prohibit us from entering the French and Spanish markets until February 2005.

Under
the services agreement, Game Group was responsible for the payment of fees equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in
excess of a pre-established target set by Game Group. In fiscal 2004, we received approximately $8.6 million in management fees from Game Group.

11

---

Products

Our product line consists of video game titles, pre-played video games, PC entertainment software titles, video game hardware systems, accessories,
related products, toys and trading cards. Our in-store inventory at any given time averages over 2,100 SKUs.

Video game and PC entertainment software.We carry an average of over 1,500 video game and PC entertainment software SKUs
(excluding pre-played games) at any given time. We purchase video game titles directly from the leading console manufacturers, which include Nintendo, Sony and Microsoft, as well as a
variety of third-party software publishers, such as Electronic Arts Inc., Take-Two Interactive Software, Inc., Activision, Inc., Atari Corp. and THQ Inc. We are
one of the largest domestic customers of video game products sold by these publishers. We currently purchase titles from over 60 vendors across a variety of genres, including Action, Strategy,
Adventure/Role Playing, Simulation, Sports, Children's Entertainment and Family Entertainment. We maintain a broad selection of popular new release titles, which we define as titles that have been
available for less than six weeks from the date of their release.

Pre-played video games and PC entertainment software.As a result of the proliferation of new titles and the
tendency of gamers to seek new game challenges after mastering a particular title, a growing market for pre-played game titles has evolved. We carry over 1,600 pre-played SKUs
in our typical store. We allow customers to trade in pre-played games in our stores. We believe that the opportunity to trade in games and the availability of pre-played titles
in our stores is attractive to the value conscious gamer and differentiates us from most of our competition, which do not generally accept trade-ins or offer pre-played games.
In return for a trade-in, customers receive a store credit, which can be applied towards the purchase of new or pre-played products. We also offer cash for
trade-ins in most of our locations. At our in-house product reclamation center, these trade-ins can be tested, cleaned, relabeled, repackaged and redistributed to
the stores. These
trade-ins are then resold in our stores at a discount to the prices of new releases. Sales of pre-played games generate significantly higher margins than new titles. We believe
that availability of pre-played games in our stores attracts our core game enthusiast customer and drives traffic into our stores.

Video game hardware.We sell the video game hardware systems of all major manufacturers, including Sony's
PlayStation 2, Nintendo's GameCube and Game Boy Advance, Microsoft's Xbox and Nokia's recently launched N-Gage. While we offer the newest technology in video game systems, we also
offer a wide range of the older video game systems through our pre-played program. Our pre-played program affords customers the opportunity to trade in older video game
hardware and software for cash or credit towards the purchase of one of the latest systems or software. We also offer product replacement plans and extensions of manufacturer warranties for the video
game systems.

Accessories.In recent years, the growing popularity of video games has led to an increase in sales of accessory products,
which generally have higher gross margins than hardware and software products. We currently offer approximately 400 accessory product SKUs, including controllers, memory cards, instructional books and
strategy guides for the most popular video game titles.

Related products and trading cards.We offer an assortment of collectible action figures that appeal to our core customers.
In addition, we offer a variety of PC and video gaming magazines, including GMR, a magazine developed last year in collaboration with Ziff-Davis publishers.

Inventory Management and Distribution

Inventory management.We do extensive research prior to the release of new products and titles and carefully manage our
inventory to minimize the risk associated with introducing new products and titles. Our centralized merchandising staff evaluates potential products and analyzes the EB Pre-Sell

12

---

Program
information and other data to estimate initial demand and the projected life cycle for a new release. We then use our new product analyses to plan our initial purchases and allocations among
our stores and website. Through our inventory replenishment system, we forecast and actively manage our ongoing inventory requirements on an individual store and aggregate basis.

Distribution.We currently operate three distribution centers in the United States, including two in West Chester,
Pennsylvania, which focus on separate components of our business. One 80,500 square foot facility in West Chester, Pennsylvania handles staple products and online fulfillment; a second West Chester
facility, 80,000 square feet, handles returns and reclamation. We have entered into an agreement to lease or acquire a new 315,000 square foot distribution facility that is currently being constructed
in Coatesville, Pennsylvania. This new facility is expected to be completed in the Fall of 2004. We plan to consolidate our two current Pennsylvania distribution facilities into the new facility, and
dispose of one of the existing facilities through sale or lease. A 200,000 square foot distribution center in Louisville, Kentucky supports flow-through operations on new releases, top
selling products and online fulfillment. We also operate a 120,000 square foot facility in Canada, a 70,000 square foot facility in Australia and three smaller European facilities in Denmark, Germany
and Italy. During fiscal 2005, we are planning to relocate two of our European distribution centers to larger facilities to accommodate our continued growth in Europe.

These
distribution facilities allow us to replenish our stores on a daily basis supporting our "first-to-market"
new-release strategy. Our rapid processing capability in our distribution centers is facilitated by several advanced inventory management technologies, including paperless picking and
radio frequency support. We also use a warehouse management system in our domestic distribution centers that enables us to better manage labor and freight costs. Our distribution network enables us to
provide immediate delivery service to our online customers.

Marketing

In-store promotions.Our stores are located in high traffic, high visibility areas in regional shopping malls and
strip centers. Accordingly, our marketing efforts at these stores are designed to draw customers into our stores through the use of window displays and other attractions visible to shoppers in the
mall concourse and from the street. We actively publicize our stores through a variety of media, including print, radio and selected local television advertising. Inside all of our stores, we feature
selected products through the use of vendor displays, signs, flyers, point of purchase materials and end-cap displays. A majority of these promotions are funded through advertising
allowances and market development funds from manufacturers, distributors, software publishers and accessory suppliers.

In
January 2003, as a combined effort with Ziff Davis Media, GMR magazine was launched in our North American stores. GMR magazine is a monthly publication providing news and
reviews on the latest products for PC and video gamers. Customers that purchase a ten-month subscription to GMR are eligible to receive a discount on the purchase of pre-played
products in our stores. As of January 31, 2004, we had 657,000 subscribers to GMR magazine.

Freestanding inserts.To broaden our customers' awareness and drive incremental sales, we also publish several full color
vendor-funded freestanding inserts in top newspaper publications through out the United States on an annual basis. Circulation for these inserts ranges from 7 million to over 14 million
depending on the time of year.

Catalogs.We publish several full color catalogs each year ranging in size from 50 to 100 pages. Our vendors fund the cost of
these catalogs. The catalogs are available in our stores and are mailed to thousands of households from our proprietary customer lists. The catalogs are also inserted in leading industry magazines.

13

---

EBgames.com.We believe our online presence and marketing initiatives play a key role in strengthening our brand identity.
Our online marketing initiatives focus on partnering with companies that operate other websites, such as CNET. These initiatives enable us to access the broad reach of the Internet at a low cost. We
also advertise in game focused magazines and online with portals such as AOL and MSN.

Management Information Systems

We use a combination of proprietary and "best of breed" information systems. These tools enable us to analyze total, comparative and new store sales and inventory
data at the company, region, district and store levels. Our replenishment and warehouse management solutions are state of the art. We believe our approach to business systems provides a strategic
advantage by allowing us to make enhancements to meet business opportunities quickly and efficiently. We have integrated customer-counting technology in approximately 50% of our stores with our
centralized systems which give us daily updates of hourly customer traffic and sales conversion information.

Vendors

We purchase substantially all of our products directly from manufacturers and software publishers. Our top 15 vendors accounted for approximately 77% of our
purchases in fiscal 2004. Our largest vendors in fiscal 2004 were Electronics Arts, Nintendo, Sony, Microsoft and Atari, which accounted for 14.4%, 12.6%, 10.9%, 8.4% and 5.1%, respectively, of our
gross purchases. No other vendor accounted for more than 5.0% of our software or accessory purchases during fiscal 2004. We believe that we have good relationships with our vendors. Maintaining and
strengthening these relationships is essential to our operations and continued expansion.

We
participate in marketing programs with each of our key product vendors, including Electronics Arts, Nintendo, Sony, Microsoft and Atari. Under these programs, we are eligible to
receive marketing allowances from product vendors provided we perform certain specified marketing and merchandising events and activities pursuant to the terms of written agreements we negotiate with
our vendors for each event or activity. Typical events or activities are print advertising, television advertising, product catalog advertising, in-store display promotions, Internet
advertising and product training and promotion at our national trade show.

Competition

The interactive entertainment industry is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We
compete with other specialty retailers of video games and PC software, most notably GameStop. We also compete with mass merchants, such as Wal-Mart and Target, toy retail chains, catalogs,
direct sales by software publishers, online retailers and office supply, computer product and consumer electronics superstores such as Best Buy. In addition, video games are available for rental at
many video stores. Further, other methods of distribution may emerge in the future, resulting in increased competition.

Environmental Matters

Under various federal, state and local and foreign environmental laws and regulations, a current or previous owner or occupant of real property may become liable
for fines as well as the costs of removal or remediation of hazardous substances present or generated at the premises, at times without regard to fault. Although we have not been notified of, and are
not aware of, any current environmental liability, claim or non-compliance, it is possible that we may incur fines or remediation costs in the future.

14

---

Trademarks/Registrations

We possess registered trademarks for Electronics Boutique®, EB® and EBX® as well as other registered trademarks and service
marks, both in the United States and in certain foreign jurisdictions. We also have numerous trademark applications pending to
register other proprietary trademarks, including EB Games andEBgames.com,in the United States and in certain foreign jurisdictions.

We
believe our trademarks are valid and valuable and we intend to maintain our trademarks and their related registrations. We do not know of any pending claims of infringement or other
challenges to our right to use our marks in the United States or elsewhere. We have no patents, licenses, franchises or other intellectual property rights that are material to our operations.

Associates

As of January 31, 2004, we had approximately 9,500 non-seasonal associates. Approximately 4,000 were employed on a part-time basis,
and 1,300 were employed on a temporary basis. In addition, during the calendar 2003 peak holiday shopping season, we hired approximately 1,300 temporary associates. We believe that our relationship
with our associates is good. None of our associates are represented by a labor union or are member of a collective bargaining unit.

Code of Ethics

We have adopted a code of ethics, the Code of Ethical Conduct for Officers, Directors and Associates of Electronics Boutique, which applies to our Chief Executive
Officer, Chief Financial Officer, Controller, all other employees of Electronics Boutique and each of the members of our Board of Directors. The Code of Ethical Conduct was approved by our Audit
Committee in December 2003 and ratified by our Board of Directors in April 2004. Our Code of Ethical Conduct is included as an exhibit to this Annual Report on
Form 10-K, and we intend to post it on our website, which is located atwww.EBholdings.com.We will also disclose any amendments or
waivers to our Code of Ethical Conduct on our website.

Item 1A. Executive Officers of the Company

Set forth below is information regarding the executive officers of the Company:

|Name                 |  | Age |  | Position                                                                                                  
|-------------------- |  | --- |  | ----------------------------------------------------------------------------------------------------------
|Jeffrey W. Griffiths |  | 53  |  | President, Chief Executive Officer and Director                                                           
|John R. Panichello   |  | 42  |  | Executive Vice President and Chief Operating Officer                                                      
|James A. Smith       |  | 48  |  | Senior Vice President, Chief Financial Officer and Secretary                                              
|Seth P. Levy         |  | 46  |  | Senior Vice President, Logistics and Chief Information Officer; President, EB Games Online                
|Steven R. Morgan     |  | 52  |  | Senior Vice President, President of StoresNorth America and President of Electronics Boutique Canada Inc.

15

---



Mr. Griffiths has served as the President and Chief Executive Officer of Electronics Boutique and a Class I Director since June 2001. Prior thereto, he served as
Senior Vice President of Merchandising and Distribution from March 1998 to June 2001. Mr. Griffiths served as Senior Vice President of Merchandising and Distribution of EB, our
predecessor, from March 1996 to March 1998. From March 1987 to February 1996, Mr. Griffiths served as Vice President of Merchandising of EB, and from
April 1984 to February 1987 he served as Merchandise Manager. Since October 2003, Mr. Griffiths has been a member of the Board of Trustees of Albright College.

Mr. Panichello
has served as Executive Vice President and Chief Operating Officer since April 2002. Prior thereto, Mr. Panichello served as Senior Vice President,
Chief Operating Officer, President of EB GameWorld and BC Sports Collectibles (a former division of Electronics Boutique) and Secretary of Electronics Boutique from June 2001 to
April 2002. Mr. Panichello served as Senior Vice President, Chief Financial Officer, President of EB GameWorld and BC Sports Collectibles and Secretary of Electronics Boutique from
June 2000 to June 2001. Mr. Panichello served as Senior Vice President, Chief Financial Officer, President of BC Sports Collectibles and Secretary of Electronics Boutique from
March 1998 to June 2000. Mr. Panichello served as the Senior Vice President of Finance of EB and the President of the BC Sports Collectibles division from March 1997 to
February 1998. Mr. Panichello served as EB's Vice President of Finance and Treasurer from June 1994 to February 1997. Mr. Panichello served as a director of Game
Group from May 1995 to November 1999. Mr. Panichello is a Certified Public Accountant. Mr. Panichello is the husband of Susan Y. Kim and the
son-in-law of James J. Kim. Mr. Panichello serves on the Board of Directors of the Interactive Entertainment Merchants Association.

Mr. Smith
has served as Senior Vice President, Chief Financial Officer and Secretary since June 2001. Prior thereto, Mr. Smith served as Senior Vice President of
Finance of Electronics Boutique from August 2000 to June 2001. Mr. Smith served as Electronics Boutique's Vice President-Finance from May 1998 to August 2000. From
1996 to 1998, Mr. Smith served as Vice President and Controller of EB, our predecessor, and from 1993 to March 1996, he served as Controller of EB.

Mr. Levy
has served as Senior Vice President, Logistics, Chief Information Officer and the President of EB Games Online since June 2001. From March 1999 to
June 2001, Mr. Levy served as Senior Vice President, Chief Information Officer and the President of EB Games Online. From February 1997 to March 1999, Mr. Levy
served as the Vice President and Chief Information Officer. From 1991 to February 1997, Mr. Levy served as the Director of System Development for the May Merchandising and May Department
Stores International divisions of May Department Stores.

Mr. Morgan
has served as Senior Vice President, President of StoresNorth America and President of Electronics Boutique Canada Inc. since April 2002.
Prior thereto, Mr. Morgan served as
Senior Vice President of Stores of Electronics Boutique and Canadian Operations from June 2001 to April 2002. Mr. Morgan served as Senior Vice President of Stores of Electronics
Boutique from January 2001 to June 2001. From May 1998 to January 2001, Mr. Morgan served as President and Chief Executive Officer of Millennium
Futures, Inc., a commodity trading company. From July 1996 to May 1998, he served as Senior Vice President, Director of Stores at Filene's Department Stores. From May 1988
to July 1996, he served as Regional Vice President at Filene's Department Stores.

Item 2. Properties

Store leases.All of our stores are leased. As of January 31, 2004, we had 1,528 stores. In general, our
mall-based leases have terms of seven to ten years. Our strip and power center locations typically have initial terms of five to seven years with at least one or more renewal options.

