<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                                       OR

[X] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM JULY 1, 2002          COMMISSION FILE NO. 0-27338
TO MARCH 31, 2003

                                   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

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, $0.01 PAR VALUE

         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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

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

         The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant, based on the $4.88 closing sale price of the
Common Stock on July 11, 2003 as reported on the Nasdaq National Market, was
approximately $40.5 million. As of July 11, 2003, there were 69,978,804 shares
of the registrant's Common Stock outstanding.

                       Documents Incorporated by Reference
                       -----------------------------------

         Portions of Registrant's definitive proxy statement for its 2003 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.

<PAGE>

                          ATARI, INC. AND SUBSIDIARIES
                    MARCH 31, 2003 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                            ----
<S>                                                                                                         <C>
FORWARD LOOKING INFORMATION...............................................................................   ii

PART I        ............................................................................................    1
   ITEM 1.    Business....................................................................................    1
   ITEM 2.    Properties..................................................................................   14
   ITEM 3.    Legal Proceedings...........................................................................   14
   ITEM 4.    Submission of Matters to Vote of Security Holders...........................................   15

PART II       ............................................................................................   16
   ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters.......................   16
   ITEM 6.    Selected Financial Data.....................................................................   17
   ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.......   18
   ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risk..................................   32
   ITEM 8.    Index to the Financial Statements and Supplementary Data....................................   33
   ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........   33

PART III      ............................................................................................   33
   ITEM 10.   Directors and Executive Officers............................................................   33
   ITEM 11.   Executive Compensation......................................................................   33
   ITEM 12.   Security Ownership of Certain Beneficial Owners and Management..............................   33
   ITEM 13.   Certain Relationships and Related Transactions..............................................   33
   ITEM 14.   Controls and Procedures.....................................................................   33

PART IV       ............................................................................................   35
   ITEM 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................   35

SIGNATURES    ............................................................................................   43
CERTIFICATIONS............................................................................................   44

CONSOLIDATED FINANCIAL STATEMENTS.........................................................................  F-1
</TABLE>

                                       i

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                           FORWARD-LOOKING INFORMATION

When used in this Annual Report, the words "intends," "expects," "plans,"
"estimates," "projects," "believes," "anticipates" and similar expressions are
intended to identify forward-looking statements. Except for historical
information contained herein, the matters discussed and the statements made
herein concerning the Company's future prospects are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that its plans, intentions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions or expectations will be achieved. There
can be no assurance that future results will be achieved, and actual results
could differ materially from the forecast and estimates. Important factors that
could cause actual results to differ materially include, but are not limited to,
worldwide business and industry conditions (including consumer buying and
retailer ordering patterns), adoption of new hardware systems, product delays,
changes in research and development spending, software development requirements
and their impact on product launches, Company customer relations, retail
acceptance of the Company's published and third-party titles, competitive
conditions and other risk factors, including, but not limited to, those
discussed in "Risk Factors" below at pages 9 to 13.

                                       ii

<PAGE>

                                     PART I

ITEM 1. BUSINESS

                                    OVERVIEW

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

         Following the acquisitions of GT Interactive Software Corp., a Delaware
corporation, in 1999 and Hasbro Interactive, Inc., a Delaware corporation
("Hasbro Interactive"), in 2001 by its parent company, Infogrames Entertainment
S.A., a French corporation ("Infogrames SA"), the Company embarked upon an
extensive restructuring and streamlining of its operations in fiscal 2001, which
resulted in a reduction of overhead and a streamlined organizational structure.
In fiscal 2003, the Company continued to tailor its product line-up and focused
on implementing a more strategic approach to the timing of all releases, as well
as improved controls to ensure the timely arrival of all products.

         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 and
Infogrames SA gained control 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.

         Development, publishing and distribution of interactive entertainment
software are the major activities of the Company. Publishing is conducted
through the Company's three main studios: Santa Monica, California
(sports/racing and action/adventure games); Beverly, Massachusetts (kids/family
games, driving, and strategy); and Minneapolis, Minnesota (action/adventure
games). Because each of these product categories has different associated costs,
the Company's margins have depended, and will depend, in part, on the percentage
of net revenues attributable to each category. In addition, a particular
product's margin may depend on whether it has been internally or externally
developed, whether it is a licensed or published product, and on the platform
published. Furthermore, the Company's sales and profitability may vary
significantly from quarter to quarter depending on the timing of its new
published product releases. Distribution activities primarily include the sale
of games produced by software publishers unrelated to the Company ("Third-Party
Products"). To the extent that mass-merchants require greater proportions of
these products, some of which may yield lower margins, the Company's operating
margins may be negatively impacted. Development activities include development
of games by both internal and external development studios. Internal studios are
studios owned and/or managed by the Company 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 worldwide interactive entertainment software market is comprised
primarily of software for personal computers ("PCs") and dedicated game
consoles, and the Company develops and publishes games for all of these
platforms. During the nine-month period from July 2002 through March 2003
("fiscal 2003"), the Company's product mix consisted of 51% PC games, 22% Sony
PlayStation(R) 2 games, 10% Microsoft Xbox(R) games, 7% Nintendo Game Boy(R)
Advance games, 5% Nintendo GameCube games, 4% Sony PlayStation(R) games, and 1%
games for other platforms. 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 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 may slow, the console market as of November 2001 includes
new platforms 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.

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         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 cost 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.

         Sales are recorded net of estimated future returns, price protection
and other customer promotional programs. The Company's management continually
assesses and re-evaluates the rate of returns and price protection based on
business conditions and market factors.

                                  ACQUISITIONS

ACQUISITION OF SHINY ENTERTAINMENT, INC.

         On April 30, 2002, the Company acquired all of the outstanding shares
of common stock of Shiny Entertainment, Inc., a California corporation
("Shiny"), from Interplay Entertainment Corp., a Delaware corporation
("Interplay"), David Perry, an individual ("Perry"), and Shiny Group, Inc., a
California corporation ("Shiny Group"; collectively with Interplay and Perry,
the "Sellers") (the "Shiny Acquisition"). The Shiny Acquisition was consummated
pursuant to a Stock Purchase Agreement, dated as of April 23, 2002, among the
Company and the Sellers. Shiny develops and adapts content and software for
interactive computer video games for video game consoles and personal computers
and the Company will continue to operate the business formerly operated by
Shiny. Through the Shiny Acquisition, the Company acquired the following: (i)
rights to develop games based on The Matrix Reloaded and The Matrix Revolutions,
sequels to the original motion picture The Matrix (the "Matrix Games"), (ii) the
patented Messiah engine and (iii) certain assets and tools developed in
connection with the Matrix Games. The following outlines the Shiny Acquisition:

         (a)      The purchase price paid by the Company for the shares of Shiny
                  consisted of (i) $31.0 million paid in cash at closing and
                  (ii) the issuance of promissory notes for an aggregate
                  principal amount of $16.2 million, which amount was paid in
                  installments by the Company by July 31, 2002 (the "Shiny
                  Notes").

         (b)      The Company financed the purchase price with borrowings from
                  Infogrames SA, which also guaranteed the payments under the
                  Shiny Notes. Repayment of such borrowings from Infogrames SA
                  was due in installments commencing no later than December 31,
                  2003; The Intercreditor and Subordination Agreement entered
                  into by the Company with General Electric Capital Corporation
                  ("GECC") in connection with the senior credit facility
                  extended by GECC (the "Senior Credit Facility") makes payments
                  of all outstanding debt under the Company's revolving credit
                  agreement (the "Credit Agreement") and related party debt
                  subordinate to the Senior Credit Facility. Additionally, the
                  Subordination Agreement between the Company, Infogrames SA and
                  GECC, in effect, extended the Credit Agreement through the
                  term of the Senior Credit Facility with GECC (see Note 15 to
                  the Consolidated Financial Statements for further information
                  on the Senior Credit Facility).

         (c)      The license agreement between Interplay and Warner Bros.
                  ("WB") was assigned to the Company and was also modified. As
                  consideration for this assignment and amendment, the Company
                  paid $1.0 million directly to WB at closing of the Shiny
                  Acquisition.

         (d)      The existing publishing agreement between Interplay and
                  Microsoft Corp. ("Microsoft") was terminated upon consummation
                  of the Shiny Acquisition. Simultaneously at closing, the
                  Company and Microsoft entered into an agreement, which
                  supplements the existing publishing agreement between
                  Microsoft and the Company. Under this newly-executed
                  supplemental agreement, the Company agreed to develop and

                                       2

<PAGE>

                  distribute Xbox versions of the Matrix Games. As consideration
                  for entering into this supplemental agreement, the Company
                  paid $1.0 million directly to Microsoft at closing of the
                  Shiny Acquisition.

         (e)      The Company assumed and amended Shiny's 1995 Stock Incentive
                  Plan (the "Shiny Plan"). The Company converted all options
                  outstanding under the Shiny Plan into options under the
                  Company's 2000 Stock Incentive Plan.

In December 2002, Shiny was merged up into the Company and now exists as a
division of the Company.

                                   PUBLISHING

         The Company is currently ranked as one of the largest third-party
publishers of interactive entertainment in the United States, according to
NPDFunworld TRSTS Video Games Service. Third-party publishers are companies
whose sole business is the development, publishing and distribution of
interactive entertainment software. Third-party publishers are distinguished
from first-party publishers (e.g., Sony Computer Entertainment America,
Microsoft Corporation and Nintendo of America) in that the latter produce
computer gaming consoles or hardware, as well as entertainment software. The
Company's publishing business primarily consists of three publishing studios
(Santa Monica, California; Beverly, Massachusetts; and Minneapolis, Minnesota),
which focus on the Company's core strengths: kids/family games, action/adventure
games, and sports/racing games. The Company publishes games for all platforms,
including the Sony PlayStation(R) and PlayStation(R) 2; Nintendo(R) Game Boy(R),
Game Boy(R) Advance and GameCube(R); the Microsoft(R) Xbox(TM); and the PC. With
its emphasis on producing interactive entertainment for a mass entertainment
audience, the Company publishes games at various price points, ranging from
value-priced titles to premium-priced products. Pricing is determined by a
variety of factors, including, but not limited to: license or franchise
property; internal or external development; single or multiple platform
development; production values; target audience; and distribution territory.

         The Company defines licensed properties as those titles that it has
licensed, for a fee and a finite period of time, from the property owner for the
purposes of developing an interactive game (see examples below). Franchises, in
the form of characters or games, constitute intellectual property owned and
controlled exclusively by the Company (see examples below). Games published by
the Company, with either licensed or franchise property, are developed either
internally or externally. Internal development is conducted at development
studios owned and/or managed by the Company for the sole purpose of game
development. External development studios are independent studios with which the
Company or Infogrames SA and its subsidiaries have contracts for the development
of specific titles. (See below for more detailed discussion under "Internal
Development Studios" and "External Development Studios".)

SANTA MONICA, CALIFORNIA

         The Company's studio in Santa Monica, California (the "Santa Monica
Studio"), was opened in August 2001, replacing the Company's previous two
offices in California, located in San Jose and Woodland Hills. The
centralization of these operations has enabled the Company to capitalize on its
close proximity to Hollywood in acquiring valuable entertainment licenses, while
also reducing costs and expenses associated with research and development, among
other variables.

         With an emphasis on action/adventure and racing/sports games, the Santa
Monica Studio publishes titles that are developed both internally and
externally. Now ensconced in the Hollywood community, the Santa Monica Studio
has a strategic position in acquiring and overseeing key titles licensed from
the Hollywood film and television studios. To date, the Company has licensed
film and television properties from the following licensors: Warner Bros. (The
Matrix and Looney Tunes); Viacom/Paramount Pictures/CBS/Nickelodeon (Mission:
Impossible, Mission: Impossible 2, Survivor, Blue's Clues, Dora the Explorer,
and Nicktoons); Sony Pictures (Terminator 3, Men In Black and Godzilla); Canal +
(Terminator and Terminator 2); and Dreamworks (Sinbad), among others.

         The line-up of titles published by the Santa Monica Studio also
includes titles developed by leading game developers, including BioWare Corp.
(Neverwinter Nights), Digital Extremes (Unreal Championship), Epic Games (Unreal
Tournament 2003), and Pitbull Syndicate (Test Drive), among others, as well as
games developed by the Company's own development studios, including Shiny
Entertainment (Enter The Matrix) and Reflections Interactive Limited (Stuntman,
Driver, Driver 2, Driver 3), among others. In fiscal 2004, the Santa Monica
Studio published Enter The Matrix, based on the Warner Bros. Pictures/Village
Roadshow Pictures' blockbuster, The Matrix Reloaded, the second installment of
the Matrix

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trilogy created by the Wachowski Brothers. In addition, the Santa Monica
Studio's fiscal 2004 line-up currently includes Terminator 3 - Rise of the
Machine, a game based on the upcoming movie of the same name, as well as two
additional titles based on the Terminator 3 franchise.

         The Santa Monica Studio published 29 new titles in fiscal 2003 and
generated approximately 33.0% of the Company's publishing net revenue for the
year.

BEVERLY, MASSACHUSETTS

         The Company's studio located in Beverly, Massachusetts (the "Beverly
Studio"), focuses on developing and publishing a range of products, from kids'
and mass-market interactive entertainment to strategy and driving games for the
more seasoned gamers. The Beverly Studio's publishing line-up encompasses those
titles previously published under the Hasbro Interactive label, which was
acquired in 2001 by Infogrames SA. Those titles include an array of valuable
assets, including franchises such as RollerCoaster Tycoon(R) (more than 5
million units sold to date) and Civilization(TM) (more than 5.5 million units
sold to date), and licenses such as Monopoly(R) (more than 5 million units sold
to date), among many others.

         In addition, the Beverly Studio publishes the award-winning and
critically acclaimed children's titles developed by the Company's Humongous
Entertainment studio (as defined under "Internal Development Studios"). These
titles include properties such as the Backyard Sports(TM) series (more than 4
million units sold to date), Freddi Fish(TM) (more than 2 million units sold to
date), Pajama Sam(R), Spy Fox, Putt Putt(R) (more than 2 million units each sold
to date), and, as well as licensed products such as Nickelodeon's Dora the
Explorer(TM), which title has been the top-sellers in the PC education category,
and Blue's Clues(TM). Other internally developed titles published by the Beverly
Studio include Kya, which is being developed by Infogrames SA's Eden Studios,
and is scheduled for release during fiscal 2004.

         Augmenting the Beverly Studio's publishing line-up are titles developed
by leading game developers, including Firaxis (Civilization and Pirates),
Radical (G.I. Joe), and Timegate (Axis & Allies).

         In fiscal 2004, the Beverly Studio is also scheduled to publish games
based on licensed products, such as Beyblade and Sinbad: Legend of the Seven
Seas.

         The Beverly Studio published 49 titles in fiscal 2003 and generated
approximately 40.5% of the Company's publishing net revenue for the year. While
the Beverly Studio publishes games for all platforms, a high percentage of its
games are for the PC, which is the platform best suited to games for younger
players. Given the broad household penetration of the PC (see discussion above),
the Company believes this legacy platform remains a viable and healthy business.

MINNEAPOLIS, MINNESOTA

         The Company's studio located in Minneapolis, Minnesota (the
"Minneapolis Studio"), produces games focusing primarily on action/adventure for
the casual gamer. Given the nature of these products and their broad audience
appeal, a large percentage of the Minneapolis Studio's line-up is published for
the PC. The Minneapolis Studio also publishes titles for consoles, such as
licensed titles DBZ: Budokai, Dragon Ball Z(R): Legacy of Goku(R), Dragon Ball
Z(R): Collectible Card Game, and World of Outlaws: Sprint Cars 2002, among many
others. To date, the Dragon Ball Z franchise has sold more than 3.5 million
units worldwide.

         Titles published by the Minneapolis Studio also include hunting and
outdoor adventure games, such as the Deer Hunter(R) franchise, which has sold
more than 4 million units to date, racing titles, such as the Harley-Davidson(R)
license, and strategy/adventure games, such as the upcoming Dungeons &
Dragons(R): Eye of the Beholder licensed property.

         The Minneapolis Studio published 26 titles in fiscal 2003 and generated
approximately 26.5% of the Company's publishing net revenue for the year.

                                       4

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INTERNAL DEVELOPMENT STUDIOS

         In addition to its three central studios described above, the Company
owns and manages several studios that focus solely on game development. Titles
from these locations range in genre and are published for various audiences
playing on the full array of gaming platforms.

         Humongous Entertainment. Seattle-based Humongous Entertainment
("Humongous") develops some of the most successful children's franchises in the
industry. To date, its Freddi Fish and Putt Putt franchises have sold more than
2 million units each and its Backyard Sports franchise, the #1 interactive
sports series for kids, has sold in excess of 4 million units to date. In June
2001, the Company restructured Humongous to focus primarily on the development
of new installments for the Backyard Sports series, and on adapting its
character games for next-generation consoles, several of which are scheduled for
release during fiscal 2004. Humongous is now a division of the Company and was
formerly a wholly-owned subsidiary of the Company under the name of Humongous
Entertainment, Inc.

         Reflections. Reflections Interactive Limited ("Reflections"), based in
Newcastle, England, is the developer of the Company's hit Driver franchise,
which has sold more than 5 million units to date, as well as Stuntman which was
released in June 2002 for the PlayStation2. Reflections is currently working on
Driver 3 which is scheduled to be published in fiscal 2004.

         Legend Entertainment. Based in Chantilly, Virginia, Legend
Entertainment ("Legend") is the studio behind Unreal 2. Legend is a division of
the Company and was formerly a wholly-owned subsidiary of the Company under the
name of Legend Entertainment, LLC.

         Shiny Entertainment. Based in Newport Beach, California, Shiny
developed Enter the Matrix, a game based on The Matrix Reloaded, which was
released in North America, Europe and the Asia-Pacific region (excluding Japan)
on all platforms on May 15, 2003. The Matrix Reloaded is the second installment
in the Matrix film trilogy created by the Wachowski Brothers. Shiny is a
division of the Company and was formerly a wholly-owned subsidiary of the
Company under the name of Shiny Entertainment, Inc.

RELATED PARTY

         Paradigm. The Company works closely with Dallas-based Paradigm
Entertainment, Inc., a Texas corporation ("Paradigm"), which Infogrames SA
acquired in 2000. The studio behind the successful Pilot Wings game, Paradigm is
currently developing several upcoming titles for the Company, including Mission
Impossible: Operation Surma and Terminator 3.

         Atari Interactive, Inc. Atari Interactive, Inc. (formerly known as
Infogrames Interactive, Inc.) is a wholly-owned subsidiary of Infogrames SA
located in Beverly, Massachusetts, which was acquired by Infogrames SA in 2001.
The Company funds its operations through interest bearing advances, distributes
its products and, on behalf of Infogrames SA, assists Atari Interactive, Inc.
with its on-going operational and managerial matters in exchange for a
management fee. Atari Interactive, Inc. develops games which the Company
distributes in North America and, consequently, the Company is dependent on
Atari Interactive, Inc.'s development activities for growth in its publishing
revenues.

         Hunt Valley. The Company works closely with a development studio
located in Hunt Valley, Maryland, which Infogrames SA acquired in 2001 through
the acquisition of Hasbro Interactive. The studio has developed several
successful games, including X-Com Enforcer, and is currently developing several
upcoming titles for the Company, including D&D Heroes, which is currently
scheduled to be released in fiscal 2004.

EXTERNAL DEVELOPMENT STUDIOS

         In addition to cultivating its internal development studios, the
Company has established publishing relationships with some of the industry's
most highly regarded independent external developers. These developers include:
Chris Sawyer (Rollercoaster Tycoon series); BioWare Corp. (Neverwinter Nights);
Deep Red (Monopoly Tycoon); Digital Extremes (Unreal Championship); Epic (Unreal
Tournament 2003); Firaxis (Civilization and Pirates); Pitbull Syndicate (Test
Drive); and Webfoot Technologies (Dragon Ball Z: Legacy of Goku) and FUNinmation
Productions Ltd. (Yu Yu Hakusho), among many others.

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         Products which are acquired from these external developers are marketed
under the Company's name, as well as the name of the external developer. The
agreements with external developers provide the Company with exclusive
publishing and distribution rights for a specific period of time for specified
platforms and territories. Those agreements may grant the Company the right to
publish sequels, enhancements and add-ons to the products originally developed
and produced by the external developer. In consideration for its services, the
external developer receives a royalty based on sales of the products which it
has developed. A portion of this royalty may be prepaid, with future payments
tied to the completion of detailed performance and development milestones.

         The Company manages the production of external development projects by
appointing a producer to oversee the product's development and to work with the
external developer to design, develop and test the products. The producer also
helps ensure that development milestones are met in a timely manner. The Company
generally has the right to cease making payments to an external developer if
such developer fails to meet its development milestones in a timely fashion.

                                  DISTRIBUTION

         Customers. The Company's strength in distribution in North America, as
well as its distribution presence in Europe through Infogrames SA, ensures
access to valuable shelf space for its published products. The Company believes
that it is one of the few software publishers that sells directly to
substantially all of the major retailers of computer software in the U.S. and
that it is one of the largest distributors of computer software to mass
merchants in the U.S. The Company supplies both products it publishes and
Third-Party Products (See "Overview" above for definition) to approximately
3,300 Wal-Mart stores, approximately 1,100 Target stores and approximately 600
Best Buy stores. The Company also distributes its own products and Third-Party
Products to other major retailers in the U.S. (including, Office Depot, CompUSA,
Sam's Club, Gamestop, Electronics Boutique, Costco, Toys `R' Us, Staples,
Blockbuster, and many other retailers and resellers of computer software and
video games) and in Canada. The Company values its distribution relationships
with these major retailers because they also allow the Company to more readily
sell its own, higher margin software to them.

         Technology. Utilizing its point-of-sale replenishment systems and
electronic data interchange links with its largest mass merchant accounts, the
Company is able to handle high sales volumes with those customers efficiently,
manage and replenish inventory on a store-by-store basis and assemble for its
customers regional and store-by-store data based on product sell-through. The
Company utilizes state-of-the-art technology systems for order processing,
inventory management, purchasing and tracking of shipments, thereby increasing
the efficiency and accuracy of order processing and payments and shortening
order turnaround time. These systems automatically track software orders from
order processing to point-of-sale, thereby enhancing customer satisfaction
through prompt delivery of the desired software titles.

         Fulfillment. Historically, the Company's warehouse operations provided
fulfillment services within North America for the Company and third-party
developers. Such services included physical receipt and storage of inventory and
its distribution to the mass market and other retailers. After evaluating the
costs associated with the fulfillment function, including, among other things,
the costs of projected future investments in plants and technology, the Company
has outsourced its warehouse and manufacturing operations since July 1999.

         Distribution of Third-Party Products. Based on the strength of its
current consumer software distribution operation, the Company has successfully
attracted other publishers of Third-Party Products to utilize the Company's mass
merchant distribution capabilities for their products. Third-Party Products are
generally acquired by the Company and distributed under the name of the
publisher of such products, who is, in turn, responsible for the publishing,
packaging, marketing and customer support of such products. The Company's
agreements with such publishers typically provide for certain retail
distribution rights in designated territories for a specific period of time and
such rights are typically renewable.

         Value/Close-out. The Company is no longer in the value/close-out
business.

GEOGRAPHY

         The Company's distribution efforts are being concentrated in North
America. Because of Infogrames SA's strong presence in Europe, Company
distributes its products in Europe through Infogrames SA pursuant to a
distribution agreement between Infogrames SA and the Company. Under this
distribution agreement, the Company is entitled to receive 30.0% of the gross
profit of such products or 130.0% of the royalty rate due to the developer,
whichever is greater. Furthermore, because of Infogrames SA's strong presence in
Europe, the Company began closing its European operations in December 1999 and
completed the process in July 2000. The Company believes that Infogrames SA's
strong presence in Europe will provide effective distribution in Europe of the
Company's titles while allowing the Company to focus its efforts in North

                                       6

<PAGE>

America. The Company continues to maintain an office in Australia, the results
of operations of which are consolidated in the results of operations of the
Company. For additional information regarding the Company's international
business, see "Notes to Consolidated Financial Statements".

SALES AND MARKETING

         The Company employs a wide range of sales and marketing techniques to
promote sales of its products including (i) advertising in video gaming,
computer, and general consumer publications, (ii) television advertising, (iii)
in-store promotions utilizing display towers and endcaps, (iv) on-line
marketing, (v) direct mailings, (vi) radio advertising, (vii) guerilla or
underground marketing techniques (i.e., placing marketing materials in locations
which are frequented by the targeted groups of consumers), (viii) viral
marketing techniques (i.e., marketing techniques which use consumers to "pass
along" the Company's messages to other targeted groups of consumers), and (ix)
cross promotions with third-parties. The Company monitors and measures the
effectiveness of its marketing strategies throughout the life cycle of each
product. Historically, the Company has devoted a substantial portion of its
marketing resources to support its key franchises and intends to do so in the
future. The Company believes that marketing its key franchises is essential for
cultivating product successes and brand-name loyalty.

         The Company's marketing programs have expanded in tandem with the
Company's publishing business, with an emphasis on three areas: (i) launching
new products, (ii) raising the public's awareness of new brands and franchises,
and (iii) extending the life of existing products and properties to the greatest
degree possible. To maximize these efforts, the Company may begin to deploy an
integrated marketing program for a product more than a year in advance of its
release. This integrated marketing approach may include extensive media
outreach, development of point-of-purchase displays, print and television
advertising, Internet promotion, press events, and a coordinated global launch.

         The Internet is an integral element of the Company's marketing efforts
used, in part, to generate awareness of and "buzz" for titles months prior to
their market debut. The Company incorporates the Internet into its marketing
programs through the creation of product-dedicated mini-sites and on-line
promotions. In addition, in the months leading up to the release of a new
product, the Company provides extensive editorial material to on-line
publications that reach the core gaming audience.

         Central to supporting all marketing, promotions and sales efforts for
each title are customized public relations programs designed to create awareness
of the Company's products with all relevant audiences, including core gamers,
and mass entertainment consumers. To date, public relations efforts have
resulted in continuing coverage for the Company in the all-important computer
and video gaming publications, as well as major consumer newspapers, magazines
and broadcast outlets, such as The New York Times, USA Today, Entertainment
Weekly, Newsweek and CNN, among many others. In addition, the Company hosts
multiple media events throughout the year at which print, broadcast and online
journalists can preview, review and demonstrate the Company's products prior to
their release. From time to time, the Company also hosts launch events designed
to spotlight particular titles in the media.

         Since fiscal year 1999, the Company's sales efforts are being handled
by a single organization in order to improve the efficiency of its sales effort.
Currently, the Company has two sales regions (each managed by a Vice President
of Sales) and, within each region, five retail Sales Directors who serve as the
primary contacts with the Company's 25 largest retail customers.

         The Company engages in sales and distribution of products it publishes,
while simultaneously engaging in sales and distribution of Third-Party Products.
The sales and distribution programs for Third-Party Products are an integral
part of the overall approach to the North American marketplace by the Company,
providing value-added services to both publishers and retailers alike. Through
its strength of distribution and depth of retail placement achieved for its
owned published products, the Company extends this reach to certain publishers
of Third-Party Products, thus enabling access for their products to the North
American retail marketplace in an efficient and effective manner. Similarly,
retailers find value in these programs, enabling them to consolidate their
supply relationships with the Company, and streamline their product purchasing
and store logistic arrangements.

         In January 2001, through Infogrames SA's acquisition of Hasbro
Interactive, Inc. and subsidiaries and Games.com, Inc. (collectively, "Hasbro"),
and all their assets, properties and licenses, the Company acquired the
distribution rights for all video games developed by Hasbro and began actively
selling, distributing and managing Hasbro's video games in the North American
marketplace.

                                       7

<PAGE>

HARDWARE LICENSES

         The Company currently develops software for use with the Sony
PlayStation and PlayStation2, Nintendo GameCube, Game Boy and Game Boy Advance,
Microsoft Xbox and other video game consoles pursuant to licensing agreements
with each of the respective hardware developers. Each license allows the Company
to create one or more products for the applicable system, subject to certain
approval rights as to quality which are reserved by each hardware licensor. Each
license also requires that the Company pay the hardware licensor a per-unit
license fee from product produced.

         The Company currently is not required to obtain any license for the
development and distribution of software for personal computers. Accordingly,
the Company's per-unit manufacturing cost for such software products is less
than the per-unit manufacturing cost for console products.

OPERATIONS

         The Company outsources its warehouse operations in the U.S. to Arnold
Logistics, which is located in Lancaster, Pennsylvania. The warehouse operations
include the receipt and storage of inventory as well as the distribution of
inventory to mass market and other retailing customers.

         The Company's CD-ROM disk duplication and the printing of user manuals
and packaging materials are performed to the Company's specifications by outside
sources. To date, the Company has not experienced any material difficulties or
delays in the manufacture and assembly of its products, or material returns due
to product defects. There is some concentration for the supply of the Company's
publishing needs, but a number of other outside vendors are also available as
sources for these manufacturing and replication services.

