<PAGE>   1
 ------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


For the quarterly period ended June 30, 1998     Commission File No. 0-27338


                          GT INTERACTIVE SOFTWARE CORP.
             (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)                     (Zip code)



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


                                   ----------


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

                           Yes      X                No______

         As of August 3, 1998, there were 68,080,134 shares of the registrant's
Common Stock outstanding.


<PAGE>   2
                          GT INTERACTIVE SOFTWARE CORP.
                  June 30, 1998 QUARTERLY REPORT ON FORM 10-Q
                                TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION



<TABLE>
<CAPTION>
                                                                                                          Page
<S>                                                                                                      <C>
Item 1.          Financial Statements (Unaudited):

                 Consolidated Balance Sheets as of March 31, 1998 (audited)  and June 30, 1998              3

                 Consolidated Statements of Operations for the Three Months Ended
                 June 30, 1997 and 1998                                                                     4

                 Consolidated Statements of Comprehensive Income for the Three Months Ended                 
                 June 30, 1997 and 1998                                                                     5

                 Consolidated Statements of Cash Flows for the Three Months Ended
                 June 30, 1997 and 1998                                                                     6

                 Notes to the Consolidated Financial Statements                                             7



Item 2.          Management's Discussion and Analysis of Financial Condition and Results of                11
                 Operations



PART II - OTHER INFORMATION


Item 1.          Litigation                                                                                16

Item 4.          Submission of Matters to a Vote of Security Holders                                       16

Item 6.          Exhibits and Reports on Form 8-K                                                          17

Signatures                                                                                                 18
</TABLE>
<PAGE>   3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                     March 31,         June 30,
                                                                       1998             1998
                                                                       ----             ----
                                                                    (audited)        (unaudited)
<S>                                                                 <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                                         $  17,224         $   8,660
  Short-term investments                                                  105               105
  Receivables, net                                                    134,815           162,065
  Inventories, net                                                     98,469           102,512
  Royalty advances                                                     10,009             8,924
  Deferred income taxes                                                16,140            14,980
  Income taxes receivable                                              10,684            12,117
  Prepaid expenses and other current assets                             7,954             7,736
                                                                    ---------         ---------
     Total current assets                                             295,400           317,099
Property and equipment, net                                            29,049            32,497
Investments, at cost                                                   10,089            10,089
Goodwill, net                                                          28,043            27,162
Other assets                                                            3,290             3,964
                                                                    ---------         ---------
       Total assets                                                 $ 365,871         $ 390,811
                                                                    =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                  $ 103,062         $ 109,639
  Accrued liabilities                                                  49,414            48,784
  Revolving credit facility                                            28,000            54,600
  Royalties payable                                                    40,395            31,798
  Deferred income                                                         156               167
  Income taxes payable                                                  3,449             1,853
  Current portion of long-term liabilities                                  5                 5
  Due to related party                                                    925               879
                                                                    ---------         ---------
     Total current liabilities                                        225,406           247,725
Long-term liabilities                                                   1,576             1,669
                                                                    ---------         ---------
       Total liabilities                                              226,982           249,394
                                                                    ---------         ---------

Commitments and contingencies

STOCKHOLDERS' EQUITY
  Common stock, $.01 par, 150,000,000 shares authorized,
     67,991,926 and 68,074,935 shares issued and outstanding              680               681
  Additional paid-in capital                                          131,382           131,730
  Retained earnings                                                     7,577             9,380
  Cumulative translation adjustment                                      (750)             (374)
                                                                    ---------         ---------
       Total stockholders' equity                                     138,889           141,417
                                                                    ---------         ---------
       Total liabilities and stockholders' equity                   $ 365,871         $ 390,811
                                                                    =========         =========
</TABLE>

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

                                     Page 3
<PAGE>   4
                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                June 30,
                                                         -----------------------
                                                         1997               1998
                                                         ----               ----
                                                               (unaudited)
<S>                                                    <C>               <C>
Net revenues                                           $ 102,737         $ 116,391
Cost of goods sold                                        60,163            55,898
Selling and distribution expenses                         21,119            26,460
General and administrative expenses                        9,344            12,453
Research and development                                   3,068            16,597
Amortization of goodwill                                     283               871
                                                       ---------         ---------
     Operating income                                      8,760             4,112
Interest and other expense, net                             (626)           (1,176)
                                                       ---------         ---------
     Income before income taxes                            8,134             2,936
Provision for income taxes                                 3,667             1,133
                                                       ---------         ---------
     Net income                                        $   4,467         $   1,803
                                                       =========         =========