Headquarters and distribution centers.We own our 140,000 square foot headquarters in West Chester, Pennsylvania. This
building includes an 80,500 square foot distribution center. In addition, we own an adjacent 80,000 square foot distribution facility. We have entered into an agreement to lease or

16

---

acquire
a new 315,000 square foot distribution facility that is currently being constructed in Coatesville, Pennsylvania. This new facility is expected to be completed in the Fall of 2004. We plan to
consolidate our two current Pennsylvania distribution facilities into the new facility, and dispose of one of the existing facilities through sale or lease. We lease a 200,000 square foot distribution
center in Louisville, Kentucky. This lease expires in May 2005. In Brampton, Ontario, Canada, we own a 120,000 square foot distribution and office facility. In Pinkenba, Queensland, Australia,
we own a 70,000 square foot distribution and office facility. We also lease small distribution facilities in Denmark, Germany and Italy. In fiscal 2005, we are planning to relocate two of our European
distribution centers to larger facilities to accommodate our continued growth in Europe.

Customer service call center.We lease a 12,172 square foot customer service telephone call center in Las Vegas, Nevada, from
which we respond to inquiries regarding our products. The lease expires in June 2009.

Item 3. Legal Proceedings

We are involved from time to time in legal proceedings arising in the ordinary course of our business. In February 2003, our affiliates, The Electronics
Boutique, Inc. and EB Services Company, LLP, prevailed in the appeal of a civil lawsuit brought against those companies by Game Group. Game Group filed the appeal in October 2002 after
judgment was entered against it in the trial of the matter.

On
December 3, 2003, a subsidiary of ours was served with a complaint in a proposed class action suit entitled "Chalmers v. Electronics Boutique of America Inc." in the
California Superior Court in Los Angeles County. The suit alleges that Electronics Boutique of America Inc. improperly classified store management employees as exempt from the overtime
provisions of California wage-and-hour laws and seeks recovery of wages for overtime hours worked and related relief. We intend to vigorously defend this action and believe
that it is not material to our financial position. An adverse outcome in this action may, however, have a material adverse effect on our results of operations in the period in which a judgment, if
any, is rendered.

In
the opinion of management and except as described above, no pending proceedings could have a material adverse effect on our results of operation or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

None.

17

---

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock was first traded publicly on July 28, 1998. The stock is quoted on the NASDAQ National Market under the symbol ELBO. The table below
represents the high and low bid prices of our common stock as reported by NASDAQ.

Fiscal 2004

Fiscal 2003Low

High

Low

HighFirst fiscal quarter

$
11.96

$
19.57

$
28.03

$
38.55Second fiscal quarter


18.08


27.42


21.30


32.24Third fiscal quarter


24.77


34.80


21.02


29.38Fourth fiscal quarter


19.60


28.07


13.10


31.81


Such
quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily reflect actual transactions.

As
of April 8, 2004, we had 42 shareholders of record (including Cede & Co., the nominee for Depository Trust Company, a registered clearing agency) of the 24,397,434
issued and outstanding shares of our common stock. On April 8, 2004, the last reported sale price for our common stock as quoted by NASDAQ was $29.20 per share.

To
date, we have not paid any dividends on our common stock and we have no plans to do so in the future. Under certain circumstances, our credit facility with Fleet Capital restricts us
from paying dividends to our stockholders.

Item 6. Selected Financial Data

The following table sets forth for the periods indicated selected financial and other data, which has been derived from our consolidated financial statements.
This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of

18

---

Operations"
and the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.

|                                                                                         |         | Year Ended |          
|---------------------------------------------------------------------------------------- | ------- | ---------- | ---------
|
|
|Statement of Income Data:                                                                |         |            |          
|Net sales                                                                                |         | $          | 1,588,406
|Management fees(1)                                                                       |         |            | 13,375   
|                                                                                         |         |            |          
|Total revenues                                                                           |         |            | 1,601,781
|Cost of goods sold                                                                       |         |            | 1,174,429
|                                                                                         |         |            |          
|Gross profit                                                                             |         |            | 427,352  
|Selling, general and administrative expense                                              |         |            | 328,577  
|Restructuring and asset impairment (reversal) charge(2)                                  |         |            |         
|Depreciation and amortization                                                            |         |            | 27,894   
|                                                                                         |         |            |          
|Operating income                                                                         |         |            | 70,881   
|Other income                                                                             |         |            |         
|Interest income, net                                                                     |         |            | 1,751    
|                                                                                         |         |            |          
|Income before income tax expense and cumulative effect of change in accounting principle |         |            | 72,632   
|Income tax expense                                                                       |         |            | 26,903   
|                                                                                         |         |            |          
|Income before cumulative effect of change in accounting principle                        |         |            | 45,729   
|Cumulative effect of change in accounting principle, net of tax(3)                       |         |            |         
|                                                                                         |         |            |          
|Net income                                                                               |         | $          | 45,729   
|                                                                                         |         |            |          
|Income per share before cumulative effect of change in accounting principle:             |         |            |          
|                                                                                         | Basic   |            | $        
|                                                                                         |         |            |          
|                                                                                         | Diluted |            | $        
|                                                                                         |         |            |          
|Per share cumulative effect of change in accounting principle:                           |         |            |          
|                                                                                         | Basic   |            |          
|                                                                                         |         |            |          
|                                                                                         | Diluted |            |          
|                                                                                         |         |            |          
|Net income per share:                                                                    |         |            |          
|                                                                                         | Basic   |            | $        
|                                                                                         |         |            |          
|                                                                                         | Diluted |            | $        
|                                                                                         |         |            |          
|Weighted average shares outstanding:                                                     |         |            |          
|                                                                                         | Basic   |            |          
|                                                                                         |         |            |          
|                                                                                         | Diluted |            |          
|                                                                                         |         |            |          
|                                                                                         |         |            |          

19

---

|Operating Data:                               |  |  |       |   |  |       |   |  |      |   |  |      |    |  |      |  
|--------------------------------------------- |  |  | ----- | - |  | ----- | - |  | ---- | - |  | ---- | -- |  | ---- | -
|(4) (unaudited)                               |  |  |       |   |  |       |   |  |      |   |  |      |    |  |      |  
|Stores open at end of year                    |  |  | 1,528 |   |  | 1,145 |   |  | 937  |   |  | 737  |    |  | 619  |  
|Comparable store sales increase (decrease)(5) |  |  | 0.0   | % |  | 8.3   | % |  | 20.8 | % |  | (4.5 | )% |  | 11.6 | %

|                     |  | As of
|-------------------- |  | -----
|
|Balance Sheet Data:  |  |      
|Working capital      |  | $    
|Total assets         |  |      
|Long-term debt       |  |      
|Total liabilities    |  |      
|Stockholders' equity |  |      

---

20

---



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are the world's largest specialty retailer of video game hardware and software, PC entertainment software, pre-played video games and related
accessories and products. As of January 31, 2004, we operated a total of 1,528 stores in 46 states, Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto Rico, South Korea and
Swedenprimarily under the names EB Games and Electronics Boutique. In addition, we operated a commercial website under the URL address
www.EBgames.com. We operate in the interactive entertainment industry and are headquartered in West Chester, Pennsylvania. We are a holding company and
do not have any significant assets or liabilities, other than all of the outstanding capital stock of our subsidiaries. Our fiscal year ends on the Saturday nearest January 31.

In
fiscal 2004, we established company records for revenues, net income and store growth. In addition, we increased our market share while outpacing our industry and strengthened our
presence in international markets. Our comparable store sales for fiscal 2004 were even with last year. While we experienced negative comparable store sales in our domestic mall-based
stores for the year, these results were more than offset by strong, double-digit increases in both our strip-center stores and our international locations. Our success in fiscal 2004 was driven
primarily by a significant increase in software sales, which in turn was the result of an increase in the installed hardware base. Our store growth focused on establishing locations in strip-centers,
which enable us to compete with mass merchants and build our pre-played business, and continuing our international expansion. Additionally, in fiscal 2004 we continued to
re-brand our stores to EB Games, further strengthening our brand identity.

Our
success has been, and will continue to be, contingent upon our ability to understand trends in our industry and to manage our business in response to these trends. For example, the
interactive entertainment industry is cyclical as new technology is generally introduced every four to five years. We have historically achieved strong market share in the first few years of these
cycles and then experienced subsequent declines as product prices fell and mass market retailers attracted consumers at the latter part of the cycle. Our current strategy to retain market share has
been to expand our
business through the opening of strip-center stores, which we believe attract the value conscious consumers that previously shopped through the mass market retail channel. Additionally, to increase
profitability in all of our locations, we are focused on expanding our pre-played business and new ways to drive sales of new titles. Our success is dependent upon our ability to continue
to grow the business in a profitable manner.

Management
reviews several key indicators to evaluate our performance in achieving profit and sales growth. Sales growth is evaluated by measuring contributions generated from new store
expansion and changes in comparable store sales. In addition, we measure our sales performance by analyzing changes in our market share relative to the overall industry. Gross margin is monitored for
the impact of product mix as well as inventory obsolescence and losses. Product mix shifts throughout each industry cycle with lower margin hardware sales declining as a percentage of total sales
while higher margin software sales increase. A prime driver of this shift has been the continual growth of the installed hardware base, which increased in calendar 2003 by 59% to approximately
57 million units in the United States. We also review the growth of pre-played sales in relation to our total sales mix, as these pre-played sales are one of our higher
margin categories.

On
January 30, 2004, we terminated our services agreement with Game Group Plc. (formerly The Electronics Boutique Plc.) for an agreed upon amount of $15.0 million. Prior to
termination, we provided management services to Game Group and received fees equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in excess of a
pre-established target set by Game Group. The termination agreement prohibits us from competing with Game Group in the

21

---

United
Kingdom and Ireland until February 2006 and in France and Spain until February 2005. Game Group may not compete with us in Germany and Italy until February 2005.

We
have a positive outlook for fiscal 2005. We plan to open approximately 400 stores during the next fiscal year. 300 of these are expected to be strip-center stores based in North
America and the remaining stores will be predominantly based outside the United States. We anticipate funding this store expansion with cash on hand and cash generated from operations. We expect to
continue our strong software sales as hardware prices decrease, and continue to strengthen our pre-played business through our increased presence in strip-center locations.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Our results may differ from those estimates. Our significant accounting
policies can be found in Note 1 to our consolidated financial statements. We consider the following policies to be most critical to the portrayal of our financial condition and results of
operations.

Inventory Valuation

Our merchandise inventory, which includes new and pre-played video game hardware and software as well as PC entertainment software and related
accessories and products, is valued at the lower of cost or market. The cost is determined principally by a weighted-average method. The weighted-average cost method attaches a cost to each stock
keeping unit ("SKU"), and is a blended average of the original purchase price and those of subsequent purchases or other cost adjustments throughout the life cycle of that SKU. We include an
allocation of costs incurred to refurbish pre-played products in order to prepare them for resale in the cost of our merchandise inventory.

Inherent
in the video game business is the risk of obsolete inventory. As each new generation of products is introduced, demand for the prior generation decreases, reducing the interest
in and value of the older games. Some vendors offer us credit to reduce the cost of products that are selling more slowly allowing for a reduction in the selling price and reducing the possibility
that these items become obsolete. We monitor the aging of our inventory by item and provide a reserve for products that are considered "slow moving", using an established formula based on current
inventory and a trailing sales history. We also monitor the difference between the selling ("market") price of each item and its cost and provide a reserve for any inventory selling below cost.

We
perform regular physical inventories and cycle counts in both our stores and distribution centers to adjust inventory balances and account for shrink and damaged product. An accrual
for estimated loss is recorded between the timing of these counts.

Reserves
of $3.9 million and $2.9 million were recorded against inventory as of January 31, 2004 and February 1, 2003, respectively. Management believes its
inventory valuation system results in carrying inventory at the lower of cost or market.

Revenue Recognition and Related Policies

We derive revenue primarily from two sources: (i) product revenue, which includes the retail sale of merchandise inventory, warranties, subscriptions, and
shipping and handling fees and (ii) management services revenue. Sales are recorded net of estimated amounts for sales returns and other allowances. On January 30, 2004, we terminated
our services agreement with Game Group

22

---

initially
established in fiscal 1996. As a result, management services will no longer be a source of revenue for us starting in fiscal 2005

Retail
sales are recognized as revenue at the point of sale. Mail order and Internet sales are recognized as revenue upon delivery to and acceptance by the customer. Revenues from
shipping and handling are recorded in revenue and recognized upon shipment. Warranty revenue is amortized over the life of the warranty contract. Magazine subscription revenue is recognized over the
life of the subscription.

We
also engage in the sale, purchase and trading of pre-played video game products. Effective in the second quarter of fiscal 2003, we changed our statement of income
classification for pre-played merchandise trade-in activity to be consistent with industry practice. Previously, we recorded a reduction to both revenue and cost of goods sold
for the cost of the pre-played merchandise accepted for trade. The reclassification of these transactions increased both revenues and cost of goods sold by $50.1 million for the
fifty-two week period ended February 2, 2002. There was no impact on operating income or net income for any period as a result of this reclassification.

Revenues
for management services are recorded as earned. In fiscal 2004, management fees were derived from service agreements with Game Group and Sports Collectibles Acquisition Company
("SCAC") as well as $4.7 million earned as part of our termination of the services agreement with Game Group. We received $15.0 million from Game Group as part of the settlement for
terminating the agreement. Based on an independent analysis, the covenants not to compete with Game Group in the United Kingdom, Ireland, France and Spain were determined to have a value equal to
$10.3 million, which was recorded as deferred revenue. Based on the terms of these covenants, $5.8 million and $4.5 million will be recognized as income in fiscal 2005 and fiscal
2006, respectively.

Income Taxes

We are subject to federal, state and local income tax in many jurisdictions in the United States as well as internationally. Income taxes are calculated in
accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the use of the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and
interpretations of enacted tax law and published guidance with respect to applicability to our operations. Significant examples of this concept include capitalization policies for various tangible and
intangible costs, income and expense recognition and inventory valuation methods. We must also assess the likelihood that our deferred tax assets will be recovered from our future taxable income. To
the extent we believe that recovery is unlikely, we are required to establish valuation allowances. We established valuation allowances of $352,000 and $546,000 as of January 31, 2004 and
February 1, 2003, respectively, due to uncertainties related to our ability to utilize the net operating loss carryforwards of certain foreign subsidiaries. Future tax expense may be impacted
by this judgment. As of January 31, 2004, we have recorded $4.2 million of deferred tax assets related to net operating loss carryforwards for which no valuation allowance is recorded.

Valuation of Long-Lived and Intangible Assets and Goodwill

We assess the impairment of identifiable intangibles and long-lived assets to determine if any part of the carrying value may not be recoverable.
Factors we consider important when assessing impairment include:



23

---



When
we determine that the carrying value of an identifiable intangible or long-lived asset may not be recoverable based on one or more of these factors, we test for
impairment to determine if an impairment charge is required.

Goodwill
is tested annually for impairment. We use a two-step impairment assessment to determine if an impairment charge is required. The first step of the goodwill
impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting
unit is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss if any. After completing our annual goodwill impairment test for fiscal 2004, no impairment was required.