         Sony, Nintendo and Microsoft manufacture the Company's products that
are compatible with their respective video game consoles, as well as the manuals
and packaging for such products, and ship finished products to the Company for
distribution. Sony PlayStation, PlayStation2, Nintendo GameCube and Microsoft
Xbox products consist of proprietary format CD-ROMs and are typically delivered
to the Company within a relatively short lead time (approximately 2-3 weeks).
Manufacturers of other Nintendo software typically deliver product to the
Company within 45 to 60 days after receipt of a purchase order. To date, the
Company has not experienced any material difficulties or delays in the
manufacture and assembly of its products. However, a shortage of components or
other factors beyond the Company's control could impair the ability of the
Company to bring its products to the marketplace in a timely manner and,
accordingly, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors -- Because Some
Hardware Licensors Have Significant Control Over the Company's Products, There
May Be Material Delays or Increases in the Cost of Manufacturing Those
Products".

                               RECENT DEVELOPMENTS

         On November 12, 2002, (last amended July 11, 2003), the Company entered
into a 30-month, $50 million Senior Credit Facility with GECC. The proceeds of
the loan are used to fund the Company's working capital needs, including the
manufacturing and development of products. The credit documents entered into by
the Company with GECC contain restrictions on, among other things, the repayment
of interest and principal owed on credit facilities outstanding with other
creditors which are affiliates of the Company, transactions with affiliated
companies and the payment of cash dividends.

         On March 28, 2003, the Company announced that it has changed its fiscal
year-end from June 30 to March 31. As a result of this change, the Company's
fiscal year 2003 was a 9-month period. The Company's new fiscal year 2004
commenced on April 1, 2003 and will end on March 31, 2004. The Company believes
that the March 31 year-end is consistent with more of its peers in the video
game industry, allowing for more meaningful analysis and comparisons within the
sector.

                                    EMPLOYEES

         As of end of fiscal year 2003, the Company has 564 employees
domestically, with 262 in product development, 104 in administration (i.e.,
senior management, human resources, legal, IT & facilities), 59 in finance, 72
in sales and 76 in marketing. The Company has operations in New York, New York;
Beverly, Massachusetts; Minneapolis, Minnesota; Seattle,

                                       8

<PAGE>

Washington; Sunnyvale, California; Santa Monica, California; Chantilly,
Virginia; and Newport Beach, California. The Company also has operations
internationally at its Reflections Studio located in Newcastle, England, which
has 92 employees.

                                   COMPETITION

         The interactive entertainment software publishing industry is intensely
competitive, and relatively few products achieve market acceptance. The
availability of significant financial resources has become a major competitive
factor in the industry primarily as a result of the increasing development,
acquisition, production and marketing budgets required to publish quality
titles. The Company competes with other third-party publishers of interactive
entertainment software, including Electronic Arts Inc., THQ, Inc., Activision,
Inc., Take Two Interactive, Inc., and SEGA Corporation, among others. In
addition, the Company competes with first-party publishers such as Sony Computer
Entertainment, Nintendo of America, and Microsoft Corporation. See "Risk Factors
-- Significant Competition In Our Industry Could Adversely Affect Our Business".

         Infogrames SA has granted the Company a non-exclusive, royalty-free
licenses to use the names "Infogrames" and "Atari", which licenses may not be
cancelled on less than one-year's notice unless the Company breaches its
obligations under the license. The Company's management believes that a number
of factors provide the Company with competitive opportunities in the industry,
including its extensive catalogue of multi-platform products, strength in the
mass-market, and strong sales forces in North America and, through Infogrames
SA, in Europe and Australia. The Company believes that solid franchises such as
Driver, Test Drive, Civilization, the Backyard Sports series, Deer Hunter and
RollerCoaster Tycoon and attractive licenses such as The Matrix, Terminator,
Unreal, Harley Davidson, Mission: Impossible, Looney Tunes, Blue's Clues, Dragon
Ball Z, Major League Baseball and the National Football League, as well as its
base of productive publishing assets, provide the Company with a competitive
angle to market its products.

                                  RISK FACTORS

         This Risk Factors section is written to be responsive to the Securities
and Exchange Commission's (the "SEC") "Plain English" guidelines. In this
section, the words "we," "our," "ours" and "us" refer only to the Company and
its subsidiaries and not any other person.

         Set forth below and elsewhere in this Form 10-K and in other documents
we file with the SEC are important risks and uncertainties that could cause our
actual results of operations, business and financial condition to differ
materially from the results contemplated by the forward-looking statements
contained in this Form 10-K. See "Forward-Looking Information" above.

         INFOGRAMES SA CONTROLS THE COMPANY AND COULD PREVENT AN ACQUISITION
FAVORABLE TO OUR OTHER STOCKHOLDERS. Infogrames SA beneficially owns
approximately 88% of our common stock, which gives it sufficient voting power to
prevent any unsolicited acquisition of the Company, including an acquisition
favorable to our other stockholders. Infogrames SA and its affiliates have
sufficient voting power to control any merger, consolidation or sale of all or
substantially all of our assets and to elect members of the Board of Directors.
Four of the nine members of the Board of Directors are employees of Infogrames
SA or its affiliates, including the Company. One of the remaining five directors
has recently been affiliated with the Company and another director is currently
affiliated with the Company. Therefore, two of the remaining five other
directors are not considered independent.

         OUR SUCCESS MAY BE IMPACTED BY INFOGRAMES SA'S SUCCESS, ABILITY AND
WILLINGNESS TO CONTINUE TO SUPPORT THE COMPANY. Infogrames SA provides to the
Company certain senior executives and distributes the Company's products in
Europe. Since the completion of the Senior Credit Facility, Infogrames SA ceased
funding the Company's operations under the Credit Agreement. However, there
remains outstanding balances under the Credit Agreement and other debt
agreements payable to Infogrames SA by the Company. Although the Company is
exploring various strategic alternatives to reduce the debt under the Credit
Agreement, there can be no assurance that any such transactions will be
consummated, or that if consummated any such transactions will improve the
Company's business, operating results or financial condition.

         THE SENIOR CREDIT FACILITY MAY BE TERMINATED. In fiscal 2003, the
Company entered into a 30-month, $50 million revolving credit facility with
GECC. The Company utilizes the proceeds of this loan to fund the Company's
working capital needs, including the manufacturing and development of products.
The credit documents which the Company entered into with GECC to obtain this
credit facility contain numerous covenants and conditions which may

                                       9

<PAGE>

cause a default upon breach thereof by the Company. Although the Company is
currently in full compliance under the credit documents and no event of default
has occurred, there can be no assurance that the Company will continue to be in
compliant. If an event of default occurs under any credit document and GECC opts
not to waive such default, the credit facility may be terminated. Additionally,
although there can be no assurance, management believes that existing cash,
together with cash expected to be generated from operations and cash available
under the Senior Credit Facility will be sufficient to fund the Company's
operations and cash flows throughout fiscal year 2004.

         THE LOSS OF WAL-MART, BEST BUY, TARGET OR TOYS 'R' US AS KEY CUSTOMERS
COULD NEGATIVELY AFFECT OUR BUSINESS. Our sales to Wal-Mart, Best Buy, Target
and Toys 'R' US accounted for approximately 24.0%, 10.5%, 8.6% and 8.3%,
respectively, of net revenues for the fiscal year ended March 31, 2003. Our
gross accounts receivable from Wal-Mart, Best Buy, Target and Toys 'R' US were
approximately $6.2 million, $8.8 million, $7.5 million and $9.0 million,
respectively, as of March 31, 2003. Our business, operating results and
financial condition would be adversely affected if: (i) we lost Wal-Mart, Best
Buy, Toys 'R' US or Target as a customer, (ii) we began shipping fewer products
to Wal-Mart, Best Buy, Toys 'R' US or Target, (iii) we were unable to collect
receivables from Wal-Mart, Best Buy, Toys 'R' US or Target, or (iv) we
experienced any other adverse change in our relationship with Wal-Mart, Best
Buy, Toys 'R' US or Target. We do not have any written agreements or
understandings with Wal-Mart, Toys 'R' US or Target. Consequently, our
relationship with Wal-Mart, Toys 'R' US or Target could end at any time. We
cannot assure that Wal-Mart, Toys 'R' US and Target will continue to use us as a
major supplier of consumer software, or at all.

         OUR REVENUES WILL DECLINE AND OUR COMPETITIVE POSITION WILL BE
ADVERSELY AFFECTED IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS ON A TIMELY BASIS.
Our continued success in the publishing business depends on the timely
introduction of successful new products, sequels or enhancements of existing
products to replace declining revenues from older products. A significant delay
in introducing new products, sequels or enhancements could materially and
adversely affect the ultimate success of our products and, in turn, our
business, operating results and financial condition, particularly in view of the
seasonality of our business. The process of introducing new products, sequels or
product enhancements is extremely difficult and will only become more difficult
as new platforms and technologies emerge. Competitive factors in our industry
demand that we create increasingly sophisticated products, which in turn makes
it difficult to produce and release these products on a predictable schedule.

         WE MAY BE UNABLE TO DEVELOP, MARKET AND PUBLISH NEW PRODUCTS IF WE ARE
UNABLE TO SECURE OR MAINTAIN RELATIONSHIPS WITH INDEPENDENT SOFTWARE DEVELOPERS.
Although we have substantially increased our internal software capabilities over
the last five years, we are still dependent, to a meaningful degree, upon
independent external software developers. Consequently, our success depends in
part on our continued ability to obtain or renew product development agreements
with independent software developers. However, we cannot assure that we will be
able to obtain or renew these product development agreements on favorable terms,
or at all, nor can we assure that we will be able to obtain the rights to
sequels of successful products which were originally developed by independent
software developers for the Company. In addition, many of our competitors have
greater access to capital than we do, which puts us at a competitive
disadvantage when bidding to attract independent software developers to enter
into publishing agreements with us. Our agreements with independent software
developers are easily terminable, often without notice, if either party declares
bankruptcy, becomes insolvent, ceases operations or materially breaches its
agreement and fails to cure that breach within a designated time frame. In
addition, many independent software developers have limited financial resources.
Many are small companies with a few key individuals without whom a project may
be difficult or impossible to complete. Consequently, we are exposed to the risk
that these developers will go out of business before completing a project, or
simply cease work on a project for which we have hired them.

         COMPETITION FOR INDEPENDENT SOFTWARE DEVELOPERS IS INTENSE AND MAY
PREVENT US FROM SECURING OR MAINTAINING RELATIONSHIPS WITH INDEPENDENT SOFTWARE
DEVELOPERS. We may be unable to secure or maintain relationships with
independent software developers if our competitors can offer them better shelf
access, better marketing support, more development funding, higher royalty
rates, or other selling advantages. Even if these independent software
developers have developed products for us in the past, we cannot assure that
they will continue to develop products for us in the future. In fact, we have in
the past worked with independent software developers who later entered into
agreements with our competitors because of our competitors' ability or
willingness to pay higher royalty rates or advances.

         FLUCTUATIONS IN OUR QUARTERLY NET REVENUES AND OPERATING RESULTS MAY
RESULT IN REDUCED PROFITABILITY AND LEAD TO REDUCED PRICES FOR OUR STOCK. Our
quarterly net revenues and operating results have varied in the past and can be
expected to vary in the future. As a result, we cannot assure that we will be
consistently profitable on a quarterly or annual basis. If our operating results
in any future quarter fall below the

                                       10

<PAGE>

expectations of market analysts or investors, the price of our Common Stock will
likely decrease. Our business has experienced, and is expected to continue to
experience, significant seasonality. Typically, our net sales are significantly
higher during the fourth calendar quarter because of increased consumer demand
during the year-end holiday season. In other calendar quarters, our net revenues
may be lower and vary significantly.

         OUR REVENUE GROWTH AND COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED
IF WE ARE UNABLE TO ANTICIPATE AND ADAPT TO RAPIDLY CHANGING TECHNOLOGY. The
consumer software industry is characterized by rapidly changing technology. The
introduction of new technologies, including new technologies that support
multi-player games and new media formats such as on-line delivery and digital
video disks (DVDs), could render our previously released products obsolete or
unmarketable. We must continually anticipate the emergence of, and adapt our
products to, new technologies and systems. In addition, the development cycle
for products designed to operate on new systems can be significantly longer than
our current development cycles. When we choose to publish or develop a product
for a new system, we may need to make a substantial development investment one
or two years in advance of when we actually ship products for that system. If we
develop products for a new system that is ultimately unpopular, our revenues
from that product may be less than expected and we may not be able to recoup our
investment. Conversely, if we choose not to publish products for a new system
that is ultimately popular, our revenue growth and competitive position may be
adversely affected.

         BECAUSE SOME HARDWARE LICENSORS HAVE SIGNIFICANT CONTROL OVER THE
COMPANY'S PRODUCTS, THERE MAY BE MATERIAL DELAYS OR INCREASES IN THE COST OF
MANUFACTURING THOSE PRODUCTS. We are required to obtain a license to develop and
distribute software for each of the video game systems for which we develop
products. We currently have licenses from Sony to develop products for the Sony
PlayStation and Playstation2, from Nintendo to develop products for Game Boy(R),
Game Boy(R) Advance and GameCube, and from Microsoft Corporation to develop
products for the Xbox. Our contracts with these manufacturers often grant them
significant control over the manufacturing of the Company products. For example,
we are obligated to submit new games to Sony, Nintendo or Microsoft for approval
prior to development and/or manufacture. In some circumstances, this could
adversely affect the Company by: (i) leaving the Company unable to have its
products manufactured and shipped to customers, (ii) increasing manufacturing
lead times and expense to us over the lead times and costs we could achieve
independently, (iii) delaying the manufacture and, in turn, the shipment of
products, and (iv) requiring the Company to take significant risks in prepaying
for and holding its inventory of products. These factors could materially and
adversely affect our business, operating results and financial condition.

         THE LOSS OF OUR SENIOR MANAGEMENT AND SKILLED PERSONNEL COULD
NEGATIVELY AFFECT OUR BUSINESS. Our success will depend to a significant degree
upon the performance and contribution of our senior management team and upon our
ability to attract, motivate and retain highly qualified employees with
technical, management, marketing, sales, product development and other creative
skills. In the computer software industry, competition for highly skilled and
creative employees is intense and costly. We expect this competition to continue
for the foreseeable future, and we may experience increased costs in order to
attract and retain skilled employees. We cannot assure that we will be
successful in attracting and retaining skilled personnel. Our business,
operating results and financial condition could be materially and adversely
affected if we lost the services of senior employees or if we failed to replace
other employees who leave or to attract additional qualified employees.

         SIGNIFICANT COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS. The market for our products is highly competitive and relatively few
products achieve significant market acceptance. Currently, we compete primarily
with other publishers of interactive entertainment software for both personal
computers and video game consoles. Our competitors include Electronic Arts,
Inc., THQ, Inc., Activision, Inc., Take Two Interactive, Inc., and SEGA
Corporation, among others. In addition, some large hardware companies (including
Sony Computer Entertainment, Nintendo of America, and Microsoft Corporation),
media companies and film studios, such as Walt Disney Company, are increasing
their focus on the interactive entertainment and "edutainment" software market
and may become significant competitors of the Company. As compared to the
Company, many of our current and future competitors may have significantly
greater financial, technical and marketing resources than we do. As a result,
these current and future competitors may be able to: (i) respond more quickly to
new or emerging technologies or changes in customer preferences, (ii) carry
larger inventories, (iii) undertake more extensive marketing campaigns, (iv)
adopt more aggressive pricing policies, and (v) make higher offers or guarantees
to software developers and licensors than the Company. We may not have the
resources required for us to respond effectively to market or technological
changes or to compete successfully with current and future competitors.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse effect on our
business, operating results or financial condition. We cannot assure that we
will be able to successfully compete against our current or future competitors
or that competitive pressures will not have a material adverse effect on our
business, operating results and financial condition.

                                       11

<PAGE>

         REVENUES FROM OUR DISTRIBUTION BUSINESS MAY DECLINE AS COMPETITION
INCREASES AND INTERNET TECHNOLOGY IMPROVES. During the nine months ended March
31, 2002 (unaudited) and 2003, revenues from our distribution business were
approximately 27% and 19%, respectively, of net revenues. The decrease of
percentage of net revenues in the distribution business is a result of the
increase of publishing revenues in the 2003 period over the comparable 2002
period. Recently, several of our customers have begun to purchase directly from
software publishers rather than purchasing software through the Company. New
video game systems and electronic delivery systems may be introduced into the
software market and potential new competitors may enter the software development
and distribution market, resulting in greater competition. In addition, revenues
from our distribution business may be adversely affected as Internet technology
is improved to enable consumers to purchase and download full-version software
products or order products directly from publishers or from unauthorized or
illegal sources over the Internet.

         REVENUES FROM OUR DISTRIBUTION BUSINESS MAY DECLINE IF THE THIRD-PARTY
PRODUCTS WHICH WE DISTRIBUTE FOR OTHER COMPANIES BECOME UNAVAILABLE TO US. As
part of our distribution program, we provide our mass merchant customers with a
wide variety of titles. To achieve this product mix, we must supplement the
distribution of our own published products with Third-Party Products, including
products published by our competitors. We cannot assure that these competitors
will continue to provide us with their products for distribution to our mass
merchant customers. Our inability to obtain software titles developed or
published by our competitors, coupled with our inability to obtain these titles
from other distributors, could have a material adverse effect on our
relationships with our mass merchant customers and our ability to obtain shelf
space for our own products. This, in turn, could have a material adverse effect
on our business, operating results and financial condition.

         WE MAY FACE INCREASED COMPETITION AND DOWNWARD PRICE PRESSURE IF WE ARE
UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. Our success is heavily
dependent upon our confidential and proprietary intellectual property. We sell a
significant portion of our published software under licenses from independent
software developers and, in these cases, we do not acquire the copyrights for
the underlying work. We rely primarily on a combination of confidentiality and
non-disclosure agreements, patent, copyright, trademark and trade secret laws,
as well as other proprietary rights laws and legal methods, to protect our
proprietary rights and the rights of our developers. However, current U.S. and
international laws afford us only limited protection. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy our
products or obtain and use information that we regard as proprietary. Software
piracy is a persistent problem in the computer software industry. Policing
unauthorized use of our products is extremely difficult because consumer
software can be easily duplicated and disseminated. Furthermore, the laws of
some foreign countries may not protect our proprietary rights to as great an
extent as U.S. law. Software piracy is a particularly acute problem in some
international markets such as South America, the Middle East, the Pacific Rim
and the Far East. Our business, operating results and financial condition could
be materially and adversely affected if a significant amount of unauthorized
copying of our products were to occur. We cannot assure that our attempts to
protect our proprietary rights will be adequate or that our competitors will not
independently develop similar or competitive products.

         WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WHICH WOULD BE
COSTLY TO RESOLVE. As the number of available software products increases, and
their functionality overlaps, software developers and publishers may
increasingly become subject to infringement claims. We are not aware that any of
our products infringe on the proprietary rights of third parties. However, we
cannot assure that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. There has been
substantial litigation in the industry regarding copyright, trademark and other
intellectual property rights. We have also initiated litigation to assert our
intellectual property rights. Whether brought by or against the Company, these
claims can be time consuming, result in costly litigation and divert
management's attention from the day-to-day operations of the Company, which can
have a material adverse effect on our business, operating results and financial
condition.

         WE MAY BE AT A COMPETITIVE DISADVANTAGE IF WE ARE UNABLE TO
SUCCESSFULLY IMPLEMENT OUR INTERNET STRATEGY. To take advantage of Internet
opportunities, we have, and will continue to: (i) expand our World Wide Web
sites and the development of our Internet infrastructure and capabilities, (ii)
explore expansion of our electronic distribution capabilities, (iii) incorporate
on-line functionality into existing products, and (iv) develop and invest in new
Internet-based businesses and products, including multi-player entertainment
products. Implementing our Internet strategy has been costly. We have incurred,
and expect to incur, significant additional costs in connection with these
efforts. These costs include those associated with the acquisition and
maintenance of hardware and software necessary to permit on-line commerce and
multi-player games, as well as the related maintenance of our website and
personnel. Although we believe these platforms and technologies are an integral
part of our business, we cannot assure that our Internet strategy will be
successful or that we will be able to recoup the cost of our investment.

                                       12

<PAGE>

         WE ARE CURRENTLY IN LITIGATION WHICH COULD BE COSTLY IF WE LOSE. As
described under Item 3, "Legal Proceedings", the Company is currently a
defendant, or subject to counterclaims, in a number of lawsuits. In all of these
lawsuits, we believe that the plaintiffs' complaints are without merit. Although
we intend to defend ourselves vigorously against these actions, doing so is
costly and time consuming and may divert management's attention from our
day-to-day operations. In addition, we cannot assure that these actions will be
ultimately resolved in our favor or that an adverse outcome will not have a
material adverse effect on our business, operating results and financial
condition.

         IF RETURNS AND OTHER CONCESSIONS GIVEN TO OUR CUSTOMERS EXCEED OUR
RESERVE, OUR BUSINESS MAY BE NEGATIVELY AFFECTED. To cover returns and other
concessions, we establish a reserve at the time we ship our products. We
estimate the potential for future returns and other concessions based on
historical return rates, seasonality of sales, retailer inventories of our
products, and other factors. While we are able to recover the majority of our
costs when Third-Party Products are returned, we bear the full financial risk
when our own products are returned. In addition, the license fees we pay Sony
and Nintendo are non-refundable and we cannot recover these fees when our
console products are returned. Although we believe we maintain adequate reserves
with respect to product returns, we cannot assure that actual returns will not
exceed reserves, which could adversely affect our business, operating results
and financial condition.

         OUR STOCK PRICE IS HIGHLY VOLATILE. The trading price of our common
stock has been and could continue to be subject to wide fluctuations in response
to certain factors, including, but not limited to, the following: (i) quarter to
quarter variations in results of operations, (ii) our announcements of new
products, (iii) our competitors' announcements of new products, (iv) our product
development or release schedule, (v) general conditions in the computer,
software, entertainment, media or electronics industries, (vi) timing of the
introduction of new platforms and delays in the actual release of new platforms,
(vii) changes in earnings estimates or (viii) investor perceptions and
expectations regarding our products, plans and strategic position and those of
our competitors and customers. Additionally, the public stock markets experience
extreme price and trading volume volatility, particularly in high technology
sectors of the market. This volatility has significantly affected the market
prices of securities of many technology companies for reasons often unrelated to
the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock.
Additionally, as of March 31, 2003, of the 69.9 million shares of the Company's
outstanding common stock, only 8.2 million shares (approximately 12%) were not
held by affiliates of the Company. This stock ownership structure may also be a
cause of volatility in the Company's market price.

         WE MAY BE BURDENED WITH PAYMENT DEFAULTS AND UNCOLLECTIBLE ACCOUNTS IF
OUR CUSTOMERS CANNOT PERFORM THEIR PAYMENT OBLIGATIONS. Distributors and
retailers in the interactive entertainment software industry have, from time to
time, experienced significant fluctuations in their businesses, and a number of
them have become insolvent. The insolvency or business failure of any
significant retailer or distributor of our products could materially harm our
business and financial results. We typically make sales to most of our retailers
and some distributors on unsecured credit, with terms that vary depending upon
the customer's credit history, solvency, credit limits and sales history, as
well as whether we can obtain sufficient credit insurance. In addition, while we
maintain a reserve for uncollectible receivables, the reserve may not be
sufficient in every circumstance. As a result, a payment default by a
significant customer could significantly harm our business and financial
results.

         OUR COMMON STOCK MAY NOT MEET THE NASDAQ NATIONAL MARKET'S MINIMUM
SHARE PRICE REQUIREMENT AND MAY BE SUBJECT TO DELISTING. As a condition to
continued listing on the Nasdaq Stock Market's ("Nasdaq") National Market, the
recently amended Nasdaq rules require that the minimum bid price for our Common
Stock be at least $1 per share for thirty consecutive trading days. Prior to the
amendment of the Nasdaq rules, the minimum bid price was $3 per share for thirty
consecutive trading days and the Company was not in compliant until the rules
were amended to decrease the minimum bid price. Although we are presently in
full compliance with Nasdaq requirements, we cannot predict whether our Common
Stock will continue to meet the minimum bid requirement.

                              AVAILABLE INFORMATION

         We file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our SEC filings, including our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) of the
Exchange Act, are available to the public free of charge over the Internet at
our website at http://www.atari.com or at the SEC's web site at
http://www.sec.gov. Our SEC filings will be available on our website as soon as
reasonably practicable after we have electronically filed or furnished them to
the SEC. You may also read and copy any document we file at the SEC's Public
Reference Room at 450 Fifth Street,

                                       13
<PAGE>

N.W., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 2. PROPERTIES

         New York. The Company's principal administrative, sales and development
facilities are located in approximately 90,000 square feet of space at 417 Fifth
Avenue in New York City under a lease which commenced in December 1996 and to
expire in December 2006. The Company subleased 10,000 square feet of this space
beginning in May 2003 through December 2006.

         California. The Company has a lease for approximately 17,400 square
feet of office space in Santa Monica, California, which expires in May 2006. The
Company maintained a lease, which terminated in December 2002, for a three story
building in Laguna Beach, California, which housed its Shiny studio.
Consequently, the Company leased interim-office space for Shiny of approximately
14,800 square feet in Aliso Viejo, California under a lease which expires in
June 2003. The Company has leased approximately 13,000 square feet of office
space in Newport Beach, California for long-term use by Shiny. This lease
expires in August 2007. Additionally, the Company maintains two leases totaling
approximately 11,500 square feet of office space in Woodland Hills, California,
both which expire in October 2003. The Company has sublet 10,242 square feet of
this office space under three subleases which expire in October 2003. The
Company has a lease for approximately 15,000 square feet of office space in
Sunnyvale, California, which expires in June 2004.

         Washington. The Company leases approximately 65,500 square feet of
office space in Bothell, Washington, under a lease which expires in May 2008.
This office space is occupied by Humongous. Under this lease, Humongous
subleases an approximate total of 10,870 square feet under three subleases which
expire on April 2005, May 2005 and April 2008, respectively.

         Minnesota. The Company leases 14,291 square feet of office space in
Plymouth, Minnesota, under a lease which expires in March 2006. This office
space is occupied by the Minneapolis Studio.

         Beverly. In Beverly, Massachusetts, for the Beverly Studio, the Company
subleases a portion of the office space occupied by Atari Interactive, Inc.
under a lease which expires in June 2007.

         Other States in the U.S. In Scottsdale, Arizona, the Company leases
25,000 square feet of office space under a lease which expires in March 2006,
which the Company subleased.

         The Company maintains a development studio in Chantilly, Virginia, for
approximately 10,500 square feet pursuant to a lease which terminates in August
2003. This space is occupied by Legend.

         Europe. For an internal studio, Reflections, the Company maintains two
leases: one for a property in Gateshead Tyne and Wear, United Kingdom and the
second for a property in New Castle Upon Tyne, United Kingdom. The lease for the
Gateshead Tyne and Wear office space expires in September 2010, and in March
2002, the Company executed a sublease for this office space which expires in
September 2004. The lease for the Newcastle Upon Tyne property is for
approximately 23,285 square feet of office space and it expires in August 2011.

ITEM 3. LEGAL PROCEEDINGS

James

         On April 12, 1999, an action was commenced by the administrators for
three children who were murdered on December 1, 1997 by Michael Carneal at the
Heath High School in McCracken County, Kentucky. The action was brought against
25 defendants, including the Company and other corporations in the videogame
business, companies that produced or distributed the movie The Basketball
Diaries, and companies that provide allegedly obscene internet content. The
complaint alleges, with respect to the Company and other corporations in the
videogame business, that Carneal was influenced by the allegedly violent content
of certain videogames and that the videogame manufacturers are liable for
Carneal's conduct. The complaint seeks $10.0 million in compensatory damages and
$100.0 million in punitive damages. The Company and approximately 10 other
corporations in the videogame business have entered into a joint defense
agreement and have retained counsel. By order entered April 6, 2000, the Court
granted a motion to dismiss the complaint. Plaintiffs have filed a motion to
vacate the dismissal of the action. On June 16, 2000, the Court denied the
motion to vacate. On June 28, 2000, plaintiffs

                                       14
<PAGE>

appealed the dismissal of the action to the Court of Appeals for the Sixth
Circuit. Plaintiffs' and defendants' final appellate briefs were submitted on
November 30, 2000, and oral argument was heard on November 28, 2001. On August
13, 2002 the Sixth Circuit issued a complete affirmance of the dismissal of the
action. On November 11, 2002 Plaintiff's filed a petition for writ of certiorari
in the United States Supreme Court. On January 21, 2003 the United States
Supreme Court, in a summary order, denied certiorari.

Sanders

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

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, Inc. to engage in the foregoing alleged acts. The
Company and Atari Interactive, Inc. filed answers on January 9, 2003. On or
about January 28, 2003, Gamesonline answered the original complaint and served a
cross-complaint against KBK. Discovery is ongoing.

