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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2000             COMMISSION FILE NO. 0-27338

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

                                INFOGRAMES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                   DELAWARE                                      13-3689915
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
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                      417 FIFTH AVENUE, NEW YORK, NY 10016
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

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

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

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

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

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

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

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

     The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant based on the closing sale price of the Common
Stock on June 22, 2000 as reported on the Nasdaq National Market, was
approximately $62,978,816. As of June 22, 2000, there were 103,426,615 shares of
the registrant's Common Stock outstanding (not adjusted to reflect the
one-for-five reverse stock split effected on June 26, 2000).

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                                INFOGRAMES, INC.

                   MARCH 31, 2000 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

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FORWARD LOOKING INFORMATION.................................   ii

PART I......................................................    1
  ITEM 1.    Business.......................................    1
  ITEM 2.    Properties.....................................   14
  ITEM 3.    Legal Proceedings..............................   15
  ITEM 4.    Submission of Matters to Vote of Security
             Holders........................................   17

PART II.....................................................   17
  ITEM 5.    Market for Registrant's Common Equity and
             Related Stockholder Matters....................   17
  ITEM 6.    Selected Financial Data........................   19
  ITEM 7.    Management's Discussion and Analysis of
             Financial Condition and Results of
               Operations...................................   21
  ITEM 7A.  Quantitative and Qualitative Disclosures About
            Market Risk.....................................   32
  ITEM 8.    Index to the Financial Statements and
             Supplementary Data.............................   33
  ITEM 9.    Changes in and Disagreements with Accountants
             on Accounting and Financial   Disclosure.......   33

PART III....................................................   34
  ITEM 10.  Directors and Executive Officers................   34
  ITEM 11.  Executive Compensation..........................   34
  ITEM 12.  Security Ownership of Certain Beneficial Owners
            and Management..................................   34
  ITEM 13.  Certain Relationships and Related
            Transactions....................................   34

PART IV.....................................................   34
  ITEM 14.  Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K.............................   34

SIGNATURES..................................................   40

CONSOLIDATED FINANCIAL STATEMENTS...........................  F-1
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                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain information contained in the Proxy Statement for the Annual Meeting
of Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware
corporation, scheduled to be held on July 25, 2000 is incorporated by reference
into Part III hereof.

                          FORWARD-LOOKING INFORMATION

     When used in this Annual Report on Form 10-K, the words "intends,"
"expects," "plans," "estimates," "projects," "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Except
for historical information contained herein, the matters discussed and the
statements made herein concerning the Company's future prospects are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Although the Company believes that its plans, intentions and
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such plans, intentions or expectations will be achieved.
There can be no assurance that future results will be achieved, and actual
results could differ materially from the forecast and estimates. Important
factors that could cause actual results to differ materially include, but are
not limited to, worldwide business and industry conditions (including consumer
buying and retailer ordering patterns), adoption of new hardware systems,
product delays, changes in research and development spending, software
development requirements and their impact on product launches, Company customer
relations (in particular, levels of sales to Wal-Mart and other mass merchants),
retail acceptance of the Company's published and third-party titles, competitive
conditions and other risk factors, including, but not limited to, those
discussed in "Risk Factors" below at pages 9 to 14.

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<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS

                                    OVERVIEW

     Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware
corporation (the "Company"), is a leading worldwide developer, publisher and
distributor of interactive entertainment software for use on PCs, the Sony
PlayStation and Nintendo 64 platforms. The Company also is currently developing
software for new platforms such as Sega Dreamcast, Nintendo Gameboy Advance and
Sony PlayStation 2. During calendar year 1999, the Company had the fifth highest
U.S. market share in number of units sold in the PC software game category. The
Company is also a leader in certain sub-segments of the "edutainment" software
market, including the fast growing children's education and leisure
entertainment segments. According to PC Data, in 1999, the Company's Humongous
studio ranked as the number three publisher in the U.S. market for PC education
software on the basis of units sold.

     In May 2000, in connection with the acquisition by Infogrames Entertainment
SA ("Infogrames SA") of a majority stake in the Company, the Company changed its
name from GT Interactive Software Corp. to Infogrames, Inc. and announced that
all of its products will be marketed under the Infogrames brand. The Company
believes that the Infogrames brand is well respected in the interactive
entertainment software industry and that this new branding strategy will
strengthen the Company's image with customers and the industry as a whole.

     On June 26, 2000, the Company effected a one-for-five reverse stock split
of the Company's Common stock, par value $.01 per share (the "Common Stock") to
meet certain requirements of the Nasdaq National Market. See "Risk
Factors -- Our Common Stock Does Not Currently Meet the Nasdaq National Market's
Minimum Share Price Requirement and May Be Subject to Delisting." Except as
otherwise noted, references to share prices and the number of shares of Common
Stock in this Annual Report do not reflect the reverse stock split.

     The Company has two reportable segments: publishing and distribution.
Publishing relates to the development (both internally and externally) and sale
of interactive entertainment software for the children's education, leisure
entertainment and gaming enthusiast's markets. Distribution relates to the sale
by the Company of its own and third-party published software to various mass
merchants and other retailers. For additional information with respect to the
Company's business segment reporting, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 19 to the
Consolidated Financial Statements.

     The Company's publishing business consists of three divisions: Children's,
Leisure and Frontline. The Company's Children's Division develops and publishes
children's educational and entertainment software for the personal computer. The
Company's Leisure Division develops and publishes lower-priced PC entertainment,
reference and productivity titles for mass market consumption. The Company's
Frontline Division develops, internally and through third-party developers, and
publishes cutting edge new release entertainment software for the gaming
enthusiast for use on multiple hardware platforms.

     The Company distributes both its own and third-party published software
through an established distribution network. The Company believes that it is one
of the few software publishers that sells its products directly to substantially
all of the major retailers of computer software in the U.S. The Company's
distribution division also compiles, repackages and markets older titles to
retailers, extending the economic life of those products. The Company believes
it is the largest distributor of consumer software to mass merchants in the U.S.
The Company supplies consumer software (including its own and third-party
published software) to approximately 2,470 Wal-Mart stores, approximately 2,096
Kmart stores and approximately 921 Target stores. The Company also distributes
consumer software to other major retailers including Office Depot, Best Buy,
CompUSA, AAFES, Sam's Club and Babbage's.

     During the fiscal year ended March 31, 2000, the Company made a significant
effort to reorganize and refocus its distribution and value/leisure lines. In
July 1999, the Company began outsourcing its warehouse
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operations in the U.S. to Arnold Logistics ("Arnold Logistics"). The warehouse
operations include the receipt and storage of inventory as well as the
distribution of inventory to mass market and other retailing customers. This
allows the Company to reduce distribution costs and to streamline operations to
focus on producing more hit titles. Through this refocus, the Company decided to
reduce its involvement in distribution of third-party product and the value and
leisure lines of business. This has led to charges of approximately $58.0
million during the fiscal year ended March 31, 2000. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     In connection with its restructuring and reorganization, the Company has
decided to concentrate its efforts in North America. Effective December 31,
1999, the Company began the process of closing its European operations. Because
of Infogrames SA's strong European presence, the Company has entered into an
agreement with Infogrames SA to provide distribution of the Company's products
in Europe. The Company believes that full-time operations in Europe are no
longer necessary or efficient and that it will be able to access European
markets through the strong distribution channels of Infogrames while
concentrating its resources in other strategic areas. As of March 31, 2000, the
Company has expensed approximately $37.0 million in charges related to this
strategic plan.

                                   PUBLISHING

     The Company's publishing business consists of three divisions: Children's,
Leisure and Frontline. The Company's Frontline and Children's Divisions publish
premium-priced, higher production value titles for use on multiple platforms
that are developed internally or through third-party developers and marketed
both domestically and internationally. The Company's Leisure segment publishes
value-priced PC titles for mass market consumption.

CHILDREN'S PUBLISHING

     Humongous Entertainment, Inc. ("Humongous") is a leading developer and
publisher of interactive children's edutainment software. Humongous was acquired
by the Company in July 1996 and has been the primary vehicle through which the
Company has penetrated the children's edutainment market. Through internally
generated hit titles such as Freddi Fish, Putt Putt and Pajama Sam, and through
licensed products like Nickelodeon's Blue's Clues, Humongous has risen to become
the third-largest participant in the educational software market category,
capturing 7.2% of total dollar market sales in the U.S. for 1999. According to
PC Data, Humongous published the best-selling (Blue's Clues ABC Time
Activities), third best-selling (Blue's Clues Birthday Adventure) and sixth
best-selling (Blue's 123 Time Activities) entertainment titles of 1999. Other
titles released by Humongous include Putt Putt(R) Enters the Race(TM), Putt
Putt(R) Travels through Time(TM), Backyard Soccer(TM), Backyard Baseball(TM),
Freddi Fish 4: The Case of the Hogfish Rustlers of Briny Gulch(TM) and Pajama
Sam 2: Thunder and Lightning Aren't So Frightening(TM).

LEISURE PUBLISHING

     The Leisure Division was established in June 1996 with the acquisition of
WizardWorks Group, Inc. ("WizardWorks"). Since that time, the Company has become
a leading publisher of value-priced leisure and recreational software.

     The Company's Leisure Division publishes and distributes titles through
three labels:

     WizardWorks.  In the fall of 1997, the Leisure Division virtually created a
brand new market when it introduced Deer Hunter for PC, under the WizardWorks
label. In approximately four months, this interactive hunting simulation game
rose to the top of the PC Data charts to become the best-selling PC game in the
U.S. for the first six months of 1998. The Company believes that the success of
Deer Hunter reflected a growing consumer trend in which the interest of those
who typically do not play computer games is sparked by a combination of
compelling software themes, the availability of PCs for under $1,000 and value
software's sub-$20 retail price. WizardWorks has since expanded the interactive
outdoor sporting market with a number of titles, including Deer Hunter II, Deer
Hunter II Extended Season, Deer Hunter's Extended Season, Deer

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Hunter Companion, Sporting Clays, Rocky Mountain Trophy Hunter, Rocky Mountain
Trophy Hunter II, Pro Bass Fishing, Deep Sea Trophy Fishing, Bird Hunter
Waterfowl Edition, Grand Slam Turkey Hunt, Alaskan Expedition, Bird Hunter
Upland Edition and African Safari Trophy Hunter 3D.

     The Company's hunting software games for PC, published under the
WizardWorks brand, comprise more than 38% of the market share in units and
dollars for all hunting software games. Additionally, of the top 10 1999 hunting
PC games in units, 44% came from this label. The Company has shipped
approximately one million units of its hit title Deer Hunter and approximately
800,000 units of the sequel, Deer Hunter II.

     In fiscal year 1999, the Company also published other titles under the
WizardWorks brand such as Montezuma's Return, Real Pool, Rudolf the Red-Nosed
Reindeer's Magical Sleigh Ride, Baseball Mogul and Carnivores, along with a
number of other titles targeted for the casual computer user.

     CompuWorks.  Under the CompuWorks brand the Company offers productivity and
small office/home office software products. The Company has published such
recent CompuWorks titles as Joy of Cooking, America's Greatest Chili Cookbook,
National Golf Course Directory, Feng Shui, Holiday Card Creator '98, Yes 2K and
Learn Office 2000.

     MacSoft.  The Company believes its MacSoft label is the leading Macintosh
games software publisher in the U.S. MacSoft publishes frontline PC Games for
the Macintosh market, including Company-developed games, as well as third-party
games under license to the Company. Recent successful titles published by
MacSoft include Unreal, Civilization II: Gold Edition, Falcon 4.0, America's
Greatest Solitaire Games, Deer Hunter, Real Pool, Civilization II and Quake.
Other recent titles published by MacSoft include Lode Runner 2, Rocky Mountain
Trophy Hunter, Dark Vengeance, Klingon Honor Guard and America's Greatest Arcade
Hits 3D. MacSoft also publishes productivity titles including MacPublisher and
Desktop Labels Pro.

FRONTLINE PUBLISHING

     The Company's Frontline Division is responsible for the development and
publishing of cutting-edge, new release entertainment for the gaming enthusiast.
This division has been the source of some of the industry's most successful
titles including Duke Nukem, Oddworld and Total Annihilation. Frontline releases
are largely responsible for the Company's fifth-place market share position in
PC Data's 1999 rankings for the PC games category. The Company has successfully
exploited Frontline's strengths in cutting edge PC entertainment software to
gain entry into the high growth videogame console platform market. In fiscal
year 2000, approximately 61% of the division's revenues were generated from
sales of PlayStation, Nintendo and other console software.

     The Frontline Division publishes entertainment software developed by a
variety of internal and third-party studios. Approximately 54% of Frontline's
revenues for the fiscal year ended March 31, 2000 were generated from products
developed by the Company's internally owned studios.

     The Company has initiated efforts to reduce the number of new releases
published annually by the Frontline Division. This more selective approach to
new releases is expected to result in lower research and development costs,
increased efficiency, greater focus and more control over production schedules.
In support of this effort, the Company has closed three internal studios and is
currently reducing the size of another. A summary description of each of
Frontline's continuing internal studios is set forth below.

  Internal Development Studios

     SingleTrac.  In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), the developer of hit PlayStation titles
including JetMoto I and II, Twisted Metal I and II and WarHawk. Since it was
acquired by the Company, SingleTrac has produced Rogue Trip and Streak.

     Reflections.  The Company acquired Newcastle, England-based Reflections
Interactive Limited ("Reflections") in December 1998. Reflections was the
developer of PlayStation hits Destruction Derby and

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Destruction Derby II. In fiscal year 2000, the Company shipped approximately 2.9
million units of Driver, Reflections' newest title. Additionally, the Company
has announced sequels of Driver, scheduled to be released in fiscal year 2001.

     Oddworld Inhabitants.  In November 1996, the Company invested in
convertible preferred stock of Oddworld Inhabitants, Inc. ("Oddworld"), which is
convertible into 50% of the common equity of Oddworld. The Company also entered
into an exclusive worldwide publishing agreement with Oddworld. Since that time,
Oddworld has developed and shipped the first two successful installments of its
Oddworld series: Abe's Oddysee and Abe's Exoddus. Each title has sold more than
one million units worldwide.

     Legend Entertainment.  The Company acquired Legend Entertainment Company
("Legend") in December 1998. Legend is currently developing a number of titles
for the Company, including Unreal 2, Unreal Mission Pack I and Wheel of Time.
During fiscal year 2000, the Company released Unreal Tournament, which sold
approximately 600,000 units.

  External Product Development

     Since its inception, the Company has established publishing and
distribution relationships with various independent developers. For the fiscal
year ended March 31, 2000, approximately 46% of the Company's Frontline
publishing revenues were derived from products developed by independent,
third-party developers. For example, the Duke Nukem franchise created by 3D
Realms has generated for the Company gross unit sales, including add-ons and
sequels, to date in excess of three million units worldwide. From May 1998
through March 2000, the Company shipped more than 800,000 units of Unreal, an
action title created by Epic Games, another third-party developer.

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

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

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                                  DISTRIBUTION

     The Company's strength in distribution in North America, as well as its
distribution presence in Europe through Infogrames SA, ensures access to
valuable shelf space for its published products. The Company believes that it is
one of the few software publishers that sells directly to substantially all of
the major retailers of computer software in the U.S. and that it is the largest
distributor of computer software to mass merchants in the U.S. The Company
supplies consumer software (including its own and third-party published
software) to approximately 2,470 Wal-Mart stores, approximately 2,096 Kmart
stores and approximately 921 Target stores.

     The Company also distributes consumer software (including its own and
third-party published software) to other major retailers including Office Depot,
Best Buy, CompUSA, AAFES, Sam's Club and Babbage's. The Company values its
distribution relationships with these major retailers because they also allow
the Company to more readily sell its own, higher margin software to them.

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

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

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

     Value/Close-out.  In June 1995, the Company acquired Slash Corporation, a
leading publisher, merchandiser and distributor of value-priced software. The
value/close-out business purchases older titles from other publishers and sells
them as "value" titles to retailers. This helps the publisher extend the life
cycle of its products. The products are intended for retail price points of
$4.98 to $19.99 and may include boxed products as well as products in jewel
cases. The value/close-out business may purchase finished goods or may license
the rights to produce finished goods from the publisher. The Company sells value
programs to some retailers in which the Company is responsible for stocking a
four-foot or eight-foot section in the retailers' stores.

GEOGRAPHY

     In connection with its restructuring and reorganization, the Company has
decided to concentrate its efforts in North America. Effective December 1, 1999,
the Company began the process of closing its European operations. Because of
Infogrames SA's strong European presence, the Company has entered into an
agreement with Infogrames SA to provide distribution of the Company's products
in Europe pursuant to which the Company is entitled to receive 30% of the gross
profit on such products. The Company believes that Infogrames SA's strong
presence in Europe will provide effective distribution in Europe of the
Company's

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titles while allowing the Company to focus its efforts in North America. The
Company continues to maintain an office in Australia, the results of operations
of which are consolidated in the results of operations of the Company. For
additional information regarding the Company's international business, see Note
19 to the Consolidated Financial Statements.

SALES AND MARKETING

     The Company utilizes a wide range of sales and marketing techniques to
promote sales of its products including (i) in-store promotions utilizing
display towers and endcaps, (ii) advertising in computer and general consumer
publications, (iii) on-line marketing, (iv) direct mailings and (v) television
advertising. The Company monitors and measures the effectiveness of its
marketing strategies throughout the product life cycle. Historically, the
Company has devoted a substantial amount of its marketing resources to its
Frontline published products and intends to do so in the future. The Company
believes that such marketing is essential for cultivating product successes and
brand-name loyalty.

     The Company's marketing programs have expanded along with the Company's
publishing business, with an emphasis both on launching products and on raising
the public's awareness of new brands and franchises. The Company may begin to
develop an integrated marketing program for a product more than a year in
advance of its release. This integrated marketing approach may include extensive
press contacts, development of point-of-purchase displays, print and television
advertising, Internet promotion, press events and a global synchronized launch.

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

     To capitalize on the innovative nature of its products, the Company has
developed a public relations program that has resulted in coverage for the
Company by trade journals and also by well-recognized publications such as The
New York Times, Entertainment Weekly, Newsweek and USA Today. Among the
marketing strategies the Company utilizes is the creation of special press
events to coincide with the launch of a new product. The Company also uses
independent field sales representative organizations to assist in servicing its
mass merchant accounts.

     In fiscal year 1999, the Company consolidated its three North American
sales organizations into a single sales organization in order to improve the
efficiency of its sales effort. Currently, the Company has 14 customer sales
representatives who serve as the primary contacts with the Company's largest 25
customers. In addition, the Company has five divisional sales representatives
who work with the Company's customer sales representatives and their customers
to help provide leadership and direction to the Company's selling efforts.

     In connection with the Company's restructuring and reorganization,
effective as of December 16, 1999, the Company was granted the non-exclusive
right in the U.S. and Canada to act as the sales agent for Infogrames North
America, Inc. ("INA"), a wholly owned subsidiary of Infogrames SA, for INA's
products, pursuant to which the Company will receive a fixed percentage of net
receipts for such products. The parties intend in the near future to formalize
the arrangement in a written agreement.

HARDWARE LICENSES

     The Company currently develops software for use with the Sony PlayStation
and Nintendo 64 video game systems pursuant to licensing agreements with Sony
and Nintendo, respectively. Each license allows the Company to create one or
more products for the applicable system, subject to certain approval rights as
to quality which are reserved by each licensor. Each license also requires that
the Company pay the licensor a per-unit license fee from product sales.

     The Company currently is not required to obtain any license for the
development and distribution of PC CD-ROMs. Accordingly, the Company's per-unit
manufacturing cost for PC-CD products is less than the per-unit manufacturing
cost for console products.
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OPERATIONS

     In July 1999, the Company began outsourcing its warehouse operations in the
U.S. to Arnold Logistics. The warehouse operations include the receipt and
storage of inventory as well as the distribution of inventory to mass market and
other retailing customers. In connection with the outsourcing agreement, the
Company discontinued the use of its Edison, New Jersey facilities for warehouse
operations and terminated the employment of approximately 525 employees who
performed related services for the Company. The Company incurred approximately
$2.0 million in expenses in fiscal year 2000 relating to the consolidation of
its warehouse operations.