Basic net income per share                             $    0.07         $    0.03

  Weighted average number of shares outstanding           66,779            68,056

Diluted net income per share                           $    0.07         $    0.03

  Weighted average number of shares outstanding           67,230            68,988
</TABLE>

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

                                     Page 4
<PAGE>   5
                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                    Three Months Ended
                                                         June 30,
                                                   --------------------
                                                   1997            1998
                                                   ----            ----
                                                      (unaudited)
<S>                                              <C>             <C>
Net income                                       $ 4,467         $ 1,803


Other comprehensive income:
 Foreign currency translation adjustments            358             376
 Unrealized holding loss on securities              (126)           --
                                                 -------         -------

Comprehensive income                             $ 4,699         $ 2,179
                                                 =======         =======
</TABLE>

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

                                     Page 5
<PAGE>   6
                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                                June 30,
                                                                                         ----------------------
                                                                                         1997              1998
                                                                                         ----              ----
                                                                                             (unaudited)

<S>                                                                                    <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                           $  4,467         $  1,803
  Adjustments to reconcile net income to net cash used in operating activities:
       Depreciation and amortization                                                      1,124            3,244
       Deferred income taxes                                                              4,353            1,159
       Deferred income                                                                   (2,403)              16
       Changes in operating assets and liabilities:
          Receivables, net                                                              (14,695)         (27,310)
          Inventories, net                                                                5,631           (4,073)
          Royalty advances                                                              (13,247)           1,085
          Due to related party                                                             (119)             (46)
          Prepaid expenses and other current assets                                        (342)             251
          Accounts payable                                                               (6,391)           6,557
          Accrued liabilities                                                            (7,071)            (658)
          Royalties payable                                                                (614)          (8,598)
          Income taxes payable                                                           (4,371)          (1,605)
          Income taxes receivable                                                          --             (1,433)
          Long-term liabilities                                                           1,330               88
          Other                                                                           1,111             (672)
                                                                                       --------         --------
             Net cash used in operating activities                                      (31,237)         (30,192)
                                                                                       --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of investments                                                                  (108)            --   
  Purchase of property and equipment                                                     (6,073)          (5,824)
  Acquisitions, net                                                                        (846)            --   
                                                                                       --------         --------
             Net cash used in investing activities                                       (7,027)          (5,824)
                                                                                       --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under revolving credit facility, net                                        23,200           26,600
  Proceeds from exercise of stock options                                                 2,107              348
                                                                                        --------         --------           
             Net cash provided by financing activities                                   25,307           26,948
                                                                                        --------         --------   
  Effect of exchange rates on cash and cash equivalents                                     358              504
                                                                                        --------         --------       
  Net decrease in cash and cash equivalents                                             (12,599)          (8,564)
  Cash and cash equivalents - beginning of period                                        16,640           17,224
                                                                                       --------         --------
  Cash and cash equivalents - end of period                                            $  4,041         $  8,660
                                                                                       ========         ========
</TABLE>

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

                                     Page 6
<PAGE>   7
                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED, IN THOUSANDS)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

         The accompanying interim consolidated financial statements of GT
Interactive Software Corp. and Subsidiaries (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
Transition Report on Form 10-K for the transition period from January 1, 1998 to
March 31, 1998.

Reclassifications

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

Net Income Per Share

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 requires dual presentation of basic earnings per share ("EPS")
and diluted EPS on the face of all statements of earnings for all entities with
complex capital structures. Basic EPS is computed as net earnings divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, restricted stock
awards, warrants and other convertible securities using the treasury stock
method.

Fiscal Year

         Effective January 1, 1998, the Company has changed its fiscal year end
from December 31 to March 31.

