<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

For the quarterly period ended June 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                            (I.R.S. Employer
Incorporation or Organization)                           Identification No.)

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

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

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

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

         As of August 6, 2003, there were 70,059,691 of the registrant's Common
Stock outstanding.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                        PAGE
                                                                                                                        ----
<S>                                                                                                                     <C>
PART I - FINANCIAL INFORMATION

     Item 1.        Financial Statements:

                    Consolidated Balance Sheets as of March 31, 2003 and June 30, 2003                                    3

                    Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended
                    June 30, 2002 and 2003                                                                                4

                    Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2002 and 2003               5

                    Consolidated Statements of Stockholders' Deficiency for the Year Ended March 31, 2003 and Three
                    Months Ended June 30, 2003                                                                            7

                    Notes to the Consolidated Financial Statements                                                        8

     Item 2.        Management's Discussion and Analysis of Financial Condition and Results
                    of Operations                                                                                        18

     Item 3.        Quantitative and Qualitative Disclosures about Market Risk                                           27

     Item 4.        Controls and Procedures                                                                              27

PART II - OTHER INFORMATION

     Item 1.        Legal Proceedings                                                                                    28

     Item 6.        Exhibits and Reports on Form 8-K                                                                     29

    Signatures                                                                                                           30
</TABLE>

<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                         MARCH 31,           JUNE 30,
                                                                                           2003                2003
                                                                                        -----------         -----------
                                                                                                            (UNAUDITED)
<S>                                                                                     <C>                 <C>
ASSETS
Current assets:
   Cash......................................................................           $       815         $     9,154
   Receivables, net..........................................................                47,053              62,336
   Inventories, net..........................................................                37,827              38,343
   Income taxes receivable...................................................                   395                 406
   Due from related parties..................................................                 2,656              20,661
   Prepaid expenses and other current assets.................................                16,958              13,520
                                                                                        -----------         -----------
     Total current assets....................................................               105,704             144,420
Advances to related parties..................................................                32,184              40,904
Property and equipment, net..................................................                14,727              14,649
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
    $787,at March 31, 2003 and June 30, 2003, respectively...................                 2,081               1,913
Other assets.................................................................                 7,162               7,487
                                                                                        -----------         -----------
     Total assets............................................................           $   232,082         $   279,597
                                                                                        ===========         ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
   Accounts payable..........................................................           $    39,587         $    51,231
   Accrued liabilities.......................................................                31,872              31,865
   Revolving credit facility.................................................                10,651               7,632
   Current portion of related party medium-term loan.........................                40,000              48,277
   Related party credit facility.............................................                44,800              44,800
   Royalties payable.........................................................                13,653              26,656
   Income taxes payable......................................................                 1,965               2,448
   Short-term deferred income................................................                 2,077               2,077
   Due to related parties....................................................                12,747              12,696
                                                                                        -----------         -----------
     Total current liabilities...............................................               197,352             227,682
Related party debt...........................................................               124,610             117,940
Deferred income..............................................................                 4,131               4,112
Other long-term liabilities..................................................                 2,907               2,818
                                                                                        -----------         -----------
     Total liabilities.......................................................               329,000             352,552
                                                                                        -----------         -----------

Commitments and contingencies                                                                    --                  --

Stockholders' deficiency:
    Preferred stock, $0.01 par value, 5,000 shares authorized, none issued
        or outstanding.......................................................                    --                  --
    Common stock, $0.01 par value, 300,000 shares authorized, 69,920 and
        69,979 shares issued and outstanding at March 31, 2003 and
        June 30, 2003, respectively..........................................                   699                 700
   Additional paid-in capital................................................               486,053             486,179
   Accumulated deficit.......................................................              (586,851)           (563,059)
   Accumulated other comprehensive income....................................                 3,181               3,225
                                                                                        -----------         -----------
     Total stockholders' deficiency..........................................               (96,918)            (72,955)
                                                                                        -----------         -----------
     Total liabilities and stockholders' deficiency..........................           $   232,082         $   279,597
                                                                                        ===========         ===========
</TABLE>

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

                                     Page 3

<PAGE>

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

<TABLE>
<CAPTION>
                                                         THREE MONTHS          THREE MONTHS
                                                            ENDED                  ENDED
                                                           JUNE 30,              JUNE 30,
                                                             2002                  2003
                                                       ----------------      ----------------
<S>                                                    <C>                   <C>
Net revenues.......................................       $   129,603           $   151,357
Cost of goods sold.................................            60,025                70,846
                                                          -----------           -----------
   Gross profit....................................            69,578                80,511
Selling and distribution expenses..................            21,766                20,127
General and administrative expenses................             8,497                 8,548
In-process research and development................             7,400                    --
Research and development...........................            21,400                22,229
Depreciation and amortization......................             1,918                 1,950
                                                          -----------           -----------
   Operating income................................             8,597                27,657
Interest expense, net..............................             4,069                 3,046
Other (expense) income.............................            (3,559)                  118
                                                          -----------           -----------

   Income before provision for income taxes........               969                24,729
Provision for income taxes.........................             1,678                   937
                                                          -----------           -----------

   Net (loss) income...............................       $      (709)          $    23,792
                                                          ===========           ===========

Basic net (loss) income per share..................       $     (0.01)          $      0.34
                                                          ===========           ===========

Diluted net (loss) income per share................       $     (0.01)          $      0.32
                                                          ===========           ===========

Basic weighted average shares outstanding..........            69,825                69,974
                                                          ===========           ===========

Diluted weighted average shares outstanding........            69,825                80,499
                                                          ===========           ===========

