<PAGE>   1
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A
                                 -------------
(MARK ONE)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                        FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER 0-18813
                                    THQ INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                              --------------------

              DELAWARE                                   13-3541686
  (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)

         27001 AGOURA ROAD
         CALABASAS HILLS, CA                               91301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 871-5000
                              --------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          Common Stock, $.01 par value

        Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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 this Form 10-K. Yes [X]  No [ ]

        As of April 20, 2000, approximately 19,139,000 shares of Common Stock of
the Registrant were outstanding and the aggregate market value of voting Common
Stock held by non-affiliates was approximately $317,340,000.

================================================================================


<PAGE>   2

                                    THQ INC.
                     INDEX TO ANNUAL REPORT ON FORM 10-K/A
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                          YEAR ENDED DECEMBER 31, 1999

                              ITEMS IN FORM 10-K/A
<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
Facing page

Part I

        Item 1.       Business.                                                         1
        Item 2.       Properties.                                                      14
        Item 3.       Legal Proceedings.                                               14
        Item 4.       Submission of Matters to a Vote of Security Holders.             15

Part II

        Item 5.       Market for the Registrant's Common Equity and Related
                      Stockholder Matters.                                             16
        Item 6.       Selected Financial Data.                                         17
        Item 7.       Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.                             19
        Item 7A.      Quantitative and Qualitative Disclosures About Market
                      Risk.                                                            28
        Item 8.       Financial Statements and Supplementary Data.                     29
        Item 9.       Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure.                             29

Part III

        Item 10.      Directors and Executive Officers of the Registrant.              30
        Item 11.      Executive Compensation.                                          32
        Item 12.      Security Ownership of Certain Beneficial Owners and
                      Management.                                                      38
        Item 13.      Certain Relationships and Related Transactions.                  40

Part IV

        Item 14.      Exhibits, Financial Statement Schedule and Reports on
                      Form 8-K.                                                        41

Signatures                                                                             44
</TABLE>



<PAGE>   3

        This Annual Report contains, or incorporates by reference, certain
statements that may be deemed "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements appear in
a number of places in this Report, including, without limitation, "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". All statements relating to our objectives, strategies, plans,
intentions and expectations, and all statements (other than statements of
historical facts) that address actions, events or circumstances that we expect,
believe or intend will occur in the future, are forward-looking statements.
Prospective investors are cautioned that any such forward-looking statements
involve risks and uncertainties, and that the actual results may differ
materially from those in the forward-looking statements as a result of various
uncertainties, including, without limitation, uncertainties relating to the
interactive entertainment software industry and other factors, as more
specifically set forth in our report on Form 8-K, filed on March 21, 2000 with
the Securities and Exchange Commission.


                                     PART I

ITEM 1.  BUSINESS

        INTRODUCTION

        We are a developer, publisher and distributor of interactive
entertainment software for the leading hardware platforms in the home video game
market. We currently publish titles for Sony's PlayStation, Sega Dreamcast,
Nintendo 64, Nintendo Game Boy and Game Boy Color, and personal computers
("PCs") in most interactive software genres, including action, adventure,
driving, fighting, puzzle, role playing, simulation, sports and strategy. Our
customers include Wal-Mart, Toys "R" Us, Target, Kmart Stores, Kay Bee Toys,
Electronics Boutique, Blockbuster, Best Buy, other national and regional
retailers, discount store chains and specialty retailers.

        Our games are developed both internally and under contract with
independent developers, and are typically based on properties licensed from
third parties. We continually seek to identify and develop titles based upon
entertainment projects (such as movies, television programs and arcade games),
sports and entertainment personalities, or popular sports, trends or concepts
that have high public visibility or recognition or that reflect the trends of
popular culture. Other than games that we release on CD-ROM for use on PCs, all
of our products consist of cartridges and CD-ROMs manufactured for us by
Nintendo, Sony and Sega.

        Over the past four years, we have experienced significant growth in net
sales and net income. During the year ended December 31, 1999, our net income
grew to $32.9 million from $21.9 million in 1998 (excluding in-process research
and development charge in 1998). In the year ended December 31, 1999, our net
sales increased to $302.4 million from $216.1 million in 1998, $89.6 million in
1997 and $50.3 million in 1996, representing a compound annual growth rate of
157%.

        We are a Delaware corporation that was incorporated in 1997. We were
formerly incorporated in New York in 1989 under the name T.HQ, Inc. Our
principal executive offices



                                       1
<PAGE>   4

are located at 27001 Agoura Road, Calabasas Hills, California 91301, and our
telephone number is (818) 871-5000. Our web site is at www.thq.com.

        THQ(R) is our registered trademark and trade name. Nintendo(R), Super
Nintendo Entertainment System(R) ("SNES"), Game Boy(R), Game Boy Color(R) and
Nintendo 64(R) are registered trademarks of Nintendo of America, Inc.
("Nintendo"). Sega(R), Genesis(R), Game Gear(R), Saturn(R) and Dreamcast(R) are
registered trademarks of Sega of America, Inc. ("Sega"). Sony PlayStation(R) and
Sony PlayStation 2(R) are registered trademarks of Sony Computer Entertainment
Inc. ("Sony"). Nintendo, Sony and Sega are referred to herein collectively as
the "manufacturers."

THE INTERACTIVE ENTERTAINMENT INDUSTRY AND TECHNOLOGY

        The home interactive game market consists both of (i) cartridge-based,
CD-ROM-based and DVD-ROM based software for use solely on dedicated hardware
systems, and (ii) software distributed on CD-ROMs for use on PCs. Until 1996,
most software for dedicated platforms was sold in cartridge form. However,
CD-ROMs and DVD-ROMs have become increasingly popular because they have
substantially greater data storage capacity and lower manufacturing costs than
cartridges.

        The first modern platform was introduced by Nintendo in 1985 using
"8-bit" technology. "8-bit" means that the central processing unit, or "chip,"
on which the software operates is capable of processing data in 8-bit units.
Subsequent advances in technology have resulted in continuous increases in the
processing power of the chips that power both the platforms and PCs. As the
technology of the hardware has advanced, the software designed for the platforms
has similarly advanced, with faster and more complex images, more lifelike
animation and sound effects and more intricate scenarios. The larger data
storage capacity of CD-ROMs (and subsequent DVD-ROMs in yet to be released
systems, Sony PlayStation 2, Microsoft X-Box and the Nintendo Dolphin) enables
them to provide richer content and longer play. The new Sony and Microsoft
systems will have a robust on-line hardware component hoping to take full
advantage of the advent of broadband networking. Currently, the non-portable
platforms being marketed are based primarily on 32-bit and 64-bit technology.
Portable platforms are less sophisticated technologically and do not require
television monitors.

        The following table sets forth the year of release in the United States
of each of the manufacturers' platforms for which we have published titles and
the technology on which such platforms are based:

<TABLE>
<CAPTION>
                                              DATE OF U.S.
    MANUFACTURER          PRODUCT NAME        INTRODUCTION        TECHNOLOGY
---------------------  -------------------  -----------------  ------------------
<S>                    <C>                  <C>                <C>
Nintendo               NES                        1985                     8-bit
Nintendo               Game Boy                   1989          8-bit (portable)
Sega                   Game Gear                  1991          8-bit (portable)
Sega                   Genesis                    1989                    16-bit
Nintendo               SNES                       1991                    16-bit
Sega                   Saturn                     1995                    32-bit
Sony                   PlayStation                1995                    32-bit
</TABLE>



                                       2
<PAGE>   5

<TABLE>
<S>                    <C>                   <C>               <C>
Nintendo               Nintendo 64                1996                    64-bit
Nintendo               Game Boy Color             1998         16-bit (portable)
Sega                   Dreamcast                  1999                   128-bit
</TABLE>

        We believe that the success of a video game is dependent on the graphic
look and feel of the game, the depth and variation of game play and the
popularity of the property on which the game is based.

        Sega launched its newest platform, Dreamcast, in Japan in the fall of
1998 and introduced it in the United States in the fall of 1999. Sony has
launched the successor to the PlayStation, the PlayStation 2, in Japan. The
PlayStation 2 is scheduled for launch in the U.S. market in late 2000. Nintendo
has plans to launch a new platform in 2001 called the Dolphin. Microsoft has
also announced a new platform, X Box, scheduled to debut in the fall of 2001.
While we have not formally committed to these platforms, it is likely that we
will publish for them. Software for new platforms requires different standards
of design and technology to fully exploit their capabilities. The introduction
of new platforms also requires that game developers devote substantial
additional resources to product design and development.

BUSINESS STRATEGY

        Our goals are to expand our position as a leading provider of exciting,
high-quality interactive entertainment software on a variety of platforms,
intelligently take advantage of opportunities provided by the internet, and to
continue to emphasize profitability by maintaining strict cost controls and
managing the risks associated with software development. In order to achieve
these goals, management is focused on implementing the following strategies:

        -       BUILD CONTENT BY CAPITALIZING ON EXISTING BRANDS AND ACQUIRING
                NEW ONES. Brand recognition and sustainable consumer appeal
                allow THQ to exploit titles over an extended period of time
                through the release of sequels and extensions and to re-release
                such products at different price points. Brands represent
                content over which we have control either by developing our own
                proprietary titles or obtaining exclusive licenses to
                established properties for extended time periods. We intend to
                continue to capitalize on currently established brands such as
                World Wrestling Federation (through a venture with JAKKS
                Pacific), Nickelodeon's Rugrats, MTV Sports and Ricky
                Carmichael's Championship Motocross, by launching new titles on
                multiple hardware platforms. We also intend to increase our
                product content through new brands such as Scooby Doo, Power
                Rangers, Evil Dead and Summoner. It is our goal to expand our
                library of brands, reaching a broad audience, while increasing
                our focus on original content.

        -       TECHNOLOGY. We intend to publish for the next generation of
                video game systems. The expansion of internal product
                development to over 100 employees positions us to take advantage
                of new game technology. Pacific Coast Power & Light Company, a
                development studio acquired in May 1999, is focused solely on
                development for the new PlayStation 2 platform. Heavy Iron
                Studios, consisting of video game and feature film veterans, is
                currently working on Evil Dead



                                       3
<PAGE>   6

                (scheduled for release in the fall of 2000) for multiple
                platforms. GameFx is now exclusively developing proprietary
                tools for the new game platforms.

        -       ON-LINE GAMING / E-COMMERCE. We believe our recent acquisition
                of Genetic Anomalies positions us to benefit from opportunities
                on the Internet. Genetic Anomalies' "Collectible Bits"
                technology has application to both on-line gaming and E-Commerce
                environments. The potential for this technology is evidenced by
                a competitor licensing it for one of their key franchises. We
                plan to release our first on-line title, WWF: With Authority, in
                mid-2000. Further, we will be examining opportunities for
                bringing our mass-market brands to the Internet, while preparing
                to take advantage of the on-line capabilities of new console
                systems and broadband connectivity.

        -       EXPAND GLOBAL REACH. While our foreign sales increased to 24.7%
                of total sales in 1999, we believe we can further expand our
                presence in foreign markets. Industry estimates indicate that
                the international market for interactive software is roughly
                equal to the U.S. market. Our acquisition of Rushware
                Microhandelsgesellschaft mbH and its subsidiaries (collectively
                "Rushware") contributed to our international growth in 1999,
                increasing market penetration in German speaking territories and
                expanding our PC business. To further grow in global markets, we
                intend to increase product offerings targeted to foreign
                consumers with titles such as Mercedes Benz Truck Racing, TOCA
                Touring Car Champions and Cultures. We are expanding our foreign
                marketing and distribution capabilities by opening new sales and
                marketing offices in France (November 1999) and Australia (March
                2000). These new offices will bring THQ product direct to
                retailers in France, Australia and New Zealand, allowing THQ to
                potentially obtain higher sales and margins in these
                territories.

        -       CONTINUE TO EXPLOIT THE GAME BOY COLOR PLATFORM. As the largest
                independent domestic publisher of Game Boy titles (according to
                the NPD's TRST data), we will continue to take advantage of this
                platform. Our market position makes us an attractive partner for
                licensors wanting to put their products on the Game Boy system,
                as evidenced by our recent agreement with Fox Interactive for
                The Simpsons, Buffy the Vampire Slayer, Croc, and Aliens
                franchises. The relative low cost of developing games for the
                Game Boy, combined with the platform's large installed base,
                provides the opportunity to generate continuing sales and
                profits from this system with less risk than other platforms.

        -       MAINTAIN COST CONTROLS AND MANAGE RISK. We minimize our fixed
                expenses by using independent software developers, adopting
                warehouse and shipping systems that closely link fulfillment
                costs to sales volumes, and compensating sales employees and
                representatives based on sales volumes. In addition, we attempt
                to reduce the risks associated with excessive or obsolete
                inventory by utilizing strict ordering and inventory controls.



                                       4
<PAGE>   7

        We intend to continue pursuing potential acquisition transactions
consistent with these strategies. In addition, in order to create a closer
relationship with independent developers, we may from time to time make
investments or acquire minority interests in independent developers.

TITLES

        We have released an aggregate of 207 titles as of December 31, 1999,
consisting of 13 Nintendo Entertainment System ("NES") titles, 64 Game Boy/Game
Boy Color titles, seven Sega Game Gear titles, 14 Sega Genesis titles, 47 Super
Nintendo Entertainment System ("SNES") titles, three Sega Saturn titles, 28 Sony
PlayStation titles, 13 Nintendo 64 titles and 18 PC titles. We continually seek
to acquire licenses to publish and distribute additional titles.

        The following tables set forth, for each platform, the titles (i)
released by us in 1999 and anticipated to be released in 2000, and (ii) the date
of release (or anticipated release) of each title. We cannot assure you that
each of the titles anticipated for release in 2000 will be released when
scheduled, if ever.



                                       5
<PAGE>   8

<TABLE>
<CAPTION>
                                                                                         RELEASE
       TITLES RELEASED IN 1999                 CATEGORY                PLATFORM           DATE
---------------------------------------  ----------------------   --------------------  ---------
<S>                                      <C>                      <C>                   <C>
WCW Thunder                              Fighting                 PlayStation             1/99
WCW Nitro                                Fighting                 Nintendo 64             2/99
Penny Racers                             Racing                   Nintendo 64             2/99
Rugrats: The Movie                       Adventure                Game Boy Color          4/99
Star Wars X-Wing Alliance***             Space Action             PC CD-ROM               4/99
Star Wars Episode One: The Phantom       Action                   PC CD-ROM               5/99
   Menace***
Star Wars Episode One: Racer***          Racing                   PC CD-ROM               5/99
Logical                                  Puzzle                   Game Boy Color          5/99
Rugrats Scavenger Hunt                   Board Game               Nintendo 64             6/99
Ultimate 8 Ball                          Leisure Sports           PlayStation             6/99
                                                                  PC CD-ROM
X: Beyond the Frontier                   Strategy                 PC CD-ROM               6/99
Castrol Honda Superbike                  Sports                   PlayStation             8/99
Dark Secrets of Africa                   Strategy                 PC CD-ROM               8/99
Championship Motocross featuring         Sports                   PlayStation             9/99
   Ricky Carmichael
Sinistar: Unleashed                      Arcade                   PC CD-ROM               9/99
Road Rash 64                             Action / Racing          Nintendo 64             9/99
Destruction Derby                        Action / Racing          Nintendo 64             9/99
Michael Owen's World League              Sports                   Nintendo 64             9/99
   Soccer
Extreme 500                              Racing                   PC CD-ROM               9/99
Medicopter                               Flight Simulation        PC CD-ROM               9/99
Bing II                                  Business Simulation      PC CD-ROM               9/99
Star Wars Episode One: The               Action                   PlayStation             9/99
   Phantom Menace***
Madden NFL 2000                          Sports                   Game Boy Color         10/99
Rugrats: Time Travelers                  Adventure                Game Boy Color         10/99
MTV Sports: Snowboarding                 Sports                   PlayStation            10/99
BASS Masters Classic                     Simulation               Game Boy Color         11/99
Rugrats: Studio Tour                     Adventure                PlayStation            11/99
Toy Story 2                              Action                   Game Boy Color         11/99
WWF Wrestlemania 2000                    Fighting                 Nintendo 64            11/99
                                                                  Game Boy Color
Nuclear Strike 64                        Action                   Nintendo 64            11/99
Indiana Jones***                         Action / Adventure       PC CD-ROM              11/99
BASS Masters 2000                        Sports                   Nintendo 64            12/99
NHL 2000                                 Sports                   Game Boy Color         12/99
FIFA 2000                                Sports                   Game Boy Color         12/99
Yoda Stories                             Adventure                Game Boy Color         12/99
Brunswick Circuit Pro Bowling            Sports                   Nintendo 64            12/99
Shao Lin                                 Action / Adventure       PlayStation            12/99
Micro Machines 1 & 2                     Racing                   Game Boy Color         12/99
Extreme 500                              Racing                   PlayStation            12/99
Soapy Pictures                           Lifestyle Simulation     PC CD-ROM              12/99
</TABLE>



                                       6
<PAGE>   9

<TABLE>
<CAPTION>
                                                                                      ANTICIPATED
     TITLES ANTICIPATED TO BE RELEASED                                                  RELEASE
                 IN 2000*                       CATEGORY            PLATFORM             DATE
   --------------------------------------   -----------------  --------------------  ------------
<S>                                         <C>                <C>                   <C>
   Tiger Woods PGA Tour 2000**              Sports             Game Boy Color        1/00
   Brunswick Pro Bowling**                  Sports             PlayStation           2/00
   WWF Smackdown!**                         Fighting           PlayStation           3/00
   Force Commander***                       Action             Game Boy Color        Spring `00
   Rugrats: Totally Angelica                Adventure          Game Boy Color        Spring `00
   Micro Machines V3                        Racing             Game Boy Color        Spring `00
   Triple Play 2001                         Sports             Game Boy Color        Spring `00
   Nascar 2000                              Racing             Game Boy Color        Spring `00
   Aidyn Chronicles: The First Mage         Role Playing       Nintendo 64           Summer `00
   Danger Girl                              Action /           PlayStation           Summer `00
                                            Adventure
   MTV Sports: Skateboarding                Sports             PC CD-ROM             Summer `00
      (working title)                                          Nintendo 64
                                                               Game Boy Color
                                                               Sega Dreamcast
   TOCA Touring Car Championship            Racing             Game Boy Color        Summer `00
   WWF: With Authority                      Card Game          Online                Summer `00
   Player Manager                           Sports             Game Boy Color        Summer `00
                                            Management
   NBA Live 2000                            Sports             Game Boy Color        Fall `00
   Felony Pursuit                           Action             Sega Dreamcast        Fall `00
                                                               PC CD-ROM
   Power Rangers Lightspeed Rescue          Adventure          Game Boy Color        Fall `00
                                                               Nintendo 64
                                                               PlayStation
   Evil Dead                                Role Playing       PlayStation           Fall `00
                                                               Sega Dreamcast
                                                               PC
   Summoner                                 Role Playing       PlayStation 2         Fall `00
   MTV Sports: BMX                          Sports             PlayStation           Fall `00
                                                               Game Boy Color
   MTV Sports: Snowboarding 2               Sports             PlayStation           Fall `00
   Championship Motocross featuring         Sports             Game Boy Color        Fall `00
      Ricky Carmichael
   Championship Motocross 2                 Sports             PlayStation           Fall `00
      Featuring Ricky Carmichael
   Rugrats in Paris                         Action             Game Boy Color        Fall `00
                                                               PlayStation
                                                               Nintendo 64
   WWF                                      Fighting           Nintendo 64           Fall `00
                                                               Sega Dreamcast
                                                               Game Boy Color
                                                               PlayStation
   Mercedes Truck Racing                    Racing             PC CD-ROM             Fall `00
   Cultures                                 Strategy           PC CD-ROM             Fall `00
</TABLE>



                                       7
<PAGE>   10

* Excludes titles we expect to release in 2000 but which we have not yet
publicly announced.
**Title released as of March 31, 2000.
***Titles for German speaking territories only.


INTELLECTUAL PROPERTY LICENSES

        Our strategy includes the creation of exciting games based on licensed
properties that have attained a high level of consumer recognition or
acceptance. We believe that we enjoy excellent relationships with a number of
licensors, including WWF, Disney, Viacom/Nickelodeon, Time Warner and LucasArts.