Net
intangible assets, long-lived assets and goodwill amounted to $144.1 million and $122.0 million as of January 31, 2004 and February 1, 2003,
respectively. See Note 14 to the consolidated financials statements for more details.

Change in Accounting Principle

In November 2002, the Emerging Issues Task Force ("EITF") reached consensus on Issue 02-16, "Accounting by a Customer (Including a Reseller)
for Cash Consideration Received from a Vendor." Issue 02-16 addresses the accounting for cash consideration received from a vendor by a reseller for various vendor funded allowances,
including cooperative advertising support. Issue 02-16 is effective for new arrangements or modifications to existing arrangements entered into after December 31, 2002, although
early adoption is permitted. We elected to adopt early, effective February 3, 2002, the provisions of Issue 02-16. In accordance with the provisions of Issue 02-16,
vendor advertising allowances which exceed specific, incremental and identifiable costs incurred in relation to the advertising and promotional events we conduct for our vendors are to be classified
as a reduction in the purchase price of merchandise and recognized in income as the merchandise is sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined by
calculating the ratio of vendor allowances in excess of specific, incremental and identifiable advertising and promotional costs to merchandise purchases. We then applied this ratio to the value of
inventory in determining the amount of the
vendor reimbursements to be recorded as a reduction to inventory reflected on the balance sheet. This methodology resulted in a $7.6 million reduction in inventory as of February 3,
2002, the date of adoption of Issue 02-16. The $7.6 million, $4.8 million net of tax, was recorded as a cumulative effect of change in accounting principle in fiscal 2003 for
the impact of this adoption on prior fiscal years.

As
of January 31, 2004 and February 1, 2003, $10.8 million and $10.0 million, respectively, of our vendor advertising allowances have been recorded as a
reduction of inventory.

24

---

The
following table reflects the vendor allowances received and how they were classified in the consolidated financial statements (actual and pro forma for the change in accounting
principle) for fiscal 2004, fiscal 2003 and fiscal 2002:

|                                                                            |  | Fiscal
2004 |         | Fiscal
2003 |   | Fiscal
2002 |  
|--------------------------------------------------------------------------- |  | ----------- | ------- | ----------- | - | ----------- | -
|
|Actual                                                                      |  |             |         |             |   |             |  
|Total vendor allowances                                                     |  | $           | 63,979  |             | $ | 54,116      |  
|Gross profit                                                                |  | $           | 427,352 |             | $ | 345,575     |  
|Percent to total revenues                                                   |  |             | 26.7    | %           |   | 26.2        | %
|Amount classified as reduction in cost of goods sold                        |  | $           | 49,421  |             | $ | 42,925      |  
|Percent to total revenues                                                   |  |             | 3.1     | %           |   | 3.3         | %
|Amount classified as reduction in selling, general & administrative expense |  | $           | 13,704  |             | $ | 8,829       |  
|Percent to total revenues                                                   |  |             | 0.9     | %           |   | 0.7         | %
|Amount classified as a reduction in merchandise inventory                   |  | $           | 10,842  |             | $ | 9,989       |  
|Pro forma                                                                   |  |             |         |             |   |             |  
|Gross profit                                                                |  |             |         |             |   |             |  
|Percent to total revenues                                                   |  |             |         |             |   |             |  
|Amount classified as reduction in cost of goods sold                        |  |             |         |             |   |             |  
|Percent to total revenues                                                   |  |             |         |             |   |             |  
|Amount classified as reduction in selling, general & administrative expense |  |             |         |             |   |             |  
|Percent to total revenues                                                   |  |             |         |             |   |             |  
|Amount classified as a reduction in merchandise inventory                   |  |             |         |             |   |             |  

Prior
to our adoption of Issue 02-16, we recognized all vendor advertising allowances as an offset to selling, general and administrative expense. These allowances exceeded
the specific, incremental costs of the advertising and promotional events conducted by us. The portion of the allowances in excess of the specific, incremental costs was recorded as an offset to other
operating expenses within selling, general and administrative expense. These other operating expenses, which were incurred to support advertising and promotional expenses, included: marketing and
merchandising department expenses to develop, promote and manage the events; direct store and store supervisory payroll expenses to implement, manage and monitor the events; distribution expenses
associated with receiving and shipping of materials necessary for the events; and corporate expenses related to the design, production and maintenance of Internet advertising events.

25

---

The
following pro forma financial information for fiscal 2002 reflects the impact of Issue 02-16 as if it had been adopted prior to fiscal 2002:

Consolidated Statements of Income
(Amounts in thousands, except per share amounts)

|                                            |  | As reported
Fiscal
2002(1) |           | Pro forma
Fiscal
2002
|------------------------------------------- |  | -------------------------- | --------- | ---------------------
|Net sales                                   |  | $                          | 1,059,338 |                      
|Management fees                             |  |                            | 5,889     |                      
|                                            |  |                            |           |                      
|Total revenues                              |  |                            | 1,065,227 |                      
|Cost of goods sold                          |  |                            | 826,599   |                      
|                                            |  |                            |           |                      
|Gross profit                                |  |                            | 238,628   |                      
|Costs and expenses:                         |  |                            |           |                      
|Selling, general and administrative expense |  |                            | 179,464   |                      
|Restructuring and asset impairment charge   |  |                            | 12,638    |                      
|Depreciation and amortization               |  |                            | 19,750    |                      
|                                            |  |                            |           |                      
|Operating income                            |  |                            | 26,776    |                      
|Interest income, net                        |  |                            | 1,884     |                      
|                                            |  |                            |           |                      
|Income before income taxes                  |  |                            | 28,660    |                      
|Income tax expense                          |  |                            | 10,948    |                      
|                                            |  |                            |           |                      
|Net income                                  |  | $                          | 17,712    |                      
|                                            |  |                            |           |                      
|Net income per share:                       |  |                            |           |                      
|Basic                                       |  | $                          | 0.74      |                      
|                                            |  |                            |           |                      
|Diluted                                     |  | $                          | 0.73      |                      
|                                            |  |                            |           |                      
|Weighted average shares outstanding:        |  |                            |           |                      
|Basic                                       |  |                            | 23,868    |                      
|                                            |  |                            |           |                      
|Diluted                                     |  |                            | 24,230    |                      
|                                            |  |                            |           |                      
|Selected Balance Sheet information:         |  |                            |           |                      
|Merchandise inventories                     |  | $                          | 149,792   |                      
|Total stockholders' equity                  |  |                            | 237,160   |                      

---

26

---

Results of Operations

The following table sets forth certain statement of income items as a percentage of total revenues for the periods indicated:

|                                                                                         |  | Fiscal
2004 |   | Fiscal
2003 |   | Fiscal
2002 |  
|---------------------------------------------------------------------------------------- |  | ----------- | - | ----------- | - | ----------- | -
|Net sales                                                                                |  | 99.2        | % | 99.4        | % | 99.4        | %
|Management fees                                                                          |  | 0.8         |   | 0.6         |   | 0.6         |  
|                                                                                         |  |             |   |             |   |             |  
|Total revenues                                                                           |  | 100.0       |   | 100.0       |   | 100.0       |  
|Cost of goods sold                                                                       |  | 73.3        |   | 73.8        |   | 77.6        |  
|                                                                                         |  |             |   |             |   |             |  
|Gross profit                                                                             |  | 26.7        |   | 26.2        |   | 22.4        |  
|Selling, general and administrative expense                                              |  | 20.5        |   | 20.3        |   | 16.8        |  
|Restructuring and asset impairment (reversal) charge                                     |  |            |   | (0.2        | ) | 1.2         |  
|Depreciation and amortization                                                            |  | 1.8         |   | 1.7         |   | 1.9         |  
|                                                                                         |  |             |   |             |   |             |  
|Operating income                                                                         |  | 4.4         |   | 4.4         |   | 2.5         |  
|Interest income, net                                                                     |  | 0.1         |   | 0.1         |   | 0.2         |  
|                                                                                         |  |             |   |             |   |             |  
|Income before income tax expense and cumulative effect of change in accounting principle |  | 4.5         |   | 4.5         |   | 2.7         |  
|Income tax expense                                                                       |  | 1.6         |   | 1.7         |   | 1.0         |  
|                                                                                         |  |             |   |             |   |             |  
|Income before cumulative effect of change in accounting principle                        |  | 2.9         |   | 2.8         |   | 1.7         |  
|Cumulative effect of change in accounting principle, net of tax                          |  |            |   | (0.3        | ) |            |  
|                                                                                         |  |             |   |             |   |             |  
|Net income                                                                               |  | 2.9         | % | 2.5         | % | 1.7         | %
|                                                                                         |  |             |   |             |   |             |  

Fiscal 2004 Compared to Fiscal 2003

Net sales increased 21.3% from $1,309.2 million in fiscal 2003 to $1,588.4 million in fiscal 2004. The increase in net sales was primarily
attributable to the sales volume of approximately $138.6 million resulting from 399 new stores opened during fiscal 2004, coupled with a favorable foreign currency exchange rate impact of
$42.5 million on comparable store sales in fiscal 2004. Overall comparable store sales for fiscal 2004 were even to last year as increases in comparable store sales for our strip-center
locations offset decreases in comparable store sales for our mall-based stores. Our net comparable store sales results compare favorably to the United States interactive entertainment
industry, which experienced a decline of 2.1% in fiscal 2004. Net sales from the BC Sports Collectibles and EB Kids stores for fiscal 2003 was $13.5 million.

Management
fees increased 77.1% from $7.6 million in fiscal 2003 to $13.4 million in fiscal 2004. The increase was primarily due to $4.7 million of fees earned in
connection with our termination of the services agreement with Game Group. An increase in Game Group's sales and a more favorable currency exchange rate between the British pound and U.S. dollar in
fiscal 2004 accounted for the remainder of the increase.

Cost
of goods sold increased 20.9% from $971.2 million in fiscal 2003 to $1,174.4 million in fiscal 2004. As a percentage of net sales, cost of goods sold decreased from
74.2% in fiscal 2003 to 73.9% in fiscal 2004. This decrease, as a percentage of net sales, was primarily due to a shift in business from lower margin hardware products to higher margin software
products, offset, in part, by a decrease in vendor allowances recognized in cost of goods sold. Cost of goods sold does not include purchasing and distribution center operating expenses of
approximately $17.6 million in fiscal 2004 and $15.3 million in fiscal 2003, which are included in selling, general and administrative expense. Accordingly, our cost of

27

---

goods
sold may not be comparable to the cost of goods sold of other retailers. Cost of goods sold from the BC Sports Collectibles and EB Kids stores for fiscal 2003 was $9.6 million.

Selling,
general and administrative expense increased 22.8% from $267.6 million in fiscal 2003 to $328.6 million in fiscal 2004. The increase is primarily due to expenses
associated with a larger domestic and international store base and the associated increases in store expenses of $51.3 million and headquarter expenses of $8.5 million. As a percentage
of total revenues, selling, general and administrative expense increased from 20.3% in fiscal 2003 to 20.5% in fiscal 2004. This increase was primarily due to expenses associated with opening 399 new
stores in fiscal 2004. Selling, general and administrative expense from the BC Sports Collectibles and EB Kids stores for fiscal 2003 was $6.9 million.

We
had a net reversal of $2.6 million of the restructuring and asset impairment charge in fiscal 2003 resulting from our adoption of a plan in fiscal 2002 to close the operations
of all 29 EB Kids stores and sell the 22-store BC Sports Collectibles business. The reversal was primarily related to store lease related accruals that were not necessary due to the terms
of the sale of the BC Sports Collectibles business.

Depreciation
and amortization expense increased 23.8% from $22.5 million in fiscal 2003 to $27.9 million in fiscal 2004. The increase was primarily due to capitalized
expenditures for leasehold improvements and furniture and fixtures for new store openings and the remodeling of existing stores, and fixtures, equipment and computer software at corporate headquarters
and existing distribution centers.

Operating
income increased 22.0% from $58.1 million in fiscal 2003 to $70.9 million in fiscal 2004. As a percentage of total revenues, operating income was 4.4% in both
fiscal 2004 and fiscal 2003. Excluding the $2.6 million net reversal of the restructuring and asset impairment charge in fiscal 2003, operating income would have been $55.5 million, or
4.2% of total revenues in fiscal 2003. Due to favorable foreign exchange rates and continued growth in our international operations, the percentage of the foreign contribution to operating income
increased from 14.7% in fiscal 2003 to 42.2% in fiscal 2004. Operating loss from the BC Sports Collectibles and EB Kids stores for fiscal 2003 was $0.5 million.

Income
tax expense increased 20.2% from $22.4 million in fiscal 2003 to $26.9 million in fiscal 2004. As a percentage of income before income tax expense, income tax
expense decreased from 37.4% in fiscal 2003 to 37.0% in fiscal 2004. Our effective tax rate decreased from the prior year principally as a result of an increase in operations in foreign jurisdictions
that have lower tax rates than the United States.

Fiscal 2003 Compared to Fiscal 2002

Net sales increased 23.6% from $1,059.3 million in fiscal 2002 to $1,309.2 million in fiscal 2003. The increase in net sales was primarily
attributable to the additional sales volume from 270 new stores, approximately $102.0 million, opened during fiscal 2003 and a comparable store sales increase of 8.3%, or $84.8 million.
The increase was driven by continuing strong sales of Sony's PlayStation 2 software, as well as a full year of sales from Nintendo's GameCube and Microsoft's Xbox which were introduced in
November 2001, and Nintendo's Game Boy Advance which was introduced in June 2001.

Management
fees increased 28.3% from $5.9 million in fiscal 2002 to $7.6 million in fiscal 2003. The increase in management fees earned in fiscal 2003 was primarily due to
an increase in Game Group's sales along with a more favorable currency exchange rate between the British pound and U.S. dollar in fiscal 2003. In addition we earned $150,000 in management fees from
SCAC in fiscal 2003.

Cost
of goods sold increased 17.5% from $826.6 million in fiscal 2002 to $971.2 million in fiscal 2003. As a percentage of net sales, cost of goods sold decreased from
78.0% in fiscal 2002 to 74.2% in

28

---

fiscal
2003. This decrease in cost of goods sold, as a percentage of net sales, was partially due to a reclassification of $42.9 million, or 3.3% of net sales, of fiscal 2003 vendor advertising
allowances from selling, general and administrative expense in connection with our change in accounting policy. The balance of the decrease was primarily attributable to the shift in sales from lower
margin hardware to higher margin software of 0.7% and reduced freight costs of 0.3%. These improvements were partially offset by a decrease in sales of higher margin PC product accounting for 0.3%.
Cost of goods sold does not include purchasing and distribution center operating costs of approximately $15.3 million in fiscal 2003 and $13.9 million in fiscal 2002, which are included
in selling, general and administrative expense. Accordingly, our cost of goods sold may not be comparable to the cost of goods sold of other retailers.

Selling,
general and administrative expense increased 49.1% from $179.5 million in fiscal 2002 to $267.6 million in fiscal 2003. Of the $88.1 million increase,
$45.3 million, or 3.4% of total revenues, was attributable to the reclassification of vendor advertising allowances in connection with our change in accounting policy. The remaining
$42.8 million of the increase was due to the increase in our domestic and international stores base and the associated increases in store expenses of $35.5 million and headquarter
expenses of $7.9 million, which was partially offset by an increase in net promotional and marketing reimbursements of $1.3 million prior to the reclassification. As a percentage of
total revenues, selling, general and administrative expense increased from 16.8% in fiscal 2002 to 20.3% in fiscal 2003.

