<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                QUARTERLY REPORT
                     PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002     Commission File No. 0-27338

                                INFOGRAMES, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                             13-3689915
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

                      417 FIFTH AVENUE, NEW YORK, NY 10016
                    (Address of principal executive offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 726-6500

      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 | |

      As of February 12, 2003, there were 69,914,206 shares of the registrant's
Common Stock outstanding.


                                     Page 1
<PAGE>
                        INFOGRAMES, INC. AND SUBSIDIARIES
                 DECEMBER 31, 2002 QUARTERLY REPORT ON FORM 10-Q
                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
<S>                                                                                                           <C>
   Item 1. Financial Statements:

           Consolidated Balance Sheets as of June 30, 2002 and December 31, 2002 (unaudited)                    3

           Consolidated Statements of Operations and Comprehensive Income (unaudited) for the Three
           Months and the Six Months Ended December 31, 2001, and for the Three Months and Six Months
           Ended December 31, 2002                                                                              4

           Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended December 31,
           2001 and 2002                                                                                        5

           Consolidated Statements of Stockholders' Deficiency for the Year Ended June 30, 2002 and Six
           Months Ended December 31, 2002 (unaudited)                                                           6

           Notes to the Consolidated Financial Statements  (unaudited)                                          7

           Management's Discussion and Analysis of Financial Condition and Results
   Item 2. of Operations                                                                                       16

   Item 3. Quantitative and Qualitative Disclosures about Market Risk                                          27

   Item 4. Controls and Procedures                                                                             27

PART II - OTHER INFORMATION

   Item 1. Legal Proceedings                                                                                   28

   Item 4. Submission of Matter to a Vote of Security Holders                                                  29

   Item 6. Exhibits and Reports on Form 8-K                                                                    30

  Signatures                                                                                                   31

Certifications                                                                                                 32
</TABLE>


                                     Page 2
<PAGE>
PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        INFOGRAMES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                         JUNE 30,    DECEMBER 31,
                                                                                                           2002         2002
                                                                                                        ---------    ------------
                                                                                                                     (UNAUDITED)
<S>                                                                                                     <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents ....................................................................        $   5,403     $   4,817
  Receivables, net of allowances for bad debts, returns, price protection and other
    customer promotional programs of $50,451 and $57,401, respectively .........................           81,200       101,935
  Inventories, net of reserves of $7,695 and $5,360, respectively ..............................           45,235        49,985
  Income taxes receivable ......................................................................            1,074         1,002
  Due from related parties .....................................................................            3,849         7,729
  Advances to related party ....................................................................               --        10,296
  Prepaid expenses and other current assets ....................................................            8,347        14,678
                                                                                                        ---------     ---------
    Total current assets .......................................................................          145,108       190,442
Property and equipment, net ....................................................................           16,185        15,020
Investments ....................................................................................            3,500         3,500
Goodwill, net of accumulated amortization of $26,116 in both periods ...........................           72,924        70,224
Other assets ...................................................................................            4,146         6,337
                                                                                                        ---------     ---------
    Total assets ...............................................................................        $ 241,863     $ 285,523
                                                                                                        =========     =========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable .............................................................................        $  59,259     $  54,366
  Accrued liabilities ..........................................................................           35,615        47,491
  Revolving credit facilities ..................................................................           15,000         9,157
  Short-term promissory notes ..................................................................            8,833            --
  Current portion of medium-term loan ..........................................................               --        20,000
  Related party credit facility ................................................................           61,431        44,800
  Royalties payable ............................................................................            8,915        24,673
  Income taxes payable .........................................................................            1,447         1,865
  Due to related parties .......................................................................            7,111        15,302
                                                                                                        ---------     ---------
    Total current liabilities ..................................................................          197,611       217,654
Related party debt .............................................................................          150,947       143,013
Deferred income ................................................................................            3,500         4,150
Other long-term liabilities ....................................................................            5,134         5,044
                                                                                                        ---------     ---------
    Total liabilities ..........................................................................          357,192       369,861
                                                                                                        ---------     ---------

Commitments and contingencies ..................................................................               --            --

Stockholders' deficiency:
  Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or
    outstanding ................................................................................               --            --
  Common stock, $0.01 par value, 300,000 shares authorized, 69,826 and 69,914
    shares issued and outstanding at June 30, 2002 and December 31, 2002,
    respectively ...............................................................................              698           699
  Additional paid-in capital ...................................................................          485,759       485,986
  Accumulated deficit ..........................................................................         (604,921)     (574,136)
  Accumulated other comprehensive income .......................................................            3,135         3,113
                                                                                                        ---------     ---------
    Total stockholders' deficiency .............................................................         (115,329)      (84,338)
                                                                                                        ---------     ---------
    Total liabilities and stockholders' deficiency .............................................        $ 241,863     $ 285,523
                                                                                                        =========     =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 3
<PAGE>
                        INFOGRAMES, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                                 DECEMBER 31,                     DECEMBER 31,
                                                                          -------------------------       -------------------------
                                                                             2001            2002            2001           2002
                                                                          ---------       ---------       ---------       ---------
<S>                                                                       <C>             <C>             <C>             <C>
Net revenues .......................................................      $ 160,396       $ 210,594       $ 238,923       $ 319,961
Cost of goods sold .................................................         79,302         104,142         117,035         158,038
                                                                          ---------       ---------       ---------       ---------
   Gross profit ....................................................         81,094         106,452         121,888         161,923
Selling and distribution expenses ..................................         34,183          39,758          47,222          59,357
General and administrative expenses ................................         14,346          14,189          22,549          22,404
Research and development ...........................................         16,333          16,976          31,395          39,061
Depreciation and amortization ......................................          1,071           1,857           2,168           3,932
                                                                          ---------       ---------       ---------       ---------
   Operating income ................................................         15,161          33,672          18,554          37,169
Interest expense, net ..............................................          3,476           3,356           6,362           6,608
Other income .......................................................            473             220             522             714
                                                                          ---------       ---------       ---------       ---------
   Income before (benefit from) provision for income taxes .........         12,158          30,536          12,714          31,275
(Benefit from) provision for income taxes ..........................            (16)            482             (12)            490
                                                                          ---------       ---------       ---------       ---------

   Net income ......................................................      $  12,174       $  30,054       $  12,726       $  30,785
                                                                          =========       =========       =========       =========

Basic and diluted net income per share .............................      $    0.17       $    0.43       $    0.18       $    0.44
                                                                          =========       =========       =========       =========

   Basic weighted average number of shares outstanding .............         69,738          69,891          69,634          69,859
                                                                          =========       =========       =========       =========

   Diluted weighted average number of shares outstanding ...........         70,008          69,984          70,081          69,956
                                                                          =========       =========       =========       =========

Net income .........................................................      $  12,174       $  30,054       $  12,726       $  30,785
Other comprehensive income:
   Foreign currency translation adjustments ........................            509             (22)            330             (22)
   Unrealized loss on securities ...................................           (228)             --            (444)             --
                                                                          ---------       ---------       ---------       ---------
     Comprehensive income ..........................................      $  12,455       $  30,032       $  12,612       $  30,763
                                                                          =========       =========       =========       =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 4
<PAGE>
                        INFOGRAMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                  SIX MONTHS        SIX MONTHS
                                                                                                     ENDED             ENDED
                                                                                                  DECEMBER 31,      DECEMBER 31,
                                                                                                      2001              2002
                                                                                                  ------------      ------------
<S>                                                                                               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................       $ 12,726          $ 30,785
Adjustments to reconcile net income to
  net cash used in operating activities:
  Depreciation and amortization ............................................................          2,168             3,932
  Amortization of discount on long-term debt ...............................................          1,435             1,435
  Deferred royalty income ..................................................................         (1,750)               --
  Accrued interest .........................................................................          2,168             3,612
  Write-off of property and equipment ......................................................             57               363
  Amortization of deferred financing fees ..................................................            478               567
Changes in operating assets and liabilities:
    Receivables, net .......................................................................        (66,276)          (20,749)
    Inventories, net .......................................................................        (12,792)           (4,743)
    Due to / from related parties, net .....................................................          9,949             2,521
    Prepaid expenses and other current assets ..............................................         (3,191)           (6,297)
    Accounts payable .......................................................................         19,134            (4,915)
    Accrued liabilities ....................................................................         14,624            11,820
    Royalties payable ......................................................................         (4,216)           15,756
    Income taxes payable ...................................................................             --               400
    Income taxes receivable ................................................................          1,046                84
    Deferred income ........................................................................          3,747               650
    Other long-term liabilities ............................................................             31               (89)
    Other assets ...........................................................................         (1,852)             (486)
                                                                                                   --------          --------
       Net cash (used in) provided by operating activities .................................        (22,514)           34,646

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ........................................................         (4,707)           (2,785)
Advances to related party ..................................................................             --           (10,296)
                                                                                                   --------          --------
       Net cash used in investing activities ...............................................         (4,707)          (13,081)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under BNP Paribas revolving credit facility .....................................             --           (15,000)
Borrowings under General Electric  Capital  Corporation  Senior Credit Facility,
  net ......................................................................................             --             9,157
Borrowings (repayments) under related party credit facilities, net .........................         28,000            (7,736)
Repayments under short-term promissory notes ...............................................             --            (8,833)
Proceeds from issuance of common stock pursuant to employee stock purchase plan ............            127               125
Proceeds from exercise of stock options ....................................................             10               103
                                                                                                   --------          --------
       Net cash provided by (used in) financing activities .................................         28,137           (22,184)

Effect of exchange rates on cash and cash equivalents ......................................             72                33
                                                                                                   --------          --------

Net increase (decrease) in cash and cash equivalents .......................................            988              (586)
Cash and cash equivalents--beginning of period .............................................          4,752             5,403
                                                                                                   --------          --------
Cash and cash equivalents--end of period ...................................................       $  5,740          $  4,817
                                                                                                   ========          ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Issuance of treasury stock in lieu of partial royalty payment ..............................       $    855          $     --
Issuance of stock in lieu of partial royalty payment .......................................             41                --
Cash paid for interest .....................................................................          1,822             3,287
</TABLE>

           The accompanying notes are an integral part of these
                    consolidated financial statements.