        We pay royalties to our property licensors that generally range from 6%
to 13% of our net sales of the corresponding title. We typically pay minimum
guaranteed royalties over the license term and advance payments against such
guarantees. License fees tend to be higher for properties with proven popularity
and less perceived risk of commercial failure. To the extent competition
intensifies for licenses of highly desirable properties, we may encounter
difficulty in obtaining these licenses. See "-- Competition." Licenses are of
variable duration, may be exclusive for a specific title or line of titles, and
may in some instances be renewable upon payment of certain minimum royalties or
the attainment of specified sales levels. Other licenses are not renewable upon
expiration, and we cannot assure you that we and the licensor will reach
agreement to extend the term of any particular license.

        Our property licenses generally grant us exclusive use of the property
for the specified titles, on specified platforms, within a defined territory and
during the license term. However, licensors typically retain the right to
exploit the property for all other purposes, including the right to license the
property for use with other platforms. Our games based on a particular property
for use with one or more particular platforms may compete with games published
by other companies that are based on the same property but for a different
platform.

AGREEMENT WITH JAKKS PACIFIC, INC.

        We have entered into an agreement with JAKKS Pacific, Inc. ("JAKKS"),
to govern our relationship with respect to the WWF license we jointly obtained
from Titan Sports, Inc. (now known as World Wrestling Federation Entertainment,
Inc. (the "WWF")) in June 1999. Our relationship with JAKKS was established to
develop, manufacture, distribute, market and sell video games pursuant to the
license from the WWF. We control the venture, therefore, all transactions and
balances are consolidated with the Company. The principal terms of this
operating agreement are as follows:

-       We will be responsible for funding all operations of the venture,
        including all payments owing to the WWF.

-       For the period commencing November 16, 1999 and ending December 31,
        2003, JAKKS will be entitled to receive a preferred payment equal to the
        greater of a fixed guaranty, payable quarterly, or specified percentages
        of the "net sales" from WWF licensed games (as defined) in amounts that
        vary based on the platform. The payment of these amounts is guaranteed
        by


                                       8
<PAGE>   11
        us. We are entitled to the profits and cash distributions remaining
        after the payment of these amounts.

-       For periods after December 31, 2003, the amount of the preferred payment
        will be subject to renegotiation between the parties. An arbitration
        procedure is specified in the event the parties do not reach agreement.

-       We will be responsible for the day-to-day operations of the venture. We
        will continue to be responsible for development, sales and distribution
        of the WWF licensed games, while JAKKS will continue to be responsible
        for the approval process and other relationship matters with the WWF. We
        will both continue to co-market the games.

PLATFORM LICENSES

        Our business is dependent on our license agreements with the
manufacturers. All of these licenses are for fixed terms and are not exclusive.
Each license grants us the right to develop, publish and distribute titles for
use on such manufacturers' platforms, and requires that such titles be embodied
in products that are manufactured solely by such manufacturers.

        The following table sets forth information with respect to our platform
licenses. In some instances, we have more than one platform license for a
particular platform.

<TABLE>
<CAPTION>
                                         NUMBER OF
   MANUFACTURER         PLATFORM           TITLES             TERRITORY          EXPIRATION DATE(s)
-----------------  ---------------  -----------------  --------------------  --------------------
<S>                <C>              <C>                <C>                   <C>
Nintendo           Nintendo 64      Title-by-title(1)  North America and     May 2000
                                                       Latin America
Nintendo           Nintendo 64      Title-by-title(1)  Europe, Australia     January 2001
                                                       and New Zealand
Nintendo           SNES             6/contract yr.     North America and     October 2000
                                                       Latin America
Nintendo           Game Boy         10/contract yr.    Europe and certain    August 2000
                                                       Asian countries
Nintendo           Game Boy and     Title-by-title(1)  North America and     March 2002
                   Game Boy Color                      Latin America
Sega               Dreamcast        Title-by-title(1)  North America and     October 2003
                                                       Latin America
Sega               Dreamcast        Title-by-title(1)  Europe, Australia     September 2003
                                                       and New Zealand
Sony               PlayStation      Title-by-title(1)  U.S. and Canada       August 2002
Sony               PlayStation      Title-by-title(1)  Europe                December 2005
</TABLE>

----------
(1)     This license does not set a maximum number of titles that we may publish
        in the designated territory; however, each title must be approved by the
        manufacturer prior to development of the software.



                                       9
<PAGE>   12

        Nintendo charges us a fixed amount for each cartridge. This amount
varies based, in part, on the memory capacity of the cartridges. Sony charges a
royalty for every CD-ROM manufactured. The amounts charged by the manufacturers
include a manufacturing, printing and packaging fee as well as a royalty for the
use of the manufacturer's name, proprietary information and technology, and are
subject to adjustment by the manufacturers at their discretion. The
manufacturers have the right to review, evaluate and approve a prototype of each
title and the title's packaging.

        In addition, we must indemnify the manufacturers with respect to all
loss, liability and expense resulting from any claim against the manufacturer
involving the development, marketing, sale or use of our games, including any
claims for copyright or trademark infringement brought against the manufacturer.
As a result, we bear a risk that the properties upon which the titles are based,
or that the information and technology licensed from the manufacturer and
incorporated in the products, may infringe the rights of third parties. Our
agreements with our independent software developers and property licensors
typically provide for us to be indemnified with respect to certain matters.
However, if any claim is brought by a manufacturer against us for
indemnification, our developers or licensors may not have sufficient resources
to, in turn, indemnify us. Furthermore, these parties' indemnification of us may
not cover the matter that gives rise to the manufacturer's claim.

        Each platform license may be terminated by the manufacturer if a breach
or default by us is not cured after we receive written notice from the
manufacturer, or if we become insolvent. Upon termination of a platform license
for any reason other than our breach or default, the manufacturer has the right
to purchase from us, at the price paid by us, any product inventory manufactured
by such manufacturer that remains unsold for a specified period after
termination. We must destroy any such inventory not purchased by the
manufacturer. Upon termination as a result of our breach or default, we must
destroy any remaining inventory, subject to the right of any of our
institutional lenders to sell such inventory for a specified period.

SOFTWARE DESIGN AND DEVELOPMENT

        After we identify and acquire a property from a licensor, we design and
develop a game with features intended to exploit the characteristics of the
property and to appeal to the game's target consumers. Our software development
process generally takes one of two forms.

        INTERNAL DEVELOPMENT. The in-house development of product is currently
conducted by our Pacific Coast Power & Light, Heavy Iron and Genetic Anomalies
studios. GameFx has become our applied technology developer and is focused on
the development of proprietary tools for the coming generation of gaming
platforms. Our studios are staffed by producers, programmers, software
engineers, artists, animators and game testers.

        EXTERNAL DEVELOPMENT. Our external development is supervised by our Vice
President -- Product Development. We contract with independent software
developers to conceptualize and develop games under our supervision. Our
agreements with software developers are usually entered into on a game-by-game
basis and generally provide for the payment of the greater of a fixed amount or
royalties based on actual sales. We generally pay our developers installments of



                                       10
<PAGE>   13

the fixed advance based on specific development milestones. Royalties in excess
of the fixed advance are based on a fixed amount per unit sold and range from
$.30 to $5.00 per unit for some developers, while others are based on a
percentage of net sales ranging from 7% to 20%. We generally obtain ownership of
the software code and related documentation. We may make strategic investments
in independent developers for the purpose of securing access to proprietary
software and talented developers.

        Upon completion of development, each game is extensively "play-tested"
by us and sent to the manufacturer for its review and approval. Related artwork,
user instructions, warranty information, brochures and packaging designs are
also developed under our supervision. The development cycle for a new game,
including the development of the necessary software, approval by the
manufacturer and production of the initial products, typically has ranged from
nine to 18 months. This relatively long development cycle requires that we
assess whether there will be adequate retailer and consumer demand for a game
well in advance of its release.

MANUFACTURING

        Sony, Nintendo and Sega are the sole manufacturers of the products sold
for use on their respective platforms.

        The manufacturing process begins with our placing a purchase order with
a manufacturer and opening either a letter of credit in favor of the
manufacturer or utilizing our line of credit with the manufacturer. We then send
the software code and a prototype of the game to the manufacturer, together with
related artwork, user instructions, warranty information, brochures and
packaging designs, for approval, defect testing and manufacture. Nintendo
typically delivers cartridges to us within 30 to 45 days of its receipt of an
order and a corresponding letter of credit and Sony typically delivers CD-ROMs
to us within 10 to 20 days. We will order our first Sega Dreamcast product in
2000.

        We are required by the platform licenses to provide a standard defective
product warranty on all of the products sold. Generally, we are responsible for
resolving, at our own expense, any warranty or repair claims. We have not
experienced any material warranty claims.

MARKETING, SALES AND DISTRIBUTION

        We are dependent on the high name recognition of the properties on which
our games are based to attract customers and to obtain shelf space in stores.
Our sales activities are directed by our Senior Vice President -- Sales and
Marketing, who maintains contact with major retail accounts and manages the
activities of our independent sales staff and regional sales representatives.

        UNITED STATES AND CANADIAN SALES. Our games are promoted to retailers by
display at trade shows, such as the annual Electronic Entertainment Expo (E3).
We also conduct print and cooperative retail advertising campaigns for most
titles and prepare promotional materials, including product videos, to increase
awareness among retailers and consumers.



                                       11
<PAGE>   14

        Our marketing efforts for products released in 1999 included national
television, print, radio and Internet advertising campaigns. Products shipped in
1999 that received television support included WCW Thunder, Rugrats Scavenger
Hunt, Championship Motocross Featuring Ricky Carmichael, Road Rash 64, Rugrats
Studio Tour, MTV Sports: Snowboarding and WWF Wrestlemania 2000. Our games were
also supported by in-store retail promotions such as trailers, demo discs,
standees, over-size boxes, posters and pre-sell giveaways. International
marketing activities included television advertising for Rugrats and publicity
campaigns in gaming publications, magazines and newspapers included covers,
contests, product previews, reviews and game strategies. In addition, we
developed product-specific Internet sites and expanded on-line publicity and
advertising efforts.

        Most of our sales are made directly to retailers. We distribute our
games primarily to mass merchandisers and national retail chain stores,
including Wal-Mart (representing 15% of net sales in 1999), Toys "R" Us
(representing 11% of net sales in 1999), Target, Kmart Stores, Kay Bee Toys,
Electronics Boutique, Blockbuster and Best Buy. Sales to our ten largest
customers collectively accounted for approximately 65% of our gross sales in
1998 and 54% of our gross sales in 1999. We do not have any written agreements
or other understandings with any of our customers that relate to their future
purchases, so our customers may terminate their purchases from us at any time.

        We utilize electronic data interchange with most of our major domestic
customers in order to (i) efficiently receive, process and ship customer product
orders, and (ii) accurately track and forecast sell-through of products to
consumers in order to determine whether to order additional products from the
manufacturers. We ship our products to our domestic customers from a public
bonded warehouse in Southern California.

        We supplement the efforts of our sales employees with independent sales
representatives. Our agreements with our representatives set forth their
exclusive territory, types of customers to be solicited, commission rate and
payment terms.

        The domestic retail price for our titles generally ranges between $19
and $35 for Game Boy and Game Boy Color, between $19 and $49 for PlayStation,
between $20 and $60 for Nintendo 64, and between $10 and $50 for PC games.

        GERMAN DISTRIBUTION. In December 1998, we acquired Rushware, a German
company that now serves as our distributor and publisher in Germany and other
German-speaking countries. This acquisition has increased the proportion of our
foreign sales that are made in German-speaking countries. It is our expectation
that we will eventually use Rushware to distribute our products throughout
continental Europe. We believe that this will enable us to realize higher
margins on our products distributed in these territories than if such products
were to continue to be distributed by third parties.

        Rushware is a party to a License and Localization Agreement with
LucasArts that grants us the exclusive right to continue distributing, through
August 1, 2000, the PC and PlayStation products developed and published by
LucasArts in German-speaking Europe. This agreement also covers any titles that
LucasArts decides to publish in these territories for the Dreamcast



                                       12
<PAGE>   15

platform, and provides that any future titles that LucasArts decides to publish
in these territories may be added to the license. Rushware has been distributing
LucasArts products in German-speaking Europe since 1988.

        OTHER FOREIGN SALES. We distribute our titles in all viable
international markets. In 1999, we had direct-to-retail operations in the UK and
Germany. As of January 2000, we have established direct relationships with
retailers in France via our new French office in Paris. We anticipate that by
July 2000 we will also have direct-to-retail relationships in Australia via our
new Australian office in Melbourne. Other European territories such as Italy,
Spain, Benelux, etc. are handled by the UK office through strategic distribution
relationships whereby we primarily supply finished goods as well as marketing
support. Other non-European territories such as Brazil, Singapore, Korea, etc.
are handled by international representatives in the US office through strategic
distribution and licensing agreements. While the majority of our sales occur in
the territories where we have direct relationships, we can supply a given title
in up to forty countries worldwide.

INTELLECTUAL PROPERTY RIGHTS

        Each game we release embodies a number of separately protected
intellectual property rights of the manufacturer, the property licensor and, to
a lesser extent, us. The licensor of the property owns the trademarks, trade
names, copyrights and other intellectual property rights relating to the
property on which the game is based. The manufacturer owns the patents and
substantially all of the other intellectual property embodied in the product.
While we own the game software embodied in the product, we believe that such
software has little independent economic value. Accordingly, we must rely on the
manufacturer and the property licensor with respect to protection from
infringement of the property rights by third parties.

        Each of the manufacturers incorporates security devices in its platforms
and products to prevent unlicensed use. In addition, Nintendo requires its
licensees to display the "Nintendo Seal of Approval" to notify the public that
the game has been approved by Nintendo for use with a Nintendo platform.

COMPETITION

        The software industry is intensely competitive. We compete, for both
licenses to properties and the sale of software, with the manufacturers, each of
whom is the largest developer and marketer of software for its platforms. These
companies may increase their own software development efforts. As a result of
their commanding positions in the industry as the manufacturers of platforms and
publishers of software for their platforms, the manufacturers generally have
better bargaining positions with respect to retail pricing, shelf space and
purchases than do any of their licensees, including us.

        In addition to the manufacturers, our competitors include Acclaim
Entertainment, Inc., Activision, Inc., Electronic Arts Inc., GT Interactive
Software Corp., Hasbro Inc., Midway Games Inc. and Microsoft Corporation. Each
of the manufacturers has a broader software line and greater financial,
marketing and other resources than us, as do some of our other competitors.



                                       13
<PAGE>   16

Accordingly, some of our competitors may be able to market their software more
aggressively or make higher offers or guarantees in connection with the
acquisition of licensed properties.

        At various times, toy companies, large software companies, movie studios
and others have focused on the video game market, resulting in greater
competition for us. Additionally, many of our competitors are developing on-line
interactive games and interactive networks that will be competitive with our
interactive products. We will be "releasing" our first on-line game during 2000.

        As competition for retail shelf space becomes more intense, we may need
to increase our marketing expenditures to maintain sales of our titles; and as
competition for popular properties increases, our cost of acquiring licenses for
such properties is likely to increase, resulting in reduced margins. Prolonged
price competition, increased licensing costs or reduced profit margins would
have a material adverse effect on us.

        In addition, the market for our products is characterized by significant
price competition and we may face increasing pricing pressures from our current
and future competitors. Further, as the industry transitions from the current
platforms (Sony PlayStation and Nintendo 64) to the next generation platforms
(Sony PlayStation 2, Nintendo Dolphin and Microsoft X-Box), there may be price
erosion on the existing consoles. Accordingly, there can be no assurance that
competitive pressures will not require us to reduce our prices. Any material
reduction in the price of our products would adversely affect operating income
as a percentage of net revenue and would require us to increase unit sales in
order to maintain net revenue.

EMPLOYEES

        As of December 31, 1999, we had 288 full-time employees, of whom 22 are
located in the United Kingdom, 73 are located in Germany and two are located in
France. None of our employees is represented by a labor union or covered by a
collective bargaining agreement, and we believe that relations with our
employees are good.


ITEM 2.  PROPERTIES

        Our executive offices occupy approximately 32,500 square feet of office
space at 27001 Agoura Road, Calabasas Hills, California, pursuant to a lease
expiring in September 2005. We lease additional office space for development
personnel in Calabasas, Santa Clara and Culver City, California, and in
Lexington, Massachusetts, for THQ UK's employees in Woking, England and for
Rushware's employees in Kaarst, Germany.

ITEM 3.  LEGAL PROCEEDINGS

        Two individual shareholders have filed essentially identical purported
class actions on February 18, 2000 and on March 2, 2000, respectively, in the
United States District Court for the Central District of California, alleging
that we and certain of our directors and senior officers violated Section 10(b)
of the Securities and Exchange Act of 1934 and SEC Rule 10b-5. Each



                                       14
<PAGE>   17

case seeks class action status on behalf of all individuals who purchased our
shares of common stock between October 26, 1999 and February 10, 2000. Each
complaint alleges that we issued false and misleading statements about our
financial results and prospects during the class period, and that the individual
defendant directors and officers participated in the alleged scheme so as to
sell their personal shares at inflated prices. We believe the claims are without
merit, and intend to vigorously defend against them.

        While we are a party to other legal proceedings from time to time, such
legal proceedings have been ordinary and incidental to our business and have not
had a material adverse effect on us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.





                                       15
<PAGE>   18

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

        The common stock is quoted on the NASDAQ National Market under the
symbol "THQI." The following table sets forth, for the periods indicated, the
high and low closing sales prices of our common stock as reported by the NASDAQ
National Market:

<TABLE>
<CAPTION>
                                                   CLOSING SALES
                                                      PRICES
                                             ------------------------
                                                 HIGH         LOW
                                             -----------  -----------
               <S>                           <C>          <C>
               1999
                 First Quarter                 20 9/16     11 11/16
                 Second Quarter                19 3/16     13 7/16
                 Third Quarter                 28 13/16    17 15/16
                 Fourth Quarter                38 4/16     22 7/16

               1998
                 First Quarter                 14 7/16      8 1/16
                 Second Quarter                13 11/16     8 15/16
                 Third Quarter                 15 11/16     7 9/16
                 Fourth Quarter                20 11/16     8 15/16
</TABLE>

        The last reported price of the common stock on March 20, 2000, as
reported by NASDAQ National Market, was $18.25 per share. As of March 20, 2000,
there were approximately 400 holders of record of the common stock.

DIVIDEND POLICY

        We have never paid cash dividends on our capital stock. We currently
intend to retain future earnings, if any, to finance the growth and development
of our business and, therefore, we do not anticipate paying any cash dividends
in the future. Our principle banking agreements provide that at such times as we
have any outstanding borrowings or letters of credit under that facility, we
will not pay any cash dividends.

SECURITIES ISSUED IN PRIVATE TRANSACTIONS

        In June 1998, in partnership with JAKKS Pacific, Inc., we signed an
exclusive agreement with Titan Sports, Inc. (now known as the World Wrestling
Federation Entertainment (the "WWF")) to publish electronic games based on the
World Wrestling Federation franchise on all hardware platforms. In connection
with this transaction, in August 1999 we issued to the WWF and a related party
warrants expiring December 31, 2009 to purchase an aggregate of 281,250 shares
of our common stock at $10.42 per share which had a fair value of $3.0 million
at the time of issuance. These warrants were issued pursuant to the exemption
from registration provided in



                                       16
<PAGE>   19

Section 4(2) of the Securities Act of 1933, as amended, for transactions not
involving a public offering.

        On May 24, 1999, in connection with our acquisition of Pacific Coast
Power & Light Company ("PCP&L"), we issued an aggregate of 727,436 shares of our
common stock to certain stockholders of PCP&L pursuant to the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended.

        On December 13, 1999, in connection with our acquisition of Genetic
Anomalies, Inc., we issued an aggregate of 220,048 shares of our common stock to
certain stockholders of Genetic Anomalies, Inc. pursuant to the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended.


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
        DATA)

        The following table presents certain selected consolidated financial
data for the years 1995 through 1999. The information presented for each of the
years ended December 31, 1997, 1998 and 1999 have been derived from, and are
qualified by reference to, our audited consolidated financial statements
included elsewhere herein. Those financial statements have been audited by
Deloitte & Touche LLP, independent auditors. The information presented for each
of the years ended December 31, 1995 and 1996 were derived from audited
financial statements that are not included elsewhere herein.

        This selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere herein.