Depreciation
and amortization expense increased 14.0% from $19.8 million in fiscal 2002 to $22.5 million in fiscal 2003. The increase was primarily attributable to
capitalized expenditures for leasehold improvements and furniture and fixtures for new store openings, remodeling of existing stores, and capital improvements, furniture and fixtures and computer
software at corporate headquarters.

In
fiscal 2002, the restructuring and asset impairment charge of $12.6 million resulted from our adoption of a plan to close the operations of all 29 EB Kids stores and sell the
22-store BC Sports Collectibles business. The charge represents a $3.5 million write down of store leasehold improvements, a $2.3 million write down of store furniture,
fixtures and equipment and $6.7 million in lease termination costs. In fiscal 2003, the $2.6 million net reversal of the restructuring and asset impairment charge resulted primarily from
store lease related accruals that were not necessary due to the terms of the sale of the BC Sports Collectibles business.

Operating
income increased 117.0% from $26.8 million in fiscal 2002 to $58.1 million in fiscal 2003. As a percentage of total revenues, operating income increased from 2.5%
in fiscal 2002 to 4.4% in fiscal 2003. Excluding the $2.3 million charge to cost of goods sold and the $12.6 million restructuring and asset impairment charge in fiscal 2002, operating
income would have been $41.7 million, or 3.9% of total revenues in fiscal 2002. Excluding the $2.6 million net reversal of the restructuring and asset
impairment charge in fiscal 2003, operating income would have been $55.5 million, or 4.2% of total revenues in fiscal 2003.

Interest
income, net, decreased 11.0% from $1.9 million in fiscal 2002 to $1.7 million in fiscal 2003. The decrease was due to lower interest rates on
short-term investments.

Income
tax expense increased 104.4% from $10.9 million in fiscal 2002 to $22.4 million in fiscal 2003. As a percentage of pre-tax income, income tax expense
decreased from 38.2% in fiscal 2002 to 37.4% in fiscal 2003. Our effective tax rate decreased from the prior year principally as a result of an increase in operations in foreign jurisdictions that
have lower tax rates than the United States and an increase in tax-exempt interest income.

We
changed our accounting policy with respect to the recording of vendor advertising allowances effective retroactively as of the beginning of fiscal 2003. As a result, we recorded a
non-cash charge of $4.8 million, net of income tax, in the first quarter of fiscal 2003 for the cumulative effect of the change on fiscal years prior to fiscal 2003.

29

---



Liquidity and Capital Resources

We have historically financed operations primarily through cash generated from operations and funds available under our credit facility. We expect capital
expenditures to be approximately $60.0 million during fiscal 2005. Expenditures will include the opening of 400 new stores, the construction of a distribution center in Pennsylvania to
consolidate our two existing Pennsylvania distribution centers, and the acquisition of two distribution centers to accommodate our expanding European operations. We have entered into an agreement to
sell one of the existing Pennsylvania distribution centers for approximately $5.5 million. We expect this sale to be completed in early 2005.

We
generated $100.7 million in cash from operations in fiscal 2004 and $27.1 million in fiscal 2003. The $100.7 million of cash generated from operations in fiscal
2004 was primarily the result of $45.7 million in net income, $25.8 million in non-cash charges to net income, an increase in accounts payable of $39.3 million and an
increase in accrued expenses of $22.6 million, offset, in part, by an increase in merchandise inventory of $17.5 million and a $12.1 million increase in accounts receivable. The
increase in accounts payable was primarily due to an increased store base. The increase in accrued expenses was due in part to an increased store base. The increase in merchandise inventory was due to
an increased store base, partially offset by prior year inventories being higher than normal due to slower than expected holiday sales in fiscal 2003. The increase in accounts receivable was due in
part to Game Group's December 2003 management fee payment for $2.2 million not being received until February 2004. The $27.1 million of cash generated from operations in
fiscal 2003 was primarily the result of $32.6 in net income, $23.9 million in non-cash charges to net income, an increase of $8.2 million in accrued expenses and a
$6.1 million increase in income taxes payable, offset, in part, by a $38.5 million increase in merchandise inventory, net of accounts payable. In fiscal 2003, the $38.5 million
increase in inventory, net of accounts payable, was due to an increased store base coupled with slower than expected holiday sales. The $8.2 million increase in accrued expenses was primarily
due to an increased store base and an increase in customer liabilities.

We
made capital expenditures of $43.0 million in fiscal 2004, primarily to open new stores, to remodel existing stores and to re-brand 158 existing stores to the EB
Games name. We made capital expenditures of $35.8 million in fiscal 2003, primarily to open new stores, to remodel existing stores, to re-brand 96 existing stores to the EB Games
name, and to enhance the inventory system in our Louisville distribution center. In fiscal 2003, we also made investments of $1.6 million to acquire additional interests in our European
subsidiaries and to acquire a five store retail chain in the United States.

In
May 2003, our Board of Directors approved a program to repurchase up to 1.5 million shares of our outstanding common stock. During fiscal 2004, we completed the program
and repurchased 1.5 million shares of common stock at a weighted average cost, including broker commissions, of $21.18 per share. Cash expenditures to complete the stock buy-back
totaled $31.8 million.

In
November 2003, our Board of Directors approved a program to repurchase up to 2.0 million additional shares of our outstanding common stock. As of January 31,
2004, we repurchased 115,700 shares of common stock at a weighted average cost, including broker commissions, of $23.21 per share. Cash expenditures for these stock repurchases totaled
$2.7 million.

In
September 2003, we entered into a third amendment to our $50.0 million asset based revolving credit facility with Fleet Capital Corporation. Pursuant to the amendment,
we agreed to use Fleet Capital Corporation cash concentration accounts under limited circumstances as described in the amendment. In addition, the requirement that the Kim family maintain certain
ownership of our common stock was eliminated. The credit facility is scheduled to expire on March 16, 2005. Interest accrues on borrowings at a per annum rate equal to either LIBOR plus 250
points or Fleet's base rate of interest, at our option. The revolving credit facility is secured by certain assets, including our

30

---

accounts
receivable, inventory, fixtures and equipment. As of January 31, 2004, we had no outstanding borrowings under our credit facility.

The
following table represents our total contractual obligations as of January 31, 2004 (amounts in thousands):

|                       |  |   |         | Payments due by period
|---------------------- |  | - | ------- | ----------------------
|
|Operating Leases       |  | $ | 431,156 |                       
|BC Lease Obligation(1) |  |   | 204     |                       
|                       |  |   |         |                       
|Total                  |  | $ | 431,360 |                       
|                       |  |   |         |                       

---

We
have entered into an agreement to lease or acquire a 315,000 square foot distribution center in Coatesville, Pennsylvania, which includes an option to purchase the building for
$12.2 million. Although the date by which we are required to exercise this option has not yet occurred, we currently expect to exercise the purchase option at such time. Construction on this
facility is expected to be completed in the Fall of 2004.

Letters
of credit outstanding with various financial institutions were $913,000 and $694,000 at January 31, 2004 and February 1, 2003, respectively.

Seasonality and Quarterly Results

Our business, like that of most retailers, is highly seasonal. A significant portion of our net sales, management fees and profits are generated during our fourth
fiscal quarter, which includes the holiday selling season. Results for any quarter are not necessarily indicative of the results that may be achieved
for a full fiscal year. Quarterly results may fluctuate materially depending upon, among other factors, the timing of new product introductions and new store openings, net sales contributed by new
stores, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays or promotions and changes in our merchandise mix.

The
following tables set forth certain unaudited quarterly statement of income information for fiscal 2004 and fiscal 2003. The unaudited quarterly information includes all normal
recurring

31

---

adjustments
that management considers necessary for a fair presentation of the information shown (amounts in thousands, except income per share and number of stores).

|                           |          | Fiscal 2004
|-------------------------- | -------- | -----------
|
|Total revenues             |          | $          
|Gross profit               |          |            
|Operating income           |          |            
|Net income                 |          |            
|Net income per share:      |          |            
|                           | Basic   |            
|                           | Diluted |            
|Stores open at quarter end |          |            

|                                                                             |          | Fiscal 2003(1)(3)
|---------------------------------------------------------------------------- | -------- | -----------------
|
|Total revenues                                                               |          | $                
|Gross profit                                                                 |          |                  
|Operating income                                                             |          |                  
|Income before cumulative effect of change in accounting principle            |          |                  
|Net (loss) income                                                            |          |                  
|Income per share before cumulative effect of change in accounting principle: |          |                  
|                                                                             | Basic   |                  
|                                                                             | Diluted |                  
|Net (loss) income per share:                                                 |          |                  
|                                                                             | Basic   |                  
|                                                                             | Diluted |                  
|Stores open at quarter end                                                   |          |                  

---

32

---

Related Party Transactions

On January 30, 2004, we terminated the services agreement with Game Group initially established in fiscal 1996. Under the terminated services agreement,
Game Group was responsible for the payment of management fees equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in excess of a
pre-established target set by Game Group. Our management fee receivable at January 31, 2004 and February 1, 2003 were $2.7 million and $605,000, respectively; both
were included in accounts receivable-trade and vendors on our consolidated balance sheet. Management fees received from Game Group under the services agreement for fiscal 2004, fiscal 2003 and fiscal
2002 were $8.6 million, $7.4 million and $6.0 million, respectively. As part of the agreement to terminate the services agreement, Game Group agreed to pay us
$15.0 million. We received this payment in February 2004. We recognized $4.7 million of this payment as revenue earned on our consolidated statement of income for fiscal 2004. The
termination agreement prohibits us from competing with Game Group in the United Kingdom and Ireland until February 2006 and in France and Spain until February 2005. Based on an
independent analysis, these covenants not to compete were determined to have a value of $10.3 million, which was recorded as deferred revenue. Based on the terms of these covenants,
$5.8 million and $4.5 million will be recognized as income in fiscal 2005 and fiscal 2006, respectively. Game Group is prohibited from entering the Italian and German markets until
February 2005.

On
November 2, 2002, we sold our BC Sports Collectibles business to SCAC for $2.2 million in cash and the assumption of lease related liabilities in excess of
$13 million. The purchaser, SCAC, is owned by the family of James Kim, our Chairman. The transaction included the sale of all assets of the business including inventory, intellectual property
and furniture, fixtures and equipment, and transitional services which were provided by us to SCAC for a six-month period after the closing for an
additional $300,000. $150,000 of the fee received for transition services was earned and recognized as income in fiscal 2003 and the remaining $150,000 in fiscal 2004. The transaction was negotiated
and approved by a committee of our Board of Directors comprised solely of independent directors with the assistance of an investment banking firm engaged to solicit offers for the BC Sports
Collectibles business.

Recent Accounting Pronouncements

Effective February 2, 2003, we adopted Statement of Financial Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." This
statement establishes standards for accounting for an obligation associated with the retirement of a long-lived asset. The adoption of this pronouncement had no effect on our consolidated
results of operations and financial condition.

In
April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS
No. 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities under FASB Statement No. 133. The changes in this statement improve
financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this pronouncement had no effect on our consolidated results of operations and financial
condition.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires
that an issuer classify a financial instrument that is within the pronouncement's scope as a liability because it embodies an obligation of the issuer. Many of those instruments were previously
classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at

33

---

the
beginning of the first interim period beginning after June 15, 2003. The adoption of this pronouncement had no effect on our consolidated results of operations and financial condition.

In
November 2003, the EITF reached a consensus on EITF 03-10, "Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers
by Manufacturers." EITF 03-10 addresses the application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor." EITF
02-16 addresses accounting issues pertaining to recognizing cash consideration received by a reseller from a vendor entered into after December 31, 2002. The provisions of EITF
No. 03-10 would be applied to new arrangements involving the accounting for sales incentives tendered by consumers in fiscal periods beginning after November 25, 2003. We
adopted this
consensus in the fourth quarter of fiscal 2004 with no impact on our consolidated results of operations and financial condition.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." In December 2003, FIN 46R, a modification to FIN 46 was issued
which delayed the effective date until no later than fiscal periods ending after March 15, 2004 and provided additional technical clarifications to implementation issues. We currently do not
expect that the adoption of this Interpretation will have a material impact on our consolidated results of operations and financial condition.

Impact of Inflation

We do not believe that inflation has had a material effect on our net sales or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We invest cash balances in excess of operating requirements in short-term investment grade securities, with maturities of 90 days or less. In
addition, our revolving credit facility provides for borrowings which bear interest at variable rates based on either the bank's base rate or LIBOR plus 250 basis points, at our option. We had no
borrowings outstanding pursuant to the revolving credit facility as of January 31, 2004. We believe that the effect, if any, of reasonably possible near-term changes in interest
rates on our financial position, results of operations, and cash flows should not be material.

We
have retail operations in various foreign countries including Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, South Korea and Sweden. We are subject to currency
exchange rate and currency devaluation risks due to these operations. With our continuing growth in these countries, we believe that currency exchange rate fluctuations may have a material effect on
our results of operations and financial condition in future years. Had currency exchange rates remained at fiscal 2003 levels, our total revenues and operating income would have decreased by
$45.2 million and $4.3 million, respectively. We routinely enter into forward and cross-currency swap exchange contracts in the regular course of business to manage exposure against
foreign currency fluctuations on intercompany loans, investments in subsidiaries, and accounts payable. As of January 31, 2004, we have foreign currency forward contracts with a notional amount
of $9.6 million and cross-currency swap contracts with a notional amount of $35.4 million. The total fair market value of all contracts is a deficit of approximately
$10.7 million. Six contracts with a notional amount of $12.6 million expire during fiscal 2005 and the remaining contracts with a notional amount of $32.4 million expire in future
years. We intend to monitor our exposure to these risks and re-evaluate our hedging strategies as appropriate.

