<PAGE>   1




                       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




<TABLE>
<S>                                                                                   <C>
For the quarterly period ended December 31, 2000                                       Commission File No. 0-27338
</TABLE>


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



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




                      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 7, 2001, there were 69,511,364 shares of the registrant's
Common Stock outstanding.


<PAGE>   2


                                INFOGRAMES, INC.
                 DECEMBER 31, 2000 QUARTERLY REPORT ON FORM 10-Q
                                TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION



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


                Consolidated Balance Sheets as of June 30, 2000 and December 31, 2000                                3

                Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended
                and the Six Months Ended December 31, 1999, and for the Three Months Ended and the Six Months
                Ended December 31, 2000                                                                              4

                Consolidated Statements of Cash Flows for the Six Months Ended December 31,
                1999 and 2000                                                                                        5

                Notes to the Consolidated Financial Statements                                                       6


   Item 2.      Management's Discussion and Analysis of Financial Condition and Results
                of Operations                                                                                        14

   Item 3.      Quantitative and Qualitative Disclosures about Market Risk                                           22
</TABLE>



PART II - OTHER INFORMATION


<TABLE>
<S>             <C>                                                                                                <C>
   Item 1.      Legal Proceedings                                                                                   23

   Item 2.      Changes in Securities and Use of Proceeds                                                           25

   Item 4.      Submission of Matters to a Vote of Security Holders                                                 25

   Item 6.      Exhibits and Reports on Form 8-K                                                                    26


  Signatures                                                                                                        27
</TABLE>


<PAGE>   3


PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

                                INFOGRAMES, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                              JUNE 30,         DECEMBER 31,
                                                                                2000              2000
                                                                            ------------    ----------------
                                                                                               (UNAUDITED)
<S>                                                                           <C>               <C>
ASSETS

Current assets:
    Cash and cash equivalents                                               $     13,463        $     12,906
    Short term investments                                                             -               6,407
    Receivables, net                                                              36,458              74,891
    Inventories, net                                                              32,575              29,072
    Due from related party                                                             -               5,047
    Income taxes receivable                                                        1,357                 158
    Prepaid expenses and other current assets                                      7,591               4,062
                                                                            ------------    ----------------
       Total current assets                                                       91,444             132,543
Property and equipment, net                                                       17,412              16,610
Investments                                                                       10,268               8,487
Goodwill, net                                                                     40,857              35,295
Other assets                                                                      10,118               8,558
                                                                            ------------    ----------------
       Total assets                                                         $    170,099      $      201,493
                                                                            ============    ================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable                                                        $     69,472      $       63,033
    Accrued liabilities                                                           38,170              34,632
    Credit facility                                                               31,139              34,908
    Revolving credit facility- related party                                      98,543               8,730
    Royalty payable                                                               18,678              17,945
    Bank overdraft                                                                 3,355                -
    Deferred revenue                                                                  58               1,808
    Due to related party                                                          26,345                -
                                                                            ------------    ----------------
       Total current liabilities                                                 285,760             161,056

Long-term debt                                                                   124,320             102,334
Deferred revenue                                                                       -               1,750
Other long-term liabilities                                                        2,239               2,227
                                                                            ------------    ----------------
       Total liabilities                                                         412,319             267,367

Commitments and contingencies                                                          -                -

Stockholders' deficit:
    Common stock, $0.01 par value 300,000 shares authorized, 20,785 and
       20,453 shares and 69,746 and 69,511 issued and outstanding at
       June 30, 2000 and December 31, 2000, respectively                             208                 697
    Additional paid-in capital                                                   293,284             486,236
    Accumulated deficit                                                         (533,323)           (549,645)
    Accumulated other comprehensive income (loss)                                    933                (809)
    Treasury shares at cost 332 and 235, at June 30, 2000 and December
       31, 2000, respectively                                                     (3,322)             (2,353)
                                                                            ------------    ----------------
       Total stockholders' deficit                                              (242,220)            (65,874)
                                                                            ------------    ----------------
       Total liabilities and stockholders' deficit                          $    170,099      $      201,493
                                                                            ============    ================
</TABLE>

       The accompanying notes are an integral part of these consolidated.
                              financial statements.
                                     Page 3


<PAGE>   4


                                INFOGRAMES, INC.
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                               DECEMBER 31,                    DECEMBER 31,
                                                                        -------------------------        -----------------------
                                                                            1999            2000            1999          2000
                                                                        ----------     ----------        ----------   ----------

<S>                                                                     <C>            <C>               <C>          <C>
Net revenues                                                            $  109,703     $  127,484        $  201,129   $  166,962
Cost of goods sold                                                          89,136         45,993           153,756       61,092
                                                                        ----------     ----------        ----------   ----------
    Gross profit                                                            20,567         81,491            47,373      105,870
Selling and distribution expenses                                           42,142         26,777            80,206       42,335
General and administrative expenses                                         20,279         21,476            32,070       33,696
Research and development                                                    15,067         16,343            40,296       34,625
Restructuring costs                                                         32,513           -               32,513         -
Merger costs                                                                  -              -                 -           1,700
Gain on sale of line of business                                              -             5,501              -           5,501
Depreciation and amortization                                                4,034          4,564             7,868        8,622
                                                                        ----------     ----------        ----------   ----------
    Operating (loss) income                                                (93,468)        17,832          (145,580)      (9,607)
Interest expense, net                                                        5,403          2,554            11,271        8,714
Other (expense) income                                                        (804)         1,191              (498)       1,898
                                                                        ----------     ----------        ----------   ----------
    (Loss) income before provision for (benefit from) income taxes         (99,675)        16,469          (157,349)     (16,423)
Provision for (benefit from) income taxes                                   20,207             (6)           18,593         (101)
                                                                        ----------     ----------        ----------   ----------
    Net (loss) income from continuing operations                          (119,882)        16,475          (175,942)     (16,322)

Loss from discontinued operations                                             -              -                  477         -
Extraordinary item - gain on early extinguishment of debt                    1,888           -                1,888         -
                                                                        ----------     ----------        ----------   ----------
    Net (loss) income before dividends on preferred stock                 (117,994)        16,475          (174,531)     (16,322)
Less dividends on preferred stock                                             -              -                  600         -
                                                                        ----------     ----------        ----------   ----------
    Net (loss) income attributable to common stockholders               $ (117,994)    $   16,475        $ (175,131)  $  (16,322)
                                                                        ==========     ==========        ==========   ==========


Basic and diluted net (loss) income per share from continuing
     operations                                                         $    (7.58)    $     0.24        $   (11.54)  $    (0.37)
Basic and diluted net (loss) income per share from discontinued
     operations                                                         $     -        $     -           $    (0.03)  $     -
Basic and diluted net (loss) income per share from extraordinary item   $     0.12     $     -           $     0.12   $     -
                                                                        ----------     ----------        ----------   ----------
Basic and diluted net (loss) income per share                           $    (7.46)    $     0.24        $   (11.45)  $    (0.37)

    Weighted average number of shares outstanding-basic                     15,814         68,135            15,297       44,410
                                                                        ==========     ==========        ==========   ==========
    Weighted average number of shares outstanding-diluted                   15,814         68,691            15,297       44,410
                                                                        ==========     ==========        ==========   ==========




Other comprehensive income (loss) :
Net (loss) income before dividends on preferred stock                   $ (117,994)   $    16,475        $ (174,531)  $  (16,322)
    Foreign currency translation adjustments                                   687            320             1,519         (825)
    Unrealized holding loss on securities                                       -            (963)             -            (917)
                                                                        ------------   ----------        ----------   -----------
       Comprehensive income (loss)                                      $ (117,307)    $   15,832        $ (173,012)  $  (18,064)
                                                                        ============   ==========        ===========  ===========


</TABLE>

       The accompanying notes are an integral part of these consolidated.
                              financial statements.
                                     Page 4