                                       17
<PAGE>   20

                          STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                          ----------------------------------------------------------------------
                                            1995            1996            1997           1998           1999
                                          --------        --------        --------       --------       --------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>             <C>             <C>           <C>            <C>
Net sales                                 $ 33,250        $ 50,255        $ 89,579       $216,111       $302,357
Costs and expenses:
  Cost of sales                             19,501          29,301          48,127        100,019        134,563
  Royalties and project abandonment          4,666           8,587          14,763         48,130         48,370
  Product development                          889           1,324           1,887          6,849         12,770
  Selling and marketing                      3,114           4,444           8,733         20,325         35,440
  Payment to venture partner                    --              --              --             --          6,119
  General and administrative                 4,323           4,378           5,633         10,436         14,969
  In-process research and
    development                                 --              --              --          7,232             --
                                          --------        --------        --------       --------       --------
        Total costs and expenses            32,493          48,034          79,143        192,991        252,231
                                          --------        --------        --------       --------       --------
Income from operations                         757           2,221          10,436         23,120         50,126
Interest income (expense) -- net              (134)           (316)            466            840          1,102
                                          --------        --------        --------       --------       --------
Income before income taxes                     623           1,905          10,902         23,960         51,228
Income taxes                                    22               8           1,954          9,342         18,287
                                          --------        --------        --------       --------       --------
Net income                                $    601        $  1,897        $  8,948       $ 14,618       $ 32,941
                                          ========        ========        ========       ========       ========
Net income per share -- basic             $    .09        $    .18        $    .59       $    .86       $   1.81
                                          ========        ========        ========       ========       ========
Net income per share -- diluted           $    .08        $    .17        $    .55       $    .79       $   1.63
                                          ========        ========        ========       ========       ========
Weighted-average number of
     common shares -- basic                  6,431          10,408          15,167         17,039         18,150
                                          ========        ========        ========       ========       ========
Weighted-average number of
     common shares, stock options
     and warrants -- diluted                 8,001          11,117          16,267         18,453         20,194
                                          ========        ========        ========       ========       ========
</TABLE>


                               BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                           --------------------------------------------------------------------
                             1995           1996           1997           1998           1999
                           --------       --------       --------       --------       --------
<S>                        <C>            <C>            <C>            <C>            <C>
Working capital            $  7,082       $  9,661       $ 31,472       $ 49,366       $ 94,401
Total assets               $ 16,916       $ 22,847       $ 55,841       $127,743       $185,034
Lines of credit            $     --       $  5,355       $     --       $  9,909       $ 16,702
Shareholders' equity       $  7,598       $ 11,044       $ 33,618       $ 63,004       $110,760
</TABLE>



                                       18
<PAGE>   21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

        We develop, publish and distribute interactive entertainment software
for the major platforms sold by Nintendo, Sony and Sega and for use on PCs. See
"Business -- Titles." The following table sets forth, for the periods indicated,
the percentage of our revenues derived from sales of titles for the platforms
indicated:

<TABLE>
<CAPTION>
                                    YEARS ENDED DECEMBER 31,
                                   -------------------------
PLATFORM                           1997      1998       1999
--------                           ----      ----       ----
<S>                                <C>       <C>       <C>
Nintendo (excluding Game Boy)       42%       55%       35%
Nintendo Game Boy/Game Boy          23%        8%       17%
   Color
Sony                                22%       31%       37%
Sega                                10%        1%       --
PC                                   3%        5%        8%
Other                               --        --         3%
</TABLE>


        Our business cycle generally commences with the securing of a license to
publish one or more titles based on a property. These licenses typically require
an advance payment to the licensor and a guarantee of minimum future royalties.
See "-- Recovery of Prepaid Royalties, Guarantees and Capitalized Development
Costs." After obtaining the license, we begin software development for the
title. Upon completion of development and approval of the title by the
manufacturer, we order products and generally cause a letter of credit to be
opened in favor of the manufacturer or obtain a line of credit from the
manufacturer. Products are shipped at our expense to a public warehouse in
California for domestic distribution, or to the United Kingdom or Germany for
foreign distribution. Foreign sales to distributors in countries other than the
United Kingdom and Germany are shipped at the customer's expense directly to the
customer's location. Both in the United Kingdom and in Germany, we sell directly
to our major retail accounts.

        Unfilled sales orders are commonly referred to as "backlog." Since
substantially all of our product orders are fulfilled shortly after we receive
them, we do not believe that the amount of our unfilled sales orders as of the
end of a period is a meaningful indicator of sales in future periods.
Accordingly, we do not report the amount of our unfilled sales orders.

        On May 24, 1999 and December 13, 1999, we completed mergers with Pacific
Coast Power & Light Company, a California corporation ("PCP&L") and Genetic
Anomalies, a Delaware corporation ("GA"), respectively. The mergers have been
accounted for as poolings of interests under Accounting Principles Board Opinion
No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows as if PCP&L and GA had always been part of our
company.



                                       19
<PAGE>   22

        REVENUE FLUCTUATIONS AND SEASONALITY. We have experienced, and may
continue to experience, significant quarterly fluctuations in net sales and
operating results due to a variety of factors. The software market is highly
seasonal, with sales typically significantly higher during the fourth quarter
(due primarily to the increased demand for interactive games during the year-end
holiday buying season). Other factors that cause fluctuations include the timing
of our release of new titles, the popularity of both new titles and titles
released in prior periods, changes in the mix of titles with varying profit
margins, the timing of customer orders, the timing of shipments by the
manufacturers, fluctuations in the size and rate of growth of consumer demand
for software for various platforms, the timing of the introduction of new
platforms and the accuracy of retailers' forecasts of consumer demand. Our
expenses are based, in part, on our expectations of future revenues and, as a
result, operating results would be disproportionately and adversely affected by
a decrease in sales or a failure by us to meet our sales expectations. There can
be no assurance that we can maintain consistent profitability on a quarterly or
annual basis.

        Profit margins may vary over time as a result of a variety of factors.
Profit margins for cartridge products can vary based on the cost of the memory
chip used for a particular title. As games have become more complex by providing
richer playing capabilities, the trend in the interactive entertainment software
industry has been to utilize chips with greater capacity and thus greater cost.
CD-ROMs have significantly lower per unit manufacturing costs than
cartridge-based products, generally resulting in higher royalties for CD-ROM
based products. We anticipate that the next generation of DVD based games will
follow a cost and royalty model similar to the CD-ROM based console model.

        RECOVERY OF PREPAID ROYALTIES, GUARANTEES AND CAPITALIZED DEVELOPMENT
COSTS. We typically enter into agreements with licensors of properties and
developers of titles that require advance payments of royalties and/or
guaranteed minimum royalty payments. We cannot guarantee that the sales of
products for which such royalties are paid will be sufficient to cover the
amount of these required royalty payments. We capitalize our advances to
developers as prepaid royalties and capitalize internal software development
costs for each title incurred after the establishment of technological
feasibility of the title. Amortization of these payments and costs is determined
on a title-by-title basis based on the greater of (i) the ratio of current gross
revenues for a title to the sum of its current and anticipated gross revenues,
or (ii) the straight-line method over the estimated remaining economic life of
the title. We analyze these capitalized costs quarterly and write off associated
prepaid and deferred royalties and software development costs when, based on our
estimate, future revenues will not be sufficient to recover such amounts. As of
December 31, 1999, we had prepaid royalties and capitalized development costs of
$40.3 million. If we were required to write off prepaid royalties or capitalized
development costs in excess of the amounts reserved, our results of operations
could be materially and adversely affected.

        DISCOUNTS, ALLOWANCES AND RETURNS; INVENTORY MANAGEMENT. In general,
except for PC titles, our arrangements with our distributors and retailers do
not give them the right to return products to us (other than damaged or
defective products) or to cancel firm orders. However, we sometimes negotiate
accommodations to retailers (and, less often, to distributors) when demand



                                       20
<PAGE>   23

for specific games falls below expectations, in order to maintain our
relationships with our customers. These accommodations include our not requiring
that all booked orders be filled, negotiated price discounts and credits against
future orders. We may also permit the return of products. Arrangements made with
distributors and retailers for PC titles do customarily require us to accept
product returns.

        At the time of product shipment, we establish allowances based on
estimates of future returns, customer accommodations and doubtful accounts with
respect to such products. We base this amount on our historical experience,
retailer inventories, the nature of the titles and other factors. For the years
ended December 31, 1997, 1998 and 1999, we took provisions of approximately
$10.5 million, $20.8 million and $35.0 million, respectively, against gross
sales made during such periods. As of December 31, 1999, our aggregate reserve
against accounts receivable for returns, customer accommodations and doubtful
accounts was approximately $24.2 million.

        The identification by us of slow-moving or obsolete inventory, whether
as a result of requests from customers for accommodations or otherwise, would
require us to establish reserves against such inventory or to write-down the
value of such inventory to its estimated net realizable value.

        NET OPERATING LOSS CARRYFORWARDS. At December 31, 1999, we had
$9,259,000 of net operating loss ("NOL") carryforwards incurred since 1993 for
federal income tax purposes, and $638,000 for state. Various equity transactions
during 1996 resulted in an "ownership change" for purposes of Sections 382 and
383 of the Internal Revenue Code of 1986, as amended. As a result, the amount of
the NOL carryforwards available to reduce our federal income tax liability in
years in which we have taxable income is limited to an amount equal to
approximately $2.2 million per year through the year 2011, when the
carryforwards expire.

YEAR 2000 DISCLOSURE

        Many computer programs used only two digits to identify years. These
programs were designed without consideration for the effect of the change in
century, and if not corrected, could have failed or created erroneous results at
the year 2000. Essentially all of our information technology-based systems, as
well as many non-information based systems, were potentially affected by the
Year 2000 issue.

        In order to prepare for the Year 2000 issue, we implemented the
following remediation plan for technology-based systems:

        1. Identification of all applications and hardware with potential Year
2000 issues.

        2. For each item identified, perform an assessment to determine an
appropriate action plan and timetable for remediation of each item.

        3. Implementation of the specific action plan.

        4. Test each application upon completion.

        5. Place the new process into production and conduct system integration
testing.



                                       21
<PAGE>   24

        We successfully implemented the above remediation plan for all affected
information technology-based systems and other remediation plans related to
non-Management Information Systems and to products sold before the turn of the
century. Following the arrival of the Year 2000, we have not experienced any
problems with products or materials manufactured and/or supplied by third
parties. There was no interruption in our ability to order and deliver our
products and transact business with our suppliers and customers. We have
received no notification from customers regarding Year 2000 issues related to
products we have sold. We continue to monitor our systems, suppliers and
products for any unanticipated issues that may not yet have manifested.

        The total cost of achieving Year 2000 compliance was approximately
$200,000.

EURO CURRENCY CONVERSION

        On January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the Euro as their common legal currency. The Euro trades
on currency exchanges and is available for non-cash transactions. From January
1, 1999 through January 1, 2002, participating countries can also maintain their
national ("legacy") currencies as legal tender for goods and services. Beginning
January 1, 2002, new Euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation no later than July 1, 2002. Our
operating subsidiaries in the United Kingdom and Germany have been affected by
the Euro conversion and have established plans to address any business issues
raised, including the competitive impact of cross-border price transparency. It
is not anticipated that there will be any near term business ramifications;
however, the long-term implications, including any changes or modifications that
will need to be made to business and financial strategies, are still being
reviewed. From an accounting, treasury and computer system standpoint, the
impact from the Euro currency conversion is not expected to have a material
impact on the financial position or results of operations of THQ and its
subsidiaries.

RESULTS OF OPERATIONS

        The following table sets forth, for the periods indicated, the
components of our net sales and our consolidated operating data as a percentage
of net sales:

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                          -------------------------------
                                           1997         1998         1999
                                          -----        -----        -----
<S>                                       <C>          <C>          <C>
Domestic sales                             84.4%        86.5%        75.3%
Foreign sales                              15.6         13.5         24.7
                                          -----        -----        -----
Net sales                                 100.0%       100.0%       100.0%
Costs and expenses:
  Cost of sales                            53.7%        46.3%        44.5%
  Royalties and project abandonment        16.5         22.3         16.0
  Product development                       2.1          3.2          4.2
  Selling and marketing                     9.7          9.4         11.7
</TABLE>



                                       22
<PAGE>   25

<TABLE>
<S>                                         <C>         <C>         <C>
  Payment to venture partner                  --          --         2.0
  General and administrative                 6.3         4.8         5.0
  In-process research and development         --         3.3          --
                                            ----        ----        ----
Total costs and expenses                    88.3%       89.3%       83.4%
                                            ----        ----        ----
Income from operations                      11.7%       10.7%       16.6%
Interest income (expense) -- net             0.5         0.4         0.3
                                            ----        ----        ----
Income before income taxes                  12.2%       11.1%       16.9%
                                            ----        ----        ----
Net income                                  10.0%        6.8%       10.9%
                                            ====        ====        ====
</TABLE>

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998

        The following table sets forth, for the years ended December 31, 1999
and 1998, the titles released during such periods for the platforms indicated:

<TABLE>
<CAPTION>
                           YEARS ENDED DECEMBER 31,
                        ------------------------------
                            1998            1999
                        -------------   --------------
<S>                     <C>             <C>
Nintendo 64                  2               10
PC CD-ROM                    5               11
PlayStation                  8                9
SNES                         1               --
Game Boy Color               5               12
                        -------------   --------------
          Total              21              42
                        =============   ==============
</TABLE>


        Our net sales increased to $302,357,000 in the year ended December 31,
1999, from $216,111,000 in the same period of 1998, as a result of increased
foreign sales, a larger number of products shipped, and the market success of
key titles. For the year ended December 31, 1999, net sales of our Rugrats
titles, WCW titles and WWF titles, were $84,204,000 (27.8% of net sales),
$64,615,000 (21.4% of net sales), and $42,011,000 (13.9% of net sales),
respectively.

        Our foreign net sales grew to $74,656,000 for the year ended December
31, 1999, from $29,132,000, in the same period of 1998, and increased as a
percentage of net sales to 24.7% from 13.5%. The increase in our foreign net
sales in 1999 was attributable to the addition of our Rushware subsidiary (which
added the LucasArts brand in Germany as well as European specific product) and
the success of key titles such as wrestling and Rugrats in certain foreign
markets.

        Our cost of sales for the year ended December 31, 1999 decreased
slightly as a percentage of net sales to 44.5% from 46.3% in the same period of
1998, primarily as a result of the increase in PlayStation and CD-ROM product
sales which generally have more favorable gross margins than cartridge products.

        Our royalty expense for the year ended December 31, 1999 decreased as a
percentage of net sales to 16.0% from 22.3% in the same period in 1998. Sales in
1999 consisted of some in-house titles carrying minor or no royalties, LucasArts
games in Europe which carry no royalties, and selected successful titles which
had favorable royalty rates.



                                       23
<PAGE>   26

        Our product development expenses increased from $6,849,000 in 1998 to
$12,770,000 in 1999. This increase reflects the addition of three internal
studios during the year and an increase in our corporate product development
group to better manage our increased volume of titles in development.

        For the year ended December 31, 1999, our selling and marketing expenses
increased by $15,115,000 compared to the year ended December 31, 1998, as a
result of several significant advertising and promotional campaigns to promote
our WWF titles, Rugrats, Championship Motocross and MTV Sports brands as well
increased warehouse expenses, infrastructure and personnel costs (both domestic
and foreign) incurred as a result of our growth in 1999.

        For the year ended December 31, 1999, we incurred expense in the amount
of $6,119,000 to our venture partner, JAKKS Pacific. Pursuant to the arrangement
regarding the license with the WWF, THQ pays JAKKS Pacific a preferred return on
product sales and JAKKS Pacific shares in other income derived from the license.

        Our general and administrative expenses for the year ended December 31,
1999 remained relatively constant as a percentage of net sales at 5.0% compared
to 4.8% for the same period of 1998, but increased in dollar terms by $4,533,000
over 1998. This increase can be attributed to the expansion of our corporate
offices, amortization of a new sales and financial accounting software package,
and a full year of general and administrative expenses for Rushware.

        The in-process research and development charge of $7,232,000 incurred
during 1998 represents purchase costs relating to the acquisition of GameFx.
Purchased research and development includes the value of products in the
development stage and not considered to have reached technological feasibility.
The technology purchased was completed in 1999 and did not result in a
commercially successful product.

        For the year ended December 31, 1999, interest income increased by
$262,000 compared to 1998, as a result of increased cash flows from operations
and higher average investment balances during the period.

        During the year ended December 31, 1999 we recorded a tax provision of
$18,287,000, an increase of $8,945,000 over 1998. The effective tax rate for
1999 was 35.7% compared to 39.0% in 1998. The 1998 effective tax rate was
negatively impacted by the fact that the purchased in-process research and
development costs of $7,232,000 were not deductible for tax purposes. The
negative impact of the in-process research and development was offset by the
partial reversal of the valuation reserve against deferred tax assets. The 1999
effective tax rate was positively impacted by the reversal of the remaining
$2,461,000 valuation allowance.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997

        The following table sets forth, for the years ended December 31, 1997
and 1998, the titles released during such periods for the platforms indicated:



                                       24
<PAGE>   27

<TABLE>
<CAPTION>
                        YEARS ENDED DECEMBER 31,
                      ------------------------------
                          1997            1998
                      -------------   --------------
<S>                   <C>             <C>
Nintendo 64                1                2
PC CD-ROM                  2                5
PlayStation                7                8
SNES                      10                1
Genesis                    5               --
Game Boy Color             8                5
                      -------------   --------------
          Total            33              21
                      =============   ==============
</TABLE>

        Our net sales increased to $216,111,000 in 1998, from $89,579,000 in
1997, primarily as a result of higher unit sales per title shipped. For the year
ended December 31, 1998, net sales of our WCW titles, Rugrats titles and Quest
64 release were $140,441,000 (65.0% of net sales), $17,741,000 (8.2% of net
sales) and $17,367,000 (8.0% of net sales), respectively.

        Our foreign net sales grew to $29,132,000 for the year ended December
31, 1998, from $13,998,000, in the same period of 1997, yet decreased as a
percentage of net sales to 13.5% from 15.6%, as a consequence of our substantial
increase in domestic sales. Our foreign sales in 1998 were attributable to the
release of WCW titles, and World Cup 98 and Small Soldiers for the Game Boy
platform in foreign markets in 1998, as well as continued demand for previously
released titles.

        Our cost of sales for 1998 decreased significantly as a percentage of
net sales to 46.3%, from 53.7% in 1997, primarily as a result of the increase in
sales of PlayStation titles (which generally have more favorable gross margins
than cartridge titles for Nintendo's platforms).

        Our royalty expense for 1998 increased $33,367,000 over the same period
in 1997 and increased as a percentage of our net sales to 22.3% from 16.5% in
1997. The rise reflects the fact that license and development royalty rates on
the 32-bit and 64-bit games released in 1998 were higher than those typical for
older platforms.

        Our product development expenses increased by $4,962,000 in 1998 as
compared to 1997. This was due in part to the increased costs associated with
the development of 32-bit, 64-bit, PC and on-line games, and also reflects
operating costs due to increased personnel in connection with the acquisition of
GameFx in May 1998.

        Our selling and marketing expenses increased by $11,592,000 in 1998 over
1997, as a result of increased marketing efforts for new titles. This consisted
primarily of television, print and retail cooperative advertising and increased
warehouse expense (which is the result of increased sales volume). Selling and
marketing expenses as a percentage of our net sales were 9.4% in 1998 as
compared to 9.7% in 1997.

        Our general and administrative expenses for 1998 decreased as a
percentage of net sales to 4.8%, from 6.3% for 1997, but increased in dollar
terms by $4,803,000 over 1997. This



                                       25
<PAGE>   28

increase occurred both domestically and internationally and was in response to
the growth we experienced in 1998.

        The in-process research and development charge of $7,232,000 incurred
during 1998 represents purchase costs relating to the acquisition of GameFx.
Purchased research and development includes the value of products in the
development stage and not considered to have reached technological feasibility.

LIQUIDITY AND CAPITAL RESOURCES

        Our principal uses of cash are product purchases, guaranteed payments to
licensors, advance payments to developers and the costs of internal software
development. In order to purchase products from the manufacturers, we typically
open letters of credit in their favor or obtain a line of credit from the
manufacturer. As of December 31, 1999, we had obligations with respect to future
guaranteed minimum royalties of $31,404,000.

        Our cash and cash equivalents increased to $21,303,000 at December 31,
1999 from $19,063,000 at December 31, 1998. Cash used in operating activities
for 1999 was $7,109,000, reflecting our use of working capital to partially fund
our growth. As of March 20, 2000 our cash and cash equivalents were $35,878,000.