NOTE 2 - ACQUISITIONS

         In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a software developer, for cash and stock.
Total consideration, including acquisition costs, was approximately $14.7
million, of which $5.4 million was cash and the balance of the purchase price
was the issuance of 0.7 million newly issued shares of the Company's Common
Stock and the assumption of approximately 0.3 million stock options. The
acquisition was accounted for as a purchase. The purchase price was allocated to
net assets acquired, purchased in-process research and development ("R&D"), and
goodwill and other intangibles. Purchased in-process R&D includes the value of
products in the development stage and not considered to have reached
technological feasibility. In accordance with the applicable accounting rules,
purchased in-process R&D is required to be expensed. Accordingly, $11,008 of
acquistion cost was expensed in the fourth quarter of 1997.

                                     Page 7
<PAGE>   8
                 GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           (UNAUDITED, IN THOUSANDS)

NOTE 3 - INVENTORIES, NET

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                              March 31,       June 30,
                                                1998            1998
                                                ----            ----
                                                  (in thousands)
<S>                                           <C>             <C>
Finished goods                                $ 94,220        $ 97,721
Raw materials                                    4,249           4,791
                                              --------        --------
                                              $ 98,469        $102,512
                                              ========        ========
</TABLE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

         On January 21, 1997, the Company entered into a Revolving Credit
Agreement (the "Credit Agreement") with certain banks expiring on December 31,
1998. The Credit Agreement was amended on June 30, 1997 to increase the facility
from $40,000 to a maximum of $65,000 and subsequently, in July 1998, from
$65,000 to $80,000 through September 30, 1998, to be used for borrowings and
letters of credit. Borrowing is limited to fifty percent of adjusted
consolidated accounts receivable, and is secured by these receivables. The
borrowings under the Credit Agreement bear interest at either the banks'
reference rate (which is generally equivalent to the published prime rate) or
the LIBOR rate plus 1-1/4%. The Company pays a commitment fee of 1/4% based on
the unused portion of the line. The Credit Agreement requires maintenance of
certain financial ratios and net income levels.

         The Company intends to raise $100 million through a private placement
of senior subordinated notes (the "Notes") due 2005 to institutional investors
to be used for future acquisitions, fund operations and repay existing
indebtedness. The Company has also executed a commitment letter with First Union
National Bank and First Union Capital Markets for a revolving credit facility of
up to $125 million (the "New Credit Agreement") to be used to refinance certain
existing indebtedness, for ongoing working capital requirements and for other
general corporate purposes, including permitted acquisitions.

         At June 30, 1998, the Company had outstanding debt of $54,600,
representing borrowings under the Credit Agreement, and letters of credit
amounting to $5,870.


NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                   Three Months Ended
                                        June 30,
                                   ------------------
                                   1997          1998
                                   ----          ----
                                     (in thousands)
<S>                               <C>           <C>
Cash paid for income taxes        $3,926        $4,525
Cash paid for interest               316           813
</TABLE>




NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS

         The Company has two reportable segments: publishing and merchandising
and distribution. Publishing constitutes both internally developed and
externally licensed titles. Merchandising and distribution constitutes the sale
of other publishers' titles to various mass merchants.

         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 income of these segments.

                                     Page 8
<PAGE>   9
                GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (UNAUDITED, IN THOUSANDS)

NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)

         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 Company commenced reporting in these reportable
segments during the calendar year ended December 31, 1996.

         The following unaudited summary represents the consolidated net
revenues and operating income by reportable segment for the three months ended
June 30, 1997 and 1998:

<TABLE>
<CAPTION>
                                                       Merchandising     
                                                           and
                                        Publishing     Distribution     Corporate           Total
                                        ----------     ------------     ---------           -----
<S>                                     <C>            <C>              <C>               <C>
Three Months Ended June 30, 1997:
Net revenues                             $ 64,094        $ 38,643            --            $102,737
Operating income                           12,347           9,160        $(12,464)            9,043


Three Months Ended June 30, 1998:
Net revenues                             $ 70,662        $ 45,729            --            $116,391
Operating income                           10,913          10,051        $(15,981)            4,983
</TABLE>


         The following represents the reconciliation of operating income as
reported for reportable segments to consolidated totals for the three months
ended June 30, 1997 and 1998:

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                  June 30,
                                                             ------------------
                                                             1997          1998
                                                             ----          ----
                                                               (in thousands)
<S>                                                         <C>           <C>
Operating income as reported for reportable segments        $9,043        $4,983
Amortization of goodwill                                      (283)         (871)
                                                            ------        ------
Operating income                                            $8,760        $4,112
                                                            ======        ======
</TABLE>

                                     Page 9
<PAGE>   10
                GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (UNAUDITED, IN THOUSANDS)

NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)

         Information about the Company's operations in the United States and
other geographic locations for the three months ended June 30, 1997 and 1998 are
presented below.