         The Company believes that these complaints are without merit and
intends to defend itself vigorously against these actions. Additionally, the
Company is involved in various other claims and legal actions arising in the
ordinary course of business. The Company's management believes that the ultimate
resolution of any of the aforementioned complaints or any other claims which are
not stated herein will not have a material adverse effect on the Company's
liquidity, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

                                       15
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the Nasdaq National Market. The high and
low sale prices for the Common Stock as reported by the Nasdaq National Market
for the fiscal years ended June 30, 2001, June 30, 2002 and March 31, 2003 are
summarized below. These over-the-counter market quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs, or commissions and may not
necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                                        HIGH             LOW
                                                                                     -----------     -----------
<S>                                                                                  <C>             <C>
Fiscal 2001
   First Quarter..................................................................   $      8.50     $      5.00
   Second Quarter.................................................................   $     11.00     $      5.56
   Third Quarter..................................................................   $     10.13     $      5.06
   Fourth Quarter.................................................................   $      8.20     $      4.93

Fiscal 2002
   First Quarter..................................................................   $      9.35     $      2.41
   Second Quarter.................................................................   $      7.80     $      3.20
   Third Quarter..................................................................   $      8.15     $      5.90
   Fourth Quarter.................................................................   $      7.20     $      3.05

Fiscal 2003
   First Quarter..................................................................   $      3.40     $      2.19
   Second Quarter.................................................................   $      2.79     $      1.34
   Third Quarter..................................................................   $      2.50     $      1.69
   Fourth Quarter.................................................................           N/A             N/A
</TABLE>

         On July 11, 2003, the last reported sale price of the Common Stock on
the Nasdaq National Market was $4.88. As of June 18, 2003, there were
approximately 8,700 beneficial owners of the Common Stock.

         The Company currently anticipates that it will retain all of its future
earnings for use in the expansion and operation of its business. The Company has
not paid any cash dividends nor does it anticipate paying any cash dividends on
its Common Stock in the foreseeable future. In addition, the payment of cash
dividends may be limited by financing agreements entered into by the Company.

RECENT SALES OF UNREGISTERED SECURITIES

         There were no sales of unregistered securities for the nine months
ended March 31, 2003.

                                       16
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         The following tables set forth selected consolidated financial
information of the Company which, for the years ended March 31, 1999 and 2000,
the three months ended June 30, 2000, the years ended June 30, 2001 and 2002 and
the nine months ended March 31, 2003, is derived from the audited consolidated
financial statements of the Company. The consolidated financial information for
the three months ended June 30, 1999, the year ended June 30, 2000 and the nine
months ended March 31, 2002, is derived from the unaudited financial statements
of the Company. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements. The
consolidated financial information set forth has been combined as of December
16, 1999, as the Company completed a merger with Infogrames North America, Inc.
("INA"), a wholly-owned subsidiary of its majority shareholder Infogrames SA,
(the "INA Merger"). The effective date of the INA Merger was October 2, 2000 and
was accounted for on an "as if pooled" basis. Since December 16, 1999, the
Company and INA have been under the common control of Infogrames SA.

         In November 2001, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") reached a consensus on Issue 01-9 (formerly
EITF issues 00-14 and 00-25), "Accounting for Consideration Given to a Customer
or Reseller of the Vendor's Products". This EITF addressed the recognition,
measurement and income statement classification of consideration from a vendor
to a customer in connection with the customer's purchase or promotion of the
vendor's products. The EITF requires the cost of such items as cooperative
advertising arrangements, price protection and other allowances to be accounted
for as a reduction of revenues. The impact of this accounting principle resulted
in the reclassification of cooperative advertising from selling and distribution
expenses to a reduction of net revenues and has no impact on the Company's
financial position or net income. All comparative periods have been reclassified
to conform to the new requirements.

         These tables should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Form 10-K. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations".

<TABLE>
<CAPTION>
                                                    YEARS                 THREE MONTHS                        YEARS
                                                    ENDED                     ENDED                           ENDED
                                                  MARCH 31,                  JUNE 30,                        JUNE 30,
                                           ----------------------     ---------------------    -----------------------------------
                                             1999         2000          1999        2000         2000         2001         2002
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
                                                       (UNAUDITED)               (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>           <C>         <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:

Net revenues ...........................   $ 556,965    $ 373,596     $115,113    $  47,781    $ 306,264    $ 291,388    $ 419,045
Cost of goods sold .....................     329,959      307,292       62,143       25,283      270,432      125,940      212,380
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Gross profit ...........................     227,006       66,304       52,970       22,498       35,832      165,448      206,665
Selling and distribution expenses ......     130,171      140,175       27,116       20,076      133,135       72,450       84,628
General and administrative expenses ....      58,938       77,447        9,312       17,602       85,737       67,341       37,423
In process research and development.....       5,000           --           --           --           --           --        7,400
Research and development ...............      75,242       71,184       16,366       17,275       72,093       56,617       70,798
Restructuring and other charges ........      17,479       37,948           --       11,081       49,029        3,539           --
INA merger costs .......................          --           --           --           --           --        1,700           --
(Gain) on sale of line of business......          --           --           --           --           --       (5,501)          --
SingleTrac retention bonus .............       1,680           --           --           --           --           --           --
Depreciation and amortization(1) .......      14,606       25,654        3,885        5,788       27,557       20,297        5,454
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Operating (loss)  income ...............     (76,110)    (286,104)      (3,709)     (49,324)    (331,719)     (50,995)         962
Interest expense, net ..................      (5,108)     (18,123)      (1,959)      (4,328)     (20,492)     (13,399)     (11,956)
Other (expense) income .................        (207)        (418)        (293)        (497)        (622)       1,358       (3,272)
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
(Loss) income before (benefit
  from) provision for income taxes .....     (81,425)    (304,645)      (5,961)     (54,149)    (352,833)     (63,036)     (14,266)
(Benefit from) provision for
  income taxes .........................     (29,628)      40,891       (2,109)       1,251       44,251       (2,368)      (3,336)
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
(Loss) income from continuing
  operations ...........................     (51,797)    (345,536)      (3,852)     (55,400)    (397,084)     (60,668)     (10,930)
Discontinued operations:
  Loss from operations of One
   Zero Media, Inc. ....................      (3,531)          --           --           --           --           --           --
  Loss on disposal of One Zero
   Media, Inc. .........................     (15,510)        (477)          --           --         (477)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
 Loss from discontinued operations .....     (19,041)        (477)          --           --         (477)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Net (loss) income before
   dividends on preferred stock.........     (70,838)    (346,013)      (3,852)     (55,400)    (397,561)     (60,668)     (10,930)

<CAPTION>

                                                 NINE MONTHS
                                                    ENDED
                                                   MARCH 31,
                                           ----------------------
                                              2002         2003
                                           ---------    ---------
                                          (UNAUDITED)
<S>                                        <C>          <C>
STATEMENT OF OPERATIONS DATA:

Net revenues ...........................   $ 289,442    $ 404,645
Cost of goods sold .....................     152,355      203,858
                                           ---------    ---------
Gross profit ...........................     137,087      200,787
Selling and distribution expenses ......      62,862       72,005
General and administrative expenses ....      28,924       32,685
In process research and development ....          --           --
Research and development ...............      49,399       62,797
Restructuring and other charges ........          --           --
INA merger costs .......................          --           --
(Gain) on sale of line of business .....          --           --
SingleTrac retention bonus .............          --           --
Depreciation and amortization(1) .......       3,537        5,859
                                           ---------    ---------
Operating (loss)  income ...............      (7,635)      27,441
Interest expense, net ..................      (7,887)      (9,598)
Other (expense) income .................         287          632
                                           ---------    ---------
(Loss) income before (benefit
  from) provision for income taxes .....     (15,235)      18,475
(Benefit from) provision for
  income taxes .........................      (5,014)         405
                                           ---------    ---------
(Loss) income from continuing
  operations ...........................     (10,221)      18,070
Discontinued operations:
  Loss from operations of One
   Zero Media, Inc. ....................          --           --
  Loss on disposal of One Zero
   Media, Inc. .........................          --           --
                                           ---------    ---------
  Loss from discontinued operations.....          --           --
                                           ---------    ---------
Net (loss) income before
   dividends on preferred stock........      (10,221)      18,070
                                           ---------    ---------
</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                    YEARS                 THREE MONTHS                        YEARS
                                                    ENDED                     ENDED                           ENDED
                                                  MARCH 31,                  JUNE 30,                        JUNE 30,
                                           ----------------------     ---------------------    -----------------------------------
                                             1999         2000          1999        2000         2000         2001         2002
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
                                                                    (UNAUDITED)               (UNAUDITED)
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>           <C>         <C>          <C>          <C>          <C>
Less dividends on preferred stock......          226           --          600           --           --           --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Net (loss) income attributable to
  common stockholders..................    $ (71,064)   $(346,013)    $ (4,452)   $ (55,400)   $(397,561)   $ (60,668)   $ (10,930)
                                           =========    =========     ========    =========    =========    =========    =========
Basic (loss)  income per share
  from continuing operations...........    $   (3.73)   $  (21.00)    $  (0.26)   $   (2.68)   $  (22.10)   $   (1.07)   $   (0.16)
Basic loss per share from
  discontinued operations..............    $   (1.37)   $   (0.03)          --           --        (0.03)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Basic net (loss)  income  per
  share................................    $   (5.10)   $  (21.03)    $  (0.26)   $   (2.68)   $  (22.13)   $   (1.07)   $   (0.16)
                                           =========    =========     ========    =========    =========    =========    =========
Weighted average shares
  outstanding(2).......................       13,931       16,451       14,574       20,646       17,963       56,839       69,722
                                           =========    =========     ========    =========    =========    =========    =========
Diluted (loss) income  per share
  from continuing operations...........    $   (3.73)   $  (21.00)    $  (0.26)   $   (2.68)   $  (22.10)    $   (1.07)   $   (0.16)
Diluted loss per share from
  discontinued operations..............    $   (1.37)   $   (0.03)          --           --        (0.03)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Diluted net (loss) income per
  share................................    $   (5.10)   $  (21.03)    $  (0.26)   $   (2.68)   $  (22.13)   $   (1.07)   $   (0.16)
                                           =========    =========     ========    =========    =========    =========    =========
Weighted average shares
  outstanding(2).......................       13,931       16,451       14,574       20,646       17,963       56,839       69,722
                                           =========    =========     ========    =========    =========    =========    =========

<CAPTION>

                                                 NINE MONTHS
                                                    ENDED
                                                   MARCH 31,
                                           ----------------------
                                              2002         2003
                                           ---------    ---------
                                          (UNAUDITED)
<S>                                        <C>          <C>
Less dividends on preferred stock.....            --           --
                                           ---------    ---------
Net (loss) income attributable to
  common stockholders..................    $ (10,221)   $  18,070
                                           =========    =========
Basic (loss)  income  per share
  from continuing operations...........    $   (0.15)   $    0.26
Basic loss per share from
  discontinued operations..............           --           --
                                           ---------    ---------
Basic net (loss) income  per
  share................................    $   (.015)   $    0.26
                                           =========    =========
Weighted average shares
  outstanding(2).......................       69,686       69,878
                                           =========    =========
Diluted (loss) income  per share
  from continuing operations...........    $   (0.15)   $    0.26
Diluted loss per share from
  discontinued operations..............           --           --
                                           ---------    ---------
Diluted net (loss) income per
  share................................    $   (0.15)   $    0.26
                                           =========    =========
Weighted average shares
  outstanding(2).......................       69,686       70,055
                                           =========    =========
</TABLE>

(1)  The Company adopted Statement of Financial Accounting Standards No. 142,
     "Goodwill and Other Intangible Assets" effective July 1, 2001. The adoption
     has eliminated the goodwill amortization prospectively from the effective
     date.

(2)  Reflects the one-for-five reverse stock split approved by the Company's
     Board of Director which became effective on June 26, 2000. All periods have
     been restated to reflect the reverse stock split.

<TABLE>
<CAPTION>
                                                                  MARCH 31,               JUNE 30,              MARCH 31,
                                                            ------------------  ------------------------------  ---------
                                                              1999      2000      2000        2001      2002      2003
                                                            --------  --------  --------    --------  --------  ---------
BALANCE SHEET DATA:                                                                 (UNAUDITED)
<S>                                                         <C>       <C>       <C>         <C>       <C>       <C>
Cash and cash equivalents.................................  $ 13,512  $ 25,857  $ 13,463    $  4,752  $  5,403  $     815
Working capital (deficit).................................   131,770  (146,088) (191,469)    (57,345)  (51,547)   (91,648)
Total assets..............................................   438,911   222,514   170,475     145,084   241,863    232,082
Total debt................................................    98,750   217,476   257,357     149,308   236,211    220,061
Stockholders' equity (deficit)............................   127,133  (182,777) (242,220)   (106,536) (115,329)   (96,918)
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

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

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

                                       18
<PAGE>
that mass-merchants require greater proportions of these products, some of which
may yield lower margins, the Company's operating margins may be negatively
impacted. Development activities include development of games by both internal
and external development studios. Internal studios are studios owned and/or
managed by the Company 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 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 fiscal 2003, the
Company's product mix consisted of 51% PC games, 22% Sony PlayStation(R) 2
games, 10% Microsoft Xbox(R) games, 7% Nintendo Game Boy(R) Advance games, 5%
Nintendo GameCube games, 4% Sony PlayStation(R) games, and 1% games for other
platforms. 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 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 may slow, the console
market as of November 2001 includes new platforms 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 cost 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.

         Effective April 1, 2000, the Company changed its fiscal year-end from
March 31 to June 30. Effective March 28, 2003, the Company changed its fiscal
year-end from June 30 to March 31. Accordingly, the discussion of financial
results set forth below compares the nine months ended March 31, 2003 to the
nine months ended March 31, 2002, the year ended June 30, 2002 to the year ended
June 30, 2001, and the year ended June 30, 2001 to the year ended June 30, 2000.

CRITICAL ACCOUNTING POLICIES

         The Company's discussion and analysis of financial condition and
results of operation are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. 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 materially differ from these estimates under
different assumptions or conditions.

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

                                       19
<PAGE>

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 years ended June 30, 2001 and 2002 and the nine months ended
March 31, 2002 (unaudited) and 2003, the Company recorded allowances for bad
debts, returns, price protection and other customer promotional programs of
approximately $92.6 million, $111.9 million, $81.0 million and $82.3 million,
respectively. As of June 30, 2002 and March 31, 2003, the aggregate reserves
against accounts receivables for bad debts, returns, price protection and other
customer promotional programs were approximately $50.5 million and $40.3
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 years ended June 30, 2001 and
2002 and the nine months ended March 31, 2002 (unaudited) and 2003, the Company
recorded obsolescence expense of approximately $0.8 million, $0.8 million,
$(0.8) million and $3.4 million, respectively. As of June 30, 2002 and March 31,
2003, the aggregate reserves against inventories was approximately $7.7 million
and $4.9 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. Furthermore, as of March 31, 2003, the Company has significant
federal net operating loss carryforwards that will expire in fiscal years 2011
through 2022. As of March 31, 2003, the Company has combined net operating loss
carryforwards of approximately $431.7 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-

                                       20
<PAGE>

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).

RESULTS OF OPERATIONS

         The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for each of the years ended
March 31, 1999 and 2000, the three months ended June 30, 2000, the years ended
June 30, 2001 and 2002 and the nine months ended March 31, 2003, which is
derived from the audited consolidated financial statements of the Company. The
consolidated financial information for the three months ended June 30, 1999,
year ended June 30, 2000 and the nine months ended March 31, 2002 are derived
from the unaudited financial statements of the Company. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements. The consolidated financial
information set forth have been combined as of December 16, 1999, with those of
INA, as a result of the INA Merger. The effective date of the INA Merger was
October 2, 2000 and was accounted for on an "as if pooled" basis. Since December
16, 1999, the Company and INA have been under the common control of Infogrames
SA.

         In November 2001, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") reached a consensus on Issue 01-9 (formerly
EITF issues 00-14 and 00-25), "Accounting for Consideration Given to a Customer
or Reseller of the Vendor's Products". This EITF addressed the recognition,
measurement and income statement classification of consideration from a vendor
to a customer in connection with the customer's purchase or promotion of the
vendor's products. The EITF requires the cost of such items as cooperative
advertising arrangements, price protection and other allowances to be accounted
for as a reduction of revenues. The impact of this accounting principle resulted
in the reclassification of cooperative advertising from selling and distribution
expenses to a reduction of net revenues and has no impact on the Company's
financial position or net income. All comparative periods have been reclassified
to conform to the new requirements.

<TABLE>
<CAPTION>
                                                    YEARS                 THREE MONTHS                        YEARS
                                                    ENDED                     ENDED                           ENDED
                                                  MARCH 31,                  JUNE 30,                        JUNE 30,
                                           ----------------------     ---------------------    -----------------------------------
                                             1999         2000          1999        2000         2000         2001         2002
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
                                                                     (UNAUDITED)              (UNAUDITED)
<S>                                        <C>          <C>          <C>          <C>          <C>          <C>          <C>
Net revenues.......................            100.0%       100.0%       100.0%       100.0%       100.0%       100.0%       100.0%
Cost of goods sold.................             59.2         82.3         54.0         52.9         88.3         43.2         50.7
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Gross profit.......................             40.8         17.7         46.0         47.1         11.7         56.8         49.3
Selling and distribution
  expenses.........................             23.4         37.5         23.6         42.0         43.5         24.9         20.2
General and administrative
  expenses.........................             10.6         20.7          8.1         36.8         28.0         23.1          8.9
In process research and
  development......................              0.9           --           --           --           --           --          1.8
Research and development...........             13.5         19.1         14.2         36.2         23.5         19.4         16.9
Restructuring and other
  charges..........................              3.1         10.2           --         23.2         16.0          1.2           --
INA merger costs...................               --           --           --           --           --          0.6           --
(Gain) on sale of line of
  business.........................               --           --           --           --           --         (1.9)          --
SingleTrac retention bonus.........              0.3           --           --           --           --           --           --
Depreciation and
  amortization(1)..................              2.6          6.9          3.4         12.1          9.0          7.0          1.3
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Operating (loss) income............            (13.6)       (76.7)        (3.3)      (103.2)      (108.3)       (17.5)         0.2
Interest expense, net..............             (0.9)        (4.9)        (1.7)        (9.1)        (6.7)        (4.6)        (2.9)
Other (expense) income.............               --         (0.1)        (0.3)        (1.0)        (0.2)         0.5         (0.8)
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
(Loss) income before  (benefit
  from) provision  for income
  taxes............................            (14.5)       (81.7)        (5.3)      (113.3)      (115.2)       (21.6)        (3.5)
(Benefit from) provision for
  income taxes.....................             (5.3)        10.9         (1.8)         2.6         14.4         (0.8)        (0.8)
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
(Loss) income from continuing
  operations.......................             (9.2)       (92.6)        (3.5)      (115.9)      (129.6)       (20.8)        (2.7)
Discontinued operations:
  Loss from operations of One
   Zero Media, Inc.................             (0.6)          --           --           --           --           --           --
  Loss on disposal of One
   Zero Media, Inc.................             (2.8)        (0.1)          --           --         (0.2)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
  Loss from discontinued
   operations......................             (3.4)        (0.1)          --           --         (0.2)          --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Net (loss) income before
  dividends on preferred stock.....            (12.6)       (92.7)        (3.5)      (115.9)      (129.8)       (20.8)        (2.7)
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
<CAPTION>

                                                 NINE MONTHS
                                                    ENDED
                                                   MARCH 31,
                                           ----------------------
                                              2002         2003
                                           ---------    ---------
                                          (UNAUDITED)
<S>                                        <C>          <C>
Net revenues.......................            100.0%       100.0%
Cost of goods sold.................             52.6         50.4
                                           ---------    ---------
Gross profit.......................             47.4         49.6
Selling and distribution
  expenses.........................             21.7         17.8
General and administrative
  expenses.........................             10.0          8.1
In process research and
  development......................               --           --
Research and development...........             17.1         15.5
Restructuring and other
  charges..........................               --           --
INA merger costs...................               --           --
(Gain) on sale of line of
  business.........................               --           --
SingleTrac retention bonus.........               --           --
Depreciation and
  amortization(1)..................              1.2          1.4
                                           ---------    ---------
Operating (loss) income............             (2.6)         6.8
Interest expense, net..............             (2.7)        (2.4)
Other (expense) income.............              0.1          0.2
                                           ---------    ---------
(Loss) income before (benefit
  from) provision for income
  taxes............................             (5.2)         4.6
(Benefit from) provision for
  income taxes.....................             (1.7)         0.1
                                           ---------    ---------
(Loss) income from continuing
  operations.......................             (3.4)         4.5
Discontinued operations:
  Loss from operations of One
   Zero Media, Inc.................               --           --
  Loss on disposal of One
   Zero Media, Inc.................               --           --
                                           ---------    ---------
  Loss from discontinued
   operations......................               --           --
                                           ---------    ---------
Net (loss) income before
  dividends on preferred stock.....             (3.4)         4.5
                                           ---------    ---------
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                    YEARS                 THREE MONTHS                        YEARS
                                                    ENDED                     ENDED                           ENDED
                                                  MARCH 31,                  JUNE 30,                        JUNE 30,
                                           ----------------------     ---------------------    -----------------------------------
                                             1999         2000          1999        2000         2000         2001         2002
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
<S>                                        <C>          <C>          <C>          <C>          <C>          <C>          <C>
Less dividends on preferred
  stock............................               --           --          0.5           --           --           --           --
                                           ---------    ---------     --------    ---------    ---------    ---------    ---------
Net (loss) income
  attributable to common
  stockholders.....................            (12.6)%      (92.7)%       (4.0)%     (115.9)%     (129.8)%      (20.8)%       (2.7)%
                                           =========    =========     ========    =========    =========    =========    =========

<CAPTION>

                                                NINE MONTHS
                                                   ENDED
                                                  MARCH 31,
                                           ---------------------
                                             2002         2003
                                           --------    ---------
<S>                                        <C>         <C>
Less dividends on preferred
  stock............................              --           --
                                           --------    ---------
Net (loss) income
  attributable to common
  stockholders.....................            (3.4)%        4.5%
                                           ========    =========
</TABLE>

     (1) The Company adopted Statement of Financial Accounting Standards No.
         142, "Goodwill and Other Intangible Assets" effective July 1, 2001. The
         adoption has eliminated the goodwill amortization prospectively from
         the effective date.

NINE MONTHS ENDED MARCH 31, 2003 TO NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)

         Net revenues for the nine months ended March 31, 2003 increased
approximately $115.2 million or 39.8% from $289.4 million to $404.6 million.
This increase is attributable to the Company's growth in its publishing
business, offset by a slight decrease in its third-party distribution business.

         Total publishing net revenues for the nine months ended March 31, 2003
increased approximately $117.9 million or 55.6% to $329.8 million from $211.9
million in the comparable 2002 period. This increase is due to the success of
both new releases and catalogue titles, as well as an increase in royalty income
earned from sales of US product sold internationally. The Company's top fifty
selling published products for the nine months ended March 31, 2003 generated
revenues of approximately $223.2 million, an increase of $87.4 million or 64.4%,
from $135.8 million in the comparative 2002 period. Included in the $223.2
million of the top fifty selling published products were the top four new
releases for the 2003 period accounting for approximately $86.7 million of the
revenues generated as compared to $44.5 million from the top four new releases
during the nine months ended March 31, 2002. This is an increase of
approximately $42.2 million or 94.8% as compared to the top four new releases in
comparable 2002 period and 48.3% of the total increase in top fifty selling
published products this year compared to last. The top four new releases during
the nine months ended March 31, 2003 were expansions from some of the Company's
most successful franchises and include Dragon Ball Z: Budokai for PlayStation2,
Unreal Championship for Xbox, Unreal Tournament 2 for the PC and Rollercoaster
Tycoon 2 for the PC. Additionally, the Company increased its royalty income
generated from sales of US products overseas. These international royalties of
$18.8 million were more than five times as much as the prior period income of
$3.2 million. Total third-party distribution net revenues for the nine months
ended March 31, 2003 decreased slightly by approximately $2.7 million or 3.5% to
$74.8 million from $77.5 million in the comparable 2002 period due primarily to
a reduction in the Australian operation's distribution business.

         Gross profit increased to $200.8 million for the nine months ended
March 31, 2003 from $137.1 million in the comparable 2002 period due mainly to
increased sales volume. Gross profit as a percentage of net revenues increased
to 49.6% for the nine months ended March 31, 2003 from 47.4% in the comparable
2002 period. This margin increase is a net result of the Company's product mix
shift out of the distribution business and into the publishing business and a
stronger publishing product offering, offset partially by a shift within the
publishing business from PC product to console product. For the nine months
ended March 31, 2003, the distribution business accounted for 18.5% of the
Company's net revenues as compared to 26.8% for the comparable period in 2002.
Distribution sales typically earn a lower margin than published product sales.
Within the publishing business and consistent with industry trends, more costly
console product is being sold as compared to PC product. Approximately 58% of
the publishing businesses shipments were console sales during the nine months
ended March 31, 2003 versus 30% in the comparable 2002 period. As a result, the
higher costs of console product lowered the overall margin of the publishing
business as a percentage of net revenues for the nine months ended March 31,
2003 to 55.0% from 56.3% in the comparable 2002 period.

         Selling and distribution expenses primarily include shipping expenses,
personnel expenses, advertising and promotion expenses and distribution costs.
During the nine months ended March 31, 2003, selling and distribution expenses
increased approximately $9.1 million, or 14.5%, to $72.0 million from $62.9
million in the comparable 2002 period. The increase in selling and distribution
expenses is primarily from an increase in advertising expenses and variable
selling expenses related to the increase in sales from the nine months ended
March 31, 2003 over the comparable 2002 period, partially offset by a decrease
in certain fixed expenses. Advertising expenditures increased $15.1 million, or
50.7%, to approximately $44.9 million during the nine months ended March 31,
2003 as compared to $29.8 million in the comparable 2002 period from the
increase in new product releases in the current period. Fixed costs, including
salaries and consulting expenses, decreased by $3.4 million, to $13.9 million
during the nine months ended March 31, 2003 as compared to $17.3

                                       22

<PAGE>

million in the 2002 period. This decrease was primarily attributed to the
Company's centralization and streamlining of marketing and publishing functions.
Additionally, efficiencies in selling and distribution expenses created a
decrease in these expenses as a percentage of net revenues to 17.8% for the nine
months ended March 31, 2003 from 21.7% in the comparable 2002 period.
Distribution expenses decreased 16.5% to approximately $13.2 million during the
nine months ended March 31, 2003 as compared to $15.8 million in the comparable
2002 period. This decrease is due to distribution efficiencies stemming from
increased shipments to customer distribution centers as opposed to individual
customers' stores and the Company's product mix shift from PC to console
product, as console product costs less to handle and ship.

         General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses for the nine months ended March 31, 2003 increased approximately
$3.8 million, or 13.1%, to $32.7 million from $28.9 million in the comparable
2002 period. The increase includes bonus expense offset partially by decreased
bad debt expense. The Company paid a one-time bonus of $2.1 million in the
quarter ended December 31, 2002 tied to the closing of the GECC Senior Credit
Facility. Furthermore, the Company met increased performance incentives and
incurred additional bonus expense of $3.8 million in the current period versus
the prior period. This increase was partially offset by a decrease in bad debt
expense of $3.1 million to $3.8 million from $6.9 million for the nine months
ended March 31, 2003 and 2002, respectively. The nine months ended March 31,
2002 includes a $4.2 million bad debt charge related to the Kmart bankruptcy,
compared to a $0.3 million charge in the comparable 2003 period relating to the
FAO Inc. bankruptcy filing. General and administrative expenses as a percentage
of net revenues decreased slightly to 8.1% for the months ended March 31, 2003
from 10.0% in the comparable 2002 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 nine months ended March 31, 2003 increased approximately
$13.4 million, or 27.1%, to $62.8 million from $49.4 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. Much of the
increase related to the April 2002 acquisition of Shiny and that studios costs
to develop Enter the Matrix on all platforms. During the nine months ended March
31, 2003, the Company's internal development studios incurred expenses of $31.6
million, an increase of $9.7 million or 44.3% from $21.9 million in the
comparable 2002 period. In relation to total research and development expenses,
the internal costs represented 50.3% of the total research and development costs
for the nine months ended March 31, 2003, while internal costs were 44.3% of
total research and development costs for the comparable 2002 period. Research
and development expenses, as a percentage of net revenues, decreased slightly to
15.5% for the nine months ended March 31, 2003 from 17.1% in the comparable 2002
period.

         Depreciation and amortization for the nine months ended March 31, 2003
increased approximately $2.4 million, or 68.6%, to $5.9 million from $3.5
million in the comparable 2002 period. The increase is due to the depreciation
on capital expenditures and projects completed since the prior period.
Additionally, the 2003 period includes the intangible amortization related to
the April 2002 Shiny Acquisition of $0.6 million.

         Interest expense, net, increased approximately $1.7 million to $9.6
million for the nine months ended March 31, 2003 from $7.9 million in the
comparable 2002 period. This increase in the nine months ended March 31, 2003 is
due from a higher level of average borrowings in 2003 as compared to the 2002
period attributable to the new medium-term loan with Infogrames SA and the
Senior Credit Facility with GECC, offset partially by a repayment of amounts
outstanding under the revolving credit facility with BNP Paribas and interest
income earned on advances to related parties.

