##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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


|                                                  |  |                            
|------------------------------------------------- |  | ---------------------------
|For the quarterly period ended September 30, 2003 |  | Commission File No. 0-27338

ATARI, INC.

(Exact name of registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x      No o


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes x      No o


As of November 10, 2003, there were 121,213,191 of the registrants Common
Stock outstanding.





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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                                       |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | CONSOLIDATED BALANCE SHEETS                                          
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                                
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)         
|                                                 |                                                                                               | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                       
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                 | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                      
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                 | Item 5. Other Information                                                                    
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                       
|FOURTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
|FIFTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT 
|SECTION 302 CERTIFICATION OF CEO                
|SECTION 302 CERTIFICATION OF CFO                
|SECTION 906 CERTIFICATION OF CEO                
|SECTION 906 CERTIFICATION OF CFO                



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##### Table of Contents



ATARI, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2003 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

|                               |                                                                                                  |  |                                                                                                                                                                                                                              |    |      |   | 
|------------------------------ | ------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                               |                                                                                                  |  |                                                                                                                                                                                                                              |    | Page
|                               |                                                                                                  |  |                                                                                                                                                                                                                              |    |     
|PART I - FINANCIAL INFORMATION |                                                                                                  |  |                                                                                                                                                                                                                              |   
|                               | Item 1.    Financial Statements:                                                                 |  |                                                                                                                                                                                                                              |    |     
|                               |                                                                                                  |  | Consolidated Balance Sheets as of March 31, 2003 and September 30, 2003 (unaudited)                                                                                                                                          |    |      | 3 | 
|                               |                                                                                                  |  | Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Six Months Ended September 30, 2002 (unaudited), and for the
Three Months and Six Months Ended September 30, 2003 (unaudited) |    |      | 4 | 
|                               |                                                                                                  |  | Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2002 and 2003 (unaudited)                                                                                                                       |    |      | 5 | 
|                               |                                                                                                  |  | Consolidated
Statements of Stockholders Equity (Deficiency) for the Nine
Months Ended March 31, 2003 and Six Months Ended September 30, 2003 (unaudited)                                                                    |    |      | 7 | 
|                               |                                                                                                  |  | Notes to the Consolidated Financial Statements (unaudited)                                                                                                                                                                   |    |      | 8 | 
|                               | Item 2.    Managements Discussion and Analysis of Financial Condition and Results
of Operations |  |                                                                                                                                                                                                                              | 20 |     
|                               | Item 3.    Quantitative and Qualitative Disclosures about Market Risk                            |  |                                                                                                                                                                                                                              | 30 |     
|                               | Item 4.    Controls and Procedures                                                               |  |                                                                                                                                                                                                                              | 30 |     
|PART II - OTHER INFORMATION    |                                                                                                  |  |                                                                                                                                                                                                                              |   
|                               | Item 1.    Legal Proceedings                                                                     |  |                                                                                                                                                                                                                              | 31 |     
|                               | Item 4.    Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                                                                                                                              | 32 |     
|                               | Item 5.    Other Information                                                                     |  |                                                                                                                                                                                                                              | 32 |     
|                               | Item 6.    Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                                                                                                              | 33 |     
|                               | Signature                                                                                        |  |                                                                                                                                                                                                                              | 34 |     





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##### Table of Contents









PART I. FINANCIAL INFORMATION
Item 1. Financial Statements




ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          |             |         | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------- | -------- | --------- | ------- | ------------- | -------- | ----------- | ------- | 
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          | March 31, |         | September 30,
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          | 2003      |         | 2003         
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          | (unaudited)
|ASSETS                                                                                                                            |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|Current assets:                                                                                                                   |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  | Cash                                                                                                                                                              |                                                         | $                         | 815      |           |         | $             | 27,019   |            
|                                                                                                                                  |  | Receivables, net                                                                                                                                                  |                                                         |                           | 47,053   |           |         |               | 31,145   |            
|                                                                                                                                  |  | Inventories, net                                                                                                                                                  |                                                         |                           | 37,827   |           |         |               | 35,366   |            
|                                                                                                                                  |  | Income taxes receivable                                                                                                                                           |                                                         |                           | 395      |           |         |               | 409      |            
|                                                                                                                                  |  | Due from related parties                                                                                                                                          |                                                         |                           | 2,656    |           |         |               | 2,184    |            
|                                                                                                                                  |  | Prepaid expenses and other current assets                                                                                                                         |                                                         |                           | 16,958   |           |         |               | 18,328   |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         | Total current assets      |          |           | 105,704 |               |          |             | 114,451 | 
|Advances to related parties                                                                                                       |  |                                                                                                                                                                   | 32,184                                                  |                           |          |           |        |              
|Property and equipment, net                                                                                                       |  |                                                                                                                                                                   | 14,727                                                  |                           |          |           | 14,347  |              
|Goodwill, net of accumulated amortization of $26,116 in both periods                                                              |  |                                                                                                                                                                   | 70,224                                                  |                           |          |           | 70,224  |              
|Other intangible assets, net of accumulated amortization of $619 and $956, at
March 31, 2003 and September 30, 2003, respectively |  |                                                                                                                                                                   | 2,081                                                   |                           |          |           | 1,744   |              
|Other assets                                                                                                                      |  |                                                                                                                                                                   | 7,162                                                   |                           |          |           | 12,275  |              
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         | Total assets              |          | $         | 232,082 |               |          | $           | 213,041 | 
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          |            
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                                                                 |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|Current liabilities:                                                                                                              |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  | Accounts payable                                                                                                                                                  |                                                         | $                         | 39,587   |           |         | $             | 39,174   |            
|                                                                                                                                  |  | Accrued liabilities                                                                                                                                               |                                                         |                           | 31,872   |           |         |               | 32,637   |            
|                                                                                                                                  |  | Revolving credit facility                                                                                                                                         |                                                         |                           | 10,651   |           |         |               |         |            
|                                                                                                                                  |  | Current portion of related party medium-term loan                                                                                                                 |                                                         |                           | 40,000   |           |         |               |         |            
|                                                                                                                                  |  | Related party credit facility                                                                                                                                     |                                                         |                           | 44,800   |           |         |               |         |            
|                                                                                                                                  |  | Royalties payable                                                                                                                                                 |                                                         |                           | 13,653   |           |         |               | 13,270   |            
|                                                                                                                                  |  | Income taxes payable                                                                                                                                              |                                                         |                           | 1,965    |           |         |               | 1,348    |            
|                                                                                                                                  |  | Short-term deferred income                                                                                                                                        |                                                         |                           | 2,077    |           |         |               | 2,077    |            
|                                                                                                                                  |  | Due to related parties                                                                                                                                            |                                                         |                           | 12,747   |           |         |               | 9,538    |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |               |          |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         | Total current liabilities |          |           | 197,352 |               |          |             | 98,044  | 
|Related party debt                                                                                                                |  |                                                                                                                                                                   | 124,610                                                 |                           |          |           |        |              
|Deferred income                                                                                                                   |  |                                                                                                                                                                   | 4,131                                                   |                           |          |           | 4,093   |              
|Other long-term liabilities                                                                                                       |  |                                                                                                                                                                   | 2,907                                                   |                           |          |           | 2,749   |              
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         | Total liabilities         |          |           | 329,000 |               |          |             | 104,886 | 
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|Commitments and contingencies                                                                                                     |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|Stockholders equity (deficiency):                                                                                                |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  | Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or
outstanding                                                                             |                                                         |                           |         |           |         |               |         |            
|                                                                                                                                  |  | Common stock, $0.01 par value, 300,000 shares authorized, 69,920 and 120,933
shares issued and outstanding at March 31, 2003 and September 30, 2003,
respectively |                                                         |                           | 699      |           |         |               | 1,209    |            
|                                                                                                                                  |  | Additional paid-in capital                                                                                                                                        |                                                         |                           | 486,053  |           |         |               | 734,814  |            
|                                                                                                                                  |  | Accumulated deficit                                                                                                                                               |                                                         |                           | (586,851 | )         |         |               | (631,141 | )          
|                                                                                                                                  |  | Accumulated other comprehensive income                                                                                                                            |                                                         |                           | 3,181    |           |         |               | 3,273    |            
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  |                                                                                                                                                                   | Total stockholders (deficiency) equity                 |                           |          | (96,918   | )       |               |          | 108,155     |        
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              
|                                                                                                                                  |  |                                                                                                                                                                   | Total liabilities and stockholders (deficiency) equity |                           | $        | 232,082   |         |               | $        | 213,041     |        
|                                                                                                                                  |  |                                                                                                                                                                   |                                                         |                           |          |           |         |              

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

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ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)

|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |         |         |        |  
|--------------------------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------------- | --------------------------- | ------ | ------------- | --- | ------------- | ------ | ------- | ------- | ------- | ------- | ------ | --- | ------- | ------- | ------- | ------ | -
|                                                                                  |                                          |                                                                |                             |        | Three Months  |     | Six Months   
|                                                                                  |                                          |                                                                |                             |        | Ended         |     | Ended        
|                                                                                  |                                          |                                                                |                             |        | September 30, |     | September 30,
|                                                                                  |                                          |                                                                |                             |        |               |     |              
|                                                                                  |                                          |                                                                |                             |        | 2002          |     | 2003          |        | 2002    |         | 2003   
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |        
|Net revenues                                                                      |                                          | $                                                              | 109,367                     |        |               | $   | 60,575        |        |         | $       | 238,970 |         |        | $   | 211,933 |        
|Cost of goods sold                                                                |                                          |                                                                | 53,895                      |        |               |     | 37,950        |        |         |         | 113,920 |         |        |     | 108,796 |        
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  | Gross profit                             |                                                                |                             | 55,472 |               |     |               | 22,625 |         |         |         | 125,050 |        |     |         | 103,137 |        
|Selling and distribution expenses                                                 |                                          |                                                                | 19,599                      |        |               |     | 13,804        |        |         |         | 41,364  |         |        |     | 33,932  |        
|General and administrative expenses                                               |                                          |                                                                | 8,217                       |        |               |     | 8,685         |        |         |         | 16,714  |         |        |     | 17,232  |        
|In-process research and development                                               |                                          |                                                                |                            |        |               |     |              |        |         |         | 7,400   |         |        |     |        |        
|Research and development                                                          |                                          |                                                                | 22,085                      |        |               |     | 23,576        |        |         |         | 43,485  |         |        |     | 45,805  |        
|Depreciation and amortization                                                     |                                          |                                                                | 2,075                       |        |               |     | 1,996         |        |         |         | 3,994   |         |        |     | 3,946   |        
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  |                                          | Operating income (loss)                                        |                             |        | 3,496         |     |               |        | (25,436 | )       |         |         | 12,093 |     |         |         | 2,222   |       
|Interest expense, net                                                             |                                          |                                                                | 3,252                       |        |               |     | 3,716         |        |         |         | 7,322   |         |        |     | 6,762   |        
|Other income (expense)                                                            |                                          |                                                                | 494                         |        |               |     | (534          | )      |         |         | (3,064  | )       |        |     | (417    | )      
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  |                                          | Income (loss) before provision for (benefit
from) income taxes |                             |        | 738           |     |               |        | (29,686 | )       |         |         | 1,707  |     |         |         | (4,957  | )     
|Provision for (benefit from) income taxes                                         |                                          |                                                                | 7                           |        |               |     | (955          | )      |         |         | 1,685   |         |        |     | (18     | )      
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  |                                          | Net income (loss)                                              |                             | $      | 731           |     |               | $      | (28,731 | )       |         | $       | 22     |     |         | $       | (4,939  | )     
|Dividend to parent                                                                |                                          |                                                                |                            |        |               |     | (39,351       | )      |         |         |        |         |        |     | (39,351 | )      
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  |                                          | Net income (loss) attributable to common
stockholders          |                             | $      | 731           |     |               | $      | (68,082 | )       |         | $       | 22     |     |         | $       | (44,290 | )     
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|Basic and diluted net income (loss)
attributable to
common stockholders per share |                                          | $                                                              | 0.01                        |        |               | $   | (0.90         | )      |         | $       | 0.00    |         |        | $   | (0.61   | )      
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|Basic weighted average shares outstanding                                         |                                          |                                                                | 69,826                      |        |               |     | 75,594        |        |         |         | 69,826  |         |        |     | 72,800  |        
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|Diluted weighted average shares outstanding                                       |                                          |                                                                | 69,952                      |        |               |     | 75,594        |        |         |         | 69,961  |         |        |     | 72,800  |        
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|Net income (loss)                                                                 |                                          | $                                                              | 731                         |        |               | $   | (28,731       | )      |         | $       | 22      |         |        | $   | (4,939  | )      
|Other comprehensive income:                                                       |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  | Foreign currency translation adjustments |                                                                |                             |       |               |     |               | 48     |         |         |         | 288     |        |     |         | 92      |        
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        
|                                                                                  |                                          |                                                                | Comprehensive income (loss) |        | $             | 731 |               |        | $       | (28,683 | )       |         | $      | 310 |         |         | $       | (4,847 | )
|                                                                                  |                                          |                                                                |                             |        |               |     |               |        |         |         |         |         |        |     |         |        