<TABLE>
<CAPTION>
                                                             Other
                                                           Geographic
                                       United States       Locations          Total
                                       -------------       ---------          -----
<S>                                    <C>                <C>               <C>
Three Months Ended June 30, 1997:
Net revenues                             $  86,466         $  16,271        $ 102,737
Operating income                             5,487             3,273            8,760
Total assets                               313,817            42,946          356,763

Three Months Ended June 30, 1998:
Net revenues                             $  96,053         $  20,338        $ 116,391
Operating income                              (952)            5,064            4,112
Total assets                               344,311            46,500          390,811
</TABLE>


NOTE 7 - SUBSEQUENT EVENTS

         In July 1998, the Credit Agreement was amended to increase the facility
from $65,000 to $80,000 through September 30, 1998, to be used for borrowings 
and letters of credit.

         The Company intends to raise $100,000 through a private placement of 
senior subordinated notes (the "Notes") due 2005 to institutional investors to 
be used for future acquisitions, fund operations and repay existing 
indebtedness. The Company has also executed a commitment letter with First 
Union National Bank and First Union Capital Markets for a revolving credit 
facility of up to $125,0000 (the "New Credit Agreement") to be used to 
refinance certain existing indebtedness, for ongoing working capital 
requirements and for other general corporate purposes, including permitted 
acquisitions.

                                     Page 10
<PAGE>   11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results or future events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to,
world-wide business and industry conditions, adoption of new hardware systems,
product delays, software development requirements and their impact on product
launches, company customer relations and other risks and factors detailed, from
time to time, in the Company's SEC filings including, but not limited to, the
factors described on pages 11 through 17 of the Company's Transition Report on 
Form 10-K for the transition period from January 1, 1998 to March 31, 1998.

OVERVIEW

         The Company creates, publishes, merchandises and distributes
interactive entertainment, edutainment and value-priced consumer software for a
variety of platforms on a worldwide basis. Since it commenced operations in
February 1993, the Company has experienced rapid growth and its product and
customer mix has changed substantially.

         Publishing, together with merchandising and distribution, are the two
major activities of the Company. Publishing is divided into front-line and
value-priced products. Because each of these product categories has different
associated costs, the Company's margins have depended and will depend, in part,
on the percentage of net revenues attributable to each category. In addition, a
particular product's margin may depend on whether it has been internally or
externally developed and on what platforms it is published. Further, the
Company's margins may vary significantly from quarter to quarter depending on
the timing of its new published product releases. To the extent that mass
merchants require greater proportions of third-party software products, some of
which may yield lower margins, the Company's operating results may be impacted
accordingly.

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

         There has recently been an increased rate of change and complexity in
the technological innovations affecting the Company's products, coupled with
increased competitiveness for shelf space and buyer selectivity. The market for
front-line titles has become increasingly hit-driven, which has led to higher
production budgets, more complex development processes, longer development
cycles and generally shorter product life cycles. The importance of the timely
release of hit titles, as well as the increased scope and complexity of the
product development and production process, have increased the need for
disciplined product development processes that limit cost and schedule overruns.
This in turn has increased the importance of leveraging the technologies,
characters or storylines of such hit titles into additional interactive
entertainment software products in order to spread development costs among
multiple products. In this environment, the Company has determined to increase
its focus on building internal development, alliances and acquisitions, and to
reduce its relative dependence on third-party developers.

         Along with its industry competitors, the Company has historically
capitalized royalties advanced to third-party developers as a prepayment in
current assets and evaluated the realization of these royalty advances on a
quarterly basis. The market changes noted above have made it extremely difficult
to determine the likelihood of individual product acceptance and success. As a
result, in the quarter ended December 31, 1997, the Company expensed royalty
advances of $73.8 million on products that were in

                                     Page 11
<PAGE>   12
development or on sale. In connection with this change in the dynamics of the
marketplace, the Company changed its accounting, beginning on January 1, 1998,
for future royalty advances, treating such costs as research and development
expenses, which are expensed as incurred. Multi-year output advances will
continue to be capitalized as royalty advances and expensed over the development
periods, in accordance with generally accepted accounting principles.