        Accounts receivable at December 31, 1999 increased from December 31,
1998 as a result of increased sales volume and the later shipment of key titles
during the fourth quarter of 1999 compared to the same period of 1998. Prepaid
and deferred royalties and software development costs increased from December
31, 1998 as a result of our entering into several new licensing contracts and
the significant increase in the number of products in development at the end of
1999. See "--Recovery of Prepaid Royalties, Guarantees and Capitalized
Development Costs." Accrued royalties also increased, in part, as a result of
new contracts for licenses and product development. Additionally, increased
demand for certain titles sold in 1999 resulted in royalties due in excess of
the minimum guarantees on the related contracts. Inventory and related accounts
payable decreased during 1999 as the 1998 balance reflected the advanced
purchases of product relating to the expiration of the WCW license. Such product
was purchased prior to the termination date of the license (December 28, 1998)
and was sold during the first half of 1999.

        The amount of our accounts receivable is subject to significant seasonal
variations as a consequence of the seasonality of our sales, and is typically
highest at the end of the year. As a result, our working capital requirements
are greatest during our third and fourth quarters. We believe that our cash on
hand, funds provided by operations, and our revolving credit facilities will be
adequate to meet our anticipated requirements for operating expenses, product
purchases, guaranteed payments to licensors and software development through
2000.

        Our capital expenditures were $4,413,000 in 1999 reflecting a
significant investment in new operational and financial systems. We expect to
make capital expenditures of between $4,000,000 and $5,000,000 in 2000 as we
continue to invest in our business systems and next generation development
tools.



                                       26
<PAGE>   29

        Net cash provided by financing activities for 1999 was $11,981,000, and
was provided by the short-term borrowings and the exercise of options and
warrants to purchase our common stock.

        CREDIT FACILITIES. In December 1998, we entered into two trade finance
agreements (as amended) with Union Bank of California that established a
revolving credit facility. These agreements currently expire on June 1, 2000.
The principal agreement (as amended) permits us to borrow (and maintain
obligations under outstanding letters of credit) up to $43,000,000, subject to
the following:

        -       We may maintain outstanding letters of credit for product
                purchases of up to $38 million in the aggregate through the end
                of February 2000;

        -       We may maintain outstanding letters of credit for product
                purchases of up to $25 million in the aggregate between March 1,
                2000 and June 1, 2000;

        -       We may borrow up to $30 million through February 29, 2000, $25
                million during March 2000, and $15 million during April and May
                2000, (including amounts owing as a result of draws under
                letters of credit), but we are required to not have any
                borrowings for a period of at least 60 days during each year of
                the term of the agreement.

        Our other agreement with Union Bank is for our United Kingdom
subsidiary, T.HQ International Ltd., and permits that subsidiary to obtain
product purchase letters of credit of up to $7 million in the aggregate.

        These credit facilities are secured by a lien on substantially all of
our assets and those of T.HQ International Ltd. Amounts outstanding under these
credit facilities bear interest, at our choice, at either a) the bank's prime
rate (8.5% at December 31, 1999) or b) the London Interbank Offered Rate (5.69%
at December 31, 1999) plus 1.85%. As of December 31, 1999, we had $16,702,000 in
outstanding borrowings under these credit facilities and had obligations in
respect of outstanding letters of credit of $8,134,000. As of March 20, 2000 we
had no outstanding borrowings and outstanding letters of credit amounted to
$1,800,000.



        These agreements contain financial covenants, including the requirement
that we:

        -       maintain the ratio of our cash, cash equivalents and accounts
                receivable, to our current liabilities (including advances by
                the bank), at not less than 1.00:1.00 at the end of each
                quarter;

        -       maintain minimum shareholders' equity;



                                       27
<PAGE>   30

        -       maintain the ratio of our total liabilities to our shareholders'
                equity at not greater than 1.10:1.00 as of December 31, 1998 and
                1.00:1.00 as of the end of each quarter thereafter;

        -       achieve operating profits of at least $1 each quarter; and

        -       maintain the ratio of the value of our inventory as of the last
                day of any quarter, to our cost of goods sold for the four
                consecutive quarters ending on that day (or four times our cost
                of goods sold for the last quarter, if greater), at not more
                than 1.00:10.50.

        These agreements also contain customary non-financial covenants
including restrictions on the incurrence of debt and encumbrances and
limitations on sales of assets, mergers and acquisitions, dividends, capital
expenditures and annual lease obligations.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to certain market risks arising from transactions in the
normal course of business, principally risk associated with interest rate and
foreign currency fluctuations.

INTEREST RATE RISK

        Our interest rate risk is immaterial due to the short maturity of the
debt. We have no fixed rate debt.

FOREIGN CURRENCY RISK

        We have not hedged our foreign currency exposure in the past. It is
possible that in the future we will enter into foreign currency contracts in
order to manage or reduce foreign currency market risk.

        Our earnings are affected by fluctuations in the value of our
subsidiaries' functional currency as compared to the currencies of our foreign
denominated sales and purchases. The results of operations of our subsidiaries,
as reported in U.S. dollars, may be significantly affected by fluctuations in
the value of the local currencies in which we transact business. Such amount is
recorded upon the translation of the foreign subsidiaries' financial statements
into U.S. dollars, and is dependent upon the various foreign exchange rates and
the magnitude of the foreign subsidiaries' financial statements. During the
year ended December 31, 1999, our foreign currency translation loss



                                       28
<PAGE>   31

adjustment was $902,000. Currency transaction gains and losses for the years
ended December 31, 1997, 1998 and 1999 were not significant. A hypothetical 10%
change in the relevant currency rates at December 31, 1999 would not result in a
material gain or loss. In addition to the direct effects of changes in exchange
rates, which are a changed dollar value of the resulting sales and related
expenses, changes in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors' products become more or less
attractive.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Financial Statements and supplementary data, together with the
report of Deloitte & Touche LLP dated February 24, 2000, required by this Item
are included in Item 14 of this annual report and are incorporated herein by
reference.

        Please note that the Financial Statements included herein reflect a
correction made to an inter-company consolidation error in our fourth quarter
financial results as previously announced on February 23, 2000. The correction
reduced both revenues and cost of goods sold by approximately $4,067,000, (3.1%
and 6.5%, respectively, for the quarter and 1.3% and 2.9%, respectively, for the
year), as compared to what was announced on February 23, 2000. The correction
does not impact earnings per share, net income, gross margins or operating
expenses. In addition, we have included in the Financial Statements the fair
market value of the warrants issued to the WWF. This addition resulted in an
increase of $3,063,000 to deferred royalties net - of current portion and to
additional paid-in capital, as compared to what was included in the Balance
Sheet that was in our press release of February 23, 2000. This addition does not
impact the Statement of Operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None.

                                       29
<PAGE>   32
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ELECTION OF DIRECTORS

        Our Board of Directors is comprised of the following six members. There
are no family relationships among any of our directors or executive officers.

        BRIAN J. FARRELL (age 46) has been our President and Chief Executive
Officer since January 1995 and a director since March 1993. Between October 1992
and January 1995, Mr. Farrell served as our Executive Vice President and Chief
Operating Officer. From July 1991 to October 1992, Mr. Farrell served as our
Vice President, Chief Financial Officer and Treasurer. From 1984 until joining
us, Mr. Farrell was Vice President and Chief Financial Officer of Starwood
Hotels & Resorts (then known as Hotel Investors Trust), a real estate investment
trust ("Starwood"). Mr. Farrell was employed by Deloitte Haskins & Sells, a
predecessor of Deloitte & Touche LLP, an international accounting firm and our
current auditors ("Deloitte"), from 1978 to 1984 and is a certified public
accountant.

        JEFFREY C. LAPIN (age 42) has been our Vice Chairman and an employee
since October 1998 and a director since April 1995. From July 1996 through
October 1998, Mr. Lapin was the President and Chief Operating Officer of House
of Blues, Inc. Hospitality and Executive Vice President of House of Blues, Inc.
Entertainment. From January 1995 to June 1996, Mr. Lapin was the President and
Chief Operating Officer of Starwood, and from May 1991 to January 1995 Mr. Lapin
was the President and Chief Executive Officer of Starwood. Mr. Lapin was a Vice
President of Starwood from January 1988 to May 1991, the Secretary of Starwood
from September 1986 to May 1991, and served as a Trustee of Starwood from
September 1992 to June 1996. Prior to his employment by Starwood, Mr. Lapin was
an attorney at Mitchell, Silberberg & Knupp in Los Angeles.

        LAWRENCE BURSTEIN (age 57) has been a director since July 1991. Since
March 1996, Mr. Burstein has been President, director and a stockholder of Unity
Venture Capital Associates Ltd., a private investment company. From 1986 through
March 1996, Mr. Burstein was President, a director and a principal stockholder
of Trinity Capital Corporation, a private investment company. Mr. Burstein is a
director of Brazil Fast Food Corp., CAS Medical Systems, Inc., MNI Group, Inc.,
I.D. Systems, Inc. and Quintel Communications, Inc.

        BRUCE JAGID (age 60) has been a director since April 1995. Mr. Jagid is
an investor and also serves as President of Brumar Industries and Coining
Technologies, Inc. From April 1991 to January 1999, Mr. Jagid was the Chairman
and Chief Executive Officer of Ultralife Batteries, Inc. ("Ultralife"), a
manufacturer of lithium batteries. From 1970 to 1989 Mr. Jagid was President of
Power Conversion Inc. Mr. Jagid is also a director of I.D. Systems, Inc. and
Ultralife.


                                       30
<PAGE>   33
        JAMES L. WHIMS (age 45) has been a director since April 1997. Since
1996, Mr. Whims has been a Managing Director of Techfund Capital I, L.P. and
TechFund Capital II, L.P., venture capital firms concentrating on
high-technology enterprises. From 1994 to 1996, Mr. Whims was Executive Vice
President of Sony Computer Entertainment of America. From 1990 to 1994, Mr.
Whims was Executive Vice President of The Software Toolworks Inc. Mr. Whims is
also a director of 3Dfx Interactive, Inc. ("3Dfx"), which designs and develops
3D media processors and software ("3Dfx"), as well as numerous private companies
in his portfolio.

        L. GREG BALLARD (age 46) has been a director since April 1999. Since
January 2000, Mr. Ballard has been the Chief Executive Officer at MyFamily.com,
a leading community internet company. Prior to that, from December 1996 until
November 1999, Mr. Ballard was the President and Chief Executive Officer of
3Dfx. From May 1995 to November 1996, Mr. Ballard was the President of Capcom
Entertainment, Inc., a videogame and multimedia entertainment company. From 1994
to March 1995, Mr. Ballard served as Chief Operating Officer and Chief Financial
Officer of Digital Pictures, Inc., a video game company. From 1991 to 1994, Mr.
Ballard was President and Chief Executive Officer of Warner Custom Music Corp.,
a multimedia marketing division of Time Warner, Inc. Previously, Mr. Ballard was
President and Chief Operating Officer of Personics Corp., a predecessor to
Warner Music. In addition, Mr. Ballard has worked for Boston Consulting Group
and as an attorney in Washington, D.C. Mr. Ballard is also a director of 3Dfx,
MyFamily.com and Pinnacle Systems.

        Directors are elected annually by the stockholders and hold office until
the next annual meeting and until their respective successors are elected and
qualified.

EXECUTIVE OFFICERS

        Our executive officers include Messrs. Farrell, Lapin, Gysi and Walsh
and Ms. Alison Locke. All of our executive officers are appointed by and serve
at the discretion of the Board of Directors.

        FRED A. GYSI (age 45) has been our Vice President - Finance and
Administration, Chief Financial Officer, Treasurer and Secretary since November
1997. From October 1996 to October 1997, Mr. Gysi was the Chief Financial
Officer of HPM-Stadco, a manufacturing company. From August 1995 to October
1996, Mr. Gysi was the President and co-founder of GP Management Consulting, a
provider of financial, operations and systems consulting services to emerging
and middle market companies. From 1992 to 1995, Mr. Gysi was a partner at
Collett & Levy, an accounting firm. Mr. Gysi was employed by Deloitte from 1980
to 1992 and was a partner of that firm from 1988 to 1992.

        ALISON LOCKE (age 45) was appointed Senior Vice President - Sales and
Marketing in February 1999. Ms. Locke is responsible for all sales and marketing
activities in North America. From January 1995 to January 1999, Ms. Locke served
as our Senior Vice President - Sales. From 1991 to January 1995, Ms. Locke
served as our Vice President - Sales. Previously, Ms. Locke served as Vice
President of Computer Product and Nintendo Game Sales for Data East USA
Incorporated, an interactive entertainment company, and in various sales
capacities with Activision Inc. and Broderbund Software, Inc.


                                       31
<PAGE>   34
        TIM F. WALSH (age 36) has been our Vice President - International since
January 1998. From May 1997 to January 1998 he was our Director of
International. Mr. Walsh was Director of International and OEM Sales of
Accolade, a publisher of video and PC game software from January 1996 to May
1997. From September 1993 to December 1995, Mr. Walsh held various positions at
Time Warner Interactive.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

        Pursuant to Section 16(a) of the Exchange Act and the rules issued
thereunder, our executive officers and directors are required to file with the
SEC and the Nasdaq Stock Market reports of ownership and changes in ownership of
the Common Stock. Copies of such reports are required to be furnished to us.
Based solely on our review of the copies of such reports furnished to us or on
written representations to us that no such reports were required, we believe
that during the year ended December 31, 1999, all of our executive officers and
directors and all beneficial owners of more than 10% of our Common Stock filed
on a timely basis all reports, if any, required by Section 16(a) of the Exchange
Act.

ITEM 11. EXECUTIVE COMPENSATION

        The following tables summarizes the compensation for the fiscal years
ended December 31, 1997, 1998 and 1999 of our Chief Executive Officer and our
other most highly compensated executive officers whose cash compensation
exceeded $100,000 in 1999 (the "Named Executives"):

<TABLE>
<CAPTION>
                                                                           LONG-TERM
                                                                         COMPENSATION
                                      ANNUAL COMPENSATION                   AWARDS
                               --------------------------------------    -------------
                                                         OTHER              SHARES
      NAME AND                                           ANNUAL            UNDERLYING      ALL OTHER
 PRINCIPAL POSITION     YEAR   SALARY(1)   BONUS      COMPENSATION(2)       OPTIONS(3)    COMPENSATION
--------------------    ----   ---------  --------    ---------------    --------------   -------------
<S>                     <C>    <C>        <C>         <C>                <C>              <C>
Brian J. Farrell        1999   $370,154   $360,000                           150,000       $ 6,000(4)
President and Chief     1998   $310,109   $300,000           --              225,000       $ 6,000(4)
Executive Officer       1997   $308,769   $300,000           --              112,500       $ 6,000(4)

Jeffrey C. Lapin(5)     1999   $225,866   $225,000           --               75,000       $ 6,000(6)
Vice Chairman           1998         --   $ 25,000           --              322,500       $40,000(7)
                        1997         --         --           --               22,500            --

Fred A. Gysi            1999   $168,333   $ 50,000           --               30,000       $ 6,000(8)
CFO, V.P. - Finance     1998   $149,380   $ 40,000           --               33,750       $ 6,000(8)
and Administration,     1997   $ 24,038   $  5,000           --               90,000            --
Treasurer and
Secretary

Alison Locke            1999   $196,692   $250,198           --               60,000       $ 6,000(8)
Senior V.P.-            1998   $147,335   $286,910           --               39,375       $ 6,000(8)
Sales and Marketing     1997   $152,584   $166,497           --               61,875       $ 6,000(8)

Tim F. Walsh            1999   $150,577   $146,876           --               45,000       $ 6,000(9)
V.P.- International     1998   $110,039   $121,876           --               33,750       $ 6,000(9)
                        1997   $ 60,769   $ 30,000           --               90,000       $ 1,846(9)
</TABLE>

---------


                                       32
<PAGE>   35
(1)     Included in each Named Executive's salary are amounts that were deferred
        by such Named Executive pursuant to our Defined Contribution Plan.

(2)     Amounts shown do not include amounts expended by us pursuant to plans
        (including group life and health) that do not discriminate in scope,
        terms or operation in favor of our executive officers or directors and
        that are generally available to all salaried employees. The value of
        such benefits did not exceed the lesser of either $50,000 or 10% of the
        total annual salary and bonus reported for any individual named.

(3)     Awards of stock option grants have been adjusted to reflect the 50%
        stock dividends distributed in August 1998 and December 1999.

(4)     The amounts shown for 1997, 1998 and 1999 reflect matching contributions
        in the amounts of $6,000 made by us in accordance with our Defined
        Contribution Plan. This amount does not reflect special awards and
        payments Mr. Farrell is entitled to receive if his employment is
        terminated as a result of a change in control of our company, which
        would have had a value of approximately $887,000 as of December 31, 1997
        and 1998, and $1,196,000 as of December 31, 1999. See "Employment
        Agreement with Brian J. Farrell."

(5)     Mr. Lapin joined the Company in October 1998.

(6)     The amount shown for 1999 reflects a matching contribution in the
        amounts of $6,000 made by us in accordance with our Defined Contribution
        Plan. This amount does not reflect special awards and payments Mr. Lapin
        is entitled to receive if his employment is terminated as a result of a
        change in control of our company, which would have had a value of
        approximately $822,250 as of December 31, 1999. See "Employment
        Agreement with Jeffrey C. Lapin."

(7)     The amount shown reflects the amount paid to Mr. Lapin for consulting
        services rendered by him prior to Mr. Lapin becoming an employee.

(8)     The amounts shown for 1998 and 1999 reflect matching contributions in
        the amount of $6,000 made by us in accordance with our Defined
        Contribution Plan.

(9)     The amounts shown for 1997, 1998 and 1999 reflect matching contributions
        in the amount of $1,846, $6,000 and $6,000, respectively, made by us in
        accordance with our Defined Contribution Plan.


                                       33
<PAGE>   36
OPTION GRANTS IN LAST FISCAL YEAR

        The following table sets forth the number of stock options granted to
each of the Named Executives during the fiscal year ended December 31, 1999. The
table also sets forth the potential realizable value of such stock options in
the year of their expiration at arbitrarily assumed annualized rates of stock
price appreciation of five and ten percent over the full five-year term of the
stock options. No gain to the Named Executives is possible without an increase
in the price of our Common Stock, which will benefit all stockholders
proportionately. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the future performance of our Common Stock and
overall stock market conditions. There can be no assurance that the potential
realizable values shown in this table will be achieved.

<TABLE>
<CAPTION>
                         INDIVIDUAL GRANTS
                     ---------------------------                                  POTENTIAL REALIZABLE
                                    PERCENT OF                                      VALUE AT ASSUMED
                                       TOTAL                                         ANNUAL RATES OF
                      SHARES          OPTIONS       EXERCISE                       STOCK APPRECIATION
                     UNDERLYING     GRANTED TO      OR BASE                         FOR OPTION TERM(2)
                      OPTIONS       EMPLOYEES IN    PRICE PER   EXPIRATION     ---------------------------
                     GRANTED(1)     FISCAL YEAR      SHARE(1)      DATE            5%               10%
                     ----------     ------------    ---------   ----------     ----------       ----------
<S>                  <C>            <C>             <C>         <C>            <C>              <C>
Brian J. Farrell      150,000           11%           $25.79     11/03/04      $1,069,121       $2,362,139

Jeffrey C. Lapin       75,000            6%           $25.79     11/03/04      $  534,560       $1,181,084

Fred A. Gysi           30,000            2%           $25.79     11/03/04      $  213,824       $  472,434

Alison Locke           60,000            5%           $25.79     11/03/04      $  427,648       $  944,867

Tim F. Walsh           45,000            3%           $25.79     11/03/04      $  320,736       $  708,651
</TABLE>

---------

///

(1)     Amounts presented reflect the 50% stock dividend distributed in December
        1999.

(2)     For the stock options indicated, these amounts represent the exercise
        price multiplied by the annual appreciation rate shown compounded
        annually for the term of each option, less the exercise price,
        multiplied by the number of options granted. The dollar amounts set
        forth under this heading are the result of calculations at the 5% and
        10% rates set by the SEC and therefore are not intended to forecast
        possible future appreciation, if any, of our stock price.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

        The following table sets forth, for each of the Named Executives,
certain information regarding the number of stock options exercised during the
fiscal year ended December 31, 1999 and the value of stock options held at
fiscal year end.