         During the nine months ended March 31, 2003, the Company recorded a
provision for income taxes of approximately $0.4 million as compared to a $5.0
million benefit from income taxes in the prior comparable period. The charge in
the 2003 period relates to estimated federal and state alternative minimum tax
provisions of $1.0 million to be paid by the Company based on the Company's
current taxable income. This provision is offset by $0.5 million in federal
income tax benefits resulting from loss carryback refund claims filed in the
current period with respect to the Company's fiscal 2002 federal income tax
return and an amended 2001 federal income tax return. For the nine months ended
March 31, 2002, the Company received a tax benefit of $5.0 million based on
federal tax law changes enabling the Company to carryback its June 30, 2001 loss
and recover taxes paid in 1996. The Company will monitor its tax liability on a
quarterly basis and record the estimated tax obligation based on its current
year-to-date taxable income. Furthermore, the Company has significant federal
net operating loss carryforwards that will expire in fiscal years 2011 through
2022.

                                       23
<PAGE>

TWELVE MONTHS ENDED JUNE 30, 2002 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 2001

         Net revenues for the twelve months ended June 30, 2002 increased
approximately $127.6 million or 43.8% from $291.4 million to $419.0 million.
This increase is attributable to the Company's growth in both the publishing and
distribution businesses.

         Total publishing net revenues for the twelve months ended June 30, 2002
increased approximately $102.8 million or 47.3% to $320.2 million from $217.4
million in the comparable 2001 period. This increase is due to the success of
major new releases, the continued success of prior releases, and the sales of
the former Hasbro Interactive titles for twelve months compared to five months
in the 2001 period. Net revenues generated from sales of the ten most successful
titles released during the 2002 period, excluding titles under Hasbro
Interactive, were approximately $113.6 million, an increase of approximately
$48.2 million compared to the top ten releases of 2001 of approximately $65.4
million. Major new releases in 2002 included Stuntman and Splashdown for
Playstation2, Never Winter Nights for the PC, Dragon Ball Z: Legacy of Goku for
Gameboy Advance and Test Drive 2001 for Playstation2 and Xbox. Comparatively,
major new releases in 2001 included Driver Greatest Hits and Driver 2 for
PlayStation, Unreal Tournament for Playstation2, Deerhunter 4 for the PC, and
Alone in the Dark for the PC. Although titles released in previous years
continue to contribute to current year net publishing revenues, the increase in
net revenues is offset by the decline in sales of titles released in prior
years. Net revenues decreased approximately $38.9 million as a result of the
decline in sales of the major new releases in 2001 listed above. The former
Hasbro Interactive titles contributed an additional $97.4 million to publishing
net revenues in the 2002 period compared to 2001. The former Hasbro Interactive
titles, including current year new releases from titles under Hasbro
Interactive, are published by the Company in conjunction with Infogrames SA's
acquisition of Hasbro Interactive in January 2001. Current year new releases
from titles under Hasbro Interactive include Civilization III, Monopoly Tycoon
and Rollercoaster Tycoon for the PC, and NASCAR Heat for Xbox. Total
distribution net revenues for the twelve months ended June 30, 2002 increased
approximately $24.8 million or 33.5% to $98.8 million from $74.0 million in the
comparable 2001 period. During the 2002 period, the Company expanded its
relationships with third-party vendors resulting in the increase in distribution
net revenues.

         Gross profit increased to $206.7 million for the twelve months ended
June 30, 2002 from $165.4 million in the comparable 2001 period due mainly to
increased sales volume, while gross profit as a percentage of net revenues
decreased to 49.3% for the twelve months ended June 30, 2002 from 56.8% in the
comparable 2001 period. This margin decrease is due to the Company's change in
product mix. The former Hasbro Interactive products represented 32.0% of the
sales in the twelve months ended June 30, 2002 as compared to 12.6% in the
comparable 2001 period. Additionally, the decrease in gross profit as a
percentage of net revenues is attributed to the increase in distribution
revenues of $24.8 million or 33.5%, as distribution sales typically earn a lower
margin than published product sales.

         Selling and distribution expenses primarily include shipping expenses,
personnel expenses, advertising and promotion expenses and distribution costs.
During the twelve months ended June 30, 2002, selling and distribution expenses
increased approximately $12.1 million, or 16.7%, to $84.6 million from $72.5
million in the comparable 2001 period. The increase in selling and distribution
expenses resulted primarily from an increase in variable selling expenses
resulting from the increase in sales from the twelve months ended June 30, 2001
to the comparable 2002 period, offset by a more efficient use of marketing and
sales staff and distribution efficiencies during the 2002 period. Advertising
expenditures increased 61.3% to approximately $34.2 million during the twelve
months ended June 30, 2002 as compared to $21.2 million in the comparable 2001
period, due to the increase in new product releases in the current period offset
by continued efforts to improve efficiency. Distribution expenses increased
21.4% to approximately $21.0 million during the twelve months ended June 30,
2002 as compared to $17.3 million in the comparable 2001 period due to the
increase in net revenues offset by distribution efficiencies such as reduction
in express shipments and increased shipments to customer distribution centers as
opposed to individual customers stores. The overall efficiencies in selling and
distribution expenses created a decrease as a percentage of net revenues to
20.2% for the twelve months ended June 30, 2002 as compared to 24.9% in the
comparable 2001 period. A decrease of approximately $4.6 million in selling and
distribution expenses resulted from personnel related costs as a result of
headcount and salary reductions, as well as reductions in travel expenditures.

         General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses in the twelve months ended June 30, 2002 decreased approximately
$29.9 million, or 44.4%, to $37.4 million from $67.3 million in the comparable
2001 period. General and administrative expenses as a percentage of net revenues
decreased to 8.9% for the twelve months ended June 30, 2002 from 23.1% in the
comparable 2001 period. This decrease is primarily due to decreased professional
fees (legal and other outside consultant fees) and

                                       24
<PAGE>

decreased salaries from the consolidation of various functions and the
integration of INA and the Company during the 2001 period. Professional fees
decreased 44.7% to approximately $4.2 million for the twelve months ended June
30, 2002 as compared to $7.6 million in the comparable 2001 period. Salaries
decreased 36.8% to approximately $13.9 million during the twelve months ended
June 30, 2002 as compared to $22.0 million in the comparable 2001 period. The
Company incurred charges of $20.7 million in the 2001 period related to
additional provisions for receivables while the 2002 period includes a $4.2
million charge related to the Kmart bankruptcy. Without these additional
provisions, general and administrative expenses would have decreased by
approximately $11.2 million or 24.0%, to $35.4 million for the twelve months
ended June 30, 2002 compared to $46.6 million for the comparable 2001 period.

         In process research and development costs of $7.4 million were incurred
during the twelve months ended June 30, 2002. These costs were associated with
the Shiny Acquisition. The allocation of the purchase price of Shiny was based
on an independent third-party valuation obtained by the Company which determined
that in process research and development totaled $7.4 million which was expensed
at the date of the acquisition. There were no comparable costs incurred during
the twelve months ended June 30, 2001.

         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 twelve months ended June 30, 2002 increased approximately
$14.2 million, or 25.1%, to $70.8 million from $56.6 million in the comparable
2001 period due to the Company signing additional arrangements with external
developers and achieving more milestones in the development process during the
2002 period. Use of the Company's internal development studios, which include
Humongous, Legend, Reflections and Shiny, also increased from approximately
$24.8 million for the twelve months ended June 30, 2001 to $29.4 million in the
comparable 2002 period. In relation to total research and development expenses,
the internal costs represented 42.6% of the total research and development costs
for the twelve months ended June 30, 2002, while costs were 39.8% of total
research and development costs for the comparable period of 2001. Research and
development expenses, as a percentage of net revenues, decreased to 16.9% for
the twelve months ended June 30, 2002 from 19.4% in the comparable 2001 period.

         The Company incurred restructuring charges of $3.5 million for the
twelve months ended June 30, 2001, with no such costs incurred during the 2002
period. Effective March 14, 2001, the Company announced and commenced a plan to
shutdown its San Jose, California facility and recorded a charge of $2.1
million. The charge consisted primarily of employee severance packages and the
disposal of assets that were no longer being used. In the fourth quarter of
fiscal 2001, the Company initiated a restructuring of its Humongous
Entertainment business to refocus the operations primarily on internal
development rather than publishing and incurred a $1.1 million charge with
respect thereto. In the 2001 period, the Company also incurred an additional
$0.3 million charge to centralize its technical support operations in Seattle,
Washington.

         The Company incurred expenses of $1.7 million or 0.6% of net revenue
related to the INA Merger during the twelve months ended June 30, 2001. The
costs include various consulting, legal, and accounting fees. No costs were
incurred in the 2002 period.

         The Company recorded a gain on sale of line of business for the twelve
months ended June 30, 2001 of approximately $5.5 million. This is related to the
sale of the Duke Nukem franchise as the Company refocused its catalog from
specialized gaming product to mass market gaming product.

         Depreciation and amortization for the twelve months ended June 30, 2002
decreased approximately $14.8 million, or 72.9%, to $5.5 million from $20.3
million in the comparable 2001 period. Approximately $11.6 million of this
decrease is attributable to the cessation of goodwill amortization under
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. Depreciation and amortization was further reduced by the
prior write-off of assets due to the consolidation of functions in conjunction
with the INA Merger.

         Interest expense decreased approximately $1.4 million to $12.0 million
for the twelve months ended June 30, 2002 from $13.4 million in the comparable
2001 period. The decrease is partly attributable to lower interest rates driven
by the average three month LIBOR rate decrease from 5.64% in the twelve months
ended June 30, 2001 to 2.29% in the comparable 2002 period. Additionally, the
decrease in interest expense is due to lower average borrowings in 2002 as
compared to the 2001 period.

         For the twelve months ended June 30, 2002, the Company received a tax
benefit of $5.0 million based on a provision contained in The Job Creation and
Worker Assistance Act of 2002, signed by the President of the United States on

                                       25
<PAGE>

March 9, 2002, which changed the allowable carryback period for net operating
losses from two years to five years. This provision enabled the Company to
carryback its June 30, 2001 loss and recover taxes paid in 1996.

TWELVE MONTHS ENDED JUNE 30, 2001 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 2000

         Net revenues for the twelve months ended June 30, 2001 decreased $14.9
million or 4.9% from $306.3 million to $291.4 million. This decrease is
attributable to the Company's decreased emphasis on third-party distribution and
its decision to close European operations in conjunction with the purchase of
the Company by Infogrames SA. The decrease in distribution revenue was partially
offset by an increase in revenue attributable to the addition of sales of the
former Hasbro Interactive product which are now published through the Company in
conjunction with Infogrames SA's acquisition of Hasbro Interactive in January
2001 and the continued success of products such as Driver 2 and Driver Greatest
Hits for Playstation and Unreal Tournament for Playstation2.

         Total publishing revenue for the twelve months ended June 30, 2001
increased 18.0% to $217.4 million from $184.2 million in the comparable 2000
period. Approximately 65.0% of such revenues related to PC product revenues and
35.0% of such revenues related to console games for the twelve months ended June
30, 2001, as compared to 70.9% and 29.1%, respectively, in the comparable 2000
period. Both the increase in publishing revenue and the increase in console
product during the twelve months ended June 30, 2001 are attributable to the
Company's continued success of Driver 2 and Driver Greatest Hits for Playstation
and Unreal Tournament for Playstation2. Those products alone amounted to $56.8
million of net revenues for the twelve months ended June 30, 2001. Additionally,
publishing revenue increased due to sales of the former Hasbro Interactive
products such as Roller Coaster Tycoon and NASCAR Heat for Playstation2 which
contributed approximately $38.9 million in net revenues for the twelve months
ended June 30, 2001.

         Cost of goods sold for the twelve months ended June 30, 2001 decreased
approximately $144.5 million or 53.4% to $125.9 million from $270.4 million from
the comparable 2000 period. Cost of goods sold as a percentage of net revenues
decreased to 43.2% for twelve months ended June 30, 2001, as compared to 88.3%
in the comparable 2000 period. The 2000 period included special charges. These
special charges of approximately $51.6 million were to reserve substantially all
of the international inventory and a portion of domestic inventory which the
Company did not expect to resell. Additionally, the decrease in cost of goods
sold as a percentage of net revenues for the twelve months ended June 30, 2001
is attributable to the Company's reduced emphasis on third-party distribution.
Typically, third-party distribution carries a higher cost of goods as compared
to published product.

         Gross profit increased to $165.4 million for the twelve months ended
June 30, 2001 from $35.8 million in the comparable 2000 period. This increase is
primarily due to increased sales volume and changes in cost of goods sold as
described above. Gross profit is primarily impacted by the percentage of sales
of PC product as compared to the percentage of sales of console product. Gross
profit may also be impacted from time to time by the percentage of foreign
sales, and the level of returns and price protection and concessions to
retailers and distributors. The Company's margins on sales of PC product are
higher than those on console software as a result of significantly lower PC
software product costs (for the twelve months ended June 30, 2001 console
software consisted of Playstation2, Playstation 1, Dreamcast, Nintendo 64 and
Game Boy Color). Gross profit as a percentage of net revenues increased to 56.8%
for the twelve months ended June 30, 2001 from 11.7% in the comparable 2000
period. This increase is due to the Company's reorganization efforts to reduce
costs, decrease its distribution business and implement better business
processes that enabled it to manage both internal and channel inventory more
efficiently and effectively. Additionally, gross profit as a percentage of net
revenues increased due to royalty income on international sales. In the 2000
period, the Company recorded full European sales offset by the cost of goods
sold. As part of its reorganization efforts to reduce costs, the Company only
receives royalty income on product sold in Europe offset by minor royalty costs.

         Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During the twelve months ended June 30, 2001,
selling and distribution expenses decreased approximately $60.6 million, or
45.5%, to $72.5 million from $133.1 million in the comparable 2000 period.
Selling and distribution expenses as a percentage of net revenues for the twelve
months ended June 30, 2001 decreased to 24.9% as compared to 43.5% in the
comparable 2000 period. For the twelve months ended June 30, 2001, the Company's
reorganization efforts of reducing its distribution business have led to
significant cost reductions. The Company is also realizing the cost savings of
outsourcing its distribution function in this period as compared to the prior
period where a portion of the Company's distribution function remained in-house.
Additionally, the Company has refocused its marketing efforts to reduce costs.

                                       26
<PAGE>
         General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses in the twelve months ended June 30, 2001 decreased approximately
$18.4 million, or 21.5%, to $67.3 million from $85.7 million in the comparable
2000 period. General and administrative expenses as a percentage of net revenues
decreased to 23.1% for the twelve months ended June 30, 2001 from 28.0% in the
comparable 2000 period. The 2000 period included special charges of
approximately $16.6 million related to receivable write-offs, senior management
severance packages and other costs incurred as a result of the reorganization of
operations due to Infogrames SA acquisition of a controlling interest in the
Company. The 2000 period also included a one-time gain from the early
extinguishment of debt of approximately $1.9 million. Additionally, the Company
has further reduced costs in the 2001 period due to internal consolidation and
reorganization efforts. The decrease was offset by approximately $20.7 million
of additional provisions for receivables during the current twelve month 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.
Research and development expenses for the twelve months ended June 30, 2001
decreased approximately $15.5 million, or 21.5%, to $56.6 million from $72.1
million in the comparable 2000 period. Research and development expenses, as a
percentage of net revenues, decreased to 19.4% for the twelve months ended June
30, 2001 from 23.5% in the comparable 2000 period. The decrease is primarily due
to savings from shutting down European operations and the SingleTrac Studio as a
part of the Company's reorganization plan. During the 2000 period, the Company
incurred research and development expenses from both Europe and SingleTrac as
compared to the twelve months ended June 30, 2001. Additionally, this decrease
has resulted from more strategic and efficient use of existing internal research
and development groups and a reduction in contracts with external developers.
Research and development expenses of the Company's internal development studios,
Humongous, Legend and Reflections, for the twelve months ended June 30, 2001,
decreased $19.9 million or 44.5% to $24.8 million from $44.7 million in the
comparable 2000 period.

         The Company incurred restructuring charges of $49.0 million and $3.5
million for the twelve months ended June 30, 2000 and 2001, respectively. The
2000 period charges resulted from the shutdown of European operations, the
Company's de-emphasis on its distribution business and the write-down of
goodwill related to its value priced division. Effective March 14, 2001, the
Company announced and commenced a plan to shutdown its San Jose, California
facility and recorded a charge of $2.1 million. This charge consists primarily
of employee severance packages and the disposal of assets that will no longer be
used. In the fourth quarter of fiscal 2001, the Company initiated a
restructuring of its Humongous Entertainment business to refocus the operations
primarily on internal development and incurred a $1.1 million charge with
respect thereto. The Company incurred an additional $0.3 million charge to
centralize its technical support operations in Seattle, Washington.

         The Company incurred expenses of $1.7 million or 0.6% of net revenue
related to the INA Merger during the twelve months ended June 30, 2001. The
costs include various consulting, legal, and accounting fees.

         The Company recorded a gain on sale of line of business for the twelve
months ended June 30, 2001 of approximately $5.5 million. This is related to the
sale of the Duke Nukem franchise as the Company refocused its catalog from
specialized gaming product to mass market gaming product.

         Depreciation and amortization for the twelve months ended June 30, 2001
decreased approximately $7.3 million, or 26.4%, to $20.3 million from $27.6
million in the comparable 2000 period. This decrease is attributable to the
write-off of fixed assets and of all goodwill, other than the goodwill for INA,
Legend and Reflections studios, in connection with the Company's reorganization
plans in the comparable 2000 period. This decrease was offset by amortization
expense resulting from the INA Merger.

         Interest expense decreased approximately $7.1 million to $13.4 million
from $20.5 million in the comparable 2000 period. The decrease in the twelve
months ended June 30, 2001 was attributable to lower borrowings in 2001 as
compared to 2000.

         For the twelve months ended June 30, 2001, the Company recorded a tax
benefit of $2.4 million compared to a tax provision of $44.3 million in the
comparable 2000 period. The Company recognized a tax benefit in the current
period related to foreign current taxes and in the prior year provided a full
valuation allowance for deferred tax assets.

                                       27
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

         Cash and cash equivalents were $0.8 million at March 31, 2003 compared
to $5.4 million at June 30, 2002. As of March 31, 2003, the Company had a
working capital deficit of $91.6 million compared to $51.5 million working
capital deficit at June 30, 2002.

         During the nine months ended March 31, 2003, $52.3 million was provided
by operating activities generated primarily by net income and the collection of
trade receivables. Operating funds, combined with borrowings of $10.7 million
from the new GECC Senior Credit Facility, were used to pay-off the $15.0 million
balance to BNP Paribas, pay $16.6 million against the Infogrames SA related
party credit facilities and to fund capital expenditures of $4.1 million during
the period. The Company also advanced Atari Interactive, Inc. $30.5 million
under the terms of the GECC Senior Credit Facility in order to support its
operations. Atari Interactive, Inc. develops games which the Company distributes
in North America and, consequently, the Company is dependent on Atari
Interactive, Inc.'s development activities for growth in its publishing
revenues.

         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 nine month period.

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

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
intercompany loans to Paradigm Entertainment Inc. and Atari Interactive, Inc.,
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, Inc., Paradigm, and the Company's subsidiary, Shiny, as guarantors.
The outstanding borrowings as of March 31, 2003, under the Senior Credit
Facility were approximately $10.7 million with another $2.3 million of letters
of credit outstanding. As of March 31, 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 related party debt with the Company subordinate to
the Senior Credit Facility. The Subordination Agreement allows repayment of debt
and interest to Infogrames SA by the Company under certain financial conditions
including, but not limited to, the Senior Credit Facility cash availability and
certain financial covenants. Additionally, the Subordination Agreement 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. Furthermore, the Subordination Agreement may have the effect of
extending the terms on all Infogrames SA credit facilities and related party
debt through the term of the Senior Credit Facility if certain conditions
required for the scheduled payments contained in the Subordination Agreement are
not met.


                                       28
<PAGE>

         BNP Paribas Credit Facility

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

Infogrames SA 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%. On September 30, 2002, the maturity
date was extended to December 31, 2002 and Infogrames SA agreed that prior to
July 1, 2003, it will not demand repayment of any amount outstanding, except
under certain conditions and in each case only to the extent that the repayment
is permitted under any new credit facility and the amount remaining available
from that credit facility is sufficient to fund the Company's working capital
needs. Conditions under which Infogrames SA may demand repayment include the
disposition of material assets of the Company, the successful completion of
additional financings, the receipt of non-budgeted revenues and a significant
improvement in the financial condition of the Company. On November 12, 2002, by
entering into the Subordination Agreement, Infogrames SA, in effect, extended
the Credit Agreement through the term of the Senior Credit Facility.
Additionally, the allowable repayments of the Credit Agreement are restricted
under the terms of the Subordination Agreement and demand of re-payments cannot
be made prior to termination of the Senior Credit Facility or without prior
approval of GECC. The outstanding borrowings, as of March 31, 2003, under the
Credit Agreement was $44.8 million. As of March 31, 2003, accrued interest and
fees were approximately $1.8 million and are included in current amounts due to
related parties. The entire outstanding balance of $44.8 million at March 31,
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 April 1,
2004.

         This agreement requires that the Company comply with certain financial
covenants and, among other items, restricts capital expenditures. Effective
December 31, 2002, Infogrames SA agreed to waiver any default or event of
default through April 1, 2004, that may arise by reason of the Company's failure
to comply with these covenants.

         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, Inc. and
Atari Australia Pty Ltd., against amounts due under the Credit Agreement. At
March 31, 2003, the amounts that are subject to offset for Atari Interactive,
Inc. are $27.4 million upon the termination of the Senior Credit Facility with
GECC and for Atari Australia Pty Ltd., approximately $1.7 million on July 3,
2005 (see Note 13 to the Consolidated Financial Statements for further
information on related party transactions).

         Medium-Term Loan

         In connection with the Shiny Acquisition, the Company obtained a $50.0
million medium-term loan from Infogrames SA which matures on June 30, 2004.
Interest is based on the three month LIBOR rate plus 2.75% and payable on a
quarterly basis, in arrears. An unused commitment fee of 0.50% per annum is
based on the aggregate amount of the facility less outstanding loans. The
facility will be repaid as follows: $10.0 million three months after the first
shipment of the game based on the Matrix Reloaded movie and no later than
December 31, 2003; $10.0 million on December 31, 2003; $20.0 million on March
31, 2004; and $10.0 million on June 30, 2004. Under the Subordination Agreement,
the scheduled payments are restricted by certain financial conditions including,
but not limited to, the Senior Credit Facility's minimum borrowing availability
and certain financial covenants. The Subordination Agreement also may have the
effect of extending the terms on the medium-term loan through the term of the
Senior Credit Facility. The facility will be prepaid and reduced in aggregate
amounts equal to (1) 95% of the net cash proceeds of any sale or disposition of
any assets of the Company exceeding $2.5 million, (2) 95% of the cumulative net
proceeds from equity issuances by the Company provided that the Company may
retain 5% of such proceeds, and (3) 95% of the net proceeds from any new debt
issuance by the Company. As of March 31, 2003, the outstanding borrowings under
the medium-term loan were approximately $48.3 million, of which

                                       29
<PAGE>

$40.0 million is in current liabilities. Additionally, accrued interest was
approximately $1.2 million and is included in current amounts due to related
parties.

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

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

         5% Notes

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

         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 publishing businesses and growth objectives.

         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.

         As of March 31, 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.

         As of March 31, 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)................        $  95,451      $      --       $     --       $      --      $ 95,451
Long-term debt.....................               --        124,610             --              --       124,610
Royalty and license advances.......            5,368          1,600             --              --         6,968
Operating lease obligations........            5,200         14,100          2,600           1,200        23,100
Restructuring obligations..........               71             --             --              --            71
                                           ---------      ---------       --------       ---------      --------
Total   ...........................        $ 106,090      $ 140,310       $  2,600       $   1,200      $250,200
                                           =========      =========       ========       =========      ========

</TABLE>

                                       30
<PAGE>


     (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 March 31, 2003, the amounts
         that are subject to offset for Atari Interactive, Inc. are $27.4
         million upon the termination of the Senior Credit Facility with GECC
         and for Atari Australia Pty Ltd., approximately $1.7 million on July 3,
         2005 (see Note 13 to the Consolidated Financial Statements for further
         information on related party transactions).

RECENT PRONOUNCEMENTS

         In August 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations and costs associated with the retirement of tangible
long-lived assets. The Company was required to implement SFAS No. 143 on July
1, 2002. The adoption of this new principle did not have a material impact on
the Company's financial condition or results of operations.

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

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

         In November 2002, FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of this new
principle did not have a material impact on the Company's financial condition or
results of operations.

         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 January 2003, the EITF issued No. 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor", which
requires that certain consideration received by a customer from a vendor are
presumed to be a reduction of the price of the vendor's products, and therefore,
should be recorded as a reduction of cost of goods sold when recognized in the
customer's income statement, unless certain criteria are met. This presumption
is overcome if the consideration paid to the customer is directly attributable
(offsetting) to incremental and separately

                                       31
<PAGE>

identifiable expenses incurred elsewhere in the income statement. The adoption
of this new principle did not have a material impact on the Company's financial
condition or results of operations.

         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.

         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. Management is currently evaluating the provisions of SFAS No. 150 and
will determine the impact, if any, the adoption will have on our financial
statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's carrying value of cash, marketable securities, 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 March 31, 2003, foreign operations represented 0.0% and 3.5% of
consolidated net revenues and total assets, respectively. The Company also
recorded approximately $6.0 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 $103.8 million at March 31, 2003) bear interest at
variable rates based on a margin over LIBOR. Based on the amount outstanding as
of March 31, 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
(formerly the GAP 0% Notes) and the 5% subordinated convertible note with a
subsidiary of Infogrames SA aggregating approximately $116.3 million at March
31, 2003, interest rate changes effect the fair market value of such debt, but
do not impact the Company's earnings.

                                       32

<PAGE>

ITEM 8. INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements, and notes thereto, and the
Financial Statement Schedule of the Company, are presented on pages F-1 through
F-35 hereof as set forth below:

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
<S>                                                                                                    <C>
ATARI, INC. AND SUBSIDIARIES
   Independent Auditors' Report.....................................................................           F-1
   Consolidated Balance Sheets as of June 30, 2002 and March 31, 2003...............................           F-2
   Consolidated Statements of Operations and Comprehensive Loss for the Years
      Ended June 30, 2001 and 2002 and the Nine Months Ended March 31, 2002 (unaudited) and 2003.....          F-3
   Consolidated Statements of Cash Flows for the Years Ended June 30, 2001 and 2002
      and the Nine Months Ended March 31, 2002 (unaudited) and 2003.................................           F-4
   Consolidated Statements of Stockholders' Deficiency for the Years
      Ended June 30, 2001 and 2002 and the Nine Months Ended March 31, 2003..........................          F-6
   Notes to the Consolidated Financial Statements...................................................   F-8 to F-34
FINANCIAL STATEMENT SCHEDULE
   Years Ended June 30, 2001 and 2002 and Nine Months Ended March 31, 2003
   Schedule II--Valuation and Qualifying Accounts...................................................          F-35
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The information required by this Item is incorporated by reference to
the sections of our definitive Proxy Statement for our 2003 Annual Meeting of
Shareholders, entitled "Election of Directors" and "Executive Officers", to be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated by reference to
the sections of our definitive Proxy Statement for our 2003 Annual Meeting of
Shareholders, entitled "Executive Compensation", to be filed with the Securities
and Exchange Commission within 120 days after the end of the fiscal year covered
by this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

         The information required by this Item is incorporated by reference to
the sections, entitled "Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters", of our definitive Proxy Statement
for our 2003 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year covered by
this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this Item is incorporated by reference to
the sections of our definitive Proxy Statement for our 2003 Annual Meeting of
Shareholders, entitled "Certain Relationships and Related Transactions", to be
filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K.

ITEM 14. 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-K, 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

                                       33
<PAGE>

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.

                                       34
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) and (2) Financial Statements and Financial Statement Schedules
See Item 8 hereof.
(a)(3) Exhibits

2.1         Agreement and Plan of Reorganization by and among the Company, GT
            Acquisition Sub, Inc., WizardWorks Group, Inc. and the Stockholders
            of WizardWorks Group, Inc., dated June 24, 1996 is incorporated
            herein by reference to Exhibit 2.1 to the Company's Current Report
            on Form 8-K filed on July 9, 1996.

2.2         Escrow Agreement by and among the Company, Paul D. Rinde, as the
            Stockholder Representative of WizardWorks Group, Inc., and Republic
            National Bank of New York, as Escrow Agent, dated June 24, 1996 is
            incorporated herein by reference to Exhibit 2.2 to the Company's
            Current Report on Form 8-K filed on July 9, 1996.