Net (loss) income .................................       $      (709)          $    23,792
Other comprehensive (loss) income:
   Foreign currency translation adjustments........               288                    44
                                                          -----------           -----------
          Comprehensive (loss) income                     $      (421)          $    23,836
                                                          ===========           ===========
</TABLE>

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

                                     Page 4

<PAGE>

                          ATARI, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       THREE MONTHS          THREE MONTHS
                                                                           ENDED                 ENDED
                                                                         JUNE 30,              JUNE 30,
                                                                           2002                  2003
                                                                       ------------           ------------
<S>                                                                    <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................       $    (709)             $  23,792
Adjustments to reconcile net (loss) income to
     net cash provided by operating activities:
   Depreciation and amortization.................................           1,918                  1,950
   Write-down of investments held at cost........................           3,622                     --
   Amortization of discount on related party debt................             717                    717
   Accrued interest..............................................           2,675                  1,930
   Accretion of interest on short-term promissory notes..........              66                     --
   Amortization of deferred financing fees.......................             239                    419
   Write-off of property and equipment ..........................             495                     10
   In process research and development related to acquisition
        of Shiny Entertainment, Inc..............................           7,400                     --
Changes in operating assets and liabilities:
      Receivables, net...........................................         (40,610)               (15,283)
      Inventories, net...........................................          (2,639)                  (517)
      Due from related parties...................................           2,210                (17,678)
      Due to related parties.....................................            (228)                (1,470)
      Prepaid expenses and other current assets..................           1,218                  2,724
      Accounts payable...........................................          18,449                 11,624
      Accrued liabilities........................................           7,837                   (212)
      Royalties payable..........................................           2,709                 13,003
      Income taxes payable.......................................             962                    465
      Deferred income............................................            (193)                   (19)
      Income taxes receivable....................................           5,280                     --
      Other long-term liabilities................................           2,096                    (97)
      Other assets...............................................           2,585                     25
                                                                        ---------              ---------
           Net cash provided by operating activities.............          16,099                 21,383
                                                                        ---------              ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..............................          (2,082)                (1,657)
Advances to related parties......................................              --                 (8,530)
Acquisition of Shiny Entertainment, Inc., net of nominal
  cash acquired..................................................         (34,010)                    --
                                                                        ---------              ---------
           Net cash used in investing activities.................         (36,092)               (10,187)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of related party credit facility, net....................          (1,627)                    --
Borrowings from related party medium-term loan...................          39,381                     --
Payments to third parties........................................          (7,291)                    --
Payments of BNP Paribus revolving credit facility................          (9,888)                    --
Payments of General Electric Capital Corporation Senior Credit
  Facility, net..................................................              --                 (3,019)
Proceeds from exercise of stock options..........................              --                     23
Proceeds from employee stock purchase plan.......................              75                    104
                                                                        ---------              ---------
           Net cash provided by (used in) financing activities             20,650                 (2,892)
Effect of exchange rates on cash.................................              61                     35
                                                                        ---------              ---------
Net increase in cash.............................................             718                  8,339
Cash -- beginning of fiscal period...............................           4,685                    815
                                                                        ---------              ---------
Cash -- end of fiscal period.....................................       $   5,403              $   9,154
                                                                        =========              =========
</TABLE>

                                     Page 5

<PAGE>

<TABLE>
<S>                                                                        <C>                        <C>
SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURE OF NON-CASH
OPERATING ACTIVITIES:
Cash paid for interest............................................             449                 1,622
Cash paid for taxes...............................................              --                   490

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
                                                                        ==========

SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Assumption of Shiny Entertainment, Inc. employee stock
  purchase plan...................................................             672
</TABLE>

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

                                     Page 6

<PAGE>

                          ATARI, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              ACCUMULATED
                                            COMMON              ADDITIONAL                      OTHER
                                            STOCK     COMMON     PAID-IN      ACCUMULATED    COMPREHENSIVE
                                            SHARES    STOCK      CAPITAL        DEFICIT         INCOME          TOTAL
                                            ------    ------    ----------    -----------    -------------    ----------
<S>                                         <C>       <C>       <C>           <C>            <C>              <C>
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           103             --               --           104
Exercise of stock options.............           5        --            23             --               --            23
Net income............................          --        --            --         23,792               --        23,792
Currency translation adjustment.......          --        --            --             --               44            44
                                            ------    ------    ----------    -----------    -------------    ----------
BALANCE, JUNE 30, 2003 (UNAUDITED)....      69,979    $  700    $  486,179    $  (563,059)   $       3,225    $  (72,955)
                                            ======    ======    ==========    ===========    =============    ==========
</TABLE>

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

                                     Page 7

<PAGE>

                          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 ("PC's"),
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.

         Infogrames Entertainment SA, a French corporation ("Infogrames SA"),
owns approximately 88% of the Company through its wholly-owned subsidiary
California U.S. Holdings, Inc. ("CUSH"). Although Infogrames SA ceased funding
of the Company's operations since the completion of the Senior Credit Facility
(as defined below), there remains outstanding balances under a credit facility
and various other debt agreements payable to Infogrames SA by the Company. At
June 30, 2003, total debt owed to Infogrames SA approximated $211.0 million.

         On November 12, 2002 (last amended July 11, 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 is 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
SA.

         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 obtained 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 will be published, distributed and marketed under the Atari brand.

     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 June 30, 2003,
represents three 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.

                                     Page 8

<PAGE>

     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 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 $1.9 million, net
of accumulated amortization of $0.6 million and $0.8 million at March 31, 2003
and June 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.

         The carrying values and fair values of the Company's long-term debt at
June 30, 2003 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Carrying Value    Fair Value
                                                                  --------------    ----------
<S>                                                               <C>               <C>
Infogrames SA 0% subordinated convertible notes, due
    December 16, 2004.........................................       $ 45,695        $ 43,543
5% subordinated convertible note with CUSH, due
    December 16, 2004.........................................       $ 72,245        $ 67,661
</TABLE>

                                     Page 9

<PAGE>

     The fair values were based on interest rates currently available to
companies with debt of similar investment grade.