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

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ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |       |        |         |  
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ----- | ------------- | ------- | ------------- | ----- | ------ | ------- | -
|                                                                                         |                                                                                         |                                           |                                                     |       | Six Months    |         | Six Months   
|                                                                                         |                                                                                         |                                           |                                                     |       | Ended         |         | Ended        
|                                                                                         |                                                                                         |                                           |                                                     |       | September 30, |         | September 30,
|                                                                                         |                                                                                         |                                           |                                                     |       | 2002          |         | 2003         
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |              
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                                                                                         |                                           |                                                     |       |               |         |               |      
|Net income (loss)                                                                        |                                                                                         | $                                         | 22                                                  |       |               | $       | (4,939        | )    
|Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |                                                                                         |                                           |                                                     |       |               |         |               |      
|                                                                                         | Depreciation and amortization                                                           |                                           |                                                     | 3,994 |               |         |               | 3,946 |       
|                                                                                         | Write-down of investment held at cost                                                   |                                           |                                                     | 3,622 |               |         |               |      |       
|                                                                                         | Amortization of discount on related party debt                                          |                                           |                                                     | 1,435 |               |         |               | 1,339 |       
|                                                                                         | Accrued interest                                                                        |                                           |                                                     | 4,900 |               |         |               | 3,082 |       
|                                                                                         | Accretion of interest on short-term promissory notes                                    |                                           |                                                     | 66    |               |         |               |      |       
|                                                                                         | Amortization of deferred financing fees                                                 |                                           |                                                     | 478   |               |         |               | 1,794 |       
|                                                                                         | Deferred income                                                                         |                                           |                                                     |      |               |         |               | (38   | )     
|                                                                                         | Write-off of property and equipment                                                     |                                           |                                                     | 496   |               |         |               | 39    |       
|                                                                                         | In-process research and development related to acquisition of
Shiny Entertainment, Inc. |                                           |                                                     | 7,400 |               |         |               |      |       
|Changes in operating assets and liabilities:                                             |                                                                                         |                                           |                                                     |       |               |         |               |      
|                                                                                         |                                                                                         | Receivables, net                          |                                                     |       | (363          | )       |               |       | 15,908 |        
|                                                                                         |                                                                                         | Inventories, net                          |                                                     |       | (11,398       | )       |               |       | 2,460  |        
|                                                                                         |                                                                                         | Due from related parties                  |                                                     |       | (8,400        | )       |               |       | 958    |        
|                                                                                         |                                                                                         | Due to related parties                    |                                                     |       | 2,650         |         |               |       | (4,971 | )      
|                                                                                         |                                                                                         | Prepaid expenses and other current assets |                                                     |       | 1,409         |         |               |       | 1,279  |        
|                                                                                         |                                                                                         | Accounts payable                          |                                                     |       | 22,327        |         |               |       | (436   | )      
|                                                                                         |                                                                                         | Accrued liabilities                       |                                                     |       | 8,483         |         |               |       | 588    |        
|                                                                                         |                                                                                         | Royalties payable                         |                                                     |       | 8,596         |         |               |       | (383   | )      
|                                                                                         |                                                                                         | Income taxes payable                      |                                                     |       | 962           |         |               |       | (640   | )      
|                                                                                         |                                                                                         | Deferred income                           |                                                     |       | 553           |         |               |       |       |        
|                                                                                         |                                                                                         | Income taxes receivable                   |                                                     |       | 5,280         |         |               |       |       |        
|                                                                                         |                                                                                         | Other long-term liabilities               |                                                     |       | 2,078         |         |               |       | (166   | )      
|                                                                                         |                                                                                         | Other assets                              |                                                     |       | 524           |         |               |       | (1,084 | )      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|                                                                                         |                                                                                         |                                           | Net cash provided by operating activities           |       |               | 55,114  |               |       |        | 18,736  |  
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                         |                                           |                                                     |       |               |         |               |      
|Purchases of property and equipment                                                      |                                                                                         |                                           | (3,769                                              | )     |               |         | (3,105        | )    
|Advances to related parties                                                              |                                                                                         |                                           |                                                    |       |               |         | (14,368       | )    
|Acquisition of Shiny Entertainment, Inc., net of nominal cash acquired                   |                                                                                         |                                           | (34,010                                             | )     |               |         |              |      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|                                                                                         |                                                                                         |                                           | Net cash used in investing activities               |       |               | (37,779 | )             |       |        | (17,473 | )
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |                                                                                         |                                           |                                                     |       |               |         |               |      
|Payment of related party credit facility, net                                            |                                                                                         |                                           | (17,667                                             | )     |               |         |              |      
|Borrowings from related party medium-term loan                                           |                                                                                         |                                           | 48,278                                              |       |               |         |              |      
|Payments to third parties                                                                |                                                                                         |                                           | (7,291                                              | )     |               |         |              |      
|Payments under short-term promissory notes                                               |                                                                                         |                                           | (8,833                                              | )     |               |         |              |      
|Payments of BNP Paribus revolving credit facility                                        |                                                                                         |                                           | (24,888                                             | )     |               |         |              |      
|Payments of General Electric Capital Corporation Senior Credit
Facility, net             |                                                                                         |                                           |                                                    |       |               |         | (10,651       | )    
|Proceeds from exercise of stock options                                                  |                                                                                         |                                           | 16                                                  |       |               |         | 440           |      
|Proceeds from employee stock purchase plan                                               |                                                                                         |                                           | 75                                                  |       |               |         | 103           |      
|Net proceeds from public stock offering                                                  |                                                                                         |                                           |                                                    |       |               |         | 35,000        |      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|                                                                                         |                                                                                         |                                           | Net cash (used in) provided by financing activities |       |               | (10,310 | )             |       |        | 24,892  |  
|Effect of exchange rates on cash                                                         |                                                                                         |                                           | 62                                                  |       |               |         | 49            |      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|Net increase in cash                                                                     |                                                                                         |                                           | 7,087                                               |       |               |         | 26,204        |      
|Cash  beginning of fiscal period                                                        |                                                                                         |                                           | 4,685                                               |       |               |         | 815           |      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      
|Cash  end of fiscal period                                                              |                                                                                         | $                                         | 11,772                                              |       |               | $       | 27,019        |      
|                                                                                         |                                                                                         |                                           |                                                     |       |               |         |               |      

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|                                                                                                                   |                             |   |               |     |               |   |         |   | 
|------------------------------------------------------------------------------------------------------------------ | --------------------------- | - | ------------- | --- | ------------- | - | ------- | - | 
|                                                                                                                   |                             |   | Six Months    |     | Six Months   
|                                                                                                                   |                             |   | Ended         |     | Ended        
|                                                                                                                   |                             |   | September 30, |     | September 30,
|                                                                                                                   |                             |   | 2002          |     | 2003         
|                                                                                                                   |                             |   |               |     |              
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                                 |                             |   |               |     |               |   |         |  
|                                                                                                                   |                             |   |               |     |               |   |         |   | 
|SUPPLEMENTAL DISCLOSURE OF
OPERATING ACTIVITIES:                                                                   |                             |   |               |     |               |   |         |  
|Cash paid for interest                                                                                             |                             |   | 2,393         |     |               |   | 4,213   |  
|Cash paid for taxes                                                                                                |                             |   |              |     |               |   | 695     |  
|                                                                                                                   |                             |   |               |     |               |   |         |   | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:                                                          |                             |   |               |     |               |   |         |  
|Acquisition of Shiny Entertainment, Inc.:                                                                          |                             |   |               |     |               |   |         |  
|Fair value of assets acquired                                                                                      |                             | $ | 50,776        |     |               | $ |        |  
|Less: Short-term promissory notes issued to seller and others                                                      |                             |   | 16,059        |     |               |   |        |  
|                                                                                                                   | Assumption of stock options |   |               | 672 |               |   |         |  | 
|                                                                                                                   | Other payments due seller   |   |               | 31  |               |   |         |  | 
|                                                                                                                   | Cash acquired               |   |               | 4   |               |   |         |  | 
|                                                                                                                   |                             |   |               |     |               |   |         |  
|Acquisition, net of cash acquired                                                                                  |                             | $ | 34,010        |     |               | $ |        |  
|                                                                                                                   |                             |   |               |     |               |   |         |  
|Acquisition of Atari license for 2,000 shares of common stock                                                      |                             |   |              |     |               |   | 8,500   |  
|                                                                                                                   |                             |   |               |     |               |   |         |   | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:                                                          |                             |   |               |     |               |   |         |  
|Net debt exchanged to 39,030 shares of common stock:                                                               |                             |   |               |     |               |   |         |  
|Related party debt, revolving credit facility and related party
medium-term loan prior to recapitalization of debt |                             | $ |              |     |               | $ | 212,429 |  
|Less: Offset of advances to related parties against related party debt                                             |                             |   |              |     |               |   | 46,552  |  
|                                                                                                                   |                             |   |               |     |               |   |         |  
|Net debt exchanged to common stock                                                                                 |                             | $ |              |     |               | $ | 165,877 |  
|                                                                                                                   |                             |   |               |     |               |   |         |  
|Assumption of Shiny Entertainment, Inc. employee stock purchase plan                                               |                             |   | 672           |     |               |   |        |  

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

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ATARI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)
(in thousands)

|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |       |  |       |          |   |  |             |       |  |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ------- | ------ |  | ------- | ----- | ----------- |  | ------------- | ------- | ----- |  | ----- | -------- | - |  | ----------- | ----- |  |  | - | -------- | -
|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |       |  |       |          |   |  | Accumulated |       |  |  |  
|                                                                                                                                                                                                |  | Common |         |        |  |         |       | Additional  |  |               |         |       |  | Other |          |   |  |            
|                                                                                                                                                                                                |  | Stock  |         | Common |  | Paid-In |       | Accumulated |  | Comprehensive |         |       |  |      
|                                                                                                                                                                                                |  | Shares |         | Stock  |  | Capital |       | (Deficit)   |  | Income        |         | Total
|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |      
|Balance, July 1, 2002                                                                                                                                                                           |  |        | 69,826  |        |  | $       | 698   |             |  | $             | 485,759 |       |  | $     | (604,921 | ) |  | $           | 3,135 |  |  | $ | (115,329 | )
|Issuance of common stock pursuant to
employee stock purchase plan                                                                                                                               |  |        | 46      |        |  |         |      |             |  |               | 125     |       |  |       |         |   |  |             |      |  |  |   | 125      |  
|Exercise of stock options                                                                                                                                                                       |  |        | 48      |        |  |         | 1     |             |  |               | 115     |       |  |       |         |   |  |             |      |  |  |   | 116      |  
|Issuance of warrants to external developer                                                                                                                                                      |  |        |        |        |  |         |      |             |  |               | 54      |       |  |       |         |   |  |             |      |  |  |   | 54       |  
|Net income                                                                                                                                                                                      |  |        |        |        |  |         |      |             |  |               |        |       |  |       | 18,070   |   |  |             |      |  |  |   | 18,070   |  
|Currency translation adjustment                                                                                                                                                                 |  |        |        |        |  |         |      |             |  |               |        |       |  |       |         |   |  |             | 46    |  |  |   | 46       |  
|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |       |  |       |          |   |  |             |       |  |  |   |          |  
|Balance, March 31, 2003                                                                                                                                                                         |  |        | 69,920  |        |  |         | 699   |             |  |               | 486,053 |       |  |       | (586,851 | ) |  |             | 3,181 |  |  |   | (96,918  | )
|Issuance of common stock pursuant to
employee stock purchase plan                                                                                                                               |  |        | 54      |        |  |         | 1     |             |  |               | 102     |       |  |       |         |   |  |             |      |  |  |   | 103      |  
|Exercise of stock options                                                                                                                                                                       |  |        | 95      |        |  |         | 1     |             |  |               | 439     |       |  |       |         |   |  |             |      |  |  |   | 440      |  
|Net income                                                                                                                                                                                      |  |        |        |        |  |         |      |             |  |               |        |       |  |       | (4,939   | ) |  |             |      |  |  |   | (4,939   | )
|Currency translation adjustment                                                                                                                                                                 |  |        |        |        |  |         |      |             |  |               |        |       |  |       |         |   |  |             | 92    |  |  |   | 92       |  
|Cashless exercise of warrants                                                                                                                                                                   |  |        | 13      |        |  |         |      |             |  |               |        |       |  |       |         |   |  |             |      |  |  |   |         |  
|Issuance of 39,030 common shares as part of the
Companys recapitalization in exchange for cancellation
of related party debt, related party credit facility and
related party medium-term loan |  |        | 39,030  |        |  |         | 390   |             |  |               | 165,487 |       |  |       |         |   |  |             |      |  |  |   | 165,877  |  
|Dividend to parent as part of the recapitalization
of related party debt to common shares                                                                                                       |  |        |        |        |  |         |      |             |  |               | 39,351  |       |  |       | (39,351  | ) |  |             |      |  |  |   |         |  
|Issuance of 2,000 common shares for license of the
Atari name                                                                                                                                   |  |        | 2,000   |        |  |         | 20    |             |  |               | 8,480   |       |  |       |         |   |  |             |      |  |  |   | 8,500    |  
|Issuance of 9,821 common shares in secondary
offering, net of expenses                                                                                                                          |  |        | 9,821   |        |  |         | 98    |             |  |               | 34,902  |       |  |       |         |   |  |             |      |  |  |   | 35,000   |  
|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |       |  |       |          |   |  |             |       |  |  |   |          |  
|Balance, September 30, 2003 (unaudited)                                                                                                                                                         |  |        | 120,933 |        |  | $       | 1,209 |             |  | $             | 734,814 |       |  | $     | (631,141 | ) |  | $           | 3,273 |  |  | $ | 108,155  |  
|                                                                                                                                                                                                |  |        |         |        |  |         |       |             |  |               |         |       |  |       |          |   |  |             |       |  |  |   |          |  

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

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ATARI, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Nature of Business and Other Matters

Atari, Inc., a Delaware corporation (the Company), is a leading
worldwide developer, publisher and distributor of interactive entertainment
software for use on various platforms, including personal computers (PCs),
Sonys PlayStation and PlayStation2, Microsofts Xbox and Nintendos GameCube,
Gameboy and Gameboy Advance. The Company derives its revenues primarily from
the sale of its created, published, licensed and purchased products to mass
merchants, specialty software stores, computer superstores and distributors
located throughout North America and also in various international locations.