         Since royalty advances are fixed costs, their impact is more
significant during softer revenue quarters. As such, the Company expects higher
research and development costs as a percentage of net revenues, relative to the
prior year, to continue into its second fiscal quarter, due to the expensing of 
royalty advances, as a result of the change in accounting. It is anticipated 
that this change in accounting will not have a material effect on the Company's 
operating income for the full fiscal year.

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

         During the second half of 1997, Wal-Mart began purchasing software
directly from five publishers whose software was previously sold to Wal-Mart
through the Company. In addition, in July 1998, Wal-Mart agreed to purchase
directly from a sixth publisher whose software was previously sold to Wal-Mart
through the Company.

         In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a leading developer of front-line software.
Financial results of SingleTrac have been included in the Company's
Consolidated Financial Statements on a purchase basis for the period since the
acquisition. This acquisition did not have a material impact on the financial
condition or the results of operations of the Company in the year acquired.

         Sales are recorded net of expected future returns. Historically, the
Company has experienced returns at approximately 30% of gross sales.

         Effective January 1, 1998, the Company changed its fiscal year from
December 31 to March 31.

         The consumer software industry is seasonal. Net revenues are typically
highest during the fourth calendar quarter. This seasonality is primarily a
result of the increased demand for consumer software during the year-end holiday
buying season.

                                     Page 12
<PAGE>   13
RESULTS OF OPERATIONS

         The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for the three months ended June
30, 1997 and 1998.


<TABLE>
<CAPTION>
                                                Three Months
                                                Ended June 30,
                                              -------------------
                                              1997           1998
                                              ----           ----
<S>                                          <C>            <C>
Net revenues                                 100.0%         100.0%
Cost of goods sold                            58.6           48.0
Selling and distribution expenses             20.6           22.7
General and administrative expenses            9.0           10.7
Research and development                       3.0           14.3
Amortization of goodwill                       0.3            0.7
                                             -----          -----
    Operating income                           8.5            3.6
Interest  and other  expense, net             (0.6)          (1.0)
                                             -----          -----
    Income before income taxes                 7.9            2.6
Provision for income taxes                     3.5            1.0
                                             -----          -----
    Net income                                 4.4%           1.6%
                                             =====          =====
</TABLE>

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

         Net revenues for the three months ended June 30, 1998 ("1999")
increased approximately $13.7 million, or 13.3% to $116.4 million from $102.7
million in the three months ended June 30, 1997 ("1998"). This growth in net
revenues was attributable to a nine percent increase in publishing revenue,
which includes both front-line publishing and value-priced publishing
("Published Product"), to $70.7 million in 1999 from $64.7 million in 1998, and
a 20% increase in products distributed for third parties, to $45.7 million in
1999 from $38.0 million in 1998. Value-priced publishing revenues increased 22%
from $19.7 million in 1998 to $24.1 million in 1999, due to the continued
strong sales of Deer Hunter for the PC and the hunting and fishing genre group
of products such as Zebco Pro Fishing 3D and Rocky Mountain Trophy Hunter for
the PC. The increase in revenues of products distributed for third parties is
primarily due to the release of Windows '98 Upgrade and the growth of the
Company's affiliated label program. The total front-line publishing component
of Published Product revenues has increased three percent in 1999 to $46.6
million from $45.0 million in 1998. International front-line publishing
revenues rose 17% from $20.0 million in 1998 to $23.4 million in 1999, while
domestic front-line publishing revenues declined seven percent from $25.0
million in 1998 to $23.1 million in 1999. The increase in front-line publishing
revenues is primarily due to the newly released Unreal for the PC, Total
Annihilation: the Core Contingency for the PC, Mike Piazza's Strike Zone for
N64, Dead Ball Zone for PSX and the continuing strong sales of Oddworld: Abe's
Oddysee for PSX, which was partially offset by fewer releases in 1999.