     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.

     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.

     Net (Loss) Income Per Share

         Basic (loss) income per share is computed by dividing net loss or
income by the weighted average number of shares of common stock outstanding for
the period. Diluted (loss) income per share reflects the potential dilution that
could occur from shares of common stock issuable through stock-based
compensation plans including stock options, restricted stock awards, warrants
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 (loss) income per share calculation for the three
months ended June 30, 2002. For the three months ended June 30, 2003, the
convertible debt, warrants and all shares issuable under stock-based
compensation plans are dilutive and, therefore, have been considered in the
diluted (loss) income per share calculation.

                                    Page 10

<PAGE>
         The following is an analysis of the difference between the shares used
in basic and diluted net (loss) income per share (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                              THREE MONTHS
                                                                  ENDED
                                                                JUNE 30,
                                                            2002          2003
                                                            ----          ----
<S>                                                       <C>           <C>
Basic earnings per share calculation:
   Net (loss) income ................................     $   (709)     $ 23,792
   Weighted average shares outstanding ..............       69,825        69,974

   Basic net (loss) income per share ................     $  (0.01)     $   0.34
                                                          ========      ========

Diluted earnings per share calculation:
   Net (loss) income ................................     $   (709)     $ 23,792
    Interest expense: ...............................
      Infogrames SA 0% subordinate convertible
        note ........................................           --           718
      5% subordinated convertible notes .............           --           889
                                                          --------      --------
   Adjusted net (loss) income .......................     $   (709)     $ 25,399
                                                          ========      ========

Weighted average shares outstanding .................       69,825        69,974
    Diluted potential common shares:
      Employee stock options and warrants ...........           --           215
      Infogrames SA 0% subordinate convertible
         note .......................................           --         2,500
      5% subordinated convertible notes .............           --         7,810
                                                          --------      --------
Diluted weighted average shares outstanding                 69,825        80,499
                                                          ========      ========

   Diluted net (loss) income per share ..............     $  (0.01)     $   0.32
                                                          ========      ========
</TABLE>

     The number of antidilutive shares that were excluded from the diluted
earnings per share calculation for the three months ended June 30, 2002 was
approximately 9.9 million.

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.

         At June 30, 2003, the Company had three stock option plans. No
compensation cost is reflected in net (loss) income, 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 (loss) income and (loss) income per share if
the Company had applied the fair value recognition provisions of the Financial
Accounting Standards Board ("FASB") Statement No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                     THREE MONTHS
                                                                          ENDED
                                                                        JUNE 30,
                                                                  2002          2003
                                                                  ----          ----
<S>                                                              <C>           <C>
Net (loss) income:
   Basic - as reported ....................................      $  (709)      $23,792
   Less: Fair value of stock-based employee compensation
      expense, net of related tax effects .................        1,541         1,423
                                                                 -------       -------
   Basic - pro forma net (loss) income ....................      $(2,250)      $22,369
                                                                 =======       =======
</TABLE>

                                    Page 11

<PAGE>

<TABLE>
<CAPTION>
                                                                    THREE MONTHS
                                                                       ENDED
                                                                      JUNE 30,
                                                                  2002           2003
                                                                  ----           ----
<S>                                                            <C>            <C>
   Diluted - as reported ..................................    $    (709)     $   25,399
    Less: Fair value of stock-based employee
      compensation expense, net of related tax effects ....        1,541           1,423
                                                               ---------      ----------
   Diluted - pro forma net (loss) income ..................    $  (2,250)     $   23,976
                                                               =========      ==========

Net (loss) income per share:
   Basic - as reported ....................................    $   (0.01)     $     0.34
   Basic - proforma .......................................    $   (0.03)     $     0.32
   Diluted - as reported ..................................    $   (0.01)     $     0.32
   Diluted - proforma .....................................    $   (0.03)     $     0.30
</TABLE>

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

<TABLE>
<CAPTION>
                                                            THREE MONTHS
                                                               ENDED
                                                              JUNE 30,
                                                         2002           2003
                                                         ----           ----
<S>                                                    <C>            <C>
Dividend yield ...................................           0%             0%
Anticipated volatility ...........................          95%           116%
Weighted average risk-free interest rate .........        4.51%           2.6%
Expected lives ...................................     4 years        4 years
</TABLE>

     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, certain of the disclosure requirements apply to financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. The Company does not have any Variable Interest Entities as
defined in FIN 46. Accordingly, this pronouncement is currently not applicable
to the Company.

         In May 2003, the FASB issued SFAS No. 149, "Derivative Instruments".
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.

                                    Page 12

<PAGE>

         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. Repayment of the
medium-term loan will be due in installments commencing no later than December
31, 2003 and ending by June 30, 2004, subject to restrictions under the GECC
Senior Credit Facility.