On November 12, 2002 (last amended October 13, 2003), the Company obtained
a 30-month $50.0 million secured revolving credit facility (Senior Credit
Facility) with General Electric Capital Corporation (GECC) (Note 8) which
was used to fund the Companys working capital and general corporate needs and
to provide funding to related parties which are wholly-owned by Infogrames
Entertainment SA, a French corporation (Infogrames SA). Infogrames SA owns
approximately 68% of the Company, after the exercise of an underwriters
over-allotment option on October 21, 2003 (Note 10), directly and through its wholly-owned
subsidiaries California U.S. Holdings, Inc. (CUSH) and Atari Interactive,
Inc. (Atari Interactive).

In May 2003, the Company changed its name to Atari, Inc. and changed its
trading symbol on the NASDAQ National Market to ATAR. The Company obtained
rights to use the Atari name through a license from Infogrames SA which
Infogrames SA acquired as part of the acquisition of Hasbro Interactive. The
Company believes that the Atari brand, which is largely credited with launching
the video game industry, continues to carry a level of respect, recognition and
legacy for innovation that will enhance the Companys reputation and improve
consumer recognition of its products. As of May 2003, all of the Companys
products are published, distributed and marketed under the Atari brand.

During September 2003, the Company entered into a series of transactions
to restructure the Companys debt and equity through a recapitalization of debt
and an underwritten secondary public offering of common stock (Offering). In
conjunction with the recapitalization of debt, the Company secured long-term
rights to the Atari name (Atari License).

Recapitalization

On September 4, 2003, the Company, Infogrames SA, and CUSH entered into an
agreement (Recapitalization Agreement) resulting in the exchange of all of
the Companys net related party debt with Infogrames SA and certain of its
wholly-owned subsidiaries totaling $165.9 million, into 39,029,877 shares of
the Companys common stock immediately prior to the Offering. The conversion
price was consistent with the Offering price of $4.25 per share. The converted
debt consisted of the following outstanding amounts at September 18, 2003:
$48.3 million of a medium-term loan, $44.8 million of a revolving credit
agreement with Infogrames SA, $46.3 million of non-interest bearing
subordinated convertible notes and $73.1 million of 5% subordinated convertible
notes. The Recapitalization Agreement provided for an offset of previously
provided advances to Atari Interactive and Atari Australia Pty. Ltd. (Atari
Australia) of $44.7 million and $1.9 million, respectively. Accordingly, at
September 30, 2003, no amounts remain outstanding in Advances to Related
Parties, Current Portion of Related Party Medium-Term Loan, Related Party
Credit Facility and Related Party Debt. Additionally, the balance of the
Senior Credit Facility was fully repaid from the proceeds of the Offering.
Therefore, no debt was outstanding at September 30, 2003.

In connection with the Recapitalization Agreement, the Company issued
stock at a more favorable rate than was required under the original terms of
the 5% subordinated convertible notes. The incremental value of the additional
stock

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issued was reported as a dividend to Infogrames SA for $39.4 million, which had
no impact on total stockholders equity and has been reported as a charge in
computing net income (loss) attributable to common stockholders.

Atari License

In connection with the Recapitalization Agreement, Infogrames SA caused
Atari Interactive to extend the term of the license under which the Company
uses the Atari name to ten years expiring on December 31, 2013. The Company
issued 2,000,000 shares of its common stock to Atari Interactive for the
extended license and will pay a royalty equal to 1% of the Companys net
revenues during years six through ten of the extended license. The Company
recorded a deferred charge of $8.5 million, which is being amortized at the
rate of approximately $0.3 million per month. At September 30, 2003, $3.4
million of this charge is included in Prepaid Expenses and Other Current Assets
with the remaining $5.0 million, net of $0.1 million of amortization, included
in Other Assets.

Offering

On September 24, 2003, the Company offered to the public 9,820,588 new
shares of the Companys common stock at an offering price of $4.25 per share.
The net proceeds to the Company after all costs were $35.0 million. The
Company used $3.9 million of the net proceeds to repay indebtedness outstanding
under its credit facility with GECC. The remaining proceeds will be used to
pay costs of developing video game software, to meet general working capital
needs and, possibly, to acquire development companies or other companies
involved in the development or production of video games, although there are no
current agreements or understandings regarding any acquisitions.

Additionally, on September 24, 2003, Infogrames SA sold 17,179,412 shares
of the Companys common stock as part of the Offering. The Company did not
receive any proceeds from the sale of Infogrames SAs common stock in the
Company. After these transactions and the exercise of an underwriters
over-allotment option on October 21, 2003 (Note 10), Infogrames SA owns approximately 68% of the
Company directly and through its wholly-owned subsidiaries CUSH and Atari
Interactive.

Change in Fiscal Year-End

Effective March 28, 2003, the Company changed its fiscal year-end from
June 30 to March 31. Accordingly, the fiscal period ended September 30, 2003,
represents six months of operations.

Basis of Presentation

The accompanying interim consolidated financial statements of the Company
are unaudited, but in the opinion of management, reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the results for the interim period in accordance with instructions for Form
10-Q. Accordingly, they do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
These interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended March 31, 2003. The
information for March 31, 2003 was derived from audited financial statements.

Principles of Consolidation

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

Revenue Recognition

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

The Company is not contractually obligated to accept returns except for
defective product. However, the Company may permit its customers to return or
exchange product and provides allowances for estimated returns, price
concessions, or other allowances on a negotiated basis. The Company estimates
such returns and allowances based upon managements evaluation of historical
experience, market acceptance of products produced, retailer inventory levels,
budgeted customer

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allowances, the nature of the title and existing commitments to customers.
Such estimates are deducted from gross sales and provided for at the time
revenue is recognized.

Use of Estimates

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

Goodwill and Other Intangible Assets

On June 30, 2001, the Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets was issued. SFAS No. 142
eliminates goodwill amortization over its estimated useful life. However,
goodwill is subject to at least an annual assessment for impairment by applying
a fair-value based test. Additionally, acquired intangible assets are
separately recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible asset can be
sold, transferred, licensed, rented or exchanged, regardless of the Companys
intent to do so. Intangible assets with finite lives are amortized over their
useful lives. The Company adopted SFAS No. 142 effective July 1, 2001. Such
adoption did not result in an impairment of goodwill, based on an assessment of
fair value performed by an independent appraisal company. As of March 31,
2003, the Company has performed its annual fair-value based assessment which
did not result in any impairment of goodwill and intangibles. However, future
changes in the facts and circumstances relating to the Companys goodwill and
other intangible assets could result in an impairment of intangible assets in
subsequent periods.

Other intangible assets approximate $2.1 million and $1.7 million, net of
accumulated amortization of $0.6 million and $1.0 million at March 31, 2003 and
September 30, 2003, respectively.

Fair Values of Financial Instruments

SFAS No. 107, Disclosure About Fair Value of Financial Instruments,
requires certain disclosures regarding the fair value of financial instruments.
Cash, accounts receivable, accounts payable, accrued liabilities, royalties
payable, revolving credit facility, related party credit facilities and amounts
due to and from related parties are reflected in the consolidated financial
statements at fair value because of the short-term maturity of these
instruments.

Long-Lived Assets

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

Research and Development Costs

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

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

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Licenses

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

Reclassifications

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

Income Taxes

The Company files income tax returns in every jurisdiction in which it has
reason to believe it is subject to tax. Historically, the Company has been
subject to examination by various taxing jurisdictions. To date, none of these
examinations has resulted in any material additional tax. Nonetheless, any tax
jurisdiction may contend that a filing position claimed by the Company
regarding one or more of its transactions is contrary to that jurisdictions
laws or regulations. As of September 30, 2003, the Company has combined net
operating loss carryforwards of approximately $438.8 million for federal tax
purposes. These loss carryforwards are available to offset future taxable
income, if any, and will expire beginning in the years 2011 through 2022. In
addition, the amount and expiration of net operation loss carryforwards may
differ for state tax purposes. The Company experienced an ownership change in
1999 as a result of its acquisition by Infogrames SA. Under Section 382 of the
Internal Revenue Code, when there is an ownership change, the
pre-ownership-change loss carryforwards are subject to an annual limitation
which could reduce or defer the utilization of these loses. Pre-acquisition
losses of approximately $203.3 million are subject to an annual limitation
(approximately $7.2 million). The Company monitors the tax liability on a
quarterly basis and records the estimated tax obligation based on our current
year-to-date taxable income.

Net Income (Loss) Attributable to Common Stockholders Per Share

Basic net income (loss) attributable to common stockholders per share is
computed by dividing net income or loss attributable to common stockholders by
the weighted average number of shares of common stock outstanding for the
period. Diluted net income (loss) attributable to common stockholders per share
reflects the potential dilution that could occur from shares of common stock
issuable through stock-based compensation plans including stock options,
restricted stock awards, warrants using the treasury stock method and other
convertible securities. 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 net income (loss) attributable to common stockholders
per share calculation for the three months and six months ended September 30,
2003. For the three months and six months ended September 30, 2002, all shares
exercisable under stock-based compensation plans and exercisable warrants are
dilutive and, therefore, have been considered in the diluted net income (loss)
attributable to common stockholders per share calculation. However, as the
convertible debt would be anti-dilutive, it has not been considered in the
diluted net income (loss) attributable to common stockholders per share
calculation for the three months and six months ended September 30, 2002.

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The following is an analysis of the difference between the shares used in
basic and diluted net income (loss) attributable to common stockholders per
share (in thousands, except per share data):

|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |   |  | 
|------------------------------------------------- | ----------------------------------------------------------------------- |  | - | ------ | ------------- |  | ------------- | ------- | ---- |  | ---- | ------ |  |  | - | ------- | - |  | 
|                                                  |                                                                         |  |   |        | Three Months  |  | Six Months   
|                                                  |                                                                         |  |   |        | Ended         |  | Ended        
|                                                  |                                                                         |  |   |        | September 30, |  | September 30,
|                                                  |                                                                         |  |   |        | 2002          |  | 2003          |         | 2002 |  | 2003
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |     
|Basic and diluted earnings per share calculation: |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |        
|                                                  | Net income (loss)                                                       |  | $ | 731    |               |  | $             | (28,731 | )    |  | $    | 22     |  |  | $ | (4,939  | )
|                                                  | Dividend to parent                                                      |  |   |       |               |  |               | (39,351 | )    |  |      |       |  |  |   | (39,351 | )
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Net income (loss) attributable to common
stockholders                   |  | $ | 731    |               |  | $             | (68,082 | )    |  | $    | 22     |  |  | $ | (44,290 | )
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Weighted average shares outstanding                                     |  |   | 69,826 |               |  |               | 75,594  |      |  |      | 69,826 |  |  |   | 72,800  |  
|                                                  | Basic net income (loss) attributable to
common stockholders per share   |  | $ | 0.01   |               |  | $             | (0.90   | )    |  | $    | 0.00   |  |  | $ | (0.61   | )
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Weighted average shares outstanding                                     |  |   | 69,826 |               |  |               | 75,594  |      |  |      | 69,826 |  |  |   | 72,800  |  
|                                                  | Dilutive potential common shares:                                       |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Employee stock options and warrants                                     |  |   | 126    |               |  |               |        |      |  |      | 135    |  |  |   |        |  
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Diluted weighted average shares outstanding                             |  |   | 69,952 |               |  |               | 75,594  |      |  |      | 69,961 |  |  |   | 72,800  |  
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  
|                                                  | Diluted net income (loss) attributable to
common stockholders per share |  | $ | 0.01   |               |  | $             | (0.90   | )    |  | $    | 0.00   |  |  | $ | (0.61   | )
|                                                  |                                                                         |  |   |        |               |  |               |         |      |  |      |        |  |  |   |         |  

The number of antidilutive shares that were excluded from the diluted
earnings per share calculation for the three months and six months ended
September 30, 2002 was approximately 10,000,000 for both periods. The number of
antidilutive shares that were excluded from the diluted earnings per share
calculation for the three months and six months ended September 30, 2003 was
approximately 9,100,000 and 9,700,000, respectively.