                                       34
<PAGE>   37

<TABLE>
                                                               NUMBER OF
                                                           SHARES UNDERLYING                VALUE OF UNEXERCISED
                                                          UNEXERCISED OPTIONS              IN-THE-MONEY OPTIONS
                        SHARES                            AT FISCAL YEAR-END               AT FISCAL YEAR-END(1)
                       ACQUIRED         REALIZED       ---------------------------    -----------------------------
NAME                  ON EXERCISE        VALUE         EXERCISABLE   UNEXERCISABLE    EXERCISABLE     UNEXERCISABLE
----                  -----------      ----------      -----------   -------------    -----------     -------------
<S>                   <C>              <C>             <C>           <C>              <C>             <C>
Brian J. Farrell        150,000        $3,972,896        450,001        337,500        $8,547,388       $2,630,910

Jeffrey C. Lapin         90,000        $2,031,458        200,000        175,000        $2,404,160       $1,202,080

Fred A. Gysi             30,000        $  711,823         11,251         82,500        $  150,248       $  802,694

Alison Locke             49,840        $1,081,298             --        106,873        $       --       $  723,535

Tim F. Walsh             49,158        $1,129,343            346         97,497        $    5,789       $  852,345
</TABLE>

---------

(1)     Calculated based on the excess of fair market value of our common stock
        on December 31, 1999 over the respective exercise prices of the options.

DIRECTOR COMPENSATION

        Directors who are also employees and officers of our company are not
paid any compensation for service as directors. Non-employee directors are
compensated by cash payments comprised of $12,000 plus $1,500 for attendance at
each Board meeting held in person and $500 for attendance at each Board meeting
held by telephone, and the grant of options pursuant to our 1997 Stock Option
Plan. Pursuant to such plan, each non-employee director is granted options to
purchase 3,750 shares of Common Stock on the first day of each fiscal quarter at
a per share exercise price equal to the market price of a share of Common Stock
on the date of grant.

        During 1999, each of the non-employee directors received grants under
our 1997 Stock Option Plan of options exercisable for 15,000 shares of Common
Stock.

EMPLOYMENT AGREEMENT WITH BRIAN J. FARRELL

        Mr. Farrell and we agreed on June 30, 1999 to amend and restate the
terms of his employment agreement effective as of December 31, 1996 (as amended
and restated, the "Employment Agreement") which provides for Mr. Farrell's
employment by us through December 31, 2001 (the "Employment Period").

        The Employment Agreement provided for an annual base salary of $360,000
in 1999, subject to annual review. For 1999, Mr. Farrell was entitled to an
annual bonus equal to the lesser of $360,000 or 4.5% of our annual net income
before taxes for such year. The annual bonus is also subject to annual review.
We also are required to provide Mr. Farrell with life insurance and disability
insurance during, and for 12 months after, the Employment Period.

        The Employment Agreement provides that if Mr. Farrell's employment is
terminated by him voluntarily or by us for "cause," he will be precluded without
our consent during the subsequent 12 months from engaging, directly or
indirectly, in any business activity that


                                       35
<PAGE>   38
competes with our business and from detrimentally affecting any relationship
between us and, or soliciting away from us, any of our customers, suppliers or
employees. If the Employment Agreement is not renewed by either Mr. Farrell or
us prior to its scheduled expiration date, the noncompetition restriction will
expire on March 31, 2002.

        The Employment Agreement also provides that in the event any person or
group of persons (i) acquires or obtains the right to acquire 30% or more of our
common stock, or (ii) (a) acquires at least 10% of our common stock or (b) files
a Schedule 13D or 13G with the Commission and the Board of Directors deems that
the ownership of Common Stock by such person or group of persons would cause a
material adverse impact on our business (a "Change of Control"):

        1.      If Mr. Farrell's employment is subsequently terminated other
                than for cause or if he voluntary terminates his employment
                within 180 days after the Change of Control, he will be entitled
                to receive a lump sum cash payment equal to 2.99 times the base
                compensation paid to him at the time of such Change of Control;
                and

        2.      All options, warrants and other rights ("Options") held by Mr.
                Farrell to purchase Common Stock will immediately vest, or he
                will be entitled to surrender all of such Options and receive an
                amount in cash per share equal to the difference between the
                option prices of the Options surrendered and the greater of (i)
                the average price per share paid by the person acquiring control
                of our company, (ii) the average price paid in connection with a
                tender offer for our common stock, or (iii) the average trading
                price of our common stock on the date of termination of Mr.
                Farrell's employment.

EMPLOYMENT AGREEMENT WITH JEFFREY C. LAPIN

        We entered into an employment agreement with Mr. Lapin dated January 1,
1999 (the "Employment Agreement") to employ Mr. Lapin as our Vice Chairman
through December 31, 2001 (the "Employment Period").

        The Employment Agreement provided for an annual base salary of $225,000
in 1999, subject to annual review. For 1999, Mr. Lapin was entitled to an annual
bonus equal to the lesser of $225,000 or 3.5% of our annual net income before
taxes for such year. The annual bonus is also subject to annual review. We also
are required to provide Mr. Lapin with life insurance and disability insurance
during, and for 12 months after, the Employment Period.

        The Employment Agreement provides that if Mr. Lapin's employment is
terminated by him voluntarily or by us for "cause," he will be precluded without
our consent during the subsequent 12 months from engaging, directly or
indirectly, in any business activity that competes with our business and from
detrimentally affecting any relationship between us and, or soliciting away from
us, any of our customers, suppliers or employees. If the Employment Agreement is
not renewed by either Mr. Lapin or us prior to its scheduled expiration date,
the noncompetition restriction will expire on March 31, 2002.


                                       36
<PAGE>   39
        The Employment Agreement also provides that in the event any person or
group of persons (i) acquires or obtains the right to acquire 30% or more of our
common stock, or (ii) (a) acquires at least 10% of our common stock or (b) files
a Schedule 13D or 13G with the Commission and the Board of Directors deems that
the ownership of Common Stock by such person or group of persons would cause a
material adverse impact on our business (a "Change of Control"):

        1.      If Mr. Lapin's employment is subsequently terminated other than
                for cause or if he voluntary terminates his employment within
                180 days after the Change of Control, he will be entitled to
                receive a lump sum cash payment equal to 2.99 times the base
                compensation paid to him at the time of such Change of Control;
                and

        2.      All options, warrants and other rights ("Options") held by Mr.
                Lapin to purchase Common Stock will immediately vest, or he will
                be entitled to surrender all of such Options and receive an
                amount in cash per share equal to the difference between the
                option prices of the Options surrendered and the greater of (i)
                the average price per share paid by the person acquiring control
                of our company, (ii) the average price paid in connection with a
                tender offer for our common stock, or (iii) the average trading
                price of our common stock on the date of termination of Mr.
                Lapin's employment.

SEVERANCE AGREEMENTS

        The Company has entered into severance agreements (the "Severance
Agreements") with each of its executives except for Messrs. Farrell and Lapin.
Mr. Farrell's and Mr. Lapin's employment agreements provide for the payment of
benefits upon each individual's termination following a Change of Control as
discussed above in "Employment Agreement with Brian J. Farrell" and "Employment
Agreement with Jeffrey C. Lapin."

        The Severance Agreements provide for the payment of benefits to the
executives upon a "Change in Control." The executives agree to not voluntarily
leave our company without "Good Reason" until the earlier of (a) such attempted
Change in Control terminates, or (b) if a Change in Control occurs, 90 days
following such Change in Control.

        A "Change in Control" is defined, subject to certain exceptions, as an
acquisition by any person or group of persons of 30% or more of either (a) the
outstanding Common Stock, or (b) the combined voting power of the outstanding
securities entitled to vote for the election of directors.

        "Good Reason" is defined to include any of the following events after a
Change in Control: (a) any removal or involuntary termination of the executive;
(b) a reduction of the executive's rate of annual base salary as in effect
immediately prior to the Change in Control or our failure to pay such salary;
(c) a requirement that the executive relocate; (d) our failure to provide the
executive with compensation, vacation and other fringe benefits, expense
reimbursement, and welfare benefits in accordance with the most favorable plans
and benefits in


                                       37
<PAGE>   40
effect for the peer officers of our company after the Change in Control; and (e)
our failure to maintain the effectiveness of the Severance Agreements after the
Change in Control.

        The Severance Agreements provide that if an executive's employment is
terminated within the year following a Change in Control for any other reason,
such executive will be entitled to receive, among other benefits, a cash amount
equal to (i) one times such executive's annual base salary paid to such
executive at the time of the Change in Control, plus (ii) one times such
executive's annual bonus paid or payable to such executive in respect of our
fiscal year immediately preceding the fiscal year in which the Change in Control
occurs. In addition, if on the date of termination such executive's stock
options are not fully vested, all such stock options shall become immediately
vested and exercisable for such period as provided in the plan and/or agreement
governing such options. If Messrs. Gysi and Walsh and Ms. Locke were terminated
in accordance with the foregoing they currently would receive $215,000, $300,000
and $375,000, respectively.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Compensation Committee in 1999 consisted of Messrs. Burstein and
Whims. Each of Messrs. Burstein and Whims are non-employee Directors and
neither have any direct or indirect material interest in, or relationship with,
us outside of his position as a Director. To our knowledge, there were no other
interrelationships involving members of the Compensation Committee or other
Directors requiring disclosure.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

        The following table sets forth information as to all persons who are,
to our knowledge, the beneficial owners of 5% or more of our outstanding Common
Stock as of April 20, 2000.

<TABLE>
<CAPTION>
                                                 AMOUNT AND
                                                   NATURE       PERCENT
                                                OF BENEFICIAL     OF
NAME AND ADDRESS                                  OWNERSHIP      CLASS
----------------                                -------------   -------
<S>                                             <C>             <C>
Scudder Kemper Investments, Inc.                 1,263,600(1)     6.6%
345 Park Avenue, New York, New York 10154
</TABLE>

----------

(1)     Based on information set forth in Schedule 13G dated January 28, 2000
        and filed with the Securities and Exchange Commission by Scudder Kemper
        Investments, Inc.

BENEFICIAL OWNERSHIP OF MANAGEMENT

        The following table sets forth certain information with respect to
beneficial ownership of our Common Stock as of April 20, 2000 by each of our
directors as of that date, by the Named Executives and by all directors and
executive officers as a group. Unless otherwise indicated below, each individual
named in the table has sole voting power and sole investment power with respect
to all the shares beneficially owned, subject to community property laws, where
applicable.


                                       38
<PAGE>   41

<TABLE>
<CAPTION>
                                                     AMOUNT AND
                                                       NATURE          PERCENT
                                                    OF BENEFICIAL        OF
NAME AND ADDRESS(1)                                   OWNERSHIP         CLASS
------------------                                  -------------      --------
<S>                                                 <C>                <C>
Brian J. Farrell                                      463,000(2)         2.4%

Jeffrey C. Lapin                                      200,000(3)         1.0%

Lawrence Burstein                                     126,753(4)           *

Bruce Jagid                                           109,501(5)           *

James L. Whims                                        143,005(6)           *

L. Greg Ballard                                        24,375(7)           *

Fred Gysi                                              12,750(8)           *

Alison Locke                                            5,625              *

Tim F. Walsh                                           35,941(9)           *

All Directors and Executive Officers                1,149,271(10)        5.9%
as a group (8 individuals)
</TABLE>

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

*       Less than 1%.

(1)     The address for each individual is c/o THQ Inc., 27001 Agoura Road,
        Calabasas Hills, California 91301.

(2)     Includes 450,000 shares of Common Stock issuable upon exercise of
        options exercisable within 60 days.

(3)     Includes 200,000 shares of Common Stock issuable upon exercise of
        options exercisable within 60 days.

(4)     Includes 105,005 shares of Common Stock issuable upon exercise of
        options exercisable within 60 days.

(5)     Includes 105,000 shares of Common Stock issuable upon exercise of
        options exercisable within 60 days.

(6)     Includes 37,500 shares of Common Stock issuable upon exercise of options
        exercisable within 60 days and 55,147 shares of Common Stock held of
        record by TechFund Capital L.P. ("TechFund"). Mr. Whims is a managing
        member of the general partner of TechFund and accordingly may be deemed
        to share beneficial ownership of the shares of Common Stock held of
        record by TechFund. Mr. Whims disclaims beneficial ownership of such
        shares.


                                       39
<PAGE>   42
(7)     Includes 20,625 shares of Common Stock issuable upon exercise of options
        exercisable within 60 days.

(8)     Includes 11,250 shares of Common Stock issuable upon exercise of options
        exercisable within 60 days.

(9)     Includes 26,596 shares of Common Stock issuable upon exercise of options
        exercisable within 60 days.

(10)    Includes an aggregate of 955,976 shares of Common Stock issuable upon
        exercise of options within 60 days.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We believe that there were no relationships or transactions with management
during the year ended December 31, 1999 that need to be disclosed.


                                       40
<PAGE>   43

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

                See Index to Financial Statements.

        (b) REPORTS ON FORM 8-K.

                Current Report on Form 8-K dated March 21, 2000, reporting
                under item 5.

        (c) EXHIBITS.

<TABLE>
<CAPTION>
     Exhibit Number                                Title
     --------------                                -----
<S>                        <C>
          3.1              Certificate of Incorporation (incorporated by
                           reference to Exhibit 3.1 to Post-Effective Amendment
                           No. 1 to the Registration Statement on Form S-3 filed
                           on January 9, 1998 (File No. 333-32221) (the "S-3
                           Registration Statement")).

          3.2              Amendment to Certificate of Incorporation (incorporated by
                           reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the
                           S-3 Registration Statement).

          3.3              Amended and Restated Bylaws (incorporated by reference to Exhibit
                           3.3 to the Quarterly Report on Form 10-Q for the fiscal quarter
                           ended June 30, 1998).

        10.1*              Amended and Restated Employment Agreement dated as of
                           June 30, 1999, between the Company and Brian J.
                           Farrell (incorporated by reference to Exhibit 10.1 to
                           the Company's Quarterly Report on Form 10-Q for the
                           fiscal quarter ended June 30, 1999 (the "1999 2nd
                           Quarter 10-Q")).

        10.2*              Employment Agreement dated as of January 1, 1999,
                           between the Company and Jeffrey C. Lapin
                           (incorporated by reference to Exhibit 10.2 to the
                           1999 2nd Quarter 10-Q).

        10.3*              Employment Agreement between Fred A. Gysi and the
                           Company dated October 1, 1997 (incorporated by
                           reference to Exhibit 10.6 to the Company's Annual
                           Report on Form 10-K for the fiscal year ended
                           December 31, 1998 (the "1998 10-K")).

        10.4*              Form of Severance Agreement with Executive Officers
                           (incorporated by reference to Exhibit 10.7 to the
                           1998 10-K).
</TABLE>


                                       41
<PAGE>   44
<TABLE>
<S>                        <C>
                           Amended and Restated 1990 Stock Option Plan (incorporated by
        10.5*              reference to Exhibit 10.1 to the Registration Statement on Form
                           S-2 filed on December 23, 1996 (File No. 333-18641)).

        10.6*              Stock Option Agreement dated as of August 28, 1996,
                           between the Company and Brian J. Farrell
                           (incorporated by reference to Exhibit 10.31 to the
                           Company's Annual Report on Form 10-K for the fiscal
                           year ended December 31, 1996).

        10.7*              Amended and Restated 1997 Stock Option Plan (the "1997 Stock
                           Option Plan") (incorporated by reference to Exhibit 4.4 to the
                           Registration Statement on Form S-8 filed on May 14, 1999 (File
                           No. 333-78567)).

        10.8*              Form of Stock Option Agreement for the 1997 Stock
                           Option Plan (incorporated by reference to Exhibit 4.5
                           to the Registration Statement on Form S-8 filed March
                           19, 1999 (File No. 333-74715)).

        10.9*              Stock Option Agreement dated as of October 21, 1998, between the
                           Company and Jeffrey C. Lapin (incorporated by reference to
                           Exhibit 10.8 to the 1999 2nd Quarter 10-Q).

        10.10*             Form of Stock Option Agreement dated as of December
                           23, 1998, between the Company and Messrs. Lawrence
                           Burstein, Bruce Jagid and James Whims (incorporated
                           by reference to Exhibit 10.9 to the 1999 2nd Quarter
                           10-Q).

        10.11              Trade Finance Agreement dated as of December 4, 1998, by and
                           between the Company and Union Bank of California, N.A. ("Union
                           Bank") (incorporated by reference to Exhibit 10.8 to the 1998
                           10-K).

        10.12              Trade Finance Agreement dated as of December 4, 1998,
                           by and between T.HQ International, LTD. ("THQ
                           International") and Union Bank (incorporated by
                           reference to Exhibit 10.9 to the 1998 10-K).

        10.13              First Amendment to Trade Finance Agreement dated as
                           of March 22, 1999, by and between the Company and
                           Union Bank (incorporated by reference to Exhibit
                           10.10 to the 1998 10-K).

        10.14              First Amendment to Trade Finance Agreement dated as
                           of March 22, 1999, by and between THQ International
                           and Union Bank (incorporated by reference to Exhibit
                           10.11 to the 1998 10-K).

        21                 Subsidiaries of the Registrant (incorporated by
                           reference to Exhibit 21 to the Company's Annual
                           Report on Form 10-K for the fiscal year ended
                           December 31, 1999 (the "1999 10-K")).

</TABLE>


                                       42
<PAGE>   45

<TABLE>
<S>                        <C>
        23.1               Consent of Deloitte & Touche LLP.


        27                 Financial Data Schedule (incorporated by
                           reference to Exhibit 27 to the 1999 10-K).
</TABLE>


----------

        *Management contract or compensatory plan or arrangement required to be
        filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.



                                       43
<PAGE>   46

                                   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.

Dated:  April 28, 2000                      THQ INC.

                                            By: /s/   Brian J. Farrell
                                               ---------------------------------
                                               Brian J. Farrell, President
                                               and Chief Executive Officer

        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 and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                        Title                          Date
---------                                        -----                          ----
<S>                                     <C>                                 <C>
/s/ Brian J. Farrell                    Director, President and             April 28, 2000
--------------------------------        and Chief Executive Officer
Brian J. Farrell                        (Principal Executive Officer)

/s/ Lawrence Burstein                   Director                            April 28, 2000
----------------------------
Lawrence Burstein

/s/ Bruce Jagid                         Director                            April 28, 2000
----------------------------
Bruce Jagid

/s/ James L. Whims                      Director                            April 28, 2000
----------------------------
James L. Whims

/s/ Jeffrey C. Lapin                    Director and Vice Chairman          April 28, 2000
------------------------------
Jeffrey C. Lapin

/s/ L. Gregory Ballard                  Director                            April 28, 2000
----------------------------
L. Gregory Ballard

/s/ Fred A. Gysi                        Vice President - Finance and        April 28, 2000
--------------------------------        Administration, Chief Financial
Fred A. Gysi                            Officer and Secretary
                                        (Principal Financial Officer and
                                        Principal Accounting Officer)
</TABLE>


                                       44
<PAGE>   47
                                    THQ INC.

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>
INDEPENDENT AUDITORS' REPORT                                                        F-2

CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Balance Sheets -- December 31, 1998 and 1999                         F-3
  Consolidated Statements of Operations for Each of the Three Years in the
     Period Ended December 31, 1999                                                 F-4
  Consolidated Statements of Shareholders' Equity for Each of the Three Years
     in the Period Ended December 31, 1999                                          F-5
  Consolidated Statements of Cash Flows for Each of the Three Years in the
     Period Ended December 31, 1999                                                 F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                          F-9
</TABLE>

        All financial statement schedules have been omitted since either (i) the
schedule or condition requiring a schedule is not applicable or (ii) the
information required by such schedule is contained in the Consolidated Financial
Statements and Notes thereto.