<PAGE>   5


                                INFOGRAMES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED
                                                                                          DECEMBER 31,
                                                                                     ----------------------
                                                                                       1999         2000
                                                                                     ----------  ----------
<S>                                                                                 <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) before dividends on preferred stock                                 $ (174,531)   $ (16,322)
     Adjustments to reconcile net (loss) to net cash used in operating
     activities:
       Depreciation and amortization                                                    7,868        8,622
       Issuance of warrants to Infogrames Entertainment S.A.                            8,985            -
       Gain on sale of line of business                                                     -       (5,501)
       Accrued interest                                                                     -        6,141
       Amortization of discount on long term debt and deferred finance fees                 -        1,913
       Deferred income taxes                                                           26,916            -
       Unrealized gain on short-term investments                                            -         (905)
       Deferred income                                                                     31            -
       Issuance of General Atlantic Partners LLC 0% subordinated convertible note      35,649            -
       Write-off of assets in connection with restructuring charges                    29,964            -
       Warrants issued in connection with revolving credit facility                     3,188            -
       Issuance of Common Stock in lieu partial of royalty payment                      4,208            -
       Issuance of Common Stock pursuant to Employee Stock Purchase Plan                  416            -
       Changes in operating assets and liabilities:
            Receivables, net                                                            1,296      (38,781)
            Inventories, net                                                           56,196        3,362
            Royalty advance                                                            (1,210)           -
            Due to related party, net                                                    (541)       5,064
            Income taxes receivable                                                         3        1,199
            Other current assets                                                       20,308        3,424
            Accounts payable                                                          (72,451)      (6,561)
            Accrued liabilities                                                        28,269       (3,701)
            Royalties payable                                                          10,539        (740)
            Income taxes payable                                                       (1,573)           -
            Long-term liabilities                                                      (1,047)       3,302
            Bank overdraft                                                                  -       (3,355)
            Other assets                                                                 (380)       1,259
                                                                                    ----------   ----------
               Net cash used in operating activities                                  (17,897)     (41,580)
                                                                                    ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                                (4,983)      (2,370)
                                                                                    ----------   ----------
               Net cash used in investing activities                                   (4,983)      (2,370)
                                                                                    ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowings, net                                                                   (38,500)      43,539
    Redemption of preferred stock                                                     (30,000)           -
    Notes payable                                                                         -              -
    Conversion of 955 warrants by Infogrames Entertainment S.A.  at $0.05 per
       share                                                                              -             48
    Issuance of California US Holding Inc. 5% subordinated convertible note            55,934            -
    Proceeds from exercise of stock options                                              (220)           6
    Issuance of common stock to Infogrames Entertainment S.A.                          48,615           -
                                                                                    ----------   ----------
               Net cash provided by financing activities                               35,829       43,593
                                                                                    ----------   ----------
    Effect of exchange rates on cash and cash equivalents                                  57         (200)
                                                                                    ----------   ----------
    Net increase (decrease) in cash and cash equivalents                               13,006         (557)
    Cash and cash equivalents - beginning of period                                     9,051       13,463
                                                                                    ----------   ----------
    Cash and cash equivalents -end of period                                        $  22,057    $  12,906
                                                                                    ==========   ==========
</TABLE>

       The accompanying notes are an integral part of these consolidated.
                              financial statements.
                                     Page 5


<PAGE>   6


                                INFOGRAMES, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        The accompanying interim consolidated financial statements of Infogrames
Inc. and its subsidiaries (the "Company") have been combined with Infogrames
North America, Inc. ("INA"). The effective date of the merger was October 2,
2000. The merger was accounted for on an "as if pooled" basis on the date of
common control of the Company and INA. The entities have been under common
control since December 16, 1999 of Infogrames Entertainment S.A. ("IESA"). In
the opinion of management, the consolidated accompanying financial statements
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. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Transitional Report on Form 10-K for the
three months ended June 30, 2000 and the Company's Information Statement on Form
14-C dated September 12, 2000.

RECLASSIFICATIONS

        Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to classifications used in the
current period.

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.

NET INCOME (LOSS) PER SHARE

        Basic earnings per share ("EPS") is computed as net earnings after
preferred dividends divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares 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, warrants and
all shares issuable under stock based compensation plans would be anti-dilutive
and therefore have not been considered in the diluted EPS calculation in the
three months ended December 31, 1999 and six months ended December 31, 1999 and
2000, respectively.

GOODWILL

        Goodwill is currently amortized using the straight-line method over
periods not exceeding 5 years. Management reassesses quarterly the
appropriateness of both the carrying value and remaining life of goodwill,
principally based on forecasts of future undiscounted cash flows of businesses
acquired.


                                     Page 6


<PAGE>   7


SHORT TERM INVESTMENTS

        Management classifies equity securities as trading securities under the
provisions defined in the Statement of Financial Accounting Standards No. 115, "
Accounting for Certain Investments in Debt and Equity Securities." Management
determines the appropriate classification of its investments at the time of
purchase and reevaluates such determination at each balance sheet date. Trading
securities are carried at market value with the unrealized gains and losses
reported as other income. The cost of investments sold is determined on the
first-in, first-out method.

REVERSE STOCK SPLIT

        On April 6, 2000, the Company's Board of Directors approved a
one-for-five reverse stock split of the issued and outstanding shares of the
Company's common stock, which became effective June 26, 2000. All periods have
been restated to reflect the reverse stock split.



NOTE 2 - MERGER AND ACQUISITIONS

INFOGRAMES NORTH AMERICA MERGER

        On October 2, 2000 the Company completed a merger with INA, a
wholly-owned subsidiary of its majority shareholder IESA, (the "INA Merger").
This transaction was treated as a common control business combination accounted
for on an "as-if pooled" basis. The following outlines the transactions
consummated by the Company as of October 2, 2000 :

a)   The Company and IESA entered into a distribution agreement, which provides
     for the distribution by the Company of IESA's products in the United
     States, Canada and their territories and possessions, pursuant to which the
     Company will pay IESA 30% of the gross profit on such products, while
     retaining 70% of the gross profit for the Company.

b)   All outstanding debt under the Company's revolving credit agreement (the
     "Credit Agreement") and certain intercompany payables between the Company
     and IESA were converted into the Company's common stock at $6.40 a share.
     The balance of the Credit Agreement and certain intercompany payables prior
     to the merger was approximately $128.6 million, which converted to
     20,089,224 shares of the Company's common stock. In addition, the Company
     amended the Credit Agreement with IESA to provide for an aggregate
     commitment of $50 million with primarily the same terms as the previous
     facility. The Credit Agreement expires June 15, 2001.

c)   All warrants held by IESA and California U.S. Holdings, Inc. ("CUSH") were
     exercised for an aggregate of 955,000 of the Company's common stock at
     $0.05 per share.

d)   The Company assumed a $35.0 million revolving credit facility (the "BNP
     Credit Facility") with BNP Paribas ("BNP") which matures on June 15, 2001.
     The facility has an interest rate of LIBOR plus 65 basis points per annum
     for fixed LIBOR loans, payable at maturity or quarterly and at maturity for
     loans with maturities in excess of 90 days. For floating loans, an interest
     rate of BNP prime rate minus 1% per annum is charged, payable monthly. The
     facility fee was $17,500 paid at closing and the commitment fee for the
     unutilized amount of the facility is 30 basis points per annum payable
     quarterly in arrears.

e)   The Company issued 28,000,000 shares of common stock in exchange for all
     the outstanding shares of INA valued at approximately $5.1 million as of
     October 2, 2000.


ONE ZERO MEDIA

        On November 4, 1998, the Company acquired One Zero Media, Inc. ("OZM"),
an Internet entertainment content company, in exchange for approximately 458,000
newly issued shares of the


                                     Page 7


<PAGE>   8


Company's common stock and approximately 117,000 stock options to purchase the
Company's common stock. Total consideration, including acquisition costs, was
approximately $17.2 million, which was allocated to net assets acquired and
goodwill. The acquisition was accounted for as a purchase. On March 31, 1999,
the Company decided to sell OZM within the next six months and therefore OZM is
accounted for as a discontinued operation. OZM was sold in July 1999 for $5.2
million in cash. This resulted in a loss from discontinued operations of $19.5
million, $0.5 million of which is recognized in the six months ended December
31, 1999.


NOTE 3 - INVENTORIES, NET

        Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                            JUNE 30,      DECEMBER 31,
                                                                              2000            2000
                                                                         --------------  --------------
                                                                                 (IN THOUSANDS)

<S>                                                                       <C>              <C>
             Finished goods                                               $  75,247        $  52,072
             Return inventory                                                 3,249            3,449
             Raw materials                                                    2,180            1,685
                                                                         ----------       ----------
                                                                             80,676           57,206
             Less : Reserves                                                 48,101           28,134
                                                                         ----------       ----------
                                                                          $  32,575       $   29,072
                                                                         ==========       ==========
</TABLE>


NOTE 4 - COMMITMENTS AND CONTINGENCIES

LITIGATION

Scavenger

        On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software
developer, filed a lawsuit against the Company in Supreme Court, New York
County, claiming that the Company breached a software development contract
between the parties dated November 28, 1995. The contract provided for the
development of four personal computer games, Amok, Scorcher, Into the Shadows
and Mudkicker. The Company paid royalty advances of $2 million ($500,000 per
game) in January 1996. Scavenger delivered and the Company accepted Amok and
Scorcher, but Scavenger did not deliver Into the Shadows or Mudkicker. The
Company paid an additional royalty advance of $500,000 upon delivery of Amok.