NOTE 3 - RECEIVABLES, NET

         Receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                      MARCH 31,    JUNE 30,
                                                                        2003         2003
                                                                        ----         ----
<S>                                                                   <C>          <C>
Trade accounts receivable .........................................   $  87,372    $ 104,592
Less: Allowances for bad debts, returns, price protection and other
          customer promotional programs ...........................     (40,319)     (42,256)
                                                                      ---------    ---------
                                                                      $  47,053    $  62,336
                                                                      =========    =========
</TABLE>

NOTE 4 - INVENTORIES, NET

         Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                              MARCH 31,   JUNE 30,
                                2003        2003
                                ----        ----
<S>                           <C>         <C>
Finished goods ............   $ 38,721    $ 38,905
Return inventory ..........      2,786       2,170
Raw materials .............      1,223       1,001
                              --------    --------
                                42,730      42,076

Less: Obsolescence reserve      (4,903)     (3,733)
                              --------    --------

                              $ 37,827    $ 38,343
                              ========    ========
</TABLE>

                                    Page 13

<PAGE>

NOTE 5 - ACCRUED LIABILITIES

         Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           MARCH 31,    JUNE 30,
                                                                             2003         2003
                                                                          ----------   ----------
<S>                                                                       <C>          <C>
Accrued advertising..................................................     $    1,769   $    4,344
Accrued professional fees and other services.........................          1,696        1,865
Accrued salary and related costs.....................................          8,944        8,579
Accrued freight and processing fees..................................          1,207        1,082
Accrued third-party development expenses.............................          4,826        1,136
Accrued distribution services........................................          8,134        9,357
Restructuring reserve................................................             71           11
Other................................................................          5,225        5,491
                                                                          ----------   ----------
                                                                          $   31,872   $   31,865
                                                                          ==========   ==========
</TABLE>

NOTE 6 - ADVANCES TO RELATED PARTIES

Advances to Atari Interactive, Inc. ("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.
At June 30, 2003, loans due from Atari Interactive were $39.0 million. This loan
bears interest at prime plus 150 basis points and will be repaid from
distribution royalties owed by the Company to Atari Interactive in the ordinary
course of operations. Additionally, normal trade activities payable to Atari
Interactive are netted against the loan balance outstanding when the invoices
become due (generally in 45 days). For the three months ended June 30, 2003,
approximately $0.6 million of interest income was recognized, of which
approximately $0.2 million was unpaid and is included in due from related
parties at June 30, 2003.

         On July 3, 2003, the Company entered into an offset agreement with
Atari Interactive and Infogrames SA. The agreement provides that on the date of
termination of the Senior Credit Facility with GECC, the Company may offset any
amount outstanding from Atari Interactive for advances, loans and current
accounts receivable against amounts due under the Credit Agreement with
Infogrames SA. As of June 30, 2003, the Company has approximately $37.1 million
net outstanding from Atari Interactive.

Advances to Atari Australia Pty. Ltd. ("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 June 30, 2003, the Company has approximately $1.9 million
net outstanding from Atari Australia.

         On July 3, 2003, the Company, Atari Australia and Infogrames SA entered
into an offset agreement, the effect of which provides the Company with the
ability to offset the outstanding receivable balance, or any portion of that
amount outstanding, if any, on July 3, 2005, against amounts owed under the
Company's Credit Agreement with Infogrames SA.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

LITIGATION

         During the three months ended June 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.

                                     Page 14

<PAGE>

KBK

         On September 16, 2002, Knight Bridging Korea Co., Ltd. ("KBK"), a
distributor of electronic games via the Internet and local area networks, filed
a lawsuit against Gamesonline.com, Inc. ("Gamesonline"), a subsidiary of
Interplay Entertainment Corp., and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered into
a contract with Gamesonline to obtain the right to localize (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, Inc. (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.

NOTE 8 - DEBT

Credit Facilities

         GECC Senior Credit Facility

         On November 12, 2002 (last amended July 11, 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. The outstanding borrowings
as of June 30, 2003, under the Senior Credit Facility were approximately $7.6
million with another $5.5 million of letters of credit outstanding. As of June
30, 2003, accrued interest of approximately $0.1 million was included in accrued
liabilities and the Company was in compliance with all financial covenants.

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

Infogrames SA credit facilities and debt with the Company

         Credit Agreement

         The Company has 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,

                                     Page 15

<PAGE>

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. Repayments under the Credit
Agreement and additional borrowings under the Credit Agreement are restricted
under the terms of the Subordination Agreement, and demand of repayments cannot
be made prior to termination of the Senior Credit Facility or without prior
approval of GECC or otherwise in accordance with the Subordination Agreement.
The outstanding borrowings as of June 30, 2003 under the Credit Agreement were
$44.8 million. As of June 30, 2003, accrued interest and fees were approximately
$1.6 million and are included in current amounts due to related parties. The
entire outstanding balance of $44.8 million at June 30, 2003 is included in
current liabilities as management is unable to determine the extent to which
principal repayments, if any, will be made prior to July 1, 2004.

         Pursuant to two offset agreements dated July 3, 2003 between the
Company, Infogrames SA and two subsidiaries of Infogrames SA, the Company will
have the ability to offset certain amounts due from Atari Interactive and Atari
Australia, against amounts due under the Credit Agreement. At June 30, 2003, the
amounts that were subject to offset for Atari Interactive were $37.1 million
upon the termination of the Senior Credit Facility with GECC and for Atari
Australia, approximately $1.9 million on July 3, 2005. However, the receivable
and payable are not netted against the Credit Agreement on the accompanying
balance sheet because the legal right to offset does not exist until a future
date.

         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. The facility provides for the maturity of the
medium-term loan as follows: $10.0 million in August 2003, representing the
three month anniversary of the first shipment of the game based on the Matrix
Reloaded movie; $10.0 million on December 31, 2003; $20.0 million on March 31,
2004; and $10.0 million on June 30, 2004. Provided the Company is unable to make
the scheduled payments, Infogrames SA has waived any defaults through April 1,
2004. Under the Subordination Agreement, the scheduled payments are restricted
by certain financial conditions including, but not limited to, the Senior Credit
Facility's minimum borrowing availability and the Company's cash flow. As of
June 30, 2003, the outstanding borrowings under the medium-term loan were
approximately $48.3 million, all of which are in current liabilities.
Additionally, accrued interest was approximately $1.2 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 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% subordinate convertible note") as they relate to the
Company. Under the Subordination Agreement, the scheduled payment is restricted
by certain financial conditions including but not limited to the Senior Credit
Facility's minimum borrowing availability and the Company's cash flow. Interest
on the 0% Notes accretes at the rate of 7% per annum.