                                     Page 5
<PAGE>
                        INFOGRAMES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     ACCUMULATED
                                        COMMON              ADDITIONAL                   OTHER                 TREASURY
                                        STOCK      COMMON     PAID-IN   ACCUMULATED  COMPREHENSIVE  TREASURY    SHARES
                                        SHARES     STOCK      CAPITAL      DEFICIT      INCOME       SHARES     AT COST     TOTAL
                                        ------     -----      -------      -------      ------       ------     -------     -----
<S>                                     <C>       <C>       <C>         <C>          <C>            <C>        <C>        <C>
BALANCE, JULY 1, 2001 ..............    $69,759   $   698   $ 486,306    $(593,991)     $ 2,803         235     $(2,352)  $(106,536)
Issuance of common stock pursuant to
   employee stock purchase plan ....         30        --         204           --           --          --          --         204
Sales of treasury shares in lieu
   of partial royalty payment ......         --        --      (1,497)          --           --        (235)      2,352         855
Exercise of stock options ..........          5        --          32           --           --          --          --          32
Net loss ...........................         --        --          --      (10,930)          --          --          --     (10,930)
Currency translation adjustment ....         --        --          --           --          777          --          --         777
Unrealized loss on securities ......         --        --          --           --          (57)         --          --         (57)
Reclassification adjustment for
   realized gains included in
   net loss ........................         --        --          --           --         (388)         --          --        (388)
Assumption of stock options
   pursuant to the acquisition
   of Shiny Entertainment, Inc. ....         --        --         672           --           --          --          --         672
Conversion of warrants under cash -
   less exercise option ............         21        --           1           --           --          --          --           1
Issuance of common stock in lieu of
   partial royalty payment .........         11        --          41           --           --          --          --          41
                                        -------   -------   ---------    ---------      -------         ---     -------   ---------
BALANCE, JUNE 30, 2002 .............     69,826       698     485,759     (604,921)       3,135          --          --    (115,329)
Issuance of common stock pursuant
   to employee stock purchase plan .         46        --         125           --           --          --          --         125
Exercise of stock options ..........         42         1         102           --           --          --          --         103
Net income .........................         --        --          --       30,785           --          --          --      30,785
Currency translation adjustment ....         --        --          --           --          (22)         --          --         (22)
                                        -------   -------   ---------    ---------      -------         ---     -------   ---------
BALANCE, DECEMBER 31, 2002 .........    $69,914   $   699   $ 485,986    $(574,136)     $ 3,113          --     $    --   $ (84,338)
                                        =======   =======   =========    =========      =======         ===     =======   =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                     Page 6
<PAGE>
                        INFOGRAMES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

      Infogrames, Inc., a Delaware corporation (the "Company"), is a leading
worldwide developer, publisher and distributor of interactive entertainment
software for use on various platforms, including PCs, Sony PlayStation and
PlayStation2, Microsoft's Xbox and Nintendo's GameCube, Gameboy and Gameboy
Advance. The Company derives its revenues primarily from the sale of its
created, published, licensed and purchased products to mass merchants, specialty
software stores, computer superstores and distributors located throughout North
America and also in various international locations. Infogrames Entertainment
SA, a French corporation ("Infogrames SA"), owns approximately 88% of the
Company. The Company relies on financial and operational support from Infogrames
SA. On November 12, 2002, the Company obtained a 30-month $50.0 million secured
revolving credit facility ("Senior Credit Facility") with General Electric
Capital Corporation ("GECC") which will be used to fund the Company's working
capital and general corporate needs and to provide funding to a related entity
which is wholly-owned by Infogrames SA (Note 5).

Basis of Presentation

      The accompanying interim consolidated financial statements of the Company
are unaudited, but in the opinion of management, reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the results for the interim period in accordance with instructions for Form
10-Q. Accordingly, they do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
These interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 2002. The
information for June 30, 2002 was derived from audited financial statements.

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and balances
have been eliminated.

Revenue Recognition

      Revenue is recognized when title and risk of loss transfers to the
customer, provided that collection of the resulting receivable is deemed
probable by management.

      The Company is not contractually obligated to accept returns except for
defective product. However, the Company may permit its customers to return or
exchange product and provides allowances for estimated returns, price
concessions, or other allowances on a negotiated basis. We estimate such returns
and allowances based upon management's evaluation of our historical experience,
retailer inventory levels, budgeted customer allowances, the nature of the title
and existing commitments to customers. Such estimates are deducted from gross
sales and provided for at the time revenue is recognized.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures 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 materially differ
from those estimates.


                                     Page 7
<PAGE>
Goodwill and Other Intangible Assets

      On June 30, 2001, Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" was issued. SFAS No. 142 eliminates
goodwill amortization over its estimated useful life. However, goodwill is
subject to at least an annual assessment for impairment by applying a fair-value
based test. Additionally, acquired intangible assets are separately recognized
if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the Company's intent to do so. Intangible
assets with definitive lives are amortized over their useful lives. The Company
adopted SFAS No. 142 effective July 1, 2001. Such adoption did not result in an
impairment of goodwill, based on an assessment of fair value performed by an
independent appraisal company; however, future changes in the facts and
circumstances relating to the Company's goodwill and other intangible assets
could result in an impairment of intangible assets in subsequent periods.

Fair Values of Financial Instruments

      SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires certain disclosures regarding the fair value of financial instruments.
Cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, royalties payable, revolving credit facility, related party credit
facilities and amounts due to and from related parties are reflected in the
consolidated financial statements at fair value because of the short-term
maturity of these instruments. Management believes the fair value of its
long-term related party debt closely approximates its carrying value based on
current market interest rates and the incremental borrowing rate of the Company.
The Company uses quoted market prices to calculate these fair values, when
available.

Long-Lived Assets

      The Company reviews long-lived assets, such as fixed assets and certain
identifiable intangibles to be held, for impairment annually or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. If the estimated fair market value of the asset is
less than the carrying amount of the asset plus the cost to dispose, an
impairment loss is recognized as the amount by which the carrying amount of the
asset plus the cost to dispose exceeds its fair value, as defined in SFAS No.
144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of".

Research and Development Costs

      Research and development costs related to the design, development and
testing of new software products are charged to expense as incurred. Research
and development costs also include payments for royalty advances ("Milestone
Payments") to third-party developers for products that are currently in
development.

      Rapid technological innovation, shelf-space competition, shorter product
life cycles and buyer selectivity have made it extremely difficult to determine
the likelihood of individual product acceptance and success. As a result, the
Company follows the policy of expensing Milestone Payments as incurred, treating
such costs as research and development expenses.

License Advances

      Payments made to third parties for licensing intellectual property are
capitalized and amortized over projected unit sales. Management evaluates the
carrying value of these capitalized licenses and records any impairment in
value, if any, as research and development expense.


                                     Page 8
<PAGE>
Reclassifications

      Certain reclassifications have been made to the prior period's
consolidated financial statements to conform to classifications used in the
current period. These reclassifications had no impact on previously reported
results of operations.

Net Income Per Share

      Basic income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period. Diluted
income per share reflects the potential dilution that could occur from shares of
common stock issuable through stock-based compensation plans including stock
options, restricted stock awards, warrants and other convertible securities
using the treasury stock method. The convertible debt would be anti-dilutive and
has not been considered in the diluted income per share calculation for the
three months and six months ended December 31, 2001 and 2002.

Recent Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143
addresses financial accounting and reporting for obligations and costs
associated with the retirement of tangible long-lived assets. The Company is
required to implement SFAS No. 143 on January 1, 2003. Management believes that
the effect of implementing this pronouncement will not have a material impact on
the Company's financial condition or results of operations.

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. This statement also established that fair value is the
objective for initial measurement of the liability. The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. Management believes that the effect of implementing this
pronouncement will not have a material impact on the Company's financial
condition or results of operations.

      In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123".
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. It also requires disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 is effective
for annual and interim periods beginning after December 15, 2002. Management is
currently evaluating the impact of adopting the fair value based method of
accounting for stock-based employee compensation.

NASDAQ Letter

      The Company received a notice from NASDAQ dated October 17, 2002, stating
that the Company's common stock had not maintained a minimum bid price per share
of $3.00 for 30 consecutive trading days, as required to maintain listing on the
NASDAQ National Market. If the bid price for the Company's common stock closes
at $3.00 or more per share for 10 consecutive trading days at any time before
January 15, 2003, the common stock may continue to be listed on the NASDAQ
National Market. The Company was unable to maintain such listing and, prior to
January 15, 2003, applied for listing on the NASDAQ SmallCap Market and this
application is currently being reviewed by NASDAQ. As of the date of this
filing, pending NASDAQ's review, the Company's common stock continues to be
listed on NASDAQ National Market. The Company believes that the current
valuation of its stock does not adequately reflect its financial performance


                                     Page 9
<PAGE>
nor the strength of its product lineup but instead is a result of general
softness in the sector and in the financial markets on the whole.

NOTE 2 - SHINY ACQUISITION

      On April 30, 2002, the Company acquired all of the outstanding shares of
common stock of Shiny Entertainment, Inc. ("Shiny"), a videogame development
studio (the "Shiny Acquisition"). Total consideration, including acquisition
costs and assumption of employee stock options to purchase shares of common
stock of Shiny was approximately $50.8 million. The Shiny Acquisition was
accounted for as a purchase. The purchase price was allocated to net assets
acquired, in-process research and development, other intangible assets and
goodwill. Accordingly, $7.4 million of in-process research and development was
expensed in the year ended June 30, 2002. Furthermore, $2.7 million of the
purchase price was allocated to other intangible assets and the balance was
allocated to net liabilities and goodwill. Other intangible assets are being
amortized over four years.

      The purchase price paid by the Company for the shares of Shiny consisted
of (i) $31.0 million in cash at closing, (ii) the issuance of short-term
promissory notes for an aggregate principal face amount of $16.2 million payable
by the Company in installments through July 31, 2002, (iii) $2.0 million paid to
third party licensors, (iv) assumption of employee stock options granted to
purchase shares of Shiny valued at $0.7 million and (v) approximately $1.0
million in professional and legal costs associated with the Shiny Acquisition.
The Company financed the purchase with borrowings from Infogrames SA, under a
medium-term loan, which guaranteed repayments of the short-term promissory
notes. Repayment of the medium-term loan will be due in installments commencing
no later than December 31, 2003 and ending by June 30, 2004, subject to
restrictions under the GECC Senior Credit Facility (Note 5).