3.1         Amended and Restated Certificate of Incorporation is incorporated
            herein by reference to Exhibit 3.1 to the Company's Annual Report on
            Form 10-K for the fiscal year ended March 31, 2000.

3.2         Amended and Restated By-laws are incorporated herein by reference to
            Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 1998.

4.1         Specimen form of stock certificate for Common Stock is incorporated
            herein by reference to Exhibit 4.1 to the Company's Annual Report on
            Form 10-K for the fiscal year ended March 31, 2000.

4.2         Certificate of the Powers, Designations, Preferences and Rights of
            the Series A Convertible Preferred Stock is incorporated herein by
            reference to Exhibit 3.1 to Company's Current Report on Form 8-K
            filed on March 2, 1999.

4.3         Stockholders' Agreement by and among Joseph J. Cayre, Kenneth Cayre,
            Stanley Cayre, Jack J. Cayre, the Trusts listed on Schedule I
            attached thereto and the Company is incorporated herein by reference
            to an exhibit filed as a part of the Company's Registration
            Statement on Form S-1 filed October 20, 1995.

4.3a        Amendment to Stockholders Agreement, dated as of December 18, 1995,
            by and among Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, Jack J.
            Cayre, the Trusts parties thereto and the Company is incorporated
            herein by reference to Exhibit 10.30 to the Company's Annual Report
            on Form 10-K for the year ended December 31, 1996.

4.4         Registration Rights Agreement by and among Joseph J. Cayre, Kenneth
            Cayre, Stanley Cayre, Jack J. Cayre, the Trusts listed on Schedule I
            attached thereto and the Company is incorporated herein by reference
            to an exhibit filed as a part of the Company's Registration
            Statement on Form S-1 filed October 20, 1995.

4.5         Amended and Restated Registration Rights Agreement, dated as of
            February 15, 2000, between California U.S. Holdings, Inc. and the
            Company is incorporated herein by reference to Exhibit 4.5 to the
            Company's Annual Report on Form 10-K for the fiscal year ended March
            31, 2000.

10.1        The 1995 Stock Incentive Plan (as amended on October 31, 1996) is
            incorporated herein by reference to Exhibit 10.1 to Amendment No. 2
            to the Company's Registration Statement on Form S-1, filed December
            6, 1996.*

10.2        The 1997 Stock Incentive Plan is incorporated herein by reference to
            Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 1997.*

10.3        The 1997 Stock Incentive Plan (as amended on June 17, 1998) is
            incorporated herein by reference to Exhibit 10.5 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.*

10.4        The 2000 Stock Incentive Plan is incorporated herein by reference to
            Appendix B to the Company's proxy statement dated June 29, 2000.*

                                       35
<PAGE>

10.5        The 1998 Employee Stock Purchase Plan is incorporated herein by
            reference to Exhibit 10.6 to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1998.*

10.6        Employment Agreement, dated April 28, 1998, between the Company and
            Harry M. Rubin is incorporated herein by reference to Exhibit 10.3
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 30, 1998.*

10.6a       Agreement and Release, dated April 7, 2000, by and between Harry M.
            Rubin and the Company is incorporated herein by reference to Exhibit
            10.10a to the Company's Annual Report on Form 10-K for the fiscal
            year ended March 31, 2000.*

10.6b       Letter Agreement, dated June 15, 2000, by and between Harry M. Rubin
            and the Company is incorporated herein by reference to Exhibit
            10.10b to the Company's Annual Report on Form 10-K for the fiscal
            year ended March 31, 2000.*

10.6c       Letter Agreement, dated December 21, 2000, by and between Harry
            Rubin and the Company is incorporated herein by reference to Exhibit
            10.6c to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.*

10.6d       Employment Agreement, dated as of June 1, 2002, by and between Harry
            Rubin and the Company is incorporated herein by reference to
            Exhibit 10.6d to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2002.*

10.7        Letter Agreement, dated April 20, 2000, by and between David Fremed
            and the Company is incorporated herein by reference to Exhibit 10.15
            to the Company's Annual Report on Form 10-K for the fiscal year
            ended March 31, 2000.*

10.8        Letter Agreement, dated September 7, 2000, by and between Lisa
            Rothblum and the Company is incorporated herein by reference to
            Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2001.*

10.9        Lease Agreement between the Company and Plymouth 2200, LLP, dated
            September 6, 1996 is incorporated herein by reference to Exhibit
            10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
            ended September 30, 1996.

10.10       Agreement of Lease, dated as of December 12, 1996, by and between
            the Company and F.S. Realty Corp is incorporated herein by reference
            to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
            year ended December 31, 1996.

10.11       Lease Agreement between the Company and Netbreeders Realty LLC,
            dated November 1, 1999, is incorporated herein by reference to
            Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2001.

10.12       Lease Agreement between the Company and CarrAmerica Realty
            Corporation, dated February 17, 2000, is incorporated herein by
            reference to Exhibit 10.12 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2001.

10.13       Sublease Agreement between the Company and North American Mortgage
            Company, dated February 17, 2000, is incorporated herein by
            reference to Exhibit 10.13 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2001.

10.14       Sublease Agreement between the Company and SAVI Technology, Inc.,
            dated May 30, 2001, is incorporated herein by reference to Exhibit
            10.14 to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.

10.15       Lease Agreement between the Company and Edward Silver, Co-Trustee of
            the Silver Trust and Paul Weinstein, Co-Trustee of the Weinstein
            Trust (dba PTL Realty), dated May 7, 2001, is incorporated herein by
            reference to Exhibit 10.15 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2001.

                                       36
<PAGE>

10.16       Lease Agreement between the Company and MV 1997, L.L.C., dated
            November 24, 1997, is incorporated herein by reference to Exhibit
            10.16 to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.

10.17       Lease Agreement between the Company and Northwest Properties Realty
            Corp., dated February 22, 1999, is incorporated herein by reference
            to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2001.

10.18       Lease Agreement between the Company and Cimarron Airpark L.L.C.
            VIII, dated June 1, 1995, is incorporated herein by reference to
            Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2001.

10.19       Sublease Agreement between the Company and XPIDATA, Inc., dated
            December 6, 1996, is incorporated herein by reference to Exhibit
            10.19 to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.

10.20       Lease Agreement between the Company and Brookfield J, LLC, dated
            December 23, 1998, is incorporated herein by reference to Exhibit
            10.20 to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.

10.21       Services Agreement between the Company and GoodTimes Home Video
            Corp., dated as of January 1, 1995, is incorporated herein by
            reference to Exhibit 10.2 to the Company's Registration Statement on
            Form S-1 filed October 20, 1995.

10.22       GTIS Master Option and License Agreement between the Company and the
            Williams Entertainment Group, dated December 28, 1994, and the
            Amendment to such agreement, dated March 31, 1995, are incorporated
            herein by reference to Exhibit 10.10 to the Company's Registration
            Statement on Form S-1 filed October 20, 1995.

10.23       GTIS Master Option and License Agreement (Home Video Games) between
            the Company and the Williams Entertainment Group, dated March 31,
            1995 is incorporated herein by reference to Exhibit 10.11 to the
            Company's Registration Statement on Form S-1 filed October 20, 1995.

10.24       Agreement by and between the Company and REPS is incorporated herein
            by reference to an exhibit filed as a part of the Company's
            Registration Statement on Form S-1 filed October 20, 1995.

10.25       Warehouse Services Contract, dated March 2, 1999, by and between the
            Company and Arnold Transportation Services, Inc. t/d/b/a Arnold
            Logistics is incorporated herein by reference to Exhibit 10.50 to
            the Company's Annual Report on Form 10-K for the fiscal year ended
            March 31, 1999.

10.26       Distribution Agreement between Infogrames Entertainment SA and the
            Company, dated as of December 16, 1999, is incorporated herein by
            reference to Exhibit 7 to the Schedule 13D filed by Infogrames
            Entertainment SA and California U.S. Holdings, Inc. on January 10,
            2000.

10.26a      Amendment to Distribution Agreement between Infogrames Entertainment
            SA and the Company dated as of July 1, 2000, is incorporated herein
            by reference to Exhibit 10.26a to the Company's Annual Report on
            Form 10-K for the fiscal year ended June 30, 2001.

10.27       Trademark Agreement, dated as of May 10, 2000, by and between
            Infogrames Entertainment SA and the Company is incorporated herein
            by reference to Exhibit 10.25 to the Company's Annual Report on Form
            10-K for the fiscal year ended March 31, 2000.

10.28       Credit Agreement, dated as of September 11, 1998, by and among the
            Company, the Lenders thereto, NationsBanc Montgomery Securities,
            LLC, as Syndication Agent, Fleet Bank, N.A., as Documentation Agent,
            and First Union National Bank, as Administrative Agent, is
            incorporated herein by reference to Exhibit 10.3 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            1998.

                                       37
<PAGE>

10.28a      Second Amendment, Waiver and Agreement, dated as of June 29, 1999,
            by and among the Company, the Lenders thereto and First Union
            National Bank, as Administrative Agent, is incorporated herein by
            reference to Exhibit 10.1 to the Company's Current Report on 8-K
            filed on August 5, 1999.

10.28b      Third Amendment, Consent, Waiver and Agreement, dated as of November
            15, 1999, by and among the Company, the Lenders thereto and First
            Union National Bank, as Administrative Agent is incorporated herein
            by reference to Exhibit 10.3 to the Company's Current Report on Form
            8-K filed on November 19, 1999.

10.28c      Right of First Refusal Offer Agreement, dated November 15, 1999, by
            and among California U.S. Holdings, Inc. and the Lenders named
            therein is incorporated herein by reference to Exhibit 13 to the
            Schedule 13D filed by Infogrames Entertainment SA and California
            U.S. Holdings, Inc. on December 14, 1999.

10.28d      Amended and Restated Unconditional Subsidiary Guaranty Agreement,
            dated as of November 15, 1999, among certain subsidiaries of the
            Company, California U.S. Holdings, Inc. and First Union National
            Bank, as administrative agent, for the benefit of the Lenders is
            incorporated herein by reference to Exhibit 15 to the Schedule 13D
            filed by Infogrames Entertainment SA and California U.S. Holdings,
            Inc. on December 14, 1999.

10.28e      Second Amended and Restated Security Agreement, dated as of November
            15, 1999, by and among the Registrant, certain of its subsidiaries,
            First Union National Bank, as Administrative Agent, and California
            U.S. Holdings, Inc. is incorporated herein by reference to Exhibit
            10.4 to the Company's Current Report on Form 8-K filed on November
            19, 1999.

10.28f      Second Amended and Restated Pledge Agreement, dated as of November
            15, 1999, by the Company and certain of its subsidiaries in favor of
            First Union National Bank, as Administrative Agent, and California
            U.S. Holdings, Inc. is incorporated herein by reference to Exhibit
            10.5 to the Company's Current Report on Form 8-K filed on November
            19, 1999.

10.28g      Master Assignment and Acceptance, dated as of February 15, 2000, by
            and among the Company, the Assignors and Infogrames Entertainment SA
            is incorporated herein by reference to Exhibit 10.26g to the
            Company's Annual Report on Form 10-K for the fiscal year ended March
            31, 2000.

10.28h      Warrant Agreement, dated as of February 15, 2000, by and among the
            Company and Infogrames Entertainment SA is incorporated herein by
            reference to Exhibit 10.26h to the Company's Annual Report on Form
            10-K for the fiscal year ended March 31, 2000.

10.28i      Warrant Certificate, dated as of February 15, 2000, issued to
            California U.S. Holdings, Inc. is incorporated herein by reference
            to Exhibit 10.26i to the Company's Annual Report on Form 10-K for
            the fiscal year ended March 31, 2000.

10.28j      Fourth Amendment to the Credit Agreement, dated as of February 15,
            2000, by and between the Company and Infogrames Entertainment SA is
            incorporated herein by reference to Exhibit 10.26j to the Company's
            Annual Report on Form 10-K for the fiscal year ended March 31, 2000.

10.28k      Reimbursement and Cash Collateral Agreement, dated as of February
            15, 2000, by and between the Company and First Union National Bank
            is incorporated herein by reference to Exhibit 10.26k to the
            Company's Annual Report on Form 10-K for the fiscal year ended March
            31, 2000.

10.28l      Collateral Assignment Agreement, dated as of February 15, 2000, by
            and among First Union National Bank, Infogrames SA, the Company and
            the Guarantors is incorporated herein by reference to Exhibit 10.26l
            to the Company's Annual Report on Form 10-K for the fiscal year
            ended March 31, 2000.

10.28m      Fifth Amendment to the Credit Agreement, dated as of March 31, 2000,
            by and between the Company and Infogrames Entertainment SA is
            incorporated herein by reference to Exhibit 10.26m to the Company's
            Annual Report on Form 10-K for the fiscal year ended March 31, 2000.

10.28n      Sixth Amendment to the Credit Agreement, dated as of June 29, 2000,
            by and between the Company and Infogrames Entertainment SA is
            incorporated herein by reference to Exhibit 10.26n to the Company's
            Annual Report on Form 10-K for the fiscal year ended March 31, 2000.

                                       38
<PAGE>

10.28o      Ninth Amendment to the Credit Agreement, dated as of June 7, 2001,
            to the Credit Agreement by and between the Company and Infogrames
            Entertainment SA, is incorporated herein by reference to Exhibit
            10.28o to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2001.

10.28p      Tenth Amendment to the Credit Agreement, dated as of December 31,
            2001, to the Credit Agreement by and between the Company and
            Infogrames Entertainment SA is incorporated herein by reference to
            Exhibit 10.1 to the Company's Quarterly Report on 10-Q filed on
            February 14, 2002.

10.28q      Eleventh Amendment to the Credit Agreement, dated as of March 29,
            2002, to the Credit Agreement by and between the Company and
            Infogrames Entertainment SA is incorporated herein by reference to
            Exhibit 10.1 to the Company's Quarterly Report on 10-Q filed on May
            15, 2002.

10.28r      Twelfth Amendment to the Credit Agreement, dated as of June 30,
            2002, to the Credit Agreement by and between the Company and
            Infogrames Entertainment SA is incorporated herein by reference to
            Exhibit 10.28r to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2002.

10.28s      Thirteenth Amendment to the Credit Agreement, dated as of September
            30, 2002, to the Credit Agreement by and between the Company and
            Infogrames Entertainment SA is incorporated herein by reference to
            Exhibit 10.28s to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2002.

10.28t      Fourteenth Amendment to the Credit Agreement, dated as of December
            31, 2002, to the Credit Agreement by and between the Company and
            Infogrames Entertainment SA.

10.29       Stock Purchase Agreement, dated February 8, 1999, among the Company,
            General Atlantic Partners 54, L.P. and GAP Coinvestment Partners II,
            L.P. is incorporated herein by reference to Exhibit 10.1 to the
            Company's Current Report on 8-K filed on March 2, 1999.

10.30       Warrant Agreement, dated as of June 29, 1999, among the Company, GAP
            54, GAPCO II and the other parties named therein is incorporated
            herein by reference to Exhibit 1 to the Schedule 13D filed by
            General Atlantic Partners, LLC and certain of its affiliates on
            August 10, 1999.

10.31       Letter Agreement, dated June 29, 1999, among GAP 54, GAPCO II,
            Joseph J. Cayre, Kenneth Cayre and Stanley Cayre is incorporated
            herein by reference to Exhibit 2 to the Schedule 13D filed by
            General Atlantic Partners, LLC and certain of its affiliates on
            August 10, 1999.

10.32       Form of Option Agreement, dated as of July 30, 1999, among GAP 54,
            GAPCO II and the other parties named therein is incorporated herein
            by reference to Exhibit 3 to the Schedule 13D filed by General
            Atlantic Partners, LLC and certain of its affiliates on August 10,
            1999.

10.33       Securities Purchase Agreement, dated as of November 15, 1999, by and
            among Infogrames Entertainment S.A., California U.S. Holdings, Inc.
            and the Company is incorporated herein by reference to Exhibit 10.1
            to the Company's Current Report on 8-K filed on November 19, 1999.

10.34       Securities Exchange Agreement, dated as of November 15, 1999, by and
            among the Company, General Atlantic Partners 54, L.P., and GAP
            Coinvestment Partners II, L.P. is incorporated herein by reference
            to Exhibit 10.2 to the Company's Current Report on 8-K filed on
            November 19, 1999.

10.35       Promissory Note of the Company in the aggregate principal amount of
            $25,000,000 payable to California U.S. Holdings, Inc. is
            incorporated herein by reference to Exhibit 10.6 to the Company's
            Current Report on 8-K filed on November 19, 1999.

10.36       Warrant to Purchase 50,000 shares of Common Stock, issued to
            California U.S. Holdings, Inc. is incorporated herein by reference
            to Exhibit 5 to the Schedule 13D filed by Infogrames Entertainment
            S.A. and California U.S. Holdings, Inc. on December 14, 1999.

10.37       Form of GAP Warrant is incorporated herein by reference to Exhibit 9
            to the Schedule 13D filed by Infogrames Entertainment S.A. and
            California U.S. Holdings, Inc. on December 14, 1999.

                                       39
<PAGE>

10.38       Note Purchase Agreement, dated as of November 15, 1999, between
            certain members of the Cayre Group and California U.S. Holdings,
            Inc. is incorporated herein by reference to Exhibit 11B to the
            Schedule 13D filed by Infogrames Entertainment S.A. and California
            U.S. Holdings, Inc. on December 14, 1999.

10.39       Equity Purchase and Voting Agreement, dated as of November 15, 1999,
            among Infogrames Entertainment S.A., California U.S. Holdings, Inc.,
            GAP 16, GAP 19, GAP II, GAP 54, GAPCO and GAPCO II is incorporated
            herein by reference to Exhibit 3 to the Schedule 13D filed by
            General Atlantic Partners, LLC and certain of its affiliates on
            December 23, 1999.

10.40       Form of GAP 54 Note is incorporated herein by reference to Exhibit 4
            to the Schedule 13D filed by General Atlantic Partners, LLC and
            certain of its affiliates on December 23, 1999.

10.41       Form of GAPCO II Note is incorporated herein by reference to Exhibit
            5 to the Schedule 13D filed by General Atlantic Partners, LLC and
            certain of its affiliates on December 23, 1999.

10.42       5% Subordinated Convertible Note of the Company is incorporated
            herein by reference to Exhibit 6 to the Schedule 13D filed by
            Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on
            January 10, 2000.

10.43       Services Agreement, dated as of January 1, 2000, between Infogrames
            Entertainment SA and the Company is incorporated herein by reference
            to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the
            fiscal year ended March 31, 2000.

10.44       Sales Agency Agreement dated as of December 16, 1999 between
            Infogrames North America, Inc. and the Company is incorporated
            herein by reference to Exhibit 10.42 to the Company's Annual Report
            on Form 10-K for the fiscal year ended March 31, 2000.

10.45       Affiliated Label Agreement dated as of July 1, 2000 between
            Infogrames North America, Inc. and the Company is incorporated
            herein by reference to Exhibit 10.43 to the Company's Annual Report
            on Form 10-K for the fiscal year ended March 31, 2000.

10.46       Services Agreement, dated as of January 26, 2001, between the
            Company and Infogrames Interactive, Inc, is incorporated herein by
            reference to Exhibit 10.46 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2001.

10.47       Letter Agreement, dated as of January 26, 2001, between the Company
            and Infogrames Entertainment SA, is incorporated herein by reference
            to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2001.

10.48       Stock Purchase Agreement, dated as of April 23, 2002, by and among
            Interplay Entertainment Corp., Shiny Entertainment, Inc., David
            Perry, Shiny Group, Inc. and the Company is incorporated herein by
            reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
            filed on May 15, 2002.

10.49       Amendment No. 1 to Stock Purchase Agreement, dated as of April 30,
            2002, by and among Interplay Entertainment Corp., Shiny
            Entertainment, Inc., David Perry, Shiny Group, Inc. and the Company
            is incorporated herein by reference to Exhibit 2.2 to the Company's
            Current Report on Form 8-K filed on May 15, 2002.

10.50       Interplay Promissory Note, dated as of April 30, 2002, issued by the
            Company to Interplay Entertainment Corp is incorporated herein by
            reference to Exhibit 10.50 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2002.

10.51       Europlay Promissory Note, dated as of April 30, 2002, issued by the
            Company to Europlay 1 LLC is incorporated herein by reference to
            Exhibit 10.51 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2002.

10.52       Akin Promissory Note, dated as of April 30, 2002, issued by the
            Company to Akin, Gump, Strauss, Hauer & Feld, L.L.P is incorporated
            herein by reference to Exhibit 10.52 to the Company's Annual Report
            on Form 10-K for the fiscal year ended June 30, 2002.

10.53       Letter of Employment, dated as of April 23, 2002, between David
            Perry and the Company is incorporated herein by reference to
            Exhibit 10.53 to the Company's Annual Report on Form 10-K for the
            fiscal year ended June 30, 2002.*

10.54       Letter Agreement, dated as of November 30, 2001, between the Company
            and BNP Paribas is incorporated herein by reference to Exhibit 10.2
            to the Company's Quarterly Report on Form 10-Q filed on February 14,
            2002.

                                       40
<PAGE>

10.55       Lease Agreement between Prima Development Corp. and the Company
            dated May 17, 2002 is incorporated herein by reference to Exhibit
            10.55 to the Company's Annual Report on Form 10-K for the fiscal
            year ended June 30, 2002.

10.56       Lease Agreement between Parabola Estates Limited and Reflections
            Interactive Limited dated September 10, 2001 is incorporated herein
            by reference to Exhibit 10.56 to the Company's Annual Report on Form
            10-K for the fiscal year ended June 30, 2002.

10.57       Credit Agreement, dated as of November 12, 2002, among Infogrames,
            Inc., as Borrower, the other credit parties signatory thereto, the
            lenders signatory thereto from time to time, General Electric
            Capital Corporation, as Administrative Agent, Agent and Lender, and
            GECC Capital Markets Group, Inc., as Lead Arranger, is incorporated
            herein by reference to Exhibit 10.1 to the Company's Current Report
            on Form 8-K dated filed on November 19, 2003.

10.57a      First Amendment and Consent to the Credit Agreement, dated as of
            March 28, 2003, among Infogrames, Inc., as Borrower, the other
            credit parties signatory thereto, the lenders signatory thereto from
            time to time, General Electric Capital Corporation, as
            Administrative Agent, Agent and Lender.

10.57b      Second Amendment and Consent to the Credit Agreement, dated as of
            April 15, 2003, among Infogrames, Inc., as Borrower, the other
            credit parties signatory thereto, the lenders signatory thereto from
            time to time, General Electric Capital Corporation, as
            Administrative Agent, Agent and Lender.

10.57c      Third Amendment and Waiver to the Credit Agreement, dated as of July
            11, 2003, among Atari, Inc., as Borrower, the other credit parties
            signatory thereto, the lenders signatory thereto from time to time,
            General Electric Capital Corporation, as Administrative Agent, Agent
            and Lender.

10.58       Intercreditor and Subordination Agreement, dated as of November 12,
            2002, among Infogrames Entertainment S.A, California U.S. Holdings,
            Inc., General Electric Capital Corporation and the Credit Parties
            signatory hereto, is incorporated herein by reference to Exhibit
            10.2 to the Company's Quarterly Report on Form 10-Q filed on
            February 14, 2003.

10.59       Description of Registrant's Executive Bonus Plan.

16.1        Letter from Arthur Andersen LLP, dated March 20, 2000, addressed to
            the Securities and Exchange Commission in accordance with Item
            304(a)(3) is incorporated herein by reference to Exhibit 16.1 to the
            Company's Current Report on Form 8-K dated March 20, 2000.

20.1        Current Report on Form 8-K filed on April 25, 2002 is incorporated
            herein by reference.

20.2        Current Report on Form 8-K filed on May 15, 2002 is incorporated
            herein by reference.

20.3        Amendment on Form 8-K/A filed on July 15, 2002, which amends Current
            Report on Form 8-K filed on May 15, 2002, is incorporated herein by
            reference.

20.4        Current Report on Form 8-K filed on November 19, 2002 is
            incorporated herein by reference.

20.5        Current Report on Form 8-K filed on March 27, 2003 is incorporated
            herein by reference.

20.6        Current Report on Form 8-K filed on May 8, 2003 is incorporated
            herein by reference.

22.1        Information Statement on Schedule 14C filed on January 25, 2000 is
            incorporated herein by reference.

22.2        Information Statement on Schedule 14C filed on May 12, 2000 is
            incorporated herein by reference.

22.3        Information Statement on Schedule 14C filed on June 5, 2000 is
            incorporated herein by reference.

22.4        Information Statement on Schedule 14C filed on September 12, 2000 is
            incorporated herein by reference.

22.5        Proxy Statement on Schedule 14A filed on October 12, 2001 is
            incorporated herein by reference.

                                       41
<PAGE>
22.6        Proxy Statement on Schedule 14A filed on October 16, 2002 is
            incorporated herein by reference.

23.1        Consent of Arthur Andersen LLP is incorporated herein by reference
            to Exhibit 23.1 to the Company's Registration Statement on Form S-8
            filed on February 2, 2001.

23.2        Consent of Deloitte & Touche LLP.

24.1        Power of Attorney.

99.1        Certification by the Company's Chief Executive Officer Pursuant to
            18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

99.2        Certification by the Company's Chief Financial Officer Pursuant to
            18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

Exhibit indicated with an * symbol is a management contract or compensatory plan
or arrangement filed pursuant to Item 14 of Form 10-K.

A copy of any of the exhibits included in this Annual Report on Form 10-K may be
obtained by written request to the Company, upon payment of a fee of $0.10 per
page to cover costs. Requests should be sent to the Company at the address set
forth on the front cover, attention Director, Investor Relations.

(c)      Reports on Form 8-K

The Company filed the following Current Reports on Form 8-K during the fiscal
year ended March 31, 2003 and prior to the date hereof:

<TABLE>
<CAPTION>
 DATE OF REPORT            ITEM REPORTED        FINANCIAL STATEMENTS FILED
 --------------            -------------        --------------------------
<S>                        <C>                  <C>
November 19, 2002              5(1)                       None.
March 27, 2003                 8(2)                       None.
May 8, 2003                    5(3)                       None
</TABLE>

---------------------------

(1)  This Current Report was filed to report the completion of the Company's
     financing transaction with General Electronic Capital Corporation.

(2)  This Current Report was filed to report change of the Company's fiscal
     year-end.

(3)  This Current Report was filed to report change of the Company's name and
     trading symbol.