        The complaint alleges four causes of action: (1) breach of contract in
the amount of $1.9 million claimed as royalty advances for Amok and Scorcher
(first cause); (2) breach of contract in the amount of $2.4 million claimed as
additional royalty advances for Into the Shadows and Mudkicker (second cause);
(3) breach of contract in the amount of $5 million allegedly due above the
additional royalty advances (third cause); and (4) consequential damages in the
amount of $100 million based on the allegation that the Company's failure to pay
the additional royalty advances forced Scavenger out of business and Scavenger
allegedly was worth $100,000,000 as of January 1997 (fourth cause). The Company
asserted three counterclaims: (1) breach of contract for failure to deliver Into
the Shadows and Mudkicker seeking at least $5 million in damages (first
counterclaim); (2) breach of contract for failure to deliver Scorcher timely and
the failure to deliver Amok and Scorcher in conformance with the quality
requirements of the software development contract seeking at least $5 million in
damages (second counterclaim); and (3) unjust enrichment seeking the return of
the $2.5 million in royalty advances paid to Scavenger (third counterclaim).

        By Order entered March 3, 2000, the Court granted Scavenger's motion for
partial summary judgment as to the first cause of action and denied the motion
as to the second cause. Judgment was thereupon entered March 14, 2000 in the
amount of $2.4 million ($1.9 million plus interest accrued), which


                                     Page 8
<PAGE>   9


was affirmed by Order Appellate Division, First Department entered June 8, 2000.
Motions to the Appellate Division, First Department and to the Court of Appeals
for leave to appeal to the Court of Appeals were denied. In January 2001, the
Company paid approximately $2.6 million (including accrued interest from date of
judgement) satisfying the partial summary judgement.

        In an Order entered June 21, 2000, the Court denied the Company's motion
for summary judgment dismissing the third and fourth causes of action. The
Company simultaneously moved for reargument of and appealed from that portion of
the June 21, 2000 Order denying partial summary judgment on the fourth cause. By
Order entered September 8, 2000, the Court granted reargument and, on
reargument, dismissed the fourth cause of action (and the Company withdrew its
appeal). Scavenger unsuccessfully moved for reargument of the September 8, 2000
Order, and is now appealing from the September 8, 2000 Order to the Appellate
Division, First Department.

        By Order entered December 19, 2000, the Court separately ruled with
respect to each of the Company's counterclaims that the Company cannot seek to
recover as a measure of damages any of the royalty advances paid software
development contract. Subject to this limitation, the Court otherwise sustained
the Company's first counterclaim for damages for the undelivered games Into the
Shadows and Mudkicker. The Court dismissed the second counterclaim finding that
the Company had not shown provable damages other than the $1.5 million in
royalty advances paid on Amok and Scorcher which the Court held could not be
recovered. The Court also dismissed the third counterclaim for unjust
enrichment, which sought to recover the entire $2.5 million in royalty advances
paid to Scavenger. The Company is appealing this dismissal only as to the $1
million in royalty advances paid for the undelivered Into the Shadows and
Mudkicker.

        By Order entered January 8, 2001, the Court granted a motion by the
Company to dismiss the second cause of action, a motion prompted by and premised
on the reasoning of the Court's March 3, 2000 Order granting partial summary
judgment on the first cause of action as well as of the Appellate Division,
First Department's June 8, 2000 Order of affirmance. Scavenger has appealed from
the January 8, 2001 Order.



Herzog

        In January, February and March 1998, ten substantially similar
complaints were filed against the Company, its former Chairman and its former
Chief Executive Officer, and in certain actions, its former Chief Financial
Officer, in the U.S. District Court for the Southern District of New York. The
plaintiffs, in general, purport to sue on behalf of a class of persons who
purchased shares (and as to certain complaints, purchased call options or sold
put options) of the Company during the period from December 15, 1995 through
December 12, 1997. In their consolidated and amended complaint, the plaintiffs
allege that the Company violated the federal securities laws by making
misrepresentations and omissions of material facts that allegedly artificially
inflated the market price of the Company's common stock during the class period.
The plaintiffs further allege that the Company failed to expense properly
certain prepaid royalties for software products that had been terminated or had
failed to achieve technological feasibility, or had insufficient sales to recoup
the paid advances, which misstatements purportedly had the effect of overstating
the Company's net income and net assets. By order dated January 23, 1999, the
plaintiffs were granted leave to file a second consolidated and amended
complaint, which added claims under the federal securities laws against the
Company's former independent auditors, Arthur Andersen LLP. The Company and
Arthur Andersen LLP each filed motions to dismiss the second consolidated and
amended complaint. By order and opinion dated November 29, 1999, the District
Court granted the motion to dismiss. Plaintiffs appealed from the dismissal of
the action, and on July 11, 2000, the Court of Appeals for the Second Circuit
issued an opinion and judgment reversing the dismissal of the complaint as to
the Company and individual defendants (but not as to Arthur Andersen LLP) and
remanding the action to the District Court. On July 21, 2000, the Company filed
with the Court of Appeals a petition for rehearing with suggestion for rehearing
en banc. On September 1, 2000, the Court of Appeals denied the petition for
rehearing and suggestion for rehearing en banc. The case was returned to the
District Court, where certain discovery is now proceeding.


                                     Page 9
<PAGE>   10


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 million in compensatory damages and
$100 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.

McGovern

        On or about September 11, 2000, Jane Bassler and Paul McGovern, as
shareholders of the Company, commenced a derivative action on behalf of the
Company in Delaware Chancery Court, New Castle County, against IESA, CUSH, and
the individual members of the Company's board of directors since November 1999.
The action alleges that IESA, as controlling shareholder of the Company and
through its nominees on the Company's board, has engaged in certain self-dealing
actions. The first cause of action, asserted against certain defendants, alleges
breach of fiduciary duty. The second cause of action, asserted against CUSH,
alleges aiding and abetting. The third cause of action, asserted against certain
defendants, alleges breach of fiduciary duty in order to divest their own
investment in the Company on terms beneficial to them. The complaint seeks on
behalf of the Company a declaration that the defendants have breached their
fiduciary duties to the Company; the imposition of a constructive trust on all
profits and gains defendants have received as a result of the wrong alleged;
damages in favor of the Company; and attorneys' fees and costs for plaintiffs.
On September 19, 2000, Bassler voluntarily dismissed her claim without
prejudice. Defendants' answers or responsive motions are now due April 9, 2001.

Fenris

        On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer,
filed a lawsuit in New York Supreme Court claiming that the Company failed to
adequately pursue bundling opportunities for the software game "Rebel Moon
Rising MMX" and unlawfully rejected the ninth milestone deliverable for the
software game "Rebel Moon Revolution" under a development contract between the
parties dated June 26, 1996. Fenris asserts five claims of breach and
intentional interference in its complaint and seeks $100,000 for the nonpayment
and rejection of milestone nine, $400,000 for the balance of payments under the
contract, $775,000 for alleged lost bundling opportunities, $775,000 for alleged
intentional interference with bundling arrangements and $500,000 for alleged
interference with contractual relations. In an October 20, 1999 opinion and
order, the court granted the Company's motion to dismiss three of the five
claims so that only the milestone nine contract and bundling claims remain.
Fenris has filed a notice of appeal from the dismissal of the $400,000 claim for
the balance of payments under the contract; and the Company has filed a
counterclaim for breach seeking to recover not less than the $800,000 in
milestone payments advanced for the development of "Rebel Moon Revolution."
Fenris has moved for summary judgment on its first cause of action ($100,000),
and the Company has moved for summary judgment dismissing the bundling claim.
This action filed by Fenris has been settled and Stipulation of Discontinuance
was filed with the Court on October 24, 2000. The Company paid Fenris a nominal
amount as part of the settlement.

        The Company believes that these complaints are without merit and intends
to defend itself vigorously against these actions. Additionally, the Company is
involved in various claims and legal actions arising in the ordinary course of
business, the ultimate resolution of which the management of the Company
believes will not be material to the Company's consolidated results of
operations or financial condition.


                                     Page 10
<PAGE>   11


CREDIT FACILITIES

        On September 11, 1998, the Company entered into a Credit Agreement as
subsequently amended, with First Union National Bank, as agent for a syndicate
of banks (the "Banks"), expiring on March 31, 2000. Under the Credit Agreement,
the Company borrowed approximately $71 million for ongoing working capital
requirements, letters of credit and other general corporate purposes, secured by
domestic accounts receivable and inventory and other assets of the Company. To
induce the Banks to amend the Credit Agreement, the Company issued the Banks
warrants to purchase, at an exercise price of $0.05 per share, an aggregate of
150,000 shares of the Company's common stock. Of these, warrants to purchase
55,000 shares of the Company's common stock were immediately exercisable,
warrants to purchase 50,000 shares of the Company's common stock became
exercisable on October 31, 1999 and warrants to purchase the remaining 45,000
shares of the Company's common stock (the "Bank Warrants") became exercisable on
February 28, 2000 if the Credit Agreement was not repaid prior to that date.