     The Company's CD-ROM disk duplication and the printing of user manuals and
packaging materials are performed to the Company's specifications by outside
sources. Disks, user manuals and sales brochures are, for the most part,
assembled for sale by the Company. To date, the Company has not experienced any
material difficulties or delays in the manufacture and assembly of its products,
or material returns due to product defects. No concentration for the supply of
the Company's publishing needs currently exists and a number of vendors are
available.

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

EMPLOYEES

     As of March 31, 2000, the Company had 866 employees worldwide.
Domestically, there were a total of 774 employees with 155 in administration and
finance, 67 in operations, 90 in sales and marketing, 353 in product development
and 109 in manufacturing and distribution. Included in the 109 employees
involved in manufacturing and distribution are 86 employees who are members of
Local 734 of the Laborers International Union of North America of the AFL-CIO.
As of June 30, 2000, the Company will no longer have any affiliation with this
union, as the Company's manufacturing and distribution operations have been
outsourced. This process was done in an amicable manner.

     Internationally, as of March 31, 2000, the Company had 92 employees with 35
in administration, 9 in operations, 40 in sales and marketing and 8 in product
development. Most of the Company's international employees will no longer be
employed by the Company after June 30, 2000 as a result of the Company's
decision to shut down its European operations, although some employees may be
transferred to Infogrames SA.

     In connection with the Company's restructuring and reorganization, as of
December 16, 1999, Infogrames SA has been providing certain management and
support services to the Company, including financial, legal and administrative
personnel and services, on a cost plus expenses basis. The parties intend to
enter into a written agreement in the near future to formalize the arrangement.

COMPETITION

     The interactive entertainment software publishing industry is intensely
competitive, and relatively few products achieve market acceptance. The
availability of significant financial resources has become a major

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competitive factor in the industry primarily as a result of the increasing
development, acquisition, production and marketing budgets required to publish
quality titles. The Company competes with other publishers of interactive
entertainment software, including Electronic Arts Inc., Mattel Inc., Hasbro
Corporation, Havas SA and Activision, Inc. In addition, some large software
companies (including Microsoft Corporation), media companies, and film studios
are increasing their focus on the interactive entertainment software market and
may become significant competitors of the Company. See "Factors Affecting Future
Performance -- Significant Competition In Our Industry Could Adversely Affect
Our Business."

     Infogrames SA has granted the Company a non-exclusive, royalty-free license
to use the name Infogrames, which license may not be canceled on less than
one-year's notice unless the Company breaches its obligations under the license.
Pursuant to this license, all of the Company's products will be marketed under
the Infogrames brand. The Company believes that the Infogrames brand is well
respected in the interactive entertainment software industry and that this new
branding strategy will strengthen the Company's image with customers and the
industry as a whole. In addition, management believes that a number of factors
provide the Company with competitive opportunities in the industry, including
its extensive catalog of multi-platform products, strength in the mass market,
and strong sales forces in North America and, through Inogrames SA, in Europe.
The Company believes that solid franchises such as Driver and attractive
licenses with Harley Davidson, Mission Impossible and Looney Tunes, as well as
its base of productive publishing assets, provide the Company with a competitive
angle to market its products.

                                        8
<PAGE>   12

                                  RISK FACTORS

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

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

     INFOGRAMES SA CONTROLS THE COMPANY AND COULD PREVENT AN ACQUISITION
FAVORABLE TO OUR OTHER STOCKHOLDERS.  Infogrames SA beneficially owns
approximately 60% of our common stock, which gives it sufficient voting power to
prevent any unsolicited acquisition of the Company, including an acquisition
favorable to our other stockholders. Infogrames SA and its affiliates have
sufficient voting power to control any merger, consolidation or sale of all or
substantially all of our assets and to elect members of the Board of Directors.
Three of the six members of the Board are employees of Infogrames SA or its
affiliates, not including the Company.

     OUR SUCCESS DEPENDS ON INFOGRAMES SA's SUCCESS AND WILLINGNESS TO CONTINUE
TO SUPPORT THE COMPANY.  The Company depends upon Infogrames SA for its senior
executives, certain management and support services, financial funding and
distribution of its products in Europe. The success of the Company is dependent
upon Infogrames SA's success and its willingness to continue to support the
Company. Management believes that the Company's ability to operate on a stand-
alone basis may be limited. Although the Company is exploring various strategic
alternatives, there can be no assurance that any such transactions will be
consummated, or that if consummated any such transactions will improve the
Company's business, operating results or financial condition.

     WE WILL NEED ADDITIONAL FINANCING.  Since its acquisition of a majority
stake in the Company, Infogrames SA has to date provided financing to the
Company, although there can be no assurance that it will continue to do so.
Management believes that existing cash, cash equivalents and short-term
investments, together with cash expected to be generated from operations, cash
available under the Credit Agreement and continued financial support from
Infogrames SA, will be sufficient to fund the Company's operations and cash
flows into the second quarter of fiscal year 2001. While management believes
that replacement funding will be available from Infogrames SA or other sources,
there can be no assurance that future financing will be available on favorable
terms, if at all.

     OUR COMMON STOCK CURRENTLY DOES NOT MEET THE NASDAQ NATIONAL MARKET'S
MINIMUM SHARE PRICE REQUIREMENT AND MAY BE SUBJECT TO DELISTING.

     As a condition to continued listing on the Nasdaq Stock Market's National
Market, Nasdaq rules require that the minimum bid price for our common stock be
at least $5 per share for ten consecutive days. We have been notified by the
Nasdaq Stock Market ("Nasdaq") that our common stock does not meet this
requirement and that proceedings will be instituted to delist our common stock
from the Nasdaq National Market. On June 2, 2000, we filed a notice of appeal
with the Nasdaq Listing Qualifications Hearing Department. This notice had the
effect of automatically staying the delisting proceedings until a Nasdaq Listing
Qualification Panel could be convened to consider our appeal. We have been
informed by the staff of the Nasdaq that a panel will be convened on July 6th
for our appeal to be heard by the Nasdaq Listing Qualification Panel.

     On June 26, 2000, we effected a one-for-five reverse stock split in order
to bring our Common Stock in compliance with Nasdaq's listing requirements. On
June 27th, the first day of trading following the reverse stock split, our
common stock met the minimum bid requirement. Although we cannot predict whether
our common stock will continue to meet the minimum bid requirement or whether
our appeal will be successful, we believe that at the time our appeal is heard
by the Nasdaq Listing Qualification Panel, we will be in full

                                        9
<PAGE>   13

compliance with Nasdaq requirements. In the event our appeal is not successful,
we believe that our common stock would be eligible for listing on the Nasdaq
Small Cap Market.

     THE LOSS OF EITHER WAL-MART OR TARGET AS KEY CUSTOMERS COULD NEGATIVELY
AFFECT OUR BUSINESS. Our sales to Wal-Mart and Target accounted for
approximately 24% and 11%, respectively of net revenues for the fiscal year
ended March 31, 2000 and our gross accounts receivable from Wal-Mart and Target
were approximately $13.4 million and $15.5 million, respectively, at March 31,
2000. Our business, operating results and financial condition would be adversely
affected if:

     - we lost Wal-Mart or Target as a customer,

     - we began shipping fewer products to Wal-Mart or Target,

     - we were unable to collect receivables from Wal-Mart or Target, or

     - we experienced any other adverse change in our relationship with Wal-Mart
       or Target.

     We do not have any written agreements or understandings with either
Wal-Mart or Target. Consequently, our relationship with either Wal-Mart or
Target could end at any time. We cannot assure you that Wal-Mart and Target will
continue to use us as a major supplier of consumer software, or at all. During
the second half of 1997, Wal-Mart began purchasing software directly from five
publishers whose software was previously sold to Wal-Mart through the Company.
During 1999 and 2000, Wal-Mart has continued, and can be expected to continue,
to buy software directly from other publishers, rather than purchasing software
through the Company. These direct purchases could significantly reduce our sales
to Wal-Mart.

     OUR REVENUES WILL DECLINE AND OUR COMPETITIVE POSITION WILL BE ADVERSELY
AFFECTED IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS ON A TIMELY BASIS.  Our
continued success in the publishing business depends on the timely introduction
of successful new products, sequels or enhancements of existing products to
replace declining revenues from older products. A significant delay in
introducing new products, sequels or enhancements could materially and adversely
affect the ultimate success of our products and, in turn, our business,
operating results and financial condition, particularly in view of the
seasonality of our business. For example, the introduction of five major titles
was delayed from the fourth quarter of fiscal year 1999 to the first half of
fiscal year 2000, significantly contributing to operating losses during the
fourth quarter of fiscal year 1999. The process of introducing new products,
sequels or product enhancements is extremely difficult and will only become more
difficult as new platforms and technologies emerge. Competitive factors in our
industry demand that we create increasingly sophisticated products, which in
turn makes it difficult to produce and release these products on a predictable
schedule.

     WE MAY BE UNABLE TO DEVELOP, MARKET AND PUBLISH NEW PRODUCTS IF WE ARE
UNABLE TO SECURE OR MAINTAIN RELATIONSHIPS WITH INDEPENDENT SOFTWARE
DEVELOPERS.  Although we have substantially increased our internal software
capabilities over the last five years, we are still dependent, to a meaningful
degree, upon independent software developers. For the fiscal year ended March
31, 2000, approximately 46% of our Frontline publishing revenues were derived
from products developed by independent developers. Consequently, our success
depends in part on our continued ability to obtain or renew product development
agreements with independent developers. However, we cannot assure you that we
will be able to obtain or renew these product development agreements on
favorable terms, or at all, nor can we assure you that we will be able to obtain
the rights to sequels of successful products which were originally developed by
independent developers for the Company. In addition, many of our competitors
have greater access to capital than we do, which puts us at a competitive
disadvantage when bidding to attract independent developers to enter into
publishing agreements with us.

     Our agreements with independent software developers are easily terminable,
often without notice, if either party declares bankruptcy, becomes insolvent,
ceases operations or materially breaches its agreement and fails to cure that
breach within a designated time frame. In addition, many independent software
developers have limited financial resources. Many are small companies with a few
key individuals without whom a project may be difficult or impossible to
complete. Consequently, we are exposed to the risk that these

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<PAGE>   14

developers will go out of business before completing a project, or simply cease
work on a project, for which we have hired them.

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

     INDEPENDENT DEVELOPERS MAY PUBLISH THEIR OWN PRODUCTS INSTEAD OF USING THE
COMPANY TO PUBLISH AND DISTRIBUTE THEIR PRODUCTS, OR MAY SIGN PUBLICATION
AGREEMENTS WITH OUR COMPETITORS, EITHER OF WHICH MAY ADVERSELY AFFECT OUR
ABILITY TO DEVELOP, MARKET AND PUBLISH NEW PRODUCTS. For example, in January
1998, a consortium in which certain independent developers purport to have
ownership interests, announced that it secured publishing rights with respect to
software titles to be produced by these developers, which include Apogee
Software (3D Realms), developer of Duke Nukem and Prey, and Epic Games,
developer of Unreal. Although the consortium also announced that these
developers will honor their existing obligations to other software publishers,
we do not know if the competitive pressures exerted by the consortium will
inhibit us from establishing and maintaining relationships with independent
software developers in the future.

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

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

     OUR REVENUE GROWTH AND COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED IF WE
ARE UNABLE TO ANTICIPATE AND ADAPT TO RAPIDLY CHANGING TECHNOLOGY.  The consumer
software industry is characterized by rapidly changing technology. The
introduction of new technologies, including new technologies that support
multi-player games and new media formats such as on-line delivery and digital
video disks (DVDs), could render our previously released products obsolete or
unmarketable. We must continually anticipate the emergence of, and adapt our
products to, new technologies and systems. In addition, the development cycle
for products designed to operate on new systems can be significantly longer than
our current development cycles. When we choose to publish or develop a product
for a new system, we may need to make a substantial development investment one
or two years in advance of when we actually ship products for that system. If we
develop products for a new system that is ultimately unpopular, our revenues
from that product may be less than expected and we may not be able to recoup our
investment. Conversely, if we choose not to publish products for a new system
that is ultimately popular, our revenue growth and competitive position may be
adversely affected. While 32- and 64-bit game systems, such as Sony PlayStation
and Nintendo 64, continue to be popular and their installed base has reached
significant levels in the U.S. and worldwide, new systems such as Microsoft's
Xbox are being developed. For example, Sony introduced the PlayStation 2, a
128-bit system that incorporates DVD technology, in Japan in March 2000 and
plans to introduce it to overseas markets by fall 2000. If successfully
developed, these new systems would require us to reassess our commitment to 32-
and 64-bit game systems or any new systems which are introduced.

                                       11
<PAGE>   15

     BECAUSE SOME LICENSORS HAVE SIGNIFICANT CONTROL OVER THE COMPANY'S
PRODUCTS, THERE MAY BE MATERIAL DELAYS OR INCREASES IN THE COST OF MANUFACTURING
THOSE PRODUCTS.  We are required to obtain a license to develop and distribute
software for each of the video game systems for which we develop products. We
currently have licenses from Sony to develop products for the Sony PlayStation,
and Nintendo to develop products for Nintendo 64. Our contracts with Sony and
Nintendo often grant them significant control over the manufacturing of the
Company products. For example, we are obligated to submit new games to Sony or
Nintendo for approval prior to development and/or manufacture. In some
circumstances, this could adversely affect the Company by:

     - leaving the Company unable to have its products manufactured and shipped
       to customers,

     - increasing manufacturing lead times and expense to us over the lead times
       and costs we could achieve independently,

     - delaying the manufacture and, in turn, the shipment of products, and

     - requiring the Company to take significant risks in prepaying for and
       holding its inventory of products.

     These factors could materially and adversely affect our business, operating
results and financial condition.

     THE LOSS OF OUR SENIOR MANAGEMENT AND SKILLED PERSONNEL COULD NEGATIVELY
AFFECT OUR BUSINESS.  In late 1999 and early 2000, we replaced several of our
most senior executive officers. Our success will depend to a significant degree
upon the performance and contribution of our senior management team and upon our
ability to attract, motivate and retain highly qualified employees with
technical, management, marketing, sales, product development and other creative
skills. In the computer software industry, competition for highly skilled and
creative employees is intense and costly. We expect this competition to continue
for the foreseeable future, and we may experience increased costs in order to
attract and retain skilled employees.

     We cannot assure you that we will be successful in attracting and retaining
skilled personnel. Our business, operating results and financial condition could
be materially and adversely affected if we lost the services of senior employees
or if we failed to replace other employees who leave or to attract additional
qualified employees.

     SIGNIFICANT COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.  The market for our products is highly competitive and relatively few
products achieve significant market acceptance. Currently, we compete primarily
with other publishers of interactive entertainment software for both personal
computers and video game consoles. Our competitors include Electronic Arts Inc.,
Mattel Inc., Hasbro Corporation, Havas SA, and Activision. In addition, some
large software companies (including Microsoft), media companies and film
studios, such as Walt Disney Company, are increasing their focus on the
interactive entertainment and edutainment software market and may become
significant competitors of the Company. As compared to the Company, many of our
current and future competitors may have significantly greater financial,
technical and marketing resources than we do. As a result, these current and
future competitors may be able to:

     - respond more quickly to new or emerging technologies or changes in
       customer preferences,

     - carry larger inventories,

     - undertake more extensive marketing campaigns,

     - adopt more aggressive pricing policies, and

     - make higher offers or guarantees to software developers and licensors
       than the Company.

     We may not have the resources required for us to respond effectively to
market or technological changes or to compete successfully with current and
future competitors. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on our business, operating results or financial
condition. We cannot assure you that we will be able to
                                       12
<PAGE>   16

successfully compete against our current or future competitors or that
competitive pressures will not have a material adverse effect on our business,
operating results and financial condition.

     REVENUES FROM OUR DISTRIBUTION BUSINESS MAY DECLINE AS COMPETITION
INCREASES AND INTERNET TECHNOLOGY IMPROVES.  During the fiscal year ended March
31, 2000, revenues from our distribution business were approximately 33% of net
revenues. Recently, several of our customers have begun to purchase directly
from software publishers rather than purchasing software through the Company.
New video game systems and electronic delivery systems may be introduced into
the software market and potential new competitors may enter the software
development and distribution market, resulting in greater competition. In
addition, revenues from our distribution business may be adversely affected as
Internet technology is improved to enable consumers to purchase and download
full-version software products or order products directly from publishers or
from unauthorized or illegal sources over the Internet.

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

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

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

                                       13
<PAGE>   17

     WE MAY BE AT A COMPETITIVE DISADVANTAGE IF WE ARE UNABLE TO SUCCESSFULLY
IMPLEMENT OUR INTERNET STRATEGY.  To take advantage of Internet opportunities,
we have, and will continue to:

     - expand our World Wide Web sites and the development of our Internet
       infrastructure and capabilities,

     - expand our electronic distribution capabilities,

     - incorporate on-line functionality into existing products, and

     - develop and invest in new Internet-based businesses and products,
       including multi-player entertainment products.

     Implementing our Internet strategy has been costly. We have incurred, and
expect to incur, significant additional costs in connection with these efforts.
These costs include those associated with the acquisition and maintenance of
hardware and software necessary to permit on-line commerce and multi-player
games, as well as the related maintenance of our website and personnel. Although
we believe these platforms and technologies are an integral part of our
business, we cannot assure you that our Internet strategy will be successful or
that we will be able to recoup the cost of our investment.

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

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

ITEM 2.  PROPERTIES

     The Company's principal administrative, sales, marketing and development
facilities are located in approximately 90,000 square feet of space at 417 Fifth
Avenue in New York City under a lease expiring in 2007, which commenced in
December 1996. The Company subleased 30,000 square feet of this space beginning
on April 1, 2000.

     Certain product development and marketing divisions are located in
approximately 7,600-square-feet of office space in San Francisco, California,
under a lease that expires in July 2000.

     The Leisure Division has a lease for 23,400 square feet of office space in
Plymouth, Minnesota that expires in February 2003.

     In Scottsdale, Arizona, the Company leases a 25,000-square-foot office
space under a lease expiring in March 2006 that has been sublet for the
remaining term. It also leased a 2,900-square-foot office space under a lease
that expired in May 2000.

     The Company has leased approximately 83,000 square feet of office space
under two separate leases to house its Humongous subsidiary in Bothell,
Washington, under leases expiring in May 2008 and June 2004.

                                       14
<PAGE>   18

     The Company has assumed leases in connection with certain of its
acquisitions and entered into leases for certain of its internal development
studios, totaling approximately 76,000 square feet with lease expiration dates
from June 2000 through September 2010. These properties are located in Utah,
England, the Netherlands, Germany and France.

     The Company maintains two facilities in London, England totaling
approximately 19,200 square feet, from which it conducted a substantial portion
of its European operations, under leases that expire in December 2000 and March
2012. The Company is in the process of shutting down its European operations and
is seeking to assign the lease expiring in March 2012 to Infogrames SA.

     The Company also maintains approximately 6,200 square feet of office space
in Australia under leases that expire in September 2000 and November 2000.

ITEM 3.  LEGAL PROCEEDINGS

     On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software developer,
filed a lawsuit against the Company in Supreme Court, New York County, claiming
that the Company breached a software development contract between the parties
dated November 28, 1995. Scavenger alleges that the Company, after paying $2.5
million in advances and accepting delivery of gold master disks for two computer
games, refused to pay any more advances, including advances relating to the
development of two additional games under the agreement. Scavenger is suing for
the remaining advances ($4.3 million) and for future royalties ($5 million), and
also seeks consequential damages for allegedly being forced out of business
($100 million) and losing contracts with unspecified third parties ($4 million)
as a result of the Company's alleged breach. The Company filed an answer and
counterclaim, in which it denies any liability to Scavenger and alleges, among
other things, that the contract was lawfully terminated when Scavenger failed to
deliver the two remaining games after receiving from the Company written notice
to cure its material breaches. By its counterclaim, the Company seeks damages
and restitution for at least $5 million on grounds of breach of contract and
unjust enrichment.

