UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    March 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File No.: 0-27338
   ATARI, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

13-3689915(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)   417 Fifth Avenue, New York, NY 10016
 (Address of principal executive
    offices, including zip code)
  Registrants telephone number, including area code:
 (212) 726-6500
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, $0.10 par value
  Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ   Rule 12b-2 o þ
    Documents Incorporated by Reference




---



##### 





ATARI,
    INC. AND SUBSIDIARIES
    March 31, 2008 Annual Report on
    Form 10-K
  TABLE OF CONTENTS
  PagePART IITEM 1.


Business


2ITEM 1A.


Risk Factors


13ITEM 1B.


Unresolved Staff Comments


18ITEM 2.


Properties


18ITEM 3.


Legal Proceedings


19ITEM 4.


Submission of Matters to a Vote of Security Holders


20PART IIITEM 5.


Market for Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Equity Securities


21ITEM 6.


Selected Financial Data


23ITEM 7.


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


24ITEM 7A.


Quantitative and Qualitative Disclosures About Market Risk


39ITEM 8.


Financial Statements and Supplementary Data


40ITEM 9.


Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


41ITEM 9A.


Controls and Procedures


41ITEM 9B.


Other Matters


42PART IIIITEM 10.


Directors, Executive Officers, and Corporate Governance


42ITEM 11.


Executive Compensation


42ITEM 12.


Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters


43ITEM 13.


Certain Relationships and Related Transactions, and Director
    Independence


43ITEM 14.


Principal Accounting Fees and Services


43PART IVITEM 15.


Exhibits and Financial Statement Schedules


43SIGNATURES





50CONSOLIDATED FINANCIAL STATEMENTS





F-1EXHIBIT INDEX




---



##### 



This Annual Report contains forward-looking statements, as
    that term is defined in the Private Securities Litigation Reform
    Act of 1995. We caution readers regarding forward-looking
    statements in this Report, press releases, securities filings,
    and other documents and communications. All statements, other
    than statements of historical fact, including statements
    regarding industry prospects and expected future results of
    operations or financial position, made in this Annual Report on
    Form 10-K
    are forward looking. The words believe,
    expect, anticipate, intend
    and similar expressions generally identify forward-looking
    statements. These forward-looking statements are necessarily
    based upon estimates and assumptions that, while considered
    reasonable by us, are inherently subject to significant
    business, economic and competitive uncertainties and
    contingencies and known and unknown risks. As a result of such
    risks, our actual results could differ materially from those
    anticipated by any forward-looking statements made by, or on
    behalf of, us. We will not necessarily update information if it
    later turns out that what occurs is different from what was
    anticipated in a forward-looking statement. For a discussion of
    some factors that could cause our operating results or other
    matters not to be as anticipated by forward-looking statements
    in this document, please see Item 1A entitled Risk
    Factors on pages 13 to 18 .
 1




---



##### 



PART I  ITEM 1.
    BUSINESS  OVERVIEW
          Test Drive Test Drive
    Unlimited
    
    Dragon Ball Z(FUNimation),
    Alone in the Dark(IESA),
    Asteroids, PONG, Missile Command and Centipede(Atari
    Interactive),
    Dungeons and Dragons(Hasbro and Atari Interactive),
    Earthworm Jim(Interplay),
    RollerCoaster Tycoon(Chris Sawyer and Atari
    Interactive), and
    Godzilla(Sony Pictures).    Test Drive Test Drive
    Unlimited
 2




---



##### 



Test Drive Test Drive Unlimited
    (212) 726-6500). www.atari.com
  INDUSTRY
    OVERVIEW
  and/or
    The
    Console and Handheld Market
   3




---



##### 



Personal
    Computers
    ESRB
    Ratings and Litigation
    Consolidation
    PRODUCTS
    
    Fiscal 2006  the Dragon Ball Zfranchise
    generated 28.6% of our publishing net product revenues, driven
    by the October 2005 release of Dragon Ball Z: Budokai
    Tenkaichi(PlayStation 2). Additionally, the Matrixfranchise generated 14.4% of our publishing net revenues,
    led by the November 2005 release of Matrix: Path of Neo(PlayStation 2, Xbox, and PC). Other new releases in fiscal
    2006 included Atari Flashback 2.0 (plug and play),
    Getting Up: Contents Under Pressure(PlayStation 2, Xbox,
    and PC), Dungeons & Dragons 4




---



##### 



Online: Stormreach(PC), Driver: Parallel Lines(PlayStation 2, and Xbox), and Indigo Prophecy(PC,
    PlayStation 2, and Xbox).  
    Fiscal 2007  the Dragon Ball Zfranchise
    generated 45.7% of our publishing net product revenues, driven
    by the November 2006 release of Dragon Ball Z: Budokai
    Tenkaichi 2(PlayStation 2 and Nintendo Wii). Additionally,
    the Neverwinter Nightsfranchise generated 13.9% of our
    publishing net product revenues, led by the October 2006 release
    of Neverwinter Nights 2(PC). Furthermore, the Test
    Drivefranchise generated 13.4% of our publishing net
    product revenues, led by the September 2006 release of Test
    Drive Unlimitedon the Xbox 360 platform, followed by its
    March 2007 release on the PlayStation 2, PSP, and PC platforms.
    Fiscal 2008  the Dragon Ball Zfranchise
    generated 49.1% of our publishing net product revenues, driven
    by the November 2007 release of Dragon Ball Z: Budokai
    Tenkaichi 3(PlayStation 2 and Nintendo Wii). Additionally,
    the Godzillafranchise generated 9.2% of our publishing
    net product revenues, led by the November 2007 release of
    Godzilla Unleashed(Nintendo Wii, PlayStation 2 and
    Nintendo DS). Furthermore, the Neverwinter Nightsfranchise generated 9.1% of our publishing net product
    revenues, led by the October 2007 release of Neverwinter
    Nights 2 Mask of the Betrayer (PC) andcontinued sales of
    Neverwinter Nights 2 (PC) originally released in October
    2006.  DEVELOPMENT
    PUBLISHING
        
    Dimps (Dragon Ball Z: Shin Budokai Another Road);
    CD Projekt (The Witcher);
    Kuju Entertainment (Dungeons & Dragons Tactics);
    Obsidian (Neverwinter Nights 2); and
    Spike (Dragon Ball Z: Budokai Tenkaichi 3).   5




---



##### 



SALES AND
    MARKETING
          
    Managing the life cycle of a catalog of new and existing
    products;
    Researching industry trends and customer needs to inform the
    production process, advertising generation, forecasting, retail
    distribution, and pricing;
    Working with physical retail partners to maximize sales;
    Establishing online sales distribution systems for both boxed
    products and digitally distributed products;
    Fostering media and online community interest in products and
    properties;
    Leveraging and strengthening the Atari brand; and
    Exploiting the marketability of our intellectual property and
    products through licensing arrangements that expand application
    into other gaming platforms and consumer product categories and
    bring in new revenue streams such as advertising and product
    placement.    
    Understanding our consumers through professional qualitative and
    quantitative research;
    Examining competitive product launches to help determine optimal
    marketing budgets;
    Promoting product publicity via enthusiast and mass market
    outlets, including broadcast television, internet, newspapers,
    specialty magazines, and theater; 6




---



##### 




    Retail marketing and in-store promotions and displays;
    Online marketing and two way online conversations
    with gamers;
    Underground marketing techniques, in which marketing
    materials are placed in physical and online locations which are
    frequented by targeted groups of consumers;
    Strategic partnerships and cross-promotions with other consumer
    product companies and third-parties; and
    Working with first-party console manufacturers to
    exploit their marketing opportunities, including presence on
    their websites, retail exposure and public relations events.          INTELLECTUAL
    PROPERTY
  Licenses
  Licensed
    properties
      In-Game
    Advertising
   7




---



##### 



Hardware
    licenses
  per-unit
    Manufacturer

Platform

Agreement

Territory

Expiration DateMicrosoft

Xbox

Publisher License Agreement, dated April 18, 2000

Determined on a title-by-title basis

November 15, 2008Microsoft

Xbox 360

Publisher License Agreement, dated February 17, 2006

Determined on a title-by-title basis

November 21, 2008, with automatic one year renewalsNintendo

DS

License Agreement, dated October 14, 2005

Western Hemisphere

February 17, 2011Nintendo

Wii

License Agreement, dated October 17, 2006

Western Hemisphere

October 16, 2009Sony

PlayStation 2

Licensed Publisher Agreement, dated June 6, 2000

US and Canada

March 31, 2009, with automatic one year renewalsSony

PlayStation Portable

Licensed Publisher Agreement, dated March 23, 2005

US and Canada

March 31, 2009, with automatic one year renewalsSony

PlayStation 3

In negotiation

US and Canada     per-unit per-unit
  Protection
   8




---



##### 



DISTRIBUTION
  United
    States, Canada, and Mexico
  store-by-store
  
    efficient and accurate processing of orders and payments;
    expedited order turnaround time; and
    prompt delivery.  e-tail atari.com
      Europe,
    Asia and Other Regions
    Backlog
   9




---



##### 



MANUFACTURING
    AND PACKAGING
      ONLINE
    
    Digital Sales/eCommerce.  In fiscal 2008,
    online revenue was derived through digital distribution of games
    through both the Atari.com/us website and third party
    sites. The focus for the year was to increase back catalogue
    presence online through the Atari.com/uswebsite and then
    make these titles available to third party partner sites. Our
    presence was increased on major partner sites such as
    Direct2Drive and new partnerships were formed with sites such as
    GamersGate and Steam.
    Online Marketing.  We attempted to drive the
    promotion of packaged media goods through the creation and
    implementation of targeted cost-effective online advertising
    campaigns and the development of innovative contests and
    promotions. These complementary initiatives were carried out via
    the tactical execution of
    pay-per-click
    campaigns, the design and development of product landing pages
    and newsletters, and the nurturing of our online communities
    based around specific product lines and titles.  
    Consumer Interaction with Atari brand and Atari
    products.  We maintained and drove the growth of
    our key website properties - Atari.com/us, Atari Play
    (games.atari.com), and Atari Community
    (ataricommunity.com) through digital distribution
    partnerships, advertising, promotions, community management and
    content creation.  EMPLOYEES
    RELATIONSHIP
    WITH IESA
   10




---



##### 




    We entered into a new Distribution Agreement that replaced the
    prior Distributions Agreements (except as to back catalogue),
    under which IESA granted us the exclusive right to contract with
    IESA for distribution rights in the U.S., Canada and Mexico
    (subject, with regard to Mexico, to our meeting volume
    requirements) to all interactive entertainment software games
    developed by or on behalf of IESA that are released in packaged
    media format, and contemplates that IESA might grant us
    distribution rights with regard to the games in digital download
    format, subject to our receiving targeted annual gross revenues.
    The term of the agreement is three years (or two years if
    revenues are not at least 80% of targeted amounts), and it will
    automatically be renewed for additional one year periods unless
    either IESA or we terminates it. We pay a royalty for products
    we distribute and receive a distribution fee equal to 30% of net
    revenues.
    We terminated the prior agreement under which we had been
    rendering production services to IESA, and agreed to transfer to
    IESA substantially all the equipment that was being used by our
    production team for its nominal book value, and IESA agreed to
    offer employment to selected members of our production team.
    We entered into an agreement to provide quality assurance
    services to IESA and two of its affiliates directly or through
    third party vendors until March 31, 2008, and IESA agreed
    to pay us our costs plus a 10% premium which we are currently in
    process of negotiating an extension.
    We entered into an intercompany services agreement with IESA and
    two affiliates that superseded the prior services agreements,
    under which we agreed to provide legal, human resources,
    payroll, finance, IT, management information services and
    facilities management services until June 30, 2008
    (extendable for three month periods) at specified costs.
    The Credit Agreement that BlueBay High Yield Investments assumed
    from Guggenheim was amended to, among other things, waive prior
    defaults and increase the available credit from approximately
    $3.0 million to $14.0 million.  Test Drive Test Drive Unlimited
  Matters
    related to our governance
   11