         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 are in the 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 Subordination Agreement, the scheduled payment is restricted by
certain financial conditions including but not limited to the Senior Credit
Facility's minimum borrowing availability and the Company's

                                     Page 16

<PAGE>

cash flow.

Long-term related party debt consists of the following at June 30, 2003 (in
thousands):

<TABLE>
<S>                                                                                <C>
Infogrames SA 0% subordinated convertible note, due December 16, 2004..........    $  45,695
5% CUSH Notes, due December 16, 2004...........................................       72,245
                                                                                   ---------
                                                                                   $ 117,940
                                                                                   =========
</TABLE>

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 ended June 30, 2002 and 2003 (in
thousands):

<TABLE>
<CAPTION>
                                                        PUBLISHING     DISTRIBUTION     CORPORATE        TOTAL
                                                        ----------     ------------     ---------        -----
<S>                                                     <C>            <C>              <C>             <C>
Three months ended June 30, 2002:
      Net revenues..................................     $ 108,301       $ 21,302       $     --        $ 129,603
      Operating income (loss).......................        11,930          2,537         (5,870)           8,597
      Depreciation and amortization.................          (894)          (144)          (880)          (1,918)
      Interest, net.................................           (57)            28         (4,040)          (4,069)
Three months ended June 30, 2003:
      Net revenues..................................     $ 135,600       $ 15,757       $     --        $ 151,357
      Operating income (loss).......................        31,031          2,973         (6,347)          27,657
      Depreciation and amortization.................          (953)          (176)          (821)          (1,950)
      Interest, net.................................            --             16         (3,062)          (3,046)

</TABLE>

                                     Page 17
<PAGE>

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

         This document includes statements that may constitute forward-looking
statements made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company would like to caution readers
regarding certain forward-looking statements in this document and in all of its
communications to shareholders and others, press releases, securities filings,
and all other documents and communications. Statements that are based on
management's projections, estimates and assumptions are forward-looking
statements. The words "believe", "expect", "anticipate", "intend", "will",
"should", "may" and similar expressions generally identify forward-looking
statements. While the Company believes in the veracity of all statements made
herein, forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies and known and unknown risks. Many of the
uncertainties and contingencies can affect events and the Company's actual
results and could cause its actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Some of the factors that could cause actual results or future events to
differ materially or otherwise include the Company's level of dependence on the
financial support of its parent, Infogrames SA, Infogrames SA's ability to
continue to support the Company, 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 annual report on Form 10-K for the year ended March 31, 2003 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. The Company
is also a leading distributor of video game software in North America. The
Company publishes and distributes games for all platforms, including Sony
PlayStation and PlayStation 2; Nintendo Game Boy, Game Boy Advance and GameCube;
Microsoft Xbox; and PCs. The Company's diverse portfolio of products extends
over every major video game genre, including: action, adventure, strategy,
children, family, racing and sports games.

         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. Publishing is conducted through
the Company's three main studios: Santa Monica, California (sports/racing and
action/adventure games); Beverly, Massachusetts (kids/family games, driving, and
strategy); and Minneapolis, Minnesota (action/adventure games). Distribution
activities primarily include the sale of games produced by other publishers
("Third-Party Products").

         The Company's margins may vary over time as a result of a variety of
factors. Typically, titles based on intellectual property owned or created by
the Company yield higher margins than those titles based on licensed properties
due to the fact that the Company must pay royalties to the licensor. The
Company's margins may also be impacted by the platform for which the title is
published. The Company has to pay a hardware manufacturing royalty fee for
products published for consoles, which is not required for products published
for PCs. Accordingly, the Company's per unit manufacturing cost for video game
software for PCs is less than the per unit manufacturing cost of console and
handheld products. Lastly, distribution sales typically earn a lower margin than
published product sales.

         The worldwide interactive entertainment software market is comprised
primarily of software for PCs and dedicated game consoles, and the Company
develops and publishes games for all of these platforms. During the three months
ended June 30, 2003, the Company's product mix of units sold consisted of 46% PC
games, 23% Sony PlayStation(R) 2 games, 12% Microsoft Xbox(R) games, 7% Nintendo
Game Boy(R) Advance games, 7% Nintendo GameCube games, and 5% Sony
PlayStation(R) games. The Company believes that maintaining a healthy mix of
platform distribution in its product line-up is vital for its continued growth.
According to International Development Group ("IDG"), legacy platforms such as
the multimedia home PC had an installed base of approximately 71.0 million in
North America in 2002; that base is projected to increase to more than 81.0
million by 2006. IDG also reports the installed base for the PlayStation2,
introduced in North America in 2000, is projected to grow from 16.8 million in
2002 to nearly 40.0 million in 2005. The PlayStation, currently the most widely
distributed gaming console, had an installed

                                     Page 18

<PAGE>

base of nearly 32.0 million in North America in 2002; that base is projected to
increase incrementally to approximately 32.7 million by the end of 2003. As the
PlayStation's growth slowed, the console market introduced new platforms in
November 2001 from Microsoft and Nintendo, the Xbox(TM) and GameCube(TM),
respectively. IDG projects that the Xbox will have a North American installed
base of approximately 17.0 million by 2006, while the GameCube is projected to
have a North American installed base of approximately 12.7 million in the same
time period. The expansion of the gaming market, both organic and through the
addition of new consoles, opens additional opportunities for the Company's
product while increasing the competition for market share and shelf space.

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

         The distribution channels for interactive software have 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 a myriad of Internet and on-line
networks.