Stock-Based Compensation

The Company accounts for employee stock option plans under the intrinsic
value method proscribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations. Any
equity instruments issued other than to employees for acquiring goods and
services are accounted for using fair value at the date of grant.

In fiscal 2003, the Company adopted the disclosure provisions of Financial
Accounting Standards Board (FASB) Statement No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment to FASB
Statement No. 123, which provides alternative methods of transition for a
voluntary change to the fair-value-based method of accounting for stock-based
employee compensation. The Statement also amends the disclosure requirements
of FASB No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
compensation and the effect of the methods used on reported results.

At September 30, 2003, the Company had three stock option plans. No
compensation cost is reflected in net income (loss), as all options granted
under those plans generally have an exercise price equal to the market value of
the underlying common stock on the date of grant. The following table
illustrates the effect on the net income (loss) and income (loss) per share if
the Company had applied the fair value recognition provisions of the FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation (in thousands, except per share data):

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|                             |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |         |  
|---------------------------- | ----------------------------------------------------------------------------------------- |  | ------------- | ----- | ------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                             |                                                                                           |  | Three Months  |       | Six Months   
|                             |                                                                                           |  | Ended         |       | Ended        
|                             |                                                                                           |  | September 30, |       | September 30,
|                             |                                                                                           |  | 2002          |       | 2003          |  | 2002 |         | 2003
|                             |                                                                                           |  |               |       |               |  |      |         |     
|Net income (loss):           |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |        
|                             | Basic and diluted  as reported                                                           |  | $             | 731   |               |  | $    | (28,731 | )    |  | $ | 22     |   |  | $ | (4,939  | )
|                             | Less: Fair value of
stock-based employee
compensation expense, net of
related tax effects |  |               | 1,386 |               |  |      | 1,431   |      |  |   | 2,927  |   |  |   | 2,854   |  
|                             |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |         |  
|                             | Basic and diluted - pro forma
net loss                                                    |  |               | (655  | )             |  |      | (30,162 | )    |  |   | (2,905 | ) |  |   | (7,793  | )
|                             | Dividend to parent                                                                        |  |               |      |               |  |      | (39,351 | )    |  |   |       |   |  |   | (39,351 | )
|                             |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |         |  
|                             | Basic and diluted - pro forma
net loss attributable to common
stockholders                |  | $             | (655  | )             |  | $    | (69,513 | )    |  | $ | (2,905 | ) |  | $ | (47,144 | )
|                             |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |         |  
|Net income (loss) per share: |                                                                                           |  |               |       |               |  |      |         |      |  |   |        |   |  |   |        
|                             | Basic and diluted attributable
to common
stockholders  as reported                       |  | $             | 0.01  |               |  | $    | (0.90   | )    |  | $ | 0.00   |   |  | $ | (0.61   | )
|                             | Basic and diluted attributable
to common
stockholders - pro forma                         |  | $             | (0.01 | )             |  | $    | (0.92   | )    |  | $ | (0.04  | ) |  | $ | (0.65   | )

The fair market value of options granted under stock option plans during
the three months and six months ended September 30, 2002 and 2003 was
determined using the Black-Scholes option pricing model utilizing the following
assumptions:

|                                         |  |               |       |               |  |      |       |      |  |   |       |   |  |   |       |  
|---------------------------------------- |  | ------------- | ----- | ------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                         |  | Three Months  |       | Six Months   
|                                         |  | Ended         |       | Ended        
|                                         |  | September 30, |       | September 30,
|                                         |  | 2002          |       | 2003          |  | 2002 |       | 2003
|                                         |  |               |       |               |  |      |       |     
|Dividend yield                           |  |               | 0     | %             |  |      | 0     | %    |  |   | 0     | % |  |   | 0     | %
|Anticipated volatility                   |  |               | 95    | %             |  |      | 127   | %    |  |   | 95    | % |  |   | 122   | %
|Weighted average risk-free interest rate |  |               | 4.51  | %             |  |      | 2.75  | %    |  |   | 4.51  | % |  |   | 2.68  | %
|Expected lives                           |  | 4             | years |               |  | 4    | years |      |  | 4 | years |   |  | 4 | years |  

Recent Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51. FIN 46 addresses
consolidation by business enterprises of variable interest entities (formerly
special purpose entities or SPEs). In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. The objective of FIN 46 is not to
restrict the use of variable interest entities but to improve financial
reporting by companies involved with variable interest entities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. The consolidation requirements of FIN 46 apply to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. However, in October 2003, the FASB permitted
companies to defer the effective date from July 1, 2003 to December 31, 2003,
in whole or in part, and has issued a proposed amendment to this interpretation
before December 31, 2003. The Company does not expect that the adoption of
this standard will have a material impact on the Companys financial condition
or results of operations.

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In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS No.
133, by requiring that contracts with comparable characteristics be accounted
for in a similar fashion. In particular, the Statement: (1) clarifies under
what circumstances a contract with an initial net investment meets the
characteristic of a derivative discussed in paragraph 6(b) of Statement 133;
(2) clarifies when a derivative contains a financing component; (3) amends the
definition of an underlying to conform it to language used in FIN No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others; and (4) amends certain other
existing pronouncements. This Statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. The Company does not have any derivative instruments as
defined in SFAS No. 149. Accordingly, this pronouncement is currently not
applicable to the Company.

In May 2003, the FASB issued SFAS No. 150, Accounting for Financial
Instruments with the Characteristics of Both Liabilities and Equities. SFAS
No. 150 establishes standards regarding the manner in which an issuer
classifies and measures certain types of financial instruments having
characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such
freestanding financial instruments (i.e., those entered into separately from an
entitys other financial instruments or equity transactions or that are legally
detachable and separately exercisable) must be classified as liabilities or, in
some cases, assets. In addition, SFAS No. 150 requires that financial
instruments containing obligations to repurchase the issuing entitys equity
shares and, under certain circumstances, obligations that are settled by
delivery of the issuers shares be classified as liabilities. The Statement is
effective for financial instruments entered into or modified after May 31, 2003
and for other instruments at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this new principle did not have
a material impact on the Companys financial condition or results of
operations.

NOTE 2  SHINY ACQUISITION

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

The purchase price paid by the Company for the shares of Shiny consisted
of (i) $31.0 million in cash at closing, (ii) the issuance of short-term
promissory notes for an aggregate principal face amount of $16.2 million
payable by the Company in installments through July 31, 2002, (iii) $2.0
million paid to third-party licensors, (iv) assumption of employee stock
options granted to purchase shares of Shiny valued at $0.7 million and (v)
approximately $0.9 million in professional and legal costs. The Company
financed the purchase with borrowings from Infogrames SA, under a medium-term
loan (Note 8), which guaranteed repayments of the short-term promissory notes.
As of September 30, 2003, no amount remained outstanding of the medium-term
loan (Note 1).

NOTE 3  RECEIVABLES, NET

Receivables consist of the following (in thousands):

|                                                                                                  |  |           |         |               |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | --------- | ------- | ------------- |  | - | ------- | -
|                                                                                                  |  | March 31, |         | September 30,
|                                                                                                  |  | 2003      |         | 2003         
|                                                                                                  |  |           |         |              
|Trade accounts receivable                                                                         |  | $         | 87,372  |               |  | $ | 73,673  |  
|Less: Allowances for bad debts, returns, price protection and other
customer promotional programs |  |           | (40,319 | )             |  |   | (42,528 | )
|                                                                                                  |  |           |         |               |  |   |         |  
|                                                                                                  |  | $         | 47,053  |               |  | $ | 31,145  |  
|                                                                                                  |  |           |         |               |  |   |         |  

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NOTE 4  INVENTORIES, NET

Inventories consist of the following (in thousands):

|                           |  |           |        |               |  |   |        |  
|-------------------------- |  | --------- | ------ | ------------- |  | - | ------ | -
|                           |  | March 31, |        | September 30,
|                           |  | 2003      |        | 2003         
|                           |  |           |        |              
|Finished goods             |  | $         | 38,721 |               |  | $ | 34,140 |  
|Return inventory           |  |           | 2,786  |               |  |   | 3,006  |  
|Raw materials              |  |           | 1,223  |               |  |   | 934    |  
|                           |  |           |        |               |  |   |        |  
|                           |  |           | 42,730 |               |  |   | 38,080 |  
|Less: Obsolescence reserve |  |           | (4,903 | )             |  |   | (2,714 | )
|                           |  |           |        |               |  |   |        |  
|                           |  | $         | 37,827 |               |  | $ | 35,366 |  
|                           |  |           |        |               |  |   |        |  

NOTE 5  ADVANCES TO RELATED PARTIES

Advances to Atari Interactive

The GECC Senior Credit Facility allows the Company to make advances (up to
a maximum of $45 million) to Atari Interactive through related party loans.
This related party loan bears interest at prime plus 150 basis points and, prior to the
Recapitalization Agreement, was repayable from distribution royalties owed by
the Company to Atari Interactive in the ordinary course of operations.
Additionally, normal trade payables to Atari Interactive are netted against the
loan balance outstanding when the invoices become due (generally in 45 days).
At March 31, 2003, loans due from Atari Interactive were $30.5 million.

As part of the Recapitalization Agreement, Atari Interactive, Infogrames
SA and the Company agreed to offset the amount due from Atari Interactive for
advances, loans and current accounts receivable against amounts due under the
$50.0 million principal amount of non-interest bearing subordinated convertible
notes and the 5% subordinated convertible notes to Infogrames SA. As of
September 18, 2003, the Company had approximately $44.7 million due from Atari
Interactive that was offset against the balance outstanding of the $50.0
million principal amount of non-interest bearing subordinated convertible
notes. No balance remains outstanding as of September 30, 2003.

For the six months ended September 30, 2003, the Company recognized
interest income on the advances of approximately $1.1 million, of which no
amount remained outstanding at September 30, 2003.

Advances to Atari Australia

The Companys Australian operations have earned distribution revenues and
incurred management fees from Atari Australia, a wholly-owned subsidiary of
Infogrames SA. As of March 31, 2003, the Company had approximately $1.7
million outstanding from Atari Australia.

As part of the Recapitalization Agreement, Infogrames SA and the Company
agreed to offset the outstanding receivable balance owed from Atari Australia
against amounts due under the $50.0 million principal amount of non-interest
bearing subordinated convertible notes and the 5% subordinated convertible
notes owed to Infogrames SA. As of September 18, 2003, the Company had
approximately $1.9 million outstanding from Atari Australia that was offset
against the outstanding balance of the $50.0 million principal amount of
non-interest bearing subordinated convertible notes and the 5% subordinated
convertible notes. No balance remains outstanding as of September 30, 2003.

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NOTE 6  ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

|                                             |  |           |        |               |  |   |        | 
|-------------------------------------------- |  | --------- | ------ | ------------- |  | - | ------ | 
|                                             |  | March 31, |        | September 30,
|                                             |  | 2003      |        | 2003         
|                                             |  |           |        |              
|Accrued advertising                          |  | $         | 1,769  |               |  | $ | 1,691  | 
|Accrued professional fees and other services |  |           | 1,696  |               |  |   | 2,154  | 
|Accrued salary and related costs             |  |           | 8,944  |               |  |   | 9,113  | 
|Accrued freight and processing fees          |  |           | 1,207  |               |  |   | 1,132  | 
|Accrued third-party development expenses     |  |           | 4,826  |               |  |   | 3,417  | 
|Accrued distribution services                |  |           | 8,134  |               |  |   | 8,786  | 
|Other                                        |  |           | 5,296  |               |  |   | 6,344  | 
|                                             |  |           |        |               |  |   |        | 
|                                             |  | $         | 31,872 |               |  | $ | 32,637 | 
|                                             |  |           |        |               |  |   |        | 

NOTE 7  Commitments and Contingencies

Litigation

During the six months ended September 30, 2003, no significant claims were
asserted against or by the Company that in managements opinion the likely
resolution of which would have a material adverse affect on the Companys
liquidity, financial condition or results of operations, although the Company
is involved in various legal actions arising in the ordinary course of
business. The following litigation matters are still pending, however, and the
Company continues to believe that the underlying complaints are without merit
and intends to defend itself vigorously against these actions.

The Companys management believes that the ultimate resolution of any of
the actions summarized below or any other actions which are not specifically
described herein will not have a material adverse effect on the Companys
liquidity, financial condition or results of operations.