---



##### 



IESAs
    Proposed Acquisition of Us.
      COMPETITION
   12




---



##### 



Test
    Drive RollerCoaster Tycoon Dragon Ball Z Dungeons &
    Dragons
    SEASONALITY
    SEGMENT
    REPORTING AND GEOGRAPHIC INFORMATION
      ITEM 1A.
    RISK
    FACTORS  RISKS
    RELATED TO OUR BUSINESS
  Our
    business has contracted significantly.
    We
    rely on borrowings to meet our operating needs.
  Test Drive Test Drive
    Unlimited
 13




---



##### 



Our
    revenues are dependant to a substantial extent on the ability of
    IESA to develop, or obtain the right to publish, successful
    video game products.
    Our
    rights to use the Atari name are
    limited.
    Our
    success depends on continued popularity of packaged
    games.
    The
    loss of GameStop, Wal-Mart, or Best Buy as key customers could
    negatively affect our business.
    
    we lost any of these retailers as a customer;
    any of these retailers purchased significantly fewer products
    from us;
    we were unable to collect receivables from any of these
    retailers on a timely basis or at all; or
    we experienced any other adverse change in our relationship with
    any of these retailers.   14




---



##### 



Termination
    or modification of our agreements with hardware manufacturers
    will adversely affect our business.
    
    terminating a project for which we have expended significant
    resources;
    leaving us unable to have our products manufactured and shipped
    to customers;
    increasing manufacturing lead times and expense to us over the
    lead times and costs we could achieve if we were able to
    manufacture our products independently;
    delaying the manufacture and, in turn, the shipment of
    products; and
    requiring us to take significant risks in prepaying for and
    holding an inventory of products.  If
    returns and other concessions given to our customers exceed our
    reserves, our business may be negatively affected.
    Significant
    competition in our industry could adversely affect our
    business.
  and/or
  
    respond more quickly than we can to new or emerging technologies
    or changes in customer preferences;
    carry larger inventories than we do;
    undertake more extensive marketing campaigns than we do;
    adopt more aggressive pricing policies than we can; and
    make higher offers or guarantees to software developers and
    licensors than we can. 15




---



##### 



We may
    face increased competition and downward price pressure if we are
    unable to protect our intellectual property
    rights.
    We may
    face intellectual property infringement claims which would be
    costly to resolve.
    We may
    be burdened with payment defaults and uncollectible accounts if
    our customers do not or cannot satisfy their payment
    obligations.
   16




---



##### 



Our
    software is subject to governmental restrictions or rating
    systems.
      We may
    become subject to litigation which could be expensive or
    disruptive.
    RISKS
    RELATED TO OUR CORPORATE STRUCTURE AND FINANCING
    ARRANGEMENTS
  IESA
    controls us and could prevent a transaction favorable to our
    other stockholders.
    Our
    affiliates retain considerable control over the Atari
    trademarks, and their oversight or exploitation of such
    trademarks could affect our business.
   17




---



##### 



RISKS
    RELATED TO OUR COMMON STOCK
  Our
    Common Stock has been delisted from the NASDAQ Global
    Market.
    The
    price of our Common Stock is substantially affected by our
    Merger Agreement with IESA.
    AVAILABLE
    INFORMATION
  Form 10-K, Form 10-Q, Form 8-K, http://www.atari.com http://www.sec.gov. 1-800-SEC-0330.
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    NorthAmerica


Europe


TotalNew York


35,000







35,000California


20,476







20,476Washington


65,500







65,500Newcastle, UK






14,576



14,576Total


120,976



14,576



135,552   New York.
 18




---



##### 



California. Development
  Washington.
  Massachusetts.
  Europe.
  ITEM 3.
    LEGAL
    PROCEEDINGS  and/or
  Bouchat v.
    Champion Products, et al. (Accolade)
    Ernst &
    Young, Inc. v. Atari, Inc.
    Research
    in Motion Limited v. Atari, Inc. and Atari Interactive,
    Inc.
   19




---



##### 



Stanley v.
    IESA, Atari, Inc. and Atari, Inc. Board of Directors
        ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   20




---



##### 



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDERMATTERS, AND ISSUER PURCHASES OF EQUITY
    SECURITIES    High


LowFiscal 2007First Quarter

$
9.70


$
4.70Second Quarter

$
7.90


$
4.75Third Quarter

$
6.00


$
4.60Fourth Quarter

$
6.50


$
2.94Fiscal 2008First Quarter

$
4.11


$
2.67Second Quarter

$
2.97


$
1.96Third Quarter

$
3.09


$
1.25Fourth Quarter

$
1.81


$
0.86      21




---



##### 



Performance
    Graph
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
 Among Atari, Inc., The NASDAQ Composite Index,
 The RDG Technology Composite Index And A Peer Group
  
  *
    
    $100 invested on 3/31/03 in stock or index-including
    reinvestment of dividends.
    Fiscal year ending March 31.  Comparative Total Return Analysis2003

2004

2005

2006

2007

2008Atari, Inc.


100.00



191.57



177.53



35.96



18.60



8.15NASDAQ Composite


100.00



151.41



152.88



181.51



190.24



177.63RDG Technology Composite


100.00



144.19



138.29



160.94



171.12



169.78Peer Group


100.00



186.50



191.05



202.86



206.74



218.75   Securities
    Authorized for Issuance under Equity Compensation
    Plans
    Recent
    Sales of Unregistered Securities
    Purchase
    of Equity Securities by the Issuer and Affiliated
    Purchases.
   22




---



##### 



ITEM 6.
    SELECTED
    FINANCIAL DATA    Driver Driver
  Form 10-K.
  Years Ended March 31,2004


2005(1)


2006(1)(2)


2007(1)(2)(3)


2008(1)Statement of Operations Data:Net revenues

$
465,639


$
343,837


$
206,796


$
122,285


$
80,131Operating income (loss)


20,840



(23,970
)


(62,977
)


(77,644
)


(21,862
)Income (loss) from continuing operations


13,606



(14,855
)


(63,375
)


(66,586
)


(23,334
)(Loss) income from discontinued operations of Reflections
    Interactive Ltd, net of tax provision of $0, $9,352, $7,559, and
    $0 respectively


(12,840
)


20,547



(5,611
)


(3,125
)


(312
)Net income (loss)


766



5,692



(68,986
)


(69,711
)


(23,646
)Dividend to parent


(39,351
)














Income (loss) attributable to common stockholders

$
(38,585
)

$
5,692


$
(68,986
)

$
(69,711
)

$
(23,646
)Basic and diluted income (loss) per share attributable to common
    stockholders(4):Income (loss) from continuing operations

$
1.40


$
(1.22
)

$
(4.93
)

$
(4.94
)

$
(1.73
)(Loss) income from discontinued operations of Reflections
    Interactive Ltd, net of tax


(1.32
)


1.69



(0.43
)


(0.23
)


(0.02
)Net income (loss)


0.08



0.47



(5.36
)


(5.17
)


(1.75
)Dividend to parent


(4.06
)














Income (loss) attributable to common stockholders

$
(3.98
)

$
0.47


$
(5.36
)

$
(5.17
)

$
(1.75
)Basic weighted average shares outstanding(4)


9,699



12,128



12,863



13,477



13,478Diluted weighted average shares outstanding(4)


9,699



12,159



12,863



13,477



13,478     (1)
    
    During fiscal 2005, 2006, 2007, and 2008, we recorded
    restructuring expenses of $4.9 million, $8.9 million,
    $0.7 million and $6.5 million, respectively.(2)
    
    During fiscal 2006, we recorded a gain on sale of intellectual
    property of $6.2 million and in fiscal 2007, we recorded a
    gain on sale of intellectual property of $9.0 million and a
    gain on sale of development studio assets of $0.9 million.
    Additionally, in fiscal 2007 the gain on sale of Reflections of
    $11.5 million is included as a reduction of the loss from
    discontinued operations.(3)
    
    During fiscal 2007, we recorded an impairment loss on our
    goodwill of $54.1 million, which is included in the loss
    from continuing operations. 23




---



##### 



(4)
    
    Reflects the one-for-ten reverse stock split effected on
    January 3, 2007. All periods have been restated
    retroactively to reflect the reverse stock split.  March 31,2004


2005


2006


2007


2008Balance Sheet Data:Cash

$
8,858


$
9,988


$
14,948


$
7,603


$
11,087Working capital (deficiency)


25,844



34,467



(2,996
)


1,213



(12,796
)Total assets


193,956



190,039



143,670



42,819



33,433Total debt


















14,000Stockholders equity (deficiency)


115,063



120,667



73,212



3,094



(20,412
)   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
    Driver
        
    Guggenheim Corporate Funding LLC Covenant Default;
    Removal of the Atari, Inc. Board of Directors;
    Transfer of the Guggenheim credit facility to BlueBay High
    Yield Investments (Luxembourg) S.A.R.L.;
    Test Drive Intellectual Property License;
    Overhead Reduction;
    Global Memorandum of Understanding;
    Short Form Distribution Agreement;
    Termination and Transfer of Assets Agreement; 24




---



##### 




    QA Services Agreement;
    Intercompany Services Agreement;
    Agreement and Plan of Merger;
    Credit Agreement; and
    Waiver, Consent and Fourth Amendment.            Business
    and Operating Segments
       25




---



##### 



Key
    Challenges
    Test Drive
    Critical
    Accounting Policies
   26




---



##### 



Revenue
    recognition, sales returns, price protection, other customer
    related allowances and allowance for doubtful
    accounts
          Inventories
    Research
    and product development costs
      Licenses
   27




---



##### 



Atari
    Trademark License
    Test
    Drive Intellectual Property License
   28




---



##### 



Results
    of Operations
  Year
    ended March 31, 2007 versus year ended March 31,
    2008
  Consolidated Statement of Operations (dollars in
    thousands):
  Year


% of


Year


% ofEnded


Net


Ended


NetMarch 31,


Revenues


March 31,


Revenues


(Decrease)/Increase2007





2008





$


%Net revenues

$
122,285



100.0
%

$
80,131



100.0
%


(42,154
)


(34.5
)%Costs and expenses:Cost of goods sold


72,629



59.4
%


40,989



51.2
%


(31,640
)


(43.6
)%Research and product development expenses


30,077



24.6
%


13,599



17.0
%


(16,478
)


(54.8
)%Selling and distribution expenses


25,296



20.7
%


19,411



24.2
%


(5,885
)


(23.3
)%General and administrative expenses


21,788



17.8
%


17,672



22.0
%


(4,116
)


(18.9
)%Restructuring expenses


709



0.6
%


6,541



8.2
%


5,832



822.0
%Impairment of goodwill


54,129



44.3
%






0.0
%


(54,129
)


(100.0
)%Gain on sale of intellectual property


(9,000
)


(7.4
)%






0.0
%


9,000



(100.0
)%Gain on sale of development studio assets


(885
)


(0.7
)%






0.0
%


885



(100.0
)%Atari trademark license expense


2,218



1.8
%


2,218



2.7
%






0.0
%Depreciation and amortization


2,968



2.4
%


1,563



2.0
%


(1,405
)


(47.3
)%Total costs and expenses


199,929



163.5
%


101,993



127.3
%


(97,936
)


(48.9
)%Operating loss


(77,644
)


(63.5
)%


(21,862
)


(27.3
)%


55,782



71.8
%Interest income (expense), net


301



0.2
%


(1,452
)


(1.8
)%


(1,753
)


(582.4
)%Other income


77



0.1
%


53



0.0
%


(24
)


(31.2
)%Loss before (benefit from) provision for income taxes


(77,266
)