                                       42
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Section 13 or 15(d) 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
                                           -------------------------------------
                                            Name:  David J. Fremed
                                            Title: Chief Financial Officer
                                            Date:  July 15, 2003

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             SIGNATURE                                  TITLE(S)                               DATE
             ---------                                  --------                               ----
<S>                                    <C>                                                <C>
        /s/ BRUNO BONNELL              Chairman of the Board of Directors and Chief       July 15, 2003
-----------------------------------         Executive Officer (principal executive
           Bruno Bonnell                    officer) and Director


        /s/ DENIS GUYENNOT             Director and President, Chief Operating            July 15, 2003
-----------------------------------         Officer and Secretary
          Denis Guyennot

       /s/ DAVID J. FREMED             Chief Financial Officer (principal financial       July 15, 2003
-----------------------------------         officer and principal accounting officer)
          David J. Fremed

         /s/ JAMES ACKERLY             Director                                           July 15, 2003
-----------------------------------
             James Ackerly

           /s/ JAMES CAPARRO           Director                                           July 15, 2003
-----------------------------------
               James Caparro

      /s/ THOMAS A. HEYMANN            Director                                           July 15, 2003
-----------------------------------
         Thomas A. Heymann

        /s/ ANN E. KRONEN              Director                                           July 15, 2003
-----------------------------------
           Ann E. Kronen

      /s/ THOMAS J. MITCHELL           Director                                           July 15, 2003
-----------------------------------
        Thomas J. Mitchell

       /s/ THOMAS SCHMIDER             Director                                           July 15, 2003
-----------------------------------
          Thomas Schmider

             /s/ DAVID WARD            Director                                           July 15, 2003
-----------------------------------
                 David Ward

* By: /s/ DAVID J. FREMED                                                                 July 15, 2003
-----------------------------------
(David J. Fremed, Attorney-in-Fact)
</TABLE>

                                       43
<PAGE>

                                  CERTIFICATION

I, Bruno Bonnell, certify that:

1.       I have reviewed this annual report on Form 10-K of Atari, Inc.;

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

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

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

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

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

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

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

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

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

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

                                         By: /s/ Bruno Bonnell
                                             -----------------------------------
                                             Name: Bruno Bonnell
                                             Title: Chairman of the Board and
                                                       Chief Executive Officer

Date: July 15, 2003

                                       44
<PAGE>

                                  CERTIFICATION

I, David J. Fremed, certify that:

1.       I have reviewed this annual report on Form 10-K of Atari, Inc.;

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

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

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

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

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

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

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

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

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

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

                                         By: /s/ David J. Fremed
                                             -----------------------------------
                                             Name: David J. Fremed
                                             Title: Chief Financial Officer

Date: July 15, 2003

                                       45
<PAGE>

                          ATARI, INC. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Atari, Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of Atari, Inc. and
subsidiaries (the "Company") as of March 31, 2003 and June 30, 2002, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' deficiency and cash flows for the nine months ended March 31,
2003, and for the years ended June 30, 2002 and 2001. Our audits also included
the consolidated financial statement schedule listed at Item 15. These
consolidated financial statements and the consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atari, Inc. and its
subsidiaries as of March 31, 2003 and June 30, 2002, and the consolidated
results of their operations and their cash flows for the nine months ended March
31, 2003, and for the years ended June 30, 2002 and 2001 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



New York, New York
July 11, 2003


                                      F-1
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        JUNE 30,    MARCH 31,
                                                                                          2002        2003
                                                                                       ---------   ----------
<S>                                                                                    <C>         <C>
ASSETS
Current assets:
    Cash and cash equivalents...................................................       $   5,403   $     815
    Receivables, net............................................................          81,200      47,053
    Inventories, net............................................................          45,235      37,827
    Income taxes receivable.....................................................           1,074         395
    Due from related parties....................................................           3,849       2,656
    Prepaid expenses and other current assets...................................           9,303      16,958
                                                                                       ---------   ---------
       Total current assets.....................................................         146,064     105,704
Advances to related party.......................................................              --      32,184
Property and equipment, net.....................................................          16,185      14,727
Goodwill, net of accumulated amortization of $26,116 in both periods............          72,924      70,224
Other intangible assets, net of accumulated amortization of  $619 at
    March 31, 2003..............................................................              --       2,081
Other assets....................................................................           6,690       7,162
                                                                                       ---------   ---------
       Total assets.............................................................       $ 241,863   $ 232,082
                                                                                       =========   =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
    Accounts payable............................................................       $  59,259   $  39,587
    Accrued liabilities.........................................................          35,615      31,872
    Revolving credit facilities.................................................          15,000      10,651
    Short-term promissory notes.................................................           8,833          --
    Current portion of related party medium-term loan...........................              --      40,000
    Related party credit facility...............................................          61,431      44,800
    Royalties payable...........................................................           8,915      13,653
    Income taxes payable........................................................           1,447       1,965
    Short-term deferred income..................................................              --       2,077
    Due to related parties......................................................           7,111      12,747
                                                                                       ---------   ---------
       Total current liabilities................................................         197,611     197,352
Related party debt..............................................................         150,947     124,610
Deferred income.................................................................           3,500       4,131
Other long-term liabilities.....................................................           5,134       2,907
                                                                                       ---------   ---------
       Total liabilities........................................................         357,192     329,000
                                                                                       ---------   ---------

Commitments and contingencies                                                                 --          --

Stockholders' deficiency:
    Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or
       outstanding..............................................................              --          --
    Common stock, $0.01 par value, 300,000 shares authorized, 69,826 and 69,920
       shares issued and outstanding at June 30, 2002 and March 31, 2003,
       respectively.............................................................             698         699
    Additional paid-in capital..................................................         485,759     486,053
    Accumulated deficit.........................................................        (604,921)   (586,851)
    Accumulated other comprehensive income......................................           3,135       3,181
                                                                                       ---------   ---------
       Total stockholders' deficiency...........................................        (115,329)    (96,918)
                                                                                       ---------   ---------
       Total liabilities and stockholders' deficiency...........................       $ 241,863   $ 232,082
                                                                                       =========   =========
</TABLE>

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

                                       F-2

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        NINE
                                                              YEARS ENDED           MONTHS ENDED
                                                               JUNE 30,               MARCH 31,
                                                        ---------------------   ---------------------
                                                          2001        2002         2002       2003
                                                        ---------------------   ---------------------
                                                                                (UNAUDITED)
<S>                                                     <C>         <C>         <C>         <C>
Net revenues.......................................     $ 291,388   $ 419,045   $ 289,442   $ 404,645
Cost of goods sold.................................       125,940     212,380     152,355     203,858
                                                        ---------   ---------   ---------   ---------
    Gross profit...................................       165,448     206,665     137,087     200,787
Selling and distribution expenses..................        72,450      84,628      62,862      72,005
General and administrative expenses................        67,341      37,423      28,924      32,685
In process research and development................            --       7,400          --          --
Research and development...........................        56,617      70,798      49,399      62,797
Restructuring and other charges....................         3,539          --          --          --
Infogrames North America merger costs..............         1,700          --          --          --
(Gain) on sale of line of business.................        (5,501)         --          --          --
Depreciation and amortization......................        20,297       5,454       3,537       5,859
                                                        ---------   ---------   ---------   ---------
    Operating (loss) income........................       (50,995)        962      (7,635)     27,441
Interest expense, net..............................       (13,399)    (11,956)     (7,887)     (9,598)
Other income (expense).............................         1,358      (3,272)        287         632
                                                        ---------   ---------   ---------   ---------
    (Loss) income before (benefit from) provision
       for income taxes............................       (63,036)    (14,266)    (15,235)     18,475
(Benefit from) provision for income taxes..........        (2,368)     (3,336)     (5,014)        405
                                                        ---------   ---------   ---------   ---------
    Net (loss) income..............................     $ (60,668)  $ (10,930)  $ (10,221)  $  18,070
                                                        =========   =========   =========   =========
Basic and diluted net (loss) income per share......     $   (1.07)  $   (0.16)  $   (0.15)  $    0.26
                                                        =========   =========   =========   =========
Basic weighted average shares outstanding..........        56,839      69,722      69,686      69,878
                                                        =========   =========   =========   =========
Diluted weighted average shares outstanding........        56,839      69,722      69,686      70,055
                                                        =========   =========   =========   =========
Net (loss) income..................................     $ (60,668)  $ (10,930)  $ (10,221)  $  18,070
Other comprehensive (loss) income:
    Foreign currency translation adjustments.......         1,382         777         489          46
    Unrealized gain (loss) on securities...........           488         (57)        (57)         --
    Reclassification adjustment for realized gains
    included in net loss...........................            --        (388)       (388)         --
                                                        ---------   ---------   ---------   ---------
       Comprehensive (loss) income.................     $ (58,798)  $ (10,598)  $ (10,177)  $  18,116
                                                        =========   =========   =========   =========
</TABLE>

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

                                       F-3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                             NINE MONTHS
                                                                                  YEARS ENDED                   ENDED
                                                                                    JUNE 30,                   MARCH 31,
                                                                            ----------------------      ----------------------
                                                                              2001          2002          2002          2003
                                                                            ----------------------      ----------------------
                                                                                                       (UNAUDITED)
<S>                                                                         <C>           <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .....................................................     $(60,668)     $(10,930)     $(10,221)     $ 18,070
Adjustments to reconcile net (loss) income to
    net cash (used in) provided by operating activities:
    Depreciation and amortization .....................................       20,297         5,454         3,537         5,859
    Write-down of investments held at cost ............................          299         3,622            --            --
    Recognition of deferred revenue ...................................           --        (1,750)       (1,750)           --
    Write-off of assets in connection with restructuring charges ......        1,560            --            --            --
    Amortization of discount on related party debt ....................        2,870         2,870         2,153         2,153
    Accrued interest on revolving credit facility .....................           47            66            --            77
    Accrued interest on related party debt ............................        3,429         5,520         2,911         5,218
    Accretion of interest on short-term promissory notes ..............           --            66            --            --
    Amortization of deferred financing fees ...........................          956           956           717           959
    Write-off of property and equipment ...............................           --           547            52           363
    In process research and development related to acquisition of
       Shiny Entertainment, Inc. ......................................           --         7,400            --            --
    Gain on sale of  marketable securities ............................           --          (388)           --            --
Changes in operating assets and liabilities:
       Receivables, net ...............................................         (133)      (43,683)       (3,073)       34,162
       Marketable securities ..........................................        3,152            --           108            --
       Inventories, net ...............................................        3,749       (15,830)      (13,191)        7,420
       Due from related parties .......................................       (4,444)          519        (1,691)        1,478
       Due to related parties .........................................       28,599       (10,447)      (10,219)        2,884
       Prepaid expenses and other current assets ......................          949        (1,325)       (2,543)       (7,620)
       Accounts payable ...............................................      (31,329)       20,869         2,420       (19,708)
       Accrued liabilities ............................................       (6,762)        3,810        (4,027)       (3,893)
       Bank overdraft .................................................       (3,355)           --            --            --
       Royalties payable ..............................................       (5,218)       (3,047)       (5,756)        4,735
       Income taxes payable ...........................................           --           962            --           507
       Deferred income ................................................        3,445         1,747         1,940           631
       Income taxes receivable ........................................         (916)        1,307        (3,973)          689
       Other long-term liabilities ....................................         (814)        3,714         1,618          (233)
       Other assets ...................................................       (1,106)        5,759         3,176        (1,450)
                                                                            --------      --------      --------      --------
        Net cash (used in) provided by operating activities ...........      (45,393)      (22,212)      (37,812)       52,301
                                                                            --------      --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ...................................       (6,084)       (8,571)       (6,489)       (4,067)
Proceeds from sale of marketable securities ...........................           --           497            --            --
Advances to related party .............................................           --            --            --       (32,184)
Acquisition of Shiny Entertainment, Inc.,  net of nominal cash acquired           --       (34,010)           --            --
                                                                            --------      --------      --------      --------
        Net cash used in investing activities .........................       (6,084)      (42,084)       (6,489)      (36,251)
</TABLE>

                                      F-4

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  NINE MONTHS
                                                                                       YEARS ENDED                   ENDED
                                                                                         JUNE 30,                  MARCH 31,
                                                                                 ----------------------    ------------------------
                                                                                    2001         2002        2002           2003
                                                                                 ----------------------    ------------------------
                                                                                                          (UNAUDITED)
<S>                                                                              <C>          <C>         <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under related party credit facilities, net ............     43,068       52,373       54,000        (16,632)
Borrowings under the related party medium-term loan ...........................         --       39,381           --          8,896
Payments to third parties .....................................................         --       (7,291)          --             --
Repayments under BNP Paribus revolving credit facility ........................         --      (19,888)     (10,000)       (15,000)
Borrowings under General Electric Capital Corporation Senior Credit                     --           --           --         10,651
  Facility, net ...............................................................
Repayments under short-term promissory notes ..................................         --           --           --         (8,833)
Proceeds from exercise of warrants in connection with Infogrames North
  America, Inc.  merger .......................................................         48           --           --             --
Proceeds from exercise of stock options .......................................          6           32           32            116
Proceeds from employee stock purchase plan ....................................         71          204          127            125
                                                                                 ---------    ---------    ---------      ---------
             Net cash provided by (used for) financing activities .............     43,193       64,811       44,159        (20,677)
Effect of exchange rates on cash and cash  equivalents ........................       (427)         136           75             39
                                                                                 ---------    ---------    ---------      ---------
Net (decrease) increase in cash and cash  equivalents .........................     (8,711)         651          (67)        (4,588)
Cash and cash equivalents -- beginning of fiscal year .........................     13,463        4,752        4,752          5,403
                                                                                 ---------    ---------    ---------      ---------
Cash and cash equivalents -- end of fiscal year ...............................  $   4,752    $   5,403    $   4,685      $     815
                                                                                 =========    =========    =========      =========

SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURE OF NON-CASH
OPERATING ACTIVITIES:
Cash paid for interest ........................................................      3,145        2,770        2,344          3,599
Cash paid for taxes ...........................................................         --           --           --            450

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:
Conversion of revolving credit facility into  shares of the Company's
     common stock by Infogrames Entertainment SA at $6.40 per share ...........    128,570           --           --             --
Issuance of stock in exchange for the assets of Infogrames North America,
    Inc........................................................................        280           --           --             --
Conversion of Infogrames North America, Inc. related party
    balances with Infogrames Entertainment SA .................................     64,907           --           --             --
Sale of treasury stock in lieu of partial royalty payment .....................        600          855          855             --
Assumption of Shiny Entertainment, Inc. employee stock purchase plan ..........         --          672           --             --
Issuance of warrants to external developer as part of agreement ...............         --           --           --             54
Conversion of warrants under cash - less exercise option ......................         --            1           --             --
Common stock issued in lieu of partial royalty payment ........................         --           41           41             --
</TABLE>

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

                                      F-5
<PAGE>
                          ATARI, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                                   COMMON                 ADDITIONAL                        OTHER
                                                    STOCK      COMMON      PAID-IN       ACCUMULATED    COMPREHENSIVE    TREASURY
                                                   SHARES      STOCK       CAPITAL         DEFICIT          INCOME        SHARES
                                                   ------      -----       -------         -------          ------        ------

<S>                                                <C>         <C>        <C>            <C>            <C>              <C>
BALANCE, JULY 1, 2000 ..........................   20,685      $ 208      $293,284       $ (533,323)    $    933            332
Issuance of shares for Infogrames North America
     merger ....................................   28,000        280            --               --           --             --
Conversion of warrants at $0.05 a share ........      955          9            39               --           --             --
Conversion of related party credit facility at
     $6.40 a share .............................   20,089        200       128,370               --           --             --
Conversion of Infogrames North America
     related party payables ....................       --         --        64,907               --           --             --
Issuance of common stock pursuant to employee
      stock purchase plan ......................       25         --            71               --           --             --
Sales of treasury shares in lieu of partial
      royalty payment ..........................       --         --          (370)              --           --            (97)
Exercise of stock options ......................        5          1             5               --           --             --
Net loss .......................................       --         --            --          (60,668)          --             --
Currency translation adjustment ................       --         --            --               --        1,382             --
Unrealized gain on securities ..................       --         --            --               --          488             --
                                                   ------      -----      --------        ---------      -------           ----

BALANCE, JUNE 30, 2001 .........................   69,759        698       486,306         (593,991)       2,803            235
Issuance of common stock pursuant to
     employee stock purchase plan ..............       30         --           204               --           --             --
Sales of treasury shares in lieu of
     partial royalty payment ...................       --         --        (1,497)              --           --           (235)
Exercise of stock options ......................        5         --            32               --           --             --
Net loss .......................................       --         --            --          (10,930)          --             --
Currency translation adjustment ................       --         --            --               --          777             --
Unrealized loss on securities ..................       --         --            --               --          (57)            --
Reclassification adjustment for realized gains
      included in net loss .....................       --         --            --               --         (388)            --
Assumption of stock options pursuant to
     the acquisition of Shiny Entertainment,
      Inc. .....................................       --         --           672               --           --             --
Conversion  of  warrants under cash-less
      exercise option ..........................       21         --             1               --           --             --
Issuance of common stock in lieu of partial
      royalty payment ..........................       11         --            41               --           --             --
                                                   ------      -----      --------        ---------      -------           ----

<CAPTION>

                                                    TREASURY
                                                     SHARES
                                                    AT COST           TOTAL
                                                    -------           -----

<S>                                                <C>              <C>
BALANCE, JULY 1, 2000 ..........................   $  (3,322)       $(242,220)
Issuance of shares for Infogrames North America
     merger ....................................          --              280
Conversion of warrants at $0.05 a share ........          --               48
Conversion of related  party  credit facility
     at $6.40 a share ..........................          --          128,570
Conversion of Infogrames North America related
     party payables ............................          --           64,907
Issuance of common stock pursuant to employee
     stock purchase plan .......................          --               71
Sales of treasury shares in lieu of partial
     royalty payment ...........................         970              600
Exercise of stock options ......................          --                6
Net loss .......................................          --          (60,668)
Currency translation adjustment ................          --            1,382
Unrealized gain on securities ..................          --              488
                                                   ---------        ---------

BALANCE, JUNE 30, 2001 .........................      (2,352)        (106,536)
Issuance of common stock pursuant to employee
     stock purchase plan .......................          --              204
Sales of treasury shares in lieu of partial
     royalty payment ...........................       2,352              855
Exercise of stock options ......................          --               32
Net loss .......................................          --          (10,930)
Currency translation adjustment ................          --              777
Unrealized loss on securities ..................          --              (57)
Reclassification adjustment for realized gains
     included in net loss ......................          --             (388)
Assumption of stock options pursuant to the
     acquisition of Shiny Entertainment, Inc....          --              672
Conversion of warrants under cash-less
    exercise option ............................          --                1
Issuance of common stock in lieu of partial
    royalty payment ............................          --               41
                                                   ---------        ---------
</TABLE>

                                      F-6
<PAGE>

<TABLE>
<CAPTION>
                                                                                          ACCUMULATED
                                                COMMON           ADDITIONAL                  OTHER                TREASURY
                                                 STOCK   COMMON   PAID-IN   ACCUMULATED  COMPREHENSIVE  TREASURY   SHARES
                                                SHARES    STOCK   CAPITAL     DEFICIT        INCOME      SHARES    AT COST  TOTAL
                                                ------    -----   -------     -------        ------      ------    -------  -----
<S>                                             <C>      <C>     <C>        <C>          <C>            <C>        <C>     <C>
BALANCE, JUNE 30, 2002........................  69,826    698     485,759    (604,921)      3,135            --        --  (115,329)
Issuance of common stock pursuant to
  employee stock purchase plan................      46     --         125          --          --            --        --       125
Exercise of stock options.....................      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)
                                                ------   ----    --------  -----------    -------       -------    ------  ---------
</TABLE>

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

                                       F-7

<PAGE>

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

NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Nature of Business

         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 PC's, Sony PlayStation and
PlayStation2, Microsoft's Xbox and Nintendo's GameCube, Gameboy and Gameboy
Advance. The Company derives its revenues primarily from the sale of its
created, published, licensed and purchased products to mass merchants, specialty
software stores, computer superstores and distributors located throughout North
America and also in various international locations.

         Infogrames Entertainment SA, a French corporation ("Infogrames SA"),
owns approximately 88% of the Company 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 other debt agreements payable to Infogrames SA by the Company.

         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") which is
used to fund the Company's working capital and general corporate needs and to
provide funding to related entities which are wholly-owned by Infogrames SA
(Note 13).

         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 and
Infogrames SA gained control 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.

    Basis of Presentation

         Effective October 2, 2000, the Company merged with Infogrames North
America, Inc. ("INA"), a wholly-owned subsidiary of its majority shareholder
Infogrames SA, (the "INA Merger"). The merger was accounted for on an "as if
pooled" basis. Since December 16, 1999, the Company and INA have been under the
common control of Infogrames SA.

   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 March 31, 2003,
represents nine months of operations.

    Principles of Consolidation

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

    Revenue Recognition

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

         The Company is not contractually obligated to accept returns except for
defective product. However, the Company may permit its customers to return or
exchange product and provides allowances for estimated returns, price
concessions, or other allowances on a negotiated basis. 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

                                      F-8
<PAGE>
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.

   Cash and Cash Equivalents

         Cash and cash equivalents consist of cash in banks and highly liquid,
short-term investments with original maturities of three months or less at the
date acquired.

   Inventories

         Inventories are stated at the lower of cost (average cost method) or
market. Allowances are established to reduce the recorded cost of obsolete
inventory and slow moving inventory to its net realizable value.

   Property and Equipment

         Property and equipment is recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the
estimated useful lives of the related assets.

   Income Taxes

         The Company accounts for income taxes using the asset and liability
method of accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates in effect for the years in which the differences are expected
to reverse.

   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.

         Had the Company accounted for its goodwill in accordance with the
provisions of SFAS No. 142 for all periods presented, the Company's net (loss)
income and (loss) income per share would have been as follows (in thousands):

                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                                                               NINE MONTHS
                                                    YEARS ENDED                 YEAR ENDED
                                                      JUNE 30,                   MARCH 31,
                                                2001          2002         2002          2003
                                                ----          ----         ----          ----
                                                                        (unaudited)
<S>                                           <C>           <C>         <C>            <C>
Net (loss) income.......................      $(60,668)     $(10,930)     $(10,221)    $ 18,070
Add: Goodwill amortization, net of tax..        11,597            --            --           --
                                              --------      --------      --------     --------
Pro forma net (loss) income.............      $(49,071)     $(10,930)     $(10,221)    $ 18,070
                                              ========      ========      ========     ========

Basic and diluted net (loss) income per
   share as reported....................      $  (1.07)     $  (0.16)     $  (0.15)    $   0.26
Add: Goodwill amortization, net of tax..          0.20            --            --           --
                                              --------      --------      --------     --------
Pro forma basic and diluted net (loss)
    income per share....................      $  (0.87)     $  (0.16)     $  (0.15)    $   0.26
                                              ========      ========      ========     ========
</TABLE>

   Other intangible assets approximate $2.1 million, net of accumulated
amortization of $0.6 million at March 31, 2003. The Company did not have
additional other intangible assets as of June 30, 2002.

   Fair Values of Financial Instruments

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

         The carrying values and fair values of the Company's long-term debt at
March 31, 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.........................................      $    44,997        $ 42,500
5% subordinated convertible note with CUSH, due
    December 16, 2004.........................................      $    71,356        $ 66,100
</TABLE>

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

   Research and Development Costs

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

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

                                      F-10
<PAGE>

    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.

    Advertising Expenses

         Advertising costs are expensed as incurred. Advertising expenses for
the years ended June 30, 2001 and 2002 and the nine months ended March 31, 2002
(unaudited) and 2003 amounted to approximately $21.2 million, $34.2 million,
$29.8 million and $44.9 million, respectively.

    Foreign Currency

         Assets and liabilities of foreign subsidiaries have been translated at
year-end exchange rates, while revenues and expenses have been translated at
average exchange rates in effect during the year. Cumulative translation
adjustments have been reported as a component of accumulated comprehensive
income (loss).

    Foreign Exchange Gains (Losses)

         Foreign exchange gains or losses arise from exchange rate fluctuations
on transactions denominated in currencies other than the functional currency.
For the years ended June 30, 2001 and 2002 and the nine months ended March 31,
2002 (unaudited) and 2003 foreign exchange gains (losses) were nominal.

    Shipping, Handling and Warehousing Costs

         Shipping, handling and warehousing costs incurred to move product to
the customer are charged to selling and distribution expense. For the years
ended June 30, 2001 and 2002 and the nine months ended March 31, 2002
(unaudited) and 2003, these charges were approximately $14.4 million, $17.7
million, $15.8 million and $13.2 million, respectively.

    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
and other convertible securities using the treasury stock method. The
convertible debt, warrants and all shares issuable under stock-based
compensation plans would be anti-dilutive and, therefore, have not been
considered in the diluted (loss) income per share calculation for the years
ended June 30, 2001 and 2002 and the nine months ended March 31, 2002
(unaudited). For the nine months ended March 31, 2003, only the convertible debt
and warrants would be anti-dilutive and, therefore, have not been considered in
the diluted (loss) income per share calculation.

                                      F-11

<PAGE>

         The following is an analysis of the difference between the shares used
in basic and diluted net (loss) income per share:

<TABLE>
<CAPTION>
                                                                                                 NINE MONTHS
                                                                         YEARS ENDED                ENDED
                                                                           JUNE 30,               MARCH 31,
                                                                      2001        2002         2002        2003
                                                                      ----        ----         ----        ----
                                                                                           (UNAUDITED)
<S>                                                                 <C>         <C>           <C>        <C>
Net (loss) income used to compute basic and
   diluted earnings per share .................................     $(60,668)   $(10,930)     $(10,221)  $ 18,070
                                                                    ========    ========      ========   ========
Basic weighted average shares outstanding .....................       56,839      69,722        69,686     69,878
Dilutive effect of stock options ..............................            -           -             -        177
                                                                    --------    --------      --------   --------
Diluted weighted average shares outstanding ...................       56,839      69,722        69,686     70,055
                                                                    ========    ========      ========   ========
</TABLE>

    The number of anti-dilutive shares that were excluded from the diluted
earnings per share calculation for the years ended June 30, 2001 and 2002 and
the nine months ended March 31, 2002 (unaudited) and 2003 were approximately 9.6
million, 10.2 million, 10.3 million and 10.2 million, respectively.

Stock-Based Compensation

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

         At March 31, 2003, the Company had three stock option plans, which are
described more fully in Note 12. 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>
                                                                                             NINE MONTHS
                                                                YEARS ENDED                     ENDED
                                                                  JUNE 30,                    MARCH 31,
                                                            2001          2002            2002          2003
                                                            ----          ----            ----          ----
                                                                                       (UNAUDITED)
<S>                                                      <C>           <C>             <C>           <C>
Net (loss) income
  As reported ......................................     $  (60,668)   $  (10,930)     $  (10,221)   $   18,070
  Deduct: Total stock-based employee
    compensation expense determined under fair
    value based method for all awards, net of
    related tax effects ............................          3,770         6,002           4,460         4,198
                                                         ----------    ----------      ----------    ----------
  Pro forma net (loss) income ......................     $  (64,438)   $  (16,932)     $  (14,681)   $   13,872
                                                         ==========    ==========      ==========    ==========

Basic and diluted net (loss) income per share
  As reported ......................................     $    (1.07)   $    (0.16)     $    (0.15)   $     0.26
  Pro forma basic and diluted net (loss) income
    per share ......................................     $    (1.13)   $    (0.24)     $    (0.21)   $     0.20
</TABLE>

                                      F-12

<PAGE>

         The fair market value of options granted under the stock option plans
during the years ended June 2001 and 2002 and the nine months ended March 31,
2002 and 2003 was determined using the Black-Scholes option pricing model
utilizing the following assumptions:

<TABLE>
<CAPTION>
                                                                          NINE MONTHS
                                                  YEARS ENDED                ENDED
                                                   JUNE 30,                MARCH 31,
                                               2001        2002         2002       2003
                                               ----        ----         ----       ----
                                                                    (UNAUDITED)
<S>                                           <C>         <C>          <C>        <C>
Dividend yield ............................         0%          0%           0%         0%
Anticipated volatility ....................        89%         95%          95%       116%
Weighted average risk-free interest rate...      5.63%       4.51%        4.51%      2.60%
Expected lives ............................   4 years     4 years      4 years    4 years
</TABLE>

    Unaudited Consolidated Financial Statements

         The unaudited consolidated financial statements and related notes for
the nine months ended March 31, 2002 have been prepared on the same basis as the
audited consolidated financial statements. In the opinion of management, such
unaudited financial statements include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of this
information. These financial statements are presented for comparative purposes.

Recent Accounting Pronouncements

         In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations and costs associated with the retirement of tangible
long-lived assets. The Company was required to implement SFAS No. 143 on July
1, 2002. The adoption of this new principle did not have a material impact on
the Company's financial condition or results of operations.

         SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which became effective for the Company in 2002, addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement extends the reporting requirements to include reporting
separately as discontinued operations, components of an entity that have either
been disposed of or classified as held-for-sale. The adoption of SFAS No. 144
did not have a material impact on the financial position or results of
operations of the Company.

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

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123". SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. It also requires disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No. 148
is effective for annual and interim periods beginning after December 15, 2002.
The Company has adopted the new disclosure requirements of SFAS No. 148, which
are included above under Stock-Based Compensation.

         In November 2002, FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.

                                      F-13

<PAGE>
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of this new
principle did not have a material impact on the Company's financial condition or
results of operations.

         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 January 2003, the EITF issued No. 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor", which
requires that certain consideration received by a customer from a vendor are
presumed to be a reduction of the price of the vendor's products, and therefore,
should be recorded as a reduction of cost of goods sold when recognized in the
customer's income statement, unless certain criteria are met. This presumption
is overcome if the consideration paid to the customer is directly attributable
(offsetting) to incremental and separately identifiable expenses incurred
elsewhere in the income statement. The adoption of this new principle did not
have a material impact on the Company's financial condition or results of
operations.

         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.

         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. Management is currently evaluating the provisions of SFAS No. 150 and
will determine the impact, if any, the adoption will have on our financial
statements.

    NASDAQ Letter

         The Company received a notice from NASDAQ dated October 17, 2002,
stating that the Company's common stock had not maintained a minimum bid price
per share of $3.00 for 30 consecutive trading days, as required to maintain
listing on the NASDAQ National Market. If the bid price for the Company's common
stock closes at $3.00 or more per share for 10 consecutive trading days at any
time before January 15, 2003, the common stock may continue to be listed on the
NASDAQ National Market. The Company was unable to maintain such listing and,

                                      F-14

<PAGE>
prior to January 15, 2003, applied for listing on the NASDAQ SmallCap Market.
In March 2003, the Company was notified by NASDAQ that it is in full compliance
with NASDAQ's recently amended listing requirements and as such, the Company's
status on the NASDAQ National Market has remained unchanged.

NOTE 2 - ACQUISITION OF SHINY ENTERTAINMENT, INC.

         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, 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 15).

                    UNAUDITED PRO FORMA RESULTS OF OPERATIONS

         The following unaudited consolidated pro forma results of operations of
the Company for the years ended June 30, 2001 and 2002 and the nine months ended
March 31, 2002 give effect to the Shiny acquisition as if it had occurred on
July 1, 2000. (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  NINE MONTHS
                                                            YEARS ENDED              ENDED
                                                             JUNE 30,              MARCH 31,
                                                      ------------------------    -----------
                                                        2001           2002          2002
                                                      ------------------------    -----------
<S>                                                   <C>          <C>            <C>
Net revenues ....................................     $ 297,954    $   419,364    $   289,761
Loss before income taxes ........................       (77,306)       (14,615)       (22,162)
Net loss ........................................       (74,938)       (11,279)       (17,148)

Basic and diluted net loss per share ............     $   (1.32)   $     (0.16)   $     (0.25)
</TABLE>

In December 2002, Shiny was merged up into the Company and now exists as a
division of the Company.