        As of February 15, 2000, IESA entered into an agreement with the Banks,
pursuant to which IESA assumed the Banks' interest in the Credit Agreement. In
connection with the assumption by IESA of the Credit Agreement, (i) the maturity
date was extended from March 31, 2000 to June 30, 2000, (ii) the interest rate,
which was the Prime Rate plus 1.0% or LIBOR plus 2.5% at the option of the
Company, was set at LIBOR plus 2.5%, (iii) a $250,000 amendment fee, which would
have been payable to the Banks on March 31, 2000 unless the Credit Agreement was
refinanced by February 16, 2000, was reduced to $125,000 and paid to IESA, (iv)
certain mandatory prepayment restrictions and operational covenants were revised
to be less restrictive and (v) revisions were made to provide alternative letter
of credit facilities to the Company. In addition, the Bank Warrants were
surrendered and cancelled and warrants to purchase 45,000 shares of the
Company's common stock, at an exercise price of $0.05 per share, were issued to
IESA.

        On June 29, 2000, IESA and the Company amended the Credit Agreement to
increase the aggregate commitment available under the facility to $125 million
and to extend the maturity date to September 30, 2000.

        On June 30, 2000, the Company had outstanding borrowings under the
Credit Agreement of approximately $98.5 million, and no letters of credit
outstanding. Outstanding borrowings under the Credit Agreement are classified as
current in the consolidated balance sheet as of June 30, 2000, accrued interest
of $2.5 million was recorded but not yet paid under the Credit Agreement as of
June 30, 2000. In conjunction with the INA Merger, which closed on October 2,
2000, all the amounts outstanding under the Credit Agreement and certain
intercompany payables were converted into approximately 20 million shares of the
Company's common stock at a price of $6.40 per share. The Company amended the
Credit Agreement with IESA (the "New Credit Agreement") to provide for an
aggregate commitment of $50.0 million, and to extend the maturity date from
September 30, 2000 to December 31, 2000. On December 22, 2000 the Company and
IESA Amended the New Credit Agreement to extend the maturity date to June 15,
2001. For additional information relating to the INA Merger, see Note 2 Merger
and Acquisitions. As of December 31, 2000, the outstanding borrowings under the
New Credit Agreement were approximately $8.7 million, of which $0.5 million is
related to accrued interest. As of December 31, 2000, there are $2.1 million of
letters of credit outstanding.

        In connection with the INA Merger, the Company assumed a $35.2 million
revolving credit facility with BNP which matures on June 15, 2001. The facility
has an interest rate of LIBOR plus 65 basis points per annum for fixed LIBOR
loans, payable at maturity or quarterly and at maturity for loans with
maturities in excess of 90 days. For floating loans, an interest rate of BNP
prime rate minus 1% per annum is charged, payable monthly. The facility fee was
$17,500 paid at closing and the commitment fee for the unutilized amount of the
facility is 30 basis points per annum payable quarterly in arrears. The
financial covenants associated with the BNP Credit Facility are that a certain
percentage of the profits be retained in the Company and that stockholders'
deficit does not fall below a certain amount. Both these covenants have been
satisfied as of December 31, 2000. As of December 31, 2000, the Company had
approximately $34.9 million outstanding borrowings under the BNP Credit Facility
of which a nominal portion relates to interest.


                                     Page 11
<PAGE>   12


LONG TERM DEBT


<TABLE>
<S>                                                                                       <C>
Long-term debt consists of the following at December 31, 2000: (in thousands)

5% subordinated convertible note with IESA................................................. $   63,815
GAP 0% subordinated convertible notes......................................................     38,519
                                                                                           -----------
                                                                                            $  102,334
</TABLE>

The above indebtedness matures in full on December 16, 2004.





                                     Page 12
<PAGE>   13


NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                      SIX MONTHS ENDED
                                                                                        DECEMBER 31,
                                                                                  -----------------------
                                                                                     1999         2000
                                                                                  ---------    ----------
                                                                                      (IN THOUSANDS)
<S>                                                                               <C>          <C>
    Warrants issued in connection with New Credit
        Agreement, as amended                                                     $   3,188    $   -
    Warrants issued to General Atlantic Partners LLC and acquired by
        Infogrames Entertainment S.A.                                                 8,985        -
    Conversion of revolving credit facility into shares of the Company's common
        stock by Infogrames Entertainment S.A at $6.40 per share                         -     128,571
    Issuance of stock in exchange for the assets of Infogrames North America             -         280
    Conversion of Infogrames North America related party balances with
        Infogrames Entertainment S.A.                                                    -      53,201
    Sale of treasury stock in lieu of partial royalty payment                            -         600
    Common Stock issued in lieu of partial royalty payment                            4,208        -
    Cash paid for interest                                                            5,460        660
</TABLE>


NOTE 6 - RESTRUCTURING RESERVES

        On June 30, 2000 the Company recorded a restructuring reserve of
approximately $9.8 million as detailed below. As of December 31, 2000, the
Company has terminated 46 employees. No additional expenditures are expected
from restructuring activities as of December 31, 2000.

        The following table sets forth activity for the restructuring reserve
during the six months ended December 31, 2000: (IN THOUSANDS)


<TABLE>
<CAPTION>
                                               BALANCE                                 BALANCE
                                               JUNE 30,         CASH                 DECEMBER 31,
                                                2000          PAYMENTS    OTHER         2000
                                              -------         --------   -------     ----------
<S>                                          <C>            <C>                     <C>
Domestic Severance ....................        $5,530        $(2,751)         --       $2,779
Shutdown of European operations........         3,779             --      (2,338)       1,441
Transition rent........................           527           (281)         --          246
                                               ------        --------    -------       ------
Restructuring Reserve..................        $9,836        $(3,032)    $(2,338)      $4,466
                                               ======       ========     =======       ======
</TABLE>


NOTE 7 - GAIN OF SALE OF LINE OF BUSINESS

        On December 1, 2000, the Company entered into a contract to sell all its
property in and rights to the Duke Nukem line of business to an outside party.
The Company received consideration in the form of common stock of the purchaser
valued at $5.5 million at the date of the transaction and a $6.0 million
promissory note. The $5.5 million stock value was recognized in operating income
during the current quarter. The Company subsequently sold the stock in January
2001 for approximately $6.2 million. The note is payable upon completion of
certain requirements by an independent developer and will be recognized as
income at that time. The Company expects the independent developer to fulfill
all requirements under this contract prior to the end of the Company's 2001
fiscal year.


                                     Page 13
<PAGE>   14


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

        The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results or future events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, world
wide business and industry conditions, adoption of new hardware systems, product
delays, software development requirements and their impact on product launches,
company customer relations and other risks and factors detailed, from time to
time, in the Company's filings with the Securities and Exchange Commission
including, but not limited to, the factors described on pages 9 through 14 of
the Company's Transitional Report on Form 10-K for the three months ended June
30, 2000.

OVERVIEW

        The Company develops, publishes, and distributes interactive
entertainment for leisure entertainment, gaming enthusiast's 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 are the two major activities of the Company.
Publishing is divided into Core Gaming, Leisure and Children's publishing.
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. To the extent that mass merchants require greater
proportions of third-party software products, some of which may yield lower
margins, the Company's operating results may be negatively impacted accordingly.

        The worldwide interactive entertainment software market is comprised
primarily of software for two distinct platforms: PCs and dedicated game
consoles. The market has grown dramatically in recent years with its growth
driven by the increasing installed base of multimedia PCs and current generation
game console systems. In addition, the development of enabling multimedia
technologies, the proliferation of software titles, the development of new and
expanding distribution channels and the emergence of a strong international
market for interactive entertainment software have spurred the rapid expansion
of the interactive entertainment market.

        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
Core Gaming titles 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 a
balance between development done by its own internal development studios and
that done by third party developers.

        The distribution channels for interactive software have changed
significantly in recent years. Traditionally, consumer software was sold through
specialty stores. Today, consumer software is increasingly sold through mass
merchants such as Wal-Mart, Kmart and Target, as well as major retailers,
including Best Buy, CompUSA, Costco and Babbage's. The Internet and on-line
networks also present a new channel through which publishers and distributors
can distribute their products to end users.