KBK

On September 16, 2002, Knight Bridging Korea Co., Ltd. (KBK), a
distributor of electronic games via the Internet and local area networks, filed
a lawsuit against Gamesonline.com, Inc. (Gamesonline), a subsidiary of
Interplay Entertainment Corp., and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered
into a contract with Gamesonline to obtain the right to localize (i.e., right
to translate games into the local language of the country where the games are
distributed) and to distribute games electronically in Korea, of Neverwinter
Nights and certain games which were previously released. The complaint further
alleges that Gamesonline and the Company conspired to prevent KBK from entering
the market with Neverwinter Nights or any previously released games of
Gamesonline. The complaint alleges the following causes of action against the
Company: misappropriation of trade secrets under the California Uniform Trade
Secrets Act; common law misappropriation; intentional interference with
contract; negligent interference with contract; intentional interference with
prospective economic advantage; negligent interference with prospective
economic advantage; and violation of Business & Professions Code Section 17200
et seq. The complaint seeks $98.8 million for each of these causes of action.
An amended complaint was filed on December 3, 2002, alleging all of the
foregoing against the Company, adding Atari Interactive (formerly known as
Infogrames Interactive, Inc.) as a named defendant, and alleging that Company
managed and directed Atari Interactive to engage in the foregoing alleged acts.
The Company and Atari Interactive filed answers on January 9, 2003. On or
about January 28, 2003, Gamesonline answered the original complaint and served
a cross-complaint against KBK. On April 29, 2003, KBK named as defendants
Infogrames Asia Pacific, Infogrames Korea, and Interplay, Inc..
Discovery is ongoing.

Interplay

On September 19, 2003, Interplay Entertainment Corp. (Interplay)
commenced a wrongful termination and breach of contract action (the Action)
in New York State Supreme Court, New York County in which it named Atari
Interactive and the Company as defendants, seeking, among other things, a
judgment declaring that a computer game license agreement between Interplay and
Atari Interactive continues to be in full force and effect.

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On September 23, 2003, Interplay obtained a preliminary injunction that
prevents termination of the computer game license agreement. On October 9,
2003, Atari Interactive answered the complaint, denying all claims, asserting
several affirmative defenses and counterclaims for breach of contract and one
counterclaim for a judgment declaring the computer game license agreement
terminated. Atari Interactives answer also asserts that the Company was
incorrectly named as the defendant in this Action. Both sides have sought
damages in an amount to be determined at trial. Preliminary discovery in this
Action has just commenced.

NOTE 8  DEBT

Credit Facilities

GECC Senior Credit Facility

On November 12, 2002 (last amended October 13, 2003), the Company obtained
a 30-month $50.0 million Senior Credit Facility with GECC to fund the Companys
working capital and general corporate needs, as well as to fund advances to
Paradigm Entertainment Inc. (Paradigm) and Atari Interactive, each a related
party. Loans under the Senior Credit Facility are based on a borrowing base
comprised of the value of the Companys accounts receivable and short term
marketable securities. The Senior Credit Facility bears interest at prime plus
1.25% for daily borrowings or LIBOR plus 3% for borrowings with a maturity of
30 days or greater. A commitment fee of 0.5% on the average unused portion of
the facility is payable monthly and the Company paid $0.6 million as an initial
commitment fee at closing. The Senior Credit Facility contains certain
financial covenants and names certain related entities, such as Atari
Interactive and Paradigm, as guarantors. In addition, amounts outstanding
under the Senior Credit Facility are secured by the Companys assets. At
September 30, 2003, all outstanding borrowings have been fully repaid (Note 1)
and $8.7 million of letters of credit were outstanding. As of September 30,
2003, accrued interest was minimal and the Company was in compliance with all
financial covenants.

Infogrames SA credit facilities and debt with the Company

Credit Agreement

The Company maintained a revolving credit agreement with Infogrames SA
(the Credit Agreement) which provides for an aggregate commitment of $75.0
million which bears interest at LIBOR plus 2.5%. Effective December 31, 2002,
the maturity date of the Credit Agreement was extended to April 1, 2004. This
agreement requires that the Company comply with certain financial covenants
and, among other items, restricts capital expenditures. As of September 30,
2003, all outstanding borrowings have been exchanged for 10,541,105
newly issued common shares under the
terms of the Recapitalization Agreement and the facility has been terminated.
As of September 30, 2003, accrued interest and fees that remain outstanding
were approximately $0.8 million and are included in current amounts due to
related parties.

Medium-Term Loan

In connection with the Shiny Acquisition, the Company obtained a $50.0
million medium-term loan from Infogrames SA. Interest is based on the three
month LIBOR rate plus 2.75% and payable on a quarterly basis, in arrears. An
unused commitment fee of 0.50% per annum is based on the aggregate amount of
the facility less outstanding loans. As of September 30, 2003, all outstanding
borrowings have been exchanged for 11,359,319 newly issued common
shares under the terms of the
Recapitalization Agreement and this facility has been terminated.
Additionally, as of September 30, 2003 accrued interest was approximately $0.6
million and is included in current amounts due to related parties.

Long-Term Related Party Debt

0% Notes

In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to General Atlantic Partners, LLC (GAP) the $50.0 million
principal amount of non-interest bearing subordinated convertible notes (0%
Notes) in exchange for 600,000 shares of Series A Preferred Stock and $20.0
million of subordinated notes of the Company. The 0% Notes mature in December
2004 and will have a redemption value of $50.0 million at maturity. In lieu of
payment at

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maturity, the 0% Notes may be converted at any time into shares of the
Companys common stock at $20.00 per share. On December 28, 2001, Infogrames
SA assumed the 0% Notes from GAP in exchange for shares of Infogrames SA common
stock. Infogrames SA has not changed any of the terms of the 0% Notes (renamed
the Infogrames SA 0% subordinated convertible note) as they relate to the
Company. Interest on the Infogrames SA 0% subordinated convertible note
accretes at the rate of 7% per annum.

Under the terms of the September 4, 2003 Recapitalization Agreement, the
Infogrames SA 0% subordinated convertible note has been fully offset against
the advances to related parties (Note 1). As of September 30, 2003, this note
was terminated and no balance remains outstanding.

5% Notes

In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to CUSH, 5% subordinated convertible notes (5% CUSH Notes) in
exchange for $25.0 million in cash and $35.6 million in debt and accrued
interest. The 5% CUSH Notes mature in December 2004 and have a principal
amount of $60.6 million. In lieu of payment at maturity, the 5% CUSH Notes may
be converted at any time into shares of the Companys common stock at $9.25 per
share.

Under the terms of the September 4, 2003 Recapitalization Agreement, the
5% CUSH Notes, net of the remaining advances to related parties (Note 1), have
been fully converted to 17,129,453 of the Companys
newly issued common shares at a
fair-market value of $4.25 per share. The common shares issued by the Company
were at a more favorable rate than that required under the original terms of
the 5% CUSH Notes. The resulting incremental value of the additional stock
issued was recorded as a dividend to Infogrames SA of $39.4 million (Note 1).

In September 2003, the Company expensed the full $1.3 million remaining
deferred financing fees outstanding related to the Infogrames SA 0%
subordinated convertible note and the 5% CUSH Notes as a result of the
Recapitalization Agreement.

NOTE 9  OPERATIONS BY REPORTABLE SEGMENTS

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

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

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

The following unaudited summary represents the consolidated net revenues,
operating income (loss), depreciation and amortization and interest by
reportable segment for the three months and six months ended September 30, 2002
and 2003 (in thousands):

|                                       |                               |  |            |        |              |  |           |        |       |  |   |        |   |  |   |         |  
|-------------------------------------- | ----------------------------- |  | ---------- | ------ | ------------ |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                       |                               |  | Publishing |        | Distribution |  | Corporate |        | Total
|                                       |                               |  |            |        |              |  |           |        |      
|Three months ended September 30, 2002: |                               |  |            |        |              |  |           |        |       |  |   |        |   |  |   |        
|                                       | Net revenues                  |  | $          | 83,639 |              |  | $         | 25,728 |       |  | $ |       |   |  | $ | 109,367 |  
|                                       | Operating income (loss)       |  |            | 3,503  |              |  |           | 5,727  |       |  |   | (5,734 | ) |  |   | 3,496   |  
|                                       | Depreciation and amortization |  |            | (1,119 | )            |  |           | (142   | )     |  |   | (814   | ) |  |   | (2,075  | )
|                                       | Interest, net                 |  |            |       |              |  |           | 17     |       |  |   | (3,269 | ) |  |   | (3,252  | )

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|                                       |                               |  |            |         |              |  |           |        |       |  |   |         |   |  |   |         |  
|-------------------------------------- | ----------------------------- |  | ---------- | ------- | ------------ |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                                       |                               |  | Publishing |         | Distribution |  | Corporate |        | Total
|                                       |                               |  |            |         |              |  |           |        |      
|Three months ended September 30, 2003: |                               |  |            |         |              |  |           |        |       |  |   |         |   |  |   |        
|                                       | Net revenues                  |  | $          | 45,009  |              |  | $         | 15,566 |       |  | $ |        |   |  | $ | 60,575  |  
|                                       | Operating (loss) income       |  |            | (20,549 | )            |  |           | 2,451  |       |  |   | (7,338  | ) |  |   | (25,436 | )
|                                       | Depreciation and amortization |  |            | (962    | )            |  |           | (7     | )     |  |   | (1,027  | ) |  |   | (1,996  | )
|                                       | Interest, net                 |  |            |        |              |  |           | 6      |       |  |   | (3,722  | ) |  |   | (3,716  | )
|Six months ended September 30, 2002:   |                               |  |            |         |              |  |           |        |       |  |   |         |   |  |   |        
|                                       | Net revenues                  |  | $          | 191,941 |              |  | $         | 47,029 |       |  | $ |        |   |  | $ | 238,970 |  
|                                       | Operating income (loss)       |  |            | 15,377  |              |  |           | 8,322  |       |  |   | (11,606 | ) |  |   | 12,093  |  
|                                       | Depreciation and amortization |  |            | (2,014  | )            |  |           | (286   | )     |  |   | (1,694  | ) |  |   | (3,994  | )
|                                       | Interest, net                 |  |            | (58     | )            |  |           | 45     |       |  |   | (7,309  | ) |  |   | (7,322  | )
|Six months ended September 30, 2003:   |                               |  |            |         |              |  |           |        |       |  |   |         |   |  |   |        
|                                       | Net revenues                  |  | $          | 180,609 |              |  | $         | 31,324 |       |  | $ |        |   |  | $ | 211,933 |  
|                                       | Operating income (loss)       |  |            | 10,209  |              |  |           | 5,697  |       |  |   | (13,684 | ) |  |   | 2,222   |  
|                                       | Depreciation and amortization |  |            | (1,915  | )            |  |           | (183   | )     |  |   | (1,848  | ) |  |   | (3,946  | )
|                                       | Interest, net                 |  |            |        |              |  |           | 21     |       |  |   | (6,783  | ) |  |   | (6,762  | )

NOTE 10  SUBSEQUENT EVENT

Offering Over-Allotment Option

On October 21, 2003, the underwriters of the Companys secondary public
offering occurring on September 24, 2003, exercised their over-allotment
option, purchasing 3,855,400 shares at a purchase price of $4.25 per share.
The option shares were purchased from Infogrames SA, reducing Infogrames SAs
direct and indirect ownership to approximately 68% of the Company. The
Company did not receive any of the proceeds from the exercise of the
over-allotment option.

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

This document includes statements that may constitute forward-looking
statements made pursuant to the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company would like to caution
readers regarding certain forward-looking statements in this document and in
all of its communications to stockholders and others, press releases,
securities filings, and all other documents and communications. Statements
that are based on managements projections, estimates and assumptions are
forward-looking statements. The words believe, expect, anticipate,
intend, will, should, may and similar expressions generally identify
forward-looking statements. While the Company believes in the veracity of all
statements made herein, forward-looking statements are necessarily based upon a
number of estimates and assumptions that, while considered reasonable by the
Company, are inherently subject to significant business, economic and
competitive uncertainties and contingencies and known and unknown risks. Many
of the uncertainties and contingencies can affect events and the Companys
actual results and could cause its actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company. Some of the factors that could cause actual results or future events
to differ materially or otherwise, include the following: the loss of key
customers, such as Wal-Mart, Best Buy, Target or Toys R Us; fluctuations in
the Companys quarterly net revenues and results of operations based on the
seasonality of our industry; delays in product development and related product
release schedules; maintaining relationships with leading independent video
game software developers; adapting to the rapidly changing industry technology,
including new console technology; maintaining or acquiring licenses to
intellectual property; the termination or modification of our agreements with
hardware manufacturers; an inability to find suitable acquisition candidates or
equity or debt financing on terms commercially reasonable to the Company;
pricing of and demand for distributed products; inability to collect
outstanding accounts and notes receivable when due or within a reasonable
period of time thereafter; the actions of competitors with greater financial
resources; economic and market factors, and other factors. Please see the
Risk Factors in the Companys Registration Statement
on Form S-2 on file with the
Securities and Exchange Commission for a description of some, but not all,
risks, uncertainties and contingencies. Except as otherwise required by the
applicable securities laws, the Company disclaims any intention or obligation
publicly to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

The Company is a leading global publisher and developer of video game
software for both gaming enthusiasts and the mass-market audience.

Development, publishing and distribution of video game software are the
Companys major activities. Development activities include development of
games by both internal and external development studios. Internal studios are
studios owned and/or managed by us for the sole purpose of game development and
external development studios are independent studios with which the Company or
Infogrames SA and its subsidiaries have contracts for the development of
specific titles. The Companys publishing activities include overseeing
development, sales, marketing and packaging of video game software.
Distribution activities primarily include the sale of games produced by other
publishers (Third-Party Products).