(63.2
)%


(23,261
)


(29.1
)%


54,005



(69.8
)%(Benefit from) provision for income taxes


(10,680
)


(8.8
)%


73



(0.1
)%


(10,607
)


(99.3
)%Loss from continuing operations


(66,586
)


(54.4
)%


(23,334
)


(29.2
)%


43,252



(64.9
)%Loss from discontinued operations of Reflections Interactive
    Ltd, net of tax provision of $7,559 and $0, respectively


(3,125
)


(2.6
)%


(312
)


(0.4
)%


(2,813
)


(90.0
)%Net loss

$
(69,711
)


(57.0
)%

$
(23,646
)


(29.6
)%

$
46,065



(66.0
)%   Net
    Revenues
    Years Ended March 31,


(Decrease)2007


2008Publishing

$
104,650


$
69,755


$
(34,895
)Distribution


17,635



10,376



(7,259
)Total

$
122,285


$
80,131


$
(42,154
)  29




---



##### 



Publishing Platform Mix2007


2008PlayStation 2


35.5
%


33.2
%PC


27.2
%


28.3
%Xbox 360


12.1
%


0.8
%Nintendo Wii


8.4
%


18.6
%PlayStation Portable


7.6
%


11.9
%Game Boy Advance


3.9
%


0.0
%Plug and Play


2.8
%


0.0
%Nintendo DS


2.0
%


6.8
%Xbox


0.3
%


0.4
%Game Cube


0.2
%


0.0
%Total


100.0
%


100.0
%     
    Net publishing product sales for the fiscal 2008 year end
    were driven by new releases of Dragon Ball Z Tenkaichi 3 (Wii
    and PS2), Godzilla Unleashed (Wii, PS2, and DS), Jenga
    (Wii and DS)and The Witcher (PC). These titles
    comprised approximately 50.7% of our net publishing product
    sales. Fiscal 2007 sales were driven by the new releases of
    Test Drive Unlimited (Xbox 360), Neverwinter Nights 2 (PC)
    and DragonBall Z Tenkaichi 2 (PS2 and Wii).
    International royalty income decreased by $2.6 million as
    fiscal 2008 had few releases which sold internationally as
    compared to the prior period which contained the majority of its
    income from the release of Test Drive Unlimited in
    September 2006.
    The year ended March 31, 2008 contains a one-time license
    payment of $4.0 million related to the sale of Hasbro, Inc.
    publishing and licensing rights which IESA sold back to Hasbro
    in July 2007. We anticipate the sale of these rights will reduce
    the amount of immediate license opportunities we have.
    The overall average unit sales price (ASP) of the
    publishing business increased from $20.80 in the prior
    comparable year versus $22.08 in the current year as the current
    period contained a larger percentage of higher priced next
    generation console releases.    Cost of
    Goods Sold
    
    a lower mix of higher cost third-party distributed product sales
    as a percentage of net revenues (12.9% in fiscal 2008 compared
    with 14.4% in fiscal 2007), and 30




---



##### 




    a higher average sales price on our publishing products in the
    current period driven by new release sales on next generation
    hardware, offset by
    an additional $1.2 million royalty reserve related to the
    FUNimation dispute.    Research
    and Product Development Expenses
    
    decreased spending of $7.1 million at our related party
    development studios as we had nominal spend in development at
    related party studios, and
    decreased salaries and other overhead of $6.9 million as we
    no longer own internal development studios, offset by
    a write-off of licenses which will no longer be exploited of
    approximately $2.0 million, and
    increased spending of $1.1 million for projects with
    external developers, as we completed certain development
    projects.  Selling
    and Distribution Expenses
    
    decreased spending on advertising of $2.7 million, and
    savings in salaries and related overhead costs due to reduced
    headcount resulting from studio closure and personnel
    reductions, offset by
    an additional $1.6 million expense related to minimum
    advertising commitment shortfalls to be paid to FUNimation.  General
    and Administrative Expenses
    
    a reduction in salaries and other overhead costs of
    $2.4 million due to studio closures and other personnel
    reductions.  Restructuring
    Expenses
   31




---



##### 



Gain on
    Sale of Intellectual Property
  Stuntman
  Gain on
    Sale of Development Studio Assets
    Depreciation
    and Amortization
    
    savings in depreciation related to the closure of offices and
    reduction of staffing and associated overhead.  Interest
    Income (Expense), net
    (Benefit
    from) Provision for Income Taxes
      (Loss)
    from Discontinued Operations of Reflections Interactive Ltd.,
    net of tax
  Benefit from Income
    Taxes
 32




---



##### 



Liquidity
    and Capital Resource
  Overview
        Cash
    Flows
  March 31,


March 31,2007


2008(in thousands)Cash

$
7,603


$
11,087Working capital (deficit)

$
1,213


$
(12,796
)   Year Ended


Year EndedMarch 31,


March 31,2007


2008(in thousands)Cash (used in) operating activities

$
(36,939
)

$
(15,908
)Cash provided by investing activities


29,757



452Cash (used in) provided by financing activities


(216
)


18,928Effect of exchange rates on cash


53



12Net (decrease) increase in cash

$
(7,345
)

$
3,484  33




---



##### 




    proceeds of $21.6 million received in connection with the
    sale of our Reflections studio,
    proceeds of $9.0 million from the sale of the Stuntmanintellectual property,
    and proceeds of $1.6 million from the sale of our Shiny
    studio in the current period                   34




---



##### 



Selected
    Balance Sheet Accounts
  Accounts
    Receivable, net
    Inventories,
    net
    Due
    from Related Parties/Due to Related Parties
    Prepaid
    and other current asset
    Accounts
    Payable
    Long-term
    liabilities and Property and Equipment
    NASDAQ
    Delisting Notice
   35




---



##### 



®
  Credit
    Facilities
         36




---



##### 



Waiver,
    Consent and Fourth Amendment
      IESA
    Credit Agreement
    Effect of
    Relationship with IESA on Liquidity
    Recent
    Accounting Pronouncements
     37




---



##### 



FAS 142-3, (FSP 142-3). FSP 142-3 FSP 142-3
        07-1, No. 99-19,
 38




---



##### 



No. 07-1
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Foreign
    Currency Exchange Rates
   39




---



##### 



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA     
 PageATARI, INC. AND SUBSIDIARIESReports of Independent Registered Public Accounting Firms


F-1Consolidated Balance Sheets as of March 31, 2007 and
    March 31, 2008


F-3Consolidated Statements of Operations for the Years Ended
    March 31, 2007, and 2008


F-4Consolidated Statements of Cash Flows for the Years Ended
    March 31, 2007, and 2008


F-5Consolidated Statements of Stockholders Equity and
    Comprehensive Income (Loss) for the Years Ended March 31,
    2007, and 2008


F-7Notes to the Consolidated Financial Statements


F-8 to F-45FINANCIAL STATEMENT SCHEDULESchedule II  Valuation and Qualifying Accounts
    for the Years Ended March 31, 2007, and 2008


F-46  40




---



##### 



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e) Rules 13a-15(f) 15d-15(f))
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
  
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of our assets;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.  Internal Control  Integrated Framework
    Internal Control 
    Integrated Framework
  Changes
    in Internal Control over Financial Reporting
  Form 10-K
 41




---



##### 




    We implemented a formal communication procedure between us and
    IESA. This procedure provides a formal communication on a
    quarterly basis between IESA and us disclosing any transactions
    that may have an effect on our financial statements.
    We continued to expand our outsourcing of income tax work and
    have centralized all work to one firm with both income tax and
    FASB 109 expertise.      ITEM 9B.
    OTHER
    MATTERS         PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE  Form 10-K.
  ITEM 11.
    EXECUTIVE
    COMPENSATION   42




---



##### 



Form 10-K.
  ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.  Form 10-K.
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.  Form 10-K.
  ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES  Form 10-K.
 PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  (a)


The following documents are filed as part of this Report:(i) Financial Statements.  See Index to Financial
    Statements at Item 8 of this Report.(ii) Financial Statement Schedule.  See Index to Financial
    Statements at Item 8 of this Report.(iii) Exhibits2
.1

Agreement and Plan of Merger, dated April 30, 2008, among us,
    Infogrames Entertainment S.A. and Irata Acquisition Corp. is
    incorporated herein by reference to Exhibit 2.1 to our Current
    Report on Form 8-K filed on May 5, 2008.3
.1

Restated Certificate of Incorporation is incorporated by
    reference to Exhibit 3.1 to our Annual Report on Form 10-K
    for the year ended March 31, 2006.3
.2

Certificate of Amendment of Restated Certificate of
    Incorporation as filed with the Secretary of State of the State
    of Delaware on January 3, 2007 is incorporated herein by
    reference to Exhibit 99.1 to our Current Report on Form 8-K
    filed on January 9, 2007.3
.3

Amended and Restated By-laws are incorporated herein by
    reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q
    for the quarter ended June 30, 1998.3
.4

Amendment No. 1 to Amended and Restated By-laws is incorporated
    by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q
    for the quarter ended December 31, 2003.3
.5

Amendment No. 2 to Amended and Restated By-laws is incorporated
    by reference to Exhibit 3.1 to our Current Report on Form 8-K
    filed on July 28, 2005.3
.6

Amendment No. 3 to Amended and Restated By-laws is incorporated
    by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q
    for the quarter ended December 31, 2007.4
.1

Specimen form of stock certificate of Common Stock is
    incorporated herein by reference to our Registration Statement
    on Form S-1 (File No. 333-14441) initially filed with the SEC on
    October 20, 1995, and all amendments thereto. 43




---



##### 



4
.2

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 us is incorporated herein by
    reference to an exhibit filed as a part of our Registration
    Statement on Form S-1 filed October 20, 1995.4
.3

Second Amended and Restated Registration Rights Agreement, dated
    as of October 2, 2000, between California U.S. Holdings, Inc.
    and us is incorporated herein by reference to Exhibit 4.6 of our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.1

Global Memorandum of Understanding Regarding Restructuring of
    Atari, Inc., dated December 2007, by and between us and
    Infogrames Entertainment S.A. is incorporated by reference to
    Exhibit 10.1 of our Current Report on Form 8-K filed on December
    10, 2007.10
.2

Distribution Agreement between Infogrames Entertainment SA,
    Infogrames Multimedia SA and us, 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
.3

Addendum to Distribution Agreement between Infogrames
    Entertainment SA and us, dated as of December 16, 1999, is
    incorporated herein by reference to Exhibit 10.26a to our Annual
    Report on Form 10-K for the fiscal year ended June 30, 2001.10
.4

Amendment to Distribution Agreement between Infogrames
    Entertainment SA and us dated as of July 1, 2000, is
    incorporated by reference to Exhibit 10.24a to our Transitional
    Report on Form 10-K for the transition period March 31, 2000 to
    June 30, 2000.10
.5

Distribution Agreement between Infogrames Entertainment SA and
    us, dated October 2, 2000, as supplemented on November 12, 2002
    is incorporated by reference to Exhibit 10.4 to our Annual
    Report on Form 10-K for the fiscal year ended March 31, 2005.10
.6

Short Form Distribution Agreement, dated December 2007, by and
    among us, Infogrames Entertainment S.A., Atari Europe SAS and
    Atari Interactive Inc., is incorporated by reference to Exhibit
    10.2 of our Current Report on Form 8-K filed on December 10,
    2007.10
.7

Agreement for Purchase and Sale of Assets, dated August 22,
    2005, between us and Humongous, Inc. is incorporated herein by
    reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q
    for the quarter ended September 30, 2005.10
.8

Letter Agreement, dated March 5, 2008, submitted to our Board of
    Directors summarizing the principal terms upon which Infogrames
    Entertainment S.A. and/or our affiliates would potentially
    acquire the remaining equity interests in us is incorporated
    herein by reference to Exhibit 99.2 to our Current Report on
    Form 8-K filed on March 7, 2008.10
.9