                         PROFORMA RESULTS OF OPERATIONS

      The following unaudited consolidated pro-forma results of operations of
the Company for the three months and six months ended December 31, 2001 give the
effect of the Shiny Acquisition as if it had occurred on July 1, 2001 (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                             THREE MONTHS       SIX MONTHS
                                                                ENDED              ENDED
                                                             DECEMBER 31,       DECEMBER 31,
                                                                 2001               2001
                                                             ------------       ------------
<S>                                                          <C>                <C>
Net revenues ........................................         $160,396            $238,923
Operating income ....................................         $ 13,775            $ 16,008
Net income ..........................................         $  9,622            $  8,156

Basic and diluted net income per share ..............         $   0.14            $   0.12
</TABLE>


                                    Page 10
<PAGE>
NOTE 3 - INVENTORIES, NET

      Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             JUNE 30,        DECEMBER 31,
                                                               2002              2002
                                                             --------        ------------
<S>                                                          <C>             <C>
Finished goods ......................................        $ 51,523         $ 53,846
Raw materials .......................................           1,407            1,499
                                                             --------         --------
                                                               52,930           55,345

Less: Obsolescence reserve ..........................          (7,695)          (5,360)
                                                             --------         --------

                                                             $ 45,235         $ 49,985
                                                             ========         ========
</TABLE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

ITEM 1. LEGAL PROCEEDINGS

LITIGATION

      During the six months ended December 31, 2002, no significant claims were
asserted against or by the Company that in management's opinion the likely
resolution of which would have a material adverse affect on the Company's
liquidity, financial condition or results of operations, although the Company is
involved in various claims and legal actions arising in the ordinary course of
business. The following litigation matters are still pending, however, and the
Company continues to believe that the underlying complaints are without merit
and intends to defend itself vigorously against these actions.

James

      On April 12, 1999, an action was commenced by the administrators for three
children who were murdered on December 1, 1997 by Michael Carneal at the Heath
High School in McCracken County, Kentucky. The action was brought against 25
defendants, including the Company and other corporations in the videogame
business, companies that produced or distributed the movie The Basketball
Diaries, and companies that provide allegedly obscene internet content. The
complaint alleges, with respect to the Company and other corporations in the
videogame business, that Carneal was influenced by the allegedly violent content
of certain videogames and that the videogame manufacturers are liable for
Carneal's conduct. The complaint seeks $10.0 million in compensatory damages and
$100.0 million in punitive damages. The Company and approximately 10 other
corporations in the videogame business have entered into a joint defense
agreement and have retained counsel. By order entered April 6, 2000, the Court
granted a motion to dismiss the complaint. Plaintiffs have filed a motion to
vacate the dismissal of the action. On June 16, 2000, the Court denied the
motion to vacate. On June 28, 2000, plaintiffs appealed the dismissal of the
action to the Court of Appeals for the Sixth Circuit. Plaintiffs' and
defendants' final appellate briefs were submitted on November 30, 2000, and oral
argument was heard on November 28, 2001. On August 13, 2002 the Sixth Circuit
issued a complete affirmance of the dismissal of the action. On November 11,
2002 Plaintiff's filed a petition for writ of certiorari in the United States
Supreme Court. On January 21, 2003 the United States Supreme Court, in a summary
order, denied certiorari.

Sanders

      On April 19, 2001, a putative class action was commenced by the family of
William David Sanders, a teacher murdered on April 2, 1999 in a shooting rampage
committed by Eric Harris and Dyland Klebold at the Columbine High School in
Jefferson County, Colorado. The action was brought against 25 defendants,


                                    Page 11
<PAGE>
including the Company and other corporations in the videogame business,
companies that produced or distributed the movie The Basketball Diaries, and
companies that provide allegedly obscene internet content. The complaint
alleges, with respect to the Company and other corporations in the videogame
business, that Harris and Klebold were influenced by the allegedly violent
content of certain videogames and that the videogame manufacturers are liable
for Harris' and Klebold's conduct. The complaint seeks a minimum $15,000 for
each plaintiff and up to $15.0 million in compensatory damages for certain
plaintiffs and $5.0 billion in punitive damages, injunctive relief in the form
of a court established "monitoring system" requiring video game companies to
comply with rules and standards set by the court for marketing violent games to
children. On June 6, 2001 the Company waived service of a summons, and on July
9, 2001 the Company filed a motion to dismiss. Plaintiffs filed papers opposing
the Company's motion to dismiss and on September 14, 2001 the Company filed its
reply brief. On March 4, 2002 the Court granted our motion to dismiss and on
March 29, 2002 denied plaintiffs' motion for reconsideration. On April 5, 2002
plaintiffs filed a notice of appeal to the Court of Appeals for the Tenth
Circuit. A stipulation of dismissal was filed on December 9, 2002 and on
December 10, 2002 the Court of Appeals for the Tenth Circuit dismissed the
appeal.

KBK

      On September 16, 2002, Knight Bridging Korea Co., Ltd. ("KBK"), a
distributor of electronic games via the Internet and local area networks, filed
a lawsuit against Gamesonline.com, Inc. ("Gamesonline"), a subsidiary of
Interplay Entertainment Corp., and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered into
a contract with Gamesonline to obtain the right to localize and distribute
electronically in Korea, Neverwinter Nights and certain back list games. The
complaint further alleges that Gamesonline and the Company conspired to prevent
KBK from entering the market with Neverwinter Nights or any back title of
Gamesonline. The complaint alleges the following causes of action against the
Company: misappropriation of trade secrets under the California Uniform Trade
Secrets Act; common law misappropriation; intentional interference with
contract; negligent interference with contract; intentional interference with
prospective economic advantage; negligent interference with prospective economic
advantage; and violation of Business & Professions Code Section 17200 et seq.
The complaint seeks $98.8 million for each of these causes of action. An amended
complaint was filed on December 3, 2002, alleging all of the foregoing against
the Company, adding Infogrames Interactive, Inc. as a named defendant, and
alleging that Company managed and directed Infogrames Interactive, Inc. to
engage in the foregoing alleged acts. Company and Infogrames Interactive, Inc.
filed answers on January 9, 2003. On or about January 28, 2003, Gamesonline
answered the original complaint and served a cross-complaint against KBK.
Discovery is ongoing.

      The Company's management believes that the ultimate resolution of any of
the complaints summarized above and/or any other claims which are not stated
herein will not have a material adverse effect on the Company's liquidity,
financial condition or results of operations.

NOTE 5 - DEBT

Credit Facilities

      GECC Credit Facility

      On November 12, 2002, the Company obtained a 30-month $50.0 million Senior
Credit Facility with GECC to fund the Company's working capital and general
corporate needs, as well as to fund intercompany loans to Paradigm Entertainment
Inc. and Infogrames Interactive, Inc., each a related party (Note 6). Loans
under the Senior Credit Facility will be based on a borrowing base comprised of
the value of the Company's accounts receivable and short term marketable
securities. The Senior Credit Facility bears interest at prime plus 1.25% for
daily borrowings or LIBOR plus 3% for borrowings with a maturity of 30 days or
greater. A commitment fee of 0.5% on the average unused portion of the facility
is payable monthly and the Company paid $0.6 million as an initial commitment
fee at closing. The Senior Credit Facility contains certain


                                    Page 12
<PAGE>
financial covenants and names certain related entities, such as Infogrames
Interactive, Inc., Paradigm Entertainment, Inc., and Atari Interactive, Inc. and
the Company's subsidiary, Shiny Entertainment, Inc., as guarantors. The
outstanding borrowings as of December 31, 2002, under the Senior Credit Facility
were approximately $9.2 million with another $2.1 million of letters of credit
outstanding. As of December 31, 2002, accrued interest of approximately $0.1
million was included in accrued liabilities and the Company was in compliance
with all financial covenants.

      In conjunction with the Senior Credit Facility, the Company, Infogrames SA
and GECC entered into an Intercreditor and Subordination Agreement dated
November 12, 2002 ("Subordination Agreement"). The Subordination Agreement makes
all Infogrames SA debt and related party debt with the Company subordinate to
the Senior Credit Facility. The Subordination Agreement allows repayment of debt
and interest to Infogrames SA by the Company under certain financial conditions
including but not limited to the Senior Credit Facility cash availability and
certain financial covenants. Additionally, the Subordination Agreement disallows
Infogrames SA from demanding principal repayments of any kind on any of its debt
with the Company unless such demand of repayment is in accordance with the
scheduled maturity of debt under the medium-term loan or with prior approval
from GECC. Furthermore, the Subordination Agreement may have the effect of
extending the terms on all Infogrames SA credit facilities and related party
debt through the term of the Senior Credit Facility.

      BNP Paribas Credit Facility

      In connection with the September 2000 merger with a related party,
Infogrames North America, Inc. ("INA"), the Company assumed a $35.0 million
revolving credit facility with BNP Paribas, which was to mature on September 17,
2001 and subsequently extended until November 30, 2001. On November 30, 2001,
the facility was extended to May 31, 2002, with an amendment reducing the amount
available in the facility by $5.0 million a month beginning February 1, 2002 and
maturing August 31, 2002. The amended facility bears interest at a rate equal to
the lender's cost of funds plus 1.5% on domestic term loans and at LIBOR plus
1.5% on Eurodollar term loans, payable at maturity. The Company had
approximately $15.0 million outstanding under this facility at June 30, 2002 and
paid the balance of principal and interest in full on August 30, 2002.

Infogrames SA related party credit facilities and related party debt with the
Company

      Credit Agreement

      The Company has a $75.0 million Credit Agreement with Infogrames SA which
bears interest at LIBOR plus 2.5%. On November 12, 2002, by entering into the
Subordination Agreement, Infogrames SA, in effect, extended the Credit Agreement
through the term of the Senior Credit Facility. Additionally, the allowable
repayments of the Credit Agreement are restricted under the terms of the
Subordination Agreement and demand of re-payments cannot be made prior to
termination of the Senior Credit Facility or without prior approval of GECC. The
outstanding borrowings, as of December 31, 2002, under the Credit Agreement were
approximately $44.8 million. As of December 31, 2002, accrued interest and fees
were approximately $1.0 million and included in current amounts due to related
parties. As of December 31, 2002, there are no letters of credit outstanding
secured by the Credit Agreement. The entire outstanding balance of $44.8 million
at December 31, 2002 is included in current liabilities as management is unable
to determine the extent to which principal repayments, if any, will be made
prior to January 1, 2004.

      Medium-Term Loan

      In connection with the Shiny Acquisition, the Company obtained a $50.0
million medium-term loan from Infogrames SA on April 22, 2002 which matures on
June 30, 2004. The facility interest is based on the three month LIBOR rate plus
2.75% and payable on a quarterly basis, in arrears. An unused commitment fee of
0.50% per annum is based on the aggregate amount of the facility less
outstanding loans. The facility will be repaid as follows: $10.0 million three
months after the first shipment of the game based on the Matrix Reloaded movie
and no later than December 31, 2003; $10.0 million on December 31, 2003; $20.0
million on March 31, 2004; and $10.0 million on June 30, 2004. Under the
Subordination Agreement, the scheduled payments are restricted by certain
financial conditions including but not limited to the Senior Credit Facility's


                                    Page 13
<PAGE>
minimum borrowing availability and certain financial covenants. The
Subordination Agreement also may have the effect of extending the terms on the
medium-term loan through the term of the Senior Credit Facility. As of December
31, 2002, the outstanding borrowings under the medium-term loan were
approximately $48.3 million, of which $20.0 million is in current liabilities.
Additionally, accrued interest was approximately $0.7 million and is included in
current amounts due to related parties.