34

---

The
table below provides information about the notional amount and maturities of our derivative financial instruments and other financial instruments. The notional amounts are generally
used to calculate the contractual payments to be exchanged under the contracts.

|                              |  | Fiscal
2005 |       | Fiscal
2006 |   | Fiscal
2007 |  | Fiscal
2008 |        | Fiscal
2009 |   | Thereafter |  | Total |   | FMV
2004
FYE |  
|----------------------------- |  | ----------- | ----- | ----------- | - | ----------- |  | ----------- | ------ | ----------- | - | ---------- |  | ----- | - | ------------ | -
|
|Forward Exchange Contracts    |  |             |       |             |   |             |  |             |        |             |   |            |  |       |   |              |  
|Notional Contract Amount      |  | $           | 9,550 |             | $ |            |  | $           |       |             | $ |           |  | $     |  |              | $
|Cross Currency Swap Contracts |  |             |       |             |   |             |  |             |        |             |   |            |  |       |   |              |  
|Notional Contract Amount      |  |             | 3,000 |             |   | 2,808       |  |             | 29,159 |             |   | 443        |  |       |  |              |  

35

---



Item 8. Consolidated Financial Statements and Financial Statement Schedule

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT  SCHEDULE

|                                                |  | Page
|----------------------------------------------- |  | ----
|FINANCIAL STATEMENTS                           
|Independent Auditors' Report                    |  | 37  
|Consolidated Balance Sheets                     |  | 38  
|Consolidated Statements of Income               |  | 39  
|Consolidated Statements of Stockholders' Equity |  | 40  
|Consolidated Statements of Cash Flows           |  | 41  
|Notes to Consolidated Financial Statements      |  | 42  
|FINANCIAL STATEMENT SCHEDULE                   
|Schedule IIValuation and Qualifying Accounts   |  | 62  

36

---



Independent Auditors' Report

The
Board of Directors and Stockholders
Electronics Boutique Holdings Corp.:

We
have audited the accompanying consolidated balance sheets of Electronics Boutique Holdings Corp. and subsidiaries as of January 31, 2004 and February 1, 2003, and the
related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended January 31, 2004. In connection with our audits
of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our
audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Electronics Boutique Holdings Corp. and
subsidiaries as of January 31, 2004 and February 1, 2003 and the results of their operations and their cash flows for each of the years in the three-year period ended
January 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

/s/
KPMG LLP

Philadelphia,
Pennsylvania
March 11, 2004

37

---



ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (Amounts in thousands, except per share amounts)

|                                                                                                                                                                                         |                                                                                                                                     | January 31,
2004  |         | February 1,
2003 |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------- | ---------------- | ------
|Assets                                                                                                                                                                                   |                                                                                                                                     |                   |         |                  |       
|Current assets:                                                                                                                                                                          |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         | Cash and cash equivalents                                                                                                           |                   | $       | 157,968          |       
|                                                                                                                                                                                         | Accounts receivable:                                                                                                                |                   |         |                  |       
|                                                                                                                                                                                         |                                                                                                                                     | Trade and vendors |         |                  | 22,407
|                                                                                                                                                                                         |                                                                                                                                     | Other             |         |                  | 17,405
|                                                                                                                                                                                         | Merchandise inventories                                                                                                             |                   |         | 253,577          |       
|                                                                                                                                                                                         | Deferred tax asset                                                                                                                  |                   |         | 9,895            |       
|                                                                                                                                                                                         | Prepaid expenses and other current assets                                                                                           |                   |         | 16,435           |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total current assets                                                                                                                                                                     |                                                                                                                                     |                   | 477,687 |                  |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Property and equipment:                                                                                                                                                                  |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         | Building & leasehold improvements                                                                                                   |                   |         | 113,109          |       
|                                                                                                                                                                                         | Fixtures and equipment                                                                                                              |                   |         | 121,486          |       
|                                                                                                                                                                                         | Land                                                                                                                                |                   |         | 5,827            |       
|                                                                                                                                                                                         | Construction in progress                                                                                                            |                   |         | 2,826            |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         |                                                                                                                                     |                   | 243,248 |                  |       
|                                                                                                                                                                                         | Less accumulated depreciation and amortization                                                                                      |                   |         | 112,801          |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Net property and equipment                                                                                                                                                               |                                                                                                                                     |                   | 130,447 |                  |       
|Goodwill and other intangible assets, net of accumulated amortization of $666 and $377                                                                                                   |                                                                                                                                     |                   | 13,662  |                  |       
|Deferred tax asset                                                                                                                                                                       |                                                                                                                                     |                   | 10,476  |                  |       
|Other non current assets                                                                                                                                                                 |                                                                                                                                     |                   | 4,103   |                  |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total assets                                                                                                                                                                             |                                                                                                                                     | $                 | 636,375 |                  | $     
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Liabilities and Stockholders' Equity                                                                                                                                                     |                                                                                                                                     |                   |         |                  |       
|Current liabilities:                                                                                                                                                                     |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         | Accounts payable                                                                                                                    |                   | $       | 220,481          |       
|                                                                                                                                                                                         | Accrued expenses                                                                                                                    |                   |         | 73,336           |       
|                                                                                                                                                                                         | Income taxes payable                                                                                                                |                   |         | 17,862           |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total current liabilities                                                                                                                                                                |                                                                                                                                     |                   | 311,679 |                  |       
|Long-term liabilities:                                                                                                                                                                   |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         | Deferred rent and other long-term liabilities                                                                                       |                   |         | 20,716           |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total liabilities                                                                                                                                                                        |                                                                                                                                     |                   | 332,395 |                  |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Stockholders' equity:                                                                                                                                                                    |                                                                                                                                     |                   |         |                  |       
|                                                                                                                                                                                         | Preferred stockauthorized 25,000 shares; $.01 par value; no shares issued and outstanding at January 31, 2004 and February 1, 2003 |                   |         |                 |       
|Common stockauthorized 100,000 shares; $.01 par value; 26,449 shares issued and 24,834 shares outstanding at January 31, 2004; 25,882 shares issued and outstanding at February 1, 2003 |                                                                                                                                     |                   | 264     |                  |       
|                                                                                                                                                                                         | Treasury stock1,615 and 0 shares at January 31, 2004 and February 1, 2003, respectively, at cost                                   |                   |         | (34,455          | )     
|                                                                                                                                                                                         | Additional paid-in capital                                                                                                          |                   |         | 181,204          |       
|                                                                                                                                                                                         | Accumulated other comprehensive income (loss)                                                                                       |                   |         | 5,411            |       
|                                                                                                                                                                                         | Retained earnings                                                                                                                   |                   |         | 151,556          |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total stockholders' equity                                                                                                                                                               |                                                                                                                                     |                   | 303,980 |                  |       
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       
|Total liabilities and stockholders' equity                                                                                                                                               |                                                                                                                                     | $                 | 636,375 |                  | $     
|                                                                                                                                                                                         |                                                                                                                                     |                   |         |                  |       

See accompanying notes to consolidated financial statements.

38

---



ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF INCOME  (Amounts in thousands, except per share amounts)

|                                                                                         |                                                      | Years Ended
|---------------------------------------------------------------------------------------- | ---------------------------------------------------- | -----------
|
|Net sales                                                                                |                                                      | $          
|Management fees                                                                          |                                                      |            
|                                                                                         |                                                      |            
|Total revenues                                                                           |                                                      |            
|Cost of goods sold                                                                       |                                                      |            
|                                                                                         |                                                      |            
|Gross profit                                                                             |                                                      |            
|Costs and expenses:                                                                      |                                                      |            
|                                                                                         | Selling, general and administrative expense          |            
|                                                                                         | Restructuring and asset impairment (reversal) charge |            
|                                                                                         | Depreciation and amortization                        |            
|                                                                                         |                                                      |            
|Operating income                                                                         |                                                      |            
|Interest income, net                                                                     |                                                      |            
|                                                                                         |                                                      |            
|Income before income tax expense and cumulative effect of change in accounting principle |                                                      |            
|Income tax expense                                                                       |                                                      |            
|                                                                                         |                                                      |            
|Income before cumulative effect of change in accounting principle                        |                                                      |            
|Cumulative effect of change in accounting principle, net of income tax expense           |                                                      |            
|                                                                                         |                                                      |            
|Net income                                                                               |                                                      | $          
|                                                                                         |                                                      |            
|Income per share before cumulative effect of change in accounting principle:             |                                                      |            
|Basic                                                                                    |                                                      | $          
|                                                                                         |                                                      |            
|Diluted                                                                                  |                                                      | $          
|                                                                                         |                                                      |            
|Per share cumulative effect of change in accounting principle:                           |                                                      |            
|Basic                                                                                    |                                                      |            
|                                                                                         |                                                      |            
|Diluted                                                                                  |                                                      |            
|                                                                                         |                                                      |            
|Net income per share:                                                                    |                                                      |            
|Basic                                                                                    |                                                      | $          
|                                                                                         |                                                      |            
|Diluted                                                                                  |                                                      | $          
|                                                                                         |                                                      |            
|Weighted average shares outstanding:                                                     |                                                      |            
|Basic                                                                                    |                                                      |            
|                                                                                         |                                                      |            
|Diluted                                                                                  |                                                      |            
|                                                                                         |                                                      |            

See
accompanying notes to consolidated financial statements.

39

---



ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES  Consolidated Statements of Stockholders' Equity  (Amounts in thousands)

|                           |                                          | Preferred stock |   | Common stock |   | Treasury stock |        |       |   | Accumulated
other
comprehensive
(loss) income |    |        |        |   |        
|-------------------------- | ---------------------------------------- | --------------- | - | ------------ | - | -------------- | ------ | ----- | - | --------------------------------------------- | -- | ------ | ------ | - | -------
|
|
|Balance Feb. 3, 2001       |                                          |                |   | $            |  |                | 22,305 |       | $ | 223                                           |    |       |        | $ |       
|Comprehensive income:      |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Net income                               |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Foreign currency translations            |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Hedging activities                       |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Total comprehensive income |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Issuance of common stock                 |                 |  |              |   |               |        | 2,519 |   |                                               | 25 |        |       |   |        
|                           | Exercise of stock options                |                 |  |              |   |               |        | 959   |   |                                               | 10 |        |       |   |        
|                           | Tax benefit from stock options exercised |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Balance Feb. 2, 2002       |                                          |                |   |              |  |                | 25,783 |       |   | 258                                           |    |       |        |   |       
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Comprehensive income:      |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Net income                               |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Foreign currency translations            |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Hedging activities                       |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Total comprehensive income |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Issuance of common stock                 |                 |  |              |   |               |        | 23    |   |                                               |   |        |       |   |        
|                           | Exercise of stock options                |                 |  |              |   |               |        | 76    |   |                                               | 1  |        |       |   |        
|                           | Tax benefit from stock options exercised |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Balance Feb. 1, 2003       |                                          |                |   |              |  |                | 25,882 |       |   | 259                                           |    |       |        |   |       
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Comprehensive income:      |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Net income                               |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Foreign currency translations            |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           | Hedging activities                       |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Total comprehensive income |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|                           | Issuance of common stock                 |                 |  |              |   |               |        | 32    |   |                                               |   |        |       |   |        
|                           | Exercise of stock options                |                 |  |              |   |               |        | 535   |   |                                               | 5  |        |       |   |        
|                           | Repurchase of common stock               |                 |  |              |   |               |        |      |   |                                               |   |        | (1,615 | ) |        
|                           | Tax benefit from stock options exercised |                 |  |              |   |               |        |      |   |                                               |   |        |       |   |        
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        
|Balance Jan. 31, 2004      |                                          |                |   | $            |  |                | 26,449 |       | $ | 264                                           |    | (1,615 | )      | $ | (34,455
|                           |                                          |                 |   |              |   |                |        |       |   |                                               |    |        |        |   |        

See accompanying notes to consolidated financial statements.

40

---



ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (Amounts in thousands)

|                                                     |                                                                               | Years Ended                                   |        
|---------------------------------------------------- | ----------------------------------------------------------------------------- | --------------------------------------------- | -------
|
|Cash flows from operating activities:                |                                                                               |                                               |        
|                                                     | Net income                                                                    |                                               | $      
|                                                     | Adjustments to reconcile net income to cash provided by operating activities: |                                               |        
|                                                     | Depreciation of property and equipment                                        |                                               |        
|                                                     | Amortization of other assets                                                  |                                               |        
|                                                     | Loss on disposal of property and equipment                                    |                                               |        
|                                                     | Deferred taxes                                                                |                                               |        
|                                                     | Foreign currency transaction loss (gain)                                      |                                               |        
|                                                     | Management fees from termination agreement                                    |                                               |        
|                                                     | Changes in assets and liabilities:                                            |                                               |        
|                                                     |                                                                               | Accounts receivable                           |        
|                                                     |                                                                               | Merchandise inventories                       |        
|                                                     |                                                                               | Prepaid expenses                              |        
|                                                     |                                                                               | Other long-term assets                        |        
|                                                     |                                                                               | Accounts payable                              |        
|                                                     |                                                                               | Accrued expenses                              |        
|                                                     |                                                                               | Income taxes payable                          |        
|                                                     |                                                                               | Deferred rent and other long-term liabilities |        
|                                                     |                                                                               |                                               |        
|Net cash provided by operating activities            |                                                                               |                                               | 100,663
|                                                     |                                                                               |                                               |        
|Cash flows from investing activities:                |                                                                               |                                               |        
|                                                     | Purchases of property and equipment                                           |                                               |        
|                                                     | Proceeds from disposition of assets                                           |                                               |        
|                                                     | Businesses acquired, net of cash                                              |                                               |        
|                                                     |                                                                               |                                               |        
|Net cash used in investing activities                |                                                                               |                                               | (42,948
|                                                     |                                                                               |                                               |        
|Cash flows from financing activities:                |                                                                               |                                               |        
|                                                     | Proceeds from exercise of stock options                                       |                                               |        
|                                                     | Repurchase of common stock                                                    |                                               |        
|                                                     | Repayments of long-term debt                                                  |                                               |        
|                                                     | Proceeds from issuance of common stock                                        |                                               |        
|                                                     |                                                                               |                                               |        
|Net cash (used in) provided by financing activities  |                                                                               |                                               | (25,329
|                                                     |                                                                               |                                               |        
|Effects of exchange rates on cash                    |                                                                               |                                               | 3,709  
|                                                     |                                                                               |                                               |        
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                               | 36,095 
|Cash and cash equivalents, beginning of year         |                                                                               |                                               | 121,873
|                                                     |                                                                               |                                               |        
|Cash and cash equivalents, end of year               |                                                                               | $                                             | 157,968
|                                                     |                                                                               |                                               |        
|Supplemental disclosures of cash flow information:   |                                                                               |                                               |        
|                                                     | Cash paid during the year for:                                                |                                               |        
|                                                     | Interest                                                                      |                                               | $      
|                                                     | Income taxes                                                                  |                                               |        

See
accompanying notes to consolidated financial statements.

41

---



ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Electronics Boutique Holdings Corp. (collectively with its subsidiaries, the "Company") is the world's largest specialty retailer of video game hardware and
software, PC entertainment software, pre-played video games and related accessories and products. The Company operates in only one business segment, as substantially all of its revenues,
net income and assets are derived from these primary products.

The
Company had 1,528, 1,145 and 937 operating retail stores throughout the United States, Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto Rico, South Korea and
Sweden at January 31, 2004, February 1, 2003 and February 2, 2002, respectively. Total revenues from the Company's United States, Canada and other foreign operations were 75%, 10%
and 15%, respectively in fiscal 2004, 81%, 9% and 10%, respectively in fiscal 2003 and 86%, 8% and 6%, respectively in fiscal 2002. Long-lived assets located in the United States, Canada
and other foreign countries were 71%, 14% and 15%, respectively for the fiscal year ended January 31, 2004, and 74%, 14% and 12%, respectively for the fiscal year ended February 1, 2003.
The Company is subject to the risks inherent in conducting business across national boundaries. The Company also operates a mail order business and sells its products via the Internet. Approximately
38%, 39% and 38% of fiscal 2004, fiscal 2003 and fiscal 2002 sales, respectively, were generated from merchandise purchased from its three largest vendors. The Company is highly dependent on the
introduction by its vendors of new and enhanced video game and PC hardware and software.

Fiscal Year-End

The Company's fiscal year ends on the Saturday nearest January 31.