Stock Transfer Agreement, dated August 22, 2005, among us,
    Infogrames Entertainment S.A. and Atari Interactive, Inc.
    (English Translation) is incorporated herein by reference to
    Exhibit 10.3 to our Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2005.10
.10

Termination and Transfer of Assets Agreement, dated December 4,
    2007, by and among us, Infogrames Entertainment S.A. and Atari
    Interactive Inc. is incorporated by reference to Exhibit 10.4 of
    our Current Report on Form 8-K filed on December 10, 2007.10
.11

Liquidity Agreement, dated August 22, 2005, between us and
    Infogrames Entertainment S.A. incorporated by reference to
    Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2005.10
.12

Temporary Liquidity Facility Intercreditor Agreement, dated
    April 30, 2008, among us, Bluebay High Yield Investments
    (Luxembourg) S.A.R.L. and Infogrames Entertainment, S.A. is
    incorporated herein by reference to Exhibit 10.2 to our Current
    Report on Form 8-K filed on May 5, 2008.10
.13

Distribution Agreement, dated August 22, 2005, between us and
    Humongous, Inc. incorporated by reference to Exhibit 10.5 to our
    Quarterly Report on Form 10-Q for the quarter ended September
    30, 2005.10
.14

Management and Services Agreement, dated as of March 31, 2006,
    between Infogrames Entertainment S.A. and us, is incorporated
    herein by reference to Exhibit 10.9 to our Annual Report on Form
    10-K for the year ended March 31, 2006.10
.15

Services Agreement, dated as of March 31, 2006, between us and
    Infogrames Entertainment S.A. and its subsidiaries, is
    incorporated herein by reference to Exhibit 10.10 to our Annual
    Report on Form 10-K for the year ended March 31, 2006. 44




---



##### 



10
.16

QA Services Agreement, dated December 2007, by and among us,
    Infogrames Entertainment S.A., Atari Interactive, Inc. and
    Humongous, Inc. is incorporated by reference to Exhibit 10.3 of
    our Current Report on Form 8-K filed on December 10, 2007.10
.17

Intercompany Services Agreements, dated December 2007, by and
    among us, Infogrames Entertainment S.A., Atari Interactive, Inc.
    and Humongous, Inc. is incorporated by reference to Exhibit 10.5
    of our Current Report on Form 8-K filed on December 10, 2007.10
.18

Production Services Agreement, dated as of March 31, 2006,
    between us and Infogrames Entertainment S.A. and its
    subsidiaries, is incorporated herein by reference to Exhibit
    10.11 to our Annual Report on Form 10-K for the year ended March
    31, 2006.10
.19

Warehouse Services Contract, dated March 2, 1999, by and between
    us and Arnold Transportation Services, Inc. t/d/b/a Arnold
    Logistics is incorporated herein by reference to Exhibit 10.50
    to our Annual Report on Form 10-K for the fiscal year ended
    March 31, 1999.10
.20

Loan and Security Agreement, dated as of May 13, 2005, among us,
    as Borrower, and HSBC Business Credit (USA) Inc., as Lender is
    incorporated by reference to Exhibit 10.20 to our Annual Report
    on Form 10-K for the year ended March 31, 2005.10
.21

First Amendment to Loan and Security Agreement, dated as of June
    30, 2005, between us and HSBC Business Credit (USA) Inc. is
    incorporated herein by reference Exhibit 10.1 to our Quarterly
    Report on Form 10-Q for the quarter ended September 30, 2005.10
.22*

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 our Registration Statement on Form S-1, filed December
    6, 1996.10
.23*

The 1997 Stock Incentive Plan is incorporated herein by
    reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q
    for the quarter ended June 30, 1997.10
.24*

The 1997 Stock Incentive Plan (as amended on June 17, 1998) is
    incorporated herein by reference to Exhibit 10.5 to our
    Quarterly Report on Form 10-Q for the quarter ended June 30,
    1998.10
.25*

The 2000 Stock Incentive Plan is incorporated herein by
    reference to Appendix B to our proxy statement dated June 29,
    2000.10
.26*

Amendment No. 1 to 2000 Stock Incentive Plan is incorporated
    herein by reference to Exhibit A to our Information Statement
    dated November 27, 2000.10
.27*

Third Amendment to the Atari, Inc. 2000 Stock Incentive Plan is
    incorporated herein by reference to Exhibit 10.1 to our
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    September 30, 2004.10
.28*

Atari, Inc. 2005 Stock Incentive Plan is incorporated by
    reference to Exhibit 10.10 to our Quarterly Report on Form 10-Q
    for the quarter ended September 30, 2005.10
.29*

Form of 2005 Stock Incentive Plan Option Award Agreement is
    incorporated herein by reference to Exhibit 10.3 to our
    Quarterly Report on Form 10-Q for the quarter ended December 31,
    2005.10
.30*

Form of 2005 Stock Incentive Plan Restricted Stock Award
    Agreement is incorporated herein by reference to Exhibit 10.4 to
    our Quarterly Report on Form 10-Q for the quarter ended December
    31, 2005.10
.31*

The 1998 Employee Stock Purchase Plan is incorporated herein by
    reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q
    for the quarter ended June 30, 1998.10
.32*

Description of Registrants Annual Incentive Plan for
    fiscal 2008.**10
.33*

Employment Agreement with Bruno Bonnell, dated as of July 1,
    2004 and effective as of April 1, 2004, is incorporated herein
    by reference to Exhibit 10.1 to our Quarterly Report on Form
    10-Q for the fiscal quarter ended June 30, 2004.10
.34*

Amendment No. 1 to Employment Agreement, dated as of November
    23, 2005, between us and Bruno Bonnell is incorporated herein by
    reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q
    for the quarter ended December 31, 2005.10
.35*

Termination and General Release Agreement, dated October 15,
    2004, by and between us and Denis Guyennot is incorporated
    herein by reference to Exhibit 10.3 to our Quarterly Report on
    Form 10-Q for the quarter ended December 31, 2004.10
.36*

Employment Agreement, dated September 1, 2006, by and between us
    and David R. Pierce is incorporated herein by reference to
    Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2006. 45




---



##### 



10
.37*

Amendment to Employment Agreement, dated May 1, 2007, between
    David Pierce and Atari, Inc., is incorporated herein by
    reference to Exhibit 10.1 to our Current Report on Form 8-K
    filed on May 2, 2007.10
.38*

Employment Agreement, dated March 31, 2008, between us and Jim
    Wilson is incorporated by reference to Exhibit 10.1 to our
    Current Report on Form 8-K filed on April 1, 2008.10
.39*

Letter Agreement, dated January 29, 2008, between us and Arturo
    Rodriguez is incorporated by reference to Exhibit 99.1 to our
    Current Report on Form 8-K filed on February 4, 2008.10
.40*

Consulting Agreement between us and Ann Kronen, dated as of
    November 8, 2006, is incorporated herein by reference to Exhibit
    10.2 to our Quarterly Report on Form 10-Q for the quarter ended
    December 31, 2006.10
.41

Compromise Agreement, dated August 12, 2005, by and among us,
    Reflections Interactive Limited and Martin Lee Edmondson is
    incorporated herein by reference to Exhibit 10.1 to our
    Amendment No. 1 to Registration Statement on Form S-3 (File No.
    333-129099).10
.42

Licensed Publisher Agreement between us and Sony Computer
    Entertainment America, Inc., dated January 19, 2003, is
    incorporated herein by reference to Exhibit 10.62 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.43

PlayStation®
    2 Licensed Publisher Agreement between us and Sony Computer
    Entertainment America, Inc., dated April 1, 2000, as amended is
    incorporated by reference to Exhibit 10.45 to our Annual Report
    on Form 10-K for the year ended March 31, 2005.10
.44

Xbox®
    Publisher License Agreement between us and Microsoft
    Corporation, dated April 18, 2000, is incorporated herein by
    reference to Exhibit 10.63 to our Registration Statement on Form
    S-2 (File No. 333-107819) initially filed with the SEC
    on August 8, 2003, and all amendments thereto.***10
.45

Sublicense Agreement between us and Funimation Productions,
    Ltd., dated October 27, 1999, is incorporated herein by
    reference to Exhibit 10.64 to our Registration Statement on Form
    S-2 (File No. 333-107819) initially filed with the SEC
    on August 8, 2003, and all amendments thereto.***10
.46

Amendment One to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated April 20, 2002, is
    incorporated herein by reference to Exhibit 10.65 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.47

Amendment Two to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated June 15, 2002, is
    incorporated herein by reference to Exhibit 10.66 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.48

Amendment Three to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated October 15, 2002, is
    incorporated herein by reference to Exhibit 10.67 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.49

Amendment Four to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated November 13, 2002, is
    incorporated herein by reference to Exhibit 10.68 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.50

Amendment Five to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated February 21, 2003, is
    incorporated herein by reference to Exhibit 10.69 to our
    Registration Statement on Form S-2 (File No. 333-107819)
    initially filed with the SEC on August 8, 2003, and all
    amendments thereto.10
.51

Amendment Six to the Sublicense Agreement between us and
    Funimation Productions, Ltd., dated August 11, 2003, is
    incorporated herein by reference to Exhibit 10.83 to our Annual
    Report on
    Form 10-K
    for the year ended March 31, 2004.10
.52

Agreement Regarding Satisfaction of Debt and License Amendment
    among us, Infogrames Entertainment S.A. and California U.S.
    Holdings, Inc., dated September 4, 2003, is incorporated herein
    by reference to Exhibit 10.70 to our Registration Statement on
    Form S-2 (File No. 333-107819) initially filed with the SEC on
    August 8, 2003, and all amendments thereto. 46




---



##### 



10
.53

Amended Trademark License Agreement between us and Infogrames
    Entertainment S.A., dated September 4, 2003, is incorporated
    herein by reference to Exhibit 10.71 to our Registration
    Statement on Form S-2 (File No. 333-107819) initially filed with
    the SEC on August 8, 2003, and all amendments thereto.10
.54

Amendment No. 1 Trademark License Agreement between us, Atari
    Interactive, Inc. and Infogrames Entertainment S.A. is
    incorporated herein by reference to Exhibit 10.6 to our
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2005.10
.55

Trademark License Of The Test Drive Franchise, dated November 8,
    2007, between us and Infogrames Entertainment S.A. is
    incorporated by reference to Exhibit 10.2 of our Current Report
    on Form 8-K filed on November 13, 2007.10
.56

General Intellectual Property and Proprietary Rights (Other Than
    Trademark Rights) License Of The Test Drive Franchise, dated
    November 8, 2007, between us and Infogrames Entertainment S.A.
    is incorporated by reference to Exhibit 10.3 of our Current
    Report on Form 8-K filed on November 13, 2007.10
.57

Letter Agreement, dated July 18, 2007, between us and Infogrames
    Europe SA is incorporated by reference to Exhibit 10.61 to our
    Quarterly Report on Form 10-Q for the quarter ended December 31,
    2007.10
.58

Letter Agreement, dated October 1, 2007, between us, Midland
    National Life Insurance Company, North American Company for
    Life and Health Insurance and Guggenheim Corporate Funding, LLC
    is incorporated by reference to Exhibit 10.1 of our Current
    Report on Form 8-K filed on October 25, 2007.10
.59

Obligation Assignment and Securing Agreement, dated as of
    November 3, 2004, by and among us, Infogrames Entertainment SA,
    Atari Interactive, Inc., Atari Europe SAS, and Paradigm
    Entertainment, Inc. is incorporated herein by reference to
    Exhibit 10.1 of our Quarterly Report on Form 10-Q for the
    quarter ended December 31, 2004.10
.60