      In conjunction with the Shiny Acquisition, the Company issued various
short-term promissory notes to pre-existing creditors of Shiny for an aggregate
amount of $16.2 million payable by the Company in installments due July 31,
2002. As of July 31, 2002, all principal and interest related to the short-term
promissory notes have been paid in full with borrowings from the medium-term
loan from Infogrames SA.

      0% Notes

      In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to General Atlantic Partners ("GAP") the GAP 0% Notes in exchange
for 600,000 shares of Series A Preferred Stock and $20.0 million of subordinated
notes of the Company. The GAP 0% Notes are convertible into the Company's common
stock at $20.00 per share and will have a redemption value of $50.0 million at
maturity. Under the Subordination Agreement, the scheduled payment is restricted
by certain financial conditions including but not limited to the Senior Credit
Facility's minimum borrowing availability and certain financial covenants. The
Subordination Agreement also may have the effect of extending the terms on the
GAP 0% Notes through the term of the Senior Credit Facility. Interest on the GAP
0% Notes is being accreted at the rate of 7%. On December 28, 2001, Infogrames
SA assumed the GAP 0% Notes from GAP in exchange for Infogrames SA shares of
common stock. Infogrames SA has not changed any of the terms of the former GAP
0% Notes (renamed the "Infogrames SA 0% subordinate convertible note") as they
relate to the Company.

      5% Notes

      In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to California U.S. Holdings, Inc., a wholly-owned subsidiary of
Infogrames SA, ("CUSH"), 5% subordinated convertible notes ("5% CUSH Notes") in
exchange for $25.0 million in cash and $35.6 million in debt and accrued
interest. The 5% CUSH Notes are convertible into the Company's common stock at
$9.25 per share. Under the Subordination Agreement, the scheduled payment is
restricted by certain financial conditions including but not limited to the
Senior Credit Facility's minimum borrowing availability and certain financial
covenants. The Subordination Agreement also may have the effect of extending the
terms on the 5% CUSH Notes through the term of the Senior Credit Facility.

      Long-Term Related Party Debt

Long-term related party debt consists of the following at December 31, 2002 (in
thousands):

<TABLE>
<S>                                                                                        <C>
Infogrames SA 0% subordinated convertible note, due December 16, 2004 .............        $ 44,260
Infogrames SA medium-term loan, net of $20,000 current portion ....................          28,277

5% subordinated convertible note with CUSH, due December 16, 2004 .................          70,476
                                                                                           --------
                                                                                           $143,013
                                                                                           ========
</TABLE>

NOTE 6 - RELATED PARTY TRANSACTIONS

Advances to Related Party

      The GECC Senior Credit Facility allows the Company to borrow and make
advances to Infogrames Interactive, Inc. through intercompany loans. At December
31, 2002, loans outstanding with Infogrames Interactive, Inc. were $10.3
million. This loan bears interest at prime plus 150 basis points and will be
repaid from distribution royalties owed by the Company in the ordinary course of
operations.


                                    Page 14
<PAGE>
      The Company has a distribution arrangement with Infogrames Interactive
Inc. requiring it to pay a royalty to the developer for all Infogrames
Interactive Inc. products distributed by the Company. For the six months ended
December 31, 2002, the Company incurred royalty expense of approximately $19.3
million related to the distribution of the developer's product. The Company also
charges management fees to Infogrames Interactive Inc. primarily for legal,
financial, information systems and human resources management. Management fee
income recorded by the Company in the six months ended December 31, 2002 was
$1.5 million.

NOTE 7 - OPERATIONS BY REPORTABLE SEGMENTS

      The Company has three reportable segments: publishing, distribution and
corporate. Publishing is comprised of three studios located in Santa Monica,
California; Beverly, Massachusetts; and Minneapolis, Minnesota. Distribution
constitutes the sale of other publishers' titles to various mass merchants and
other retailers. Corporate includes the costs of senior executive management,
legal, finance, and administration of the Company. The majority of depreciation
expense for fixed assets is charged to the Corporate segment and a portion to
the publishing segment. This amount consists of depreciation on computers and
office furniture at the publishing unit offices. Historically, the Company does
not separately track or maintain records, other than fixed asset records, which
identify assets by segment and, accordingly, such information is not available.

      The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating results of these segments.

      The Company's reportable segments are strategic business units with
different associated costs and profit margins. They are managed separately
because each business unit requires different planning, merchandising and
marketing strategies.

      The following unaudited summary represents the consolidated net revenues
and operating income (loss) by reportable segment for the three months and the
six months ended December 31, 2001 and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                  PUBLISHING       DISTRIBUTION     CORPORATE        TOTAL
                                                                  ----------       ------------     ---------        -----
<S>                                                               <C>              <C>              <C>             <C>
Three months ended December 31, 2001:
         Net revenues ..................................           $125,505           $34,891       $     --        $160,396
         Operating income (loss) .......................             18,415             3,437         (6,691)         15,161

Three months ended December 31, 2002:
         Net revenues ..................................           $179,792           $30,802       $     --        $210,594
         Operating income (loss) .......................             36,563             8,051        (10,942)         33,672

Six months ended December 31, 2001:
         Net revenues ..................................           $184,790           $54,133       $     --        $238,923
         Operating income (loss) .......................             24,402             6,436        (12,284)         18,554

Six months ended December 31, 2002:
         Net revenues ..................................           $263,432           $56,529       $     --        $319,961
         Operating income (loss) .......................             39,837            14,008        (16,676)         37,169
</TABLE>


                                    Page 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This document includes statements that may constitute forward-looking statements
made pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company would like to caution readers regarding certain
forward-looking statements in this document and in all of its communications to
shareholders and others, press releases, securities filings, and all other
documents and communications. Statements that are based on management's
projections, estimates and assumptions are forward-looking statements. The words
"believe", "expect", "anticipate", "intend", "will", "should", "may" and similar
expressions generally identify forward-looking statements. While the Company
believes in the veracity of all statements made herein, forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by the Company, are inherently subject to
significant business, economic and competitive uncertainties and contingencies
and known and unknown risks. Many of the uncertainties and contingencies can
affect events and the Company's actual results and could cause its actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Some of the factors that could
cause actual results or future events to differ materially or otherwise include
pricing of and demand for distributed products, inability to collect outstanding
accounts and notes receivable when due or within a reasonable period of time
thereafter, the actions of competitors with greater financial resources,
economic and market factors, and other factors. Please see the "Risk Factors" in
the Company's annual report on From 10-K for the year ended June 30, 2002 with
the Securities and Exchange Commission for a description of some, but not all,
risks, uncertainties and contingencies. Except as otherwise required by the
applicable securities laws, the Company disclaims any intention or obligation
publicly to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

      The Company develops, publishes, and distributes interactive games for
leisure entertainment, gaming enthusiasts and children's markets for a variety
of platforms. The Company employs a portfolio approach to achieve a broad base
of published products across most major consumer software categories. Since it
began operations in February 1993, the Company has experienced rapid growth and
its product and customer mix has changed substantially.

      Publishing and distribution of interactive entertainment software are the
two major activities of the Company. Publishing is conducted through the
Company's three main studios: Santa Monica, California (sports/racing and
action/adventure games); Beverly, Massachusetts (kids/family games, racing, and
strategy); and Minneapolis, Minnesota (action/adventure games). Because each of
these product categories has different associated costs, the Company's margins
have depended, and will depend, in part, on the percentage of net revenues
attributable to each category. In addition, a particular product's margin may
depend on whether it has been internally or externally developed and on the
platform published. Furthermore, the Company's margins may vary significantly
from quarter to quarter depending on the timing of its new published product
releases. Distribution activities primarily include the sale of games produced
by software publishers which are unrelated to the Company ("Third-Party
Products"). To the extent that mass-merchants require greater proportions of
these products, some of which may yield lower margins, the Company's operating
results may be negatively impacted.

      The worldwide interactive entertainment software market is comprised
primarily of software for personal computers (PCs) and dedicated game consoles,
and the Company develops and publishes games for all of these platforms. During
the six months ended December 31, 2002, the Company's total product mix
consisted of 50% PC games, 22% Sony PlayStation2 games, 10% Microsoft Xbox
games, 7% Nintendo Game Boy Advance games, 6% Nintendo Game Cube, 3% Sony
PlayStation games, and approximately 2% games for other platforms, including
Game Boy Color. The Company believes that maintaining a healthy mix of platform
distribution in its product line-up is vital for its continued growth. According
to International Development Group ("IDG"), legacy platforms such as the
multimedia home PC will have a projected installed base of nearly 77 million in
North America by the end of 2003; that base is projected to increase to more
than 86 million by 2005. IDG also projects that PlayStation, currently the most
widely distributed gaming console will have an installed base of over 32 million
in North America by the end of 2003. While PlayStation's growth may slow, growth
of the installed base for PlayStation2, introduced in North America in 2000, is
projected to grow to over 39 million in 2005. IDG projects that the Xbox will
have a North American


                                    Page 16
<PAGE>
installed base of approximately 21 million by 2005, while the Game Cube is
projected to have a North American installed base of nearly 19 million in the
same time period. Additionally, the Game Boy Advance is expected to have an
installed base of nearly 31 million by 2005, as compared to an estimated 12
million in 2002. The expansion of the gaming market, both organic and through
the addition of new consoles, opens additional opportunities for the Company's
product while increasing the competition for market share and shelf space.

      There has been an increased rate of change and complexity in the
technological innovations affecting the Company's products, coupled with
increased competitiveness for shelf space and buyer selectivity. The market for
interactive games has become increasingly hit-driven, which has led to higher
production budgets, more complex development processes, longer development
cycles and generally shorter product life cycles. The importance of the timely
release of hit titles, as well as the increased scope and complexity of the
product development and production process, have increased the need for
disciplined product development processes that limit cost and schedule overruns.
This in turn has increased the importance of leveraging the technologies,
characters or storylines of such hit titles into additional interactive
entertainment software products in order to spread development costs among
multiple products. In this environment, the Company is determined to achieve
balances between internal/external development and licensed product/owned
franchises.

      The distribution channels for interactive software have changed
significantly in recent years. Traditionally, consumer software was sold through
specialty stores. Today, consumer software is sold through mass-merchants such
as Wal-Mart and Target, as well as major retailers, including Best Buy, CompUSA,
Toys `R' Us and Gamestop, and specialty stores such as Electronics Boutique, as
well as through a myriad of Internet and on-line networks.