     By order entered March 3, 2000, the Court granted Scavenger's motion for
partial summary judgment on its claim for $1.9 million allegedly due on the two
delivered games and judgment was entered on March 14, 2000 in the amount of
$2,411,114 (reflecting pre-judgment interest on the claim). The Company posted a
bond in the amount of the judgment and immediately appealed from this order and
judgment to the Appellate Division, First Department. On June 8, 2000, the
Appellate Division, First Department affirmed the order and judgment entered by
the Supreme Court. The Company has moved for leave to appeal to the Court of
Appeals.

     In its order of March 3, 2000, the Court denied Scavenger's motion for
partial summary judgment seeking $2.4 million on the two games never delivered.
In addition, the Court denied Scavenger's motion for leave to amend the
complaint to add claims for fraud and seeking damages of $100 million.

     The Company moved for partial summary judgment seeking dismissal of the
claim for consequential damages ($75-125 million) and additional royalties ($5
million). By order entered June 21, 2000, the Court denied the Company's motion
and granted Scavenger leave to conduct an audit of royalties allegedly due to
Scavenger.

     In January, February and March 1998, ten substantially similar complaints
were filed against the Company, its former Chairman and its former Chief
Executive Officer, and in certain actions, its former Chief Financial Officer,
in the U.S. District Court for the Southern District of New York. The
plaintiffs, in general, purport to sue on behalf of a class of persons who
purchased shares (and as to certain complaints, purchased call options or sold
put options) of the Company during the period from August 1, 1996 through
December 12, 1997. The plaintiffs allege that the Company violated the federal
securities laws by making misrepresentations and omissions of material facts
that allegedly artificially inflated the market price of the Company's Common
Stock during the class period. The plaintiffs further allege that the Company
failed to expense properly certain prepaid royalties for software products that
had been terminated or had failed to achieve technological feasibility, or had
insufficient sales to recoup the paid advances, which misstatements purportedly
had the

                                       15
<PAGE>   19

effect of overstating the Company's net income and net assets. Motions were made
by certain groups of plaintiffs for their appointment as lead plaintiffs in the
actions. On October 7, 1998, the Court appointed lead plaintiffs and lead
counsel to the plaintiffs in the actions. The plaintiffs' consolidated and
amended complaint was filed and served in early January 1999. By order dated
January 23, 1999, the plaintiffs were granted leave to file a second
consolidated and amended complaint, which added claims under Section 10(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
10b-5 under the Exchange Act against the Company's independent auditors, Arthur
Andersen LLP. The Company and Arthur Andersen LLP each filed motions to dismiss
the second consolidated and amended complaint. By order and opinion dated
November 29, 1999, the Court granted the motion to dismiss. Plaintiffs have
appealed from the dismissal of the action, and oral argument on the appeal was
held on June 8, 2000. The Company believes that these complaints are without
merit and intends to defend itself vigorously against these actions.

     On April 12, 1999, an action was commenced by the administrators for three
children who were murdered on December 1, 1997 by Michael Carneal at Heath High
School in McCracken County, Kentucky. The action was brought against 25
defendants, including the Company and other corporations in the video game
business, companies that produced or distributed the movie "The Basketball
Diaries," and companies that allegedly provide obscene internet content. The
complaint alleges, with respect to the Company and other video game
corporations, that Carneal was influenced by the allegedly violent content of
certain video games and that the video game manufacturers are liable for
Carneal's conduct. The complaint seeks $10 million in compensatory damages and
$100 million in punitive damages. The Company and approximately ten other
videogame corporations have entered into a joint defense agreement and have
retained counsel. By order entered April 6, 2000, the Court granted a motion to
dismiss the complaint. Plaintiffs have filed a motion to vacate the dismissal of
the action, and this motion is currently being briefed.

     On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer, filed
a lawsuit in New York Supreme Court claiming that the Company failed to
adequately pursue bundling opportunities for the software game "Rebel Moon
Rising MMX" and unlawfully rejected the ninth milestone deliverable for the
software game "Rebel Moon Revolution" under a development contract between the
parties dated June 26, 1996. The complaint asserts five claims of breach and
intentional interference, which seek $100,000 for the nonpayment and rejection
of milestone nine, $400,000 for the balance of payments under the contract,
$775,000 for alleged lost bundling opportunities, $775,000 for alleged
intentional interference with bundling arrangements and $500,000 for alleged
interference with contractual relations. In an October 20, 1999 opinion and
order, the court granted the Company's motion to dismiss three of the five
claims so that only the milestone nine contract and bundling claims remain.
Fenris has filed a notice of appeal from the dismissal of the $400,000 claim for
the balance of payments under the contract; and the Company has filed a
counterclaim for breach seeking to recover not less than the $800,000 in
milestone payments advanced for the development of "Rebel Moon Revolution."
Fenris has moved for summary judgment on its first cause of action ($100,000),
and the Company has moved for summary judgment dismissing the bundling claim.
The Company intends to vigorously defend this action and pursue its
counterclaim.

     On February 7, 2000, Hasbro Interactive Inc., its subsidiary Atari
Interactive, Inc. and Zao Elorg d/b/a Elorg Corporation filed a lawsuit against
the Company and five other companies in Massachusetts federal court. The
complaint asserts claims against the Company for copyright infringement and
unfair competition based on the sale of the computer videogames entitled
"HemiRoids," "Patriot Command," "Bricklayer," "3D TetriMadness," "3D Munch Man,"
"3D Munch Man II" and "Mac-Man," as well as claims for trademark infringement
and dilution for use of the name "3D TetriMadness." The complaint seeks
injunctive relief, actual profits, statutory damages, attorneys' fees and costs
pursuant to federal copyright and trademark laws, as well as common law damages.
By settlement agreement dated March 29, 2000, the Company settled this action
and agreed to stop manufacturing and/or distributing the allegedly infringing
games.

     Additionally, the Company is involved in various claims and legal actions
arising in the ordinary course of business, the ultimate resolution of which
management believes will not be material to the Company's results of operations
or financial condition.

                                       16
<PAGE>   20

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     On April 6, 2000, the Board of Directors approved an amendment to the
Company's Amended and Restated Certificate of Incorporation to effectuate a
one-for-five reverse stock split of the issued and outstanding shares of Common
Stock. The amendment was approved by the written consent of California U.S.
Holdings, Inc., a California corporation and wholly owned subsidiary of
Infogrames SA ("CUSH"), as the holder of a majority of the outstanding Common
Stock, on April 6, 2000. On May 12, 2000 and June 5, 2000, the Company filed
Information Statements on Schedule 14C (the "Information Statements") pursuant
to the requirements of Rule 14c-2 under Section 14 of the Exchange Act to inform
holders of Common Stock entitled to vote or give an authorization or consent in
regard to the action authorized by written consent of CUSH of the action so
taken. The Information Statements are filed as an exhibit to this Annual Report
on Form 10-K and the contents of the Information Statements are incorporated by
reference into this Annual Report.

                                    PART II

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

     The Company's Common Stock is quoted on the Nasdaq National Market. The
high and low sale prices for the Common Stock as reported by the Nasdaq National
Market for the three-month transition period ended March 31, 1998 and the fiscal
years ended March 31, 1999 and 2000 are summarized below. These over-the-counter
market quotations reflect inter-dealer prices, without retail mark-ups,
mark-downs, or commissions and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
                                                                HIGH         LOW
                                                              ---------    -------
<S>                                                           <C>          <C>
1998
  Three-Month Transition Period.............................  $ 8 9/16     $5 5/16
Fiscal 1999
  First Quarter.............................................  $11 1/8      $7
  Second Quarter............................................  $ 9          $4 1/2
  Third Quarter.............................................  $ 7 7/16     $3 3/4
  Fourth Quarter............................................  $ 5 13/16    $3 7/8
Fiscal 2000
  First Quarter.............................................  $ 4 1/2      $2 3/4
  Second Quarter............................................  $ 3 11/16    $2 9/16
  Third Quarter.............................................  $ 3 3/16     $1 21/32
  Fourth Quarter............................................  $ 4 1/4      $1 7/8
</TABLE>

     On June 22, 2000, the last reported sale price of the Common Stock on the
Nasdaq National Market was $1 7/8. As of June 22, 2000, there were approximately
201 registered holders of record of the Common Stock.

     On June 26, 2000, the Company effected a one-for-five reverse stock split
of the Common Stock to meet certain requirements of the Nasdaq National Market.
See "Risk Factors -- Our Common Stock Does Not Currently Meet the Nasdaq
National Market's Minimum Share Price Requirement and May Be Subject to
Delisting." Except as otherwise noted, references to share prices and the number
of shares of Common Stock in this Annual Report do not reflect the reverse stock
split.

     The Company currently anticipates that it will retain all of its future
earnings for use in the expansion and operation of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. In addition, the payment of cash dividends may be limited by financing
agreements entered into by the Company in the future.

                                       17
<PAGE>   21

RECENT SALES OF UNREGISTERED SECURITIES

     Infogrames SA, the majority stockholder of the Company (through its
wholly-owned subsidiary, CUSH), entered into an agreement, dated as of February
15, 2000, with First Union National Bank, as agent for a syndicate of banks
(together, the "Banks"), pursuant to which Infogrames SA assumed the Banks'
interest in the Company's credit agreement (the "Credit Agreement"). In
connection with the assumption by Infogrames SA of the Credit Agreement, certain
warrants exercisable by the Banks on February 28, 2000 if the Credit Agreement
was not repaid prior to such date were canceled and warrants to acquire 225,000
shares of the Company's Common Stock, at an exercise price of $0.01 per share
were issued to Infogrames SA.

                                       18
<PAGE>   22

ITEM 6.  SELECTED FINANCIAL DATA

     The following tables set forth selected consolidated financial information
of the Company which, for each of the years in the three year period ended
December 31, 1997, the three months ended March 31, 1998 and the years ended
March 31, 1999 and 2000, is derived from the audited consolidated financial
statements of the Company. Consolidated financial information for the three
months ended March 31, 1997 and the twelve months ended March 31, 1998 is
unaudited. These tables should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Annual Report on Form 10-K. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                YEARS ENDED         THREE MONTHS ENDED                YEARS ENDED
                                               DECEMBER 31,             MARCH 31,                      MARCH 31,
                                            -------------------   ----------------------   ----------------------------------
                                              1996       1997        1997         1998        1998         1999       2000
                                            --------   --------   -----------   --------   -----------   --------   ---------
                                                                  (UNAUDITED)              (UNAUDITED)
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>           <C>        <C>           <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..............................  $365,490   $530,677     $93,381     $105,767    $543,063     $572,342   $ 375,569
Cost of Goods Sold........................   214,580    315,134      57,883       57,092     314,343      329,957     296,301
                                            --------   --------     -------     --------    --------     --------   ---------
  Gross Profit............................   150,910    215,543      35,498       48,675     228,720      242,383      79,268
Selling and distribution expenses.........    76,235     98,689      16,538       24,467     106,618      147,499     147,814
General and administrative expenses.......    31,157     46,611       8,623       10,655      48,643       66,616      87,113
Research and development..................     5,633     13,824       2,397       10,866      22,293       76,870      66,574
Royalty advance write-off.................        --     73,821          --           --      73,821           --          --
Restructuring and other charges...........        --         --          --           --          --       17,479      37,948
Purchased research and development........        --     11,008          --           --      11,008        5,000          --
SingleTrac retention bonus................        --      2,400          --           --       2,400        1,680          --
Amortization of goodwill..................     1,092      1,295         347          636       1,584        3,349       3,110
                                            --------   --------     -------     --------    --------     --------   ---------
Operating income (loss)...................    36,793    (32,105)      7,593        2,051     (37,647)     (76,110)   (263,291)
Interest Expense..........................        --     (1,010)         --         (557)     (1,567)      (5,108)    (17,167)
Other Income (loss).......................     3,974     (1,065)        247         (832)     (2,144)        (207)       (793)
                                            --------   --------     -------     --------    --------     --------   ---------
Income (loss) before provision for
  (benefit from) income taxes.............    40,767    (34,180)      7,840          662     (41,358)     (81,425)   (281,251)
         Total provision for (benefit
           from) income taxes.............    15,628     (9,157)      3,386          304     (12,239)     (29,628)     40,882
                                            --------   --------     -------     --------    --------     --------   ---------
Net income (loss) from continuing
  operations..............................    25,139    (25,023)      4,454          358     (29,119)     (51,797)   (322,133)
Discontinued operations:
  Loss from operations of OZM.............        --         --          --           --          --       (3,531)         --
  Loss on disposal of OZM.................        --         --          --           --          --      (15,510)       (477)
                                            --------   --------     -------     --------    --------     --------   ---------
  Loss from discontinued operations.......        --         --          --           --          --      (19,041)       (477)
                                            --------   --------     -------     --------    --------     --------   ---------
Net income (loss) before extraordinary
  item....................................    25,139    (25,023)      4,454          358     (29,119)     (70,838)   (322,610)
Extraordinary item:
  Gain on early extinguishment of debt
    (net of tax of $1,312)................        --         --          --           --          --           --       1,888
                                            --------   --------     -------     --------    --------     --------   ---------
Net income (loss) before dividends on
  preferred stock.........................    25,139    (25,023)      4,454          358     (29,119)     (70,838)   (320,722)
  Less dividends on preferred stock.......        --         --          --           --          --          226          --
                                            --------   --------     -------     --------    --------     --------   ---------
Net income (loss) attributable to common
  stockholders............................  $ 25,139   $(25,023)    $ 4,454     $    358    $(29,119)    $(71,064)  $(320,722)
                                            ========   ========     =======     ========    ========     ========   =========
</TABLE>

                                       19
<PAGE>   23

<TABLE>
<CAPTION>
                                                YEARS ENDED         THREE MONTHS ENDED                YEARS ENDED
                                               DECEMBER 31,             MARCH 31,                      MARCH 31,
                                            -------------------   ----------------------   ----------------------------------
                                              1996       1997        1997         1998        1998         1999       2000
                                            --------   --------   -----------   --------   -----------   --------   ---------
                                                                  (UNAUDITED)              (UNAUDITED)
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>           <C>        <C>           <C>        <C>
Basic income (loss) per share from
  continuing operations...................  $   1.89   $  (1.87)    $  0.33     $   0.03    $  (2.16)    $  (3.72)  $  (19.58)
Basic loss per share from discontinued
  operations..............................        --         --          --           --          --     $  (1.37)  $    (.03)
Basic income per share from extraordinary
  item....................................        --         --          --           --          --           --        0.11
                                            --------   --------     -------     --------    --------     --------   ---------
Basic income (loss) per share.............  $   1.89   $  (1.87)    $  0.34     $   0.03    $  (2.16)    $  (5.10)  $  (19.50)
  Weighted average shares
    outstanding(1)........................    13,278     13,396      13,279       13,588      13,473       13,931      16,451
                                            ========   ========     =======     ========    ========     ========   =========
Diluted income (loss) per share from
  continuing operations...................  $   1.84   $  (1.87)    $  0.33     $   0.03    $  (2.16)    $  (3.72)  $  (19.58)
Diluted income (loss) per share from
  discontinued operations.................        --         --          --           --          --     $  (1.37)  $   (0.03)
Diluted income per share from
  extraordinary item......................        --         --          --           --          --           --        0.11
                                            --------   --------     -------     --------    --------     --------   ---------
Diluted income (loss) per share...........  $   1.84   $  (1.87)    $  0.33     $   0.03    $  (2.16)    $  (5.10)  $  (19.50)
  Weighted average shares
    outstanding(1)........................    13,663     13,396      13,472       13,677      13,473       13,931      16,451
                                            ========   ========     =======     ========    ========     ========   =========
</TABLE>

<TABLE>
<CAPTION>
                                                              DECEMBER 31,                    MARCH 31,
                                                          --------------------    ---------------------------------
                                                            1996        1997        1998        1999        2000
                                                          --------    --------    --------    --------    ---------
<S>                                                       <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments....  $ 76,584    $ 39,713    $ 17,329    $ 13,512    $  19,587
Working capital (deficit)...............................   113,652      77,965      69,994     131,770     (104,834)
Total assets............................................   308,794     370,165     295,862     438,911      159,207
Total debt..............................................     1,415      54,619      28,017      98,750      169,526
Stockholders' equity (deficit)..........................   152,138     134,241     138,889     127,133     (154,219)
</TABLE>

---------------
(1) Reflects the one-for-five reverse stock split effected on June 26, 2000. All
    periods have been restated to reflect the reverse stock split.

                                       20
<PAGE>   24

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

OVERVIEW

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

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

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

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

     Along with its industry competitors, the Company had historically
capitalized royalties advanced to third-party developers as a prepayment in
current assets and evaluated the realization of these royalty advances on a
quarterly basis. The market changes noted above have made it extremely difficult
to determine the likelihood of individual product acceptance and success. As a
result, in the quarter ended December 31, 1997, the Company expensed royalty
advances of $73.8 million on products that were in development or on sale. In
connection with this change in the dynamics of the marketplace, the Company
changed its accounting, beginning on January 1, 1998, for future royalty
advances, treating such costs as research and development expenses, which are
expensed as incurred. Multi-year output advances will continue to be capitalized
as royalty advances and expensed over the development periods, in accordance
with generally accepted accounting principles.

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

                                       21
<PAGE>   25

     Sales are recorded net of expected future returns. Higher than anticipated
returns were experienced in the last fiscal year, and management has taken a
substantial provision for price protection as stated below. Management
continually assesses and re-evaluates the rate of returns and price protection
based on business conditions and market factors.

     In 1998, the Company acquired One Zero Media, Inc. ("OZM"), Reflections
Interactive Limited ("Reflections"), Legend and Home Software Benelux B.V.
("Homesoft"). Financial results of these companies have been included in the
Company's Consolidated Financial Statements for the period since the
acquisitions, which were accounted for as purchases. At March 31, 1999, OZM is
accounted for as a discontinued operation, as it was the Company's intention to
sell OZM. OZM was sold on July 28, 1999 for $5.2 million in cash. This resulted
in an additional loss for the three months ended September 30, 1999 from
discontinued operations of $0.5 million. The initial loss recorded in the prior
fiscal year of $19.0 million included a provision of $5.0 million for operating
losses during the phase-out period.

     Effective January 1, 1998, the Company changed its fiscal year from
December 31 to March 31. Accordingly, the discussion of financial results set
forth below compares the twelve months ended March 31, 2000 to the twelve months
ended March 31, 1999, the twelve months ended March 31, 1999 to the twelve
months ended March 31, 1998, the three months ended March 31, 1998 to the
comparable 1997 period, and the twelve months ended December 31, 1997 to the
comparable 1996 period.

                                       22
<PAGE>   26

RESULTS OF OPERATIONS

     The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for each of the years in the two
years ended December 31, 1997, the three months ended March 31, 1998 and the
twelve months ended March 31, 1999 and 2000, which is derived from the audited
consolidated financial statements of the Company. The consolidated financial
information for the three months ended March 31, 1997 and the twelve months
ended March 31, 1998 is derived from the unaudited financial statements of the
Company.