Secured Promissory Note of Atari Interactive, Inc. in the
    aggregate amount of $23,058,997.19 payable us is incorporated
    herein by reference to Exhibit 10.2 of our Quarterly Report on
    Form 10-Q for the quarter ended December 31, 2004.10
.61

Promissory Note of Atari Interactive, Inc., in the aggregate
    amount of $5,122,625 payable to us, is incorporated herein by
    reference to Exhibit 10.86 to our Annual Report on Form 10-K for
    the year ended March 31, 2004.10
.62

Promissory Note of Atari Interactive, Inc., in the aggregate
    amount of $2,620,280 payable to us, is incorporated herein by
    reference to Exhibit 10.87 to our Annual Report on Form 10-K for
    the year ended March 31, 2004.10
.63

Promissory Note of Paradigm Entertainment, Inc., in the
    aggregate amount of $828,870 payable to us, is incorporated
    herein by reference to Exhibit 10.88 to our Annual Report on
    Form 10-K for the year ended March 31, 2004.10
.64

Agreement Regarding Issuance of Shares, dated September 15,
    2005, between us and Infogrames Entertainment S.A. is
    incorporated herein by reference to Exhibit 10.7 to our
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2005.10
.65

GT Interactive UK Settlement of Indebtedness Agreement, dated as
    of September 15, 2005, between us and Atari UK, Infogrames
    Entertainment S.A. and all of its subsidiaries is incorporated
    herein by reference to Exhibit 10.8 to our Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2005.10
.66

Securities Purchase Agreement, dated September 15, 2005, between
    us and CCM Master Qualified Fund, Ltd. is incorporated herein by
    reference to Exhibit 10.1 to our Amendment No. 1 to Registration
    Statement on Form S-3 (File No. 333-129098) filed on November
    18, 2005.10
.67

Securities Purchase Agreement, dated September 15, 2005, between
    us and Sark Master Fund, Ltd. is incorporated herein by
    reference to Exhibit 10.2 to our Amendment No. 1 to Registration
    Statement on Form S-3 (File No. 333-129098) filed on November
    18, 2005.10
.68

Asset Purchase Agreement, dated July 13, 2006, between us and
    Reflections Interactive Ltd as the sellers and Ubisoft Holdings,
    Inc. and Ubisoft Entertainment Ltd as the purchasers, as amended
    by Amendment No. 1 dated August 3, 2006 is incorporated herein
    by reference to Exhibit 10.1 to our Quarterly Report on Form
    10-Q for the quarter ended September 30, 2006. 47




---



##### 



10
.69

Credit Agreement, dated November 3, 2006, among Atari, Inc, the
    Lenders Party Hereto, and Guggenheim Corporate Funding, LLC, as
    Administrative Agent is incorporated herein by reference to
    Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
    quarter ended December 31, 2006.10
.70

Credit Agreement, dated April 30, 2008, between us and
    Infogrames Entertainment S.A., as Lender, is incorporated herein
    by reference to Exhibit 10.1 to our Current Report on Form 8-K
    filed on May 5, 2008.10
.71

Waiver and Amendment to Credit Agreement, dated October 23,
    2007, between us and Bluebay High Yield Investments (Luxembourg)
    S.A.R.L. is incorporated by reference to Exhibit 10.2 of our
    Current Report on Form 8-K filed on October 25, 2007.10
.72

Waiver, Consent and Second Amendment to Credit Agreement, dated
    November 6, 2007, between us and Bluebay High Yield Investments
    (Luxembourg) S.A.R.L. is incorporated by reference to Exhibit
    10.1 of our Current Report on Form 8-K filed on November 13,
    2007.10
.73

Waiver, Consent and Third Amendment to Credit Agreement, dated
    December 4, 2007, between us and Bluebay High Yield Investments
    (Luxembourg) S.A.R.L. is incorporated by reference to Exhibit
    10.6 of our Current Report on Form 8-K filed on December 10,
    2007.10
.74

Waiver, Consent and Fourth Amendment to Credit Agreement, dated
    April 30, 2008, between us and Bluebay High Yield Investments
    (Luxembourg) S.A.R.L. is incorporated herein by reference to
    Exhibit 10.3 to our Current Report on Form 8-K filed on May 5,
    2008.10
.75

Agreement of Lease, dated June 21, 2006, between us and Fifth
    and 38th LLC is incorporated by reference to
    Exhibit 10.58 to our Annual Report on Form 10-K for
    the year ended March 31,2007.10
.76

Partial Surrender of Lease Agreement and Modification Agreement,
    dated August 14, 2007, between us and W2007 417 Fifth
    Realty, LLC is incorporated by reference to Exhibit 10.59 to our
    Quarterly Report on Form 10-Q for the quarter ended December 31,
    2007.10
.77

Amendment to Partial Surrender of Lease Agreement and
    Modification Agreement, dated November 27, 2007, between us and
    W2007 417 Fifth Realty, LLC is incorporated by reference to
    Exhibit 10.60 to our Quarterly Report on Form 10-Q for the
    quarter ended December 31, 2007.10
.78

Written Consent of the Majority Stockholder of Atari, Inc.,
    dated October 5, 2007, by California U.S. Holdings, Inc. is
    incorporated by reference to Exhibit 99.1 of our Current Report
    on Form 8-K filed on October 9, 2007.10
.79*

Employment Agreement, dated May 17, 2008, between Timothy
    J. Flynn and us.**21
.1

List of Subsidiaries.**31
.1

Chief Executive Officer Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.**31
.2

Acting Chief Financial Officer Certification Pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002.**32
.1

Certification by the Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.32
.2

Certification by the Acting Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.99
.1

Licensed PSP Publisher Agreement by and between us and Sony
    Computer Entertainment America, Inc., dated March 23, 2005, for
    PlayStation®
    Portable is incorporated by reference to Exhibit 99.1 to our
    Annual Report on Form 10-K for the year ended March 31, 2005.99
.2

Amendment to the
    Xbox®
    Publisher Licensing Agreement, dated March 1, 2005 is
    incorporated by reference to Amendment No. 2 to our Annual
    Report on Form 10-K/A for the year ended March 31, 2005.99
.3

Confidential License Agreement for Nintendo
GameCubetm,
by and between Nintendo of America, Inc. and us effective March
29, 2002 is incorporated by reference to Exhibit 99.3 to our
Annual Report on Form 10-K for the year ended March 31, 2005.99
.4

First Amendment to Confidential License Agreement for Nintendo
GameCubetm,
by and between Nintendo of America, Inc. and us effective March
29, 2002 is incorporated herein by reference to Exhibit 99.1 to
our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005. 48




---



##### 



99
.5

Xbox®
    360 Publisher License Agreement between us and Microsoft
    Licensing GP, effective February 17, 2006, is incorporated
    herein by reference to Exhibit 99.5 to our Annual Report on Form
    10-K for the year ended March 31, 2006.99
.6

Confidential License Agreement for Nintendo DS (Western
    Hemisphere), by and between Nintendo of America, Inc. and us
    effective October 14, 2005, is incorporated herein by reference
    to Exhibit 99.6 to our Annual Report on Form 10-K for the year
    ended March 31, 2006.     Exhibit indicated with an * symbol is a management contract or
    compensatory plan or arrangement.**
    
    Exhibit indicated with an ** symbol is filed herewith.***
    
    All immaterial amendments/extensions to this agreement were
    filed as an exhibit 99 in our Quarterly Report for the
    respective period.
    
    Portions of this exhibit have been redacted pursuant to a
    confidential treatment request filed with the SEC.Exhibit indicated with a  is furnished herewith.A copy of any of the exhibits included in the Annual Report on
    Form 10-K
    as amended, may be obtained by written request to Atari, Inc.
    upon payment of a fee of $0.10 per page to cover costs. Requests
    should be sent to Atari, Inc. at the address set forth on the
    front cover, attention Director, Investor Relations. 49




---



##### 



SIGNATURES      By:
    /s/  JAMES
    WILSON   Title:
    President and Chief Executive Officer     Signature

Title(s)

Date/s/  JAMES
    WILSONJames
    Wilson

President and Chief Executive Officer
    (principal executive officer)

June 30, 2008/s/  Arturo
    RodriguezArturo
    Rodriguez

Acting Chief Financial Officer,
    Vice President and Controller
    (principal financial and accounting officer)

June 30, 2008/s/  Eugene
    I. DavisEugene
    I. Davis

Chairman of the
    Board of Directors

June 30, 2008Evence-Charles
    Coppee

Director

June 30, 2008/s/  Wendell
    H. Adair, Jr.Wendell
    H. Adair, Jr.

Director

June 30, 2008/s/  Bradley
    E. ScherBradley
    E. Scher

Director

June 30, 2008/s/  James
    B. SheinJames
    B. Shein

Director

June 30, 2008  50




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
 REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                  F-1




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                    F-2




---



##### 



ATARI,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    BALANCE SHEETS  March 31,


March 31,2007


2008(in thousands,except share data)ASSETSCurrent assets:Cash

$
7,603


$
11,087Accounts receivable, net of allowances of $14,148 and $1,912 at
    March 31,2007 and March 31, 2008, respectively


6,473



640Inventories, net


8,843



4,276Due from related parties (Note 13)


1,799



885Prepaid expenses and other current assets


10,229



8,188Assets of discontinued operations (Note 19)


645



Total current assets


35,592



25,076Property and equipment, net of accumulated depreciation of
    $30,945 and $21,813 at March 31, 2007 and 2008, respectively


4,217



6,313Security deposits


1,940



1,373Other assets


1,070



671Total assets

$
42,819


$
33,433LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)Current liabilities:Accounts payable

$
11,013


$
5,378Accrued liabilities


13,381



14,472Royalties payable


4,282



2,825Due to related parties (Note 13)


5,703



1,197Credit facility (Note 14)






14,000Total current liabilities


34,379



37,872Due to related parties  long term (Note 13)


1,912



3,576Related party license advance






5,296Long-term liabilities


3,434



7,101Total liabilities


39,725



53,845Commitments and contingencies (Note 15)Stockholders equity (deficiency):Preferred stock, $0.01 par value, 5,000,000 shares
    authorized, none issued or outstanding






Common stock, $0.10 par value, 30,000,000 shares
    authorized, 13,477,920 shares issued and outstanding at
    March 31, 2007 and 2008


1,348



1,348Additional paid-in capital


760,527



760,712Accumulated deficit


(761,299
)


(784,945
)Accumulated other comprehensive income


2,518



2,473Total stockholders equity (deficiency)


3,094



(20,412
)Total liabilities and stockholders equity (deficiency)

$
42,819


$
33,433    F-3




---



##### 



ATARI,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years EndedMarch 31,2007


2008(in thousands,except per share data)Net revenues

$
122,285


$
80,131Costs, expenses, and income:Cost of goods sold


72,629



40,989Research and product development expenses


30,077



13,599Selling and distribution expenses


25,296



19,411General and administrative expenses


21,788



17,672Restructuring expenses


709



6,541Impairment of goodwill


54,129



Gain on sale of intellectual property


(9,000
)


Gain on sale of development studio assets


(885
)


Atari trademark license expense


2,218



2,218Depreciation and amortization


2,968



1,563Total costs, expenses, and income


199,929



101,993Operating loss


(77,644
)


(21,862
)Interest income (expense), net


301



(1,452
)Other income


77



53Loss from continuing operations before (benefit from) provision
    for income taxes


(77,266
)


(23,261
)(Benefit from) provision for income taxes


(10,680
)


73Loss from continuing operations


(66,586
)


(23,334
)Loss from discontinued operations of Reflections Interactive
    Ltd, net of tax provision of $7,559 and $0, respectively


(3,125
)


(312
)Net (loss)

$
(69,711
)

$
(23,646
)Basic and diluted net loss per share:Loss from continuing operations

$
(4.94
)