CRITICAL ACCOUNTING POLICIES

      The Company's discussion and analysis of financial condition and results
of operation are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to accounts and notes receivable,
inventories, intangible assets, investments, income taxes and contingencies. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

      The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.

Sales returns, price protection, and other customer-related allowances

      Sales are recorded net of expected future returns, price protection and
other customer related allowances. The Company is not contractually obligated to
accept returns; however, based on facts and circumstances at the time a customer
may request approval for a return, the Company may permit the exchange of
products sold to certain customers. In addition, the Company may provide price
protection, co-operative advertising and other allowances to certain customers
in accordance with industry practice. These reserves are determined based on
management's evaluation of our historical experience, retailer inventory levels,
budgeted customer allowances, the nature of the title and existing commitments
to customers. Although management believes it provides adequate reserves with
respect to these items, actual activity could vary from management's estimates
and such variances could have a material impact on reported results.

Allowance for doubtful accounts


                                    Page 17
<PAGE>
      The Company maintains allowances for doubtful accounts and notes
receivable for estimated losses resulting from the inability of its customers to
make payments when due or within a reasonable period of time thereafter. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make required payments, additional allowances
may be required.

Inventories

      The Company writes down its inventories for estimated obsolete or
slow-moving inventories equal to the difference between the cost of inventories
and estimated market value based upon assumed market conditions. If actual
market conditions are less favorable than those assumed by management,
additional inventory write-downs may be required.

External developer royalty advances and milestone payments

      Rapid technological innovation, shelf-space competition, shorter product
life cycles and buyer selectivity have made it extremely difficult to determine
the likelihood of individual product acceptance and success. As a result, the
Company follows the policy of expensing external developer royalty advances
(also known as developer advances) as incurred, treating such costs as research
and development expenses. Generally, developers are paid an advance upon the
signing of a contract with the Company. Subsequent payments are due as the
specific contractual milestones are met by the developer and approved by the
Company. The timing of when these contracts are entered into and when milestone
payments are made could vary significantly from budgeted amounts and, because
these payments are expensed as incurred, they could have a material impact on
reported results in a given period. The Company's success depends in part on its
continued ability to obtain or renew product development agreements with
independent software developers.

Income taxes

      The Company files income tax returns in every jurisdiction in which it has
reason to believe it is subject to tax. Historically, the Company has been
subject to examination by various taxing jurisdictions. To date, none of these
examinations has resulted in any material additional tax. Nonetheless, any tax
jurisdiction may contend that a filing position claimed by the Company regarding
one or more of its transactions is contrary to that jurisdiction's laws or
regulations. Furthermore, as of December 31, 2002, the Company has significant
federal net operating loss carryforwards that will expire in fiscal years 2011
through 2022.


                                    Page 18
<PAGE>
RESULTS OF OPERATIONS

      The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                         DECEMBER 31,                  DECEMBER 31,
                                                                   ---------------------         ---------------------
                                                                    2001           2002           2001           2002
                                                                   ------         ------         ------         ------
<S>                                                                <C>            <C>            <C>            <C>
Net revenues                                                       100.0%         100.0%         100.0%         100.0%
Cost of goods sold                                                  49.4           49.5           49.0           49.4
                                                                   -----          -----          -----          -----
    Gross profit                                                    50.6           50.5           51.0           50.6
Selling and distribution expenses                                   21.3           18.9           19.8           18.6
General and administrative expenses                                  8.9            6.7            9.4            7.0
Research and development                                            10.2            8.1           13.1           12.2
Depreciation and amortization                                        0.7            0.9            0.9            1.2
                                                                   -----          -----          -----          -----
    Operating income                                                 9.5           15.9            7.8           11.6
Interest expense, net                                                2.2            1.6            2.7            2.1
Other income                                                         0.3            0.1            0.2            0.2
                                                                   -----          -----          -----          -----
    Income before (benefit from) provision  for income taxes         7.6           14.4            5.3            9.7
(Benefit from) provision for income taxes                            0.0            0.2            0.0            0.2
                                                                   -----          -----          -----          -----
    Net income                                                       7.6           14.2            5.3            9.5
                                                                   =====          =====          =====          =====
</TABLE>

      THREE MONTHS ENDED DECEMBER 31, 2002 VERSUS THE THREE MONTHS ENDED
DECEMBER 31, 2001

      Net revenues for the three months ended December 31, 2002 increased
approximately $50.2 million, or 31.3%, to $210.6 million from $160.4 million, as
compared to the 2001 period. This increase is attributable to the Company's
continued growth of its publishing business.

      Total publishing revenue increased 43.3% to $179.8 million for the three
months ended December 31, 2002 from $125.5 million in the comparable 2001
period. This increase is due to the success of major new releases and the
continued success of prior releases. The major new releases in the three months
ended December 31, 2002 include the following: Dragon Ball Z: Budokai for
PlayStation2, Unreal Championship for X-box, Roller Coaster Tycoon II for the
PC, Godzilla: Destroy All Monsters for Game Cube and Unreal Tournament 2003 for
the PC. The major new releases contributed approximately $86.8 million to net
revenues for the three months ended December 31, 2002. By comparison, major new
releases for the three months ended December 31, 2001 contributed $40.6 million
to net revenues and included Civilization III for the PC, Splashdown for
PlayStation2, Driver 2 Greatest Hits for PlayStation and Survivor for the PC.
Furthermore, net revenues from product released in prior periods were greater in
the three months ended December 31, 2002 as compared to the 2001 period. In the
same period, total distribution net revenues decreased 11.7% to $30.8 million
from $34.9 million slightly offsetting the increase from publishing net
revenues. The decrease in distribution revenues occurred from general industry
softness in business productivity software this quarter compared against a
particularly strong quarter in the prior fiscal year fueled by the launch of
Windows XP.

      Gross profit increased to $106.5 million for the three months ended
December 31, 2002 from $81.1 million in the comparable 2001 period. This
increase is primarily due to increased sales volume. Gross profit as a
percentage of net revenues remained consistent at 50.5% during the three months
ended December 31, 2002 as compared to 50.6% in the comparable 2001 period.
Gross profit margins are impacted by the sales mix between publishing and
distribution revenues as well as the percentage of sales of PC product as
compared to the percentage of sales of console product within the publishing
business. The Company's margins on sales of PC product are higher than those on
console software (currently, PlayStation2,


                                    Page 19
<PAGE>
PlayStation, Xbox, Game Boy Color and Game Boy Advance) as a result of
significantly lower PC software product costs. During the three months ended
December 31, 2002, 58% of the Company's sales of published product were from
lower margin console games compared to 31% of sales from console product in the
prior year of published product. Within the distribution business, gross profit
margins increased from 22.3% to 30.2% on improved pricing from some key vendors
combined with a reduction in business with certain other vendors with high
product costs. A mix shift into the lower cost publishing business out of the
higher cost third party business is also offsetting some of the higher costs
resulting from the shift toward console product occurring within the publishing
business. In the prior year's quarter, the third party business accounted for
approximately 20% of the Company's shipments as compared to approximately 15% in
the current year's quarter.

      Selling and distribution expenses primarily include shipping expenses,
personnel expenses, advertising and promotion expenses and distribution costs.
During the three months ended December 31, 2002, these expenses increased
approximately $5.6 million, or 16.4%, to $39.8 million from $34.2 million in the
comparable 2001 period. The increase in selling and distribution expenses
resulted primarily from increased advertising offset by a decrease in
distribution expenses and fixed costs. Selling and distribution expenses as a
percentage of net revenues for the three months ended December 30, 2002
decreased to 18.9% as compared to 21.3% in the comparable 2001 period from both
a decrease in fixed costs and a slight reduction in the rate of variable
expenses from 17.2% of net sales to 16.9%. Advertising expenditures increased
51.7% to $31.1 million as compared to $20.5 million in the comparable 2001
period due to the increase in promotion of new product releases in the current
period. Distribution expenses decreased by 35.1% to approximately $4.8 million
during the three months ended December 31, 2002 as compared to $7.4 million in
the comparable 2001 period due to distribution efficiencies such as reduction in
express shipments, increased shipments to customer distribution centers as
opposed to individual customer stores, and the change of the Company's product
mix. Fixed costs, including salaries and consulting expenses, decreased by $2.5
million, to $4.1 million from $6.6 million during the three months ended
December 31, 2002 and 2001, respectively. This decrease in fixed costs was
primarily attributed to the Company's centralization of marketing and publishing
functions.

      General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in the three months ended December 31, 2002 decreased slightly by
approximately $0.1 million, or 0.7%, to $14.2 million from $14.3 million in the
comparable 2001 period. General and administrative expenses as a percentage of
net revenues decreased to 6.7% for the three months ended December 31, 2002 from
8.9% in the comparable 2001 period. The decrease in general and administrative
expenses resulted from a reduction in bad debt expense offset by an increase in
salary expense. Bad debt expense decreased by $3.6 million to $2.0 million from
$5.6 million for the three months ended December 31, 2002 and 2001,
respectively. For the three months ended December 31, 2001, bad debt expense
includes a $4.2 million charge related to the Kmart bankruptcy, partially offset
by a $0.3 million charge in the comparable 2002 period relating to the recent
FAO Inc. bankruptcy filing. This decrease was partially offset by an increase in
salary expense of $3.0 million, a portion of which resulted from one-time
incentive compensation in the 2002 period.

      Research and development expenses primarily include the payment of royalty
advances to third-party developers on products in development and direct costs
of internally developing and producing a title. These expenses for the three
months ended December 31, 2002 increased approximately $0.7 million, or 4.3%, to
$17.0 million from $16.3 million in the comparable 2001 period. Research and
development expenses as a percentage of net revenues decreased to 8.1% for the
three months ended December 31, 2002 from 10.2% in the comparable 2001 period.
Use of the Company's internal development studios, which include Humongous,
Legend, Reflections and Shiny, increased approximately $2.0 million to $9.5
million for the three months ended December 31, 2002 from $7.5 million in the
comparable 2001 period. As a result, the internal costs represented 56.0% of the
total research and development costs for the three months ended December 31,
2002, while internal costs were 46.0% of total research and development costs
for the comparable period of 2001. This increase in research and development was
offset by a $1.3 million decrease in external research and development costs of
$7.5 million for the three months ended December 31, 2002 as compared to $8.8
million in three months ended December 31, 2001. This decrease is comprised of
$3.3


                                    Page 20
<PAGE>
million less spending with external developers from the 2001 period to the
comparable 2002 period offset by an increase of $2.0 million spending with
related party external developers during the same period.

      Depreciation and amortization for the three months ended December 31, 2002
increased approximately $0.8 million to $1.9 million from $1.1 million in the
comparable 2001 period. The increase is due to the depreciation on capital
expenditures and projects completed since the prior period. Additionally, the
2002 period includes intangible amortization related to the Shiny Acquisition of
$0.1 million for the three months ended December 31, 2002. The license was
obtained in the fourth quarter of fiscal 2002 and, therefore, no expense was
recorded in the three months ended December 31, 2001.