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                               YEARS ENDED          ENDED               YEARS ENDED
                                               DECEMBER 31,       MARCH 31,              MARCH 31,
                                              --------------    --------------    -----------------------
                                              1996     1997     1997     1998     1998     1999     2000
                                              -----    -----    -----    -----    -----    -----    -----
<S>                                           <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net revenues................................  100.0%   100.0%   100.0%   100.0%   100.0%   100.0%   100.0%
Cost of goods sold..........................   58.7     59.4     62.0     54.0     57.9     57.7     78.9
                                              -----    -----    -----    -----    -----    -----    -----
  Gross Profit..............................   41.3     40.6     38.0     46.0     42.1     42.3     21.1
Selling and distribution expenses...........   19.9     18.6     17.7     23.1     19.6     25.8     39.4
General and administrative expenses.........    9.5      8.8      9.2     10.1      9.0     11.6     23.2
Research and development....................    1.5      2.6      2.6     10.3      4.1     13.4     17.7
Royalty advance write-off...................     --     13.9       --       --     13.6       --       --
Restructuring and other charges.............     --       --       --       --       --      3.1     10.1
Purchased research and development..........     --      2.1       --       --      2.0      0.9       --
SingleTrac retention bonus..................     --      0.4       --       --      0.4      0.3       --
Amortization of goodwill....................    0.3      0.2      0.4      0.6      0.3      0.6      0.8
                                              -----    -----    -----    -----    -----    -----    -----
Operating income (loss).....................   10.1     (6.0)     8.1      1.9     (6.9)   (13.3)   (70.1)
Interest Expense............................     --     (0.2)      --     (0.5)    (0.3)    (0.8)    (4.6)
Other income (loss).........................    1.1     (0.2)    (0.3)    (0.8)    (0.4)    (0.1)    (0.2)
                                              -----    -----    -----    -----    -----    -----    -----
Income (loss) before provision for (benefit
  from) Income taxes........................   11.2     (6.4)     8.4      0.6     (7.6)   (14.2)   (74.9)
Provision for (benefit from) income taxes...    4.3     (1.7)     3.6      0.3     (2.3)    (5.2)    10.9
                                              -----    -----    -----    -----    -----    -----    -----
Net income (loss) from continuing
  operations................................    6.9     (4.7)     4.8      0.3     (5.4)    (9.1)   (85.8)
Discontinued operations:
  Loss from operations of OZM...............     --       --       --       --       --     (0.6)      --
  Loss on disposal of OZM...................     --       --       --       --       --     (2.7)    (0.1)
                                              -----    -----    -----    -----    -----    -----    -----
  Loss from discontinued operations.........     --       --       --       --       --     (3.3)    (0.1)
                                              -----    -----    -----    -----    -----    -----    -----
  Net income (loss) before extraordinary
    item....................................    6.9     (4.7)     4.8      0.3     (5.4)   (12.4)   (85.9)
Extraordinary item:
  Gain on early extinguishment of debt, net
    of tax..................................     --       --       --       --       --       --      0.5
                                              -----    -----    -----    -----    -----    -----    -----
Net income (loss) before dividends on
  preferred stock...........................    6.9     (4.7)     4.8      0.3     (5.4)   (12.4)   (85.4)
  Less dividends on preferred stock.........     --       --       --       --       --       --       --
                                              -----    -----    -----    -----    -----    -----    -----
Net income (loss) attributable to common
  stockholders..............................    6.9%    (4.7)%    4.8%     0.3%    (5.4)%  (12.4)%  (85.4)%
                                              =====    =====    =====    =====    =====    =====    =====
</TABLE>

TWELVE MONTHS ENDED MARCH 31, 2000 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1999

     Net revenues for fiscal 2000 decreased approximately $196.8 million, or
34.4%, to $375.6 million from $572.3 million in fiscal 1999. This decrease is
attributable to the restructuring of the Company's publishing business, the
acquisition by Infogrames SA of a controlling interest in the Company and the
Company's decision to downsize its distribution business, whereby substantially
less product was shipped in the last four months of the fiscal year.
Additionally, some of the Company's larger retail customers continue to purchase
consumer software directly from several large publishers whose software was
previously sold through the Company.

                                       23
<PAGE>   27

     Total publishing revenue decreased 15.8% to $252.0 million in fiscal 2000
from $299.4 million in fiscal 1999. Approximately 55% of such revenues related
to PC product revenues and 45% of such revenues related to console game revenues
in fiscal 2000, as compared to 58% and 42%, respectively, in fiscal 1999.

     While the consumer software business is typically seasonal, the granting of
price protection and returns of products in fiscal 2000 exceeded expectations.
As consumer pricing has become more competitive, the Company is finding more
frequently that it is necessary to offer mark-downs for products which have not
yet sold through to the consumer, or to accept a higher level of returns of
product that are not selling at retail, or both. A large portion of aging
customer chargebacks relating to price protection, co-op advertising and
uncollectible accounts were reserved for in the current fiscal quarter.

     A significant portion of the Company's revenues in any quarter are
generally derived from software first released in that quarter or in the
immediately preceding quarter. See "Risk Factors -- Our Revenues Will Decline
and Our Competitive Position Will Be Adversely Affected If We Are Unable to
Introduce New Products on a Timely Basis."

     Cost of goods sold for fiscal 2000 decreased approximately $33.7 million,
or 10.2%, to $296.3 million from $330.0 million in fiscal 1999. Cost of goods
sold as a percentage of net revenues increased to 78.9% in fiscal 2000 as
compared to 57.7% in fiscal 1999. The increase, as a percentage of net revenues,
was due to lower overall sales volume, coupled with substantial reserves for
unsellable product, particularly third-party product, which bears a higher cost
than published product, both domestically and internationally.

     Gross profit decreased from $242.4 million (42.3% of net revenues) for the
year ended March 31, 1999 to $79.3 million (21.1% of net revenues) for the year
ended March 31, 2000. This decrease primarily is due to reduced sales volume and
higher cost of goods sold as described above. Gross profit is primarily impacted
by the percentage of sales of CD software as compared to the percentage of sales
of cartridge software. Gross profit may also be impacted from time to time by
the percentage of foreign sales, and the level of returns and price protection
and concessions to retailers and distributors. The Company's margins on sales of
CD software (currently, PlayStation, PCs and Dreamcast) are higher than those on
cartridge software (currently, Nintendo 64 and Game Boy Color) as a result of
significantly lower CD software product costs.

     Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During fiscal 2000, these expenses increased
approximately $0.3 million, or 0.2%, to $147.8 million from $147.5 million in
fiscal 1999. Selling and distribution expenses as a percentage of net revenues
for fiscal 2000 increased to 39.4% as compared to 25.8% in fiscal 1999. The
increase, as a percentage of net revenues, was due to lower overall sales
volume, and the increase in co-op advertising costs due to the write-down of
receivables. This was partially offset by the reduction of freight costs due to
decreased sales volume.

     General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in fiscal 2000 increased approximately $20.5 million, or 30.8%, to
$87.1 million from $66.6 million in fiscal 1999. General and administrative
expenses as a percentage of net revenues increased to 23.2% in fiscal 2000 from
11.6% in fiscal 1999. This increase was due primarily to an increase in salary
expense relating to the severance packages of several senior officers during the
fiscal year, the write-off of uncollectible account receivables, and additional
costs incurred associated with management's reorganization of operations as a
result of the acquisition of a controlling interest in the Company by Infogrames
SA.

     Research and development expenses primarily includes payment of royalty
advances to third-party developers on products that are currently in development
and direct costs of internally developing and producing a title such as salaries
and other related costs. These expenses in fiscal 2000 decreased approximately
$10.3 million, or 13.4%, to $66.6 million from $76.9 million in fiscal 1999.
Research and development, as a percentage of net revenues, increased to 17.7% in
fiscal 2000 from 13.4% in fiscal 1999. The decrease in research and development
expenses is primarily due to the Company entering into fewer new contracts with
external developers, partially offset by a $7.8 million earned-out royalty
payment to Reflections for the title Driver during the three months ended
September 30, 1999, which was paid in cash and Common

                                       24
<PAGE>   28

Stock. Research and development expenses of the Company's internal development
studios, which primarily include Humongous, Legend and Reflections, increased to
$45.7 million in fiscal 2000 from $34.9 million in fiscal 1999.

     Restructuring and other charges of approximately $37.9 million, recorded in
the third and fourth quarters of fiscal 2000, relate to a reorganization of the
Company's Frontline publishing business, the shutdown of a substantial portion
of European publishing operations and outsourcing and down-sizing of the
Company's distribution and assembly functions. Approximately $17.6 million
relates to the write-off of goodwill as a result of the consolidation of the
value distribution division with the Company's publishing division, $12.1
million relates to the shutdown of European operations, including the write-off
of all goodwill other than that relating to the Reflections studio, $6.1 million
relates to impaired assets and $2.1 million relates to the planned severance of
221 employees, primarily administrative functions. The remaining employees to be
terminated received notification prior to year end and will be leaving the
Company over the next three months. Management expects to complete the Company's
reorganization by June 30, 2000. As of March 31, 2000, 88 employees were
terminated under the restructuring plan.

     Amortization of goodwill for fiscal 2000 decreased approximately $0.2
million, or 7.1%, to $3.1 million from $3.3 million in fiscal 1999. This
decrease is attributable to the lower amortization expense as a result of the
write-off of all goodwill, other than the Legend and Reflections studios, in
connection with the Company's reorganization plans.

     Interest expense increased approximately $12.1 million during fiscal 2000
to $17.2 million from $5.1 million in fiscal 1999. The increase was partially
attributable to the increase in interest costs associated with increased
borrowings under the Old Credit Agreement and the Credit Agreement (each as
defined below). The amortization of deferred financing costs relating to the
Credit Agreement and the subordinated notes held by General Atlantic Partners,
LLC (together with its affiliates, "GAP") and members of the Cayre family also
contributed to the increase in interest and other income (expense), net.

     The Company's effective tax rate for fiscal 2000 was 15% compared to 36% in
fiscal 1999. The valuation allowance increased by $134,591 in fiscal 2000,
consisting of a valuation allowance of $48,806 for the beginning deferred tax
asset balance and a valuation allowance of $85,785 for the net change in the
deferred tax asset during the year. Such valuation allowance was necessary due
to the current year operating results and the terminated plans to sell certain
of the Company's businesses which would have resulted in the utilization of the
deferred tax asset. A full valuation allowance has been recorded against the net
deferred tax asset since it is more likely than not that such assets will be
realized in the foreseeable future.

     Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations -- Reporting Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"), as of March 31, 2000, the Consolidated Financial
Statements of the Company reflect the planned disposal of OZM as a discontinued
operation. Accordingly, the revenues, costs and expenses, assets and
liabilities, and cash flows of this business have been excluded from the
respective captions in the Consolidated Balance Sheets, Consolidated Statements
of Operations, Consolidated Statements of Comprehensive Income and Consolidated
Statements of Cash Flows, and have been reported through its planned date of
disposition as "Loss from discontinued operations." As of March 31, 1999, OZM
was accounted for as a discontinued operation and was sold in July 1999. This
resulted in a loss from discontinued operations of $19.5 million, 0.5 million of
which is recognized in the fiscal year 2000.

     The gain on early extinguishment of debt of $3.2 million ($1.3 million net
of tax) relates to the net gain recognized on the issuance of subordinated
convertible notes in exchange for shares of Series A Convertible Preferred Stock
("Preferred Stock") and subordinated notes of the Company held by GAP and the
write-off of deferred financing costs associated with warrants issued in
connection with the assumption of the Old Credit Agreement, and, warrants issued
to GAP and subsequently acquired by Infogrames SA concurrent with the Infogrames
SA transaction on December 16, 1999.

                                       25
<PAGE>   29

TWELVE MONTHS ENDED MARCH 31, 1999 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1998

     Net revenues for fiscal 1999 increased approximately $29.3 million, or
5.4%, to $572.3 million from $543.1 million in fiscal 1998. This growth in net
revenues was attributable to increases in net revenues of Children's publishing,
Leisure publishing and Distribution of $23.2 million, or 108%, $12.5 million, or
39%, and $12.3 million, or 5%, respectively. The increase in Children's net
revenue is attributable to the release of Blue's Clues related titles during
fiscal 1999. The increase in Leisure's net revenue is attributable to the
increased and continuing success of Deer Hunter, Deer Hunter II and Rocky
Mountain Trophy Hunter. The increase in Distribution net revenues for fiscal
1999 is primarily due to an increase in the number of stores supplied and
serviced by the Company.

     These increases are offset by a reduction in Frontline net revenue of $18.7
million, or 8%. The decrease is largely attributable to a $13.5 million, or 71%
decrease in royalty income.

     Cost of goods sold for fiscal 1999 increased approximately $15.6 million,
or 5.0%, to $330.0 million from $314.3 million in fiscal 1998. Cost of goods
sold as a percentage of net revenues decreased to 57.7% in fiscal 1999 as
compared to 57.9% in fiscal 1998. Excluding increased charges for obsolete
inventory between the periods, the cost of goods percentage would have been
55.4% of net revenue in fiscal 1999. This decrease is primarily a result of
increased sales in the Children's and Leisure categories of publishing.

     Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During fiscal 1999, these expenses increased
approximately $40.9 million, or 38.3%, to $147.5 million from $106.7 million in
fiscal 1998. Selling and distribution expenses as a percentage of net revenues
for fiscal 1999 increased to 25.8% as compared to 19.6% in fiscal 1998. The
increase, as a percentage of net revenues, was primarily attributable to the
increase of print advertising worldwide to support the new and existing releases
of the Company's published product and increased cooperative advertising, and
increased premium freight costs due to higher unit volume and the expense of
consolidating inventory of the Company's Plymouth, MN distribution center into
its Edison, NJ distribution center, as compared to fiscal 1998. The overall
increase was also attributable to increased sales volume.

     General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in fiscal 1999 increased approximately $19.0 million, or 40%, to $66.6
million from $47.6 million in fiscal 1998. General and administrative expenses
as a percentage of net revenues increased to 11.6% in fiscal 1999 from 8.8% in
fiscal 1998. This increase was due primarily to increased depreciation
associated with the expansion of the Company's worldwide facilities and the
implementation of enterprise software to enhance the Company's management
information systems worldwide, the increase in bad debt expenses, additional
legal and accounting fees incurred as part of the discontinued private placement
of senior subordinated debt and the write-off of an equity investment.

     Research and development primarily includes payment for royalty advances to
third-party developers on products that are currently in development and direct
costs of internally developing and producing a title such as salaries and other
related costs. These expenses in fiscal 1999 increased approximately $54.6
million, or 244.8%, to $76.9 million from $22.3 million in fiscal 1998. Research
and development, as a percentage of net revenues, increased to 13.4% in fiscal
1999 from 4.1% in fiscal 1998. This increase is primarily due to the change in
accounting effective January 1, 1998, whereby royalty advances on products that
are currently in development are expensed as incurred, and the additional
headcount attributable to increased in-house development capacity. Research and
development of the Company's internal development studios, which, during the
relevant periods, primarily included SingleTrac, Cavedog, Humongous, Legend,
Reflections and Bootprint increased to $34.9 in fiscal 1999 from $17.6 million
in fiscal 1998. Excluding the impact of the change in accounting, research and
development expenses would have increased $28.2 million from $48.7 million to
$76.9 million, or 58%.

     Restructuring charges of approximately $17.5 million, recorded in the
fourth quarter of fiscal 1999, relate to a reorganization of the Company's
Frontline publishing business, a contemplated relocation of corporate
headquarters to California and outsourcing of the Company's distribution
function. Approximately $9.8

                                       26
<PAGE>   30

million relates to the planned severance of 135 employees, $7.1 million relates
to impaired assets and $0.6 million relates to rent for the transition period.
This reorganization was announced on March 19, 1999, and management expects to
complete the reorganization by March 19, 2000.

     The charge for royalty advance write-off of $73.8 million during fiscal
1998 represents a change in estimate and accounting whereby royalty advances on
products that were currently in development or on sale were expensed. In
connection with this change, the Company prospectively expensed royalty advances
in a manner comparable with internal software development costs, which are
expensed to research and development as incurred.

     In connection with the acquisitions of SingleTrac in October 1997 and
Reflections in December 1998, the Company incurred charges of $11.0 million and
$5.0 million, respectively, for purchased research and development. In addition,
the Company incurred a charge of $2.4 million and $1.7 million in fiscal 1998
and fiscal 1999, respectively, for a retention bonus for the SingleTrac
employees, which was based on the achievement of certain performance goals.

     Merger costs consist of legal, accounting and other professional fees
incurred by the Company for the canceled acquisition of MicroProse, Inc., during
fiscal 1998.

     Amortization of goodwill increased approximately $1.8 million, or 111.4% in
fiscal 1999, to $3.3 million from $1.6 million in fiscal 1998. This increase is
attributable to the purchases of Reflections, Homesoft, Prism and Legend in
fiscal 1999.

     Interest and other expenses increased approximately $1.6 million during
fiscal 1999 to $5.3 million from $3.7 million in fiscal 1998. This increase was
primarily attributable to the increase in interest costs associated with
borrowings under the Company's then existing Revolving Credit Agreement.

     The Company's effective tax rate for fiscal 1999 was 36% compared to 30% in
fiscal 1998. The increased rate is attributable to the lower proportion of
non-deductible expenses, primarily purchased research and development and
goodwill, in 1999.

     In February 1999, certain partnerships affiliated with GAP purchased from
the Company 0.6 million shares of the Preferred Stock for an aggregate purchase
price of $30.0 million. These shares of Preferred Stock accumulated dividends at
8.0% and were convertible into 6.0 million shares of Common Stock at a
conversion price of $5 per share.

     The Preferred Stock was exchanged for convertible notes in connection with
the Infogrames SA transaction in December 1999. See Note 2 in the Consolidated
Financial Statements included herein.

     Pursuant to APB 30, the Consolidated Financial Statements of the Company
reflect the planned disposal of OZM as a discontinued operation. Accordingly,
the revenues, costs and expenses, assets and liabilities, and cash flows of this
business have been excluded from the respective captions in the Consolidated
Balance Sheets, Consolidated Statements of Operations, Consolidated Statements
of Comprehensive Income and Consolidated Statements of Cash Flows, and have been
reported through its planned date of disposition as "Loss from discontinued
operations." As of March 31, 1999, OZM is accounted for as a discontinued
operation and it is the Company's present intention to sell OZM, resulting in an
anticipated loss from discontinued operations of $19.0 million. The loss from
operations of OZM represents net expenses of $4.6 million on net revenues of
$1.1 million. The loss on disposal of OZM includes a provision of $5.0 million
for operating losses during the phase-out period, and is primarily attributable
to the write-off of goodwill of approximately $18.3 million. There is no tax
benefit recorded on the loss from discontinued operations, as OZM has
historically generated net losses.

                                       27
<PAGE>   31

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

     Net revenues for 1998 increased approximately $12.4 million, or 13.3%, to
$105.8 million from $93.4 million in the comparable 1997 period. This growth in
net revenues was primarily attributable to a 49% increase in publishing revenue
which includes Frontline, Children's and Leisure. Frontline net revenue
increased $9.4 million, or 36%, from $26.4 million to $35.9 million, as a result
of the sales of Duke Nukem titles for the PlayStation, Nintendo 64 and the PC,
Hexen for Nintendo 64, OddWorld: Abe's Oddysee for the PlayStation, Total
Annihilation for the PC, East Meets West, and Quake for Nintendo 64,
internationally. Leisure publishing's net revenue increased $4.1 million, or
103% as a result of continued strong sales of Deer Hunter and Wild Turkey Hunt
for the PC. Children's net revenue increased $2.6 million or 120% as a result of
newly released titles such as Freddi Fish 3: The Case of the Stolen Conch Shell.
The overall increase in net revenues was partially offset by the decrease in
distribution net revenues to $57.1 million, or 54% of net revenues, in 1998 from
$60.8 million, or 65% of net revenues, in the comparable 1997 period, as a
result of Wal-Mart purchasing software directly from several publishers whose
software was previously sold to Wal-Mart by the Company.

     Cost of goods sold primarily includes costs of purchased products. Cost of
goods sold for 1998 decreased approximately $0.8 million, or 1.4%, to $57.1
million from $57.9 million in the comparable 1997 period. Cost of goods sold as
a percentage of net revenues decreased to 54.0% in 1998 as compared to 62.0% in
the comparable 1997 period. The decrease, as a percentage of net revenues, was
primarily due to the Company's change in accounting with respect to royalty
advances, resulting in the expensing of such advances to research and
development as incurred, rather than recouping such advances based on sales.
Additionally, the Company's overall sales mix of its published product, which
generally have higher margins, increased to 46% of net revenues in 1998 compared
to 35% in the comparable 1997 period. The decrease in cost of goods sold was
partially offset by the higher sales of console titles, which generally have
higher costs than PC titles. Console titles accounted for 45% of published
product revenue in 1998 compared to 17% during the comparable 1997 period.

     Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During 1998 these expenses increased
approximately $7.9 million, or 47.9%, to $24.5 million from $16.5 million in the
comparable 1997 period. Selling and distribution expenses as a percentage of net
revenues for 1998 increased to 23.1% as compared to 17.7% in the comparable 1997
period. The increase, as a percentage of net revenues, was primarily
attributable to the increase of print advertising worldwide to support the new
and existing releases of the Company's published product and increased
cooperative advertising associated with higher published Frontline revenues as
compared to the comparable 1997 period. The overall increase was also
attributable to increased sales volume.

     General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in 1998 increased approximately $2.0 million, or 23.6%, to $10.7
million from $8.6 million in the comparable 1997 period. General and
administrative expenses as a percentage of net revenues increased to 10.1% in
1998 from 9.2% in the comparable 1997 period. This increase was due primarily to
additional personnel required to support the expansion of the Company's
publishing operations and the related amortization associated with the expansion
of the Company's worldwide facilities and the implementation of enterprise
software to enhance the Company's management information systems worldwide.

     Research and development expenses primarily include payment for royalty
advances to third party developers on products that are currently in development
and direct costs of internally developing and producing a title such as salaries
and other related costs. These expenses in 1998 increased approximately $8.5
million, or 353.3%, to $10.9 million from $2.4 million in the comparable 1997
period. Research and development expenses as a percentage of net revenues
increased to 10.3% in 1998 from 2.6% in the comparable 1997 period. This
increase is primarily due to the change in accounting effective for the three
months ended March 31, 1998, whereby royalty advances on products that are
currently in development or on

                                       28
<PAGE>   32

sale are expensed as incurred, and the additional headcount attributable to
increased in-house development capacity primarily the result of the SingleTrac
acquisition.

     Interest and other income (expense), net, decreased approximately $1.6
million during 1998 to an expense of $1.4 million from income of $0.2 million in
the comparable 1997 period. This decrease was primarily attributable to the
decrease in short-term investments and the increase in interest costs associated
with borrowings under the Company's credit agreement.

     The Company's effective tax rate for 1998 was 46% compared to 43% in the
comparable 1997 period. The increase is attributable to the higher proportion of
nondeductible expenses, primarily goodwill, in the current period.

TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996

     Net revenues increased approximately $165.2 million, or 45.2%, to $530.7
million in 1997 from $365.5 million in 1996. Publishing's net revenues increased
by $113.3 million from $152.4 million to $265.7 million or 74%. This growth in
net revenues was primarily attributable to an increase in Frontline net revenue
of $100.9 from $120.5 million to $221.4 million or 84%. The release of newly
published titles, both domestically and internationally, which included
OddWorld: Abe's Oddysee for the PlayStation, Duke Nukem 3D for Nintendo 64 and
the PlayStation, Hexen for Nintendo 64 and the PlayStation and Total
Annihilation for the PC. The international release of Doom II, Mortal Kombat
Trilogy, San Francisco Rush, NBA Hangtime and Mace for Nintendo 64, the domestic
release of Shadow Warrior for the PC, Critical Depth for the PlayStation, Blood
for the PC and Courier Crisis for the PlayStation, as well as the continuing
strong sales of Duke Nukem 3D and Quake and an increase in royalty income (from
licensing of certain of the Company's products in selected international
markets) also contributed to the growth in net revenues. Children's net revenue
increased $5.6 million from $11.1 million to $16.7 million or 50% primarily as a
result of the release of Putt Putt(R) Travels Through Time(TM). Leisure's net
revenue increased $6.8 million, from $20.8 million to $27.6 million, or 33%, as
a result of increased sales of Deer Hunter, Sportsmen's Paradise and Duke 3D
shareware. Distribution's net revenue increased $53.0 million from $213 million
to $265 million, or 25%, as a result of increases in sales from its existing
mass merchant shelf space and an increase in the number of mass merchant stores
supplied and serviced by the Company. This increase was partially offset by the
reduction in revenues resulting from Wal-Mart's decision in the second half of
1997 to purchase products directly from five publishers whose products had been
previously distributed by the Company.

     Cost of goods sold primarily includes costs of purchased products and
royalties paid to software developers. Cost of goods sold increased
approximately $100.6 million, or 46.9%, to $315.1 million in 1997 from $214.6
million in 1996. Cost of goods sold as a percentage of net revenues increased to
59.4% in 1997 as compared to 58.7% in 1996. The increase of 0.7% was primarily
due to the decline in the average wholesale price of the Company's value priced
products and an increase in the sales of Nintendo 64 titles, which have lower
margins. This increase was mostly offset by a shift in the Company's overall
sales mix toward its published products which increased to an aggregate of
approximately 50% of net revenue in 1997 compared to approximately 42% during
1996 and a change in product mix within the products distributed for third
parties to higher margin products.

     Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. These expenses increased approximately $26.2
million, or 36.1%, to $98.7 million in 1997 from $72.5 million in 1996. The
increase is attributable to the overall increase in sales volume. Selling and
distribution expenses as a percentage of net revenues for 1997 decreased to
18.6% as compared to 19.9% for 1996. This decrease was primarily attributable to
the reduction of freight as a percentage of net revenues and the Company
realizing greater economies of scale.

     General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses in 1997 increased approximately $14.4 million, or 46.2%, to $45.6
million in 1997 from $31.2 million in 1996. General and administrative expenses
as a percentage of net revenues increased to 8.6% in 1997 from 8.5% in 1996.
This increase was due primarily to
                                       29
<PAGE>   33

additional personnel required to support the expansion of the Company's
research, development and publishing operations, an increase in the reserve for
bad debts and an increase in depreciation expense due to the write-off of the
leasehold improvements at the Company's former headquarters.

     Research and development expenses primarily include direct costs of
developing and producing a title such as salaries and other related costs. These
expenses in 1997 increased approximately $8.2 million, or 145.4%, to $13.8
million from $5.6 million in 1996. Research and development expenses as a
percentage of net revenues increased to 2.6% in 1997 from 1.5% in 1996. This
increase is primarily due to the in-house development of Humongous titles.

     The charge for royalty advance write-off of $73.8 million during 1997
represents a change in estimate and accounting whereby royalty advances on
products that are currently in development or on sale were expensed. In
connection with this change, the Company will prospectively expense royalty
advances in a manner comparable with internal software development costs, which
are expensed as incurred.

     In connection with the acquisition of SingleTrac, the Company incurred a
charge of $11.0 million for purchased research and development. In addition, the
Company incurred a charge of $2.4 million for a retention bonus for the
SingleTrac employees, which was based on the achievement of certain performance
goals. Pursuant to the SingleTrac purchase agreement, the Company structured a
retention oriented bonus pool of up to approximately $10.0 million in cash and
Common Stock, which was distributed to SingleTrac employees based on the
achievement of certain performance goals of SingleTrac during calendar year
1998.

     Merger costs consist of legal, accounting and other professional fees
incurred by the Company for the canceled acquisition of MicroProse, Inc., during
1997 and to complete other acquisitions and for the Company's canceled secondary
stock offering during 1996.

     Interest and other income (expense), net, decreased approximately $6.0
million during 1997. This decrease was primarily attributable to the decrease in
short-term investments and cash balances and the interest costs associated with
borrowings under the Company credit agreement.

     The Company's effective tax rate, as a percentage of pre-tax income (loss),
decreased in 1997 to 27% compared to 38% in 1996 due to the non-deductible
one-time charge related to the acquisition of in-process research and
development during the year.

     For 1997, the net loss was $25.0 million, or $0.37 per share, compared to
net income of $25.1 million, or $0.38 per share for 1996, with earnings per
share for both 1997 and 1996 calculated based on the basic method. Excluding
one-time charges resulting from the charge for the royalty advance expense,
purchased research and development, the retention bonus for the SingleTrac
employees and the merger costs, the Company would have recognized net income of
$33.9 million or $0.51 per share. Exclusive of the one-time charge for merger
costs, net income for 1996 would have been $27.3 million or $0.40 per share.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2000, the Company's working capital was ($104.8) million
compared to $131.8 million at March 31, 1999. Cash and cash equivalents were
$19.6 million at March 31, 2000 compared to $13.4 million at March 31, 1999.

     During the twelve months ended March 31, 2000, $71.8 million was provided
by financing activities. The Company repaid $27.1 million of its revolving line
of credit and entered into various commitments with Infogrames SA and GAP, as
further described below, for aggregate borrowing proceeds of $80.0 million. The
cash flow from financing activities primarily was used to fund $57.5 million for
net cash used in operating activities which resulted from operating losses, and
a reduction in the accounts payable balance (for past due accounts). This was
offset by a decline in receivables due to a reduction in volume of revenues and
the write-off of aging customer chargebacks relating to price protection, co-op
advertising and uncollectible accounts. Approximately $8.9 million in cash was
used in investing activities to purchase property and equipment, primarily
additional computer hardware and software for the development of internal
systems.

                                       30
<PAGE>   34

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

     On January 21, 1997, the Company entered into a revolving credit agreement
(as amended, the "Old Credit Agreement") with certain banks expiring on December
31, 1998. On September 11, 1998, the borrowings under the Old Credit Agreement
were repaid and the Old Credit Agreement was terminated.

     Simultaneously, on September 11, 1998, the Company entered into the Credit
Agreement with First Union National Bank, as agent for a syndicate of Banks as
subsequently amended, expiring on March 31, 2000. Under the Credit Agreement,
the Company borrowed approximately $71 million for ongoing working capital
requirements, letters of credit and other general corporate purposes, secured by
domestic accounts receivable and inventory and other assets of the Company. To
induce the banks to amend the Credit Agreement, the Company issued the Banks
warrants to purchase, at an exercise price of $0.01 per share, an aggregate of
750,000 shares of the Company's Common Stock. Of these, warrants to purchase
275,000 shares of Common Stock were immediately exercisable, warrants to
purchase 250,000 shares of Common Stock became exercisable on October 31, 1999
and warrants to purchase the remaining 225,000 shares of Common Stock (the "Bank
Warrants") became exercisable on February 28, 2000 if the Credit Agreement was
not repaid prior to that date.

     As of February 15, 2000, Infogrames SA entered into an agreement with the
Banks, pursuant to which Infogrames SA assumed the Banks' interest in the Credit
Agreement. In connection with the assumption by Infogrames SA of the Credit
Agreement, (i) the maturity date was extended from March 31, 2000 to June 30,
2000, (ii) the interest rate, which was the Prime Rate plus 1.0% or LIBOR plus
2.5% at the option of the Company, was set at LIBOR plus 2.5%, (iii) a $250,000
amendment fee, which would have been payable to the Banks on March 31, 2000
unless the Credit Agreement was refinanced by February 16, 2000, was reduced to
$125,000 and paid to Infogrames SA, (iv) certain mandatory prepayment
restrictions and operational covenants were revised to be less restrictive and
(v) revisions were made to provide alternative letter of credit facilities to
the Company. In addition, in connection with the assumption of the Credit
Agreement by Infogrames SA, the Bank Warrants were surrendered and canceled and
warrants to acquire 225,000 shares of Common Stock, at an exercise price of
$0.01 per share, were issued to Infogrames SA.

     At March 31, 2000, the Company had outstanding debt of approximately $71.7
million, representing borrowings under the Credit Agreement, and letters of
credit amounting to approximately $1.6 million.

     On June 29, 2000, Infogrames SA and the Company amended the Credit
Agreement to increase the aggregate commitment available under the facility to
$125 million and to extend the maturity date to September 30, 2000.

     Additionally, the Company is involved in various claims and legal actions
arising in the ordinary course of business, the ultimate resolution of which
management believes will not be material to the Company's results of operations
or financial condition.

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

     The Company believes that existing cash, cash equivalents and short-term
investments, together with cash expected to be generated from operations, cash
available under the Credit Agreement and continued financial support from
Infogrames SA will be sufficient to fund the Company's operations and cash flows
into the second quarter of fiscal 2001.

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

                                       31
<PAGE>   35

RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company will adopt SFAS No. 133 in fiscal 2001,
in accordance with the deferral provision in SFAS No. 137. The adoption of SFAS
No. 133 will not have a material effect on the Company's financial statements.

EURO CONVERSION

     As part of the European Economic and Monetary Union (EMU), a single
currency (the "Euro") will replace the national currencies of most of the
European countries in which the Company conducts business. The conversion rates
between the Euro and the participating nations' currencies have been fixed
irrevocably as of January 1, 1999, with the participating national currencies
being removed from circulation between January 1, and June 30, 2002 and replaced
by Euro notes and coinage. During the "transition period" from January 1, 1999
through December 31, 2001, public and private entities as well as individuals
may pay for goods and services using either checks, drafts, or wire transfers
denominated in Euro or the participating country's national currency.

     Under the regulations governing the transition to a single currency, there
is a "no compulsion, no prohibition" rule which states that no one is obliged to
utilize the Euro until the notes and coinge have been introduced on January 1,
2002. In keeping with this rule, the Company is Euro "compliant" (able to
receive Euro denominated payments and able to invoice in Euro as requested by
vendors and suppliers, respectively) as of January 1, 1999 in the affected
countries. Full conversion of all affected country operations to Euro is
expected to be completed by the time national currencies are removed from
circulation. Phased conversion to the Euro is currently underway and the effects
on revenues costs and various business strategies are being assessed. The cost
of software and business process conversion is not expected to be material.

YEAR 2000 COMPLIANCE

     To date, no significant problems related to Year 2000 have been identified
in the Company's internal systems or with its vendors, suppliers, service
providers or customers that would materially impact the Company's business.
Also, no Year 2000 issues have been identified with the internally developed or
third-party products that the Company distributes.

     Although the Company does not expect any significant future Year 2000
related failures or malfunctions, the Company will continue to monitor its
internal systems and work closely with its suppliers, service providers and
customers to seek to avoid any material interruptions in its business.

     The Company has spent $0.8 million for the cost of upgrading, replacing,
testing and implementing its Year 2000 compliance plan. No further expenditures
are currently expected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Due to the global nature of the Company's operations, the Company is
subject to the exposures that arise from foreign exchange rate fluctuations. The
Company's objective in managing its exposure to foreign currency fluctuations is
to minimize net earnings volatility associated with foreign exchange rate
changes. The Company may enter into foreign currency forward exchange contracts
to hedge foreign currency transactions which are primarily related to certain
receivables denominated in foreign currencies. The Company's hedging activities
do not subject it to exchange rate risk because gains and losses on these
contracts offset losses and gains on the assets, liabilities and transactions
being hedged.

     The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term obligations since the
majority of the Company's long-term obligations are at fixed rates.

                                       32
<PAGE>   36

ITEM 8.  INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements, and notes thereto, and the Financial
Statement Schedule of the Company, are presented on pages F-1 through F-32
hereof as set forth below:

<TABLE>
<CAPTION>
                                                                 PAGE
                                                                 ----
<S>                                                           <C>
INFOGRAMES, INC. AND SUBSIDIARIES
  Independent Auditors' Report..............................          F-1
  Consolidated Balance Sheets as of March 31, 1999 and
     2000...................................................          F-3
  Consolidated Statements of Operations for the Year Ended
     December 31, 1997, the Three Months Ended March 31,
     1998 and the Years Ended March 31, 1999 and 2000.......          F-4
  Consolidated Statements of Comprehensive (Loss) Income for
     the Year Ended December 31, 1997, the Three Months
     Ended March 31, 1998 and the Years Ended March 31, 1999
     and 2000...............................................          F-5
  Consolidated Statements of Cash Flows for the Year Ended
     December 31, 1997, the Three Months Ended March 31,
     1998 and the Years Ended March 31, 1999 and 2000.......          F-6
  Consolidated Statements of Stockholders' Equity (Deficit)
     for the Year Ended December 31, 1997, the Three Months
     Ended March 31, 1998 and the Years Ended March 31, 1999
     and 2000...............................................          F-8
  Notes to the Consolidated Financial Statements............  F-9 to F-31

FINANCIAL STATEMENT SCHEDULE
  For the Year Ended December 31, 1997, the Three Months
     Ended March 31, 1998 and the Years Ended March 31, 1999
     and 2000
  Schedule II -- Valuation and Qualifying Accounts..........         F-32
</TABLE>

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

     On March 20, 2000, the Company's Board of Directors appointed Deloitte &
Touche LLP as its independent accountants, replacing Arthur Andersen LLP (the
"Former Accountants").

     During the Company's two most recent fiscal years, there were no
disagreements with the Former Accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the Former
Accountants, would have caused them to make reference to the subject matter of
the disagreement in their report. None of the Former Accountants' reports on the
Company's financial statements for either of the past two years contained an
adverse opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles.

     In addition, there were no reportable events in accordance with Item
304(a)(1)(v)(A)-(D) of Regulation S-K.

     A letter from the Former Accountants addressed to the Securities and
Exchange Commission in accordance with Item 304(a)(3) of Regulation S-K, stating
that they agree with the Registrant's response to Item 4 of the Registrant's
Current Report on Form 8-K, dated March 20, 2000, is filed as an exhibit hereto.

                                       33
<PAGE>   37

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     See the information set forth under the caption "Election of Directors" and
"Executive Officers of the Company" contained in the Company's Proxy Statement
for the 2000 Annual Meeting of Stockholders (the "Proxy Statement"), which
information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     See the information set forth under the caption "Executive Compensation"
(up to but not including the subcaption "Report of the Board of Directors on
Executive Compensation") contained in the Proxy Statement, which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     See the information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" contained in the Proxy Statement,
which information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See the information set forth under the subcaptions "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" contained in the Proxy Statement, which information is
incorporated herein by reference.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1) and (2) Financial Statements and Financial Statement Schedules

     See Item 8 hereof.