NOTE 3 - GAIN ON SALE OF LINE OF BUSINESS

         On December 1, 2000, the Company entered into a contract to sell all of
its property in and rights to the Duke Nukem line of business to an outside
party. The Company received consideration in the form of common stock of the
purchaser valued at $5.5 million at the date of the transaction and a $6.0
million promissory note. The $5.5 million stock value was recognized during the
year ended June 30, 2001. The Company sold the stock in January 2001 for
approximately $6.2 million. The note is payable upon completion of certain
requirements by an independent developer and will be recognized as income at
that time.

                                      F-15

<PAGE>

NOTE 4 - RECEIVABLES

         Receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,     MARCH 31,
                                                                                  2002         2003
                                                                                ---------    ---------
<S>                                                                             <C>          <C>
Trade accounts receivable .................................................     $ 131,651    $  87,372
Less: Allowances for bad debts, returns, price protection and other
      customer promotional programs .......................................       (50,451)     (40,319)
                                                                                ---------    ---------
                                                                                $  81,200    $  47,053
                                                                                =========    =========
</TABLE>

NOTE 5- INVENTORIES, NET

         Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,     MARCH 31,
                                                                                  2002         2003
                                                                                --------     ---------
<S>                                                                             <C>          <C>
Finished goods.............................................................     $  43,622    $  38,721
Return inventory...........................................................         7,901        2,786
Raw materials..............................................................         1,407        1,223
                                                                                ---------    ---------
                                                                                   52,930       42,730
Less: Obsolescence reserve                                                         (7,695)      (4,903)
                                                                                ---------    ---------
                                                                                $  45,235    $  37,827
                                                                                =========    =========
</TABLE>

NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

         Prepaid expenses and other current assets consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,     MARCH 31,
                                                                                  2002         2003
                                                                                ---------    ---------
<S>                                                                             <C>          <C>
Licenses short-term........................................................     $   4,471    $   9,016
Royalty receivables........................................................            --        1,550
Prepaid insurance..........................................................           495        1,281
Other deferred financing fees..............................................           956        1,647
Other prepaid expenses and current assets..................................         3,381        3,464
                                                                                ---------    ---------
                                                                                $   9,303    $  16,958
                                                                                =========    =========
</TABLE>

NOTE 7 - INVESTMENTS

         In 1995, the Company invested approximately $0.1 million in Zomax
Incorporated ("Zomax"), an outsource provider of process management services to
software publishers, computer manufacturers and other producers of multimedia
products. On December 27, 2001, the Company sold all 62,140 shares of Zomax on
the open market at a market price of $8.00 per share or approximately $0.5
million. A realized gain of approximately $0.4 million was recorded after
deductions for broker fees and wire transfer fees.

         In 1996, the Company invested approximately $7.1 million in convertible
preferred stock of OddWorld Inhabitants, Inc., a privately-held developer of
entertainment software ("Oddworld"), which is convertible into 50.0% of the
common equity. In the quarter ended June 30, 2002, the Company recorded an
impairment charge of approximately $3.6 million (included in other income
(expense)) in the investment in Oddworld, decreasing the investment to $3.5
million, representing the difference between the estimated fair market value of
the investment and its carrying value. As of March 31, 2003, the Company

                                      F-16

<PAGE>

believes the remaining $3.5 million investment in Oddworld approximates
its fair market value. The investment is included in other assets.

NOTE 8 - PROPERTY AND EQUIPMENT, NET

         Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,     MARCH 31,
                                                                                  2002         2003
                                                                                ---------    ---------
<S>                                                                             <C>          <C>
Computer equipment ........................................................     $  18,486    $  20,815
Machinery and equipment ...................................................           260          289
Capitalized computer software .............................................        12,322       13,267
Furniture and fixtures ....................................................         5,340        5,227
Leasehold improvements ....................................................         6,307        6,605
                                                                                ---------    ---------
                                                                                   42,715       46,203
Less: accumulated depreciation ............................................       (26,530)     (31,476)
                                                                                ---------    ---------
                                                                                $  16,185    $  14,727
                                                                                =========    =========
</TABLE>

         Depreciation expense for the years ended June 30, 2001 and 2002 and the
nine months ended March 31, 2002 (unaudited) and 2003, amounted to
approximately, $8.7 million, $5.5 million, $3.5 million and $5.3 million,
respectively.

         During the year ended June 30, 2001 the Company wrote off fixed assets
with a net carrying value of approximately $1.6 million. This decision was made
in connection with the Company's strategic plan to reorganize and re-focus its
business and its desire to exit certain product lines (Note 21).

NOTE 9 - ACCRUED LIABILITIES

         Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,     MARCH 31,
                                                                                  2002         2003
                                                                                ---------    ---------
<S>                                                                             <C>          <C>
Accrued advertising .......................................................     $   5,829    $   1,769
Accrued professional fees and other services ..............................         2,156        1,696
Accrued salary and related costs ..........................................         7,255        8,944
Accrued freight and processing fees .......................................         3,079        1,207
Accrued third-party development expenses ..................................         1,271        4,826
Accrued distribution services .............................................         9,686        8,134
Restructuring reserve (Note 21) ...........................................           540           71
Other .....................................................................         5,799        5,225
                                                                                ---------    ---------
                                                                                $  35,615    $  31,872
                                                                                =========    =========
</TABLE>

NOTE 10 - INCOME TAXES

         The components of the (benefit from) provision for income taxes are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        NINE MONTHS
                                                               YEARS ENDED                 ENDED
                                                                 JUNE 30,                MARCH 31,
                                                           2001         2002         2002         2003
                                                          -------      -------      -------      -------
                                                                                  (UNAUDITED)
<S>                                                       <C>          <C>          <C>          <C>
Federal:
   Current ..........................................     $    (9)     $(5,023)     $(4,998)     $    43
   Deferred .........................................           -            -            -            -
                                                          -------      -------      -------      -------
                                                               (9)      (5,023)      (4,998)          43
                                                          -------      -------      -------      -------
</TABLE>

                                 F-17

<PAGE>

<TABLE>
<S>                                                       <C>          <C>          <C>          <C>
State and local:
   Current ..........................................           -            -            -          463
   Deferred .........................................           -            -            -            -
                                                          -------      -------      -------      -------
                                                                -            -            -          463
                                                          -------      -------      -------      -------
Foreign:
   Current ..........................................      (2,359)         501            -            -
   Deferred..........................................           -        1,186          (16)        (101)
                                                          -------      -------      -------      -------
                                                           (2,359)       1,687          (16)        (101)
                                                          -------      -------      -------      -------

(Benefit from)  provision  for income taxes..........     $(2,368)     $(3,336)     $(5,014)     $   405
                                                          =======      =======      =======      =======
</TABLE>

         During the year ended June 30, 2002, the Company received a tax benefit
of $5.0 million based on a provision contained in The Job Creation and Worker
Assistance Act of 2002, which changed the allowable carryback period for net
operating losses from two years to five years. This provision enabled the
Company to carryback its June 30, 2001 loss and recover taxes paid in 1996.

         During the nine months ended March 31, 2003, the Company recorded
federal and state alternative minimum tax provisions of approximately $1.0
million. This provision is offset by $0.5 million in federal income tax benefits
resulting from loss carryback refund claims filed in the current period with
respect to the Company's fiscal 2002 federal income tax return and an amended
2001 federal income tax return

         A reconciliation of the income tax (benefit from) provision for
computed at the Federal statutory rate to the reported (benefit from) provision
for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        NINE MONTHS
                                                             YEARS ENDED                   ENDED
                                                               JUNE 30,                  MARCH 31,
                                                         2001          2002          2002          2003
                                                       --------      --------      --------      --------
                                                                                  (UNAUDITED)
<S>                                                    <C>           <C>           <C>           <C>
(Benefit from) provision for income taxes
   computed at Federal statutory rate ............     $(22,063)     $ (4,993)     $ (6,543)     $  6,434
(Benefit) expense from income
   taxes resulting from:
State and local taxes, net of
   Federal tax effect ............................       (2,458)         (556)         (761)          793
Domestic income tax (benefit) expense in
   excess of foreign tax .........................       (1,830)        4,277        (3,068)        2,496
Goodwill amortization ............................        4,530             -             -             -
Other, net .......................................          855           475           492           233
Increase (decrease) to deferred tax asset
   valuation allowance ...........................       18,598        (2,539)        4,866        (9,551)
                                                       --------      --------      --------      --------
(Benefit from) provision for
   income taxes ..................................     $ (2,368)     $ (3,336)     $ (5,014)     $    405
                                                       ========      ========      ========      ========
</TABLE>

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The components
of the Company's deferred tax asset is as follows (in thousands):

<TABLE>
<CAPTION>
                                                               JUNE 30,       MARCH 31,
                                                                 2002           2003
                                                               ---------      ---------
<S>                                                            <C>            <C>
DEFERRED TAX ASSET:
Inventory valuation ......................................     $   3,893      $   2,748
Deferred income ..........................................         3,026          3,026
Tax loss carryforwards ...................................       172,289        161,963
Restructuring reserve ....................................           923            730
AMT carryforward credit ..................................             -            505
Allowances for bad debts, returns, price protection
  and other customer promotional programs ................        10,963         10,397
Depreciation .............................................          (520)        (1,077)
Related party interest to Infogrames SA ..................         4,320          7,361
</TABLE>

                                      F-18

<PAGE>

<TABLE>
<S>                                                            <C>            <C>
In process research and development ......................         3,034          2,832
Other ....................................................         2,407          2,299
                                                               ---------      ---------
                                                                 200,335        190,784
Less valuation allowance .................................      (200,335)      (190,784)
                                                               ---------      ---------
Net deferred tax asset ...................................     $       -      $       -
                                                               =========      =========
</TABLE>

         As of March 31, 2003, the Company has combined net operating loss
carryforwards of approximately $431.7 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 losses. Pre-acquisition
losses of approximately $203.3 million are subject to an annual limitation
(approximately $7.2 million).

         A full valuation allowance has been recorded against the net deferred
tax asset based on historical information that such asset will not be realized,
however management will review the asset quarterly to ensure the valuation
allowance is proper. As of March 31, 2003, there were no undistributed earnings
for the Company's 100% owned foreign subsidiaries.

NOTE 11 - STOCKHOLDERS' DEFICIT

         As of June 30, 2001 and 2002 and March 31, 2003, the Company had
warrants, excluding warrants related to the purchase of the Company by
Infogrames SA, outstanding to purchase an aggregate of approximately 400,000,
386,000 and 397,172 shares, respectively, of the Company's common stock. These
warrants were issued to content-providers at exercise prices (ranging from $0.05
to $100.00) not less than the fair market value at the date of issue.

         On November 6, 2000, approximately 97,000 shares of treasury shares
were issued to a developer in lieu of cash payment for royalties due.

         On October 19, 2001, approximately 235,000 shares of treasury shares
were issued to a developer in lieu of cash payments for royalties due.

         On April 30, 2002, in connection with the acquisition of the shares of
Shiny, the Company assumed all of the options granted to purchase shares of
common stock of Shiny under Shiny's 1995 Stock Incentive Plan. Such options were
converted into options to purchase an aggregate of approximately 240,000 shares
of the Company's common stock. Such options are valued at approximately $0.7
million at the acquisition date.

NOTE 12 - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

         The Company has three stock option plans which began in 1995, 1997 and
2000 (the "Plans"). The Company accounts for these Plans under the provisions of
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized.

         Generally, under the Plans, options are granted to employees and
directors to purchase shares of the Company's common stock at no less than the
fair market value at the date of the grant, vest over a period of four or five
years and are exercisable for a period of ten years from the grant date.

                                      F-19

<PAGE>

         An aggregate summary of the status of the Company's Plans and changes
during the periods at June 30, 2001 and 2002 and March 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                       JUNE 30, 2001
                                                       -------------
                                                              WEIGHTED AVERAGE
                                                 SHARES        EXERCISE PRICE
                                             (in thousands)
<S>                                           <C>              <C>
Outstanding at beginning of
  fiscal year ..........................          2,678          $   33.06
Granted ................................          4,129               5.63
Exercised ..............................             (5)              1.49
Cancelled ..............................           (797)             31.23
                                                  -----          ---------
Outstanding at end of fiscal year ......          6,005          $   14.47
                                                  =====          =========
</TABLE>

<TABLE>
<CAPTION>
                                                       JUNE 30, 2002
                                                       -------------
                                                              WEIGHTED AVERAGE
                                                 SHARES        EXERCISE PRICE
                                             (in thousands)
<S>                                          <C>              <C>
Outstanding at beginning of
  fiscal year ..........................          6,005          $   14.47
Granted ................................          1,400               6.27
Exercised ..............................             (5)              5.03
Cancelled ..............................           (545)             21.64
                                                  -----          ---------
Outstanding at end of fiscal year ......          6,855          $   12.23
                                                  =====          =========
</TABLE>

<TABLE>
<CAPTION>
                                                      MARCH 31, 2003
                                                      --------------
                                                              WEIGHTED AVERAGE
                                                 SHARES        EXERCISE PRICE
                                             (in thousands)
<S>                                          <C>              <C>
Outstanding at beginning of
  the nine months ended ..................        6,855          $   12.23
Granted ..................................           63               2.58
Exercised ................................          (48)              0.34
Cancelled ................................         (520)             16.42
                                                  -----          ---------
Outstanding at end of nine months ended ..        6,350          $   11.88
                                                  =====          =========
</TABLE>

The following table summarizes information concerning currently outstanding and
exercisable options (shares in thousands):

<TABLE>
<CAPTION>
                                                 Weighted                         Weighted
   Range of         Number      Remaining        Average         Number           Average
Exercise Price   Outstanding      Life       Exercise Price    Exercisable     Exercise Price
--------------   -----------    ---------    --------------    -----------     --------------
<S>              <C>            <C>          <C>               <C>             <C>
$  0.23-  6.25      3,368         7.7           $  5.24           1,959            $  5.20
$   6.30-13.75      1,672         7.9           $  9.16             714            $  9.51
$  14.69-97.50      1,310         4.6           $ 32.40           1,273            $ 32.59
                    -----                                         -----
                    6,350                                         3,946
                    -----                                         -----

</TABLE>


         As of March 31, 2003, there were approximately 6,350 options
outstanding at prices ranging from $0.23 to $97.50, of which 3,946 options were
exercisable at prices ranging from $0.23 to $97.50.


    Employee Stock Purchase Plan

         The Company has an employee stock purchase plan ("ESPP") which provides
employees an opportunity to purchase common stock of the Company every six
months through payroll deductions. The purchase price of each share was 85% of
the lower of the fair market value on the first or last day of each six-month
period. Employees were allowed to purchase shares having a value not exceeding
10% of their gross compensation during a six-month period. In January 2003, all
shares of Common Stock reserved for issuance under the ESPP were issued and,

                                      F-20

<PAGE>

as a result, the Company terminated the ESPP as provided for under the ESPP
documents effective April 2003.

NOTE 13 - RELATED PARTY TRANSACTIONS

Transactions with Infogrames SA

     -   Services rendered for the purchase of Hasbro Interactive

     On January 26, 2001, Infogrames SA and the Company entered into a letter
     agreement whereby Infogrames SA agreed to pay the Company a total one-time
     fee of $1.0 million in consideration for the Company's services rendered to
     Infogrames SA in connection with the purchase of Hasbro Interactive, Inc.
     and subsidiaries and Games.com, Inc., which was consummated on January 26,
     2001.

     -   Purchases and sale of product

     During the years ended June 30, 2001 and 2002 and the nine months ended
     March 31, 2002 (unaudited) and 2003, the Company purchased approximately
     $0.4 million, $0.3 million, $0.1 million and $0.1 million of product and
     other various services from Infogrames SA, respectively. Additionally,
     Infogrames SA had purchased product from the Company representing $0.1
     million for the year ended June 30, 2001. No purchases were made by
     Infogrames SA from the Company for the year ended June 30, 2002 and the
     nine months ended March 31, 2002 (unaudited). Nominal amounts were
     purchased by Infogrames SA during the nine months ended March 31, 2003.
     Nominal amounts were outstanding at June 30, 2002 and March 31, 2003 which
     are included in the receivable and payable balances with Infogrames SA.

     -   Management fees charged to the Company

     Infogrames SA charges the Company monthly management fees for various
     global management and systems support. For the years ended June 30, 2001
     and 2002 and the nine months ended March 31, 2002 (unaudited) and 2003,
     management fees charged to the Company from Infogrames SA totaled
     approximately $2.8 million, $3.1 million, $2.3 million and $2.3 million,
     respectively. As of June 30, 2002 and March 31, 2003, $0.8 million remains
     outstanding at each year-end.

     -   Interest expense and facility fees charged to the Company

     Infogrames SA charges the Company monthly interest and fees for the amount
     outstanding on the related party credit facilities and their usage. The
     interest rate is LIBOR plus 2.5% for the related party credit facility. The
     medium-term note entered into during the year ended June 30, 2002 (Note 15)
     provides for an interest rate of LIBOR plus 2.75%. For the years ended June
     30, 2001 and 2002 and the nine months ended March 31, 2002 (unaudited) and
     2003, the Company incurred interest and fees of approximately $3.8 million,
     $3.5 million, $1.5 million and $3.9 million, respectively. As of June 30,
     2002 and March 31, 2003, approximately $2.2 million and $3.0 million was
     outstanding, respectively. Payment of interest is restricted under the
     terms of the Senior Credit Facility with GECC.

     -   Interest expense on notes payable charged to the Company

     Infogrames SA charges the Company monthly interest for the amount
     outstanding on its long term related party 5.0% subordinated convertible
     note. For the years ended June 30, 2001 and 2002 and the nine months ended
     March 31, 2002 (unaudited) and 2003, the Company incurred interest of
     approximately $3.2 million, $3.3 million, $2.5 million and $2.6 million,
     respectively. Furthermore, on December 28, 2001, Infogrames SA assumed from
     General Atlantic Partners, LLC ("GAP") the $50.0 million principal amount
     of non-interest bearing subordinated convertible notes (the "GAP 0% Notes")
     in exchange for Infogrames SA shares of common stock. Infogrames SA has not
     changed any of the terms of the former GAP 0% Notes as they relate to the
     Company. Interest on these notes is being accreted at the rate of 7% and
     will have a redemption value of $50.0 million at maturity. During the year
     ended June 30, 2002 and the nine months ended March 31, 2002 (unaudited)
     and 2003, the Company recorded approximately $1.4 million, $0.7 million and
     $2.2 million, respectively, of interest expense related to these notes for
     the period that they were owned by Infogrames SA (Note 15). Payment of
     interest is restricted under the terms of the Senior Credit Facility with
     GECC.

                                      F-21

<PAGE>

     -   Royalty agreement

     The Company and Infogrames SA entered into a distribution agreement, which
     provides for the distribution by the Company of Infogrames SA's (or any of
     its subsidiaries) products in the United States, Canada and their
     territories and possessions, pursuant to which the Company will pay
     Infogrames SA either 30.0% of the gross profit on such products or 130.0%
     of the royalty rate due to the developer, whichever is greater. The Company
     records this charge as royalty expense. For the nine months ended March 31,
     2003, the Company recorded approximately $4.1 million of royalty expense,
     of which approximately $1.4 million is outstanding at March 31, 2003. The
     agreement also includes distribution rights by Infogrames SA of the
     Company's products across Europe, pursuant to which Infogrames SA will pay
     the Company 30.0% of the gross profit on such products or 130.0% of the
     royalty rate due to the developer, whichever is greater. The Company
     recognizes this amount as royalty income. For the nine months ended March
     31, 2003, royalty income earned by the Company based on the agreement
     amounted to approximately $18.8 million, of which $3.2 million is
     outstanding at March 31, 2003.

     For the nine months ended March 31, 2002 (unaudited), the Company recorded
     approximately $3.5 million of royalty expense and $3.2 million of royalty
     income earned by the Company. For the year ended June 30, 2002, the Company
     recorded approximately $4.6 million of royalty expense, of which
     approximately $0.8 million was outstanding at June 30, 2002. Royalty income
     earned by the Company was approximately $4.7 million of which $1.0 million
     was outstanding at June 30, 2002. For the year ended June 30, 2001, the
     Company recorded approximately $4.9 million of royalty expense and
     approximately $13.7 million of royalty income.

     -   Infogrames SA stock option granted

     On November 7, 2002, Infogrames SA granted stock options of approximately
     510,000 shares to the senior management of the Company. All options granted
     were at fair market value at the date of the grant and have a vesting
     period of four years. Infogrames SA does not expense stock options granted
     to employees, therefore, no charge has been recorded in the Company's
     statement of operations for the nine months ended March 31, 2003.

Transactions with Atari Interactive, Inc. (formerly known as Infogrames
Interactive, Inc. and Hasbro Interactive, Inc.; "Atari Interactive"), a
wholly-owned subsidiary of Infogrames SA

     -   Advances

     The GECC Senior Credit Facility (Note 15) allows the Company to borrow and
     make advances to Atari Interactive through intercompany loans. At March 31,
     2003, loans due from Atari Interactive were $30.5 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
     nine months ended March 31, 2003, approximately $0.4 million of interest
     income was recognized, of which approximately $0.2 million was unpaid and
     is included in due from related parties at March 31, 2003.

     -   Agreement with Atari Interactive and Infogrames SA

     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 (Note 15), 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 March 31, 2003, the Company has
     approximately $27.4 million net outstanding from Atari Interactive.

     -   Sale-Leaseback

     In July 2002, the Company negotiated a sale-leaseback transaction between
     Atari Interactive and an unrelated party. As part of this transaction, the
     Company guaranteed the lease obligation of Atari Interactive. The lease
     provides for minimum monthly rental payments of approximately $0.1 million
     escalating nominally over the ten year term of the lease. The Company also

                                      F-22

<PAGE>
     received indemnification from Infogrames SA from any costs, if any, that
     may be incurred by the Company as a result of the full guaranty.
     Simultaneously with the closing of this transaction, the Company entered a
     sub-lease agreement with Atari Interactive through June 30, 2007. The
     rented space serves as the principal executive and administrative offices
     of the Company's Beverly Studio located in Beverly, Massachusetts. For the
     nine months ended March 31, 2003, $0.4 million was included in rent
     expense, of which $0.1 million was unpaid at March 31, 2003.

     The Company received a $1.3 million payment for its efforts in connection
     with this transaction. Approximately $0.6 million, an amount equivalent to
     a third-party brokers commission, was recognized during the nine months
     ended March 31, 2003 as other income. The remaining balance of
     approximately $0.7 million was deferred and is being recognized over the
     life of the sub-lease.

     -   Purchases of product

     During the year ended June 30, 2002 and the nine months ended March 31,
     2002 (unaudited) and 2003, no purchases of product were made between the
     Company and Atari Interactive. During the year ended June 30, 2001, the
     Company purchased approximately $9.5 million of product from Atari
     Interactive, representing approximately 9.2% of total purchases by the
     Company for the year. This purchase of product was paid before June 30,
     2002.

     -   Royalty agreement

     The Company has a distribution arrangement with Atari Interactive. The
     Company must pay a royalty of either 30.0% of its gross profit or 130.0% of
     the royalty rate due to the developer, whichever is greater, for all Atari
     Interactive products distributed by the Company. In the fourth quarter of
     2002, the Company and Atari Interactive agreed to adjust the base sales
     upon which the royalty is calculated. Accordingly, the Company reduced
     accrued and unpaid royalties due to Atari Interactive by approximately $2.0
     million. For the years ended June 30, 2001 and 2002 and the nine months
     ended March 31, 2002 (unaudited) and 2003, the Company incurred royalty
     expense of approximately $9.9 million, $38.4 million, $32.7 million and
     $24.3 million related to the distribution of Atari Interactive products. At
     June 30, 2002 and March 31, 2003, $4.4 million and $4.6 million,
     respectively, remained outstanding.

     -   Management fees charged and other support

     The Company charges management fees to Atari Interactive primarily for
     legal, financial, information systems and human resource management. For
     the years ended June 30, 2001 and 2002 and the nine months ended March 31,
     2002 (unaudited) and 2003, the Company recorded management fee revenues of
     approximately $1.3 million, $3.0 million, $2.3 million and $2.3 million,
     respectively. Additionally, the Company has incurred costs and spent cash
     on behalf of Atari Interactive in efforts to help in its transition and
     on-going operations. Including the management fee revenue, the Company has
     approximately $1.0 million and $0.7 million outstanding as of June 30, 2002
     and March 31, 2003, respectively.

     -   Settlement of customer returns, price concessions and other allowances

     Customers of Atari Interactive, who are current customers of the Company,
     reduced payments of receivables on current invoices of the Company for
     returns, price concessions and other allowances. These deductions related
     to pre-acquisition sales of Atari Interactive. Accordingly, the Company,
     Infogrames SA and Atari Interactive agreed to a settlement reimbursing the
     Company an aggregate of approximately $6.7 million for these deductions for
     the year ended June 30, 2002 and the nine months ended March 31, 2002
     (unaudited). No amounts were outstanding for these items at March 31, 2003.

     -   Milestone payments advanced

     During the year ended June 30, 2002, the Company advanced, on behalf of
     Atari Interactive, approximately $1.4 million to third-party developers for
     the development of two properties owned by Atari Interactive. At June 30,
     2002, the entire amount is included in due from related parties.

                                      F-23

<PAGE>

     For the nine months ended March 31, 2003, the Company advanced, on behalf
     of Atari Interactive, approximately $0.5 million to a related party
     developer for development costs on a property which is managed by Atari
     Interactive. As of March 31, 2003, the amount remains outstanding and is
     included in due from related parties.

     For the year ended June 30, 2001 and the nine months ended March 31, 2002
     (unaudited), no such advances were made by the Company.

     -  Warrants issued in relation to Atari Interactive

     On November 18, 2002, 24,999 warrants of the Company stock were issued to a
     third-party developer to enhance a development agreement between the
     developer and Atari Interactive. Atari Interactive will reimburse the
     Company for expenses incurred related to the issuance of these warrants.
     The warrants were valued using the Black-Scholes model for approximately
     $0.1 million which remains outstanding at March 31, 2003 and included in
     due from related parties.

Transactions with Atari Australia Pty Limited ("Atari Australia") a wholly-owned
subsidiary of Infogrames SA

     -   Management fees charged to Atari Australia

     Effective August 25, 2000, the Company charges Atari Australia yearly
     management fees primarily for the management and maintenance of information
     systems. For the years ended June 30, 2001 and 2002 and the nine months
     ended March 31, 2002 (unaudited) and 2003, the Company recognized
     management fee revenue of approximately $0.4 million, $0.3 million, $0.3
     million and $0.2 million, respectively. As of June 30, 2002 and March 31,
     2003, $0.3 million and $0.1 million, respectively, were outstanding and
     included in due from related parties.

     -   Distribution revenues with Atari Australia

     During the year ended June 30, 2002 and the nine months ended March 31,
     2003, the Company's Australian operations used the distribution facilities
     of Atari Australia who distributed product on behalf of the Company. The
     Company recorded distribution revenue of approximately $5.5 million and
     $4.2 million and related distribution costs of approximately $4.4 million
     and $3.7 million for the year ended June 30, 2002 and the nine months ended
     March 31, 2002 (unaudited). For the nine months ended March 31, 2003, the
     activity between the Company's Australian operations and Atari Australia
     significantly decreased and nominal amounts were recorded as distribution
     revenue and expense. Furthermore, Atari Australia has provided operational
     support to the Company's Australian operations. As a result of the
     transactions discussed above, approximately $1.7 million, excluding
     management fees, are owed to the Company at June 30, 2002 and March 31,
     2003.

     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 approximately $1.7 million, or any portion of that amount
     outstanding, if any, on July 3, 2005, against amounts owed under the Credit
     Agreement with Infogrames SA.

     -   Purchase of product and other support with Atari Australia

     During the nine months ended March 31, 2003, Atari Australia began to
     purchase product directly from the Company. For the nine months ended March
     31, 2003, the Company recognized revenue of $0.6 million for the sale of
     product and other support transactions. As of March 31, 2003, approximately
     $0.3 million remains outstanding and is included in due from related
     parties.

Transactions with other related parties wholly-owned by Infogrames SA

     -   Transactions with Atari Melbourne House Pty Ltd ("Atari Melbourne
         House")

     Atari Melbourne House, Australia, a wholly-owned subsidiary of Infogrames
     SA, is a product developer for the Company. Atari Melbourne House provides
     services such as product development, designing, and testing for the
     Company which began during the year ended June 30, 2001. For the years
     ended June 30, 2001 and 2002 and the nine months ended March 31, 2003,

                                      F-24

<PAGE>
     services provided and charged to the Company amounted to approximately
     $0.7 million, $0.3 million and $0.1 million, respectively. For the nine
     months ended March 31, 2002 (unaudited), services provided and charged to
     the Company were nominal. The Company had approximately $0.3 million due to
     Atari Melbourne House as of June 30, 2002 and a nominal balance due as of
     March 31, 2003.