                                     Page 14
<PAGE>   15


         Sales are recorded net of expected future returns. Management
continually assesses and re-evaluates the rate of returns and price protection
based on business conditions and market factors.





                                     Page 15


<PAGE>   16


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,
                                                       ------------------------------   ------------------------------
                                                            1999             2000            1999             2000
                                                       --------------   -------------   -------------    -------------

<S>                                                    <C>              <C>             <C>              <C>
Net revenues                                                100.0%           100.0%          100.0%           100.0%
Cost of goods sold                                           81.3             36.1            76.4             36.6
Gross Profit                                                 18.7             63.9            23.6             63.4
Selling and distribution expenses                            38.4             21.0            39.9             25.4
General and administrative expenses                          18.5             16.8            15.9             20.2
Research and development                                     13.7             12.8            20.0             20.7
Restructuring costs                                          29.6              0.0            16.2              0.0
Merger costs                                                  0.0              0.0             0.0              1.0
Gain on sale of line of business                              0.0              4.3             0.0              3.3
Depreciation and amortization                                 3.7              3.6             3.9              5.2
                                                       ----------       ----------      ----------       ----------
    Operating (loss) income                                 (85.2)            14.0           (72.4)            (5.8)
Interest expense, net                                         4.9              2.0             5.6              5.2
Other (expense) income                                       (0.7)             0.9            (0.2)             1.1
                                                       ----------       ----------      ----------       ----------
    (Loss) income before provision for (benefit
        from) income taxes                                  (90.9)            12.9           (78.2)            (9.8)
Provision for (benefit from) income taxes                    18.4             (0.0)            9.2             (0.0)
                                                       ----------       ----------      ----------       ----------
    Net (loss) income from continuing operations           (109.3)            12.9           (87.5)            (9.8)
Loss from discontinued operations                             0.0              0.0            (0.2)             0.0
Gain on early extinguishment of debt                          1.7              0.0             0.9              0.0
                                                       ----------       ----------      ----------       ----------

    Net (loss) income before dividends on preferred
        stock                                              (107.6)            12.9           (86.8)            (9.8)
Less dividends on preferred stock                             0.0              0.0             0.3              0.0
                                                       ----------       ----------      ----------       ----------
    Net (loss) income attributable to common
        stockholders                                       (107.6)            12.9           (87.1)            (9.8)
                                                       ----------       ----------      ----------       ----------
</TABLE>



       THREE MONTHS ENDED DECEMBER 31, 2000 VERSUS THE THREE MONTHS ENDED
                                DECEMBER 31, 1999

        Net revenues for the three months ended December 31, 2000 increased
approximately $17.8 million, or 16.2%, to $127.5 million from $109.7 million, as
compared to the 1999 period. This increase is attributable to the Company's
publishing business with current period releases such as Driver 2 for
Playstation and Unreal Tournament for Playstation 2 and continued success of
earlier releases such as Driver Greatest Hits. Additionally, results of the
former INA activity are included for the full three months in the 2000 period
and for only fifteen days in the 1999 period.

        Total publishing revenue increased 64.0% to $102.5 million for the three
months ended December 31, 2000 from $62.5 million in the comparable 1999 period.
Approximately 50.2% of such revenues related to PC product revenues and 49.8% of
such revenues related to console games for the three months ended December 31,
2000, as compared to 72.5% and 27.5%, respectively, in the comparable 1999
period. Both the increase in publishing revenue and the increase in console
games during the three months ended December 31, 2000 are attributable to the
Company's success of top selling console products in the 2000


                                     Page 16
<PAGE>   17


period. Driver 2 and Driver Greatest Hits for Playstation and Unreal Tournament
for Playstation 2 alone represented $38.9 million of the Company's sales during
the three months ended December 31, 2000.

        Cost of goods sold for the three months ended December 31, 2000
decreased approximately $43.1 million, or 48.4%, to $46.0 million from $89.1
million in the comparable 1999 period. Cost of goods sold as a percentage of net
revenues decreased to 36.1% for the three months ended December 31, 2000 as
compared to 81.3% in the comparable 1999 period. The 1999 period included one
time adjustments of $11.4 million during the three months ended December 31,
1999. These one time adjustments were for reserving substantially all of the
international inventory and a portion of domestic inventory which the Company
did not expect to resell. Additionally, the decrease in cost of goods sold as a
percentage of net revenues for the three months ended December 31, 2000 is
attributable to the Company's reduced emphasis on third party distribution.
Typically, third party distribution carries a higher cost of goods as compared
to internally published goods.

        Gross profit increased from $20.6 million in the comparable 1999 period
to $81.5 million for the three months ended December 31, 2000. This increase is
primarily due to increased sales volume and changes in cost of goods sold as
described above. Gross profit is primarily impacted by the percentage of sales
of PC product as compared to the percentage of sales of Console product. Gross
profit may also be impacted from time to time by the percentage of foreign
sales, the level of returns and price protection and concessions to retailers
and distributors. The Company's margins on sales of PC product are higher than
those on Console software (currently, Playstation 2, Playstation 1, Dreamcast,
Nintendo 64 and Game Boy Color) as a result of significantly lower PC software
product costs. Gross profit as a percentage of net revenues increased to 63.9%
during the three months ended December 31, 2000 from 18.7% in the comparable
1999 period. This increase is due to the Company's reorganization efforts to
reduce costs, decrease its distribution business and the implementation of
better business processes that have enabled it to manage both internal and
channel inventory more efficiently and effectively. Additionally, gross profit
as a percentage of net revenues increased due to royalty income on international
sales. In the 1999 period, the Company recorded full European sales offset by
the cost of goods sold. As part of its reorganization efforts to reduce cost,
the Company only receives royalty income on product sold in Europe offset by
minor royalty costs.

        Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During the three months ended December 31, 2000,
these expenses decreased approximately $15.3 million, or 36.5%, to $26.8 million
from $42.1 million in the comparable 1999 period. Selling and distribution
expenses as a percentage of net revenues for the three months ended December 31,
2000 decreased to 21.0% as compared to 38.4% in the comparable 1999 period. For
the three months ended December 31, 2000, the Company's reorganization efforts
to reduce its distribution business have led to significant cost reductions. The
Company is also realizing the cost savings of outsourcing its distribution
function in this period as compared to the prior period where a portion of the
Company's distribution function remained in-house. Additionally, the Company has
refocused its marketing efforts to help reduce costs.

        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, 2000 increased
approximately $1.2 million, or 5.9%, to $21.5 million from $20.3 million in the
comparable 1999 period. General and administrative expenses as a percentage of
net revenues decreased to 16.8% for the three months ended December 31, 2000
from 18.5% in the comparable 1999 period. The increased cost for the three
months ended December 31, 2000 was due primarily to a write down of the
Company's receivables of $6.0 million dollars during the current period. This
increase was offset by cost reduction efforts made by the Company through
internal consolidation and reorganization.

        Research and development expenses primarily include the payment of
royalty advances to third-party developers on products that are currently in
development and direct costs of internally developing and producing a title.
These expenses for the three months ended December 31, 2000 increased
approximately $1.2 million, or 8.5%, to $16.3 million from $15.1 million in the
comparable 1999 period. Research and development expenses, as a percentage of
net revenues, decreased to 12.8% for the three months ended December 31, 2000
from 13.7% in the comparable 1999 period. The increase in research and
development


                                     Page 17
<PAGE>   18


expenses for the three months ended December 31, 2000 is primarily due to the
Company entering into new contracts with external developers and its increased
use of its existing internal research and development group. Research and
development expenses of the Company's internal development studios, which
primarily include Humongous, Legend and Reflections, remained at 55.0% of total
research and development for each of the three months ended December 31, 1999
and 2000 periods.

        The Company incurred restructuring charges of $32.5 million for the
three month ended December 31, 1999. These charges resulted from the shutdown of
European operations, the Company's de-emphasis on its distribution business and
the write-down of goodwill related to its value priced division.

        The Company recorded a gain on sale of line of business for the three
months ended December 31, 2000 of approximately $5.5 million. This is related to
the Company selling its Duke Nukem franchise as part of the Company's re-focus
of its catalog from specialized gaming product to mass market gaming product.
The Company expects to record an additional $6.0 million gain on sale of this
business after an independent developer fulfills an obligation to the purchaser,
which is expected to occur prior to the end of the fiscal year.

        Depreciation and amortization for the three months ended December 31,
2000 increased approximately $0.6 million, or 13.1%, to $4.6 million from $4.0
million in the comparable 1999 period. This increase is attributable to the
depreciation and amortization expense resulting from the merger with INA offset
by the write-off of fixed assets and of all goodwill, other than the goodwill
for Legend and Reflections studios, in connection with the Company's
reorganization plans in the comparable 1999 period.