      Interest expense, net, decreased approximately $0.1 million for the three
months ended December 31, 2002 to $3.4 million from $3.5 million in the
comparable 2001 period. A higher level of average borrowings was incurred during
the three months ended December 31, 2002 attributable to the medium-term loan
and the Senior Credit Facility, offset by a reduction in amounts outstanding on
the revolving credit facility with BNP Paribas.

      During the three months ended December 31, 2002 the Company recorded a
provision for income taxes of approximately $0.5 million as compared to a
nominal benefit from income taxes in the prior comparable period. The majority
of this charge relates to an estimated alternative minimum tax of $0.4 million
to be paid by the Company based on the Company's current taxable operating
performance. The Company will monitor its tax liability on a quarterly basis and
record the estimated tax obligation based on its current year-to-date taxable
operating performance. Furthermore, as of December 31, 2002, the Company has
significant federal net operating loss carryforwards that will expire in fiscal
years 2011 through 2022.

      SIX MONTHS ENDED DECEMBER 31, 2002 VERSUS THE SIX MONTHS ENDED DECEMBER
31, 2001

      Net revenues for the six months ended December 31, 2002 increased
approximately $81.1 million, or 33.9%, to $320.0 million from $238.9 million, as
compared to the 2001 period. This increase is attributable to the Company's
continued growth in its publishing business.

      Total publishing revenue increased 42.5% to $263.5 million for the six
months ended December 31, 2002 from $184.8 million in the comparable 2001
period. This increase is due to the success of major new releases and the
continued success of prior releases. Major new releases in the six months ended
December 31, 2002 included Dragon Ball Z: Budokai for PlayStation2, Unreal
Championship for X-box, Dragon Ball Z: Legendary Super Warrior for Gameboy
Color, Unreal Tournament 2003 for the PC, Roller Coaster Tycoon II for the PC,
Godzilla: Destroy all Monsters for the Game Cube and The Terminator: Dawn of
Fate for PlayStation2 and X-box. The major new releases for the six months ended
December 31, 2002 contributed approximately $104.6 million to net revenues. By
comparison, the major new releases for the six months ended December 31, 2001
contributed $49.2 million to net revenues and included Civilization III and
Survivor for the PC, Driver 2 Greatest Hits for PlayStation, Splashdown for
PlayStation2, and Monopoly Tycoon for the PC. Furthermore, net revenues from
product released in prior periods were greater in the six months ended December
31, 2002 as compared to the 2001 period. Finally, total distribution net
revenues increased 4.4% to $56.5 million for the six months ended December 31,
2002 from $54.1 million in the comparable period from growth in the Company's
affiliate vendor sales in the 2002 period.

      Gross profit increased to $161.9 million for the six months ended December
31, 2002 from $121.9 million in the comparable 2001 period. This increase in
gross profit is primarily due to increased sales volume. Gross profit as a
percentage of net revenues is 50.6% for the six months ended December 31, 2002
and is in line with the 51.0% gross profit percentage in the comparable 2001
period. Gross profit margins are impacted by the sales mix between publishing
and distribution revenues as well as the percentage of sales of PC product as
compared to the percentage of sales of console product within the publishing
business. The Company's margins on sales of PC product are higher than those on
console software (currently, PlayStation2, PlayStation, X-box, Game Boy Color
and Game Boy Advance) as a result of significantly lower PC software product
costs. During the six months ended December 31, 2002, 58% of sales of published
product were from lower margin console games compared to 23% of sales from
console product in the prior


                                    Page 21
<PAGE>
year. Within the distribution business, gross profit margins increased from
24.1% to 30.6% on improved pricing from some key vendors combined with a
reduction in business with certain other vendors with high product costs. A mix
shift into the lower cost publishing business out of the higher cost third party
business is also offsetting some of the higher costs resulting from the shift
toward console product occurring within the publishing business. In the prior
period, the third party business accounted for approximately 22% of the
Company's shipments as compared to 18% in the current period.

      Selling and distribution expenses primarily include shipping expenses,
personnel expenses, advertising and promotion expenses and distribution costs.
During the six months ended December 31, 2002, these expenses increased
approximately $12.2 million, or 25.8%, to $59.4 million from $47.2 million in
the comparable 2001 period. The increase in selling and distribution expenses
resulted primarily from increased advertising offset by a decrease in
distribution expenses and fixed costs. Selling and distribution expenses as a
percentage of net revenues for the six months ended December 30, 2002 decreased
to 18.6% as compared to 19.8% in the comparable 2001 period from a decrease in
fixed costs. Advertising expenditures increased $16.4 million, 66.7%, to
approximately $41.0 million during the six months ended December 31, 2002 as
compared to $24.6 million in the comparable 2001 period due to the increase in
promotion of new product releases in the current period. Distribution expenses
decreased 14.3% to approximately $9.6 million during the six months ended
December 31, 2002 as compared to $11.2 million in the comparable 2001 period due
to distribution efficiencies such as reduction in express shipments, increased
shipments to customer distribution centers as opposed to individual customer
stores, and the change of the Company's product mix. Fixed costs, including
salaries and consulting expenses, decreased by $2.2 million, to $10.0 million
during the six months ended December 31, 2002 as compared to $12.2 million in
the 2001 period. This decrease in fixed costs was primarily attributed to the
Company's centralization of marketing and publishing functions.

      General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in the six months ended December 31, 2002 decreased slightly by $0.1
million, or 0.4%, to $22.4 million from $22.5 million in the comparable 2001
period. General and administrative expenses as a percentage of net revenues
decreased to 7.0% for the six months ended December 31, 2002 from 9.4% in the
comparable 2001 period. The decrease in general and administrative expenses
resulted from a reduction in bad debt expense offset by an increase in salary
and consulting expense. Bad debt expense decreased by $3.3 million to $3.0
million for the six months ended December 31, 2002 from $6.3 million in the 2001
comparable period. For the six months ended December 31, 2002, bad debt expense
includes a $0.3 million charge related to the FAO Inc. bankruptcy. In the
comparable 2001, bad debt includes a $4.2 million charge related to the Kmart
bankruptcy. This decrease was partially offset by an increase in salary and
consulting expense of $3.2 million, a portion of which resulted from one-time
incentive compensation in the 2002 period.

      Research and development expenses primarily include the payment of royalty
advances to third-party developers on products in development and direct costs
of internally developing and producing a title. These expenses for the six
months ended December 31, 2002 increased approximately $7.7 million, or 24.5%,
to $39.1 million from $31.4 million in the comparable 2001 period. Research and
development expenses as a percentage of net revenues decreased to 12.2% for the
six months ended December 31, 2002 from 13.1% in the comparable 2001 period. Use
of the Company's internal development studios, which include Humongous, Legend,
Reflections and Shiny, increased approximately $5.3 million, or 36.6%, to $19.8
million for the six months ended December 31, 2002 from $14.5 million in the
comparable 2001 period. Furthermore, as a percentage of total research and
development expense, the internal costs represented approximately 51% and 46% of
total research and development costs for the six months ended December 31, 2002
and 2001, respectively. Additionally, external research and development costs
increased $2.4 million to $19.3 million in the six months ended December 31,
2002 as compared to $16.9 million in the three months ended December 31, 2001.
The increase is comprised of $3.3 million more spending with related party
external developers from the 2001 period to the comparable 2002 period with a
decrease of $0.9 million spending with external developers during the same
period.

      Depreciation and amortization for the six months ended December 31, 2002
increased approximately $1.7 million to $3.9 million from $2.2 million in the
comparable 2001 period. The increase is due to the depreciation on capital
expenditures and projects completed since the prior period. Additionally, the
2002


                                    Page 22
<PAGE>
period includes the intangible amortization related to the Shiny Acquisition of
$0.5 million for the six months ended December 31, 2002. The license was
obtained in the fourth quarter of fiscal 2002 and, therefore, no expense was
recorded in the six months ended December 31, 2001.

      Interest expense, net, increased approximately $0.2 million for the six
months ended December 31, 2002 to $6.6 million from $6.4 million in the
comparable 2001 period. This increase in the six months ended December 31, 2002
was attributable to a higher level of average borrowings in 2002 as compared to
the 2001 period on the new medium-term loan with Infogrames SA and the Senior
Credit Facility with GECC, offset by a reduction in amounts outstanding related
to the revolving credit facility with BNP Paribas.

      During the six months ended December 31, 2002 the Company recorded a
provision for income taxes of approximately $0.5 million as compared to a
nominal benefit from income taxes in the prior comparable period. The majority
of this charge relates to an estimated alternative minimum tax of $0.4 million
to be paid by the Company based on the Company's current taxable operating
performance. The Company will monitor its tax liability on a quarterly basis and
record the estimated tax obligation based on its current year-to-date taxable
operating performance. Furthermore, the Company has significant federal net
operating loss carryforwards that will expire in fiscal years 2011 through 2022.

LIQUIDITY AND CAPITAL RESOURCES

      As of December 31, 2002, management believes that we have sufficient
capital resources to finance our operational requirements for the next twelve
months, including the funding of the development, production, marketing and sale
of new products, the purchases of equipment, and the acquisition of intellectual
property rights for future products. The Company relies on its parent,
Infogrames SA, for operational and financial support. On November 12, 2002, the
Company obtained a 30-month $50.0 million secured Senior Credit Facility with
GECC which will be used to fund the Company's working capital and general
corporate needs and to provide funding to a related entity which is wholly-owned
by Infogrames SA minimizing the support needed from Infogrames SA. See the
Company's Annual Report on Form 10K for the year ended June 30, 2002 for a
discussion of "Risk Factors" that could materially impact expected cash flows.

Cash Flows

      Cash and cash equivalents were $4.8 million at December 31, 2002 compared
to $5.4 million at June 30, 2002. As of December 31, 2002, the Company had a
working capital deficit of $27.2 million compared to $ 52.5 million working
capital deficit at June 30, 2002.

      During the six months ended December 31, 2002, $34.6 million was provided
by operating activities generated primarily by net income earned during the
period. Operating funds, combined with borrowings of $9.2 million from the new
GECC Senior Credit Facility, were used to pay-off the $15.0 million balance to
BNP Paribas, pay $16.6 million against the Infogrames SA related party credit
facilities and to fund capital expenditures of $2.8 million during the period.
The Company also advanced Infogrames Interactive, Inc., $10.3 million under the
terms of the GECC Senior Credit Facility.