Principles of Consolidation

The consolidated financial statements include the financial position and results of operations of Electronics Boutique Holding Corp. and its subsidiaries. All
significant intercompany transactions have been eliminated in consolidation. Certain amounts have been reclassified to conform to the current presentation.

Revenue Recognition

Retail sales are recognized as revenue at the point of sale. Mail order and Internet sales are recognized as revenue upon delivery to and acceptance by the
customer. Warranty revenue is amortized over the life of the warranty. Magazine subscription revenue is recognized over the life of the subscription. Management fees are recognized in the period that
related services are provided. Sales are recorded net of estimated amounts for sales returns and other allowances. Shipping and handling fee income from the Company's mail order and Internet
operations is recognized as net sales. The Company records shipping and handling costs in cost of goods sold. See Note 12 for additional information.

Cost of Goods Sold

Cost of goods sold includes the following: cost of merchandise purchased from its vendors, freight expense, purchase discounts, vendor advertising allowances in
excess of incremental related advertising

42

---

expenses,
volume purchase rebates and inventory shrinkage expense. The Company also engages in the purchase and trading of pre-played video game products. The Company's gross margins may
not be comparable to those of other retailers or companies in general due to the items the Company includes in cost of goods sold.

Selling, General and Administrative Expense

Selling, general and administrative expense includes the following: retail store operating costs, distribution center operating costs, marketing and promotional
expenses net of vendor reimbursements for these expenses, and corporate operating expenses.

Vendor Programs

The Company receives vendor allowances for certain events offered to its vendors. These events include items such as product catalog advertising,
in-store display promotions, Internet advertising, co-op print advertising, product training and promotion at the Company's trade show and inclusion in its
vendor-of-the-month program.

Prior
to fiscal 2003, all vendor advertising allowances were recognized as an offset to selling, general and administrative expense. In fiscal 2003, the Company adopted Emerging Issues
Task Force (EITF) Issue 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor," effective as of the beginning of fiscal 2003. In accordance
with the provisions of Issue 02-16, vendor advertising allowances which exceed specific, incremental and identifiable costs incurred in relation to the advertising and promotional events
offered by the Company to its vendors are classified as a reduction in the purchase price of merchandise. See Note 2 for further discussion.

Vendor
allowances reflected in the financial statements were $64.0 million, $54.1 million and $49.1 million in fiscal 2004, fiscal 2003 and fiscal 2002,
respectively. Advertising expenses, excluding the vendor allowances, were $16.8 million, $11.3 million and $8.2 million in fiscal 2004, fiscal 2003 and fiscal 2002, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of January 31, 2004, the
Company had $4.3 million in restricted cash that was recorded as other current assets on the consolidated balance sheet.

Merchandise Inventories

Merchandise is valued at the lower of cost or market. Cost is determined principally by a weighted-average method.

43

---

Property and Equipment

Property and equipment is recorded at cost and depreciated or amortized over the estimated useful life of the asset using the straight-line method.
The estimated useful lives are as follows:

Leasehold improvements

Lesser of 10 years or the lease termFurniture and fixtures

5 yearsComputer equipment

3 yearsBuildings

30 years


The
Company capitalizes significant costs to acquire management information systems software and significant costs of system improvements. Computer software costs are amortized over
estimated useful lives of three to five years.

Deferred Revenue

Amounts received under the Company's pre-sell program are recorded as a liability. Revenue is recognized when the customer receives the related
product. Certain affinity programs include promotional gifts to customers that are supplied by vendors at no cost to the Company.

On
January 30, 2004, the Company entered into an agreement to terminate its services agreement with Game Group Plc (formerly The Electronics Boutique Plc.), a specialty
interactive entertainment retailer based in the United Kingdom. Under the termination agreement, Game Group agreed to pay the Company $15.0 million. We received this payment in
February 2004. The termination agreement eliminated and modified certain restrictive covenants that impacted the Company's ability to expand in Europe. Based on an independent analysis, the
remaining covenants not to compete with Game Group in the United Kingdom, Ireland, France and Spain were determined to have a value equal to $10.3 million, which was recorded as deferred
revenue. Based on the terms of these covenants, $5.8 million (accrued expenses) and $4.5 million (deferred rent and other long-term liabilities) will be recognized as income
in fiscal 2005 and fiscal 2006, respectively.

Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards (SFAS) No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that intangible assets acquired in a purchase method business combination must meet certain criteria to be
recognized and reported apart from goodwill and should be used for all business combinations initiated after June 30, 2001. SFAS No. 142 states that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The adoption of SFAS No. 141 by the Company in fiscal 2002 did not have a material impact
on its consolidated financial statements. See Note 14, "Goodwill and Other Intangible Assets", for disclosures required by SFAS No. 142.

Other Assets

Other assets consist principally of life insurance programs for certain key executives and security deposits.

44

---

Guarantees

As of January 1, 2003, the Company has adopted FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others." This Interpretation requires certain disclosures be made by a guarantor in its interim and annual financial statements and requires that
liabilities for guarantees entered into on or after January 1, 2003 be recorded at fair value. The Company remains contingently liable for the 22 BC Sports Collectibles store leases assigned to
Sports Collectibles Acquisition Corporation ("SCAC") which are discussed further in Note 6. Mr. Kim has entered into an indemnification agreement with the Company with respect to these
leases. If SCAC were to default on these lease obligations, the Company would be liable to the landlords for up to $13 million in minimum rent and landlord charges. Due to Mr. Kim's
agreement to indemnify the Company for any costs arising from the BC Sports Collectibles leases, no accrual was recorded for this potential liability. The purchase agreement provides SCAC the right,
exercisable at any time after November 2, 2004, to assign back to the Company two of the store leases. The Company has an accrual of $204,000 for the estimated lease termination costs related
to this option. See Note 6, "Related Party Transactions," for more details on the BC Sports Collectibles sale.

Leasing Expenses

The Company recognizes lease expense on a straight-line basis over the term of the lease when lease agreements provide for increasing fixed rentals.
The difference between lease expense recognized and actual payments made is included in deferred rent and prepaid expenses on the consolidated balance sheet.

Pre-opening Costs and Advertising Expense

Pre-opening and start-up costs for new stores are charged to the store in the first month of operations. Costs of advertising and sales
promotion programs are charged to operations, offset by direct vendor reimbursements, as incurred.

Foreign Currency

The accounts of the foreign subsidiaries are translated in accordance with SFAS No. 52, "Foreign Currency Translation," which requires that assets and
liabilities of international operations be translated
using the exchange rate in effect at the balance sheet date. The results of the operations are translated using an average exchange rate for the year. The effects of the rate fluctuations in
translating assets and liabilities of international operations into U.S. dollars are accumulated and reflected as accumulated other comprehensive (loss) income in the statements of stockholders'
equity. Transaction gains and losses are included in net income.

In
June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement 137 and Statement 138. This statement
establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value. As required under Statement 137, the Company adopted SFAS No. 133, as amended, in fiscal 2002. The cumulative
effect of the adoption of this standard on February 4, 2001

45

---

did
not materially impact the Company's results of operations, financial condition or long-term liquidity.

Market
risks relating to the Company's foreign operations result primarily from changes in foreign exchange rates. The Company routinely enters into forward and cross-currency swap
exchange contracts in the regular course of business to manage its exposure against foreign currency fluctuations on intercompany loans, investments in subsidiaries, and accounts payable. These
contracts vary in length of duration. On January 31, 2004, the Company had a total of four forward contracts and 34 cross-currency swap contracts. The forward contracts had a notional amount of
$9.6 million and the cross-currency swap contracts had a notional amount of $35.4 million. The total fair market value of all contracts at January 31, 2004 was a deficit of
approximately $10.7 million, which is recorded in other long-term liabilities on the consolidated balance sheet. On February 1, 2003, the Company had a total of seven forward
contracts and 27 cross-currency swap contracts. The forward contracts had a notional amount of $20.3 million and the cross-currency swap contracts had a notional amount of $27.4 million.
The total fair market value of all contracts at February 1, 2003 was a deficit of approximately $4.9 million. These contracts were purchased as fair value hedges of intercompany loans
and investments in subsidiaries, and cash flow hedges of trade payables. The Company recorded an immaterial net loss related to hedge ineffectiveness in fiscal 2004, fiscal 2003 and fiscal 2002.
Changes in the fair value of derivatives are recorded in the same statement of income or balance sheet line as the change in value of the underlying hedged item. Six contracts with a notional amount
of $12.6 million expire during fiscal 2005 and the remaining contracts with a notional amount of $32.4 million expire in future years.

Income Taxes

The Company is subject to federal and state income taxes as a C Corporation. Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Net Income Per Share

Basic income per share is calculated by dividing net income by the weighted average number of shares of the Company's common stock outstanding during the period.
Diluted income per share is calculated by adjusting the weighted average common shares outstanding for the dilutive effect of common stock equivalents related to stock options.

46

---

The
following is a reconciliation of the basic weighted average number of shares outstanding to the diluted weighted average number of shares outstanding (amounts in thousands):

Fiscal 2004

Fiscal 2003

Fiscal 2002Weighted average shares outstandingbasic

25,114

25,833

23,868Dilutive effect of stock options

301

414

362Weighted average shares outstandingdiluted

25,415

26,247

24,230


Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments are its accounts receivable, accounts payable, life insurance policies and foreign exchange contracts. The carrying value of
accounts receivable and accounts payable approximates fair value due to the short maturity of these instruments. The carrying value of life insurance policies included in other assets approximates
fair value based on estimates received from insurance companies. The foreign exchange contracts are recorded at fair market value.

Stock-Based Employee Compensation

The Company accounts for its employee stock options and the purchase plan under the intrinsic value recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. The following table illustrates the effect on net income if the Company had applied the
fair value recognition provisions of SFAS

47

---

No. 123,
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure," to stock-based employee
compensation.

Fiscal 2004

Fiscal 2003(1)

Fiscal 2002(Amounts in thousands, except per share amounts)Net income, as reported

$
45,729

$
32,627

$
17,712Less: total stock based employee compensation


4,350


4,796


3,368Pro forma net income

$
41,379

$
27,831

$
14,344Net income per share:Basicas reported

$
1.82

$
1.26

$
0.74Dilutedas reported

$
1.80

$
1.24

$
0.73Basicpro forma

$
1.65

$
1.08

$
0.60Dilutedpro forma

$
1.63

$
1.06

$
0.59


---

New Accounting Pronouncements Adopted

The adoption of the following pronouncements had no impact on the fiscal 2004 financial statements:

Effective
February 2, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement establishes standards for accounting for an
obligation associated with the retirement of a long-lived asset. The Company adopted this statement effective for the fiscal year ended January 31, 2004.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments and hedging activities under FASB Statement No. 133. The changes in this statement improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company adopted this statement effective for the fiscal year ended January 31, 2004.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires
that an issuer classify a financial instrument that is within the pronouncement's scope as a liability because it embodies an obligation of the issuer. Many of those instruments were previously
classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The Company adopted this statement effective for the fiscal year ended January 31, 2004.

48

---

In
November 2003, the EITF reached a consensus on EITF 03-10, "Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers
by Manufacturers." EITF 03-10 addresses the application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor." EITF
02-16 addresses accounting issues pertaining to recognizing cash consideration received by a reseller from a vendor under agreements entered into after December 31, 2002. The
provisions of
EITF No. 03-10 would be applied to new arrangements involving the accounting for sales incentives tendered by consumers in fiscal periods beginning after November 25, 2003.
The Company adopted this statement effective for the fiscal year ended January 31, 2004.

(2) CHANGE IN ACCOUNTING PRINCIPLE

In November 2002, the EITF reached consensus on Issue 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received
from a Vendor." Issue 02-16 addresses the accounting for cash consideration received from a vendor by a reseller for various vendor funded allowances, including cooperative advertising
support. Issue 02-16 is effective for new arrangements or modifications to existing arrangements entered into after December 31, 2002, although early adoption was permitted. The
Company elected to adopt early, effective February 3, 2002, the provisions of Issue 02-16. In accordance with the provisions of Issue 02-16, vendor advertising
allowances which exceed specific, incremental and identifiable costs incurred in relation to the advertising and promotional events the Company conducts for its vendors are to be classified as a
reduction in the purchase price of merchandise and recognized in income as the merchandise is sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined by
calculating the ratio of vendor allowances in excess of specific, incremental and identifiable advertising and promotional costs to merchandise purchases. The Company then applied this ratio to the
value of inventory in determining the amount of the vendor reimbursements to be recorded as a reduction to inventory reflected on the balance sheet. This methodology resulted in a $7.6 million
reduction in inventory as of February 3, 2002, the date of adoption of Issue 02-16. The $7.6 million, $4.8 million net of tax, was recorded as a cumulative effect of
change in accounting principle in fiscal 2003 for the impact of this adoption on prior fiscal years.

As
of January 31, 2004 and February 1, 2003, $10.8 million and $10.0 million, respectively, of the Company's vendor advertising allowances have been recorded
as a reduction of inventory.

49

---

The
following table reflects the vendor allowances received and how they were classified in the consolidated financial statements (actual and pro forma for the change in accounting
principle) for fiscal 2004, fiscal 2003 and fiscal 2002:

Fiscal
2004

Fiscal
2003

Fiscal
2002(Amounts in thousands)ActualTotal vendor allowances

$
63,979

$
54,116

$
49,102Gross profit

$
427,352

$
345,575

$
238,628Percent to total revenues


26.7
%

26.2
%

22.4
%Amount classified as a reduction in cost of goods sold

$
49,421

$
42,925


Percent to total revenues


3.1
%

3.3
%

Amount classified as a reduction in selling, general & administrative expense

$
13,704

$
8,829

$
49,102Percent to total revenues


0.9
%

0.7
%

4.6
%Amount classified as a reduction in merchandise inventory

$
10,842

$
9,989


Pro formaGross profit







$
280,722Percent to total revenues








26.4
%Amount classified as a reduction in cost of goods sold







$
42,094Percent to total revenues








3.9
%Amount classified as a reduction in selling, general & administrative expense







$
6,192Percent to total revenues








0.6
%Amount classified as a reduction in merchandise inventory







$
7,628


Prior
to adoption of Issue 02-16, all vendor advertising allowances were recognized as an offset to selling, general and administrative expense. These allowances exceeded the
specific, incremental costs of the advertising and promotional events conducted by the Company. The portion of the allowances in excess of the specific, incremental costs was recorded as an offset to
other operating expenses within selling, general and administrative expenses. These other operating expenses, which were incurred to support advertising and promotional expenses, included such items
as: marketing and merchandise department expenses to develop, promote and manage the events; direct store and store supervisory payroll expenses to implement, manage and monitor the events;
distribution expenses associated with receiving and shipping of materials necessary for the events; and corporate expenses related to the design, production and maintenance of Internet advertising
events.