                                      F-1
<PAGE>   48

                          INDEPENDENT AUDITORS' REPORT

To the Shareholders of THQ Inc.,
Calabasas, California

We have audited the accompanying consolidated balance sheets of THQ Inc. and
subsidiaries (the "Company") as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Los Angeles, California
February 24, 2000



                                      F-2
<PAGE>   49

                            THQ INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                    ------------------------------------
                                                                         1998                    1999
                                                                    -------------          -------------
<S>                                                                 <C>                    <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents                                         $  19,063,000          $  21,303,000
  Accounts receivable -- net                                           59,521,000             96,641,000
  Inventory                                                            16,937,000              5,455,000
  Prepaid and deferred royalties                                        5,321,000             23,478,000
  Software development costs                                            3,011,000             11,640,000
  Deferred income taxes                                                 8,321,000              6,817,000
  Income taxes receivable                                                      --                965,000
  Prepaid expenses and other current assets                             1,556,000              2,226,000
                                                                    -------------          -------------
          Total current assets                                        113,730,000            168,525,000
Property and equipment -- net                                           2,670,000              5,659,000
Deferred royalties -- net of current portion                              375,000              3,371,000
Software development costs -- net of current portion                    1,173,000              1,824,000
Deferred income taxes -- net of current portion                         2,053,000              2,865,000
Other long-term assets                                                  7,742,000              2,790,000
                                                                    -------------          -------------
        TOTAL ASSETS                                                $ 127,743,000          $ 185,034,000
                                                                    =============          =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Lines of credit                                                   $   9,909,000          $  16,702,000
  Accounts payable                                                     18,664,000             13,170,000
  Accrued expenses                                                     11,576,000             12,998,000
  Accrued royalties                                                    15,945,000             31,254,000
  Income taxes payable                                                  8,270,000                     --
                                                                    -------------          -------------
          Total current liabilities                                    64,364,000             74,124,000
Accrued royalties -- net of current portion                               375,000                150,000
Commitments and contingencies                                                  --                     --
Shareholders' equity:
Common Stock, par value $.01, 35,000,000 shares
     authorized; 17,878,481 and 19,007,124 shares
     issued and outstanding as of December 31,
     1998 and 1999, respectively                                          120,000                190,000
Additional paid-in capital                                             62,731,000             78,378,000
Accumulated other comprehensive income (loss)                              60,000               (842,000)
Retained earnings                                                          93,000             33,034,000
                                                                    -------------          -------------
          Total shareholders' equity                                   63,004,000            110,760,000
                                                                    -------------          -------------
          TOTAL LIABILITIES AND
                 SHAREHOLDERS' EQUITY                               $ 127,743,000          $ 185,034,000
                                                                    =============          =============
</TABLE>

                 See notes to consolidated financial statements.



                                      F-3
<PAGE>   50

                            THQ INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               Years Ended
                                                               December 31,
                                         --------------------------------------------------------
                                             1997                  1998                  1999
                                         ------------          ------------          ------------
<S>                                      <C>                   <C>                   <C>
Net sales                                $ 89,579,000          $216,111,000          $302,357,000
Costs and expenses:
  Cost of sales                            48,127,000           100,019,000           134,563,000
  Royalties and project
    abandonment                            14,763,000            48,130,000            48,370,000
  Product development                       1,887,000             6,849,000            12,770,000
  Selling and marketing                     8,733,000            20,325,000            35,440,000
  Payment to venture partner                       --                    --             6,119,000
  General and administrative                5,633,000            10,436,000            14,969,000
  In-process research and
    development                                    --             7,232,000                    --
                                         ------------          ------------          ------------
Total costs and expenses                   79,143,000           192,991,000           252,231,000
                                         ------------          ------------          ------------
Income from operations                     10,436,000            23,120,000            50,126,000
Interest income, net                          466,000               840,000             1,102,000
                                         ------------          ------------          ------------
Income before income taxes                 10,902,000            23,960,000            51,228,000
Income taxes                                1,954,000             9,342,000            18,287,000
                                         ------------          ------------          ------------
Net income                               $  8,948,000          $ 14,618,000          $ 32,941,000
                                         ============          ============          ============
Net income per share -- basic            $        .59          $        .86          $       1.81
                                         ============          ============          ============
Net income per share -- diluted          $        .55          $        .79          $       1.63
                                         ============          ============          ============


Shares used in per share
   calculation -- basic                    15,167,000            17,039,000            18,150,000
                                         ============          ============          ============
Shares used in per share
   calculation -- diluted                  16,267,000            18,453,000            20,194,000
                                         ============          ============          ============
</TABLE>

                 See notes to consolidated financial statements.




                                      F-4
<PAGE>   51

                            THQ INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  Years Ended December 31, 1997, 1998 and 1999


<TABLE>
<CAPTION>
                                                                                      Accumulated    Retained
                                                                        Additional      Other        Earnings
                                            Common         Common        Paid-in     Comprehensive (Accumulated
                                            Shares         Stock         Capital     Income (Loss)    Deficit)         Total
                                         ------------   ------------   ------------  ------------   ------------    ------------
<S>                                      <C>            <C>            <C>           <C>            <C>             <C>
Balance at January 1, 1997                 11,558,617   $     11,000   $ 34,558,000  $    (52,000)  $(23,473,000)   $ 11,044,000
Exercise of warrants and options              699,786             --      1,293,000            --             --       1,293,000
Stock compensation                                 --             --         21,000            --             --          21,000
Issuance of common stock                    3,934,853             --     12,179,000            --             --      12,179,000
Comprehensive income:
  Net income                                       --             --             --            --      8,948,000       8,948,000
Other comprehensive income
     Foreign currency translation                  --             --             --       133,000             --         133,000
     adjustment
                                                                                                                    ------------
Comprehensive income                               --             --             --            --             --       9,081,000
                                         ------------   ------------   ------------  ------------   ------------    ------------
Balance at December 31, 1997               16,193,256         11,000     48,051,000        81,000    (14,525,000)     33,618,000
Exercise of warrants and options              902,519          5,000      2,343,000            --             --       2,348,000
Stock compensation                                 --             --        187,000            --             --         187,000
Issuance of common stock                      782,706          4,000     10,647,000            --             --      10,651,000
Tax benefit related to the exercise of
   employee stock options                          --             --      1,603,000            --             --       1,603,000
Reincorporation                                    --        100,000       (100,000)           --             --              --
Comprehensive income:
  Net income                                       --             --             --            --     14,618,000      14,618,000
Other comprehensive income
     Foreign currency translation                  --             --             --       (21,000)            --         (21,000)
     adjustment
                                                                                                                    ------------
Comprehensive income                               --             --             --            --             --      14,597,000
                                         ------------   ------------   ------------  ------------   ------------    ------------
Balance at December 31, 1998               17,878,481        120,000     62,731,000        60,000         93,000      63,004,000
</TABLE>

                                  (continued)




                                      F-5
<PAGE>   52

<TABLE>
<CAPTION>
                                                                                  Accumulated       Retained
                                                                    Additional      Other           Earnings
                                         Common       Common         Paid-in     Comprehensive    (Accumulated
                                         Shares       Stock          Capital     Income (Loss)      Deficit)           Total
                                       ----------  -------------  -------------  -------------    -------------    -------------
<S>                                    <C>            <C>            <C>            <C>              <C>              <C>
Balance at December 31, 1998           17,878,481        120,000     62,731,000         60,000           93,000       63,004,000
Exercise of warrants and options        1,128,643          8,000      4,855,000             --               --        4,863,000
Issuance of warrants                           --             --      3,627,000             --               --        3,627,000
Stock compensation                             --             --        464,000             --               --          464,000
Tax benefit related to the exercise of
   employee stock options                      --             --      6,763,000             --               --        6,763,000
Three-for-two stock dividend                   --         62,000        (62,000)            --               --               --
Comprehensive income:
  Net income                                   --             --             --             --       32,941,000       32,941,000
Other comprehensive income
    Foreign currency translation               --             --             --       (902,000)              --         (902,000)
    adjustment
                                                                                                                   -------------
Comprehensive income                           --             --             --             --               --       32,039,000
                                       ----------  -------------  -------------  -------------    -------------    -------------
Balance at December 31, 1999           19,007,124  $     190,000  $  78,378,000  $    (842,000)   $  33,034,000    $ 110,760,000
                                       ==========  =============  =============  =============    =============    =============
</TABLE>


                See notes to consolidated financial statements.




                                      F-6
<PAGE>   53

                            THQ INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                              --------------------------------------------------------
                                                                  1997                  1998                  1999
                                                              ------------          ------------          ------------
<S>                                                           <C>                   <C>                   <C>
Cash flows from operating activities:
Net income                                                    $  8,948,000          $ 14,618,000          $ 32,941,000
Adjustments to reconcile net income
  to net cash (used in)
  provided by operating activities:
    Depreciation and amortization                                  492,000               909,000             1,656,000
    Provision for doubtful accounts,
      discounts and returns                                     10,509,000            20,838,000            35,009,000
    Litigation settlement                                               --                    --               564,000
    Loss on sale of property and equipment                              --                40,000                56,000
    Loss on sale of investment securities                               --               218,000                    --
    Stock compensation                                              21,000               187,000               464,000
    In-process research and development                                 --             7,232,000                    --
    Deferred income taxes                                       (1,666,000)           (8,708,000)              692,000
Changes in operating assets and liabilities,
  net of effects from acquisitions:
    Accounts receivable                                        (27,343,000)          (43,935,000)          (72,703,000)
    Inventory                                                     (441,000)          (13,780,000)           11,200,000
    Prepaid and deferred royalties and
      software development costs                                (2,436,000)            2,702,000            (4,493,000)
    Prepaid expenses and other current assets                      (11,000)             (239,000)             (680,000)
    Accounts payable and accrued expenses                        7,952,000            13,113,000            (3,147,000)
    Accrued royalties                                            2,341,000             8,467,000            (6,228,000)
    Income taxes payable                                         3,455,000             6,040,000            (2,440,000)
                                                              ------------          ------------          ------------
Net cash (used in) provided by operating activities              1,821,000             7,702,000            (7,109,000)
                                                              ------------          ------------          ------------

Cash flows used in investing activities:
    Proceeds from sale of investment securities                         --               863,000                    --
    Purchase of investment securities                                   --            (1,081,000)                   --
    Proceeds from sale of property and equipment                        --                    --                37,000
    Acquisition adjustment                                              --                    --             2,540,000
    Acquisitions, net of cash acquired                                  --            (2,369,000)                   --
    Acquisition of equipment                                    (1,006,000)           (1,427,000)           (4,413,000)
    Other long-term assets                                           1,000            (2,010,000)             (261,000)
                                                              ------------          ------------          ------------
Net cash used in investing activities                           (1,005,000)           (6,024,000)           (2,097,000)
                                                              ------------          ------------          ------------

Cash flows from financing activities:
    Net increase (decrease) in short-term borrowings            (5,355,000)            3,265,000             7,118,000
    Net proceeds from issuance of common stock                  12,179,000                    --                    --
    Proceeds from exercise of warrants and options               1,293,000             2,348,000             4,863,000
                                                              ------------          ------------          ------------
Net cash provided by financing activities                        8,117,000             5,613,000            11,981,000
                                                              ------------          ------------          ------------
</TABLE>




                                      F-7


<PAGE>   54

<TABLE>
<S>                                                         <C>                   <C>                    <C>
Effect of exchange rate changes on cash
   and cash equivalents                                          261,000              (156,000)              (535,000)
                                                            ------------          ------------           ------------
Net increase in cash and cash equivalents                      9,194,000             7,135,000              2,240,000
                                                            ------------          ------------           ------------
Cash and cash equivalents -- beginning of period               2,734,000            11,928,000             19,063,000
                                                            ------------          ------------           ------------
Cash and cash equivalents -- end of period                  $ 11,928,000          $ 19,063,000           $ 21,303,000
                                                            ============          ============           ============
</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
<S>                                                         <C>                   <C>                    <C>
Cash paid during the year for:
  Income taxes                                              $    127,000          $ 12,417,000           $ 19,569,000
                                                            ============          ============           ============
  Interest                                                  $     53,000          $    171,000           $    233,000
                                                            ============          ============           ============
</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:

In 1998 and 1999, income taxes payable and additional paid-in capital include
tax benefits of $1,603,000 and $6,763,000, respectively, resulting from
disqualified dispositions of common stock by officers and employees of THQ
acquired through the exercise of stock options.

In 1999, we consolidated the venture with JAKKS Pacific resulting in the
consolidation of our $2,010,000 investment.

On August 2, 1999 we issued to the WWF and a related party warrants expiring
December 31, 2009 to purchase 281,250 shares of common stock at $10.42 per
share, which had a fair value at the time of issuance of $3,063,000. (See
Note 13).

On May 1, 1998 we issued 532,776 shares of common stock as part of the purchase
price for GameFx, Inc. This issuance increased common stock and additional
paid-in capital by $2,000 and $6,217,000, respectively, and was allocated among
the net assets acquired, part of which was written off as in-process research
and development. (See Note 12).

On December 2, 1998 we issued 249,930 shares of common stock as part of the
purchase price for Rushware Microhandelsgesellschaft mbH ("Rushware"). This
issuance increased common stock and additional paid-in capital by $2,000 and
$4,430,000, respectively, and was allocated among the net assets acquired. (See
Note 12).


DETAILS OF 1998 ACQUISITIONS:
<TABLE>
<CAPTION>
                                         GameFx, Inc.             Rushware
                                         ------------           ------------
<S>                                      <C>                    <C>
Fair value of assets acquired            $  7,492,000           $ 18,581,000
Liabilities assumed                                --            (12,567,000)
Value of common stock and stock
   options issued                          (6,219,000)            (4,432,000)
                                         ------------           ------------
Cash paid                                   1,273,000              1,582,000
Less cash acquired                                 --               (486,000)
                                         ------------           ------------
Net cash paid for acquisitions           $  1,273,000           $  1,096,000
                                         ============           ============
</TABLE>

               In 1999, we renegotiated the purchase of Rushware and received a
payment of $2,540,000 from the sellers.



                See notes to consolidated financial statements.

                                      F-8
<PAGE>   55

                            THQ INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  DESCRIPTION OF BUSINESS

         BUSINESS. THQ Inc., a Delaware corporation, is a developer, publisher
and distributor of interactive entertainment software for the leading hardware
platforms in the home video game market. We currently publish titles for Sony's
PlayStation, Sega Dreamcast, Nintendo 64, Nintendo Game Boy and Game Boy Color,
and personal computers ("PCs") in most interactive software genres, including
action, adventure, driving, fighting, puzzle, role playing, simulation, sports
and strategy. Our customers include Wal-Mart, Toys "R" Us, Target, Kmart Stores,
Kay Bee Toys, Electronics Boutique, Blockbuster, Best Buy, other national and
regional retailers, discount store chains and specialty retailers.

         Unless the context otherwise requires, references in this document to
"THQ" or the "Company" include THQ Inc. and all of its wholly owned
subsidiaries.

         LICENSE AGREEMENTS. We have two license agreements with Sony pursuant
to which we have the non-exclusive right to utilize the Sony name and its
proprietary information and technology in order to develop and market software
for use with the 32-bit Sony PlayStation in the United States and Canada, and
Europe, respectively, which expire in August 2002 and December 2005,
respectively.

         We have various license agreements with Nintendo pursuant to which we
have the non-exclusive right to utilize the Nintendo name and its proprietary
information and technology in order to develop and market software for use with
the 64-bit Nintendo 64, and with the Nintendo Game Boy portable game consoles.
The license agreements with Nintendo for such hardware platforms expire at
various times from 2000 through 2002.

         We also have two license agreements with Sega pursuant to which we have
the non-exclusive right to utilize the Sega name and its proprietary information
and technology in order to develop and market software for use with the 128-bit
Sega Dreamcast in the United States and Canada, Latin America, Europe, Australia
and New Zealand, respectively, which expire in September 2003 and October 2003,
respectively.

         Our business is dependent on these license agreements with Sony,
Nintendo and Sega. Substantially all of our products are manufactured by Sony,
Nintendo and Sega, who charge us a fixed amount for each CD-ROM or cartridge
manufactured, which charge includes a manufacturing, printing and packaging fee
as well as a royalty for the use of their respective names, proprietary
information and technology.

         In addition, we must indemnify Sony, Nintendo or Sega as appropriate,
with respect to all loss, liability and expense resulting from any claim against
Sony, Nintendo or Sega involving the development, marketing, sale or use of our
titles, including any claims for copyright or trademark infringement brought
against Sony, Nintendo or Sega. As such, we bear the risk that the properties
and information and technology licensed from Sony, Nintendo or Sega and



                                      F-9

<PAGE>   56

incorporated in the software may infringe the rights of third parties.
Generally, we are entitled to indemnification from our software developers and
property licensors to cover our indemnification obligations to Sony, Nintendo or
Sega but no assurance can be given that, if any claim is brought against us, the
developers and/or licensors will have sufficient resources to indemnify us.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of THQ Inc. and our wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.

         FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign
operations are translated at current rates of exchange while results of
operations are translated at average rates in effect for the period. Translation
gains or losses are shown as a separate component of shareholders' equity.
Foreign currency gains and losses result from exchange rate changes for
transactions denominated in currencies other than the functional currency. We
have not experienced significant foreign currency transaction gains or losses.

         CASH EQUIVALENTS. We consider all highly liquid investments purchased
with maturities less than three months to be cash equivalents.

         FAIR VALUES OF FINANCIAL INSTRUMENTS. The carrying value of our draws
on our line of credit from our banks are considered to approximate their fair
value because the interest rate of these instruments is based on variable
reference rates.

         CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
subject us to concentration of credit risk consist principally of cash and cash
equivalents and accounts receivable. We place cash and cash equivalents with
high credit-quality institutions and limit the amount of credit exposure to any
one institution. Most of our sales are made directly to mass merchandisers and
national retailers. Due to the increased volume of sales to these channels, we
have experienced an increased concentration of credit risk, and as a result, may
maintain individually significant receivable balances with such mass
merchandisers and national retailers. While we frequently monitor and manage
this risk, financial difficulties on the part of one or more of our major
customers may have a material adverse effect on us.

         Sales (before returns and allowances) to a major customer represented
10%, 19% and 15% of gross sales in the years ended December 31, 1997, 1998 and
1999, respectively. This customer accounted for approximately 32% and 18% of
accounts receivable at December 31, 1998 and 1999, respectively. Sales (before
returns and allowances) to another major customer represented 19%, 13% and 11%
of gross sales in the years ended December 31, 1997, 1998 and 1999,
respectively. This customer accounted for approximately 12% and 15% of accounts
receivable at December 31, 1998 and 1999, respectively. We perform ongoing
credit evaluations of our customers and maintain an allowance for potential
credit losses.



                                      F-10
<PAGE>   57

         INVENTORY. Inventory, which consists principally of finished products,
are stated at the lower of cost (moving weighted average) or market. We estimate
the net realizable value of slow-moving inventory on a title by title basis, and
charge the excess of cost over net realizable value to cost of sales.

         PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of their useful lives or the remaining lease term. Property and
equipment consist of the following at:


<TABLE>
<CAPTION>
                                                                            December 31,
                                                Lives                1998                  1999
                                            ------------------------------------------------------
<S>                                         <C>                  <C>                   <C>
Furniture, fixtures and equipment             3-10 yrs           $ 3,110,000           $ 8,150,000
Leasehold improvements                         3-6 yrs               560,000             1,024,000
Less accumulated depreciation and
  amortization                                                    (1,000,000)           (3,515,000)
                                                                 -----------           -----------
                                                                 $ 2,670,000           $ 5,659,000
                                                                 ===========           ===========
</TABLE>


         ROYALTIES, SOFTWARE DEVELOPMENT COSTS AND PROJECT ABANDONMENT LOSS.
Advance royalty payments for intellectual property licenses are recorded as
prepaid royalties. All minimum guaranteed royalty payments are initially
recorded as an asset (prepaid and deferred royalties) and as a liability
(accrued royalties) at the contractual amount upon execution of the contract.
Royalty payments for intellectual property licenses are classified as current
assets and current liabilities to the extent they relate to anticipated sales
during the subsequent year and long-term assets and long-term liabilities if the
sales are anticipated after one year.

         We utilize both independent software developers (who are paid advances
against future royalties) and internal development teams to develop our
software. Under generally accepted accounting principles, such software
development costs are capitalizable when technological feasibility has been
established. Technological feasibility for console entertainment software has
been established by Sony, Nintendo and Sega for use with their respective
hardware platforms. We are currently capitalizing the costs of video games under
development at our Heavy Iron and PCP&L studios. At December 31, 1999, we had
capitalized in software development costs of $1,034,000 at our studios. During
1999 we recognized no amortization of capitalized software development costs.

         Prepaid royalty and software development costs are expensed, as a part
of royalties expense, at the contractual royalty rate based on actual net
product sales. When, in management's estimate, future revenues will not be
sufficient to recover previously capitalized



                                      F-11
<PAGE>   58

advances or software development costs, we expense these items as project
abandonment losses. Such abandonment losses are solely attributable to changes
in market conditions or product quality considerations. Research and development
costs are expensed as incurred.

         IMPAIRMENT OF LONG-LIVED ASSETS. We evaluate long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If the estimated future cash
flows (undiscounted and without interest charges) from the use of an asset are
less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value.

         REVENUE RECOGNITION. Revenue is recognized when products are shipped,
provided that no significant vendor support obligations remain outstanding, and
provided that collection of the resulting receivable is deemed probable by
management. Although we generally sell our products on a no-return basis, in
certain circumstances we may allow returns, price concessions, or allowances on
a negotiated basis. We estimate such returns and allowances based upon
management's evaluation of our historical experience and current industry
trends. Such estimates are deducted from gross sales. Software is sold under a
limited 90-day warranty against defects in material and workmanship. To date, we
have not experienced material warranty claims. (See Note 5).