The video game software industry has experienced an increased rate of
change and complexity in the technological innovations of video game hardware
and software. In addition to these technological innovations, there has been
greater competition for shelf space and creative talent as well as increased
buyer selectivity. As a result, the video game industry has become
increasingly hit-driven, which has led to higher per game production budgets,
longer and more complex development processes, 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 process, have
increased the need for disciplined product development processes that limit
cost and overruns. This, in turn, has increased the importance of leveraging
the technologies, characters or storylines of existing hit titles into
additional video game software franchises in order to spread development costs
among multiple products. In this environment, the Company is determined to
achieve balances between internal and external development, and licensed and
proprietary products.

The distribution channels for interactive software have expanded
significantly in recent years. Consumers have access to interactive software
through a variety of outlets, including mass-merchant retailers such as
Wal-Mart and Target; major retailers, such as Best Buy, CompUSA, and Toys R
Us; and specialty stores such as Electronics Boutique and GameStop.
Additionally, the Companys games are made available through various Internet
and on-line networks. Our sales to key customers Wal-Mart, Best Buy, and
Target accounted for approximately 24.1%, 9.9%, and 9.0%, respectively, of net
revenues for the six months ended September 30, 2003.

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Recapitalization and Offering

During the second quarter of fiscal 2004, the Company completed a
recapitalization through the issuance of new shares pursuant to an agreement
with its majority stockholder, Infogrames SA and a public offering. Per the
agreement with Infogrames SA, on September 18, 2003, the Company, among other
things, issued an aggregate of 39,029,877 shares of its common stock, valued at
$4.25 per share, to Infogrames SA and its wholly-owned subsidiary CUSH, in
satisfaction of approximately $165.9 million of the Companys net indebtedness
to Infogrames SA. On September 24, 2003, Infogrames SA sold 17,179,412 of such
shares at $4.25 per share in a public offering. The Company also sold 9,820,588
new shares of its common stock in the public offering at $4.25 per share,
generating net proceeds to the Company of approximately $35.0 million.

After these transactions and the exercise of the underwriters
over-allotment option on October 21, 2003, Infogrames SA owns approximately 68% of the Company
directly and through its wholly-owned subsidiaries CUSH and Atari Interactive.

Critical accounting policies

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

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

Sales returns, price protection, other customer related allowances and
allowance for doubtful accounts

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

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

For the three months ended September 30, 2002 and 2003, the Company
recorded allowances for bad debts, returns, price protection and other customer
promotional programs of approximately $21.0 million and $19.4 million,
respectively. For the six months ended September 30, 2002 and 2003, the
Company recorded allowances for bad debts, returns, price protection and other
customer promotional programs of approximately $49.6 million and $50.9 million,
respectively. As of March 31, 2003 and September 30, 2003, the aggregate
reserves against accounts receivables for bad debts, returns, price protection
and other customer promotional programs were approximately $40.3 million and
$42.5 million, respectively.

Inventories

The Company writes down its inventories for estimated slow-moving or
obsolete inventories equal to the difference between the cost of inventories
and estimated market value based upon assumed market conditions. If actual
market

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conditions are less favorable than those assumed by management, additional
inventory write-downs may be required. For the three months ended September
30, 2002 and 2003, the Company recorded obsolescence expense of approximately
$0.5 million and $0.2 million, respectively. For the six months ended September
30, 2002 and 2003, the Company recorded obsolescence expense of approximately
$2.2 million and $0.6 million, respectively. As of March 31, 2003 and September
30, 2003, the aggregate reserve against inventories was approximately $4.9
million and $2.7 million, respectively.

External developer royalty advances and milestone payments

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

Income taxes

The Company files income tax returns in every jurisdiction in which it has
reason to believe it is subject to tax. Historically, the Company has been
subject to examination by various taxing jurisdictions. To date, none of these
examinations has resulted in any material additional tax. Nonetheless, any tax
jurisdiction may contend that a filing position claimed by the Company
regarding one or more of its transactions is contrary to that jurisdictions
laws or regulations. As of September 30, 2003, the Company has combined net
operating loss carryforwards of approximately $438.8 million for federal tax
purposes. These loss carryforwards are available to offset future taxable
income, if any, and will expire beginning in the years 2011 through 2022. In
addition, the amount and expiration of net operation loss carryforwards may
differ for state tax purposes. The Company experienced an ownership change in
1999 as a result of its acquisition by Infogrames SA. Under Section 382 of the
Internal Revenue Code, when there is an ownership change, the
pre-ownership-change loss carryforwards are subject to an annual limitation
which could reduce or defer the utilization of these loses. Pre-acquisition
losses of approximately $203.3 million are subject to an annual limitation
(approximately $7.2 million). The Company monitors the tax liability on a
quarterly basis and records the estimated tax obligation based on our current
year-to-date taxable income.

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Results of operations

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

|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |       |   | 
|----------------------------------------- | -------------------------------------------------------------- |  | ----- | ------------- |  | ------------- | ----- | ------ | - | ---- | ----- | ---- |  |  | ----- | ----- | - | 
|                                          |                                                                |  |       | Three Months  |  | Six Months   
|                                          |                                                                |  |       | Ended         |  | Ended        
|                                          |                                                                |  |       | September 30, |  | September 30,
|                                          |                                                                |  |       |               |  |              
|                                          |                                                                |  |       | 2002          |  | 2003          |       | 2002   |   | 2003
|                                          |                                                                |  |       |               |  |               |       |        |   |     
|Net revenues                              |                                                                |  | 100.0 | %             |  |               | 100.0 | %      |   |      | 100.0 | %    |  |  | 100.0 | %    
|Cost of goods sold                        |                                                                |  | 49.3  |               |  |               | 62.6  |        |   |      | 47.7  |      |  |  | 51.3  |      
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      
|                                          | Gross profit                                                   |  |       | 50.7          |  |               |       | 37.4   |   |      |       | 52.3 |  |  |       | 48.7  |  
|Selling and distribution expenses         |                                                                |  | 17.9  |               |  |               | 22.8  |        |   |      | 17.3  |      |  |  | 16.0  |      
|General and administrative expenses       |                                                                |  | 7.5   |               |  |               | 14.4  |        |   |      | 6.9   |      |  |  | 8.2   |      
|In-process research and development       |                                                                |  |      |               |  |               |      |        |   |      | 3.1   |      |  |  |      |      
|Research and development                  |                                                                |  | 20.2  |               |  |               | 38.9  |        |   |      | 18.2  |      |  |  | 21.6  |      
|Depreciation and amortization             |                                                                |  | 1.9   |               |  |               | 3.3   |        |   |      | 1.7   |      |  |  | 1.9   |      
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      
|                                          | Operating
income (loss)                                        |  |       | 3.2           |  |               |       | (42.0  | ) |      |       | 5.1  |  |  |       | 1.0   |  
|Interest expense, net                     |                                                                |  | 3.0   |               |  |               | 6.1   |        |   |      | 3.1   |      |  |  | 3.2   |      
|Other income (expense)                    |                                                                |  | 0.5   |               |  |               | (0.9  | )      |   |      | (1.3  | )    |  |  | (0.1  | )    
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      
|                                          | Income (loss) before provision for (benefit
from) income taxes |  |       | 0.7           |  |               |       | (49.0  | ) |      |       | 0.7  |  |  |       | (2.3  | )
|Provision for (benefit from) income taxes |                                                                |  |      |               |  |               | (1.6  | )      |   |      | 0.7   |      |  |  |      |      
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      
|                                          | Net income (loss)                                              |  |       | 0.7           |  |               |       | (47.4  | ) |      |       | 0.0  |  |  |       | (2.3  | )
|Dividend to parent                        |                                                                |  |      |               |  |               | (65.0 | )      |   |      |      |      |  |  | (18.6 | )    
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      
|                                          | Net income (loss) attributable to common
stockholders          |  |       | 0.7           |  |               |       | (112.4 | ) |      |       | 0.0  |  |  |       | (20.9 | )
|                                          |                                                                |  |       |               |  |               |       |        |   |      |       |      |  |  |       |      

Three months ended September 30, 2003 versus the three months ended
September 30, 2002

Net revenues for the three months ended September 30, 2003 decreased
approximately $48.8 million or 44.6% from $109.4 million to $60.6 million.

Total publishing net revenues for the three months ended September 30,
2003 decreased approximately $38.7 million or 46.2% to $45.0 million from $83.7
million in the comparable 2002 period. This decrease is due to strong prior
year performance and a light schedule of new product releases in the current
quarter, as anticipated. The current periods net revenues included newly
launched titles from the Dungeons & Dragons (D&D) franchise, D&D: Heroesfor
Xbox and The Temple of Elemental Evil: A Classic Greyhawk Adventurefor the PC,
that ranked as the Companys third and fourth best selling titles of the
quarter. Other top sellers in the three months ended September 30, 2003
included Enter the Matrixon all platforms and Dragon Ball Z(DBZ): Legacy of
Goku II, both released in the previous quarter. The comparable September 2002
period benefited from several strong new releases in both the quarter and the
preceding quarter ending June 30, 2002. The June 30, 2002 releases selling
strongly into the September 30, 2002 quarter included DBZ: Legacy of Gokufor
Gameboy Advance, Unreal Tournament 2003for the PC and Neverwinter Nightsfor
the PC, while major new releases during the September 30, 2002 quarter included
Terminator: Dawn of Fatefor PS2 and Xbox, as well as Superman: Shadow of
Apokolipsfor PS2. Included in publishing net revenues are international
royalties earned from the sale of US product sold in Europe. Furthermore,
within the three months ended September 30, 2002, the Company recorded $8.6
million in international royalties as compared to a nominal amount recorded in
the September 30, 2003 quarter. Total third-party distribution net revenues
for the three months ended September 30, 2003 decreased by approximately $10.1
million or 39.3% to $15.6 million from $25.7 million in the comparable 2002
period from continued general industry softness in productivity software, the
loss of distribution business from certain vendors, and fewer new titles
launched in the current period by the Companys third-parties for whom it
distributes.

Gross profit decreased to $22.6 million for the three months ended
September 30, 2003 from $55.5 million in the comparable 2002 period due mainly
to decreased sales volume. Gross profit as a percentage of net revenues
decreased from 50.7% for the three months ended September 30, 2002 to 37.4% in
the comparable 2003 period. This decline of gross profit

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as a percentage of net revenues is largely the result of a higher mix of
royalty-bearing product sales and lower average pricing per unit sold. Other
contributing factors to lower margins include a shift within the publishing
business from PC product to more costly console product. Approximately 61.5%
of the publishing business shipments were console sales during the three months
ended September 30, 2003 versus 59.9% in the comparable 2002 period. For the
three months ended September 30, 2003, the distribution business accounted for
25.7% of the Companys net revenues as compared to 23.5% for the comparable
2002 period.

Selling and distribution expenses primarily include shipping expenses,
personnel expenses, advertising and promotion expenses and distribution costs.
During the three months ended September 30, 2003, selling and distribution
expenses decreased approximately $5.8 million, or 29.6%, to $13.8 million from
$19.6 million in the comparable 2002 period due to lower advertising expense
from fewer new product releases as well as lower variable costs (mainly freight
and handling) from decreased net revenues. Advertising expenses decreased $3.1
million from the prior quarter and variable distribution costs decreased $2.1
million. Selling expenses, including travel and marketing overhead, decreased
$0.5 million to $3.9 million from $4.4 million in the September 2002 quarter.
The selling and distribution expenses increased as a percentage of net revenues
to 22.8% for the three months ended September 30, 2003 from 17.9% in the
comparable 2002 period reflecting the impact of a decrease in sales relative
the Companys fixed cost base and advertising expenses.

General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses for the three months ended September 30, 2003 and 2002 increased $0.5
million, or 6.1%, to $8.7 million from $8.2 million, due to the increased
building rent and maintenance expenses. General and administrative expenses as
a percentage of net revenues increased to 14.4% for the three months ended
September 30, 2003 from 7.5% in the comparable 2002 period due to the impact of
lower sales generated in the current quarter.

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 September 30, 2003 increased
approximately $1.5 million, or 6.8%, to $23.6 million from $22.1 million in the
comparable 2002 period. The development expenses incurred by external developers
increased $3.2 million from the September 2002 quarter, because of the timing
of milestone completions upon which this expense is based. In relation to
total research and development expenses, the internal costs represented 36.5%
of the total research and development costs for the three months ended
September 30, 2003, while internal costs were 46.6% of total research and
development costs for the comparable 2002 period.

Depreciation and amortization for the three months ended September 30,
2003 remained relatively constant, decreasing by $0.1 million, or 4.8%, to $2.0
million from $2.1 million in the comparable 2002 period.

Interest expense, net, increased approximately $0.4 million to $3.7
million for the three months ended September 30, 2003 from $3.3 million in the
comparable 2002 period. During the three months ended September 30, 2003, the
Company expensed the full $1.3 million remaining deferred financing fees
outstanding as a result of the conversion of all outstanding related party debt
to equity. This increase is offset by interest income received from advances
to related parties of approximately $0.5 million and lower average borrowings
over the comparable 2002 period.