50

---

The
following pro forma financial information for fiscal 2002 reflects the impact of Issue 02-16 as if it had been adopted prior to fiscal 2002:

Consolidated Statements of Income
(Amounts in thousands, except per share amounts)

As reported
Fiscal
2002(1)

Pro forma
Fiscal
2002Net sales

$
1,059,338

$
1,059,338Management fees


5,889


5,889Total revenues


1,065,227


1,065,227Cost of goods sold


826,599


784,505Gross profit


238,628


280,722Costs and expenses:Selling, general and administrative expense


179,464


222,374Restructuring and asset impairment charge


12,638


12,638Depreciation and amortization


19,750


19,750Operating income


26,776


25,960Interest income, net


1,884


1,884Income before income taxes


28,660


27,844Income tax expense


10,948


10,636Net income

$
17,712

$
17,208Net income per share:Basic

$
0.74

$
0.72Diluted

$
0.73

$
0.71Weighted average shares outstanding:Basic


23,868


23,868Diluted


24,230


24,230Selected Balance Sheet information:Merchandise inventories

$
149,792

$
142,164Total stockholders' equity


237,160


232,387


---

51

---

(3) COMMITMENTS

Lease Commitments

At January 31, 2004, the future annual minimum lease payments under operating leases for the following five fiscal years and thereafter were as follows
(amounts in thousands):

Retail
Store
Locations

Distribution
Facilities
and Other

Total Lease
CommitmentsFiscal 2005

$
78,703

$
1,959

$
80,662Fiscal 2006


77,347


1,033


78,380Fiscal 2007


73,426


419


73,845Fiscal 2008


66,991


234


67,225Fiscal 2009


51,282


195


51,477Thereafter


79,485


82


79,567$
427,234

$
3,922

$
431,156


The
total future minimum lease payments include lease commitments for new retail locations not in operation at January 31, 2004, and exclude contingent rentals based upon sales
volume and owner expense reimbursements. The terms of the operating leases for the retail locations provide that, in addition to the minimum lease payments, the Company is required to pay additional
rent to the extent retail sales, as defined, exceed amounts set forth in the lease agreements and to reimburse the landlord for the Company's proportionate share of the landlord's costs and expenses
incurred in the maintenance and operation of the shopping mall. Contingent rentals were approximately $9.9 million, $12.2 million and $12.5 million in fiscal 2004, fiscal 2003 and
fiscal 2002, respectively. Rent expense, including contingent rental amounts, was approximately $102.7 million, $85.1 million and $72.8 million in fiscal 2004, fiscal 2003 and
fiscal 2002, respectively.

Certain
of the Company's lease agreements provide for varying lease payments over the life of the leases. For financial statement purposes, rental expense is recognized on a
straight-line basis over the original term of the agreements. Actual lease payments are less than the rental expense reflected in the statements of operations by approximately
$1.3 million, $0.6 million and $0.5 million for fiscal 2004, fiscal 2003 and fiscal 2002, respectively.

(4) ACCRUED EXPENSES

Accrued expenses consist of the following (amounts on thousands):

January 31,
2004

February 1,
2003Employee compensation and related taxes

$
18,779

$
13,250Gift certificates and customer deposits


16,424


11,289Deferred revenue


17,205


6,858Accrued rent


6,458


1,927Other taxes


5,342


4,592Other accrued liabilities


9,128


5,326Total

$
73,336

$
43,242


52

---

(5) DEBT

In September 2003, the Company entered into a third amendment to its $50.0 million asset based revolving credit facility with Fleet Capital
Corporation. Pursuant to the amendment, the Company agreed to use Fleet Capital Corporation cash concentration accounts under limited circumstances as described in the amendment. In addition, the
requirement that the Kim family maintain certain ownership of the Company's common stock was eliminated. The credit facility is scheduled to expire on March 16, 2005. Interest accrues on
borrowings at a per annum rate equal to either LIBOR plus 250 points or Fleet's base rate of interest, at the Company's option. The revolving credit agreement contains restrictive covenants regarding
transactions with affiliates, the payment of dividends, and other financial and non-financial matters and is secured by certain assets, including accounts receivable, inventory, fixtures
and equipment. There was no outstanding balance at January 31, 2004 and February 1, 2003 on this facility.

Letters
of credit outstanding with various financial institutions were $913,000 and $694,000 at January 31, 2004 and February 1, 2003, respectively.

(6) RELATED PARTY TRANSACTIONS

Transactions with Affiliates

On January 30, 2004, the Company terminated the services agreement with Game Group initially established in fiscal 1996. Under the services agreement, Game
Group was responsible for the payment of management fees equal to 1.0% of Game Group's adjusted sales, plus a bonus calculated on the basis of net income in excess of a pre-established
target set by Game Group. The Company's management fees receivable at January 31, 2004 and February 1, 2003 were $2.7 million and $605,000, respectively; both were included in
accounts receivable-trade and vendors on our consolidated balance sheet. Management fees received from Game Group under the services agreement for fiscal 2004, fiscal 2003 and fiscal 2002 were
$8.6 million, $7.4 million and $6.0 million, respectively. As part of the agreement to terminate the services agreement, Game Group agreed to pay the Company $15.0 million,
which is recorded in Accounts Receivable-Other on the Company's consolidated balance sheet at January 31, 2004. The $15.0 million was received by the Company on February 12, 2004.
The Company recognized $4.7 million of this payment as revenue earned on its consolidated statement of income for fiscal 2004. The termination agreement prohibits the Company from competing
with Game Group in the United Kingdom and Ireland until February 2006 and in France and Spain until February 2005. Based on an independent analysis, these covenants not to compete were
determined to have a value of $10.3 million, which was recorded as deferred revenue. Based on the terms of these covenants, $5.8 million and $4.5 million will be recognized as
income in fiscal 2005 and fiscal 2006, respectively. Game Group is prohibited from entering the Italian and German markets until February 2005.

On
November 2, 2002, the Company sold its BC Sports Collectibles business to SCAC for $2.2 million in cash and the assumption of lease related liabilities in excess of
$13 million. The purchaser, SCAC, is owned by the family of James Kim, the Chairman of the Board. The transaction included the sale of all assets of the business including inventory,
intellectual property and furniture, fixtures and equipment, and transitional services which were provided by the Company to SCAC for a six-month period after the closing for an additional
$300,000. $150,000 of the fee received for transition services was earned and recognized as income in fiscal 2003 and the remaining $150,000 in fiscal 2004. The transaction was negotiated and approved
by a committee of the Company's Board of Directors comprised solely of independent directors with the assistance of an investment banking firm engaged to solicit offers for the BC Sports Collectibles
business.

53

---



(7) EMPLOYEES' RETIREMENT PLAN

The Company provides its United States employees with retirement benefits under a 401(k) salary reduction plan. Generally, employees are eligible to participate
in the plan after reaching age 21 and completing one year of service. Eligible employees may contribute up to 60% of their compensation to the plan. Company contributions are at the Company's
discretion. Company contributions to the plan are fully vested for eligible employees with five years or more of service. Contributions under this plan were approximately $804,000, $624,000 and
$534,000 in fiscal 2004, fiscal 2003 and fiscal 2002, respectively.

(8) EQUITY PLANS

Equity Participation Plan

The Company adopted equity participation plans (the "Equity Participation Plans"), pursuant to which 2.1 million and 2.0 million shares of common
stock were reserved in 1998 and 2000, respectively, for issuance upon the exercise of stock options granted to employees, consultants and directors. The exercise price of options granted under the
Equity Participation Plans may not be less than fair market value per share of common stock at the grant date; options become exercisable one to three years after the grant date and expire over a
period of not more than ten years. Exercisability could be accelerated on a change in control of the Company as well as certain other events as defined in the Equity Participation Plans.

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan (the "Purchase Plan"), associates meeting specific employment qualifications are eligible to participate and can
purchase shares quarterly through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The Purchase Plan permits eligible
associates to purchase common stock through payroll deductions for up to 10% of qualified compensation. As of January 31, 2004, 1.0 million shares remain available for issuance under the
Purchase Plan. The weighted-average fair value, net of the 15% discount, of the shares purchased by employees in fiscal 2004, fiscal 2003 and fiscal 2002 was $16.53, $20.27 and $19.08, respectively.

Pro
forma information regarding net income and income per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options
and the purchase plan under the fair value method of SFAS No. 123, as amended by SFAS No. 148. The fair value was estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted average assumptions:

Fiscal 2004

Fiscal 2003

Fiscal 2002Expected volatility

60.89
%
62.38
%
61.51
%Risk-free interest rate

3.15
%
2.98
%
4.28
%Expected life of options in years

4.92

4.76

4.15Expected life of purchase rights in months

3.0

3.0

3.0Dividend yield


%

%

%


The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition,
option

54

---

valuation
models require the input of highly subjective assumptions including the expected stock price volatility. The weighted-average grant-date fair value of options granted during
fiscal 2004, fiscal 2003 and fiscal 2002 was $16.95, $17.09 and $11.00, respectively.

A
summary of the Company's stock option activity, and related information for the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 follows
(amounts in thousands, except per share amounts):

Fiscal 2004

Fiscal 2003

Fiscal 2002Outstanding at beginning of year


2,388


2,093


2,050Granted


431


433


1,085Exercised


(535
)

(76
)

(959
)Forfeited


(158
)

(62
)

(83
)Outstanding at end of year


2,126


2,388


2,093Exercisable at end of year


1,200


1,215


697Weighted average price per share:Granted

$
16.95

$
31.74

$
21.37Exercised


16.04


16.72


14.50Forfeited


28.32


22.59


17.70


The
weighted average exercise price for all options outstanding and exercisable as of January 31, 2004 and February 1, 2003 were $19.32 and $17.16, respectively. The
weighted average exercise price for all options outstanding as of January 31, 2004 and February 1, 2003 were $20.56 and $20.71, respectively.

The
table below summarizes information about stock options outstanding as of January 31, 2004 (share amounts in thousands):

|                |  | Options outstanding |  | Options exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$9.50 - $16.17  |  | 773                 |  | 6.82               
|$16.18 - $18.50 |  | 670                 |  | 7.40               
|$18.51 - $41.65 |  | 683                 |  | 7.75               
|                |  |                     |  |                    
|                |  | 2,126               |  |                    
|                |  |                     |  |                    

55

---

(9) INCOME TAXES

Income before income tax expense and cumulative effect of change in accounting principle was as follows (amounts in thousands, except tax rates):

Fiscal 2004

Fiscal 2003

Fiscal 2002Domestic

$
44,344

$
52,989

$
25,801Foreign


28,288


6,784


2,859Total

$
72,632

$
59,773

$
28,660


The
provision for income taxes for fiscal 2004, fiscal 2003 and fiscal 2002 consists of the following:

|                                           |                  | Fiscal 2004 |        | Fiscal 2003 |   | Fiscal 2002 |       
|------------------------------------------ | ---------------- | ----------- | ------ | ----------- | - | ----------- | ------
|Federal statutory tax rate                 |                  |             | 35.00  | %           |   | 35.00       | %     
|State income taxes, net of federal benefit |                  |             | 2.77   |             |   | 3.35        |       
|Difference in foreign tax rates            |                  |             | (0.40  | )           |   | (0.33       | )     
|Other                                      |                  |             | 0.17   |             |   | (0.63       | )     
|Change in valuation allowance              |                  |             | (0.50  | )           |   | 0.04        |       
|                                           |                  |             |        |             |   |             |       
|Income tax expense                         |                  |             | 37.04  | %           |   | 37.43       | %     
|                                           |                  |             |        |             |   |             |       
|Current:                                   |                  |             |        |             |   |             |       
|                                           | DomesticFederal |             | $      | 12,577      |   | $           | 11,191
|                                           | DomesticState   |             |        | 2,371       |   |             | 2,091 
|                                           | Foreign          |             |        | 10,600      |   |             | 5,092 
|Deferred:                                  |                  |             |        |             |   |             |       
|                                           | DomesticFederal |             |        | 2,059       |   |             | 5,932 
|                                           | DomesticState   |             |        | 873         |   |             | 994   
|                                           | Foreign          |             |        | (1,577      | ) |             | (2,927
|                                           |                  |             |        |             |   |             |       
|Income tax expense                         |                  | $           | 26,903 |             | $ | 22,373      |       
|                                           |                  |             |        |             |   |             |       

The
Company does not pay or record federal income taxes on the undistributed earnings of its foreign subsidiaries as long as those earnings are deemed permanently reinvested in the
companies that produced them. An estimated $750,000 in federal income and foreign withholding taxes would be due if such permanently reinvested earnings were remitted as dividends.

Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax

56

---

purposes.
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of January 31, 2004 and February 1, 2003 (amounts in
thousands):

|                               |  | January 31,
2004 |        | February 1,
2003 |  
|------------------------------ |  | ---------------- | ------ | ---------------- | -
|Deferred tax assets:           |  |                  |        |                  |  
|Inventory                      |  | $                | 6,327  |                  | $
|Accrued expenses               |  |                  | 3,010  |                  |  
|State net operating loss       |  |                  | 558    |                  |  
|Fixed assets                   |  |                  | 4,592  |                  |  
|Deferred rent                  |  |                  | 2,128  |                  |  
|Amortization of goodwill       |  |                  | 96     |                  |  
|Foreign net operating loss     |  |                  | 4,012  |                  |  
|                               |  |                  |        |                  |  
|Total gross deferred tax asset |  |                  | 20,723 |                  |  
|Valuation allowance            |  |                  | (352   | )                |  
|                               |  |                  |        |                  |  
|Net deferred tax asset         |  | $                | 20,371 |                  | $
|                               |  |                  |        |                  |  

Management
believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize deferred tax assets, except for certain net
operating loss carryforwards for which the Company has provided a valuation allowance. The decrease in the valuation allowance of $194,000 in fiscal 2004 results primarily from the utilization of net
operating loss carryforwards of certain foreign subsidiaries. The Company has $3.5 million of foreign net operating loss carryforwards that do not expire. The remaining $0.5 million of
foreign net operating loss carryforwards start to expire in fiscal 2008 through fiscal 2015.

(10) RESTRUCTURING CHARGE

On February 1, 2002, the Board of Directors of the Company adopted a plan related to the closing of the Company's 29 EB Kids stores and the sale of its 22
store BC Sports Collectibles business. A $14.9 million pre-tax charge ($9.2 million after-tax or $0.35 per diluted share) was recorded in fiscal 2002 related to
this decision. The pre-tax charge was recorded as follows: $2.3 million related to a write-down of inventory within cost of goods sold and $12.6 million as a
restructuring and asset impairment charge. The $12.6 million charge consisted of a $3.5 million write down of store leasehold improvements, a $2.3 million write down of store
furniture, fixtures and equipment and $6.7 million in lease termination expenses.

The
following table summarizes activity in the restructuring accrual for the fiscal years ending February 1, 2003 and January 31, 2004 (amounts in thousands):

|                            |  | Beginning
Balance |       | Cash
Payments |   | Charges |   | Reversals |     | Other |   | Ending
Balance
|--------------------------- |  | ----------------- | ----- | ------------- | - | ------- | - | --------- | --- | ----- | - | --------------
|Year ended February 1, 2003 |  | $                 | 7,178 |               | $ | (2,989  | ) | $         | 148 |       | $ | (4,193        
|Year ended January 31, 2004 |  | $                 | 240   |               | $ | (36     | ) |           |    |       |   |              

During
fiscal 2003, the Company made $3.0 million in cash payments consisting of: $2.2 million paid to landlords for EB Kids lease buy-outs; $177,000 in
professional fees related to the EB Kids store

57

---

closings;
and $590,000 in professional fees related to the BC Sports Collectibles sale. The Company reversed $4.2 million of the restructuring accrual consisting of: $3.6 million related
to lease termination costs that were not realized due to the sale of the BC Sports Collectibles business and $546,000 due to actual costs being lower than original estimates for the termination of the
leases for the EB Kids stores.