         Cost of goods sold primarily includes costs of purchased products.
Cost of goods sold for 1999 decreased approximately $4.3 million, or 7.1%, to
$55.9 million from $60.2 million in 1998. Cost of goods sold as a percentage of
net revenues decreased to 48.0% in 1999 as compared to 58.6% in 1998. The
decrease, as a percentage of net revenues, was due in part to the Company's
change in accounting with respect to royalty advances, resulting in the
expensing of such advances to research and development as incurred, rather than
recouping such advances based on sales. Additionally, the Company's revenues
from console products, as a percentage of Published Product revenues, decreased
in 1999 to 35% from 44% in 1998, as console products generally have a higher
overall cost than PC products. This decrease was partially offset by the higher
sales of products distributed for third parties, which generally have higher
costs than Published Product titles.

                                     Page 13
<PAGE>   14
         Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During 1999 these expenses increased
approximately $5.3 million, or 25.3%, to $26.5 million from $21.1 million in
1998. Selling and distribution expenses as a percentage of net revenues for 1999
increased to 22.7% as compared to 20.6% in 1998. The increase, as a percentage
of net revenues, was primarily attributable to the increase of advertising
worldwide to support new releases, primarily Unreal for the PC and Mike Piazza's
Strike Zone for N64, and existing and upcoming releases of the Company's
Published Product. The overall increase was also attributable to increased sales
volume.

         General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses in 1999 increased approximately $3.1 million, or 33.3% to $12.5
million from $9.3 million in 1998. General and administrative expenses as a
percentage of net revenues increased to 10.7% in 1999 from 9.0% in 1998. This
increase was due primarily to professional fees for potential mergers and
acquisitions, the related depreciation associated with the expansion of the
Company's worldwide facilities and the implementation of enterprise software to
enhance the Company's management information systems worldwide and higher rent
related to new facilities in several locations.

         Research and development primarily includes payment for royalty
advances to third-party developers on products that are currently in development
and direct costs of internally developing and producing a title such as salaries
and related costs. These expenses in 1999 increased approximately $13.5 million,
or 441.0% to $16.6 million from $3.1 million in 1998. Research and development
as a percentage of net revenues increased to 14.3% in 1999 from 3.0% in
1998. This increase is primarily due to the change in accounting effective
January 1, 1998, whereby royalty advances on products that are currently in
development are expensed as incurred, and the additional headcount attributable
to increased in-house development capacity, primarily as a result of the
SingleTrac acquisition. Research and development expenses of the Company's
internal development studios, which primarily include SingleTrac, Cavedog
Entertainment and Humongous, increased from $3.1 million in 1998 to $7.1
million in 1999.

         Interest and other expense, net, increased approximately $0.6 million
during 1999 to $1.2 million from $0.6 million in 1998. This increase was
primarily attributable to the increase in interest costs associated with
increased borrowings under the Revolving Credit Agreement (the "Credit
Agreement").

         The Company's effective tax rate for 1999 was 39% compared to 45% in
1998. This decrease was attributable to the higher proportion of income at lower
statutory rates.

                                     Page 14
<PAGE>   15
LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1998, the Company's working capital was $69.4 million
compared to $70.0 million at March 31, 1998. Cash and cash equivalents were $8.7
million at June 30, 1998 compared to $17.2 million at March 31, 1998.

         The primary source of cash during the three months ended June 30, 1998
was cash provided by financing activities of $26.9 million and net income of
$1.8 million. These externally and internally generated funds and the existing
cash balance at March 31, 1998 of $17.2 million were primarily used to fund
receivables of $27.3 million, inventory of $4.1 million, payables of $6.6
million, royalty payments in excess of recoupment of $8.6 million, and the
purchase of property and equipment of $5.8 million. The increase in the payable
and inventory balances as of June 30, 1998, as compared to March 31, 1998, was
primarily attributable to the purchases of Windows '98 Upgrade and additional
funding for inventory to support increased sales. The increase in the receivable
balance at June 30, 1998 reflects overall higher sales volume during the three
months ended June 30, 1998 and a larger proportion of those sales occurring late
in the quarter as compared to the three months ended March 31, 1998. June 1998
was the Company's third highest sales month in history, behind only September
and December 1997. The increase in property and equipment is primarily due to
additional investments in computer hardware and software and leasehold
improvements to support the Company's growth.