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 June 30, 2002 and 2003, the Company recorded
allowances for bad debts, returns, price protection and other customer
promotional programs of approximately $28.6 million and $31.5 million,
respectively. As of March 31, 2003 and June 30, 2003, the aggregate reserves
against accounts receivables for bad

                                     Page 19

<PAGE>

debts, returns, price protection and other customer promotional programs were
approximately $40.3 million and $42.3 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
conditions are less favorable than those assumed by management, additional
inventory write-downs may be required. For the three months ended June 30, 2002
and 2003, the Company recorded obsolescence expense of approximately $1.6
million and $0.4 million, respectively. As of March 31, 2003 and June 30, 2003,
the aggregate reserve against inventories was approximately $4.9 million and
$3.7 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. The Company's success depends in part on its
continued ability to obtain or renew product development agreements with
independent software developers.

Income taxes

         The Company files income tax returns in every jurisdiction in which it
has reason to believe it is subject to tax. Historically, the Company has been
subject to examination by various taxing jurisdictions. To date, none of these
examinations has resulted in any material additional tax. Nonetheless, any tax
jurisdiction may contend that a filing position claimed by the Company regarding
one or more of its transactions is contrary to that jurisdiction's laws or
regulations. As of June 30, 2003, the Company has combined net operating loss
carryforwards of approximately $408.4 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. 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).

                                     Page 20

<PAGE>

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:

<TABLE>
<CAPTION>
                                                             THREE MONTHS       THREE MONTHS
                                                                 ENDED              ENDED
                                                                JUNE 30,           JUNE 30,
                                                                 2002               2003
                                                             ------------       ------------
<S>                                                          <C>                <C>
Net revenues.......................................               100.0%             100.0%
Cost of goods sold.................................                46.3               46.8
                                                                -------            -------
   Gross profit....................................                53.7               53.2
Selling and distribution expenses..................                16.8               13.3
General and administrative expenses................                 6.6                5.6
In-process research and development................                 5.7                 --
Research and development...........................                16.5               14.7
Depreciation and amortization......................                 1.5                1.3
                                                                -------            -------
     Operating income..............................                 6.6               18.3
Interest expense, net..............................                 3.1                2.0
Other (expense) income.............................                (2.8)               0.0
                                                                -------            -------

      Income before provision for income taxes.....                 0.7               16.3
Provision for income taxes.........................                 1.2                0.6
                                                                -------            -------

      Net (loss) income............................                (0.5)              15.7
                                                                =======            =======
</TABLE>

         THREE MONTHS ENDED JUNE 30, 2003 VERSUS THE THREE MONTHS ENDED JUNE 30,
2002

         Net revenues for the three months ended June 30, 2003 increased
approximately $21.8 million or 16.8% from $129.6 million to $151.4 million. This
increase is attributable to the Company's continued growth in its publishing
business, driven by the success of Enter the Matrix.

         Total publishing net revenues for the three months ended June 30, 2003
increased approximately $27.3 million or 25.2% to $135.6 million from $108.3
million in the comparable 2002 period. 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. During the
month of June, this success continued as Enter the Matrix ranked number one
among all PlayStation2 titles, number two among all Xbox titles and number six
among all GameCube titles. Other major new releases in the 2003 quarter included
the latest installment from the Dragon Ball Z ("DBZ") franchise, DBZ: Legacy of
Goku II for Gameboy Advance, as well as Godzilla: Destroy All Monsters for Xbox
and Neverwinter Nights Expansion Pack I for the PC. The comparable June 2002
period also benefited from several strong new releases, chiefly Stuntman for
Playstation2, Test Drive 2001 for Playstation2, Neverwinter Nights for the PC
and the first DBZ: Legacy of Goku for Gameboy Advance. Additionally,
international royalties earned from the sale of US product in Europe for the
three months ended June 30, 2003 were $17.3 million, significantly above the
comparable 2002 international royalties of $1.6 million due largely to the
success of Enter the Matrix. Total third-party distribution net revenues for
the three months ended June 30, 2003 decreased by approximately $5.5 million or
25.8% to $15.8 million from $21.3 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 increased to $80.5 million for the three months ended June
30, 2003 from $69.6 million in the comparable 2002 period due mainly to
increased sales volume. Gross profit as a percentage of net revenues decreased
slightly from 53.7% for the three months ended June 30, 2002 to 53.2% in the
comparable 2003 period. This slight 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, largely offset by a shift out of the
distribution business into the publishing business. Approximately 77.7% of the
publishing businesses shipments were console sales during the three months ended
June 30, 2003 versus 67.9% in the comparable 2002 period. For the three months
ended June 30, 2003, the distribution business accounted for 10.4% of the
Company's net revenues as compared to 16.4% 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 June 30, 2003, selling and distribution expenses
decreased approximately $1.7 million, or 7.8%, to $20.1 million from $21.8
million in the comparable 2002

                                     Page 21

<PAGE>
period. Variable distribution costs as a percentage of net revenues have
improved over the June 2002 quarter from 3.4% to 2.4% as various planned
operational efficiencies and changes in product mix have reduced freight and
distribution expenses. Selling expenses including travel and field service fees
decreased $0.6 million to $0.9 million from $1.5 million in the June 2002
quarter. Finally, higher advertising expenses of $1.1 million were largely
offset by $0.9 million of savings from the Company's Australian operation which
is in the process of being closed. Nominal selling & distribution costs were
incurred by the Australia operation in the June 2003 quarter. The efficiencies
in selling and distribution expenses created a decrease in these expenses as a
percentage of net revenues to 13.3% for the three months ended June 30, 2003
from 16.8% in the comparable 2002 period.