As
of January 31, 2004, there is $204,000 remaining of the restructuring accrual. This amount represents an accrual for costs related to the potential assignment back to the
Company of two of the BC Sports Collectibles store leases.

(11) LEGAL CONTINGENCIES

The Company is involved from time to time in legal proceedings arising in the ordinary course of its business. In February 2003, the Company's affiliates,
The Electronics Boutique, Inc. and EB Services Company, LLP, prevailed in the appeal of a civil lawsuit brought against those companies by Game Group. Game Group filed the appeal in
October 2002 after judgment was entered against it in the trial of the matter.

On
December 3, 2003, a subsidiary of the Company was served with a complaint in a proposed class action suit entitled "Chalmers v. Electronics Boutique of America Inc." in
the California Superior Court in Los Angeles County. The suit alleges that Electronics Boutique of America Inc. improperly classified store management employees as exempt from the overtime
provisions of California wage-and-hour laws and seeks recovery of wages for overtime hours worked and related relief. The Company intends to vigorously defend this action and
believes that it is not material to the Company's financial position. An adverse outcome in this action may, however, have a material adverse effect on the Company's results of operations in the
period in which a judgment, if any, is rendered.

In
the opinion of management and except as described above, no pending proceedings could have a material adverse effect on the Company's results of operation or financial condition.

(12) RECLASSIFICATIONS

Effective in the second quarter of fiscal 2003, the Company changed the statement of income classification for pre-played merchandise
trade-in activity to be consistent with industry practice. Previously, the Company recorded a reduction to both revenue and cost of goods sold for the cost of the pre-played
merchandise accepted for trade. The reclassification of these transactions increased both total revenues and cost of goods sold by $50.1 million in fiscal year 2002. There was no impact on
operating income or net income for any period as a result of this reclassification.

58

---

(13) COMPREHENSIVE INCOME

Comprehensive income is computed as follows (amounts in thousands):

Fiscal
2004

Fiscal
2003(1)

Fiscal
2002Net income

$
45,729

$
32,627

$
17,712Foreign currency translations


12,981


6,574


(1,417
)Hedging activities


(6,457
)

(5,077
)

359Comprehensive income

$
52,253

$
34,124

$
16,654


---

Gains
(losses) on foreign currency translations are a result of the Company's investment in its foreign subsidiaries in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway,
South Korea and Sweden. Gains (losses) on hedging activities are primarily the result of foreign exchange forward contracts and cross currency swap agreements the Company has entered into to protect
its investments in its European subsidiaries from foreign currency fluctuations. The net gains (losses) on these activities are primarily the result of the Company's investment in its Australia,
Canada and South Korea subsidiaries that have not been hedged.

(14) GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 states that goodwill and intangible assets
with indefinite useful lives will no longer be amortized, but instead be tested for impairment at least annually. The following tables show the intangible assets and goodwill as of January 31,
2004 and February 1, 2003 (amounts in thousands):

Amortizable Intangible Assets

|                        |  | January 31, 2004 |       | February 1, 2003
|----------------------- |  | ---------------- | ----- | ----------------
|
|Key Money(1)            |  | $                | 1,791 |                 
|Other                   |  |                  | 85    |                 
|                        |  |                  |       |                 
|Total Intangible Assets |  | $                | 1,876 |                 
|                        |  |                  |       |                 

---

Intangible
assets are amortized over their estimated useful lives which range from three to five years. Amortization expense of amortizable intangible assets for fiscal 2004, 2003 and
2002 was $443,000, $315,000 and $44,000, respectively. Amortization expense for amortizable intangible assets for the next five years is: $336,000 in fiscal 2005, $335,000 in fiscal 2006, $323,000 in
fiscal 2007, $186,000 in fiscal 2008 and $30,000 in fiscal 2009.

59

---

Goodwill

The changes in carrying amount of goodwill for the years ended January 31, 2004 and February 1, 2003 are as follows (amounts in thousands):

Balance as of February 2, 2002

$
8,354Purchase additional 30% of Italian subsidiary(1)


1,005Reduction in purchase price of Swedish subsidiary(2)


(547
)Planet Games acquisition(3)


63Buyout of German partner(4)


343Foreign exchange fluctuations and other


1,720Balance as of February 1, 2003

$
10,938Buyout of German partner(5)


111Foreign exchange fluctuations and other


1,403Balance as of January 31, 2004

$
12,452


---

60

---

Comparison to prior year "As Adjusted"

The following table presents prior year reported amounts adjusted to eliminate the effect of goodwill amortization in accordance with SFAS No. 142.

|                                         |  | Fiscal
2004 |        | Fiscal
2003(1) |   | Fiscal
2002
|---------------------------------------- |  | ----------- | ------ | -------------- | - | -----------
|
|Net income, as reported                  |  | $           | 45,729 |                | $ | 32,627     
|Add: goodwill amortization, net of taxes |  |             |       |                |   |           
|                                         |  |             |        |                |   |            
|Adjusted net income                      |  | $           | 45,729 |                | $ | 32,627     
|                                         |  |             |        |                |   |            
|Basic income per share:                  |  |             |        |                |   |            
|Net income                               |  | $           | 1.82   |                | $ | 1.26       
|Goodwill amortization, net of taxes      |  |             |       |                |   |           
|                                         |  |             |        |                |   |            
|Adjusted net income                      |  | $           | 1.82   |                | $ | 1.26       
|                                         |  |             |        |                |   |            
|Diluted income per share:                |  |             |        |                |   |            
|Net income                               |  | $           | 1.80   |                | $ | 1.24       
|Goodwill amortization, net of taxes      |  |             |       |                |   |           
|                                         |  |             |        |                |   |            
|Adjusted net income                      |  | $           | 1.80   |                | $ | 1.24       
|                                         |  |             |        |                |   |            

---

(15) STOCK BUY-BACK PROGRAM

In May 2003, the Company's Board of Directors approved a program to repurchase up to 1.5 million shares of its outstanding common stock. During
fiscal 2004, the Company completed the program and repurchased 1.5 million shares of common stock at a weighted average cost, including broker commissions, of $21.18 per share. Cash
expenditures to complete the stock buy-back totaled $31.8 million.

In
November 2003, the Company's Board of Directors approved a program to repurchase up to 2.0 million additional shares of its outstanding common stock. As of
January 31, 2004, the Company repurchased 115,700 shares of common stock at a weighted average cost, including broker commissions, of $23.21 per share. Cash expenditures for these stock
repurchases totaled $2.7 million.

61

---

Schedule IIValuation and Qualifying Accounts (amounts in thousands)

|Period Ended                         |  | Description                           |  | Beginning
Balance |       | Charged to
Costs and
Expenses |   | Deductions |  | Ending
Balance
|------------------------------------ |  | ------------------------------------- |  | ----------------- | ----- | ----------------------------- | - | ---------- |  | --------------
|Deferred Tax Valuation Allowance     |  |                                       |  |                   |       |                               |   |            |  |               
|February 2, 2002                     |  | Deferred tax valuation allowance      |  | $                 | 420   |                               | $ | 114        |  | $             
|February 1, 2003                     |  | Deferred tax valuation allowance      |  |                   | 534   |                               |   | 12         |  |               
|January 31, 2004                     |  | Deferred tax valuation allowance      |  |                   | 546   |                               |   | 31         |  |               
|Inventory Valuation Allowance        |  |                                       |  |                   |       |                               |   |            |  |               
|February 2, 2002                     |  | Inventory valuation allowance         |  | $                 | 1,947 |                               | $ | 8,284      |  | $             
|February 1, 2003                     |  | Inventory valuation allowance         |  |                   | 2,696 |                               |   | 6,794      |  |               
|January 31, 2004                     |  | Inventory valuation allowance         |  |                   | 2,885 |                               |   | 12,786     |  |               
|Trade Receivables Bad Debt Allowance |  |                                       |  |                   |       |                               |   |            |  |               
|February 2, 2002                     |  | Trade receivables bad debt allowances |  | $                 | 250   |                               | $ |           |  | $             
|February 1, 2003                     |  | Trade receivables bad debt allowances |  |                   | 250   |                               |   |           |  |               
|January 31, 2004                     |  | Trade receivables bad debt allowances |  |                   | 250   |                               |   |           |  |               

62

---



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2004 (the "Evaluation Date"), and, based on this evaluation, our chief executive officer
and chief financial officer have concluded that these controls and procedures were effective as of the Evaluation Date. There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the Evaluation Date.

Disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are our internal
controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be
disclosed by us in our reports under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.

Part III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

The information required by Part III (Items 10-14) is set forth in the Company's definitive proxy statement, which will be filed pursuant to
Regulation 14A within 120 days of January 31, 2004, and in Item 1A hereof. The information is incorporated herein by reference and made a part hereof.

Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

Exhibits:

|Exhibit
No. |  | Identification of Exhibit                                      
|----------- |  | ---------------------------------------------------------------
|3.1         |  | Certificate of Incorporation(1)                                
|3.2         |  | Bylaws(1)                                                      
|4.1         |  | Specimen Stock Certificate(1)                                  
|10.1        |  | Form of Indemnification Agreement for Directors and Officers(1)
|10.2        |  | Form of 1998 Equity Participation Plan(1)                      
|10.3        |  | Form of 2000 Equity Participation Plan(2)                      
|            |  |                                                                

63

---

|10.4  |  | Form of Employee Stock Purchase Plan(2)                                                                                                                                                                                                                                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Services Agreement, dated October 13, 1995, by and between The Electronics Boutique, Inc. and Game Group Plc (f/k/a The Electronics Boutique Plc and Rhino Group Plc)(1)                                                                                                                       
|10.6  |  | Loan and Security Agreement, dated March 16, 1998, by and between The Electronics Boutique, Inc. and Fleet Capital Corporation(1)                                                                                                                                                              
|10.7  |  | Joinder Agreement by and between Electronics Boutique of America Inc. and Fleet Capital Corporation(1)                                                                                                                                                                                         
|10.8  |  | Amendment No. 1 to Loan and Security Agreement by and among The Electronics Boutique, Inc., Electronics Boutique of America Inc. and Fleet Capital Corporation(1)                                                                                                                              
|10.9  |  | Amendment No. 2 to Loan and Security Agreement by and among The Electronics Boutique, Inc., Electronics Boutique of America Inc. and Fleet Capital Corporation(1)                                                                                                                              
|10.10 |  | Form of Employment Agreement by and between Electronics Boutique Holdings Corp. and Joseph J. Firestone(1)                                                                                                                                                                                     
|10.11 |  | Employment Agreement, dated November 7, 2002, by and between Electronics Boutique Holdings Corp. and Jeffrey W. Griffiths(3)                                                                                                                                                                   
|10.12 |  | Employment Agreement, dated November 7, 2002, by and between Electronics Boutique Holdings Corp and John R. Panichello(3)                                                                                                                                                                      
|10.13 |  | Employment Agreement, dated November 7, 2002, by and between Electronics Boutique Holdings Corp. and Seth P. Levy(3)                                                                                                                                                                           
|10.14 |  | Employment Agreement, dated November 7, 2002, by and between Electronics Boutique Holdings Corp. and James A. Smith(3)                                                                                                                                                                         
|10.15 |  | Form of Employment Agreement by and between Electronics Boutique Holdings Corp. and Steven R. Morgan(4)                                                                                                                                                                                        
|10.16 |  | Asset Purchase Agreement, dated as of October 10, 2002, between Electronics Boutique of America Inc. and Sports Collectibles Acquisition Corporation(5)                                                                                                                                        
|10.17 |  | Form of Transition Agreement between Electronics Boutique of America Inc. and Sports Collectibles Acquisition Corporation(5)                                                                                                                                                                   
|10.18 |  | Form of Indemnification Agreement between Electronics Boutique of America Inc. and Sports Collectibles Acquisition Corporation(5)                                                                                                                                                              
|10.19 |  | Agreement, dated January 30, 2004, among Game Group plc, The Electronics Boutique, Inc. and EB Services Company LLP(6)                                                                                                                                                                         
|10.20 |  | Amendment No. 3 to Loan and Security Agreement by and among The Electronics Boutique, Inc., Electronics Boutique of America Inc. and Fleet Capital Corporation(7)                                                                                                                              
|14.1  |  | Code of Ethical Conduct for Officers, Directors and Associates of Electronics Boutique.*                                                                                                                                                                                                       
|21.1  |  | Subsidiaries of Electronics Boutique Holdings Corp.*                                                                                                                                                                                                                                           
|23.1  |  | Consent of KPMG LLP*                                                                                                                                                                                                                                                                           
|31.1  |  | Certification dated April 14, 2004 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
Jeffrey W. Griffiths, President and Chief Executive Officer*                               
|31.2  |  | Certification dated April 14, 2004 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
James A. Smith, Senior Vice President and Chief Financial Officer*                         
|32.1  |  | Certification dated April 14, 2004 of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Jeffrey W. Griffiths, President and
Chief Executive Officer and James A. Smith, Senior Vice President and Chief Financial Officer*

---

64

---



65

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

| |  | ELECTRONICS BOUTIQUE HOLDINGS CORP.
| |  | -----------------------------------
| |  | By:                                

Date:
April 14, 2004

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
indicated on April 14, 2004.

|Name                                        |  | Title                                                                                         
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|                                            |  |                                                                                               
|/s/JAMES J. KIMJames J. Kim                 |  | Chairman of the Board                                                                         
|/s/JEFFREY W. GRIFFITHSJeffrey W. Griffiths |  | President and Chief Executive Officer and Director (Principal Executive Officer)              
|/s/JAMES A. SMITHJames A. Smith             |  | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|/s/DEAN S. ADLERDean S. Adler               |  | Director                                                                                      
|/s/SUSAN Y. KIMSusan Y. Kim                 |  | Director                                                                                      
|/s/LOUIS J. SIANALouis J. Siana             |  | Director                                                                                      
|/s/STANLEY STEINBERGStanley Steinberg       |  | Director                                                                                      
|/s/ALFRED J. STEINAlfred J. Stein           |  | Director                                                                                      

66

---

EXHIBIT INDEX

|14.1 |  | Code of Ethical Conduct for Officers, Directors and Associates of Electronics Boutique.                                                                                                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|21.1 |  | Subsidiaries of Electronics Boutique Holdings Corp.                                                                                                                                                                                                                                           
|23.1 |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                           
|31.1 |  | Certification dated April 14, 2004 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
Jeffrey W. Griffiths, President and Chief Executive Officer                               
|31.2 |  | Certification dated April 14, 2004 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
James A. Smith, Senior Vice President and Chief Financial Officer                         
|32.1 |  | Certification dated April 14, 2004 of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Jeffrey W. Griffiths, President and
Chief Executive Officer and James A. Smith, Senior Vice President and Chief Financial Officer

---

QuickLinks