During the three months ended September 30, 2003, the Company recorded a
tax benefit of $1.0 million, reversing estimated tax provisions established in
the prior quarter to reflect the estimated tax obligation on year-to-date
taxable income.

Six
months ended September 30, 2003 versus the six months ended
September 30, 2002

Net revenues for the six months ended September 30, 2003 decreased
approximately $27.1 million or 11.3% from $239.0 million to $211.9 million.

Total publishing net revenues for the six months ended September 30, 2003
decreased approximately $11.3 million or 5.9% to $180.6 million from $191.9
million in the comparable 2002 period. The strong performance in the prior
period combined with a light schedule of new product releases in the current
period led to the decrease in publishing revenues for the six months ended
September 30, 2003. On May 15, 2003, the Company launched its much anticipated
new release, Enter the Matrix, which became the industrys top-selling title on
all console platforms for the month of May. Other major new releases in the
2003 period included newly launched titles from the D&D franchise, D&D: Heroes
for Xbox and The Temple of Elemental Evil: A Classic Greyhawk Adventurefor the
PC, as well as DBZ: Legacy of Goku IIfor Gameboy Advance,

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Godzilla: Destroy All Monstersfor Xbox and Neverwinter Nights Expansion
Pack Ifor the PC. The comparable September 2002 period benefited from several
strong new releases including Stuntmanfor PS2, Test Drive 1for PS2,
Neverwinter Nightsfor the PC, Terminator: Dawn of Fatefor PS2 and Xbox, DBZ:
Legacy of Gokufor Gameboy Advance, Unreal Tournament 2003for the PC and
Superman: Shadow of Apokolipsfor PS2. Additionally, international royalties
earned from the sale of US product in Europe for the six months ended September
30, 2003 were $17.3 million, significantly above the comparable 2002
international royalties of $10.2 million due largely to the success of Enter
the Matrix. The 2002 period benefited chiefly from the strong international
sales of Stuntmanand Unreal Tournament 2003. Total third-party distribution
net revenues for the six months ended September 30, 2003 decreased by
approximately $15.8 million or 33.5% to $31.3 million from $47.1 million in the
comparable 2002 period from continued general industry softness in productivity
software, the loss of distribution business from certain vendors, and fewer new
titles launched in the current period by the Companys third-parties for whom
it distributes.

Gross profit decreased to $103.1 million for the six months ended
September 30, 2003 from $125.1 million in the comparable 2002 period due mainly
to decreased sales volume. Gross profit as a percentage of net revenues
decreased from 52.3% for the six months ended September 30, 2002 to 48.7% in
the comparable 2003 period. This decline of gross profit as a percentage of
net revenues is the net result of a shift within the publishing business from
PC product to more costly console product, partially offset by a shift out of
the distribution business into the publishing business. Approximately 73.2% of
the publishing businesses shipments were console sales during the six months
ended September 30, 2003 versus 65.1% in the comparable 2002 period. For the
six months ended September 30, 2003, the distribution business accounted for
14.8% of the Companys net revenues as compared to 19.7% for the comparable
2002 period. Finally, a higher mix of royalty-bearing products sold in the
current period also lowered margins.

During the six months ended September 30, 2003, selling and distribution
expenses decreased approximately $7.5 million, or 18.1%, to $33.9 million from
$41.4 million in the comparable 2002 period due to lower advertising expense
from fewer new product releases as well as lower variable costs (mainly freight
and handling) from decreased net revenues. Advertising expenses decreased $2.1
million and variable distribution costs decreased $2.8 million from the
comparable 2002 period. Selling expenses, including travel and marketing
overhead, decreased $1.6 million to $7.9 million from $9.5 million in the
September 2002 period. The selling and distribution expenses decreased as a
percentage of net revenues to 16.0% for the six months ended September 30, 2003
from 17.3% in the comparable 2002 period as various planned operational
efficiencies have reduced freight and handling costs.

General and administrative expenses for the six months ended September 30,
2003 increased $0.5 million, or 3.0%, to $17.2 million from $16.7 million in
the comparable 2002 period, due to the increased building rent and maintenance
expenses. General and administrative expenses as a percentage of net revenues
increased to 8.2% for the six months ended September 30, 2003 from 6.9% in the
comparable 2002 period due to the impact of lower sales generated in the
current period.

The $7.4 million of in-process research and development expense in the
September 2002 period represents a portion of the purchase price paid for the
Shiny development studio during that period. All in-process research and
development must be charged to expense in the period immediately following the
related acquisition. No such expense was recorded in the current period.

Research and development expenses for the six months ended September 30,
2003 increased approximately $2.3 million, or 5.3%, to $45.8 million from $43.5
million in the comparable 2002 period. The development expenses
incurred by external developers increased $2.5 million from the September 2002 period,
because of the timing of milestone completions upon which this expense is
based. In relation to total research and development expenses, the internal
costs represented 42.1% of the total research and development costs for the six
months ended September 30, 2003, while internal costs were 44.8% of total
research and development costs for the comparable 2002 period.

Depreciation and amortization for six months ended September 30, 2003
remained relatively constant, decreasing by $0.1 million, or 2.5%, to $3.9
million from $4.0 million in the comparable 2002 period.

Interest expense, net, decreased approximately $0.5 million to $6.8
million for the six months ended September 30, 2003 from $7.3 million in the
comparable 2002 period. During the six months ended September 30, 2003, the
Company expensed the full $1.3 million remaining deferred financing fees
outstanding as a result of the conversion of all outstanding

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related party debt to equity. This increase is offset by interest income
received from advances to related parties of approximately $1.1 million and
lower average borrowings over the comparable 2002 period.

Other income (expense) included a $3.6 million write-down of the Companys
investment in an external developer during the six months ended September 30,
2002. No such expense was recorded during the six months ended September 30,
2003.

During the six months ended September 30, 2002, the Company recorded a
provision for taxes of $1.7 million, the majority of which related to foreign
tax liabilities of the Companys foreign operations. During the six months
ended September 30, 2003, a nominal balance was recorded as a benefit from
income taxes.

Liquidity and Capital Resources

As of September 30, 2003, management believes that we have sufficient
capital resources to finance our operational requirements for the next twelve
months, including the funding of the development, production, marketing and
sale of new products, the purchases of equipment, and the acquisition of
intellectual property rights for future products. On November 12, 2002, (last
amended October 13, 2003), the Company obtained a 30-month $50.0 million Senior
Credit Facility with GECC which was used to fund the Companys working capital
and general corporate needs and to provide funding to certain related parties
which are wholly-owned by Infogrames SA.

On September 4, 2003, the Company entered into a Recapitalization
Agreement exchanging all of the Companys related party debt, net of certain
advances, with Infogrames SA and certain of its wholly-owned subsidiaries into
shares of the Companys common stock. Subsequently, on September 24, 2003, the
Company issued new shares of its common stock in a secondary public offering
generating net proceeds of $35.0 million, of which $3.9 million was used to
repay the outstanding balance of the Senior Credit Facility with GECC. As of
September 30, 2003, the Company has no outstanding debt. The remaining
proceeds from the Offering will be used to pay costs of developing video game
software, to meet general working capital needs and, possibly, to acquire
development companies or other companies involved in the development or
production of video games, although there are no current agreements or
understandings regarding any acquisitions. See the Companys Registration
Statement on Form S-2 for a discussion of Risk Factors that could materially
impact expected cash flows.

Cash Flows

Cash was $27.0 million at September 30, 2003 compared to $0.8 million at
March 31, 2003. As of September 30, 2003, the Company had working capital of
$16.4 million compared to a working capital deficit of $91.6 million at March
31, 2003.

During the six months ended September 30, 2003, $18.7 million was provided
by operating activities generated primarily by the reduction of trade
receivables of $15.9 million and inventories of $2.5 million, partially offset
by the net loss incurred in the current period and a decrease in amounts due to
related parties. Operating funds and net proceeds from the public offering on
September 24, 2003 included in financing activities were used to pay-off $10.7
million of borrowings under the GECC Senior Credit Facility and to fund capital
expenditures of $3.1 million during the period. The Company also advanced
Atari Interactive $14.4 million under the terms of the GECC Senior Credit
Facility in order to support its operations. Atari Interactive develops games
which the Company distributes in North America and, consequently, the Company
is dependent, in part, on Atari Interactives development activities for growth
in its publishing revenues.

The Company expects continued volatility in the use of cash due to
seasonality of the business, receivable payment cycles and quarterly working
capital needs to finance its publishing businesses and growth objectives.

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

The Company does not currently have any material commitments with respect
to any capital expenditures.

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The Company is also party to various litigations arising in the course of
its business, the resolution of none of which, management believes, will have a
material adverse effect on the Companys liquidity, financial condition or
results of operations.

Credit Facilities

GECC Senior Credit Facility

On November 12, 2002 (last amended October 13, 2003), the Company obtained
a 30-month $50.0 million Senior Credit Facility with GECC to fund the Companys
working capital and general corporate needs, as well as to fund advances to
Paradigm Entertainment Inc. (Paradigm) and Atari Interactive, each a related
party. Loans under the Senior Credit Facility are based on a borrowing base
comprised of the value of the Companys accounts receivable and short term
marketable securities. The Senior Credit Facility bears interest at prime plus
1.25% for daily borrowings or LIBOR plus 3% for borrowings with a maturity of
30 days or greater. A commitment fee of 0.5% on the average unused portion of
the facility is payable monthly and the Company paid $0.6 million as an initial
commitment fee at closing. The Senior Credit Facility contains certain
financial covenants and names certain related entities, such as Atari
Interactive and Paradigm, as guarantors. In addition, amounts outstanding
under the Senior Credit Facility are secured by the Companys assets. As of
September 30, 2003, all outstanding borrowings have been fully repaid (Note 1)
and $8.7 million of letters of credit were outstanding. As of September 30,
2003, accrued interest was minimal and the Company was in compliance with all
financial covenants.

Infogrames SA credit facilities and debt with the Company

Credit Agreement

The Company maintained the Credit Agreement which provides for an
aggregate commitment of $75.0 million which bears interest at LIBOR plus 2.5%.
Effective December 31, 2002, the maturity date of the Credit Agreement was
extended to April 1, 2004. This agreement requires that the Company comply
with certain financial covenants and, among other items, restricts capital
expenditures. As of September 30, 2003, all outstanding borrowings have been
exchanged for 10,541,105 newly issued common shares under the terms of the Recapitalization Agreement
and the facility has been terminated. As of September 30, 2003, accrued
interest and fees that remain outstanding were approximately $0.8 million and
are included in current amounts due to related parties.

Medium-Term Loan

In connection with the Shiny Acquisition, the Company obtained a $50.0
million medium-term loan from Infogrames SA. Interest is based on the three
month LIBOR rate plus 2.75% and payable on a quarterly basis, in arrears. An
unused commitment fee of 0.50% per annum is based on the aggregate amount of
the facility less outstanding loans. As of September 30, 2003, all outstanding
borrowings have been exchanged for 11,359,319 newly issued common
shares under the terms of the
Recapitalization Agreement and this facility has been terminated.
Additionally, as of September 30, 2003 accrued interest was approximately $0.6
million and is included in current amounts due to related parties.

Long-Term Related Party Debt

0% Notes

In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to GAP the 0% Notes in exchange for 600,000 shares of Series A
Preferred Stock and $20.0 million of subordinated notes of the Company. The 0%
Notes mature in December 2004 and will have a redemption value of $50.0 million
at maturity. In lieu of payment at maturity, the 0% Notes may be converted at
any time into shares of the Companys common stock at $20.00 per share. On
December 28, 2001, Infogrames SA assumed the 0% Notes from GAP in exchange for
shares of Infogrames SA common stock. Infogrames SA has not changed any of the
terms of the 0% Notes (renamed the Infogrames SA 0% subordinated convertible
note) as they relate to the Company. Interest on the Infogrames SA 0%
subordinated convertible note accretes at the rate of 7% per annum.

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Under the terms of the September 4, 2003 Recapitalization Agreement, the
Infogrames SA 0% subordinated convertible note has been fully offset against
the advances to related parties (Note 1). As of September 30, 2003, this note
was terminated and no balance remains outstanding.

5% Notes

In conjunction with the 1999 purchase of the Company by Infogrames SA, the
Company issued to CUSH, 5% CUSH Notes in exchange for $25.0 million in cash and
$35.6 million in debt and accrued interest. The 5% CUSH Notes mature in
December 2004 and have a principal amount of $60.6 million. In lieu of payment
at maturity, the 5% CUSH Notes may be converted at any time into shares of the
Companys common stock at $9.25 per share.

Under the terms of the September 4, 2003 Recapitalization Agreement, the
5% CUSH Notes, net of the remaining advances to related parties (Note 1), have
been fully converted to 17,129,453 of the Companys
newly issued common shares at a
fair-market value of $4.25 per share. The common shares issued by the Company
were at a more favorable rate than that required under the original terms of
the 5% CUSH Notes. The resulting incremental value of the additional stock
issued was recorded as a dividend to Infogrames SA of $39.4 million (Note 1).