      The Company's outstanding accounts receivable balance varies significantly
on a quarterly basis due to the seasonality of its business and the timing of
new product releases. There were no significant changes in the credit terms with
customers during the six month period.

Credit Facilities

      GECC Credit Facility

      On November 12, 2002, the Company obtained a 30-month $50.0 million Senior
Credit Facility with GECC to fund the Company's working capital and general
corporate needs, as well as to fund intercompany


                                    Page 23
<PAGE>
loans to Paradigm Entertainment Inc. and Infogrames Interactive, Inc., each a
related party (Note 6). Loans under the Senior Credit Facility will be based on
a borrowing base comprised of the value of the Company's accounts receivable and
short term marketable securities. The Senior Credit Facility bears interest at
prime plus 1.25% for daily borrowings or LIBOR plus 3% for borrowings with a
maturity of 30 days or greater. A commitment fee of 0.5% on the average unused
portion of the facility is payable monthly and the Company paid $0.6 million as
an initial commitment fee at closing. The Senior Credit Facility contains
certain financial covenants and names certain related entities, such as
Infogrames Interactive, Inc., Paradigm Entertainment, Inc., and Atari
Interactive, Inc. and the Company's subsidiary, Shiny Entertainment, Inc., as
guarantors. The outstanding borrowings as of December 31, 2002, under the Senior
Credit Facility were approximately $9.2 million with another $2.1 million of
letters of credit outstanding. As of December 31, 2002, accrued interest of
approximately $0.1 million was included in accrued liabilities and the Company
was in compliance with all financial covenants.

      In conjunction with the Senior Credit Facility, the Company, Infogrames SA
and GECC entered into an Intercreditor and Subordination Agreement dated
November 12, 2002 ("Subordination Agreement"). The Subordination Agreement makes
all Infogrames SA debt and related party debt with the Company subordinate to
the Senior Credit Facility. The Subordination Agreement allows repayment of debt
and interest to Infogrames SA by the Company under certain financial conditions
including but not limited to the Senior Credit Facility cash availability and
certain financial covenants. Additionally, the Subordination Agreement disallows
Infogrames SA from demanding principal repayments of any kind on any of its debt
with the Company unless such demand of repayment is in accordance with the
scheduled maturity of debt under the medium-term loan or with prior approval
from GECC. Furthermore, the Subordination Agreement may have the effect of
extending the terms on all Infogrames SA credit facilities and related party
debt through the term of the Senior Credit Facility.

      BNP Paribas Credit Facility

      In connection with the September 2000 merger with a related party,
Infogrames North America, Inc. ("INA"), the Company assumed a $35.0 million
revolving credit facility with BNP Paribas, which was to mature on September 17,
2001 and subsequently extended until November 30, 2001. On November 30, 2001,
the facility was extended to May 31, 2002, with an amendment reducing the amount
available in the facility by $5.0 million a month beginning February 1, 2002 and
maturing August 31, 2002. The amended facility bears interest at a rate equal to
the lender's cost of funds plus 1.5% on domestic term loans and at LIBOR plus
1.5% on Eurodollar term loans, payable at maturity. The Company had
approximately $15.0 million outstanding under this facility at June 30, 2002 and
paid the balance of principal and interest in full on August 30, 2002.

Infogrames SA related party credit facilities and related party debt with the
Company

      Credit Agreement

      The Company has a $75.0 million Credit Agreement with Infogrames SA which
bears interest at LIBOR plus 2.5%. On November 12, 2002, by entering into the
Subordination Agreement, Infogrames SA, in effect, extended the Credit Agreement
through the term of the Senior Credit Facility. Additionally, the allowable
repayments of the Credit Agreement are restricted under the terms of the
Subordination Agreement and demand of re-payments cannot be made prior to
termination of the Senior Credit Facility or without prior approval of GECC. The
outstanding borrowings, as of December 31, 2002, under the Credit Agreement were
approximately $44.8 million. As of December 31, 2002, accrued interest and fees
were approximately $1.0 million and included in current amounts due to related
parties. As of December 31, 2002, there are no letters of credit outstanding
secured by the Credit Agreement. The entire outstanding balance of $44.8 million
at December 31, 2002 is included in current liabilities as management is unable
to determine the extent to which principal repayments, if any, will be made
prior to January 1, 2004.

      Medium-Term Loan

      In connection with the Shiny Acquisition, the Company obtained a $50.0
million medium-term loan from Infogrames SA on April 22, 2002 which matures on
June 30, 2004. The facility interest is based on the


                                    Page 24
<PAGE>
three month LIBOR rate plus 2.75% and payable on a quarterly basis, in arrears.
An unused commitment fee of 0.50% per annum is based on the aggregate amount of
the facility less outstanding loans. The facility will be repaid as follows:
$10.0 million three months after the first shipment of the game based on the
Matrix Reloaded movie and no later than December 31, 2003; $10.0 million on
December 31, 2003; $20.0 million on March 31, 2004; and $10.0 million on June
30, 2004. Under the Subordination Agreement, the scheduled payments are
restricted by certain financial conditions including but not limited to the
Senior Credit Facility's minimum borrowing availability and certain financial
covenants. The Subordination Agreement also may have the effect of extending the
terms on the medium-term loan through the term of the Senior Credit Facility. As
of December 31, 2002, the outstanding borrowings under the medium-term loan were
approximately $48.3 million, of which $20.0 million is in current liabilities.
Additionally, accrued interest was approximately $0.7 million and is included in
current amounts due to related parties.

      In conjunction with the Shiny Acquisition, the Company issued various
short-term promissory notes to pre-existing creditors of Shiny for an aggregate
amount of $16.2 million payable by the Company in installments due July 31,
2002. As of July 31, 2002, all principal and interest related to the short-term
promissory notes have been paid in full with borrowings from the medium-term
loan from Infogrames SA.

      0% Notes

      In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to General Atlantic Partners ("GAP") the GAP 0% Notes in exchange
for 600,000 shares of Series A Preferred Stock and $20.0 million of subordinated
notes of the Company. The GAP 0% Notes are convertible into the Company's common
stock at $20.00 per share and will have a redemption value of $50.0 million at
maturity. Under the Subordination Agreement, the scheduled payment is restricted
by certain financial conditions including but not limited to the Senior Credit
Facility's minimum borrowing availability and certain financial covenants. The
Subordination Agreement also may have the effect of extending the terms on the
GAP 0% Notes through the term of the Senior Credit Facility. Interest on the GAP
0% Notes is being accreted at the rate of 7%. On December 28, 2001, Infogrames
SA assumed the GAP 0% Notes from GAP in exchange for Infogrames SA shares of
common stock. Infogrames SA has not changed any of the terms of the former GAP
0% Notes (renamed the "Infogrames SA 0% subordinate convertible note") as they
relate to the Company.

      5% Notes

      In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to California U.S. Holdings, Inc., a wholly-owned subsidiary of
Infogrames SA, ("CUSH"), 5% subordinated convertible notes ("5% CUSH Notes") in
exchange for $25.0 million in cash and $35.6 million in debt and accrued
interest. The 5% CUSH Notes are convertible into the Company's common stock at
$9.25 per share. Under the Subordination Agreement, the scheduled payment is
restricted by certain financial conditions including but not limited to the
Senior Credit Facility's minimum borrowing availability and certain financial
covenants. The Subordination Agreement also may have the effect of extending the
terms on the 5% CUSH Notes through the term of the Senior Credit Facility.

      Long-Term Related Party Debt

Long-term related party debt consists of the following at December 31, 2002 (in
thousands):

<TABLE>
<S>                                                                                   <C>
Infogrames SA 0% subordinated convertible note, due December 16, 2004 ........        $ 44,260
Infogrames SA medium-term loan, net of $20,000 current portion ...............          28,277

5% subordinated convertible note with CUSH, due December 16, 2004 ............          70,476
                                                                                      --------
                                                                                      $143,013
                                                                                      ========
</TABLE>


                                    Page 25
<PAGE>
Commitments

      Future cash commitments on contracts in place as of December 31, 2002 for
short and long-term debt obligations at fully accreted values, royalty and
license obligations, restructuring obligations and future minimum lease
obligations under non-cancelable operating leases are summarized as follows
(fiscal year ending June 30th, in thousands):

                             FUTURE CASH COMMITMENTS
                             PAYMENTS DUE BY PERIOD

<TABLE>
<CAPTION>
                                                                                                  2006 AND
                                                     2003            2004            2005        THEREAFTER       TOTAL
                                                   -------         -------         --------      ----------      --------
<S>                                                <C>             <C>             <C>           <C>             <C>
Short-term debt ........................           $53,957         $20,000         $     --        $    --       $ 73,957
Long-term debt .........................                --          28,277          127,693             --        155,970
Royalty and licenses ...................             3,038           3,205            1,500            100          7,843
Operating lease obligations ............             2,500           4,400            4,200         10,400         21,500
Restructuring obligations ..............               239              --               --             --            239
                                                   -------         -------         --------        -------       --------
Total ..................................           $59,734         $55,882         $133,393        $10,500       $259,509
                                                   =======         =======         ========        =======       ========
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143
addresses financial accounting and reporting for obligations and costs
associated with the retirement of tangible long-lived assets. The Company is
required to implement SFAS No. 143 on January 1, 2003. Management believes that
the effect of implementing this pronouncement will not have a material impact on
the Company's financial condition or results of operations.

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. This statement also established that fair value is the
objective for initial measurement of the liability. The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. Management believes that the effect of implementing this
pronouncement will not have a material impact on the Company's financial
condition or results of operations.

      In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123".
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. It also requires disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 is effective
for annual and interim periods beginning after December 15, 2002. Management is
currently evaluating the impact of adopting the fair value based method of
accounting for stock-based employee compensation.


                                    Page 26
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company's carrying value of cash, trade accounts receivable, accounts
payable, accrued liabilities, royalties payable and its existing lines of credit
are a reasonable approximation of their fair value.

Foreign Currency Exchange Rates

      As of December 31, 2002, foreign operations represented 0.0% and 3.0% of
consolidated net revenues and total assets, respectively. The Company also
recorded approximately $3.5 million in operating losses attributed to foreign
operations related primarily to a development studio located outside the United
States. Currently, substantially all of the Company's business is conducted in
the United States where its revenues and expenses are transacted in U.S.
dollars. As a result, the majority of the Company's results of operations are
not subject to foreign exchange rate fluctuations. The Company does not hedge
against foreign exchange rate fluctuations due to the limited financial exposure
it faces with respect to such risk. The Company has its products distributed
overseas by related parties and receives a percentage of gross margin, collected
in local currency. Additionally, the Company purchases certain of its
inventories from foreign developers. The Company's business in these regards are
subject to certain risks, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions and foreign exchange rate volatility. The Company's
future results could be materially and adversely impacted by changes in these or
other factors.