$
(1.73
)Loss from discontinued operations of Reflections Interactive
    Ltd, net of tax


(0.23
)


(0.02
)Net loss

$
(5.17
)

$
(1.75
)Basic weighted average shares outstanding


13,477



13,478Diluted weighted average shares outstanding


13,477



13,478      F-4




---



##### 



ATARI,
    INC. AND SUBSIDIARIES



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years EndedMarch 31,2007


2008(in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(69,711
)

$
(23,646
)Adjustments to reconcile net loss to net cash (used in)
    operating activities:Loss from discontinued operations of Reflections Interactive Ltd


3,125



312Noncash tax benefit included in continuing operations associated
    with tax provision of discontinued operations of Reflections
    Interactive Ltd


(7,559
)


Escrow receivable associated with sale of Reflections
    Interactive Ltd


626



Impairment of goodwill


54,129



Write-off of acquired intangible and other web-related assets


2,401



Gain on sale of intellectual property


(9,000
)


Gain on sale of development studio assets


(885
)


Adjustment for noncash gain on sale of development studio assets


200



Stock-based compensation expense


1,587



185Atari trademark license expense


2,218



2,218Depreciation and amortization


2,968



1,563Related party allocation of executive resignation agreement


771



Accrued interest on related party license






296Accrued interest


1



192Amortization of deferred financing fees


202



705Recognition of deferred income


(328
)


(77
)Write-off of property and equipment






11Gain on sale of property and equipment


(74
)


Noncash income on cash collateralized security deposit


(11
)


(5
)Changes in operating assets and liabilities:Receivables, net


5,616



5,832Inventories, net


11,243



4,566Due from related parties


2,893



914Due to related parties


(4,561
)


(5,062
)Prepaid expenses and other current assets


2,532



2,113Accounts payable


(13,672
)


(5,639
)Accrued liabilities


(7,316
)


673Royalties payable


(9,186
)


(1,457
)Long-term deferred tax liability


(2,123
)


Other long-term liabilities


1,852



719Other assets


2,949



(655
)Net cash (used in) continuing operating activities


(29,113
)


(16,242
)Net cash (used in) provided by discontinued operations


(7,826
)


334Net cash (used in) operating activities


(36,939
)


(15,908
) F-5




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Years EndedMarch 31,2007


2008(in thousands)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of intellectual property


9,000



Proceeds from sale of development studio assets


1,550



Purchase of acquired intangible assets


(1,737
)


(Increase) decrease in restricted security deposit
    collateralizing letter of credit


(1,764
)


859Purchases of property and equipment


(837
)


(407
)Proceeds from sale of property and equipment


179



Net cash provided by continuing investing activities


6,391



452Net cash provided by discontinued operations


23,366



Net cash provided by investing activities


29,757



452CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under third party credit facility


15,000



14,000Payments under third party credit facility


(15,000
)


Proceeds from exercise of stock options


4



Proceeds from related party license advance






5,000Payments under capitalized lease obligation


(220
)


(72
)Net cash (used in) provided by continuing financing activities


(216
)


18,928Net cash provided by discontinued operations






Net cash (used in) provided by financing activities


(216
)


18,928Effect of exchange rates on cash


53



12Net (decrease) increase in cash


(7,345
)


3,484Cash  beginning of fiscal year


14,948



7,603Cash  end of fiscal year

$
7,603


$
11,087SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest

$
249


$
552Cash paid for taxes

$



$
72Income tax refunds

$
1,047


$
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING
    ACTIVITIES:Consideration accrued for purchase of capitalized licenses

$
1,816


$
3,400Consideration accrued for purchase of acquired intangible assets

$
554


$
Capitalization of leasehold improvements funded by landlord

$
1,217


$
3,263    F-6




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    (DEFICIENCY) AND
    COMPREHENSIVE INCOME (LOSS)
    For the Years Ended March 31, 2007 and 2008  AccumulatedCommon





Additional





OtherStock


Common


Paid-In


Accumulated


ComprehensiveShares


Stock


Capital


Deficit


Income


Total(in thousands)Balance, March 31, 2006


13,477


$
1,348


$
758,165


$
(688,730
)

$
2,429


$
73,212Adjustment to opening stockholders equity














(2,858
)






(2,858
)Comprehensive loss:Net loss














(69,711
)






(69,711
)Foreign currency translation adjustment


















89



89Total comprehensive loss






















(69,622
)Related party allocation of executive resignation agreement










771











771Exercise of stock options


1







4











4Stock-based compensation expense










1,587











1,587Balance, March 31, 2007


13,478



1,348



760,527



(761,299
)


2,518



3,094Comprehensive loss:Net loss














(23,646
)






(23,646
)Foreign currency translation adjustment


















(45
)


(45
)Total comprehensive loss






















(23,691
)Stock-based compensation expense










185











185Balance, March 31, 2008


13,478


$
1,348


$
760,712


$
(784,945
)

$
2,473


$
(20,412
)    F-7




---



##### 



ATARI,
    INC. AND SUBSIDIARIES



NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1 
    OPERATIONS
    AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Nature
    of Business
      Going
    Concern
    Driver
        Guggenheim
    Corporate Funding LLC Covenant Default
   F-8




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Removal
    of the Atari, Inc. Board of Directors
    Transfer
    of the Guggenheim credit facility to BlueBay High Yield
    Investments (Luxembourg) S.A.R.L.
      Test
    Drive Intellectual Property License
      Overhead
    Reduction
   F-9




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Global
    Memorandum of Understanding
  and/or
      Short
    Form Distribution Agreement
      per-unit
   F-10




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Termination
    and Transfer of Assets Agreement
        QA
    Services Agreement
      Intercompany
    Services Agreement
     F-11




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Agreement
    and Plan of Merger
          Credit
    Agreement
    Waiver,
    Consent and Fourth Amendment
         F-12




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        NASDAQ
    Delisting
          ®
  Staff
    Accounting Bulletin No. 108
  Form 10-Q.
 F-13




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    Inventory Write-off related to the lower-of-cost or market
    adjustment  During our year end financial closing, we determined that in
    previous periods we did not properly record a
    lower-of-cost-or-market adjustment to our inventory. As such, we
    have written off inventory based on facts and circumstances
    known and available at March 31, 2006 and prior. This
    inventory write-off of $0.7 million decreases the balances
    in opening retained earnings and inventory as of April 1,
    2006, as presented in the table below.  
    Deferred Tax Liability  During our year end financial closing, we determined that we had
    not established a deferred tax liability for the deferred tax
    consequences of a temporary difference that arose from a
    difference in the book and tax basis of goodwill. As such, we
    have adjusted our opening retained earnings for fiscal 2007.  Inventory


Deferred TaxWrite-off


Liability


TotalCumulative effect on inventory as of April 1, 2006

$
(735
)

$



$
(735
)Cumulative effect on long-term deferred tax liability as of
    April 1, 2006

$



$
(2,123
)

$
(2,123
)Cumulative effect on retained earnings as of April 1, 2006

$
(735
)

$
(2,123
)

$
(2,858
)   Principles
    of Consolidation
    Revenue
    recognition, sales returns, price protection, other customer
    related allowances and allowance for doubtful
    accounts
       F-14




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentration
    of Credit Risk
    Use of
    Estimates
    Cash
    Inventories
    Property
    and Equipment
    Useful LivesComputer equipment


3 yearsCapitalized computer software


3-5 yearsFurniture and fixtures


7 yearsMachinery and equipment


5 years     Fair
    Values of Financial Instruments
   F-15




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Lived
    Assets
    Research
    and Product Development Expenses
      Licenses
    Atari
    Trademark License
    Goodwill
    and Acquired Intangible Assets
   F-16




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      00-02, EITF 00-02 98-1,
  Advertising
    Expenses
    Income
    Taxes
    Foreign
    Currency Translation and Foreign Exchange Gains
    (Losses)
      Shipping,
    Handling and Warehousing Costs
   F-17




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
        FAS 142-3, (FSP 142-3). FSP 142-3 FSP 142-3
     F-18




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      07-1, No. 99-19, No. 07-1
  NOTE 2 
    STOCK-BASED
    COMPENSATION       F-19




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Year Ended March 31,2007


2008Research and product development expenses

$
865


$
9Selling and distribution expenses

$
88


$
(25
)General and administrative expenses

$
634


$
201     Year Ended March 31,2007


2008Anticipated volatility


81
%


74
%Dividend yield


0
%


0
%Expected term


4



4      F-20




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted AverageShares


Exercise Price(in thousands)Options outstanding at March 31, 2006


752


$
77.97Granted


628


$
7.28Exercised


(2
)

$
3.40Forfeited


(110
)

$
13.57Expired


(156
)

$
157.27Options outstanding at March 31, 2007


1,112


$
33.45Granted


737


$
1.55Exercised





$
0.00Forfeited


(465
)

$
10.07Expired


(457
)

$
59.12Options outstanding at March 31, 2008


927


$
7.18Options exercisable at March 31, 2008


126


$
39.45       Weighted


Weighted





WeightedNumber


Average


Average


Number


AverageRange of Exercise Price

Outstanding


Remaining Life


Exercise Price


Exercisable


Exercise Price$1.45  - 7.40


848



9.7


$
2.37



48


$
7.33$18.40 - 76.00


59



4.5


$
46.10



58


$
46.27$78.00 - 365.63


20



0.1


$
95.84



20


$
95.84927











126  F-21




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 3 
    NET
    INCOME (LOSS) PER SHARE    Years Ended March 31,2007


2008Basic and diluted earnings per share calculation:Loss from continuing operations

$
(66,586
)

$
(23,334
)Loss from discontinued operations of Reflections Interactive
    Ltd, net of tax provision of $7,559 and $0, respectively


(3,125
)


(312
)Net loss

$
(69,711
)

$
(23,646
)Basic weighted average shares outstanding


13,477



13,478Dilutive effect of stock options and warrants






Diluted weighted average shares outstanding


13,477



13,478Basic and diluted net (loss) per share:Loss from continuing operations

$
(4.94
)

$
(1.73
)Loss from discontinued operations of Reflections Interactive
    Ltd, net of tax


(0.23
)


(0.02
)Net loss

$
(5.17
)

$
(1.75
)     NOTE 4 
    STOCKHOLDERS
    EQUITY  Warrants
    CCM
    Master Qualified Fund, Ltd.
   F-22




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 5 
    CONCENTRATION
    OF CREDIT RISK    For the Year EndedMarch 31, 2007


March 31, 2007% of Accounts


% of NetReceivable


Revenues(1)Customer 1


34
%


19
%Customer 2


20
%


9
%54
%


28
%     For the Year EndedMarch 31, 2008


March 31, 2008% of Accounts


% of NetReceivable


Revenues(1)Customer 1


30
%


27
%Customer 2


17
%


7
%Customer 3


13
%


12
%Customer 4


11
%


19
%71
%


65
%     (1)
    
    Excluding international royalty, licensing, and other income.      NOTE 6 
    GOODWILL
    AND ACQUIRED INTANGIBLE ASSETS    March 31, 2007Beginning balance

$
66,398Sale of Humongous Entertainment studio


Sale of Reflections Interactive Ltd development studio


(12,269
)Impairment of goodwill


(54,129
)Ending balance

$
   Driver
 F-23




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        March 31,2007


2008Beginning balance

$



$
140Additions


2,291



Write-off


(2,151
)


Ending balance

$
140


$
140     NOTE 7 
    INVENTORIES,
    NET    March 31,


March 31,2007


2008Finished goods

$
8,226


$
3,847Return inventory


615



424Raw materials


2



5$
8,843


$
4,276  F-24




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 8 
    PREPAID
    EXPENSES AND OTHER CURRENT ASSETS    March 31,