         ADVERTISING. Advertising and sales promotion costs are generally
expensed as incurred, except for production costs associated with the media
campaigns which are deferred and charged to expense at the first run of the ad.
Advertising costs were $850,000, $5,659,000 and $10,108,000 in the years ended
December 31, 1997, 1998 and 1999, respectively.

         STOCK BASED COMPENSATION. We account for our employee stock plans under
the intrinsic value method prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees."

         INCOME TAXES. Deferred income taxes are provided for temporary
differences between the financial statement and income tax bases of our assets
and liabilities, based on enacted tax rates. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred income
tax assets will not be realized.

         BASIC AND DILUTED EARNINGS PER SHARE. The following table is a
reconciliation of the weighted-average shares used in the computation of basic
and diluted EPS for the years presented:




                                      F-12
<PAGE>   59

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                   December 31,
                                              -----------------------------------------------------
                                                  1997                 1998                 1999
                                              -----------          -----------          -----------
<S>                                           <C>                  <C>                  <C>
Net income used to compute basic
  and diluted earnings per share              $ 8,948,000          $14,618,000          $32,941,000
                                              ===========          ===========          ===========
Weighted average number of shares
  outstanding -- basic                         15,167,000           17,039,000           18,150,000
Dilutive effect of stock options and
  warrants                                      1,100,000            1,414,000            2,044,000
                                              -----------          -----------          -----------
Number of shares used to compute
  earnings per share -- diluted                16,267,000           18,453,000           20,194,000
                                              ===========          ===========          ===========
</TABLE>


         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In June 1998, the FASB
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes the
accounting and reporting standards for derivative financial instruments and for
hedging activities. It requires that an entity measure all derivatives at fair
value and recognize them in the balance sheet as an asset or liability,
depending upon the entity's rights or obligations under the applicable
derivative contract. SFAS 133, as amended, is effective for financial statements
for periods beginning after June 15, 2000. We are currently evaluating the
potential impact of adopting SFAS No. 133.

         PERVASIVENESS 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 amounts 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.
The most significant estimates relate to prepaid and deferred royalties,
software development costs, accrued returns and allowances and the allowance for
doubtful accounts.

3.       BUSINESS COMBINATIONS

         On May 24, 1999 we completed a merger with PCP&L. In the merger, each
share of PCP&L was converted into 0.09008 shares of our common stock, or
approximately 727,000 shares. In addition, outstanding PCP&L employee stock
options were assumed by us and converted, at the same conversion rate, into
options to purchase approximately 196,000 shares of our common stock.

         On December 13, 1999 we completed a merger with Genetic Anomalies,
Inc., a Delaware corporation ("GA"). In the merger, each share of GA was
converted into 0.0536 share of our common stock, or approximately 220,000
shares. In addition, outstanding GA employee stock



                                      F-13
<PAGE>   60

options were assumed by us and converted, at the same conversion rate, into
options to purchase approximately 45,000 shares of our common stock.

         The mergers have been accounted for as poolings of interests under
Accounting Principles Board Opinion No. 16. Accordingly, all prior period
consolidated financial statements presented have been restated to include the
combined results of operations, financial position and cash flows as if PCP&L
and GA had always been part of our company.

         All transactions between us, PCP&L and GA have been eliminated in the
consolidated financial statements. The results of operations for the separate
companies and the combined amounts presented in the consolidated financial
statements follow.
<TABLE>
<CAPTION>
                                              For the Years Ended December 31,
                                  ------------------------------------------------------------
Net sales                              1997                   1998                    1999
                                  -------------          -------------           -------------
<S>                               <C>                    <C>                     <C>
THQ Inc.                          $  89,362,000          $ 215,060,000           $ 301,141,000
PCP&L                                   115,000              1,379,000               1,676,000
GA                                      102,000                222,000                 565,000
Intercompany elimination                     --               (550,000)             (1,025,000)
                                  -------------          -------------           -------------
Combined                          $  89,579,000          $ 216,111,000           $ 302,357,000
                                  =============          =============           =============
</TABLE>
<TABLE>
<CAPTION>
                                              For the Years Ended December 31,
                                  ----------------------------------------------------------
Net income (loss)                     1997                   1998                   1999
                                  ------------           ------------           ------------
<S>                               <C>                    <C>                    <C>
THQ Inc.                          $  9,345,000           $ 15,989,000           $ 35,044,000
PCP&L                                  (18,000)              (348,000)              (667,000)
GA                                    (379,000)              (473,000)              (411,000)
Intercompany elimination                    --               (550,000)            (1,025,000)
                                  ------------           ------------           ------------
Combined                          $  8,948,000           $ 14,618,000           $ 32,941,000
                                  ============           ============           ============
</TABLE>
4.   CREDIT FACILITY

               In December 1998, we entered into two trade finance agreements
(as amended) with Union Bank of California that established a revolving credit
facility. These agreements currently expire on June 1, 2000. The principal
agreement (as amended) permits us to borrow (and maintain obligations under
outstanding letters of credit) up to $43,000,000, subject to the following:

         -        We may maintain outstanding letters of credit for product
                  purchases of up to $38,000,000 in the aggregate through the
                  end of February 2000;

         -        We may maintain outstanding letters of credit for product
                  purchases of up to $25,000,000 in the aggregate between March
                  1, 2000 and June 1, 2000;



                                      F-14
<PAGE>   61

         -        We may borrow up to $30,000,000 through February 29, 2000, $25
                  million during March 2000, and $15,000,000 during April and
                  May 2000, (including amounts owing as a result of draws under
                  letters of credit), but we are required to not have any
                  borrowings for a period of at least 60 days during each year
                  of the term of the agreement.

         Our other agreement with Union Bank is for our United Kingdom
subsidiary, T.HQ International Ltd., and permits that subsidiary to obtain
product purchase letters of credit of up to $7 million in the aggregate.

         These credit facilities are secured by a lien on substantially all of
our assets. Amounts outstanding under these credit facilities bear interest, at
our choice, at either a) the bank's prime rate (8.5% at December 31, 1999) or b)
the London Interbank Offered Rate (5.69% at December 31, 1999) plus 1.85%. As of
December 31, 1999, we had $16,702,000 in outstanding borrowings under these
credit facilities and had obligations in respect of outstanding letters of
credit of $8,134,000.

         These agreements contain financial covenants, including the requirement
that we:

         -        maintain the ratio of our cash, cash equivalents and accounts
                  receivable, to our current liabilities (including advances by
                  the bank), at not less than 1.00:1.00 at the end of each
                  quarter;

         -        maintain minimum shareholders' equity;

         -        maintain the ratio of our total liabilities to our
                  shareholders' equity at not greater than 1.10:1.00 as of
                  December 31, 1998 and 1.00:1.00 as of the end of each quarter
                  thereafter;

         -        achieve operating profits of at least $1 each quarter; and

         -        maintain the ratio of the value of our inventory as of the
                  last day of any quarter, to our cost of goods sold for the
                  four consecutive quarters ending on that day (or four times
                  our cost of goods sold for the last quarter, if greater), at
                  not more than 1.00:10.50.

         These agreements also contain customary non-financial covenants
including restrictions on the incurrence of debt and encumbrances and
limitations on sales of assets, mergers and acquisitions, capital
expenditures and annual lease obligations. Our principal banking agreements
provide that at such times as we have any outstanding borrowings or letters of
credit under that facility, we will not pay any cash dividends.

         RUSHWARE REVOLVING CREDIT FACILITIES. Rushware was a party to three
separate revolving credit agreements with three German banks, each of which
permitted Rushware to borrow up to 5 million Deutsche marks (approximately $3
million) to finance the working capital requirements of Rushware and its
subsidiaries. These borrowings were secured by substantially all of the assets
of Rushware and its subsidiaries. Each of these agreements expired during 1999.



                                      F-15
<PAGE>   62

As of December 31, 1998, we had $3,856,000 in outstanding borrowings under this
credit facility. All Rushware borrowings were guaranteed by THQ Inc.

5.   ACCOUNTS RECEIVABLE AND ACCRUED RETURNS AND ALLOWANCES

         Accounts receivable is due primarily from domestic and foreign
retailers and distributors, including mass merchants and specialty stores.
Accounts receivable at December 31, 1998 and 1999 are composed of the following:

<TABLE>
<CAPTION>
                                                                December 31,
                                                     -----------------------------------
                                                         1998                   1999
                                                     ------------           ------------
<S>                                                  <C>                    <C>
Accounts receivable -- domestic                      $ 66,407,000           $ 93,455,000
Other receivables -- domestic                             280,000              1,469,000
Allowance for domestic returns and
  doubtful accounts                                   (15,008,000)           (16,845,000)
Accounts receivable -- foreign                         11,732,000             25,888,000
Allowance for foreign returns and doubtful accounts    (3,890,000)            (7,326,000)
                                                     ------------           ------------
Accounts receivable -- net                           $ 59,521,000           $ 96,641,000
                                                     ============           ============
</TABLE>

         The allowance for domestic accrued returns and allowances consists of
the following:

<TABLE>
<CAPTION>
                                                            December 31,
                                     ----------------------------------------------------------
                                         1997                   1998                   1999
                                     ------------           ------------           ------------
<S>                                  <C>                    <C>                    <C>
Balance at January 1                 $ (2,772,000)          $ (7,767,000)          $(15,008,000)
Provision for discounts and
   returns                            (10,172,000)           (18,870,000)           (28,072,000)
Actual discounts
   and returns                          5,177,000             11,629,000             26,235,000
                                     ------------           ------------           ------------
Ending balance                       $ (7,767,000)          $(15,008,000)          $(16,845,000)
                                     ============           ============           ============
</TABLE>

          The allowance for foreign accrued returns and allowances consists of
the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                         -------------------------------------------------------
                                             1997                  1998                  1999
                                         -----------           -----------           -----------
<S>                                              <C>                   <C>                   <C>
Balance at January 1                     $(1,586,000)          $  (372,000)          $(3,890,000)
Rushware purchase as of
  December 2, 1998                                --            (3,717,000)                   --
Provision for doubtful accounts             (337,000)           (1,968,000)           (6,937,000)
Actual doubtful accounts
</TABLE>




                                      F-16
<PAGE>   63

<TABLE>
<S>                                      <C>                   <C>                   <C>
        (recoveries)                       1,551,000             2,167,000             3,501,000
                                         -----------           -----------           -----------
        Ending balance                   $  (372,000)          $(3,890,000)          $(7,326,000)
                                         ===========           ===========           ===========
</TABLE>

6.  EMPLOYEE PENSION PLAN

         We sponsor for our U.S. employees a defined contribution plan under
Section 401(k) of the Internal Revenue Code. The plan provides that employees
may defer up to 12% of annual compensation, and that we will make a matching
contribution equal to each employee's deferral, up to 4% of compensation. We may
also contribute funds to the plan in the form of a profit sharing contribution.
Expenses under the plan were $119,000, $400,000, and $477,000 in 1997, 1998 and
1999, respectively.



7.  INCOME TAXES

         The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                        1997                   1998                   1999
                                    ------------           ------------           ------------
<S>                                 <C>                    <C>                    <C>
Current
  Federal                           $  2,760,000           $ 14,654,000           $ 13,642,000
  State                                  821,000              3,275,000              2,897,000
  Foreign                                 39,000                121,000              1,056,000
                                    ------------           ------------           ------------
                                       3,620,000             18,050,000             17,595,000
                                    ------------           ------------           ------------
Deferred
  Federal                             (1,283,000)            (7,170,000)               121,000
  State                                 (383,000)            (1,538,000)               755,000
  Foreign                                     --                     --               (184,000)
                                    ------------           ------------           ------------
                                      (1,666,000)            (8,708,000)               692,000
                                    ------------           ------------           ------------
Provision for income taxes          $  1,954,000           $  9,342,000           $ 18,287,000
                                    ============           ============           ============
</TABLE>

         A reconciliation of the provision for income taxes at the federal
statutory rate to the provision recorded in the accompanying financial
statements is as follows:



                                      F-17
<PAGE>   64

<TABLE>
<CAPTION>
                                                1997              1998              1999
                                              ------            ------            ------
<S>                                           <C>               <C>               <C>
Federal provision at statutory rate             35.0%             35.0%             35.0%
State taxes (net of Federal benefit)             4.0%              5.0%              5.0%
In-process research and development               --              10.0%               --
Change in valuation allowance                  (21.7)            (11.8)             (5.2)
Foreign taxes and other, net                     0.6               0.8               0.9
                                              ------            ------            ------
                                                17.9%             39.0%             35.7%
                                              ======            ======            ======
</TABLE>

         The components of deferred income tax assets (liabilities) are as
follows:

<TABLE>
<CAPTION>
                                                                       December 31,
                                            ------------------------------------------------------------------------------------
                                                         1998                                          1999
                                            ------------------------------------------------------------------------------------
                                               Federal             State           Federal             State          Foreign
                                            ------------      ------------      ------------       ------------     ------------
<S>                                         <C>               <C>               <C>                <C>              <C>
CURRENT
 Deferred income tax assets:
  Allowance for doubtful
     accounts, discounts and
     returns                                $  5,263,000      $  1,117,000      $  5,896,000       $  1,144,000     $    184,000
  License abandonment                          2,258,000           339,000         5,356,000          1,039,000               --
  State income taxes                           1,213,000                --           641,000                 --               --
  Other -- net                                   436,000           248,000           476,000             92,000               --
Net operating loss                                    --                --           821,000             57,000               --
                                            ------------      ------------      ------------       ------------     ------------
 Total deferred income tax assets              9,170,000         1,704,000        13,190,000          2,332,000          184,000


 Deferred tax liabilities:
  Software development costs                  (1,418,000)         (196,000)       (7,103,000)        (1,378,000)              --
  State income taxes                            (939,000)               --          (408,000)                --               --
                                            ------------      ------------      ------------       ------------     ------------
 Deferred income taxes                      $  6,813,000      $  1,508,000      $  5,679,000       $    954,000     $    184,000
                                            ============      ============      ============       ============     ============

NON-CURRENT
Deferred income tax assets:
Deferred compensation                       $         --      $         --      $    133,000       $     25,000     $         --
  Net operating loss                           4,021,000           413,000         2,420,000            168,000               --
  Other -- net                                    80,000                --           100,000             19,000               --
                                            ------------      ------------      ------------       ------------     ------------
 Net deferred tax assets                       4,101,000           413,000         2,653,000            212,000               --
 Valuation allowance                          (2,461,000)               --                --                 --               --
                                            ------------      ------------      ------------       ------------     ------------
 Deferred income taxes                      $  1,640,000      $    413,000      $  2,653,000       $    212,000     $         --
                                            ============      ============      ============       ============     ============
</TABLE>

         The valuation reserve decreased $2,231,000, $2,992,000 and $2,461,000
during 1997, 1998 and 1999, respectively.


                                      F-18
<PAGE>   65

         As of December 31, 1999 we had federal and state net operating loss
carryforwards of approximately $9,259,000 (expiring from 2009 to 2011) and
approximately $638,000 (expiring in 2000), respectively.

         At December 31, 1999 we had accumulated foreign earnings of $3,249,000.
We do not plan to repatriate these earnings, therefore, no U.S. income tax has
been provided on the foreign earnings. Additionally, we have not tax effected
the cumulative translation adjustment as we have no intention of repatriating
foreign earnings.



                                      F-19
<PAGE>   66

         Various equity transactions during 1996 resulted in an "ownership
change" as defined in the Internal Revenue Code. As a result, the amount of our
net operating loss carryforward available to reduce our federal income tax
liability in future years in which we have taxable income will be limited to an
annual amount of approximately $2,225,000.

8.  STOCK OPTION PLAN

         We have two stock option plans (the "1990 Plan" and "1997 Plan"), which
provide for the issuance of up to 1,462,500 and 4,125,000 shares, respectively,
available for employees, consultants and non-employee directors. As of December
31, 1999, 13,428 options under the 1990 Plan and 830,962 options under the 1997
Plan were available for grant. Stock options granted under the option plans may
be incentive stock options or nonstatutory stock options. Options may be
granted under the option plans to, in the case of incentive stock options, all
employees (including officers) of THQ; or, in the case of nonstatutory stock
options, all employees (including officers) or non-employee directors of THQ.

         The exercise price per share of all options granted under the plans in
1997, 1998 and 1999 has been the market price of the stock on the date of the
grant. Stock options issued by PCP&L and GA were issued at below market value.
These options were accounted for under APB 25 and we have recognized
compensation expense of $21,000, $187,000 and $464,000 for 1997, 1998 and 1999,
respectively. Generally, options granted become exercisable over three years and
expire within five years from the date of grant.

<TABLE>
<CAPTION>
                                                        Weighted Average     Number of
           Stock Options                                 Exercise Price        Shares
           -------------                                ----------------    ------------
<S>                                                     <C>                 <C>
Balance at January 1, 1997                                  $ 1.51           1,113,082
Granted                                                     $ 5.17             937,693
Exercised                                                   $ 1.62            (269,651)
Canceled                                                    $ 1.56             (37,037)
                                                                            ----------
Balance at December 31, 1997                                $ 3.46           1,744,087
Granted                                                     $10.93           1,370,525
Exercised                                                   $ 2.11            (553,416)
Canceled                                                    $ 8.79             (78,937)
                                                                            ----------
Balance at December 31, 1998                                $ 7.72           2,482,259
Granted                                                     $22.24           1,258,200
Exercised                                                   $ 5.48            (882,119)
Canceled                                                    $14.89            (155,942)
                                                                            ----------
Balance at December 31, 1999                                $14.79           2,702,398
                                                                            ==========
Options exercisable at December 31, 1999                    $ 9.37             599,339
</TABLE>

         Options granted and shares exercised relating to options granted
outside of our stock option plans during 1997, 1998 and 1999 are listed below.
Share exercise prices for these options equal the market price of our common
stock at the date of the grant.