        Interest expense, net decreased approximately $2.8 million for the three
months ended December 31, 2000 to $2.6 million from $5.4 million in the
comparable 1999 period. The decrease in the three months ended December 31, 2000
was attributable to lower borrowings in 2000 as compared to the 1999 period.

        The Company's effective tax rate for the three months ended December 31,
2000 was 0% compared to 20.3% tax provision in the comparable 1999 period. The
decrease in the effective tax rate is attributable to the Company not recording
a tax benefit in the current period pre-tax loss.



         SIX MONTHS ENDED DECEMBER 31, 2000 VERSUS THE SIX MONTHS ENDED
                                DECEMBER 31, 1999

        Net revenues for the six months ended December 31, 2000, decreased $34.1
million or 17% from $201.1 million to $167.0 million in the comparable 1999
period. This decrease is attributable to the Company's decreased emphasis on
third party distribution and its decision to close European operations in
conjunction with the purchase by IESA. This decrease was offset by success of
the Company's publishing business with current period releases such as Driver 2
for Playstation and Unreal Tournament for Playstation 2 and continued success of
earlier releases such as Driver Greatest Hits. Additionally, results of the
former INA activity are included for the full three months in the 2000 period
and for only fifteen days in the 1999 period.

        Total publishing revenue for the six months ended December 31, 2000
increased 15.4% to $130.7 million from $113.2 million in the comparable 1999
period. Approximately 57.2% of such revenues related to PC product revenues and
42.8% of such revenues related to console games for the six months ended
December 31, 2000, as compared to 64.6% and 35.4%, respectively, in the
comparable 1999 period. Both the increase in publishing revenue and the increase
in console games sales during the six months ended December 31, 2000 are
attributable to the Company's success of top selling console product in the 2000
period. Driver 2 and Driver Greatest Hits for Playstation and Unreal Tournament
for Playstation 2 alone represented $39.7 million of the sales for the six
months ended December 31, 2000.

        Cost of goods sold for the six months ended December 31, 2000 decreased
approximately $92.7 million or 60.3% to $61.1 million from $153.8 million from
the comparable 1999 period. Cost of goods sold as a percentage of net revenues
decreased to 36.6% for six months ended December 31, 2000, as compared to 76.4%
in the comparable 1999 period. The 1999 period included one time adjustments of


                                     Page 18
<PAGE>   19


$19.4 million during the six months ended December 31, 1999. These one time
adjustments were for reserving substantially all of the international inventory
and a portion of domestic inventory which the Company did not expect to resell.
Additionally, the decrease in cost of goods sold as a percentage of net revenues
for the six months ended December 31, 2000 period is attributable to the
Company's reduced emphasis on third party distribution. Typically, third party
distribution carries a higher cost of goods as compared to internally published
goods.

        Gross profit increased to $105.9 million for the six months ended
December 31, 2000 from $47.4 million in the comparable 1999 period. This
increase is primarily due to increased sales volume and changes in cost of goods
sold as described above. Gross profit is primarily impacted by the percentage of
sales of PC product as compared to the percentage of sales of Console product.
Gross profit may also be impacted from time to time by the percentage of foreign
sales, and the level of returns and price protection and concessions to
retailers and distributors. The Company's margins on sales of PC product are
higher than those on console software (currently, Playstation 2, Playstation 1,
Dreamcast, Nintendo 64 and Game Boy Color) as a result of significantly lower PC
software product costs. Gross profit as a percentage of net revenues increased
to 63.4% for the six months ended December 31, 2000 from 23.6% in the comparable
1999 period. This increase is due to the Company's reorganization efforts to
reduce costs, decrease its distribution business and the implementation of
better business processes that has enabled it to manage both internal and
channel inventory more efficiently and effectively. Additionally, gross profit
as a percentage of net revenues increased due to royalty income on international
sales. In the 1999 period, the Company recorded full European sales offset by
the cost of goods sold. As part of its reorganization efforts to reduce costs,
the Company only receives royalty income on product sold in Europe offset by
minor royalty costs.

        Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During the six months ended December 31, 2000,
selling and distribution expenses decreased approximately $37.9 million, or
47.2%, to $42.3 million from $80.2 million in the comparable 1999 period.
Selling and distribution expenses as a percentage of net revenues for the six
months ended December 31, 2000 decreased to 25.4% as compared to 39.9% in the
comparable 1999 period. For the six months ended December 31, 2000 the Company's
reorganization efforts to reduce its distribution business have led to
significant cost reductions. The Company is also realizing the cost savings of
outsourcing its distribution function in this period as compared to the prior
period where a portion of the Company's distribution function remained in-house.
Additionally, the Company has refocused its marketing efforts to help reduce
costs.

        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, 2000 increased approximately
$1.6 million, or 5.1%, to $33.7 million from $32.1 million in the comparable
1999 period. General and administrative expenses as a percentage of net revenues
increased to 20.2% for the six months ended December 31, 2000 from 15.9% in the
comparable 1999 period. The increased cost for the six months ended December 31,
2000 was primarily due to a write down of receivables from both the Company and
INA of $11.0 million dollars during the current period. This increase was offset
by cost reduction efforts made by the Company through internal consolidation and
reorganization.

        Research and development expenses primarily include the payment of
royalty advances to third-party developers on products that are currently in
development and direct costs of internally developing and producing a title.
Research and development expenses for the six months ended December 31, 2000
decreased approximately $5.7 million, or 14.1%, to $34.6 million from $40.3
million in the comparable 1999 period. Research and development expenses, as a
percentage of net revenues, increased to 20.7% for the six months ended December
31, 2000 from 20.0% in the comparable 1999 period. The decrease of $5.7 million
is primarily due to savings from shutting down European operations and the
Singletrac Studio during as a part of Company's reorganization plan. During the
1999 period, the Company incurred research and development expenses of $16.6
million from both Europe and Singletrac as compared to only $2.0 million in the
six months ended December 31, 2000. This decrease has been offset by increased
use of existing internal research and development groups and an increase in
contracts with external developers. Research and development expenses of the
Company's internal development studios, which primarily include Humongous,
Legend and Reflections decreased to 54.4% of total research and development


                                    Page 19
<PAGE>   20


expense for the six months ended December 31, 2000 as compared to 61.3% in the
comparable 1999 period.

        The Company incurred restructuring charges of $32.5 million for the six
months ended December 31, 1999. These charges resulted from the shutdown of
European operations, the Company's de-emphasis on its distribution business and
the write-down of goodwill related to its value priced division.

        The Company incurred expenses of $1.7 million or 1.0% of net revenue
related to the merger with INA during the six months ended December 31, 2000.
The costs include various consulting, legal, and accounting fees.

        The Company recorded a gain on sale of line of business for the six
months ended December 31, 2000 of approximately $5.5 million. This is related to
the Company selling its Duke Nukem franchise as part of the Company's re-focus
of its catalog from specialized gaming product to mass market gaming product.
The Company expects to record an additional $6.0 million gain on sales of this
business after an independent developer fulfills an obligation to the purchaser,
which is expected to occur prior to the end of the fiscal year.

        Depreciation and amortization for the six months ended December 31, 2000
increased approximately $0.7 million, or 9.6%, to $8.6 million from $7.9 million
in the comparable 1999 period. This increase is attributable to the depreciation
and amortization expense resulting from the merger with INA offset by the
write-off of fixed assets and of all goodwill, other than the goodwill for
Legend and Reflections, studios, in connection with the Company's reorganization
plans in the comparable 1999 period.

        Interest expense, net decreased approximately $2.6 million to $8.7
million from $11.3 million in the comparable 1999 period. The decrease in the
six months ended December 31, 2000 was attributable to lower borrowings in 2000
as compared to 1999.

        The Company's effective tax rate for the six months ended December 31,
2000, was 0% compared to 11.9% tax provision in the comparable 1999 period. The
decrease in the effective tax rate is attributable to the Company not recording
a tax benefit in the current period pre-tax loss.



LIQUIDITY AND CAPITAL RESOURCES

        Cash and cash equivalents were $12.9 million at December 31, 2000
compared to $13.5 million at June 30, 2000. As of December 31, 2000, the Company
had a working capital deficit of $28.5 million compared to $194.3 million in
working capital deficit at June 30, 2000.

        During the six months ended December 31, 2000, $43.6 million was
provided by financing activities. The Company utilized its borrowings from its
Credit Facility to fund $41.6 million net cash used in operating activities
which resulted from operating losses and reduction in accounts payable for past
due accounts.