March 31,2007


2008Licenses short-term

$
7,054


$
4,361Prepaid insurance


802



911Reflections escrow receivable


626



28Royalties receivable


495



494Deferred financing fees


209



380Taxes receivable


90



156Receivable from landlord






448Trade deposits and other professional retainers






997Other prepaid expenses and current assets


953



413$
10,229


$
8,188   NOTE 9 
    PROPERTY
    AND EQUIPMENT, NET    March 31,


March 31,2007


2008Capitalized computer software

$
18,242


$
18,409Computer equipment


9,243



4,395Leasehold improvements


5,241



4,493Furniture and fixtures


2,195



587Machinery and equipment


241



24235,162



28,126Less: accumulated depreciation


(30,945
)


(21,813
)$
4,217


$
6,313    F-25




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 10 
    ACCRUED
    LIABILITIES    March 31,


March 31,2007


2008Accrued third-party development expenses

$
2,660


$
4,122Accrued professional fees and other services


2,578



1,991Accrued distribution services


2,061



247Accrued salary and related costs


1,581



743Accrued advertising


1,222



629Accounts receivable credit balances


828



2,619Taxes payable


299



453Deferred income


231



277Accrued freight and handling fees


193



136Delisting penalty owed to shareholder






200Restructuring reserve (Note 20)


54



1,759Other


1,674



1,296$
13,381


$
14,472   NOTE 11 
    LONG-TERM
    LIABILITIES    March 31,


March 31,2007


2008Deferred rent

$
1,880


$
2,624Landlord allowance


1,213



4,228Deferred income  long-term


325



249Other long-term liabilities


16



$
3,434


$
7,101   NOTE 12 
    INCOME
    TAXES    Years Ended March 31,2007


2008United States

$
(77,307
)

$
(23,297
)Foreign


41



36Loss before (benefit from) provision for income taxes

$
(77,266
)

$
(23,261
)  F-26




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years EndedMarch 31,2007


2008Current:Federal

$



$
State and local






73Foreign


(998
)


Total


(998
)


73Deferred:Federal


(8,216
)


State and Local


(1,466
)


Foreign






Total


(9,682
)


(Benefit from) provision for income taxes

$
(10,680
)

$
73         Years EndedMarch 31,2007


2008(Benefit from) provision for income taxes computed at the
    federal statutory rate

$
(27,043
)

$
(8,143
)Income taxes (benefit) expense income taxes resulting from:Permanent differences and other


4,273



21State and local taxes, net of federal tax effect


(952
)


Difference between U.S. and foreign income tax rates


(4
)


Reversal of reserves and settlement of tax examinations


(999
)


73Loss for which no benefit was received


14,045



8,122(Benefit from) provision for income taxes

$
(10,680
)

$
73  F-27




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March 31,


March 31,2007


2008Deferred tax asset:Inventory valuation

$
843


$
1,517Deferred income


20



77Net operating loss carryforwards


209,659



221,262Restructuring reserve


22



831Allowances for bad debts, returns, price protection and other
    customer promotional programs


5,471



1,815Depreciation and amortization


15,229



13,792Atari trademark license expense


736



1,590Research and development credit carryforwards


8,069



7,972Sub-total


240,049



248,856Less: valuation allowance


(240,049
)


(248,856
)Net deferred tax asset

$



$
             Balance at March 31, 2007

$
340Increases in tax positions for prior years


3Decreases in tax positions for prior years


Increases in tax positions for current year


44Settlements


(53
)Lapse in statute of limitations


Balance at March 31, 2008

$
334    F-28




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 13 
    RELATED
    PARTY TRANSACTIONS  Relationship
    with IESA
         F-29




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Summary
    of Related Party Transactions
    Years EndedMarch 31,Income (Expense)

2007


2008Net revenues

$
122,285


$
80,131Related party activity:Royalty income(1)


5,243



2,599License income(1)


2,464



6,522Sale of goods


972



953Production, quality and assurance testing and other services


3,576



2,308Total related party net revenues


12,255



12,382Cost of goods sold


(72,629
)


(40,989
)Related party activity:Distribution fee for Humongous, Inc. products


(5,318
)


(7,885
)Royalty expense(2)


(11,365
)


(4,619
)Total related party cost of goods sold


(16,683
)


(12,504
)Research and product development expenses


(30,077
)


(13,599
)Related party activity:Development expenses(3)


(7,224
)


(294
)Related party allocation of executive resignation agreement


(771
)


Other miscellaneous development expenses


(229
)


6Total related party research and product development
    Expenses


(8,224
)


(288
)Selling and distribution expenses


(25,296
)


(19,411
)Related party activity:Miscellaneous purchase of services


(151
)


Total related party selling and distribution expenses


(151
)


General and administrative expenses


(21,788
)


(17,672
)Related party activity:Management fee revenue


3,020



3,056Management fee expense


(3,000
)


(2,030
)Office rental and other services(4)


184



Total related party general and administrative expenses


204



1,026Restructuring expenses


(709
)


(6,541
)Related party activity:Office rental(4)


(467
)


Total related party restructuring expenses


(467
)


Interest income (expense), net


301



(1,452
)Related party activity:Related party interest on license advance(5)






(296
)Total related party interest income, net






(296
)(Loss) from discontinued operations of Reflections Interactive
    Ltd, net of tax provision of $7,559 and $0, respectively


(3,125
)


(312
)Related party activity:Royalty income(1)


(1,871
)


License income(1)


556



Total related party (loss) from discontinued operations of
    Reflections Interactive Ltd, net of tax


(1,315
)


  F-30




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (1)
    
    We have entered into a distribution agreement with IESA and
    Atari Europe which provides for IESAs and Atari
    Europes distribution of our products across Europe, Asia,
    and certain other regions pursuant to which IESA, Atari Europe,
    or any of their subsidiaries, as applicable, will pay us 30.0%
    of the gross margin on such products or 130.0% of the royalty
    rate due to the developer, whichever is greater. We recognize
    this amount as royalty income as part of net revenues, net of
    returns. Additionally, we earn license income from related
    parties Glu Mobile (see below).(2)
    
    We have also entered into a distribution agreement with IESA and
    Atari Europe, which provides for our distribution of IESAs
    (or any of its subsidiaries) products in the United
    States, Canada, and Mexico, pursuant to which we will pay IESA
    either 30.0% of the gross margin on such products or 130.0% of
    the royalty rate due to the developer, whichever is greater. We
    recognize this amount as royalty expense as part of cost of
    goods sold, net of returns.(3)
    
    We engage certain related party development studios to provide
    services such as product development, design, and testing.(4)
    
    In July 2002, we negotiated a sale-leaseback transaction between
    Atari Interactive and an unrelated party. As part of this
    transaction, we 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. During fiscal 2006, when
    the Beverly studio (which held the office space for Atari
    Interactive) was closed, rental payments were recorded to
    restructuring expense. We also received indemnification from
    IESA from costs, if any, that may be incurred by us as a result
    of the full guaranty.We received a $1.3 million payment for our efforts in
    connection with the sale-leaseback transaction. Approximately
    $0.6 million, an amount equivalent to a third-party
    brokers commission, was recognized during fiscal 2003 as
    other income, while the remaining balance of $0.7 million
    was deferred and is being recognized over the life of the
    sub-lease. Accordingly, during the years ended March 31,
    2007 and 2008, approximately $0.1 million of income was
    recognized in each period. As of March 31, 2007 and
    March 31, 2008, the remaining balance of approximately
    $0.4 million and $0.3 million, respectively, is
    deferred and is being recognized over the life of the sub-lease.
    Although the Beverly studio was closed in fiscal 2006 as part of
    a restructuring plan, the space was not sublet; the lease
    expired June 30, 2007.Additionally, we provide management information systems services
    to Atari Australia for which we are reimbursed. The charge is
    calculated as a percentage of our costs, based on usage, which
    is agreed upon by the parties.(5)
    
    Represents interest charged to us from the license advance from
    the Test Drive license. See Note 1 and Test Drive
    Intellectual Property License below. F-31




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Balance
    Sheet
    March 31,2007


2008Due from/(Due to)  currentIESA(1)

$
(1,494
)

$
Atari Europe(2)


280



94Eden Studios(3)


(595
)


125Atari Studio Asia(3)


(401
)


Humongous, Inc.(4)


(2,218
)


(537
)Atari Interactive(5)


(992
)


(79
)Other miscellaneous net receivables


1,516



85Net due to related parties  current

$
(3,904
)

$
(312
)Due from/(Due to)  long-termAtari Interactive (see Atari Trademark Licensebelow)


(1,912
)


(3,576
)Net due to related parties

$
(5,816
)

$
(3,888
)     March 31,2007


2008Due from related parties

$
1,799


$
885Due to related parties


(5,703
)


(1,197
)Net due to related parties  current

$
(3,904
)

$
(312
)     (1)
    
    Balances comprised primarily from the management fees charged to
    us by IESA and other recharges of cost incurred on our behalf.(2)
    
    Balances comprised of royalty income or expense from our
    distribution agreements with IESA and Atari Europe relating to
    properties owned or licensed by Atari Europe.(3)
    
    Represents net payables related to related party development
    activities.(4)
    
    Represents distribution fees owed to Humongous, Inc., a related
    party, related to sale of their product, as well as liabilities
    for inventory purchased.(5)
    
    Comprised primarily of royalties owed to Atari Interactive,
    offset by receivables related to management fee revenue and
    production and quality and assurance testing services revenue
    earned from Atari Interactive.  Atari
    Name License
   F-32




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Sale of
    Hasbro Licensing Rights
    Test
    Drive Intellectual Property License
    Related
    Party Transactions with Employees or Former Employees
   License
    Revenue from Glu Mobile
     Compromise
    Agreement with Martin Lee Edmondson
  Driver: Parallel Lines
 F-33




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Consultation
    Agreement with Ann Kronen
     Related
    Party Allocation of Executive Resignation Agreement
    NOTE 14 
    DEBT  Credit
    Facilities
     F-34




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Waiver,
    Consent and Fourth Amendment
      IESA
    Credit Agreement
   F-35




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 15 
    COMMITMENTS
    AND CONTINGENCIES  Contractual
    Obligations
    Contractual ObligationsRoyalty and





Operating


CapitalLicense


Milestone


Lease


LeaseFiscal Year

Advances(1)


Payments(2)


Obligations(3)


Obligations(4)


Total2009

$
100


$
500


$
1,567


$
12


$
2,1792010










1,827







1,8272011










1,768







1,7682012










1,178







1,1782013










1,329







1,329Thereafter










12,301







12,301Total

$
100


$
500


$
19,970


$
12


$
20,582     (1)
    
    We have committed to pay advance payments under certain royalty
    and license agreements. The payments of these obligations are
    dependent on the delivery of the contracted services by the
    developers.(2)
    
    Milestone payments represent royalty advances to developers for
    products that are currently in development. Although milestone
    payments are not guaranteed, we expect to make these payments if
    all deliverables and milestones are met timely and accurately.(3)
    
    We account for our office leases as operating leases, with
    expiration dates ranging from fiscal 2009 through fiscal 2022.
    Rent expense and sublease income for the years ended
    March 31, 2007 and 2008, is as follows (in thousands):  Year Ended March 31,2007


2008Rent expense

$
3,760


$
3,889Sublease income

$
(653
)