         On January 21, 1997, the Company entered into the Credit Agreement with
certain banks expiring on December 31, 1998. The Credit Agreement was amended on
June 30, 1997 to increase the facility from $40 million to a maximum of $65
million and subsequently, in July 1998, from $65 million to $80 million through
September 30, 1998, to be used for borrowings and letters of credit. At June 30,
1998, the Company had outstanding, under the Credit Agreement, debt and letters
of credit issued of approximately $54.6 million and $5.9 million, respectively.
Borrowing is limited to fifty percent of adjusted consolidated accounts
receivable, and is secured by these receivables. The borrowings under the Credit
Agreement bear interest at either the banks' reference rate (which is generally
equivalent to the published prime rate) or the LIBOR rate plus 1-1/4%. The
Company pays a commitment fee of 1/4% based on the unused portion of the line.

         The Company intends to raise $100 million through a private placement
of senior subordinated notes (the "Notes") due 2005 to institutional investors
to be used for future acquisitions, fund operations and repay existing
indebtedness. The Company has also executed a commitment letter with First Union
National Bank and First Union Capital Markets for a revolving credit facility of
up to $125 million (the "New Credit Agreement") to be used to refinance certain
existing indebtedness, for ongoing working capital requirements and for other
general corporate purposes, including permitted acquisitions. The existing
Credit Agreement will be repaid and terminated upon the earlier to occur of the
consummation of the offering of the Notes or the closing of the proposed New
Credit Agreement. It is currently contemplated that the Company's obligations
under the proposed New Credit Agreement will be secured by significant assets of
the Company and its subsidiaries. The proposed New Credit Agreement will require
the Company to maintain certain financial ratios. The failure of the Company to
maintain such ratios would constitute an event of default under the proposed New
Credit Agreement, notwithstanding the ability of the Company to meet its debt
service obligations.

         The Company expects continued volatility in the use of cash due to
varying seasonal, receivable payment cycles and quarterly working capital needs
to finance its distribution and growing publishing businesses.

         The Company believes that existing cash and cash equivalents, together
with cash expected to be generated from operations and from the existing Credit
Facility and future borrowings will be sufficient to fund the Company's
anticipated operations for the next twelve months.

                                     Page 15
<PAGE>   16
PART II.  OTHER  INFORMATION

Item 1. Litigation

         On May 26, 1998, Big Tuna New Media, LLC ("Big Tuna"), a developer of 
children's software titles, filed suit against the Company in the United States
District Court for the Southern District of New York seeking over $35 million
in damages, $9 million in punitive damages and injunctive relief for alleged
breaches of 1995 and 1996 rights acquisition agreements (the "1995 Agreement"
and the "1996 Agreement," respectively). Under the 1995 Agreement, Big Tuna has
delivered three out of four software titles and has been paid $1.75 million in
advances recoupable against royalties, with a remaining $250,000 advance due
upon acceptable delivery of the fourth title. Under the 1996 Agreement, the
Company has a five year option to have Big Tuna develop for commerical
exploitation between three and five children's software titles per year, as
proposed by Big Tuna, in exchange for a minimum $1 million per year in
royalties, stock warrant appreciation or cash payment, for a total of $5
million or more. Big Tuna claims that the Company repudiated and breached the
1996 Agreement, by among other things, sending to Big Tuna a notice to cure its
material and anticipatory breaches (in light of Big Tuna's failure to timely
deliver final proposals) and not making a $1 million payment on or about May 9,
1998, breached confidentiality provisions of the 1995 and 1996 Agreements by
allegedly misappropriating Big Tuna's "novel and original ideas" for use in
other games, violated the 1995 Agreement and the Lanham Act by improperly
bundling for sale two Big Tuna titles created under the 1995 Agreement with
non-Big Tuna titles, and violated the 1995 Agreement through accounting
irregularities. The Company intends to deny liability and assert counterclaims
against Big Tuna for, without limitation, its failure to timely provide final
proposals for software titles to the Company in accordance with the 1996
Agreement. The Company believes that Big Tuna's claims arose in the ordinary
course of business and that the ultimate resolution will not be material to the
Company's results of operations or financial condition.

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

(a) The Company held its Annual Meeting of the Stockholders on June 17, 1998.