     -   Transactions with Atari Studio Asia Pty Ltd ("Atari Studio Asia")

     Atari Studio Asia, Australia, a wholly-owned subsidiary of Infogrames SA,
     is a product developer for the Company. Services such as product
     development, designing, and testing for the Company began during the nine
     months ended March 31, 2003. For the nine months ended March 31, 2003,
     services provided and charged to the Company amounted to approximately $0.7
     million. The Company has a nominal balance due as of March 31, 2003.

     -   Transactions with Atari Studio Ltd ("Atari Studio")

     Atari Studio is a wholly-owned subsidiary of Infogrames SA and a product
     developer for the Company. Services such as product development, designing,
     and testing for the Company began during the nine months ended March 31,
     2003. For the nine months ended March 31, 2003, services provided and
     charged to the Company amounted to approximately $0.8 million. The Company
     has a nominal balance due as of March 31, 2003.

     -   Purchases of product by Atari Asia Pacific Pty Ltd ("Atari Asia
         Pacific")

     Atari Asia Pacific, a wholly-owned subsidiary of Infogrames SA, began
     purchasing product from the Company during the year ended June 30, 2002.
     For the nine months ended March 31, 2002 (unaudited) and 2003,
     approximately $0.2 million and $0.1 million, respectively, of product was
     purchased and a nominal amount was outstanding at March 31, 2003. For the
     year ended June 30, 2002, approximately $0.5 million of product was
     purchased and approximately $0.3 million was outstanding at June 30, 2002.

     -   Transactions with Paradigm Entertainment, Inc.

     Paradigm Entertainment, Inc. ("Paradigm"), a wholly-owned subsidiary of
     Infogrames SA, is a product developer located in the United States.
     Paradigm performs such services as program development and designing for
     the Company. For the years ended June 30, 2001 and 2002 and the nine months
     ended March 31, 2002 (unaudited) and 2003, services provided and charged to
     the Company amounted to approximately $3.9 million, $7.4 million, $5.4
     million and $7.1 million, respectively, of which approximately $4.0 million
     and $3.8 million, respectively, remains outstanding at June 30, 2002 and
     March 31, 2003. Since July 1, 2001, the Company has advanced funds in
     payment of certain Paradigm expenses. As of June 30, 2002 and March 31,
     2003, $0.3 million and $1.0 million, respectively, of such payments are
     included in due from related parties. Additionally as of March 31, 2003,
     $1.5 million of cash was transferred to the Company from Paradigm and is
     included in due to related parties.

     -   Purchases of product and other services from Atari United Kingdom
         Limited ("Atari UK")

     During the year ended June 30, 2002 and the nine months ended March 31,
     2002 (unaudited), the Company purchased approximately $0.1 million and $0.1
     million, respectively, of product from Atari UK, a wholly-owned subsidiary
     of Infogrames SA. No such purchase of products were made in any prior
     periods or during the nine months ended March 31, 2003. Additionally, Atari
     UK has advanced funds and paid certain expenses on behalf of the Company.
     As of June 30, 2002 and March 31, 2003, the Company owes Atari UK
     approximately $0.8 million and $1.6 million, respectively, which includes
     the remaining balance for products purchased.

     -   Sales of product from Atari UK

     During the year ended June 30, 2002 and the nine months ended March 31,
     2002 (unaudited) and 2003, the Company sold product to Atari UK for
     approximately $0.1 million in each period. As of March 31, 2003, $0.2
     million remains outstanding for the sale of product and nominal advances.
     As of June 30, 2002 no amount was outstanding. No sales of products were
     made in any prior periods.

                                      F-25

<PAGE>

     -   Other activities with Infogrames SA subsidiaries

     During the year ended June 30, 2002 and the nine months ended March 31,
     2002 (unaudited) and 2003, the Company entered into various nominal
     transactions with certain other Infogrames SA subsidiaries located in North
     America, Europe, Asia, and South America. For the nine months ended March
     31, 2002 (unaudited) and 2003, the aggregate amount recorded as revenue
     related to these transactions amounted to approximately $0.1 million and
     $0.2 million, respectively. As of March 31, 2003, approximately $0.4
     million is owed to the Company for these transactions. Additionally, the
     Company recorded aggregate charges during the nine months ended March 31,
     2002 (unaudited) and 2003 of approximately $0.1 million and $0.6 million,
     respectively, of which $0.2 million was unpaid as of March 31, 2003.

     The aggregate amount recorded as revenue for the year ended June 30, 2002
     related to the transactions from these Infogrames SA subsidiaries amounted
     to approximately $0.2 million of which $0.1 million was outstanding as of
     June 30, 2002. Additionally, the Company recorded aggregate charges during
     the year ended June 30, 2002 of approximately $0.1 million which is
     outstanding as of June 30, 2002. During the year ended June 30, 2001,
     nominal amounts were recorded as revenue and charges related to
     transactions from these Infogrames SA subsidiaries.

TRANSACTIONS WITH CURRENT AND FORMER OFFICERS

Employment Agreement with Harry M. Rubin

         The Company and Harry M. Rubin entered into an employment agreement
(the "Rubin Employment Agreement"), which is effective as of June 1, 2002. The
Term of the Rubin Employment Agreement will continue through May 31, 2007, and
may be extended for five additional years under terms that are identical to
those contained in the Rubin Employment Agreement.

         Under the Rubin Employment Agreement, Mr. Rubin receives an annual
salary of $0.4 million retroactive to January 1, 2002, and is eligible to
receive an annual increase in the base salary of five percent. Additionally, Mr.
Rubin is eligible to receive an annual bonus of up to 50.0% of his base salary
and receives a car allowance of $3,000 per month.

Humongous Loan

         The Company extended a demand promissory note to the former President
of Humongous Entertainment, a division of the Company. The note bears interest
at a rate of 8.75% per annum and is secured by security interest in all shares
of common stock of the Company owned beneficially by such individual. The
balance outstanding, including interest, at March 31, 2000 was approximately
$2.5 million. During June 2000, the Company exchanged the shares owned by the
former President and reduced the amount outstanding to approximately $1.5
million. As part of the exchange, the Company negotiated a repayment schedule
for this outstanding loan which provided for a first installment of
approximately $37,000 to be paid on July 1, 2001. During the year ended June 30,
2001, the Company recorded a reserve against this loan of approximately $0.7
million. Payment of the loan was not received and the Company pursued collection
of the outstanding loan by exploring various legal remedies which it had
available. After further negotiations during the year ended June 30, 2002, the
amount outstanding was reduced to $0.8 million with the remaining balance
forgiven by the Company, resulting in a nominal charge to operations. Payments
were received during February and April of 2002 for a total of $0.8 million. As
of June 30, 2002 and March 31, 2003, there was no balance due the Company in
connection with this loan.

NOTE 14 - LEASES

         The Company accounts for its leases as operating leases, with
expiration dates ranging from 2004 through 2012. Future minimum annual rental
payments under the leases, including the related party sub-lease with Atari
Interactive, are as follows for the fiscal years then ended (in thousands):

                                      F-26

<PAGE>
<TABLE>
<S>                                    <C>
2004.................................  $  5,200
2005.................................     4,900
2006.................................     5,200
2007.................................     4,000
2008.................................     1,900
Thereafter...........................     1,900
                                       --------
                                       $ 23,100
                                       ========
</TABLE>

         Total rent expense charged to operations for the years ended June 30,
2001 and 2002 and the nine months ended March 31, 2002 (unaudited) and 2003,
amounted to approximately $5.7 million, $4.5 million, $3.7 million and $4.2
million, respectively.

NOTE 15 - 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
intercompany loans to Paradigm and Atari Interactive, each a related party (Note
13). 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,
Paradigm, and the Company's subsidiary, Shiny, as guarantors. The outstanding
borrowings as of March 31, 2003, under the Senior Credit Facility were
approximately $10.7 million with another $2.3 million of letters of credit
outstanding. As of March 31, 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 related party debt with the Company subordinate to
the Senior Credit Facility. The Subordination Agreement allows repayment of debt
and interest to Infogrames SA by the Company under certain financial conditions
including, but not limited to, the Senior Credit Facility cash availability and
certain financial covenants. Additionally, the Subordination Agreement 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. Furthermore, the Subordination Agreement may have the effect of
extending the terms on all Infogrames SA credit facilities and related party
debt through the term of the Senior Credit Facility if certain conditions
required for the scheduled payments contained in the Subordination Agreement are
not met.

         BNP Paribas Credit Facility

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

                                      F-27

<PAGE>

Infogrames SA credit facilities and debt with the Company

         Credit Agreement

         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%. On September 30, 2002, the maturity
date was extended to December 31, 2002 and Infogrames SA agreed that prior to
July 1, 2003, it will not demand repayment of any amount outstanding, except
under certain conditions and, in each case, only to the extent that the
repayment is permitted under any new credit facility and the amount remaining
available from that credit facility is sufficient to fund the Company's working
capital needs. Conditions under which Infogrames SA may demand repayment include
the disposition of material assets of the Company, the successful completion of
additional financings, the receipt of non-budgeted revenues and a significant
improvement in the financial condition of the Company. On November 12, 2002, by
entering into the Subordination Agreement, Infogrames SA, in effect, extended
the Credit Agreement through the term of the Senior Credit Facility.
Additionally, the allowable repayments of the Credit Agreement are restricted
under the terms of the Subordination Agreement and demand of re-payments cannot
be made prior to termination of the Senior Credit Facility or without prior
approval of GECC. The outstanding borrowings, as of March 31, 2003, under the
Credit Agreement was $44.8 million. As of March 31, 2003, accrued interest and
fees were approximately $1.8 million and are included in current amounts due to
related parties. The entire outstanding balance of $44.8 million at March 31,
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 April 1,
2004.

         This agreement requires that the Company comply with certain financial
covenants and, among other items, restricts capital expenditures. Effective
December 31, 2002, Infogrames SA agreed to waiver any default or event of
default through April 1, 2004, that may arise by reason of the Company's failure
to comply with these covenants.

          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 March 31, 2003,
the amounts that are subject to offset for Atari Interactive are $27.4 million
upon the termination of the Senior Credit Facility with GECC and for Atari
Australia, approximately $1.7 million on July 3, 2005 (Note 13). However, the
receivable and payable are not netted on the accompanying balance sheet because
it does not meet the accounting requirement for offset.

         Medium-Term Loan

         In connection with the Shiny Acquisition (Note 2), the Company obtained
a $50.0 million medium-term loan from Infogrames SA which matures on June 30,
2004. Interest is based on the three month LIBOR rate plus 2.75% and payable on
a quarterly basis, in arrears. An unused commitment fee of 0.50% per annum is
based on the aggregate amount of the facility less outstanding loans. The
facility will be repaid as follows: $10.0 million three months after the first
shipment of the game based on the Matrix Reloaded movie and no later than
December 31, 2003; $10.0 million on December 31, 2003; $20.0 million on March
31, 2004; and $10.0 million on June 30, 2004. Under the Subordination Agreement,
the scheduled payments are restricted by certain financial conditions including,
but not limited to, the Senior Credit Facility's minimum borrowing availability
and certain financial covenants. The Subordination Agreement also may have the
effect of extending the terms on the medium-term loan through the term of the
Senior Credit Facility. The facility will be prepaid and reduced in aggregate
amounts equal to (1) 95% of the net cash proceeds of any sale or disposition of
any assets of the Company exceeding $2.5 million, (2) 95% of the cumulative net
proceeds from equity issuances by the Company provided that the Company may
retain 5% of such proceeds, and (3) 95% of the net proceeds from any new debt
issuance by the Company. As of March 31, 2003, the outstanding borrowings under
the medium-term loan were approximately $48.3 million, of which $40.0 million is
in current liabilities. Additionally, accrued interest was approximately $1.2
million and is included in current amounts due to related parties.

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

                                      F-28

<PAGE>

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

         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 are convertible into the Company's common stock at
$9.25 per share. Under the Subordination Agreement, the scheduled payment is
restricted by certain financial conditions including but not limited to the
Senior Credit Facility's minimum borrowing availability and certain financial
covenants. The Subordination Agreement also may have the effect of extending the
terms on the 5% CUSH Notes through the term of the Senior Credit Facility.

         Long-term related party debt consists of the following at March 31,
2003 (in thousands):

<TABLE>
<S>                                                                                                       <C>
Infogrames SA 0% subordinated convertible notes, due December 16, 2004................................    $     44,977
Infogrames SA medium-term loan, net of $40,000 current portion........................................           8,277
5% subordinated convertible note with CUSH, due December 16, 2004.....................................          71,356
                                                                                                          ------------
                                                                                                          $    124,610
                                                                                                          ============
</TABLE>

NOTE 16 - LEGAL PROCEEDINGS

James

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

Sanders

         On April 19, 2001, a putative class action was commenced by the family
of William David Sanders, a teacher murdered on April 2, 1999 in a shooting
rampage committed by Eric Harris and Dyland Klebold at the Columbine High School
in Jefferson County, Colorado. The action was brought against 25 defendants,
including the Company and other corporations in the videogame business,
companies that produced or distributed the movie, The Basketball Diaries, and

                                      F-29

<PAGE>

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

KBK

         On September 16, 2002, Knight Bridging Korea Co., Ltd. ("KBK"), a
distributor of electronic games via the Internet and local area networks, filed
a lawsuit against Gamesonline.com, Inc. ("Gamesonline"), a subsidiary of
Interplay Entertainment Corp., and the Company in Superior Court of California,
Orange County. KBK alleges that on or about December 15, 2001, KBK entered into
a contract with Gamesonline to obtain the right to localize (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, Inc. to engage in the foregoing alleged acts. The
Company and Atari Interactive, Inc. filed answers on January 9, 2003. On or
about January 28, 2003, Gamesonline answered the original complaint and served a
cross-complaint against KBK. Discovery is ongoing.

         The Company believes that these complaints are without merit and
intends to defend itself vigorously against these actions. Additionally, the
Company is involved in various other claims and legal actions arising in the
ordinary course of business. The Company's management believes that the ultimate
resolution of any of the aforementioned complaints or any other claims which are
not stated herein will not have a material adverse effect on the Company's
liquidity, financial condition or results of operations.

NOTE 17 - EMPLOYEE SAVINGS PLAN

         The Company maintains an Employee Savings Plan (the "Plan") which
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. The Plan is available to all United States employees who meet the
eligibility requirements. Under the Plan, participating employees may elect to
defer a portion of their pretax earnings, up to the maximum allowed by the
Internal Revenue Service with matching of 100% of the first 3% and 50% of the
next 6% of the employee's contribution provided by the Company. Generally, the
Plan's assets in a participant's account will be distributed to a participant or
his or her beneficiaries upon termination of employment, retirement, disability
or death. All Plan administrative fees are paid by the Company. Generally, the
Company does not provide its employees any other post-retirement or
post-employment benefits, except discretionary severance payments upon
termination of employment. Plan expense approximated $0.8 million, $1.3 million,
$0.9 million and $1.0 million for the years ended June 30, 2001 and 2002 and the
nine months ended March 31, 2002 (unaudited) and 2003, respectively.

                                      F-30

<PAGE>

NOTE 18 - ROYALTY AND LICENSE ADVANCES

         The Company has committed to pay advance payments under certain royalty
and license agreements. These obligations are guaranteed and are not dependent
on the delivery of the contracted services by the developers. Future advances
due under these agreements are as follows for the fiscal years then ended (in
thousands):

<TABLE>
<S>                                       <C>
2004.................................     $ 5,368
2005.................................       1,500
2006.................................         100
2007.................................           -
2008.................................           -
Thereafter...........................           -
                                          -------
                                          $ 6,968
                                          =======
</TABLE>

NOTE 19 - CONCENTRATION OF CREDIT RISK

         The Company extends credit to various companies in the retail and mass
merchandising industry for the purchase of its merchandise which results in a
concentration of credit risk. This concentration of credit risk may be affected
by changes in economic or other industry conditions and may, accordingly, impact
the Company's overall credit risk. Although the Company generally does not
require collateral, the Company performs ongoing credit evaluations of its
customers and reserves for potential losses are maintained.

         The Company had sales constituting 31%, 37%, 39% and 35% of net revenue
to two customers in the years ended June 30, 2001 and 2002 and the nine months
ended March 31, 2002 (unaudited) and 2003, respectively. Sales to one customer
constituted 22%, 26%, 28% and 24% of net revenue during the years ended June 30,
2001 and 2002 and the nine months ended March 31, 2002 (unaudited) and 2003,
respectively, while sales to a second customer constituted 9%, 11%, 11% and 11%
of the net revenue for the same periods, respectively.

         Accounts receivable due from three of the most significant customers of
each period aggregated 38% and 31% of accounts receivable at June 30, 2002 and
March 31, 2003, respectively.

NOTE 20 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS

         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, administration, and amortization of goodwill of the Company. The
majority of depreciation expense for fixed assets is charged to the corporate
segment and a portion is recorded in the publishing segment. This amount
consists of depreciation on computers and office furniture in the publishing
unit. 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 summary represents the consolidated net revenues and
operating income (loss) by reportable segment for the years ended June 30, 2001
and 2002 and the nine months ended March 31, 2002 (unaudited) and 2003 (in
thousands):

                                      F-31

<PAGE>

<TABLE>
<CAPTION>
                                                         PUBLISHING        DISTRIBUTION          CORPORATE           TOTAL
                                                         ----------        ------------          ---------           -----
<S>                                                      <C>               <C>                   <C>              <C>
Year ended June 30, 2001:
      Net revenues..........................             $   217,357       $     74,031          $      --       $    291,388
      Operating (loss) income...............                 (29,749)            11,860            (33,106)           (50,995)
      Depreciation and amortization.........                 (14,176)            (1,166)            (4,955)           (20,297)
      Interest..............................                  (1,818)                78            (11,659)           (13,399)
Year ended June 30, 2002:
      Net revenues..........................             $   320,204       $     98,841          $      --       $    419,045
      Operating income (loss)...............                  12,781             10,590            (22,409)               962
      Depreciation and amortization.........                  (2,113)              (545)            (2,796)            (5,454)
      Interest..............................                     (58)               103            (12,001)           (11,956)
Nine months March 31, 2002 (unaudited):
      Net revenues..........................             $   211,902       $     77,540          $      --       $    289,442
      Operating income (loss)...............                   1,205              7,699            (16,539)            (7,635)
      Depreciation and amortization.........                  (1,219)              (401)            (1,917)            (3,537)
      Interest..............................                      --                 75             (7,962)            (7,887)
Nine months March 31, 2003:
      Net revenues..........................             $   329,813       $     74,832          $      --        $   404,645
      Operating income (loss)...............                  37,998             14,433            (24,990)            27,441
      Depreciation and amortization.........                  (3,009)              (438)            (2,412)            (5,859)
      Interest..............................                      --                151             (9,749)            (9,598)
</TABLE>

         Information about the Company's operations in the United States and
other geographic locations for the years ended June 30, 2001 and 2002 and the
nine months ended March 31, 2002 (unaudited) and 2003 are presented below (in
thousands):

<TABLE>
<CAPTION>
                                                                                                    OTHER
                                                                      UNITED                     GEOGRAPHIC
                                                                      STATES        EUROPE        LOCATIONS         TOTAL
                                                                      ------        ------        ---------         -----
<S>                                                                 <C>            <C>           <C>              <C>
Year ended June 30, 2001:
      Net revenues.....................................             $  284,274     $   1,495      $   5,619       $ 291,388
      Operating loss...................................                (46,639)         (777)        (3,579)        (50,995)
      Capital expenditures.............................                  6,084            --             --           6,084
      Total assets.....................................                137,415         1,959          5,710         145,084
Year ended June 30, 2002:
      Net revenues.....................................             $  413,663     $     606      $   4,776       $ 419,045
      Operating income (loss)..........................                  8,585        (6,267)        (1,356)            962
      Capital expenditures.............................                  7,382         1,189             --           8,571
      Total assets.....................................                236,985         3,138          1,740         241,863
Nine months ended March 31, 2002 (unaudited):
      Net revenues.....................................             $  285,577     $      --      $   3,865       $ 289,442
      Operating (loss) income..........................                 (2,064)       (4,950)          (621)         (7,635)
      Capital expenditures.............................                  5,484         1,005             --           6,489
      Total assets.....................................                159,344         3,100          6,014         168,458
Nine months ended March 31, 2003:
      Net revenues.....................................             $  404,638     $      --      $       7       $ 404,645
      Operating income (loss)..........................                 33,467        (5,461)          (565)         27,441
      Capital expenditures.............................                  3,371           156            540           4,067
      Total assets.....................................                223,960         2,953          5,169         232,082
</TABLE>

NOTE 21 - RESTRUCTURING AND OTHER CHARGES

         During the year ended June 30, 2001, the Company implemented a
restructuring plan to better support its strategic objectives and improve
efficiency of its publishing and internal development operations. This plan
included closing the Company's San Jose facility and moving its functions to
Santa Monica, California. The Humongous publishing group was also closed. These
activities resulted in charges of approximately $3.5 million of which $1.9
million related to the termination of 119 employees. The remaining $1.6 million
related to the disposal of fixed assets and other charges to shutdown these
operations.


                                      F-32

<PAGE>
         During the year ended June 30, 2002 and nine months ended March 31,
2003, the Company did not record any additional restructuring charges. The
activities that occurred during the year were cash payments related to the
previous restructuring plans implemented by the Company.

         The following table sets forth adjustments to the restructuring
reserve, which is included in accrued liabilities (in thousands):

<TABLE>
<CAPTION>
                                            ADDITIONAL
                              BALANCE      RESTRUCTURING                                                     BALANCE
                              JUNE 30,      AND OTHER                          CASH                          JUNE 30,
                                2000         CHARGES        WRITE-OFFS       PAYMENTS         OTHER            2001
                                ----         -------        ----------       --------         -----            ----
<S>                          <C>           <C>              <C>             <C>             <C>             <C>
Severance ..............     $    7,417     $    1,857      $       --      $   (6,627)     $       --      $    2,647
Shutdown of European
    operations .........          1,892             --              --              --          (1,892)             --
Shutdown of San Jose
    facilities .........             --          1,294          (1,294)             --              --              --
Shutdown of Humongous
    Publishing .........             --            388            (388)             --              --              --
Transition rent ........            527             --              --              --            (527)             --
                             ----------     ----------      ----------      ----------      ----------      ----------
                             $    9,836     $    3,539      $   (1,682)     $   (6,627)     $   (2,419)     $    2,647
                             ==========     ==========      ==========      ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                            ADDITIONAL
                              BALANCE      RESTRUCTURING                                                 BALANCE
                              JUNE 30,       AND OTHER                       CASH                        JUNE 30,
                                2001          CHARGES      WRITE-OFFS      PAYMENTS        OTHER           2002
                                ----          -------      ----------      --------        -----           ----
<S>                          <C>           <C>             <C>            <C>            <C>            <C>
Severance ..............     $    2,647     $       --     $       --     $   (2,107)    $       --     $      540
                             ----------     ----------     ----------     ----------     ----------     ----------
                             $    2,647     $       --     $       --     $   (2,107)    $       --     $      540
                             ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                            ADDITIONAL
                              BALANCE      RESTRUCTURING                                                 BALANCE
                              JUNE 30,       AND OTHER                       CASH                        MARCH 31,
                                2002          CHARGES      WRITE-OFFS      PAYMENTS         OTHER          2003
                                ----          -------      ----------      --------         -----          ----
<S>                          <C>           <C>             <C>            <C>            <C>            <C>
Severance.................   $      540     $       --     $      --      $     (469)    $       --     $       71
                             ----------     ----------     ---------      ----------     ----------     ----------
                             $      540     $       --     $      --      $     (469)    $       --     $       71
                             ==========     ==========     =========      ==========     ==========     ==========
</TABLE>

NOTE 22- QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for the fiscal year ended June 30, 2001 is
as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      SEPTEMBER 30,  DECEMBER 31,     MARCH 31,      JUNE 30,
                                                      -------------  ------------     ---------      --------
<S>                                                   <C>            <C>             <C>            <C>
Net revenues .....................................     $   37,933     $  121,927     $   67,657     $   63,871
Gross profit .....................................         23,121         75,934         30,697         35,696
Operating (loss) income ..........................        (26,920)        17,832        (18,832)       (23,075)
Net (loss) income ................................        (32,714)        16,475        (21,430)       (22,999)
Basic and diluted net (loss) income per share ....          (1.58)          0.24          (0.31)         (0.33)
Weighted average shares outstanding - basic ......         20,686         68,135         69,734         69,524
Weighted average shares outstanding - diluted ....         20,686         68,691         69,734         69,524
</TABLE>

                                      F-33

<PAGE>
Summarized quarterly financial data for the fiscal year ended June 30, 2002 is
as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      SEPTEMBER 30,  DECEMBER 31,   MARCH 31,      JUNE 30,
                                                      -------------  ------------   ---------      --------
<S>                                                   <C>            <C>           <C>            <C>
Net revenues .....................................     $   78,527    $  160,410    $   50,505     $  129,603
Gross profit .....................................         40,794        81,094        15,199         69,578
Operating income (loss) ..........................          3,393        15,161       (26,189)         8,597
Net income (loss) ................................            552        12,174       (22,947)          (709)
Basic and diluted net income (loss) per share ....           0.01          0.17         (0.33)         (0.01)
Weighted average shares outstanding - basic ......         69,524        69,738        69,799         69,825
Weighted average shares outstanding - diluted ....         70,007        70,008        69,799         69,825
</TABLE>

Summarized quarterly financial data for the nine months ended March 31, 2003 is
as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                      SEPTEMBER 30,  DECEMBER 31,     MARCH 31,
                                                      -------------  ------------     ---------
<S>                                                   <C>            <C>             <C>
Net revenues .....................................     $  109,367     $  210,594     $   84,684
Gross profit .....................................         55,472        106,452         38,863
Operating income (loss) ..........................          3,496         33,672         (9,727)
Net income (loss) ................................            731         30,054        (12,715)
Basic and diluted net income (loss) per share ....           0.01           0.43          (0.18)
Weighted average shares outstanding - basic ......         69,826         69,891         69,918
Weighted average shares outstanding - diluted ....         69,952         69,984         69,918
</TABLE>

         During the third quarter of the nine months ended March 31, 2003, the
Company reduced its royalty payable by approximately $2.0 million as returns,
price protection and other customer promotional allowances of certain royalty
bearing products were greater than the amounts estimated during the second
quarter.

         During the fourth quarter of 2002, based on an agreement to sell
pre-petition Kmart receivables at an amount substantially below face value, the
Company determined it was required to pay certain royalties only on receivables
collected. Accordingly, the Company reduced its royalty accrual at June 30, 2002
by approximately $0.7 million.

         The per share amounts are calculated independently for each of the
quarters presented. The sum of the quarters may not equal the full year per
share amounts.

                                      F-34

<PAGE>

                          ATARI, INC. AND SUBSIDIARIES
          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          ADDITIONS     ADDITIONS
                                                             BALANCE      CHARGED TO    CHARGED TO                    BALANCE
                                                            BEGINNING         NET       OPERATING                       END
                   DESCRIPTION                              OF PERIOD      REVENUES      EXPENSES     DEDUCTIONS     OF PERIOD
                   -----------                              -------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>           <C>            <C>
ALLOWANCE FOR BAD DEBTS, RETURNS, PRICE PROTECTION
AND OTHER CUSTOMER PROMOTIONAL PROGRAMS:
Nine months ended March 31, 2003 ......................     $   50,451    $   78,483    $    3,814    $  (92,429)    $   40,319
                                                            ==========    ==========    ==========    ==========     ==========
Year ended June 30, 2002 ..............................     $   56,554    $  103,711    $    8,192    $ (118,006)    $   50,451
                                                            ==========    ==========    ==========    ==========     ==========
Year ended June 30, 2001 ..............................     $   80,838    $   67,907    $   24,661    $ (116,852)    $   56,554
                                                            ==========    ==========    ==========    ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                          ADDITIONS     ADDITIONS
                                                             BALANCE      CHARGED TO    CHARGED TO                    BALANCE
                                                            BEGINNING      COST OF      OPERATING                       END
                 DESCRIPTION                                OF PERIOD     GOODS SOLD     EXPENSES     DEDUCTIONS     OF PERIOD
                 -----------                                -------------------------------------------------------------------
<S>                                                         <C>            <C>          <C>           <C>            <C>
RESERVE FOR OBSOLESCENCE:
Nine months ended March 31, 2003 ......................     $    7,695    $    3,416    $        -    $   (6,208)    $    4,903
                                                            ==========    ==========    ==========    ==========     ==========
Year ended June 30, 2002 ..............................     $   20,360    $      813    $        -    $  (13,478)    $    7,695
                                                            ==========    ==========    ==========    ==========     ==========
Year ended June 30, 2001 ..............................     $   48,101    $      838    $        -    $  (28,579)    $   20,360
                                                            ==========    ==========    ==========    ==========     ==========
</TABLE>

                                      F-35