         General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses for the three months ended June 30, 2003 and 2002 remained
constant at $8.5 million each period. General and administrative expenses as a
percentage of net revenues decreased to 5.6% for the three months ended June 30,
2003 from 6.6% in the comparable 2002 period.

         The $7.4 million of in-process research and development expense in the
June 2002 quarter represents a portion of the purchase price paid for the Shiny
development studio during that quarter. 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 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 June 30, 2003 increased approximately
$0.8 million, or 3.7%, to $22.2 million from $21.4 million in the comparable
2002 period. The primary reason for the increase in research and development
expense was from increased spending by the Company's internal development
studios, which include Humongous, Legend, Reflections and Shiny. During the
three months ended June 30, 2003, the Company's internal development studios
incurred expenses of $10.7 million, an increase of $1.5 million or 16.3% from
$9.2 million in the comparable 2002 period. This additional expense is partially
offset by development expenses owed to external developers, which are down by
$1.1 million from the June 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 48.2% of the total research
and development costs for the three months ended June 30, 2003, while internal
costs were 43.0% of total research and development costs for the comparable 2002
period. Research and development expenses, as a percentage of net revenues,
decreased slightly to 14.7% for the three months ended June 30, 2003 from 16.5%
in the comparable 2002 period.

         Depreciation and amortization for three months ended June 30, 2003
remained relatively constant, increasing by $0.1 million, or 5.3%, to $2.0
million from $1.9 million in the comparable 2002 period.

         Interest expense, net, decreased approximately $1.1 million to $3.0
million for the three months ended June 30, 2003 from $4.1 million in the
comparable 2002 period. The decrease is due to a reduction in borrowings under
the Credit Agreement with Infogrames SA and repayment of the BNP Paribus note in
August 2002, partially offset by interest expense and the amortization of
deferred financing costs incurred under the GECC Senior Credit Facility closed
in November 2002. The Company has also earned $0.6 million of offsetting
interest income in the June 2003 quarter from advances made to Atari
Interactive. Non-cash interest related to the Infogrames SA 0% subordinate
convertible note and 5% subordinated convertible notes included in interest
expense is approximately $1.6 million in each of the quarters ended June 30,
2002 and 2003.

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

         During the three months ended June 30, 2003, the Company recorded a
provision for federal and state alternative minimum tax provisions of
approximately $0.6 million and a regular provision for state taxes of
approximately $0.3 million. For the three months ended June 30, 2002, a
provision for taxes of approximately $1.7 million was recorded, the majority of
which related to foreign tax liabilities of the Company's foreign operations.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 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

                                     Page 22

<PAGE>

November 12, 2002, (last amended July 11, 2003), the Company obtained a 30-month
$50.0 million Senior Credit Facility with GECC which is 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 SA. See the Company's
Annual Report on Form 10K for the year ended March 31, 2003 for a discussion of
"Risk Factors" that could materially impact expected cash flows.

Cash Flows

         Cash was $9.2 million at June 30, 2003 compared to $0.8 million at
March 31, 2003. As of June 30, 2003, the Company had a working capital deficit
of $83.3 million compared to $91.6 million at March 31, 2003.

         During the three months ended June 30, 2003, $21.4 million was provided
by operating activities generated primarily by net income earned during the
period and an increase in royalties payable and accounts payable, partially
offset by the increase of trade receivables and amounts due from related
parties. Operating funds were used to pay-off $3.0 million of the balance of the
GECC Senior Credit Facility and to fund capital expenditures of $1.7 million
during the period. The Company also advanced Atari Interactive $8.5 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 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.

         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 July 11, 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 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. The outstanding borrowings as of June 30, 2003, under the
Senior Credit Facility were approximately $7.6 million with another $5.5 million
of letters of credit outstanding. As of June 30, 2003, accrued interest of
approximately $0.1 million was included in accrued liabilities and the Company
was in compliance with all financial covenants.

         In conjunction with the Senior Credit Facility, the Company, Infogrames
SA and GECC entered into an Intercreditor and Subordination Agreement dated
November 12, 2002. The Subordination Agreement makes all Infogrames SA debt and
other related party debt with the Company subordinate to the Senior Credit
Facility. The Subordination Agreement allows repayment of debt and interest to
Infogrames SA by the Company under certain financial conditions including, but
not limited to, the Senior Credit Facility cash availability and the Company's
cash flow. Additionally, the Subordination Agreement precludes Infogrames SA
from demanding principal repayments of any kind on any of its debt with the
Company unless such demand of repayment is in accordance with the scheduled
maturity of debt under the medium-term loan or with prior approval from GECC.

                                     Page 23

<PAGE>

Infogrames SA credit facilities and debt with the Company

         Credit Agreement

         The Company has a revolving credit agreement with Infogrames SA 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. Repayments under the Credit Agreement and
additional borrowings under the Credit Agreement are restricted under the terms
of the Subordination Agreement, and demand of repayments cannot be made prior to
termination of the Senior Credit Facility or without prior approval of GECC or
otherwise in accordance with the Subordination Agreement. The outstanding
borrowings as of June 30, 2003 under the Credit Agreement were $44.8 million. As
of June 30, 2003, accrued interest and fees were approximately $1.6 million and
are included in current amounts due to related parties. The entire outstanding
balance of $44.8 million at June 30, 2003 is included in current liabilities as
management is unable to determine the extent to which principal repayments, if
any, will be made prior to July 1, 2004.

         Pursuant to two offset agreements dated July 3, 2003 between the
Company, Infogrames SA and two subsidiaries of Infogrames SA, the Company will
have the ability to offset certain amounts due from Atari Interactive and Atari
Australia, against amounts due under the Credit Agreement. At June 30, 2003, the
amounts that were subject to offset for Atari Interactive were $37.1 million
upon the termination of the Senior Credit Facility with GECC and for Atari
Australia, approximately $1.9 million on July 3, 2005. However, the receivable
and payable are not netted against the Credit Agreement on the accompanying
balance sheet because the legal right to offset does not exist until a future
date.