(b) The directors elected at the meeting were:

<TABLE>
<CAPTION>
                               For              Withheld     Non-Votes
                               ---              --------     ---------
<S>                         <C>                 <C>          <C>
Joseph J. Cayre             48,786,661           130,038         0

Ronald W. Chaimowitz        48,788,361           128,338         0

Stanley Cayre               48,787,861           128,838         0
</TABLE>

         Other directors whose terms of office continued after the meeting are
as follows: William E. Ford, Jordan A. Levy, Jack J. Cayre, Steven A. Denning,
Phillip J. Riese and Alvin N. Teller. On June 17, 1998, the Board of Directors
accepted the resignations of Kenneth Cayre and Matthew Blank as directors of 
the Company.

(c) Other matters voted upon at the meeting and the results of those votes are
as follows:

         (i)      Approval of the 1998 Employee Stock Purchase Plan.

                  For:                      41,919,121
                  Against:                  277,016
                  Abstain:                  35,314
                  Non-Votes:                6,685,248

         (ii)     Approval of an amendment to the Company's Amended and Restated
                  Certificate of Incorporation to increase the maximum number of
                  individuals who can be members of the Board of Directors from
                  twelve to fifteen.

                  For:                      48,536,221
                  Against:                  349,304
                  Abstain:                  31,174
                  Non-Votes:                0

         (iii)    Approval of an amendment to the Company's 1997 Stock Incentive
                  Plan to increase the number of shares reserved for issuance
                  thereunder by 4,000,000 shares, from 4,000,000 to 8,000,000
                  shares.

                  For:                      38,240,834
                  Against:                  3,793,935
                  Abstain:                  48,596
                  Non-Votes:                6,833,334

         (iv)     Ratification of Arthur Andersen LLP as independent auditors
                  for the Company for the transitional fiscal year ended March
                  31, 1998 and for the fiscal year ending March 31, 1999.

                  For:                      48,822,440
                  Against:                  73,563
                  Abstain:                  20,696
                  Non-Votes:                0

                                     Page 16
<PAGE>   17
Item 6.  Exhibits and Reports on Form 8-K

(a)   Exhibits

         The following exhibits are filed as part of this report:

<TABLE>
<CAPTION>
Exhibit No.                  Description
-----------                  -----------
<S>                          <C>
3.1                          Amended and Restated Certificate of Incorporation and Certificate of
                             Amendment of the Amended and Restated Certificate of Incorporation.

3.2                          Amended and Restated By-laws (as amended on July 23, 1998).

10.1                         Amendment, dated as of July 9, 1998, to the Credit Agreement, dated as of
                             January 21, 1997, by and among the Company, the banks parties thereto and
                             Republic National Bank of New York, as Agent.

10.2                         Employment Agreement between the Company and David Chemerow.

10.3                         Employment Agreement between the Company and Harry M. Rubin.

10.4                         Employment Agreement between the Company and Ronald Chaimowitz.

10.5                         The 1997 Stock Incentive Plan (as amended on June 17, 1998).

10.6                         The 1998 Employee Stock Purchase Plan.

27.1                         Financial Data Schedule.
</TABLE>


(b)   Reports on Form 8-K

         The Company previously reported on a Current Report on Form 8-K, dated
February 17, 1998 (the "Form 8-K"), that its Board of Directors had determined
to change the Company's fiscal year-end from December 31 to March 31, and that
the Company intended to file a transition report on Form 10-Q for the quarter
ended March 31, 1998. On May 7, 1998, the Company filed an Amendment No. 1 to
the Form 8-K to report that it intended to file within the prescribed period a
transition report on Form 10-K in lieu of such Form 10-Q, and to include therein
the Company's audited consolidated financial statements for the three months 
ended March 31, 1998.

                                     Page 17
<PAGE>   18
                                   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.




                                 GT INTERACTIVE SOFTWARE CORP.





                                 By:         /s/    RONALD CHAIMOWITZ
                                         -------------------------------------
                                         Ronald Chaimowitz
                                         Chairman of the Board of
                                         Directors and Chief Executive Officer
                                         Date:  August 7, 1998

                                 By:         /s/    ANDREW GREGOR
                                         -------------------------------------
                                         Andrew Gregor
                                         Chief Financial Officer and Senior
                                         Vice President, Finance and 
                                         Administration
                                         Date:  August 7, 1998

                                     Page 18