     (a)(3) Exhibits

<TABLE>
<C>       <S>
  2.1     Agreement and Plan of Reorganization by and among the
          Company, GT Acquisition Sub, Inc., WizardWorks Group, Inc.
          and the Stockholders of WizardWorks Group, Inc., dated June
          24, 1996 is incorporated herein by reference to Exhibit 2.1
          to the Company's Current Report on Form 8-K filed on July 9,
          1996.
  2.2     Escrow Agreement by and among the Company, Paul D. Rinde, as
          the Stockholder Representative of WizardWorks Group, Inc.,
          and Republic National Bank of New York, as Escrow Agent,
          dated June 24, 1996 is incorporated herein by reference to
          Exhibit 2.2 to the Company's Current Report on Form 8-K
          filed on July 9, 1996.
  3.1     Amended and Restated Certificate of Incorporation.
  3.2     Amended and Restated By-laws are incorporated herein by
          reference to Exhibit 3.2 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended June 30, 1998.
  4.1     Specimen form of stock certificate for Common Stock.
  4.2     Certificate of the Powers, Designations, Preferences and
          Rights of the Series A Convertible Preferred Stock is
          incorporated herein by reference to Exhibit 3.1 to Company's
          Current Report on Form 8-K filed on March 2, 1999.
  4.3     Stockholders' Agreement by and among Joseph J. Cayre,
          Kenneth Cayre, Stanley Cayre, Jack J. Cayre, the Trusts
          listed on Schedule I attached thereto and the Company is
          incorporated herein by reference to an exhibit filed as a
          part of the Company's Registration Statement on Form S-1
          filed October 20, 1995.
</TABLE>

                                       34
<PAGE>   38
<TABLE>
<C>       <S>
  4.3a    Amendment to Stockholders Agreement, dated as of December
          18, 1995, by and among Joseph J. Cayre, Kenneth Cayre,
          Stanley Cayre, Jack J. Cayre, the Trusts parties thereto and
          the Company is incorporated herein by reference to Exhibit
          10.30 to the Company's Annual Report on Form 10-K for the
          year ended December 31, 1996.
  4.4     Registration Rights Agreement by and among Joseph J. Cayre,
          Kenneth Cayre, Stanley Cayre, Jack J. Cayre, the Trusts
          listed on Schedule I attached thereto and the Company is
          incorporated herein by reference to an exhibit filed as a
          part of the Company's Registration Statement on Form S-1
          filed October 20, 1995.
  4.5     Amended and Restated Registration Rights Agreement, dated as
          of February 15, 2000, between California U.S. Holdings, Inc.
          and the Company.
 10.1     The 1995 Stock Incentive Plan (as amended on October 31,
          1996) is incorporated herein by reference to Exhibit 10.1 to
          Amendment No. 2 to the Company's Registration Statement on
          Form S-1, filed December 6, 1996.*
 10.2     The 1997 Stock Incentive Plan is incorporated herein by
          reference to Exhibit 10.3 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended June 30, 1997.*
 10.3     The 1997 Stock Incentive Plan (as amended on June 17, 1998)
          is incorporated herein by reference to Exhibit 10.5 to the
          Company's Quarterly Report on Form 10-Q for the quarter
          ended June 30, 1998.*
 10.4     The 2000 Stock Incentive Plain is incorporated herein by
          reference to Appendix B to the Company's proxy statement
          dated June 29, 2000.*
 10.5     The 1998 Employee Stock Purchase Plan is incorporated herein
          by reference to Exhibit 10.6 to the Company's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 1998.*
 10.6     Non-Competition Agreement, dated June 22, 1995, between the
          Company and Charles F. Bond is incorporated herein by
          reference to Exhibit 10.6 to the Company's Registration
          Statement on Form S-1 filed October 20, 1995.*
 10.7     Employment Agreement, dated April 19, 1996, between the
          Company and Andrew Gregor is incorporated herein by
          reference to Exhibit 10.5 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended March 31, 1996.*
 10.7a    Letter Agreement, dated March 12, 1999, between the Company
          and Andrew Gregor is incorporated herein by reference to
          Exhibit 10.51 to the Company's Annual Report on Form 10-K
          for the fiscal year ended March 31, 1999.*
 10.8     Employment Agreement, dated April 28, 1998, between the
          Company and David I. Chemerow is incorporated herein by
          reference to Exhibit 10.2 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended June 30, 1998.*
 10.8a    Amendment, dated May 5, 1999, to the Employment Agreement,
          dated May 15, 1997, as previously amended on April 28, 1999,
          between the Company and David Chemerow is incorporated
          herein by reference to Exhibit 10.54 to the Company's Annual
          Report on Form 10-K for the fiscal year ended March 31,
          1999.*
 10.9     Employment Agreement, dated April 28, 1998, between the
          Company and Ronald Chaimowitz is incorporated herein by
          reference to Exhibit 10.4 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended June 30, 1998.*
 10.9a    Agreement, dated February 19, 1999, between the Company and
          Ronald Chaimowitz is incorporated herein by reference to
          Exhibit 10.52 to the Company's Annual Report on Form 10-K
          for the fiscal year ended March 31, 1999.*
 10.10    Employment Agreement, dated April 28, 1998, between the
          Company and Harry M. Rubin is incorporated herein by
          reference to Exhibit 10.3 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended June 30, 1998.*
 10.10a   Agreement and Release, dated April 7, 2000, by and between
          Harry M. Rubin and the Company.*
</TABLE>

                                       35
<PAGE>   39
<TABLE>
<C>       <S>
 10.10b   Letter Agreement, dated June 15, 2000, by and between Harry
          M. Rubin and the Company.*
 10.11    Employment Agreement, dated July 1, 1998, between the
          Company and Charles F. Bond is incorporated herein by
          reference to Exhibit 10.1 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended September 30, 1998.*
 10.12    Employment Agreement, dated August 18, 1998, between the
          Company and Jack J. Cayre is incorporated herein by
          reference to Exhibit 10.2 to the Company's Quarterly Report
          on Form 10-Q for the quarter ended September 30, 1998.*
 10.12a   Agreement and Release, dated March 7, 2000, by and between
          Jack J. Cayre and the Company.*
 10.13    Employment Agreement between the Company and Thomas A.
          Heymann is incorporated herein by reference to Exhibit 10.2
          to the Company's Current Report on 8-K filed on March 2,
          1999.*
 10.13a   Separation Agreement, dated as of February 15, 2000, between
          the Company and Thomas A. Heymann.*
 10.14    Employment Agreement, dated April 2, 1999, between the
          Company and John T. Baker IV is incorporated herein by
          reference to Exhibit 10.53 to the Company's Annual Report on
          Form 10-K for the fiscal year ended March 31, 1999.*
 10.14a   Separation Agreement, dated as of February 18, 2000, between
          the Company and John T. Baker IV.*
 10.15    Letter Agreement, dated April 20, 2000, by and between David
          Fremed and the Company.*
 10.16    Lease Agreements between the Company and 16 East 40th
          Associates is incorporated herein by reference to Exhibit
          10.15 to Company's Registration Statement on Form S-1 filed
          October 20, 1995.
 10.17    Lease Agreement between the Company and Plymouth 2200, LLP,
          dated September 6, 1996 is incorporated herein by reference
          to Exhibit 10.1 to the Company's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1996.
 10.18    Agreement of Lease, dated as of December 12, 1996, by and
          between the Company and F.S. Realty Corp is incorporated
          herein by reference to Exhibit 10.29 to the Company's Annual
          Report on Form 10-K for the year ended December 31, 1996.
 10.19    Services Agreement between the Company and GoodTimes Home
          Video Corp., dated as of January 1, 1995, is incorporated
          herein by reference to Exhibit 10.2 to the Company's
          Registration Statement on Form S-1 filed October 20, 1995.
 10.20    GTIS Master Option and License Agreement between the Company
          and the Williams Entertainment Group, dated December 28,
          1994, and the Amendment to such agreement, dated March 31,
          1995, are incorporated herein by reference to Exhibit 10.10
          to the Company's Registration Statement on Form S-1 filed
          October 20, 1995.
 10.21    GTIS Master Option and License Agreement (Home Video Games)
          between the Company and the Williams Entertainment Group,
          dated March 31, 1995 is incorporated herein by reference to
          Exhibit 10.11 to the Company's Registration Statement on
          Form S-1 filed October 20, 1995.
 10.22    Agreement by and between the Company and REPS is
          incorporated herein by reference to an exhibit filed as a
          part of the Company's Registration Statement on Form S-1
          filed October 20, 1995.
 10.23    Warehouse Services Contract, dated March 2, 1999, by and
          between the Company and Arnold Transportation Services, Inc.
          t/d/b/a Arnold Logistics is incorporated herein by reference
          to Exhibit 10.50 to the Company's Annual Report on Form 10-K
          for the fiscal year ended March 31, 1999.
 10.24    Distribution Agreement between Infogrames Entertainment SA
          and the Company, dated as of December 16, 1999, is
          incorporated herein by reference to Exhibit 7 to the
          Schedule 13D filed by Infogrames Entertainment SA and
          California U.S. Holdings, Inc. on January 10, 2000.
</TABLE>

                                       36
<PAGE>   40

<TABLE>
<S>        <C>
   10.25   Trademark Agreement, dated as of May 10, 2000, by and between Infogrames Entertainment SA and the
           Company.
   10.26   Credit Agreement, dated as of September 11, 1998, by and among the Company, the Lenders thereto,
           NationsBanc Montgomery Securities, LLC, as Syndication Agent, Fleet Bank, N.A., as Documentation Agent,
           and First Union National Bank, as Administrative Agent, is incorporated herein by reference to Exhibit
           10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
   10.26a  Second Amendment, Waiver and Agreement, dated as of June 29, 1999, by and among the Company, the Lenders
           thereto and First Union National Bank, as Administrative Agent, is incorporated herein by reference to
           Exhibit 10.1 to the Company's Current Report on 8-K filed on August 5, 1999.
   10.26b  Third Amendment, Consent, Waiver and Agreement, dated as of November 15, 1999, by and among the Company,
           the Lenders thereto and First Union National Bank, as Administrative Agent is incorporated herein by
           reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on November 19, 1999.
   10.26c  Right of First Refusal Offer Agreement, dated November 15, 1999, by and among California U.S. Holdings,
           Inc. and the Lenders named therein is incorporated herein by reference to Exhibit 13 to the Schedule 13D
           filed by Infogrames Entertainment SA and California U.S. Holdings, Inc. on December 14, 1999.
   10.26d  Amended and Restated Unconditional Subsidiary Guaranty Agreement, dated as of November 15, 1999, among
           certain subsidiaries of the Company, California U.S. Holdings, Inc. and First Union National Bank, as
           administrative agent, for the benefit of the Lenders is incorporated herein by reference to Exhibit 15
           to the Schedule 13D filed by Infogrames Entertainment SA and California U.S. Holdings, Inc. on December
           14, 1999.
   10.26e  Second Amended and Restated Security Agreement, dated as of November 15, 1999, by and among the
           Registrant, certain of its subsidiaries, First Union National Bank, as Administrative Agent, and
           California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 10.4 to the Company's
           Current Report on Form 8-K filed on November 19, 1999.
   10.26f  Second Amended and Restated Pledge Agreement, dated as of November 15, 1999, by the Company and certain
           of its subsidiaries in favor of First Union National Bank, as Administrative Agent, and California U.S.
           Holdings, Inc. is incorporated herein by reference to Exhibit 10.5 to the Company's Current Report on
           Form 8-K filed on November 19, 1999.
   10.26g  Master Assignment and Acceptance, dated as of February 15, 2000, by and among the Company, the Assignors
           and Infogrames Entertainment SA.
   10.26h  Warrant Agreement, dated as of February 15, 2000, by and among the Company and Infogrames Entertainment
           SA.
   10.26i  Warrant Certificate, dated as of February 15, 2000 issued to California U.S. Holdings, Inc.
   10.26j  Fourth Amendment to the Credit Agreement, dated as of February 15, 2000, by and between the Company and
           Infogrames Entertainment S.A.
   10.26k  Reimbursement and Cash Collateral Agreement, dated as of February 15, 2000, by and between the Company
           and First Union National Bank.
   10.26l  Collateral Assignment Agreement, dated as of February 15, 2000, by and among First Union National Bank,
           Infogrames S.A., the Company and the Guarantors.
   10.26m  Fifth Amendment to the Credit Agreement, dated as of March 31, 2000, by and between the Company and
           Infogrames Entertainment S.A.
   10.26n  Sixth Amendment to the Credit Agreement, dated as of June 29, 2000, by and between the Company and
           Infogrames Entertainment SA
</TABLE>

                                       37
<PAGE>   41

<TABLE>
<CAPTION>
 .27  10   Stock Purchase Agreement, dated February 8, 1999, among the Company, General Atlantic
          Partners 54, L.P. and GAP Coinvestment Partners II, L.P. is incorporated herein by reference to
          Exhibit 10.1 to the Company's Current Report on 8-K filed on March 2, 1999.
<C>       <S>
 10.28    Warrant Agreement, dated as of June 29, 1999, among the Company, GAP 54, GAPCO II and the other
          parties named therein is incorporated herein by reference to Exhibit 1 to the Schedule 13D
          filed by General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999.
 10.29    Letter Agreement, dated June 29, 1999, among GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre
          and Stanley Cayre is incorporated herein by reference to Exhibit 2 to the Schedule 13D filed by
          General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999.
 10.30    Form of Option Agreement, dated as of July 30, 1999, among GAP 54, GAPCO II and the other
          parties named therein is incorporated herein by reference to Exhibit 3 to the Schedule 13D
          filed by General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999.
 10.31    Securities Purchase Agreement, dated as of November 15, 1999, by and among Infogrames
          Entertainment S.A., California U.S. Holdings, Inc. and the Company is incorporated herein by
          reference to Exhibit 10.1 to the Company's Current Report on 8-K filed on November 19, 1999.
 10.32    Securities Exchange Agreement, dated as of November 15, 1999, by and among the Company, General
          Atlantic Partners 54, L.P., and GAP Coinvestment Partners II, L.P. is incorporated herein by
          reference to Exhibit 10.2 to the Company's Current Report on 8-K filed on November 19, 1999.
 10.33    Promissory Note of the Company in the aggregate principal amount of $25,000,000 payable to
          California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 10.6 to the
          Company's Current Report on 8-K filed on November 19, 1999.
 10.34    Warrant to Purchase 50,000 shares of Common Stock, issued to California U.S. Holdings, Inc. is
          incorporated herein by reference to Exhibit 5 to the Schedule 13D filed by Infogrames
          Entertainment S.A. and California U.S. Holdings, Inc. on December 14, 1999.
 10.35    Form of GAP Warrant is incorporated herein by reference to Exhibit 9 to the Schedule 13D filed
          by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on December 14, 1999.
 10.36    Note Purchase Agreement, dated as of November 15, 1999, between certain members of the Cayre
          Group and California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 11B to
          the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on
          December 14, 1999.
 10.37    Equity Purchase and Voting Agreement, dated as of November 15, 1999, among Infogrames
          Entertainment S.A., California U.S. Holdings, Inc., GAP 16, GAP 19, GAP II, GAP 54, GAPCO and
          GAPCO II is incorporated herein by reference to Exhibit 3 to the Schedule 13D filed by General
          Atlantic Partners, LLC and certain of its affiliates on December 23, 1999.
 10.38    Form of GAP 54 Note is incorporated herein by reference to Exhibit 4 to the Schedule 13D filed
          by General Atlantic Partners, LLC and certain of its affiliates on December 23, 1999.
 10.39    Form of GAPCO II Note is incorporated herein by reference to Exhibit 5 to the Schedule 13D
          filed by General Atlantic Partners, LLC and certain of its affiliates on December 23, 1999.
 10.40    5% Subordinated Convertible Note of the Company is incorporated herein by reference to Exhibit
          6 to the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc.
          on January 10, 2000.
 16.1     Letter from Arthur Andersen LLP, dated March 20, 2000, addressed to the Securities and Exchange
          Commission in accordance with Item 304(a)(3) is incorporated herein by reference to Exhibit
          16.1 to the Company's Current Report on Form 8-K dated March 20, 2000.
 21.1     The Company's Subsidiaries is incorporated herein by reference to Exhibit 16.1 to the Company's
          Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
</TABLE>

                                       38
<PAGE>   42

<TABLE>
<CAPTION>
 .1   22   Information Statement on Schedule 14C filed on January 25, 2000 is incorporated herein by
          reference.
<C>       <S>
 22.2     Information Statement on Schedule 14C filed on May 12, 2000 is incorporated herein by
          reference.
 22.3     Information Statement on Schedule 14C filed on June 5, 2000 is incorporated herein by
          reference.
 23.1     Consent of Arthur Andersen LLP.
 24.1     Power of Attorney
 27.1     Financial Data Schedule for the year ended March 31, 2000.
 99.1     Amended and Restated Audit Committee Charter is incorporated herein by reference to
          Appendix A to the Company's proxy statement dated June 29, 2000.
</TABLE>

Exhibits indicated with an * symbol are an executive contract or compensatory
plan or arrangement filed pursuant to Item 14 of Form 10-K.

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

     (c) Reports on Form 8-K

     The Company filed the following Current Reports on Form 8-K during the
quarterly period ended March 31, 2000:

<TABLE>
<CAPTION>
DATE OF REPORT  ITEMS REPORTED   FINANCIAL STATEMENTS FILED
--------------  --------------   --------------------------
<S>             <C>              <C>
March 15,
  2000........      5                       None
March 20,
  2000........    4, 7                      None
</TABLE>

                                       39
<PAGE>   43

                                   SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          INFOGRAMES, INC.

                                          By:      /s/ DAVID J. FREMED
                                            ------------------------------------
                                            Name: David J. Fremed
                                            Title:  Chief Financial Officer
                                            Date:  June 29, 2000

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

<TABLE>
<CAPTION>
                SIGNATURE                                    TITLE(S)                       DATE
                ---------                                    --------                       ----
<S>                                         <C>                                         <C>

                    *                       Chairman of the Board of Directors and      June 29, 2000
------------------------------------------    Chief Executive Officer (principal
              Bruno Bonnell                   executive officer) and Director

                    *                       Director                                    June 29, 2000
------------------------------------------
            Steven A. Denning

                    *                       Director and President, Chief Operating     June 29, 2000
------------------------------------------    Officer and Secretary
              Denis Guyennot

                    *                       Director                                    June 29, 2000
------------------------------------------
            Thomas A. Heymann

                    *                       Director                                    June 29, 2000
------------------------------------------
              Ann E. Kronen

                    *                       Director                                    June 29, 2000
------------------------------------------
             Thomas Schmider

           /s/ DAVID J. FREMED              Chief Financial Officer (principal          June 29, 2000
------------------------------------------    financial officer and principal
             David J. Fremed                  accounting officer)

        * By: /s/ DAVID J. FREMED                                                       June 29, 2000
------------------------------------------
   (David J. Fremed, Attorney-in-Fact)
</TABLE>

                                       40
<PAGE>   44

                       INFOGRAMES, INC. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying consolidated balance sheet of Infogrames,
Inc. and its subsidiaries (the "Company") as of March 31, 2000 and the related
consolidated statement of operations, comprehensive (loss) income, stockholders'
equity (deficit) and cash flows for the year ended March 31, 2000. Our audit
also included the financial statement schedule listed in the index at Item 14.
These consolidated financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and the financial statement
schedule based on our audit.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Infogrames, Inc.
and its subsidiaries as of March 31, 2000 and the consolidated results of their
operations and their cash flows for the year ended March 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

     As discussed in Note 1 to the Consolidated Financial Statements, the
Company changed its method of accounting for future royalty advances effective
January 1, 1998, treating such costs as research and development expenses.