         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. The facility provides for the maturity of the
medium-term loan as follows: $10.0 million in August 2003, representing the
three month anniversary of the first shipment of the game based on the Matrix
Reloaded movie; $10.0 million on December 31, 2003; $20.0 million on March 31,
2004; and $10.0 million on June 30, 2004. Provided the Company is unable to
make the scheduled payments, Infogrames SA has waived any defaults through
April 1, 2004. Under the Subordination Agreement, the scheduled payments are
restricted by certain financial conditions including, but not limited to, the
Senior Credit Facility's minimum borrowing availability and the Company's cash
flow.  As of June 30, 2003, the outstanding borrowings under the medium-term
loan were approximately $48.3 million, all of which are in current liabilities.
Additionally, accrued interest was approximately $1.2 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% subordinate convertible
note") as they relate to the Company. Under the Subordination Agreement, the
scheduled payment is restricted by certain financial conditions including but
not limited to the Senior Credit Facility's minimum borrowing availability and
the Company's cash flow. Interest on the 0% Notes accretes at the rate of 7% per
annum.

         5% Notes

                                     Page 24

<PAGE>

         In conjunction with the 1999 purchase of the Company by Infogrames SA,
the Company issued to CUSH, 5% subordinated convertible 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 are in the 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
Subordination Agreement, the scheduled payment is restricted by certain
financial conditions including but not limited to the Senior Credit Facility's
minimum borrowing availability and the Company's cash flow.

Long-term related party debt consists of the following at June 30, 2003 (in
thousands):

<TABLE>
<S>                                                                               <C>
Infogrames SA 0% subordinated convertible note, due December 16, 2004..........   $  45,695
5% CUSH Notes, due December 16, 2004...........................................      72,245
                                                                                  ---------
                                                                                  $ 117,940
                                                                                  =========
</TABLE>

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

<TABLE>
<CAPTION>
                                               CONTRACTUAL OBLIGATIONS
                                                PAYMENTS DUE BY PERIOD

                                           WITHIN 1 YEAR    1-3 YEARS       4-5 YEARS    AFTER 5 YEARS        TOTAL
                                           -------------    ---------       ---------    -------------      ---------
<S>                                        <C>              <C>             <C>          <C>                <C>
Short-term debt (1)....................    $   100,709      $      --       $      --      $      --        $ 100,709
Long-term debt.........................             --        117,940              --             --          117,940
Royalty and license advances...........          4,843            605              --             --            5,448
Operating lease obligations............          5,100         13,700           2,400          1,500           22,700
Restructuring obligations..............             11             --              --             --               11
                                           -----------      ---------       ---------      ---------        ---------
Total   ...............................    $   110,663      $ 132,245       $   2,400      $   1,500        $ 246,808
                                           ===========      ==========      =========      =========        =========
</TABLE>

    (1)  Pursuant to two offset agreements dated July 3, 2003 between the
         Company, Infogrames SA and two subsidiaries of Infogrames SA, the
         Company will have the ability to offset certain net receivables against
         amounts due under the Credit Agreement. At June 30, 2003, the amounts
         that are subject to offset for Atari Interactive are $37.1 million upon
         the termination of the Senior Credit Facility with GECC and for Atari
         Australia, approximately $1.9 million on July 3, 2005.

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, certain of the disclosure requirements apply to financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. The Company does not have any Variable Interest Entities as
defined in FIN 46. Accordingly, this pronouncement is currently not applicable
to the Company.

         In May 2003, the FASB issued SFAS No. 149, "Derivative Instruments".
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;

                                     Page 25

<PAGE>
 (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.

                                     Page 26

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Rates

         In recent years, the Company has restructured its foreign operations.
As of June 30, 2003, foreign operations represented 0.0% and 1.0% of
consolidated net revenues and total assets, respectively. The Company also
recorded approximately $2.0 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.

Interest Rates

         The Company is exposed to market risk from changes in interest rates on
its revolving credit facility, its related party credit facility and the
medium-term loan. Outstanding balances under these three facilities (which
aggregated approximately $100.7 million at June 30, 2003) bear interest at
variable rates based on a margin over LIBOR. Based on the amount outstanding as
of June 30, 2003, a 100 basis point change in interest rates would result in an
approximate $1.0 million change to the Company's annual interest expense. For
fixed rate debt including the Infogrames SA 0% subordinated convertible notes
and the 5% CUSH Notes with a subsidiary of Infogrames SA aggregating
approximately $118.0 million at June 30, 2003, interest rate changes effect the
fair market value of such debt, but do not impact the Company's earnings.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of a date (the "Evaluation
Date") within 90 days of the filing of this report on Form 10-Q, 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 Rules 13a-14(c)
and 15d-14(c)). Based on this evaluation, the Company's Chief Executive Officer
and Chief Financial Officer concluded that such controls and procedures are
adequate and effective.

Changes in Internal Controls. Subsequent to the Evaluation Date, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect the Company's disclosure controls and procedures.

                                     Page 27

<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

LITIGATION

         During the three months ended June 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, 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 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.

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<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

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

         No reports on Form 8-K are filed or incorporated by reference as part
of this report.

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<PAGE>

                                   SIGNATURES

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

                                          ATARI, INC.

                                      By: /s/ DAVID J. FREMED
                                          --------------------------------------
                                          David J. Fremed
                                          Senior Vice President of Finance and
                                          Chief Financial Officer
                                          Date: August 8, 2003

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