                                      F-20
<PAGE>   67

<TABLE>
<CAPTION>
                                                                                     Number of        Number of        Number of
                                                  Share             Number of         Shares            Shares          Shares
                                       Grant     Exercise            Shares          Exercised        Exercised        Exercised
Description                            Year       Price              Granted            1997             1998             1999
---------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>                 <C>               <C>
Former executive                       1994      $   1.67            201,024           201,024
                                                                    --------
   Total options granted 1994                                        201,024

Executive officer                      1995      $   1.36            315,000           135,000          180,000
Outside consultants                    1995      $   1.27             67,500             3,752           56,250
Former employee severance package      1995      $   1.25            112,500
Former employee severance package      1995      $   0.69             45,000
                                                                    --------
   Total options granted 1995                                        540,000

Executive officer                      1996      $   2.22            450,000                                             150,000
Outside consultant                     1996      $   2.31             56,250            56,250
                                                                    --------
   Total options granted 1996                                        506,250

Pacific Coast Power &                  1997      $   0.37             35,919                                              16,768
   Light Company
Genetic Anomalies                      1997      $   0.50              5,360
                                                                    --------
   Total options granted 1997                                         41,279

Employee director                      1998      $  11.17            300,000
Nonemployee directors                  1998      $  18.54             33,750
GameFx options                         1998      $   1.31             17,600                                               8,257
Pacific Coast Power &                  1998      $   0.39            107,706                                              24,425
   Light Company
Genetic Anomalies                      1998      $   1.41             34,508
                                                                    --------
   Total options granted 1998                                        493,564

Pacific Coast Power &                  1999      $   0.74             48,175
   Light Company
Genetic Anomalies                      1999      $   1.58              4,839
                                                                    --------
   Total options granted 1999                                         53,014
                                                                   ---------           -------          -------          -------
Total                                                              1,835,131           396,026          236,250          199,450
                                                                   =========           =======          =======          =======
Balance outstanding at
   December 31, 1999                                                 856,423
                                                                   =========
Options exercisable at December 31, 1999                             578,759
                                                                   =========
</TABLE>



                                      F-21
<PAGE>   68
         The following table summarizes information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                       Number                  Weighted Average               Weighted
          Range of Exercise        Outstanding at             Remaining Contractual        Average Exercise
                Price             December 31, 1999                  Life                      Price
       ---------------------   -----------------------        ---------------------     --------------------
<S>                           <C>                           <C>                         <C>
             $ 0.37 - $ 4.33                   772,518                 6                         $      2.26
             $ 4.55 - $ 9.83                   933,867                 3                         $      8.75
             $10.00 - $14.92                   766,359                 5                         $     12.07
             $17.17 - $25.79                   793,877                 5                         $     22.56
             $26.17 - $28.54                   292,200                 5                         $     26.35
                               -----------------------        ---------------------     --------------------
                                             3,558,821                 5                         $     12.58
                               =======================        =====================     ====================
</TABLE>

<TABLE>
<CAPTION>
                                   Shares                      Weighted
       Range of Exercise       Exercisable at                   Average
            Price            December 31, 1999              Exercise Price
       -----------------  ------------------------      -------------------
<S>                       <C>                           <C>
         $ 0.37 - $ 4.33                   486,288             $       2.37
         $ 4.55 - $ 9.83                   280,249             $       8.18
         $10.00 - $14.92                   297,809             $      11.31
         $17.17 - $25.79                    91,252             $      18.80
         $26.17 - $28.54                    22,500             $      28.54
                          -------------------------     --------------------
                                         1,178,098             $       7.78
                          =========================     ====================
</TABLE>


         The estimated fair value of the options granted in 1997, 1998 and 1999
was $3,336,000, $13,591,000 and $15,441,000, respectively. We apply Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
stock option plans. Accordingly, no compensation cost for our stock option plans
has been recognized in 1997, 1998 or 1999. Had compensation cost for our stock
option plans been determined based on the fair value at the grant dates for
awards under the plans consistent with SFAS No. 123, Accounting for Stock Based
Compensation, our net income and earnings per share for the years ended December
31, 1997, 1998 and 1999 would have been reduced to the pro forma amounts
indicated below:


<TABLE>
<CAPTION>
                                                       Years Ended
                           ----------------------------------------------------------------
                           December 31, 1997       December 31, 1998      December 31, 1999
                           -------------------     ------------------     -----------------
<S>                        <C>                     <C>                    <C>
 Net income:
      As reported                  $8,948,000            $14,618,000            $32,941,000
      Pro forma                    $7,713,000            $11,117,000            $26,113,000
 Diluted net income per
   share:
      As reported                  $      .55            $       .79            $      1.63
      Pro forma                    $      .47            $       .60            $      1.29
</TABLE>





                                      F-22
<PAGE>   69

         The fair market value of options granted under the stock option plans
during 1997, 1998 and 1999 was determined using the Black-Scholes option pricing
model utilizing the following assumptions:

<TABLE>
<CAPTION>
                                                                    Years Ended
                                        ----------------------------------------------------------------
                                        December 31, 1997       December 31, 1998      December 31, 1999
                                        -------------------     ------------------     -----------------
<S>                                     <C>                     <C>                    <C>
        Dividend yield                          0%                     0%                      0%
        Anticipated volatility                 83%                     87%                    70%
        Weighted average                       6.0%                   5.15%                  5.53%
           risk-free interest rate
        Expected lives                       4 years                 4 years                4 years
</TABLE>


9.  RELATED PARTY TRANSACTIONS

         In 1997, 1998 and 1999, we paid Inland Productions, Inc., a software
developer in which we acquired a 25% interest on July 1, 1996, $985,000,
$4,891,000, and $4,905,000, respectively. As of December 31, 1998 and 1999, we
owed Inland Productions, Inc. $166,000 and $137,000, respectively.

10.  CAPITAL STOCK TRANSACTIONS

         In February 1999, in settlement of litigation, we issued warrants
expiring March 19, 2000 to Millennium Partners to purchase 150,000 shares of
common stock at $16.08 per share. The fair value of the warrants at issuance was
$564,000.

         During the years ended December 31, 1997, 1998 and 1999, the number of
warrants to purchase our common stock exercised were 34,000, 113,000 and 64,000,
respectively. We received proceeds from the exercise of such warrants totaling
$123,000, $827,000 and $766,000, in the years ended December 31, 1997, 1998 and
1999, respectively. At December 31, 1999 outstanding warrants were 387,000 at an
average exercise price of $12.01.

         In connection with obtaining the World Wrestling Federation license
(See Note 13), in August 1999 we issued to the WWF and a related party warrants
expiring December 31, 2009 to purchase 281,250 shares of common stock at $10.42
per share having a fair value of $3,063,000 at the time of issuance.

         On May 21, 1997, GA issued 53,603 shares and received proceeds of
$471,000.

         On February 14, 1997, we completed a public offering of 3,375,000
shares of our common stock. In conjunction with the offering, we granted to the
underwriters an over-allotment option, exercisable within 30 days of February
11, 1997, to purchase up to 506,250 additional shares of the common stock at the
public offering price of $3.33 per share. On March 11, 1997, the underwriters
exercised their over-allotment option. All of these shares were newly



                                      F-23
<PAGE>   70

issued and sold on behalf of us. The net proceeds of the 3,881,250 shares sold
were approximately $11,708,000.

         On July 23, 1998, and October 26, 1999, we announced three-for-two
stock splits, effected in the form of a 50% stock dividends, which were
distributed on August 24, 1998, and December 1, 1999, respectively, to
shareholders of record on August 20, 1998 and November 15, 1999, respectively.
The accompanying consolidated financial statements have been adjusted to give
effect to these stock splits for all periods presented.

         On May 1, 1998, we issued 532,776 shares of common stock in connection
with the acquisition of GameFx, Inc. (See Note 12). In December 1998, we issued
249,930 shares of common stock as part of the purchase cost of Rushware
Microhandelsgesellschaft mbH. (See Note 12).

         On May 24, 1999, we issued 727,436 shares of common stock as part of
the purchase price for Pacific Coast Power & Light Company. On December 13,
1999, we issued 220,048 shares of common stock in connection with the
acquisition of Genetic Anomalies, Inc. (See Note 3).

11.  REINCORPORATION

         On January 6, 1998, T.HQ, Inc. a New York corporation ("THQ New York"),
was reincorporated as a Delaware corporation. Pursuant to the reincorporation,
each share of THQ New York's common stock, par value $.0001 per share,
outstanding prior to the reincorporation was converted into one share of common
stock, $0.01 par value per share, of THQ Delaware.

12.  OTHER LONG-TERM ASSETS

         On July 1, 1996, we acquired a 25% interest in Inland Productions, Inc.
("Inland"), a software developer for home entertainment game systems. This
investment consisted of $300,000 in cash and 118,485 shares of common stock
valued at $300,000, and is included in other long-term assets in the
accompanying balance sheet. The investment exceeded our equity in the underlying
net assets by $613,000, which is being amortized over five years. The equity in
the operating results of Inland is not material to the results of operations.

         On August 2, 1996, we acquired the business of Heliotrope Studios, Inc.
("Heliotrope"), an interactive software developer for personal computers. The
excess of the cost of the acquisition over the estimated fair value of assets
acquired (approximately $265,000) was included in other long-term assets in the
accompanying balance sheet. Such excess cost was being amortized over five
years. In 1998, the operation was closed and the remaining asset value of
$203,000 was expensed.

         On May 1, 1998, we acquired all of the outstanding shares of an applied
technology company, GameFx, pursuant to a merger of GameFx with and into our
newly formed, wholly owned subsidiary. The consideration paid by us consisted of
(i) the issuance of 523,776 shares of common stock, (ii) the assumption of stock



                                      F-24

<PAGE>   71

options issued by GameFx to its employees that, if and when exercised, permit
the holders thereof to acquire approximately 22,275 shares and (iii)
approximately $1,273,000 in cash. The total acquisition cost was approximately
$7.5 million and was accounted for as a purchase. The purchase price was
allocated to certain intangible assets acquired and to purchased in-process
research and development ("R & D"). Purchased R & D includes the value of
products in the development stage and not considered to have reached
technological feasibility. In accordance with applicable accounting rules,
purchased in-process R & D is expensed. Accordingly, $7,232,000 of the
acquisition cost was expensed in the second quarter of 1998. Approximately
$260,000 of the purchase price was allocated to other intangible assets and is
being amortized over five years.

         In December 1998, we acquired all of the outstanding shares of Rushware
Microhandelsgesellschaft mbH and its subsidiaries, Softgold Computerspiele GmbH
and ABC Spielspass GmbH ("Rushware") for consideration consisting of
approximately $1,582,000 in cash and 249,930 shares of common stock with a fair
value of $4,432,000 which was accounted for as a purchase. In 1999 we
renegotiated the purchase of Rushware and received a payment of $2,540,000 from
the sellers. Rushware, based in Germany, is a leading German distributor of
interactive entertainment software for personal computers. Rushware now serves
as our distributor and publisher in Germany and other German-speaking countries.

13.  AGREEMENT WITH JAKKS PACIFIC, INC. AND TITAN SPORTS INC.

         We have entered into an arrangement with JAKKS Pacific, Inc. ("JAKKS"),
to govern our relationship with respect to the WWF license we jointly obtained
from Titan Sports, Inc. (now known as World Wrestling Federation Entertainment,
Inc. (the "WWF")) in June 1999. Our relationship with JAKKS was established to
develop, manufacture, distribute, market and sell video games pursuant to the
license from the WWF. We control the venture, therefore, all transactions and
balances are consolidated with the Company. The principal terms of this
operating agreement are as follows:

-     We will be responsible for funding all operations of the venture,
      including all payments owing to the WWF.

-     For the period commencing November 16, 1999 and ending December 31, 2003,
      JAKKS will be entitled to receive a preferred payment equal to the greater
      of a fixed guaranty, payable quarterly, or specified percentages of the
      "net sales" from WWF licensed games (as defined) in amounts that vary
      based on the platform. The payment of these amounts is guaranteed by us.
      We are entitled to the profits and cash distributions remaining after the
      payment of these amounts. At December 31, 1999, we have unearned preferred
      payments remaining for the initial four year period of approximately $10.4
      million.

-     For periods after December 31, 2003, the amount of the preferred payment
      will be subject to renegotiation between the parties. An arbitration
      procedure is specified in the event the parties do not reach agreement.

-     We will be responsible for the day-to-day operations of the venture. We
      will continue to be responsible for development, sales and distribution
      of the WWF licensed games, while JAKKS will continue to be responsible
      for the approval process and other relationship matters with the WWF. We
      will both continue to co-market the games.

         The license agreement with the WWF extends through December 31, 2009,
with an option for a five-year automatic extension if we pay them a specified
minimum amount during the initial ten-year period of the agreement. As of
December 31, 1999, we have guaranteed royalty payments remaining for the initial
ten-year period of approximately $15 million. The



                                      F-25
<PAGE>   72

agreement provides for an accelerated earnout depending on the volume of WWF
video game sales.

14.  COMMITMENTS AND CONTINGENCIES

         ROYALTIES. At December 31, 1998 and 1999, accrued royalties were
$16,320,000 and $31,404,000, respectively. Royalties are classified as current
liabilities if initial sales are to commence within one year.

         LEASES. We are committed under operating leases with lease termination
dates to 2005. Minimum future rentals pursuant to these leases as of December
31, 1999 are as follows:

<TABLE>
<CAPTION>
                    FACILITIES           EQUIPMENT
                    ----------          ----------
<S>                 <C>                 <C>
      2000          $2,398,000          $  340,000
      2001           2,115,000             175,000
      2002           1,552,000              90,000
      2003           1,203,000              68,000
      2004             918,000              21,000
Thereafter             728,000                  --
                    ----------          ----------
                    $8,914,000          $  694,000
                    ==========          ==========
</TABLE>

         Rent expense was $278,000, $490,000, and $1,648,000 in 1997, 1998 and
1999, respectively.

         LEGAL PROCEEDINGS. Two individual shareholders have filed essentially
identical purported class action lawsuits on February 18, 2000 and March 2,
2000, respectively, in the United States District Court for the Central District
of California, alleging that we and certain of our directors and senior officers
violated Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule
10b-5. Each case seeks class action status on behalf of all individuals who
purchased our shares of common stock between October 26, 1999 and February 10,
2000. Each complaint alleges that we issued false and misleading statements
about our financial results and prospects during the class period, and that the
individual defendant directors and officers participated in the alleged scheme
so as to sell their personal shares at inflated prices. We believe the claims
are without merit, and intend to vigorously defend against them.

         We are involved in routine litigation arising in the ordinary course
of our business. In the opinion of our management, none of the pending
litigation will have a material adverse effect on our consolidated financial
condition for results of operations.



                                      F-26


<PAGE>   73

15.  OPERATIONS IN GEOGRAPHIC AREAS

         We develop, market and distribute software products. The following
information sets forth geographic information on our sales and long-lived assets
for the years ended December 31, 1997, 1998 and 1999:


<TABLE>
<CAPTION>
(in thousands of dollars)               United           United
                                        States           Kingdom           Germany          France     Consolidated
                                       --------          --------          -------          -------    ------------
<S>                                    <C>               <C>               <C>              <C>          <C>
Year ended December 31, 1997:
Sales to unaffiliated
  customers                            $ 75,582          $ 14,000          $    (3)         $    --      $ 89,579
                                       ========          ========          =======          =======      ========
Long-lived assets at
  December 31, 1997                    $  2,244          $    152          $    --          $    --      $  2,396
                                       ========          ========          =======          =======      ========
Year ended December 31, 1998:
Sales to unaffiliated
  customers                            $186,978          $ 23,881          $ 5,252          $    --      $216,111
                                       ========          ========          =======          =======      ========
Long-lived assets at
  December 31, 1998                    $  6,134          $  4,763          $ 1,063          $    --      $ 11,960
                                       ========          ========          =======          =======      ========
Year ended December 31, 1999:
Sales to unaffiliated
  customers                            $227,701          $ 41,404          $33,252          $    --      $302,357
                                       ========          ========          =======          =======      ========
Long-lived assets at
  December 31, 1999                    $ 10,693          $  1,962          $   988          $     1      $ 13,644
                                       ========          ========          =======          =======      ========
</TABLE>




                                      F-27
<PAGE>   74

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

      Our summarized quarterly financial data is as follows:

<TABLE>
<CAPTION>
                                                                   Quarter Ended
                                           ---------------------------------------------------------------
(Amounts in thousands, except per share      March             June            September          December
data)                                          31               30                 30                31
---------------------------------------    --------          --------          ---------          --------
<S>                                        <C>               <C>                <C>               <C>
Year ended December 31, 1997:
Revenues                                   $ 11,839          $ 12,276           $ 16,397          $ 49,067
Expenses                                     11,184            11,308             14,687            41,498
                                           --------          --------           --------          --------
Income (loss) before income taxes               655               968              1,710             7,569
Income taxes                                      4                66                410             1,474
                                           --------          --------           --------          --------
Net income (loss)                          $    651          $    902           $  1,300          $  6,095
                                           ========          ========           ========          ========

Net income (loss) per share:
   Basic                                   $    .06          $    .07           $    .08          $    .38
                                           ========          ========           ========          ========
   Diluted                                 $    .06          $    .06           $    .08          $    .35
                                           ========          ========           ========          ========

Year ended December 31, 1998:
Revenues                                   $ 48,784          $ 29,469           $ 26,350          $111,508
Expenses                                     39,377            33,185             22,921            96,668
                                           --------          --------           --------          --------
Income before income taxes                    9,407            (3,716)             3,429            14,840
Income taxes                                  3,029             1,088              1,254             3,971
                                           --------          --------           --------          --------
Net income                                 $  6,378          $ (4,804)          $  2,175          $ 10,869
                                           ========          ========           ========          ========

Net income per share:
   Basic                                   $    .39          $   (.28)          $    .13          $    .62
                                           ========          ========           ========          ========
   Diluted                                 $    .37          $   (.28)          $    .13          $    .57
                                           ========          ========           ========          ========

Year ended December 31, 1999:
Revenues                                   $ 78,805          $ 51,612           $ 44,310          $127,630
Expenses                                     63,022            44,413             37,514           106,180
                                           --------          --------           --------          --------
Income (loss) before income taxes            15,783             7,199              6,796            21,450
Income taxes                                  6,299             3,294              2,119             6,575
                                           --------          --------           --------          --------
Net income (loss)                          $  9,484          $  3,905           $  4,677          $ 14,875
                                           ========          ========           ========          ========

Net income (loss) per share:
   Basic                                   $    .53          $    .22           $    .26          $    .80
                                           ========          ========           ========          ========
   Diluted                                 $    .48          $    .20           $    .23          $    .72
                                           ========          ========           ========          ========
</TABLE>



                                      F-28
<PAGE>   75
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
     Exhibit Number                                Title
     --------------                                -----
<S>                        <C>
          3.1              Certificate of Incorporation (incorporated by
                           reference to Exhibit 3.1 to Post-Effective Amendment
                           No. 1 to the Registration Statement on Form S-3 filed
                           on January 9, 1998 (File No. 333-32221) (the "S-3
                           Registration Statement")).

          3.2              Amendment to Certificate of Incorporation (incorporated by
                           reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the
                           S-3 Registration Statement).

          3.3              Amended and Restated Bylaws (incorporated by reference to Exhibit
                           3.3 to the Quarterly Report on Form 10-Q for the fiscal quarter
                           ended June 30, 1998).

        10.1*              Amended and Restated Employment Agreement dated as of
                           June 30, 1999, between the Company and Brian J.
                           Farrell (incorporated by reference to Exhibit 10.1 to
                           the Company's Quarterly Report on Form 10-Q for the
                           fiscal quarter ended June 30, 1999 (the "1999 2nd
                           Quarter 10-Q")).

        10.2*              Employment Agreement dated as of January 1, 1999,
                           between the Company and Jeffrey C. Lapin
                           (incorporated by reference to Exhibit 10.2 to the
                           1999 2nd Quarter 10-Q).

        10.3*              Employment Agreement between Fred A. Gysi and the
                           Company dated October 1, 1997 (incorporated by
                           reference to Exhibit 10.6 to the Company's Annual
                           Report on Form 10-K for the fiscal year ended
                           December 31, 1998 (the "1998 10-K")).

        10.4*              Form of Severance Agreement with Executive Officers
                           (incorporated by reference to Exhibit 10.7 to the
                           1998 10-K).

                           Amended and Restated 1990 Stock Option Plan (incorporated by
        10.5*              reference to Exhibit 10.1 to the Registration Statement on Form
                           S-2 filed on December 23, 1996 (File No. 333-18641)).

        10.6*              Stock Option Agreement dated as of August 28, 1996,
                           between the Company and Brian J. Farrell
                           (incorporated by reference to Exhibit 10.31 to the
                           Company's Annual Report on Form 10-K for the fiscal
                           year ended December 31, 1996).

        10.7*              Amended and Restated 1997 Stock Option Plan (the "1997 Stock
                           Option Plan") (incorporated by reference to Exhibit 4.4 to the
                           Registration Statement on Form S-8 filed on May 14, 1999 (File
                           No. 333-78567)).

        10.8*              Form of Stock Option Agreement for the 1997 Stock
                           Option Plan (incorporated by reference to Exhibit 4.5
                           to the Registration Statement on Form S-8 filed March
                           19, 1999 (File No. 333-74715)).

        10.9*              Stock Option Agreement dated as of October 21, 1998, between the
                           Company and Jeffrey C. Lapin (incorporated by reference to
                           Exhibit 10.8 to the 1999 2nd Quarter 10-Q).

        10.10*             Form of Stock Option Agreement dated as of December
                           23, 1998, between the Company and Messrs. Lawrence
                           Burstein, Bruce Jagid and James Whims (incorporated
                           by reference to Exhibit 10.9 to the 1999 2nd Quarter
                           10-Q).

        10.11              Trade Finance Agreement dated as of December 4, 1998, by and
                           between the Company and Union Bank of California, N.A. ("Union
                           Bank") (incorporated by reference to Exhibit 10.8 to the 1998
                           10-K).

        10.12              Trade Finance Agreement dated as of December 4, 1998,
                           by and between T.HQ International, LTD. ("THQ
                           International") and Union Bank (incorporated by
                           reference to Exhibit 10.9 to the 1998 10-K).

        10.13              First Amendment to Trade Finance Agreement dated as
                           of March 22, 1999, by and between the Company and
                           Union Bank (incorporated by reference to Exhibit
                           10.10 to the 1998 10-K).

        10.14              First Amendment to Trade Finance Agreement dated as
                           of March 22, 1999, by and between THQ International
                           and Union Bank (incorporated by reference to Exhibit
                           10.11 to the 1998 10-K).

        21                 Subsidiaries of the Registrant (incorporated by
                           reference to Exhibit 21 to the Company's Annual Report
                           on Form 10-K for the fiscal year ended December 31, 1999
                           (the "1999 10-K")).

        23.1               Consent of Deloitte & Touche LLP.

        27                 Financial Data Schedule (incorporated by reference
                           to Exhibit 27 to the 1999 10-K).
</TABLE>


----------

        *Management contract or compensatory plan or arrangement required to be
        filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.