/s/ DELOITTE & TOUCHE LLP

New York, New York
June 27, 2000

                                       F-1
<PAGE>   45

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
GT Interactive Software Corp. and subsidiaries:

     We have audited the accompanying consolidated balance sheets of GT
Interactive Software Corp. (a Delaware corporation) and subsidiaries as of March
31, 1998 and 1999 and the related consolidated statements of operations,
comprehensive income, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1997, for the three months ended March
31, 1998 and for the year ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GT Interactive Software
Corp. and subsidiaries as of March 31, 1998 and 1999 and the results of their
operations and cash flows for each of the two years in the period ended December
31, 1997, for the three months ended March 31, 1998 and for the year ending
March 31, 1999, in conformity with generally accepted accounting principles.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements and supplementary data is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

                                          ARTHUR ANDERSEN LLP

NEW YORK, NEW YORK
JUNE 29, 1999

                                       F-2
<PAGE>   46

                       INFOGRAMES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                    MARCH 31,
                                                              ---------------------
                                                                1999        2000
                                                              --------    ---------
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 13,407    $  19,587
  Short-term investments....................................       105           --
  Receivables, net..........................................   110,019       37,001
  Inventories, net..........................................   158,208       38,179
  Royalty advances..........................................     9,195           --
  Deferred income taxes.....................................    36,142           --
  Income taxes receivable...................................     1,973        2,550
  Prepaid expenses and other current assets.................    12,947       10,096
                                                              --------    ---------
     Total current assets...................................   321,996      107,413
Property and equipment, net.................................   341,996       25,761
Investments.................................................     7,412        9,293
Goodwill, net of accumulated amortization of $5,078 and
  $2,564, respectively......................................    34,194        8,047
Deferred income taxes.......................................    12,664           --
Other assets................................................     5,837        8,693
                                                              --------    ---------
     Total assets...........................................  $438,911    $ 159,207
                                                              ========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $152,556    $  87,926
  Accrued liabilities.......................................    35,505       37,123
  Revolving credit facility.................................        --       71,698
  Royalties payable.........................................    18,515       14,487
  Deferred income...........................................       173           --
  Income taxes payable......................................     2,569           55
  Due to related party......................................       908          958
                                                              --------    ---------
     Total current liabilities..............................   210,226      212,247
Long-term debt..............................................    98,750       97,828
Other long-term liabilities.................................     2,802        3,351
                                                              --------    ---------
     Total liabilities......................................   311,778      313,426
                                                              --------    ---------
Commitments and contingencies
Stockholders' equity (deficit):
  Series A convertible preferred stock, $0.01 par, 5,000,000
     shares authorized, 120,000 shares issued and
     outstanding, stated at liquidation preference of $250
     per share as of March 31, 1999, 0 shares issued and
     outstanding as of March 31, 2000(1)....................    30,000           --
  Common stock, $0.01 par, 150,000,000 shares authorized,
     14,555,174 and 20,675,028 share issued and outstanding,
     respectively(1)........................................       145          207
Additional paid-in capital..................................   161,655      227,378
Accumulated deficit.........................................   (62,876)    (383,598)
Accumulated other comprehensive (loss) income...............    (1,791)       1,794
                                                              --------    ---------
     Total stockholders' (deficit) equity...................   127,133     (154,219)
                                                              --------    ---------
     Total liabilities and stockholders' equity.............  $438,911    $ 159,207
                                                              ========    =========
</TABLE>

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

  The accompanying notes are an integral part of these consolidated financial
                                   statements
                                       F-3
<PAGE>   47

                       INFOGRAMES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS       YEARS ENDED
                                                            YEAR ENDED       ENDED            MARCH 31,
                                                           DECEMBER 31,    MARCH 31,     --------------------
                                                               1997           1998         1999       2000
                                                           ------------   ------------   --------   ---------
<S>                                                        <C>            <C>            <C>        <C>
Net revenues.............................................    $530,677       $105,767     $572,342   $ 375,569
Cost of goods sold.......................................     315,134         57,092      329,959     296,301
                                                             --------       --------     --------   ---------
  Gross profit...........................................     215,543         48,675      242,383      79,268
Selling and distribution expenses........................      98,689         24,467      147,499     147,814
General and administrative expenses......................      46,611         10,655       66,616      87,113
Research and development.................................      13,824         10,866       76,870      66,574
Royalty advance write-off................................      73,821             --           --          --
Restructuring and other charges..........................          --             --       17,479      37,948
Purchased research and development.......................      11,008             --        5,000          --
SingleTrac retention bonus...............................       2,400             --        1,680          --
Amortization of goodwill.................................       1,295            636        3,349       3,110
                                                             --------       --------     --------   ---------
  Operating (loss) income................................     (32,105)         2,051      (76,110)   (263,291)
Interest expense.........................................      (1,010)          (557)      (5,108)    (17,167)
Other expense............................................      (1,065)          (832)        (207)       (793)
                                                             --------       --------     --------   ---------
  (Loss) income before provision for (benefit from)
    income taxes.........................................     (34,180)           662      (81,425)   (281,251)
Provision for (benefit from) income taxes................      (9,157)           304      (29,628)     40,882
                                                             --------       --------     --------   ---------
  Net (loss) income from continuing operations...........     (25,023)           358      (51,797)   (322,133)
Discontinued operations:
  Loss from operations of OZM............................          --             --       (3,531)         --
  Loss on disposal of OZM................................          --             --      (15,510)       (477)
                                                             --------       --------     --------   ---------
  Loss from discontinued operations......................          --             --      (19,041)       (477)
                                                             --------       --------     --------   ---------
  Net (loss) income before extraordinary item............     (25,023)           358      (70,838)   (322,610)
Extraordinary item:
  Gain on early extinguishment of debt, net of tax of
    $1,312...............................................          --             --           --       1,888
                                                             --------       --------     --------   ---------
    Net (loss) income before dividends on preferred
      stock..............................................     (25,023)           358      (70,838)   (320,722)
                                                             --------       --------     --------   ---------
Less dividends on preferred stock........................          --             --          226          --
                                                             --------       --------     --------   ---------
    Net (loss) income attributable to common
      stockholders.......................................    $(25,023)      $    358     $(71,064)  $(320,722)
                                                             ========       ========     ========   =========
Basic and diluted (loss) income per share from continuing
  operations.............................................    $  (1.87)      $   0.03     $  (3.72)  $  (19.58)
Basic and diluted (loss) income per share from
  discontinued operations................................          --             --        (1.37)      (0.03)
Basic and diluted income per share from extraordinary
  item...................................................          --             --           --        0.11
                                                             --------       --------     --------   ---------
Basic and diluted (loss) income per share................    $  (1.87)      $   0.03     $  (5.10)  $  (19.50)
                                                             ========       ========     ========   =========
Weighted average shares outstanding(1)...................      13,396         13,588       13,931      16,451
                                                             ========       ========     ========   =========
</TABLE>

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

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   48

                       INFOGRAMES, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             THREE MONTHS         YEARS ENDED
                                              YEAR ENDED        ENDED              MARCH 31,
                                             DECEMBER 31,     MARCH 31,      ---------------------
                                                 1997            1998          1999        2000
                                             ------------    ------------    --------    ---------
<S>                                          <C>             <C>             <C>         <C>
Net (loss) income before dividends on
  preferred stock..........................    $(25,023)        $  358       $(70,838)   $(320,722)
Other comprehensive (loss) income:
  Foreign currency translation
     adjustments...........................      (2,732)         1,169           (667)       1,817
  Unrealized holding (loss) gain on
     securities............................        (199)            --             11        1,768
                                               --------         ------       --------    ---------
     Comprehensive (loss) income...........    $(27,954)        $1,527       $(71,494)   $(317,137)
                                               ========         ======       ========    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>   49

                       INFOGRAMES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED
                                                  YEAR ENDED     THREE MONTHS         MARCH 31,
                                                 DECEMBER 31,       ENDED        --------------------
                                                     1997       MARCH 31, 1998     1999       2000
                                                 ------------   --------------   --------   ---------
<S>                                              <C>            <C>              <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income before dividends on preferred
  stock........................................    $(25,023)       $    358      $(70,838)  $(320,722)
Adjustments to reconcile net (loss) income to
  net cash (used in) provided by operating
  activities:
  Depreciation and amortization................       7,434           2,511        14,606      16,081
  Write-off of investment......................          --              --         2,676          --
  Purchased research and development...........      11,008              --         5,000          --
  Royalty advance write-off....................      73,821              --            --          --
  Deferred income taxes........................      (1,010)          1,010       (32,666)     48,806
  Deferred income..............................      (1,690)            187            21        (118)
  Write-off of assets in connection with
     restructuring charges.....................          --              --         7,362      30,391
  Loss from discontinued operations............          --              --        19,041         477
  Extraordinary gain on GAP 0% subordinated
     convertible note..........................          --              --            --      15,649
  Amortization of discount on long-term debt...          --              --            --         718
  Accrued interest.............................          --              --            --       1,461
  Write-off of deferred financing costs in
     connection with the GAP securities
     exchange..................................          --              --            --       8,985
  Write-off of deferred financing costs in
     connection with the early extinguishment
     of Credit Agreement.......................          --              --            --       3,188
  Issuance of common stock in lieu of partial
     royalty payment...........................          --              --            --       4,208
  Issuance of common stock pursuant to employee
     stock purchase plan.......................          --              --            --         581
  Changes in operating assets and liabilities:
     Receivables, net..........................     (83,683)         60,175       (57,490)     73,576
     Inventories, net..........................     (54,102)          6,896       (10,498)    100,448
     Royalty advances..........................     (20,505)          5,870           814       9,195
     Due to related party, net.................        (349)            581           (17)         50
     Prepaid expenses and other current
       assets..................................       2,206          (3,409)       (5,884)      1,499
     Accounts payable..........................      38,607         (46,942)       47,956     (44,330)
     Accrued liabilities.......................      (3,699)         (7,168)       14,169       1,754
     Royalties payable.........................      14,054          (7,037)      (21,907)     (4,036)
     Income taxes payable......................      (3,804)         (2,423)       (1,133)     (2,746)
     Income taxes receivable...................     (15,171)          4,487         8,711        (577)
     Long-term liabilities.....................      (8,186)           (666)        1,220         552
     Other.....................................         522          (2,043)       (2,226)     (2,549)
                                                   --------        --------      --------   ---------
          Net cash (used in) provided by
            operating activities...............     (69,570)         12,387       (81,083)    (57,459)
                                                   --------        --------      --------   ---------
</TABLE>

                                       F-6
<PAGE>   50
                       INFOGRAMES, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED
                                                  YEAR ENDED     THREE MONTHS         MARCH 31,
                                                 DECEMBER 31,       ENDED        --------------------
                                                     1997       MARCH 31, 1998     1999       2000
                                                 ------------   --------------   --------   ---------
<S>                                              <C>            <C>              <C>        <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.......................        (259)             --            --          --
Purchases of property and equipment............     (18,269)         (7,641)      (22,607)     (8,864)
Sales of short-term investments, net...........       4,613              --            --          --
Acquisitions, net of cash acquired of
  approximately $135, $0, $1,678 and $0,
  respectively.................................      (5,833)             --        (2,701)         --
                                                   --------        --------      --------   ---------
          Net cash used in investing
            activities.........................     (19,748)         (7,641)      (25,308)     (8,864)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under revolving credit
  facility, net................................      54,600         (26,600)       70,750     (27,052)
Issuance of Infogrames 5% subordinated
  convertible note.............................                                                50,000
Issuance of General Atlantic Partners, LLC
  subordinated note ("GAP")....................          --              --            --      20,000
Issuance of subordinated Cayre Notes...........          --              --            --      10,000
Issuance of common stock to Infogrames, net....          --              --            --      48,677
Proceeds from exercise of warrants.............       2,102              --            --          --
Proceeds from exercise of stock options........         786             114           376         146
Issuance (redemption) of preferred stock.......          --              --        30,000     (30,000)
                                                   --------        --------      --------   ---------
     Net cash provided by (used in) financing
       activities..............................      57,488         (26,486)      101,126      71,771
Effect of exchange rates on cash and cash
  equivalents..................................        (429)           (644)        1,448         732
                                                   --------        --------      --------   ---------
Net (decrease) increase in cash and cash
  equivalents..................................     (32,259)        (22,384)       (3,817)      6,180
Cash and cash equivalents -- beginning of
  fiscal year..................................      71,867          39,608        17,224      13,407
                                                   --------        --------      --------   ---------
Cash and cash equivalents -- end of fiscal
  year.........................................    $ 39,608        $ 17,224      $ 13,407   $  19,587
                                                   ========        ========      ========   =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-7
<PAGE>   51

                       INFOGRAMES, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                               SERIES A      SERIES A                                                    ACCUMULATED
                             CONVERTIBLE    CONVERTIBLE    COMMON              ADDITIONAL   RETAINED        OTHER
                              PREFERRED      PREFERRED      STOCK     COMMON    PAID-IN     EARNINGS    COMPREHENSIVE
                             STOCK SHARES      STOCK      SHARES(1)   STOCK     CAPITAL     (DEFICIT)   INCOME(LOSS)      TOTAL
                             ------------   -----------   ---------   ------   ----------   ---------   -------------   ---------
<S>                          <C>            <C>           <C>         <C>      <C>          <C>         <C>             <C>
Balance, December 31,
  1996.....................          --      $     --       13,280     $132     $118,753    $  32,625      $   627      $ 152,138
Issuance of stock in
  connection with the
  acquisition of
  SingleTrac...............          --            --          140        1        7,168           --           --          7,169
Exercise of warrants.......          --            --          100        1        2,101           --           --          2,102
Exercise of stock
  options..................          --            --           60        1           --           --           --            785
Net loss...................          --            --           --                    --      (25,023)          --        (25,023)
Currency translation
  adjustment...............          --            --           --                    --           --       (2,732)        (2,732)
Unrealized loss on
  securities...............          --            --           --                    --           --         (199)          (199)
                               --------      --------      -------     ----     --------    ---------      -------      ---------
Balance, December 31,
  1997.....................          --            --       13,580      135      128,806        7,602       (2,304)       134,241
Issuance of stock options
  in connection with the
  acquisition of
  SingleTrac...............          --            --           --       --        3,007           --           --          3,007
Exercise of stock
  options..................          --            --           20        1          113           --           --            114
Net income.................          --            --           --       --           --          358           --            358
Currency translation
  adjustment...............          --            --           --       --           --           --        1,169          1,169
                               --------      --------      -------     ----     --------    ---------      -------      ---------
Balance, March 31, 1998....          --            --       13,600      136      131,926        7,962       (1,135)       138,889
Issuance of preferred
  stock....................     120,000        30,000           --       --           --           --           --         30,000
Issuance of stock options
  in connection with
  acquisitions.............          --            --           --       --        1,356           --           --          1,356
Issuance of stock in
  connection with
  acquisitions.............          --            --          920        8       27,999           --           --         28,007
Exercise of stock
  options..................          --            --           20        1          374           --           --            375
Net loss...................          --            --           --       --           --      (70,838)          --        (70,838)
Currency translation
  adjustment...............          --            --           --       --           --           --         (667)          (667)
Unrealized gain on
  securities...............          --            --           --       --           --           --           11             11
                               --------      --------      -------     ----     --------    ---------      -------      ---------
Balance, March 31, 1999....     120,000        30,000       14,540      145      161,655      (62,876)      (1,791)       127,133
Exchange of preferred stock
  for long-term debt.......    (120,000)      (30,000)          --       --           --           --           --        (30,000)
Issuance of warrants to
  Infogrames...............          --            --           --       --        8,983           --           --          8,983
Issuance of warrants in
  connection with revolving
  credit facility..........          --            --           --       --        3,188           --           --          3,188
Issuance of common stock in
  lieu of partial royalty
  payment..................          --            --          300        3        4,205           --           --          4,208
Issuance of common stock
  pursuant to employee
  stock purchase plan......          --            --           40        1          582           --           --            583
Issuance of common stock to
  Infogrames, net..........          --            --        5,740       57       48,620           --           --         48,677
Exercise of stock
  options..................          --            --           60        1          145           --           --            146
Net loss...................          --            --           --                    --     (320,722)          --       (320,722)
Currency translation
  adjustment...............          --            --           --                    --           --        1,817          1,817
Unrealized gain on
  securities...............          --            --           --                    --           --        1,768          1,768
                               --------      --------      -------     ----     --------    ---------      -------      ---------
Balance, March 31, 2000....          --      $     --       20,680     $207     $227,378    $(383,598)     $ 1,794      $(154,219)
                               ========      ========      =======     ====     ========    =========      =======      =========
</TABLE>

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

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-8
<PAGE>   52

                       INFOGRAMES, INC. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Nature of Business

     Infogrames, Inc., formerly GT Interactive Software Corp., a Delaware
corporation (the "Company"), is a leading worldwide developer, publisher and
distributor of interactive entertainment software for use on various platforms,
including PCs, Sony PlayStation and Nintendo 64. The Company derives its
revenues primarily from the sale of its created, published, licensed and
purchased products to mass merchants, specialty software stores, computer
superstores and distributors located throughout North America and also in
various international locations. The Company was incorporated in September 1992
and commenced operations in February 1993. The Company has relied on support
from its parent, Infogrames Entertainment SA ("Infogrames SA") in the recent
past. The Company believes that it is Infogrames SA's present intention to
continue such support as Infogrames SA deems necessary to fund operations and
cash flows for the next twelve months.

  Principles of Consolidation

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

  Revenue Recognition

     Revenue is recognized upon shipment of merchandise to customers. At the
time the revenue is recognized, a reserve is provided for expected future
returns net of the related cost of such items.

     The Company is generally not contractually obligated to accept returns,
except for defective product. However, the Company may permit its customers to
return or exchange product and may provide pricing allowance for estimated
returns, price concessions and other allowances. Such allowance is reflected as
a reduction to accounts receivable when the Company expects to grant credits for
such items.

  Cash and Cash Equivalents

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

  Inventories

     Inventories are stated at the lower of cost (based upon the first-in,
first-out method) or market. Allowances are established (and reassessed
quarterly) to reduce the recorded cost of obsolete inventory and slow moving
inventory to its net realizable value.

  Royalty Advances

     During the fourth quarter of 1997, the convergence of marketplace forces
led the Company to reconsider its royalty advance evaluation process. Rapid
technological innovation, shelf-space competition, shorter product life cycles
and buyer selectivity have made it extremely difficult to determine the
likelihood of individual product acceptance and success. As a result, the
Company expensed royalty advances of $73,821 on products that were in
development or on sale as of December 31, 1997. The Company has, effective
January 1, 1998, changed its accounting for future royalty advances, treating
such costs as research and development expenses, which are expensed as incurred.
These changes created symmetry in accounting for both internally and externally
developed products. Multi-year output advances are expensed over the development
periods, in accordance with generally accepted accounting principles.

                                       F-9
<PAGE>   53
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

  Goodwill

     Goodwill is currently amortized using the straight-line method over periods
not exceeding 5 years. Management reassesses quarterly the appropriateness of
both the carrying value and remaining life of goodwill, principally based on
forecasts of future undiscounted cash flows of businesses acquired. See Note 21
for information concerning the restructuring reserve, and related impairment
write offs of goodwill.

  Property and Equipment

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

  Income Taxes

     The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
use of the liability method of accounting for deferred income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates in effect for the years in which the
differences are expected to reverse.

  Fair Values of Financial Instruments

     Statement of Financial Accounting Standards No. 107 "Disclosure About Fair
Value of Financial instruments" requires certain disclosures regarding the fair
value of financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities, royalties payable, revolving credit
facility and amounts due to and from related parties are reflected in the
consolidated financial statements at fair value because of the short-term
maturity of these instruments. The fair value of long-term debt closely
approximates its carrying value. The Company uses quoted market prices to
calculate these fair values, when available.

  Investments

     Management classifies equity securities as available-for-sale securities
under the provisions defined in the Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments at the
time of purchase and reevaluates such determination at each balance sheet date.
Available-for-sale securities are carried at market value with the unrealized
gains and losses reported as a component of accumulated comprehensive income.
The cost of investments sold is determined on the first-in, first-out method.

     The Company also maintains equity investments under 20 percent on a cost
basis. The Company evaluates these investments for impairment on a quarterly
basis (See Note 6):

  Impairment of Long-Lived Assets

     The Company reviews long-lived assets, such as fixed assets and certain
indentifiable intangibles to be held and used or disposed of, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of the
asset, an impairment loss is recognized as the amount by which the carrying
amount of the asset exceeds its fair value, as defined in Statement of Financial

                                      F-10
<PAGE>   54
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."

  Research and Development Costs

     Research and development costs related to the design, development and
testing of new software products are charged to expense as incurred. Effective
January 1, 1998, research and development costs also include payments for
royalty advances to third-party developers on products that are currently in
development.

  Advertising Expenses

     Advertising costs are expensed as incurred. Advertising expense for the
year ended December 31, 1997, the three months ended March 31, 1998 and the
years ended March 31, 1999 and 2000 amounted to $32,034, $7,889, $49,107 and
$64,044, respectively.

  Foreign Currency

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

  New Accounting Pronouncements

     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company will adopt SFAS No. 133 in the first
quarter of fiscal 2001, in accordance with the deferral provision in SFAS No.
137. The adoption of SFAS No. 133 will not have a material effect on the
Company's financial statements.

  Reclassifications

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

  Net Income (Loss) Per Share

     Basic earnings per share ("EPS") is computed as net earnings after
preferred dividends divided by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock-based compensation plans
including stock options, restricted stock awards, warrants and other convertible
securities using the treasury stock method. The convertible debt, warrants and
all shares issuable under stock based compensation plans would be anti-dilutive
and therefore have not been considered in the diluted EPS calculation in fiscal
2000.

  Discontinued Operations

     Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations -- Reporting Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"), the consolidated financial statements of the Company
reflect the disposal of OZM as a discontinued operation. Accordingly, the
revenues, costs and expenses, assets and liabilities, and cash flows of this
business have been excluded from the respective captions in the
                                      F-11
<PAGE>   55
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated
Statements of Comprehensive Income and Consolidated Statements of Cash Flows,
and have been reported through its date of disposition as "Loss from
discontinued operations." The net assets of OZM of $1.0 million are included in
prepaid expenses and other current assets.

  Use of Estimates

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

  Fiscal Year

     Effective January 1, 1998, the Company changed its fiscal year end from
December 31 to March 31. Accordingly, the fiscal year ended March 31, 1998
represents three months of operations (See Note 23)

NOTE 2 -- PURCHASE OF MAJORITY INTEREST BY INFOGRAMES SA

     As of December 31, 1999, Infogrames SA and subsidiaries purchased
approximately 60 percent of the voting stock of the Company through the
following transactions:

     - On November 15, 1999, Infogrames SA purchased from the Company a $25
       million principal amount Short-Term Senior Secured Note ("Short-Term
       Note"). In connection with this transaction, the Company issued to
       Infogrames SA warrants to purchase 10,000 shares of common stock at an
       exercise price of $.05 per share.