CREDIT FACILITIES

        On September 11, 1998, the Company entered into the Credit Agreement as
subsequently amended, with First Union, as agent for a syndicate of the Banks,
expiring on March 31, 2000. Under the Credit Agreement, the Company borrowed
approximately $71 million for ongoing working capital requirements, letters of
credit and other general corporate purposes, secured by domestic accounts
receivable and inventory and other assets of the Company. To induce the Banks to
amend the Credit Agreement, the Company issued the Banks warrants to purchase,
at an exercise price of $0.05 per share, an aggregate of 150,000 shares of the
Company's common stock. Of these, warrants to purchase 55,000


                                     Page 20
<PAGE>   21

shares of Company's common stock were immediately exercisable, warrants to
purchase 50,000 shares of Company's common stock became exercisable on October
31, 1999 and warrants to purchase the remaining 45,000 shares of Company's
common stock (the "Bank Warrants") became exercisable on February 28, 2000 if
the Credit Agreement was not repaid prior to that date.

        As of February 15, 2000, IESA entered into an agreement with the Banks,
pursuant to which IESA assumed the Banks' interest in the Credit Agreement. In
connection with the assumption by IESA of the Credit Agreement, (i) the maturity
date was extended from March 31, 2000 to June 30, 2000, (ii) the interest rate,
which was the Prime Rate plus 1.0% or LIBOR plus 2.5% at the option of the
Company, was set at LIBOR plus 2.5%, (iii) a $250,000 amendment fee, which would
have been payable to the Banks on March 31, 2000 unless the Credit Agreement was
refinanced by February 16, 2000, was reduced to $125,000 and paid to IESA, (iv)
certain mandatory prepayment restrictions and operational covenants were revised
to be less restrictive and (v) revisions were made to provide alternative letter
of credit facilities to the Company. In addition, the Bank Warrants were
surrendered and cancelled and warrants to purchase 45,000 shares of Company's
common stock, at an exercise price of $0.05 per share, were issued to IESA.

        On June 29, 2000, IESA and the Company amended the Credit Agreement to
increase the aggregate commitment available under the facility to $125.0 million
and to extend the maturity date to September 30, 2000.

        At June 30, 2000, the Company had outstanding borrowings under the
Credit Agreement of approximately $98.5 million, and no letters of credit
outstanding. Outstanding borrowings under the Credit Agreement are classified as
current in the consolidated balance sheet as of June 30, 2000, accrued interest
$2.5 million has been recorded but not yet paid under the Credit Agreement as of
June 30, 2000. In conjunction with the merger with INA, which closed on October
2, 2000, all the amounts outstanding under the Credit Agreement and certain
intercompany payables were converted into 20 million shares of the Company's
Common Stock at a price of $6.40 per share. The Company amended the Credit
Agreement with IESA (the "New Credit Agreement") to provide for an aggregate
commitment of $50.0 million, and to extend the maturity date from September 30,
2000 to December 31, 2000. On December 22, 2000 the Company and IESA amended the
New Credit Facility to extend the maturity date to June 15, 2001. As of December
31, 2000 the outstanding borrowings under the New Credit Agreement and certain
intercompany payables were approximately $8.7 million, of which $0.5 million is
related to accrued interest. As of December 31, 2000, there are $2.1 million of
letters of credit outstanding. The interest rate remained at LIBOR plus 2.5%. As
of February 7, 2001, the Company had no outstanding debt under the New Credit
Agreement and approximately $1.1 million of letters of credit outstanding.

        In connection with the INA Merger, the Company assumed a $35.2 million
revolving credit facility with BNP which matures on June 15, 2001. The facility
has an interest rate of LIBOR plus 65 basis points per annum for fixed LIBOR
loans, payable at maturity or quarterly and at maturity for loans with
maturities in excess of 90 days. For floating loans, an interest rate of BNP
prime rate minus 1% per annum is charged, payable monthly. The facility fee was
$17,500 paid at closing and the commitment fee for the unutilized amount of the
facility is 30 basis points per annum payable quarterly in arrears. The
financial convenants associated with the BNP Credit Facility are that a certain
percent of the profits be retained in the Company and that stockholders' deficit
does not fall below a certain. Both these covenants have been satisfied as of
December 31, 2000. As of December 31, 2000, the Company has approximately $34.9
million outstanding under the BNP Credit Facility of which a nominal portion
relates to interest. As of February 7, 2001 the Company has approximately $35.1
million outstanding under the BNP facility of which $0.2 million relates to
interest.

        The Company believes that existing cash and cash equivalents, together
with cash expected to be generated from operations, cash available under the
Credit Agreement and the continued financial support as IESA deems necessary
will be sufficient to fund the Company's operations and cash flows.


RECENT ACCOUNTING PRONOUNCEMENTS

        Statement of Financial Accounting Standards No.133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No.133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires companies to recognize all derivative as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS No.133 in the first
quarter of fiscal 2001, in accordance with the deferral


                                     Page 21
<PAGE>   22


provision in SFAS No.137. The adoption of SFAS No.133 does not have a material
effect on the Company's financial statements.

        In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No.101 ("SAB 101"), "Revenue Recognition in
Financial Statements". SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is required to adopt SAB 101 no later than the fourth
quarter of fiscal 2001. Infogrames, Inc. is currently evaluating the impact of
SAB 101 on the Company's results of operations and financial position.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Due to the global nature of the Company's operations, the Company is
subject to the exposures that arise from foreign exchange rate fluctuations. The
Company's objective in managing its exposure to foreign currency fluctuations is
to minimize net earnings volatility associated with foreign exchange rate
changes. The Company may enter into foreign currency forward exchange contracts
to hedge foreign currency transactions which are primarily related to certain
receivables denominated in foreign currencies. The Company's hedging activities
do not subject it to exchange rate risk because gains and losses on these
contracts offset losses and gains on the assets, liabilities, and transactions
being hedged. The Company has no derivatives as of December 31, 2000 and
February 7, 2001.

        The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term obligations since the
majority of the Company's long-term obligations are fixed rates of interest.


                                     Page 22


<PAGE>   23


PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

Scavenger

        On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software
developer, filed a lawsuit against the Company in Supreme Court, New York
County, claiming that the Company breached a software development contract
between the parties dated November 28, 1995. The contract provided for the
development of four personal computer games, Amok, Scorcher, Into the Shadows
and Mudkicker. The Company paid royalty advances of $2 million ($500,000 per
game) in January 1996. Scavenger delivered and the Company accepted Amok and
Scorcher, but Scavenger did not deliver Into the Shadows or Mudkicker. The
Company paid an additional royalty advance of $500,000 upon delivery of Amok.

        The complaint alleges four causes of action: (1) breach of contract in
the amount of $1.9 million claimed as royalty advances for Amok and Scorcher
(first cause); (2) breach of contract in the amount of $2.4 million claimed as
additional royalty advances for Into the Shadows and Mudkicker (second cause);
(3) breach of contract in the amount of $5 million allegedly due above the
additional royalty advances (third cause); and (4) consequential damages in the
amount of $100 million based on the allegation that the Company's failure to pay
the additional royalty advances forced Scavenger out of business and Scavenger
allegedly was worth $100,000,000 as of January 1997 (fourth cause). The Company
asserted three counterclaims: (1) breach of contract for failure to deliver Into
the Shadows and Mudkicker seeking at least $5 million in damages (first
counterclaim); (2) breach of contract for failure to deliver Scorcher timely and
the failure to deliver Amok and Scorcher in conformance with the quality
requirements of the software development contract seeking at least $5 million in
damages (second counterclaim); and (3) unjust enrichment seeking the return of
the $2.5 million in royalty advances paid to Scavenger (third counterclaim).

        By Order entered March 3, 2000, the Court granted Scavenger's motion for
partial summary judgment as to the first cause of action and denied the motion
as to the second cause. Judgment was thereupon entered March 14, 2000 in the
amount of $2.4 million ($1.9 million plus interest accrued), which was affirmed
by Order Appellate Division, First Department entered June 8, 2000. Motions to
the Appellate Division, First Department and to the Court of Appeals for leave
to appeal to the Court of Appeals were denied. In January 2001, the Company paid
approximately $2.6 million (including accrued interest from date of judgement)
satisfying the partial summary judgement.

        In an Order entered June 21, 2000, the Court denied the Company's motion
for summary judgment dismissing the third and fourth causes of action. The
Company simultaneously moved for reargument of and appealed from that portion of
the June 21, 2000 Order denying partial summary judgment on the fourth cause. By
Order entered September 8, 2000, the Court granted reargument and, on
reargument, dismissed the fourth cause of action (and the Company withdrew its
appeal). Scavenger unsuccessfully moved for reargument of the September 8, 2000
Order, and is now appealing from the September 8, 2000 Order to the Appellate
Division, First Department.