Interest Rates

      The Company is exposed to market risk from changes in interest rates on
its related party credit facility, the medium-term loan, and the GECC Senior
Credit Facility. Outstanding balances under these facilities (which aggregated
approximately $102.2 million at December 30, 2002) bear interest at variable
rates based on a margin over LIBOR. Based on the amount outstanding as of
December 31, 2002, a 100 basis point change in interest rates would result in an
approximate $1.0 million change to the Company's annual interest expense. For
fixed rate debt including the Infogrames SA 0% subordinated convertible notes
(formerly the GAP 0% Notes) and the 5% subordinated convertible note with a
subsidiary of Infogrames SA aggregating approximately $114.7 million at December
31, 2002, interest rate changes effect the fair market value of such debt, but
do not impact the Company's earnings.

ITEM 4. CONTROLS AND PROCEDURES

      Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the principal executive officers and principal financial
officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, we have concluded that the Company's disclosure controls
and procedures are effective in alerting the Company's management in a timely
manner to material information relating to the Company (including its
consolidated subsidiaries) required to be included in our periodic reports filed
with the Securities and Exchange Commission.

      There have been no significant changes in our internal controls or in
other factors that could significantly affect those internal controls subsequent
to the date we carried out our last evaluation.


                                    Page 27
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

LITIGATION

      During the six months ended December 31, 2002, no significant claims were
asserted against or by the Company that in management's opinion the likely
resolution of which would have a material adverse affect on the Company's
liquidity, financial condition or results of operations, although the Company is
involved in various claims and legal actions arising in the ordinary course of
business. The following litigation matters are still pending, however, and the
Company continues to believe that the underlying complaints are without merit
and intends to defend itself vigorously against these actions.

James

      On April 12, 1999, an action was commenced by the administrators for three
children who were murdered on December 1, 1997 by Michael Carneal at the Heath
High School in McCracken County, Kentucky. The action was brought against 25
defendants, including the Company and other corporations in the videogame
business, companies that produced or distributed the movie The Basketball
Diaries, and companies that provide allegedly obscene internet content. The
complaint alleges, with respect to the Company and other corporations in the
videogame business, that Carneal was influenced by the allegedly violent content
of certain videogames and that the videogame manufacturers are liable for
Carneal's conduct. The complaint seeks $10.0 million in compensatory damages and
$100.0 million in punitive damages. The Company and approximately 10 other
corporations in the videogame business have entered into a joint defense
agreement and have retained counsel. By order entered April 6, 2000, the Court
granted a motion to dismiss the complaint. Plaintiffs have filed a motion to
vacate the dismissal of the action. On June 16, 2000, the Court denied the
motion to vacate. On June 28, 2000, plaintiffs appealed the dismissal of the
action to the Court of Appeals for the Sixth Circuit. Plaintiffs' and
defendants' final appellate briefs were submitted on November 30, 2000, and oral
argument was heard on November 28, 2001. On August 13, 2002 the Sixth Circuit
issued a complete affirmance of the dismissal of the action. On November 11,
2002 Plaintiff's filed a petition for writ of certiorari in the United States
Supreme Court. On January 21, 2003 the United States Supreme Court, in a summary
order, denied certiorari.

Sanders

      On April 19, 2001, a putative class action was commenced by the family of
William David Sanders, a teacher murdered on April 2, 1999 in a shooting rampage
committed by Eric Harris and Dyland Klebold at the Columbine High School in
Jefferson County, Colorado. The action was brought against 25 defendants,
including the Company and other corporations in the videogame business,
companies that produced or distributed the movie The Basketball Diaries, and
companies that provide allegedly obscene internet content. The complaint
alleges, with respect to the Company and other corporations in the videogame
business, that Harris and Klebold were influenced by the allegedly violent
content of certain videogames and that the videogame manufacturers are liable
for Harris' and Klebold's conduct. The complaint seeks a minimum $15,000 for
each plaintiff and up to $15.0 million in compensatory damages for certain
plaintiffs and $5.0 billion in punitive damages, injunctive relief in the form
of a court established "monitoring system" requiring video game companies to
comply with rules and standards set by the court for marketing violent games to
children. On June 6, 2001 the Company waived service of a summons, and on July
9, 2001 the Company filed a motion to dismiss. Plaintiffs filed papers opposing
the Company's motion to dismiss and on September 14, 2001 the Company filed its
reply brief. On March 4, 2002 the Court granted our motion to dismiss and on
March 29, 2002 denied plaintiffs' motion for reconsideration. On April 5, 2002
plaintiffs filed a notice of appeal to the Court of Appeals for the Tenth
Circuit. A stipulation of dismissal was filed on December 9, 2002 and on
December 10, 2002 the Court of Appeals for the Tenth Circuit dismissed the
appeal.


                                    Page 28
<PAGE>
KBK

      On September 16, 2002, Knight Bridging Korea Co., Ltd. ("KBK"), a
distributor of electronic games via the Internet and local area networks, filed
a lawsuit against Gamesonline.com, Inc. ("Gamesonline"), a subsidiary of
Interplay Entertainment Corp., and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered into
a contract with Gamesonline to obtain the right to localize and distribute
electronically in Korea, Neverwinter Nights and certain back list games. The
complaint further alleges that Gamesonline and the Company conspired to prevent
KBK from entering the market with Neverwinter Nights or any back title of
Gamesonline. The complaint alleges the following causes of action against the
Company: misappropriation of trade secrets under the California Uniform Trade
Secrets Act; common law misappropriation; intentional interference with
contract; negligent interference with contract; intentional interference with
prospective economic advantage; negligent interference with prospective economic
advantage; and violation of Business & Professions Code Section 17200 et seq.
The complaint seeks $98.8 million for each of these causes of action. An amended
complaint was filed on December 3, 2002, alleging all of the foregoing against
the Company, adding Infogrames Interactive, Inc. as a named defendant, and
alleging that Company managed and directed Infogrames Interactive, Inc. to
engage in the foregoing alleged acts. Company and Infogrames Interactive, Inc.
filed answers on January 9, 2003. On or about January 28, 2003, Gamesonline
answered the original complaint and served a cross-complaint against KBK.
Discovery is ongoing.

      The Company's management believes that the ultimate resolution of any of
the complaints summarized above and/or any other claims which are not stated
herein will not have a material adverse effect on the Company's liquidity,
financial condition or results of operations.

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

      Reference is made to the Proxy Statement dated October 16, 2002. The Proxy
Statement was filed in connection with the Company's annual shareholders meeting
which was held on November 14, 2002. At such annual shareholder's meeting, the
following items were submitted to a vote of shareholders:

      1. Election of the following four Class II directors: James Caparro; Denis
      Guyennot; Ann Kronen; and David Ward.

      2. Ratification and approval of the appointment of Deloitte & Touche LLP
      as the Company's independent auditors for the fiscal year ending June 30,
      2003.

      Terms of office of the following remaining directors will continue after
such annual shareholder's meeting: James Ackerly; Bruno Bonnell; Thomas Heymann;
Thomas Mitchell; and Thomas Schmider.

      Set forth below are numbers of votes cast by the common stock elected,
either by proxy or by ballot in person, for each of the above-listed items
submitted to a vote of shareholders:

                              ELECTION OF DIRECTORS

<TABLE>
<CAPTION>
   DIRECTORS                                                  RESULTS OF THE VOTE
   ---------                    ----------------------------------------------------------------------------
<S>                             <C>                          <C>                            <C>
James Caparro                   67,383,022 Shares For        19,620 Shares Withheld         0 Shares Abstain
Denis Guyennot                  66,538,892 Shares For        462,750 Shares Withheld        0 Shares Abstain
Ann Kronen                      67,310,862 Shares For        91,780 Shares Withheld         0 Shares Abstain
David Ward                      67,383,042 Shares For        19,600 Shares Withheld         0 Shares Abstain
</TABLE>

              RATIFICATION AND APPROVAL OF APPOINTMENT OF AUDITORS


                                    Page 29
<PAGE>
<TABLE>
<CAPTION>
        Auditors                Results of the Vote
       --------                 -------------------

<S>                             <C>                          <C>                          <C>
Deloitte & Touche LLP           67,342,014 Shares For        57,475 Shares Against        3,153 Shares Abstain
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

      10.1 Credit Agreement dated as of November 12, 2002 among Infogrames,
      Inc., as Borrower, the other credit parties signatory thereto, the lenders
      signatory thereto from time to time, General Electric Capital Corporation,
      as Administrative Agent, Agent and Lender, and GECC Capital Markets Group,
      Inc., as Lead Arranger, is incorporated herein by reference to Exhibit
      10.1 to the Company's Current Report on Form 8-K filed on November 19,
      2002.

      10.2 Intercreditor and Subordination Agreement, dated as of November 12,
      2002, among Infogrames Entertainment S.A, California U.S. Holdings, Inc.,
      General Electric Capital Corporation and the Credit Parties signatory
      hereto.

      22.1 Proxy Statement on Schedule 14A filed on October 16, 2002 is
      incorporated herein by reference.

      99.1 Statement regarding the Certification of the CEO of Infogrames, Inc.
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the
      Sarbanes-Oxley Act of 2002

      99.2 Statement regarding the Certification of the CFO of Infogrames, Inc.
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the
      Sarbanes-Oxley Act of 2002

      (b)   Reports on Form 8-K

      The Company filed the following Current Report on Form 8-K during the
      fiscal quarter ended December 31, 2002:

<TABLE>
<CAPTION>
        DATE OF REPORT                ITEM REPORTED         FINANCIAL STATEMENTS FILED
        --------------                -------------         --------------------------
<S>                                 <C>                     <C>
      November 19, 2002                    5                            None.
                                    (GECC Financing)
</TABLE>


                                    Page 30
<PAGE>
                                   SIGNATURES

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

                                        INFOGRAMES, INC.


                                        By: /s/ DAVID J. FREMED
                                            ------------------------------------
                                            David J. Fremed
                                            Senior Vice President of Finance and
                                            Chief Financial Officer
                                            Date: February 14, 2003


                                    Page 31
<PAGE>
                                  CERTIFICATION

I, Bruno Bonnell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Infogrames, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there was significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003


                                        By: /s/ BRUNO BONNELL
                                            ------------------------------------
                                        Name: Bruno Bonnell
                                        Title: Chairman, Chief Executive Officer


                                    Page 32
<PAGE>
                                  CERTIFICATION

I, David Fremed, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Infogrames, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there was significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003


                                                  By: /s/ DAVID FREMED
                                                      --------------------------
                                                  Name: David Fremed
                                                  Title: Senior Vice President,
                                                         Chief Financial Officer


                                    Page 33