$
(967
)   Renewal
    of New York Lease
  During June 2006, we entered into a new lease with our current
    landlord at our New York headquarters for approximately
    70,000 square feet of office space for our principal
    offices. The term of this lease commenced on July 1, 2006
    and is to expire on June 30, 2021. Upon entering into the
    new lease, our prior lease, which was set to expire in December
    2006, was terminated. The rent under the new lease for the
    office space is approximately $2.4 million per year for the
    first five years, increases to approximately $2.7 million
    per year for the next five years, and increases to
    $2.9 million per year for the last five years of the term.
    In addition, we must pay for electricity, increases in real
    estate taxes and increases in porter wage rates over the term.
    The landlord is providing us with a one year rent credit of
    $2.4 million and an allowance of $4.5 million to be
    used for building out and furnishing the premises, of which
    $1.2 million has been recorded as a deferred credit as of
    March 31, 2007; the remainder of the deferred credit will
    be recorded as the improvements are completed, and will be
    amortized against rent expense over the life of the lease. A
    nominal amount of amortization was recorded during the year
    ended March 31, 2007. For the year ended March 31,
    2008, we recorded an additional deferred credit of
    $3.3 million and amortization against the total deferred
    credits of approximately $0.3 million. Shortly after
    signing the new lease, we provided the landlord with a security
    deposit under the new lease in the form of a letter of credit in
    the initial amount of $1.7 million, which has been cash
    collateralized and is included in F-36




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  security deposits on our consolidated balance sheet (reduced by
    $0.8 million in August 2007). On August 14, 2007, we
    and our new landlord, W2007 Fifth Realty, LLC, amended the
    lease under which we occupy space in 417 Fifth Avenue, New
    York City, to reduce the space we occupy by approximately
    one-half, effective December 31, 2007. As a result, our
    rent under the amended lease will be reduced from its current
    approximately $2.4 million per year to approximately
    $1.2 million per year from January 1, 2008 through
    June 30, 2011, approximately $1.3 million per year for
    the five years thereafter, and approximately $1.5 million
    per year for the last five years of the term.(4)
    
    We maintain several capital leases for computer equipment. Per
    FASB Statement No. 13, Accounting for Leases,
    we account for capital leases by recording them at the present
    value of the total future lease payments. They are amortized
    using the straight-line method over the minimum lease term. As
    of March 31, 2007, the net book value of the assets,
    included within property and equipment on the balance sheet, was
    $0.1 million, net of accumulated depreciation of
    $0.5 million. As of March 31, 2008, the net book value
    of the assets was approximately $0.1 million, net of
    accumulated depreciation of approximately $0.6 million.  Litigation
  and/or
  Bouchat v.
    Champion Products, et al. (Accolade)
    Ernst &
    Young, Inc. v. Atari, Inc.
    Research
    in Motion Limited v. Atari, Inc. and Atari Interactive,
    Inc.
   F-37




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    FUNimation
    License Agreement
    Stanley
    v. IESA, Atari, Inc and Atari, Inc Board of Directors
        NOTE 16 
    EMPLOYEE
    SAVINGS PLAN   F-38




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 17 
    GAIN ON
    SALE OF DEVELOPMENT STUDIO ASSETS  Sale
    of Shiny Entertainment
    NOTE 18 
    SALE OF
    INTELLECTUAL PROPERTY  Stuntman
  NOTE 19 
    DISCONTINUED
    OPERATIONS  Sale
    of Reflections
    Driver Driver Driver:
    Parallel Lines
   Balance
    Sheets
  Driver
  March 31, 2007Assets:Prepaid expenses and other current assets

$
310Other assets


335Total assets

$
645    F-39




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Results
    of Operations
    Year Ended March 31,2007


2008Net revenues

$
(630
)

$
Loss from operations of Reflections Interactive Ltd


(7,038
)


(312
)Gain on sale of Reflections Interactive Ltd


11,472



Income before provision for income taxes from discontinued
    operations of Reflections Interactive Ltd


4,434



(312
)Provision for income taxes


7,559



Loss from discontinued operations of Reflections Interactive Ltd

$
(3,125
)

$
(312
)   NOTE 20 
    RESTRUCTURING        Years Ended March 31,2007


2008Restructuring consultants and legal fees (2)

$



$
4,237Previous periods severance expenses


87



May severance and retention expenses (1)






787November severance and retention expenses (2)






1,223Lease related costs (3)


595



294Miscellaneous costs


27



Total

$
709


$
6,541  F-40




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance at








Cash


Balance atMarch 31,


Accrued





Payments,


March 31,2006


Amounts


Reclasses


Net


2007Short termSeverance and retention expenses (1) and (2)

$
1,886


$
87


$



$
(1,973
)

$
Lease related costs (3)


245



595



53



(839
)


54Miscellaneous costs


32



27







(59
)


Total


2,163



709



53



(2,871
)


54Long termLease related costs (3)


56







(53
)






3Total


56







(53
)






3Total

$
2,219


$
709


$



$
(2,871
)

$
57   Balance at








Cash


Balance atMarch 31,


Accrued





Payments,


March 31,2007


Amounts


Reclasses


Net


2008Short termSeverance and retention expenses (1) and (2)

$



$
2,010


$



$
(1,341
)

$
669Restructuring consultants and legal fees (2)






4,237







(3,147
)


1,090Lease related costs (3)


54







3



(57
)


Total


54



6,247



3



(4,545
)


1,759Long termLease related costs (3)


3







(3
)






Total


3







(3
)






Total

$
57


$
6,247


$



$
(4,545
)

$
1,759     (1)
    
    In the first quarter of fiscal 2008, management announced a plan
    to reduce our total workforce by 20%, primarily in general and
    administrative functions.(2)
    
    In the third quarter of fiscal 2008, as part of the removal of
    the Board of Directors and the hiring of a restructuring firm,
    management announced an additional workforce reduction of 30%,
    primarily in research and development and general and
    administrative functions. This restructuring is anticipated to
    cost us approximately $5.0 to $6.0 million dollars of which
    $1.0 to $1.5 million would relate to severance arrangements
    (See Note 1).(3)
    
    As part of a restructuring plan implemented in fiscal 2005, we
    recorded the present value of all future lease payments, less
    the present value of expected sublease income to be recorded,
    primarily for the Beverly and Santa Monica offices, in
    accordance with FASB Statement No. 146. Through the
    remainder of the related leases, FASB Statement No. 146
    requires us to record expense to adjust the present value
    recorded in 2005 to the actual expense and income recorded for
    the month.  NOTE 21 
    OPERATIONS
    BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS   F-41




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Publishing


Distribution


Corporate


TotalYear ended March 31, 2007:Net revenues

$
104,650


$
17,635


$



$
122,285Operating (loss) income (1) (2) (3)


(52,003
)


1,145



(26,077
)


(76,935
)Depreciation and amortization


(517
)






(2,451
)


(2,968
)Interest income, net






139



162



301Year ended March 31, 2008:Net revenues

$
69,755


$
10,376


$



$
80,131Operating income (loss) (1)


3,423



2,403



(21,147
)


(15,321
)Depreciation and amortization


(173
)






(1,390
)


(1,563
)Interest expense, net










(1,452
)


(1,452
)     (1)
    
    Operating (loss) for the Corporate segment for the years ended
    March 31, 2007 and 2008 excludes restructuring charges of
    $0.7 million and $6.5 million, respectively. Including
    restructuring charges, total operating loss for the years ended
    March 31, 2007 and 2008 is $77.6 million and
    $21.9 million, respectively.(2)
    
    Operating (loss) for the publishing segment for the year ended
    March 31, 2007 includes a gain on the sale of intellectual
    property of $9.0 million and a gain on the sale of
    development studio assets of $0.9 million.(3)
    
    Operating (loss) for the publishing segment for the year ended
    March 31, 2007 includes impairment of goodwill of
    $54.1 million. F-42




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     March 31,2007


2008Publishing net product revenues:ConsolePlayStation 2

$
31,047


$
17,475Xbox 360


10,582



431Nintendo Wii


7,346



9,822Plug and play


2,449



21Xbox


262



208Game Cube


175



1Total console


51,861



27,958HandheldPlayStation Portable


6,647



6,290Game Boy Advance


3,410



13Nintendo DS


1,749



3,599Game Boy Color






16Total handheld


11,806



9,918PC


23,788



14,888Total publishing net product revenues


87,455



52,764International royalty income (Note 13)


5,243



2,599Licensing and other income


11,952



14,392Total publishing net revenues


104,650



69,755Distribution net revenues


17,635



10,376Total net revenues

$
122,285


$
80,131     United States


Europe


TotalYear ended March 31, 2007:Net revenues(1)

$
122,285






$
122,285Operating (loss)(2)


(74,873
)


(2,771
)


(77,644
)Capital expenditures(3)


837



8



845Total assets(4)


42,049



770



42,819Year ended March 31, 2008:Net revenues(1)

$
80,131






$
80,131Operating (loss) income(2)


(21,899
)


37



(21,862
)Capital expenditures(3)


407







407Total assets(4)


32,774



659



33,433     (1)
    
    United States net revenues include royalties on sales of our
    product sold internationally. For the years ended March 31,
    2007 and 2008 the royalties were $5.2 million and
    $2.6 million, respectively. F-43




---



##### 



ATARI,
    INC. AND SUBSIDIARIES
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (2)
    
    Operating income (loss) for Europe for the years ended
    March 31, 2007 and 2008 includes operating expenses of
    $4.7 million and $0.3 million, respectively, for the
    Reflections studio, which was sold to a third party in the
    second quarter of fiscal 2007 (Note 19). These expenses are
    included in (loss) from discontinued operations for each period
    presented.(3)
    
    Capital expenditures for Europe for all periods presented are
    property and equipment purchases for the Reflections studio,
    which is presented as a discontinued operation for the year
    ended March 31, 2007, and was sold to a third party in the
    second quarter of fiscal 2007 (Note 19).(4)
    
    Total assets for Europe for the years ended March 31, 2007
    and 2008 include assets of $0.6 million and
    $0.5 million, respectively, for the Reflections studio,
    which was sold to a third party in the second quarter of fiscal
    2007 (Note 19). The assets are included in assets of
    discontinued operations for the year ended March 31, 2007.  NOTE 22 
    UNAUDITED
    QUARTERLY FINANCIAL DATA    June 30,


September 30,


December 31,


March 31,2006


2006


2006


2007Net revenues

$
19,474


$
28,588


$
47,277


$
26,946Operating (loss) income


(4,713
)


(9,623
)


1,711



(65,019
)(Loss) income from continuing operations


(4,759
)


(4,477
)


1,082



(58,432
)(Loss) income from discontinued operations of Reflections
    Interactive Ltd, net of tax


(2,537
)


4,410



(1,727
)


(3,271
)Net (loss)


(7,296
)


(67
)


(645
)


(61,703
)Basic and diluted (loss) income from continuing operations per
    share

$
(0.35
)

$
(0.33
)

$
0.08


$
(4.33
)Basic and diluted (loss) income from discontinued operations of
    Reflections Interactive Ltd, net of tax, per share

$
(0.19
)

$
0.32


$
(0.13
)

$
(0.24
)Basic and diluted net (loss) per share

$
(0.54
)

$
(0.01
)

$
(0.05
)

$
(4.57
)Weighted average shares outstanding  basic and diluted


13,477



13,478



13,478



13,478  F-44




---



##### 



ATARI,
    INC. AND SUBSIDIARIES



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS (in thousands)  Additions


Additions


Deductions/Balance


Charged to


Charged to


or Reclasses


BalanceBeginning


Net


Operating


to Accrued


EndDescription

of Period


Revenues


Expenses


Liabilities


of PeriodAllowance for bad debts, returns, price protection and
    other customer promotional programs:Year ended March 31, 2008

$
14,148


$
15,571


$
168


$
(27,975
)

$
1,912Year ended March 31, 2007

$
30,918


$
22,428


$
269


$
(39,467
)

$
14,148   Additions


AdditionsBalance


Charged to


Charged to





BalanceBeginning


Cost of


Operating





EndDescription

of Period


Goods Sold


Expenses


Deductions


of PeriodReserve for obsolescence:Year ended March 31, 2008

$
1,859


$
2,511


$



$
(656
)

$
3,714Year ended March 31, 2007

$
2,427


$
2,486


$



$
(3,054
)

$
1,859