In September 2003, the Company expensed the full $1.3 million remaining
deferred financing fees outstanding related to the Infogrames SA 0%
subordinated convertible note and the 5% CUSH Notes as a result of the
Recapitalization Agreement.

As of September 30, 2003, royalty and license advance obligations and
future minimum lease obligations under non-cancelable operating leases are
summarized as follows (in thousands):

|                             |  |                         |       |           |  |           |        |               |  |       |       |  |  |   |       |  |  |   |        | 
|---------------------------- |  | ----------------------- | ----- | --------- |  | --------- | ------ | ------------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                             |  | Contractual Obligations
|                             |  | Payments Due by Period 
|                             |  |                        
|                             |  | Within 1 Year           |       | 1-3 Years |  | 4-5 Years |        | After 5 Years |  | Total
|                             |  |                         |       |           |  |           |        |               |  |      
|Royalty and license advances |  | $                       | 4,118 |           |  | $         | 624    |               |  | $     | 32    |  |  | $ |      |  |  | $ | 4,774  | 
|Operating lease obligations  |  |                         | 5,000 |           |  |           | 12,900 |               |  |       | 2,100 |  |  |   | 1,300 |  |  |   | 21,300 | 
|                             |  |                         |       |           |  |           |        |               |  |       |       |  |  |   |       |  |  |   |        | 
|Total                        |  | $                       | 9,118 |           |  | $         | 13,524 |               |  | $     | 2,132 |  |  | $ | 1,300 |  |  | $ | 26,074 | 
|                             |  |                         |       |           |  |           |        |               |  |       |       |  |  |   |       |  |  |   |        | 

Recent Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51. FIN 46 addresses
consolidation by business enterprises of variable interest entities (formerly
special purpose entities or SPEs). In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. The objective of FIN 46 is not to
restrict the use of variable interest entities but to improve financial
reporting by companies involved with variable interest entities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. The consolidation requirements of FIN 46 apply to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. However, in October 2003, the FASB permitted
companies to defer the effective date from July 1, 2003 to December 31, 2003,
in whole or in part, and has issued a proposed amendment to this interpretation
before December 31, 2003. The Company does not expect that the adoption of
this standard will have a material impact on the Companys financial condition
or results of operations.

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS No.
133, by requiring that contracts with comparable characteristics be accounted
for in a similar fashion. In particular, the Statement: (1) clarifies under
what circumstances a contract with an initial net investment meets the
characteristic of a derivative discussed in paragraph 6(b) of Statement 133;
(2) clarifies when a derivative contains a financing component; (3) amends the
definition of an underlying to conform it to language used in FIN No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of

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Indebtedness of Others; and (4) amends certain other existing
pronouncements. This Statement is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The Company does not have any derivative instruments as defined
in SFAS No. 149. Accordingly, this pronouncement is currently not applicable
to the Company.

In May 2003, the FASB issued SFAS No. 150, Accounting for Financial
Instruments with the Characteristics of Both Liabilities and Equities. SFAS
No. 150 establishes standards regarding the manner in which an issuer
classifies and measures certain types of financial instruments having
characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such
freestanding financial instruments (i.e., those entered into separately from an
entitys other financial instruments or equity transactions or that are legally
detachable and separately exercisable) must be classified as liabilities or, in
some cases, assets. In addition, SFAS No. 150 requires that financial
instruments containing obligations to repurchase the issuing entitys equity
shares and, under certain circumstances, obligations that are settled by
delivery of the issuers shares be classified as liabilities. The Statement is
effective for financial instruments entered into or modified after May 31, 2003
and for other instruments at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this new principle did not have
a material impact on the Companys financial condition or results of
operations.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Foreign Currency Exchange Rates

In recent years, the Company has restructured its foreign operations. As
of September 30, 2003, foreign operations represented 0.0% and 1.3% of
consolidated net revenues and total assets, respectively. The Company also
recorded approximately $4.2 million in operating losses attributed to foreign
operations related primarily to a development studio located outside the United
States. Currently, substantially all of the Companys business is conducted in
the United States where its revenues and expenses are transacted in U.S.
dollars. As a result, the majority of the Companys results of operations are
not subject to foreign exchange rate fluctuations. The Company does not hedge
against foreign exchange rate fluctuations due to the limited financial
exposure it faces with respect to such risk. The Company purchases certain of
its inventories from foreign developers. The Company also pays royalties
primarily denominated in euros to Infogrames SA from the sale of Infogrames SA
products in North America. The Companys business in this regard is subject to
certain risks, including, but not limited to, differing economic conditions,
changes in political climate, differing tax structures, other regulations and
restrictions and foreign exchange rate volatility. The Companys future results
could be materially and adversely impacted by changes in these or other
factors.




Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of September 30, 2003,
with the participation of the Companys management, the Chief Executive Officer
and Chief Financial Officer of the Company evaluated the Companys disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 (the
Exchange Act) Rules 13a-15(e) and 15d-15(e)). In designing and evaluating
the Companys disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.
Based on this evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that, as of September 30, 2003, the Companys
disclosure controls and procedures were (1) designed to ensure that material
information relating to the Company, including its consolidated subsidiaries,
is made known to the Companys Chief Executive Officer and Chief Financial
Officer by others within those entities, particularly during the period in
which this report was being prepared and (2) effective, in that they provide
reasonable assurance that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms. In connection with the rules, we are continuing the
process of reviewing and documenting our disclosure controls and procedures,
including our internal controls and procedures for financial reporting, and may
from time to time make changes aimed at enhancing their effectiveness and to
ensure that our systems evolve with our business.

Changes in Internal Controls. No change in the Companys internal control over
financial reporting (as defined in the Exchange Act Rules 13a-15(f) and
15d-15(f)) occurred during the fiscal quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Litigation

During the six months ended September 30, 2003, no significant claims were
asserted against or by the Company that in managements opinion the likely
resolution of which would have a material adverse affect on the Companys
liquidity, financial condition or results of operations, although the Company
is involved in various claims and legal actions arising in the ordinary course
of business. The following litigation matters are still pending, however, and
the Company continues to believe that the underlying complaints are without
merit and intends to defend itself vigorously against these actions.

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

KBK

On September 16, 2002, KBK, a distributor of electronic games via the
Internet and local area networks, filed a lawsuit against Gamesonline, a
subsidiary of Interplay, and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered
into a contract with Gamesonline to obtain the right to localize (i.e., right
to translate games into the local language of the country where the games are
distributed) and to distribute games electronically in Korea, of Neverwinter
Nights and certain games which were previously released. The complaint further
alleges that Gamesonline and the Company conspired to prevent KBK from entering
the market with Neverwinter Nights or any previously released games of
Gamesonline. The complaint alleges the following causes of action against the
Company: misappropriation of trade secrets under the California Uniform Trade
Secrets Act; common law misappropriation; intentional interference with
contract; negligent interference with contract; intentional interference with
prospective economic advantage; negligent interference with prospective
economic advantage; and violation of Business & Professions Code Section 17200
et seq. The complaint seeks $98.8 million for each of these causes of action.
An amended complaint was filed on December 3, 2002, alleging all of the
foregoing against the Company, adding Atari Interactive (formerly known as
Infogrames Interactive, Inc.) as a named defendant, and alleging that Company
managed and directed Atari Interactive to engage in the foregoing alleged acts.
The Company and Atari Interactive filed answers on January 9, 2003. On or
about January 28, 2003, Gamesonline answered the original complaint and served
a cross-complaint against KBK. On April 29, 2003, KBK named as defendants
Infogrames Asia Pacific, Infogrames Korea, and Interplay, Inc..
Discovery is ongoing.

Interplay

On September 19, 2003 Interplay, commenced the Action in New York State
Supreme Court, New York County in which it named Atari Interactive and the
Company as defendants, seeking, among other things, a judgment declaring that a
computer game license agreement between Interplay and Atari Interactive
continues to be in full force and effect.

On September 23, 2003, Interplay obtained a preliminary injunction that
prevents termination of the computer game license agreement. On October 9,
2003, Atari Interactive answered the complaint, denying all claims, asserting
several affirmative defenses and counterclaims for breach of contract and one
counterclaim for a judgment declaring the computer game license agreement
terminated. Atari Interactives answer also asserts that the Company was
incorrectly named as the defendant in this Action. Both sides have sought
damages in an amount to be determined at trial. Preliminary discovery in this
Action has just commenced.

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

The Annual Meeting of Stockholders was held on September 3, 2003. Of the
70,034,457 shares of common stock outstanding and entitled to vote at the
Annual Meeting, 69,227,012 shares were present in person or by proxy, each
entitled to one vote on each matter to come before the meeting. The matters
acted upon at our 2003 Annual Meeting of Stockholders, and the voting
tabulation for each such matter is as follows:

Proposal 1. To elect the following four persons to serve as Class II
directors until the 2005 Annual Meeting and until their successors are duly
elected and qualified.

|                |  |                   |  |                |  |  |  | 
|--------------- |  | ----------------- |  | -------------- |  |  |  | 
|Nominee         |  | Number of Votes* 
|                |  |                  
|                |  | For               |  | Withheld      
|James Ackerly   |  | 69,202,127 Shares |  | 24,885 Shares 
|Thomas Heymann  |  | 69,062,486 Shares |  | 164,526 Shares
|Thomas Mitchell |  | 69,202,128 Shares |  | 24,884 Shares 
|Thomas Schmider |  | 69,141,082 Shares |  | 85,930 Shares 

*     With respect to the election of directors, there were no abstentions or
broker non-votes because, pursuant to the terms of the Notice of Annual Meeting
and Proxy Statement, proxies received were voted, unless authority was
withheld, in favor of the election of the four nominees named.

James Caparro, Denis Guyennot, Ann E. Kronen and David Ward continued
their terms as Class II directors, such terms expiring at the 2004 Annual
Meeting of Stockholders. Bruno Bonnell continued his term as a Class III
director, such term expiring at the 2004 Annual Meeting of Stockholders.

Proposal 2. To ratify the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending March 31, 2004.

|                |  |         |        |         |  |  |        | 
|--------------- |  | ------- | ------ | ------- |  |  | ------ | 
|Number of Votes
|               
|For             |  | Against |        | Abstain
|69,194,749      |  |         | 19,074 |         |  |  | 13,189 | 




Item 5. Other Information

During the second quarter of fiscal 2004, the Company completed a
recapitalization through the issuance of new shares pursuant to (i) an
agreement with its majority stockholder (through direct and indirect stock
holdings), Infogrames SA and (ii) a public offering. Per the agreement with
Infogrames SA, on September 18, 2003, the Company, among other things, issued
an aggregate of 39,029,877 shares of its common stock, valued at $4.25 per
share, to Infogrames SA and its wholly-owned subsidiary CUSH, in satisfaction
of approximately $165.9 million of the Companys net indebtedness to Infogrames
SA. On September 24, 2003, Infogrames SA sold 17,179,412 of such shares at
$4.25 per share in a public offering. The Company also sold 9,820,588 new
shares of its common stock in the public offering at $4.25 per share,
generating net proceeds to the Company of approximately $35.0 million.

After these transactions and the exercise of the underwriters
over-allotment option on October 21, 2003, Infogrames SA owns approximately 68% of the Company
directly and through its wholly-owned subsidiaries CUSH and Atari Interactive.

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

(a)  Exhibits



|10.1 |  | Fourth Amendment and Consent to Credit Agreement, dated as of September
12, 2003, among the Company, as Borrower, the other credit parties
signatory thereto, the lenders signatory thereto from time to time,
General Electric Capital Corporation, as Administrative Agent, Agent and
Lender.                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|10.2 |  | Fifth Amendment and Consent to Credit Agreement, dated as of October 13,
2003 and effective as of September 30, 2003, among the Company, as
Borrower, the other credit parties signatory thereto, the lenders
signatory thereto from time to time, General Electric Capital Corporation,
as Administrative Agent, Agent and Lender.
|    
|31.1 |  | Certification by the Companys Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  
|    
|31.2 |  | Certification by the Companys Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  
|    
|32.1 |  | Certification by the Companys Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  
|    
|32.2 |  | Certification by the Companys Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  

(b)  Reports on Form 8-K

On July 16, 2003, the Company furnished a Current Report on Form 8-K
under Item 9, containing a copy of the Companys earnings release for the year
ended March 31, 2003 (including financial information) pursuant to Item 12
(Results of Operations and Financial Condition).

On July 31, 2003, the Company furnished a Current Report on Form 8-K
under Item 9, containing a copy of the Companys earnings release for the
quarter ended June 30, 2003 (including financial information) pursuant to Item
12 (Results of Operations and Financial Condition).

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SIGNATURE

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.

| |  |     |  |                                     
| |  | --- |  | ------------------------------------
| |  |     |  | ATARI, INC.                         
| |  |     |  |                                     
| |  | By: |  | /s/ DAVID J. FREMED                 
| |  |     |  |                                     
| |  |     |  | David J. Fremed                     
| |  |     |  | Senior Vice President of Finance and
| |  |     |  | Chief Financial Officer             
| |  |     |  | Date: November 13, 2003             

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