        By Order entered December 19, 2000, the Court separately ruled with
respect to each of the Company's counterclaims that the Company cannot seek to
recover as a measure of damages any of the royalty advances paid software
development contract. Subject to this limitation, the Court otherwise sustained
the Company's first counterclaim for damages for the undelivered games Into the
Shadows and Mudkicker. The Court dismissed the second counterclaim finding that
the Company had not shown provable damages other than the $1.5 million in
royalty advances paid on Amok and Scorcher which the Court held could not be
recovered. The Court also dismissed the third counterclaim for unjust
enrichment, which sought to recover the entire $2.5 million in royalty advances
paid to Scavenger. The Company is appealing this dismissal only as to the $1
million in royalty advances paid for the undelivered Into the Shadows and
Mudkicker.


                                     Page 23
<PAGE>   24


        By Order entered January 8, 2001, the Court granted a motion by the
Company to dismiss the second cause of action, a motion prompted by and premised
on the reasoning of the Court's March 3, 2000 Order granting partial summary
judgment on the first cause of action as well as of the Appellate Division,
First Department's June 8, 2000 Order of affirmance. Scavenger has appealed from
the January 8, 2001 Order.



Herzog

        In January, February and March 1998, ten substantially similar
complaints were filed against the Company, its former Chairman and its former
Chief Executive Officer, and in certain actions, its former Chief Financial
Officer, in the U.S. District Court for the Southern District of New York. The
plaintiffs, in general, purport to sue on behalf of a class of persons who
purchased shares (and as to certain complaints, purchased call options or sold
put options) of the Company during the period from December 15, 1995 through
December 12, 1997. In their consolidated and amended complaint, the plaintiffs
allege that the Company violated the federal securities laws by making
misrepresentations and omissions of material facts that allegedly artificially
inflated the market price of the Company's common stock during the class period.
The plaintiffs further allege that the Company failed to expense properly
certain prepaid royalties for software products that had been terminated or had
failed to achieve technological feasibility, or had insufficient sales to recoup
the paid advances, which misstatements purportedly had the effect of overstating
the Company's net income and net assets. By order dated January 23, 1999, the
plaintiffs were granted leave to file a second consolidated and amended
complaint, which added claims under the federal securities laws against the
Company's former independent auditors, Arthur Andersen LLP. The Company and
Arthur Andersen LLP each filed motions to dismiss the second consolidated and
amended complaint. By order and opinion dated November 29, 1999, the District
Court granted the motion to dismiss. Plaintiffs appealed from the dismissal of
the action, and on July 11, 2000, the Court of Appeals for the Second Circuit
issued an opinion and judgment reversing the dismissal of the complaint as to
the Company and individual defendants (but not as to Arthur Andersen LLP) and
remanding the action to the District Court. On July 21, 2000, the Company filed
with the Court of Appeals a petition for rehearing with suggestion for rehearing
en banc. On September 1, 2000, the Court of Appeals denied the petition for
rehearing and suggestion for rehearing en banc. The case was returned to the
District Court, where certain discovery is now proceeding.

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 million in compensatory damages and
$100 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.

McGovern

        On or about September 11, 2000, Jane Bassler and Paul McGovern, as
shareholders of the Company, commenced a derivative action on behalf of the
Company in Delaware Chancery Court, New Castle County, against IESA, CUSH, and
the individual members of the Company's board of directors since November 1999.
The action alleges that IESA, as controlling shareholder of the Company and


                                     Page 24
<PAGE>   25


through its nominees on the Company's board, has engaged in certain self-dealing
actions. The first cause of action, asserted against certain defendants, alleges
breach of fiduciary duty. The second cause of action, asserted against CUSH,
alleges aiding and abetting. The third cause of action, asserted against certain
defendants, alleges breach of fiduciary duty in order to divest their own
investment in the Company on terms beneficial to them. The complaint seeks on
behalf of the Company a declaration that the defendants have breached their
fiduciary duties to the Company; the imposition of a constructive trust on all
profits and gains defendants have received as a result of the wrong alleged;
damages in favor of the Company; and attorneys' fees and costs for plaintiffs.
On September 19, 2000, Bassler voluntarily dismissed her claim without
prejudice. Defendants' answers or responsive motions are now due April 9, 2001.


Fenris

        On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer,
filed a lawsuit in New York Supreme Court claiming that the Company failed to
adequately pursue bundling opportunities for the software game "Rebel Moon
Rising MMX" and unlawfully rejected the ninth milestone deliverable for the
software game "Rebel Moon Revolution" under a development contract between the
parties dated June 26, 1996. Fenris asserts five claims of breach and
intentional interference, in its complaint and seeks $100,000 for the nonpayment
and rejection of milestone nine, $400,000 for the balance of payments under the
contract, $775,000 for alleged lost bundling opportunities, $775,000 for alleged
intentional interference with bundling arrangements and $500,000 for alleged
interference with contractual relations. In an October 20, 1999 opinion and
order, the court granted the Company's motion to dismiss three of the five
claims so that only the milestone nine contract and bundling claims remain.
Fenris has filed a notice of appeal from the dismissal of the $400,000 claim for
the balance of payments under the contract; and the Company has filed a
counterclaim for breach seeking to recover not less than the $800,000 in
milestone payments advanced for the development of "Rebel Moon Revolution."
Fenris has moved for summary judgment on its first cause of action ($100,000),
and the Company has moved for summary judgment dismissing the bundling claim.
This action filed by Fenris has been settled and Stipulation of Discontinuance
was filed with the Court on October 24, 2000. The Company paid Fenris a nominal
amount as part of the settlement.

        The Company believes that these complaints are without merit and intends
to defend itself vigorously against these actions. Additionally, the Company is
involved in various claims and legal actions arising in the ordinary course of
business, the ultimate resolution of which the management of the Company
believes will not be material to the Company's consolidated results of
operations or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        On October 2, 2000, in connection with the INA Merger, the Company
issued: (i) 20,089,224 shares of the Company's common stock as a result of the
conversion of all outstanding debt under the Credit Agreement and certain
intercompany payables between the Company and IESA; (ii) 955,000 shares of the
Company's common stock as a result of the exercise of all its warrants held by
IESA and CUSH; and (iii) 28,000,000 shares of the Company's common stock to
acquire all the outstanding shares of INA. The shares issued in connection with
the INA Merger have not been registered under the Securities Act and are
restricted securities.


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

        Reference is made to the Definitive Information Statement dated November
27, 2000 and filed on the same date in connection with Amendment No. 1 to the
Infogrames, Inc. 2000 Stock Incentive Plan (the "Plan Amendment"). The Plan
Amendment was adopted by written consent of CUSH, as the holder of a majority of
the outstanding shares of common stock of the Company, on November 3, 2000.


                                     Page 25
<PAGE>   26


TO BE UPDATED BY LEGAL

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits

        The following exhibits are filed or incorporated by reference as part of
this report:

<TABLE>
<CAPTION>
      EXHIBIT
        NO.       DESCRIPTION
        ---       -----------

<S>               <C>
        10.1      Agreement and Plan of Merger, dated as of September 6, 2000, by and among Infogrames, Inc.,
                  INA Merger Sub, Inc., Infogrames Entertainment S.A., California U.S. Holdings, Inc. and
                  Infogrames North America, Inc. (incorporated herein by reference to Exhibit A filed as part of
                  the Information Statement on Schedule 14C on September 12, 2000).

        10.2      Seventh Amendment to the Credit Agreement dated as of September 30, 2000 between Infogrames,
                  Inc. and Infogrames Entertainment S.A.

        10.3      Eighth Amendment to the Credit Agreement dated as of December 22, 2000 between Infogrames,
                  Inc. and Infogrames Entertainment S.A.

        10.4      Credit Facility Agreement dated September 28, 2000 between BNP Paribas and Infogrames, Inc.
                  and related term sheet.

</TABLE>


        (b) Reports on Form 8-K

        During the quarter ended December 31, 2000, the Company filed a Current
Report on Form 8-K, dated October 6, 2000 in which it reported in Item 2 that
INA Merger Sub, Inc. ("Merger Sub"), a California corporation and a wholly-owned
subsidiary of the Company merged with and into INA pursuant to an Agreement and
Plan of Merger, dated as of September 6, 2000, by and among the Company, Merger
Sub, IESA, CUSH and INA. The audited financial statements of INA and IESA were
incorporated in the Current Report by reference to Exhibit C to the Information
Statement filed with SEC and mailed to the Company's shareholders on Schedule
14C, on September 12, 2000.


                                     Page 26
<PAGE>   27


                                   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, 2001





                                     Page 27