     - On December 16, 1999, the Company consummated a the following of
       transactions with Infogrames SA and certain partnerships affiliated with
       General Atlantic Partners, LLC ("GAP"). Infogrames SA, the founding Cayre
       family, and GAP entered into further transactions as well.

     - Infogrames SA purchased 6,711,706 shares of common stock from the
       founding Cayre family for $25.0 million and also purchased from the Cayre
       family $10 million of subordinated notes ("Cayre Notes") of the Company.

     - Infogrames SA purchased 5,714,286 shares of Common Stock from the Company
       for $50 million ($8.75 per share) and $60.6 million principal amount of a
       new 5% subordinated convertible note of the Company in exchange for $25
       million in cash, the Cayre Notes, the Short-Term Note and $0.6 million
       accrued interest. The new 5% subordinated convertible note is convertible
       into common stock at $9.25 per share.

     - The Company issued to GAP $50 million principal amount of non-interest
       bearing subordinated convertible notes in exchange for 600,000 shares of
       Series A Preferred Stock and $20 million of subordinated notes of the
       Company, and accrued interest thereon, held by GAP. These notes are
       convertible into common stock at $20.00 per share.

     - Infogrames SA acquired from GAP warrants to purchase 900,000 shares of
       common stock at of the Company an exercise price of $.05 per share, for
       nominal consideration.

As a result of these transactions, as of December 31, 1999, Infogrames SA owns
approximately 12 million shares of the Company's common stock.

                                      F-12
<PAGE>   56
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     The Company has relied on support from its parent, Infogrames SA, in the
recent past. The Company believes that it is Infogrames SA's present intention
to continue such support as Infogrames SA deems necessary to fund operations and
cash flows for the next twelve months.

NOTE 3 -- ACQUISITIONS

     In January 1997, the Company acquired all of the outstanding capital stock
of Premier Promotion Limited, the parent company of One Stop Direct Limited, for
approximately $0.4 million in cash. This transaction was accounted for as a
purchase.

     In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a software developer, for cash and stock.
Total consideration, including acquisition costs, was approximately $14.7
million, of which $5.4 million was cash and the balance of the purchase price
was the issuance of .1 million newly issued shares of the Company's common stock
and the assumption of approximately .1 million stock options. The acquisition
was accounted for as a purchase. The purchase price was allocated to net assets
acquired, purchased in-process research and development ("R&D"), and goodwill
and other intangibles. Purchased in-process R&D includes the value of products
in the development stage and not considered to have reached technological
feasibility and was, therefore, expensed. Accordingly, $11,008 of acquisition
cost was expensed in the fourth quarter of 1997. In connection with the
acquisition of SingleTrac on October 15, 1997, the Company issued approximately
146 shares of its common stock and assumed approximately 61 stock options.

     In November 1998, the Company acquired One Zero Media, Inc. ("OZM"), an
Internet entertainment content company, in exchange for approximately .5 million
newly issued shares of the Company's common stock and approximately .1 million
stock options to purchase the Company's common stock. Total consideration,
including acquisition costs, was approximately $17.2 million, which was
allocated to net assets acquired and goodwill. The acquisition was accounted for
as a purchase, because it was the Company's intention to sell an ownership
interest in OZM. At March 31, 1999, the Company decided to sell OZM within the
next six months and therefore OZM is accounted for as a discontinued operation.
OZM was sold in July 1999. This resulted in a loss from discontinued operations
of $19.5 million, $.5 million of which is recognized in the current fiscal year.
In connection with the acquisition of OZM on November 4, 1998, the Company
issued approximately 458 shares of its common stock and assumed approximately
117 stock options.

     In December 1998, the Company acquired Reflections Interactive Limited
("Reflections"), a developer of interactive entertainment software for computer
games, in exchange for approximately .46 million newly issued shares of the
Company's common stock. Total consideration, including acquisition costs, was
approximately $13.5 million. The acquisition was accounted for as a purchase.
The purchase price was allocated to net assets acquired, purchased in-process
R&D and goodwill. Accordingly, $5.0 million of acquisition cost was expensed in
the quarter ended December 31, 1998. Additionally, the Company acquired Prism
Leisure Tontragervertriebs GmbH ("Prism"), a distributor of value-priced
software based in Germany, for nominal consideration. The acquisition was
accounted for as a purchase. The purchase price was allocated to net assets
acquired and goodwill. In connection with the acquisition of Reflections on
December 23, 1998, the Company issued approximately 457 shares of its common
stock.

     In December 1998, the Company formed GT Interactive European Holdings B.V.,
a European holding company, which acquired all of the outstanding capital stock
of Home Software Benelux B.V. ("Homesoft"), a distributor of entertainment
software, for approximately $1.0 million in cash. The acquisition was accounted
for as a purchase.

     In December 1998, the Company purchased the assets of Legend Entertainment
Company ("Legend"), a developer of entertainment software. Total consideration,
including acquisition costs, was approximately $2.0

                                      F-13
<PAGE>   57
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

million. The purchase price was allocated to goodwill. In connection with the
asset purchase of Legend on December 22, 1998, the Company issued approximately
9 shares of its common stock. These shares are restricted from being sold until
no later than December 22, 2002.

NOTE 4 -- RECEIVABLES, NET

     Receivables consist of the following:

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              --------------------
                                                                1999        2000
                                                              --------    --------
<S>                                                           <C>         <C>
Trade accounts receivable...................................  $179,823    $109,146
Royalties receivable........................................        17         178
                                                              --------    --------
                                                               179,840     109,324
Less:  Allowance for doubtful accounts......................    10,713      23,337
       Sales return reserve.................................    59,108      48,986
                                                              --------    --------
                                                              $110,019    $ 37,001
                                                              ========    ========
</TABLE>

NOTE 5 -- INVENTORIES, NET

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              -------------------
                                                                1999       2000
                                                              --------    -------
<S>                                                           <C>         <C>
Finished goods..............................................  $146,312    $77,677
Return inventory............................................    26,319      7,351
Raw materials...............................................     4,194      1,238
                                                              --------    -------
                                                               176,825     86,266
Less:  Obsolescence Reserve.................................    18,617     48,087
                                                              --------    -------
                                                              $158,208    $38,179
                                                              ========    =======
</TABLE>

     Included in the obsolescence reserve at March 31, 2000 is an aggregate
charge of approximately $56.0 million recorded in the current year relating to
management's decision to focus on certain product lines and exit others. This
charge is recorded in cost of sales and is part of the restructuring and
reorganization of the Company. See Note 21 for additional information relating
to the restructuring of the Company's operations.

NOTE 6 -- INVESTMENTS

     In 1995, the Company invested $62,500 in Zomax Incorporated ("Zomax"), an
outsource provider of process management services to software publishers,
computer manufacturers and other producers of multimedia products. As of March
31, 2000 the Company held approximately 31,000 shares of Zomax at a market price
of $60.25 per share.

     In 1996, the Company purchased for approximately $2,676 in cash a 9.9%
investment in, and entered into a multi-titled publishing agreement with Mirage,
a U.K. developer of entertainment software. Since the total of the expected
future cash flows is less than the carrying amount of the investment, the
Company recognized a loss of $2,676 on its investment during fiscal 1999.

                                      F-14
<PAGE>   58
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     In 1996, the Company invested approximately $7,122 in convertible preferred
stock of OddWorld Entertainment, Inc., a developer of entertainment software,
which is convertible into 50% of the common equity.

     In 1997, the Company purchased for $225 in cash a 9.9% investment in
GameWizards, Inc., a developer of electronic and print-based strategy guides on
behalf of developers and publishers of software products.

NOTE 7 -- PROPERTY AND EQUIPMENT, NET

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Computer equipment..........................................  $17,172    $17,527
Machinery and equipment.....................................    6,622      4,952
Capitalized computer software...............................   17,918     20,139
Furniture and fixtures......................................    7,059      5,513
Leasehold improvements......................................    7,733      4,041
                                                              -------    -------
                                                               56,504     52,172
Less:  accumulated depreciation.............................   19,696     26,411
                                                              -------    -------
                                                              $36,808    $25,761
                                                              =======    =======
</TABLE>

     Depreciation expense for the year ended December 31, 1997, the three months
ended March 31, 1998 and the years ended March 31, 1999 and 2000 amounted to
approximately $6,139, $1,929, $11,256 and $12,952 respectively.

NOTE 8 -- ACCRUED LIABILITIES

     Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Restructuring reserve.......................................    8,992     10,209
Accrued Advertising.........................................    2,414      1,389
Accrued Professional Fees...................................    1,251        983
Accrued Salary and Related Costs............................    4,602      5,007
Litigation Reserve..........................................       --      2,400
Accrued Freight and Distributions...........................    5,890      2,611
Other.......................................................   12,356     14,524
                                                              -------    -------
                                                              $35,505    $37,123
                                                              =======    =======
</TABLE>

     See Note 21 for information on the details of the restructuring charge
recorded by the Company.

                                      F-15
<PAGE>   59
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 9 -- INCOME TAXES

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

<TABLE>
<CAPTION>
                                                      THREE MONTHS        YEARS ENDED
                                       YEAR ENDED        ENDED             MARCH 31,
                                      DECEMBER 31,     MARCH 31,      --------------------
                                          1997            1998          1999        2000
                                      ------------    ------------    --------    --------
<S>                                   <C>             <C>             <C>         <C>
Federal:
  Current...........................    $(10,308)        $(407)       $     --    $ (6,612)
  Deferred..........................      (1,265)          836         (23,563)     38,499
                                        --------         -----        --------    --------
                                         (11,573)          429         (23,563)     31,887
                                        --------         -----        --------    --------
State and local:
  Current...........................         185            36              --          --
  Deferred..........................      (1,726)           33          (4,202)      4,424
                                        --------         -----        --------    --------
                                          (1,541)           69          (4,202)      4,424
                                        --------         -----        --------    --------
Foreign:
  Current...........................       3,957          (194)          1,186          33
  Deferred..........................          --            --          (3,049)      4,538
                                        --------         -----        --------    --------
                                           3,957          (194)         (1,863)      4,571
                                        --------         -----        --------    --------
Provision for (benefit from) income
  taxes.............................    $ (9,157)        $ 304        $(29,628)   $(40,882)
                                        ========         =====        ========    ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                      THREE MONTHS         YEAR ENDED
                                      YEARS ENDED        ENDED             MARCH 31,
                                      DECEMBER 31,     MARCH 31,      --------------------
                                          1997            1998          1999        2000
                                      ------------    ------------    --------    --------
<S>                                   <C>             <C>             <C>         <C>
(Benefit from) provision for income
  taxes computed at Federal
  statutory rate....................    $(11,963)         $232        $(28,499)   $(98,438)
Increase (decrease) in (benefit
  from) provision for income taxes
  resulting from:
State and local taxes, net of
  Federal tax benefit...............      (1,541)           36          (3,324)    (10,969)
Foreign taxes in excess of Federal
  statutory rate....................           9          (175)           (512)     17,598
Purchased research and
  development.......................       4,293            --              --          --
Other, net..........................          45           211           2,707      (1,900)
Increase to deferred tax asset
  valuation allowance...............          --            --              --     134,591
                                        --------          ----        --------    --------
Provision for (benefit from) income
  taxes.............................    $ (9,157)         $304        $ 29,628    $ 40,882
                                        ========          ====        ========    ========
Effective income tax rate...........          27%           46%             36%         15%
                                        ========          ====        ========    ========
</TABLE>

                                      F-16
<PAGE>   60
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

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

<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                               1999        2000
                                                              -------    ---------
<S>                                                           <C>        <C>
DEFERRED TAX ASSETS:
Inventory valuation.........................................  $ 7,825    $  20,454
Deferred income.............................................      118           77
Sales return reserve........................................     (302)       1,702
Tax loss carryforwards......................................   26,729       92,781
Restructuring reserve.......................................    5,822        4,814
Other.......................................................    7,928       12,820
                                                              -------    ---------
                                                               48,120      132,648
                                                              -------    ---------
DEFERRED TAX LIABILITIES:
Depreciation................................................      686        1,943
                                                              -------    ---------
Net deferred tax asset......................................      686        1,943
                                                              -------    ---------
                                                               48,806      134,591
Less valuation allowance....................................       --     (134,591)
                                                              -------    ---------
Net deferred tax asset......................................  $48,806    $       0
                                                              =======    =========
</TABLE>

     As of March 31, 2000, the Company has combined net operating loss
carryforwards of $238,503 for tax purposes. These loss carryforwards are
available to offset future taxable income and will expire beginning in the years
2011 through 2019. Under Section 382 of the Internal Revenue Code, when there is
an ownership change, the pre-ownership-change loss carryforwards are subject to
an annual limitation which could reduce or defer the utilization of these
losses.

     The valuation allowance increased by $134,591 in fiscal 2000, consisting of
a valuation allowance of $48,806 for the beginning deferred tax asset balance
and a valuation allowance of $85,785 for the net change in the deferred tax
asset during the year. Such valuation allowance was necessary due to the current
year operating results and the terminated plans to sell certain of the Company's
businesses which would have resulted in the utilization of the deferred tax
asset. A full valuation allowance has been recorder against the net deferred tax
asset because it is more likely than not that such asset will not be realized in
the foreseeable future.

     The Company has not recognized a deferred tax liability of approximately
$2.0 million for the undistributed earnings of its 100 percent-owned foreign
subsidiaries that arose in fiscal 2000 and prior years as the Company currently
does not expect those unremitted earnings to reverse and become taxable to the
Company in the foreseeable future. A deferred tax liability will be recognized
when the Company expects that it will recover those undistributed earnings in a
taxable manner. As of March 31, 2000, the undistributed earnings of these
subsidiaries were approximately $4.9 million.

NOTE 10 -- STOCKHOLDERS' EQUITY

     On November 12, 1999, the Company's Board of Directors approved an
amendment to the Company's Amended and Restated Certificate of Incorporation
(the "Charter Amendment"), which increases the total number of shares of
authorized capital stock of the Company from 155 million shares to 305,000
shares. The

                                      F-17
<PAGE>   61
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

Charter Amendment became effective on February 14, 2000. There is currently
authorized 300,000 shares of the Company's common stock and 5,000 shares of the
Company's Series A Convertible Preferred Stock. Refer to Note 2 for
stockholders' equity transactions relating to the purchase by Infogrames SA of a
majority interest in the Company.

     As of March 31, 2000 and 1999, the Company had warrants outstanding to
purchase an aggregate of approximately 1.2 million shares of Common Stock to
content-providers at exercise prices (ranging from $6.50 to $14.00) not less
than the fair market value at the date of issue. Refer to Note 2 for
stockholders' equity transactions relating to the purchase by Infogrames SA of a
majority interest in the Company.

NOTE 11 -- STOCK OPTIONS

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

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

     A summary of the status of the Company's Plans at December 31, 1997, March
31, 1998, 1999 and 2000 and changes during the year ended December 31, 1997, the
three months ended March 31, 1998 and the fiscal years ended March 31, 1999 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 1997
                                                ------------------------------------------
                                                           PRICE PER      WEIGHTED AVERAGE
                                                SHARES       SHARE         EXERCISE PRICE
                                                ------    ------------    ----------------
<S>                                             <C>       <C>             <C>
Outstanding at beginning of year..............  1,152     $0.20-117.50         $53.95
Granted.......................................    881       1.80-70.00          43.15
Exercised.....................................    (54)      0.20-46.90          14.45
Forfeited.....................................   (268)     1.75-117.50          76.80
Expired.......................................    (54)     39.70-88.75          56.30
                                                -----     ------------         ------
Outstanding at end of year....................  1,657     $ 0.20-72.50         $45.65
                                                =====     ============         ======
</TABLE>

<TABLE>
<CAPTION>
                                                              MARCH 31, 1998
                                                ------------------------------------------
                                                           PRICE PER      WEIGHTED AVERAGE
                                                SHARES       SHARE         EXERCISE PRICE
                                                ------    ------------    ----------------
<S>                                             <C>       <C>             <C>
Outstanding at beginning of fiscal year.......  1,657     $ 0.20-72.50         $45.65
Granted.......................................    309      31.55-39.70          34.15
Exercised.....................................     (7)      0.90-10.40           5.50
Forfeited.....................................      0        0.01-0.00           0.00
Expired.......................................     (1)      1.75-70.00          35.00
                                                -----     ------------         ------
Outstanding at end of fiscal year.............  1,958     $ 0.20-72.50         $43.95
                                                =====     ============         ======
</TABLE>

                                      F-18
<PAGE>   62
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              MARCH 31, 1999
                                                ------------------------------------------
                                                           PRICE PER      WEIGHTED AVERAGE
                                                SHARES       SHARE         EXERCISE PRICE
                                                ------    ------------    ----------------
<S>                                             <C>       <C>             <C>
Outstanding at beginning of fiscal year.......  1,958     $ 0.20-72.50         $43.95
Granted.......................................  1,139      0.01-100.00          32.85
Exercised.....................................    (40)      0.01-39.70           7.40
Forfeited.....................................    (99)      0.90-70.00          46.20
Expired.......................................    (47)      1.75-70.00          46.05
                                                -----     ------------         ------
Outstanding at end of fiscal year.............  2,911     $0.01-100.00         $40.10
                                                =====     ============         ======
</TABLE>

<TABLE>
<CAPTION>
                                                            MARCH 31, 2000
                                              -------------------------------------------
                                                          PRICE PER      WEIGHTED AVERAGE
                                              SHARES        SHARE         EXERCISE PRICE
                                              ------    -------------    ----------------
<S>                                           <C>       <C>              <C>
Outstanding at beginning of year............   2,911    $ 0.01-100.00         $40.10
Granted.....................................     415      9.40- 19.70          14.75
Exercised...................................     (61)     0.01- 10.40           2.35
Forfeited...................................  (1,048)     1.75-100.00          33.25
Expired.....................................    (321)     0.90-100.00          52.95
                                              ------    -------------         ------
Outstanding at end of year..................   1,895    $ 0.01- 72.50         $37.60
                                              ======    =============         ======
</TABLE>

     As of March 31, 2000, there were 1,895 options outstanding at prices
ranging from $0.01 to $72.50, of which 1,402 options were exercisable at prices
ranging from $0.22 to $72.50.

     If compensation cost for these plans were determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the Company's net income (loss) before dividends on preferred
stock and earnings per share would have been reduced to the following pro forma
amounts:

<TABLE>
<CAPTION>
                                                    THREE MONTHS          YEARS ENDED
                                    YEAR ENDED         ENDED               MARCH 31,
                                   DECEMBER 31,      MARCH 31,       ---------------------
                                       1997             1998           1999        2000
                                   ------------    --------------    --------    ---------
<S>                                <C>             <C>               <C>         <C>
Net (loss) income before
  dividends on preferred stock
  As reported....................    $(25,023)         $ 358         $(70,838)   $(320,722)
  Pro forma......................     (32,141)           217          (77,566)    (320,937)
Basic net (loss) income per share
  As reported....................    $  (1.87)         $0.03         $  (5.08)   $  (19.50)
  Pro forma......................    $  (2.40)         $0.02         $  (5.57)   $  (19.51)
Diluted net (loss) income per
  share
  As reported....................    $  (1.87)         $0.03         $  (5.08)   $  (19.50)
  Pro forma......................    $  (2.40)         $0.02         $  (5.59)   $  (19.51)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the year ended December 31, 1997, the three
months ended March 31, 1998 and the years ended March 31, 1999 and 2000: no
dividends will be paid for the entire term of the option, expected volatility of
67.5% for 1997, the three months ended March 31, 1998 and the year ended March
31, 1999, and 81.0% for the year ended March 31, 2000, risk-free interest rates
averaging 6.22% for 1997, 5.45% for the three months ended March 31, 1998,

                                      F-19
<PAGE>   63
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

4.74% for the year ended March 31, 1999 and 5.82% for the year ended March 31,
2000 and expected lives of four years in 1997, the three months ended March 31,
1998 and the years ended March 31, 1999 and 2000. The weighted average fair
value of options granted was $9.30 in 2000, $14.30 in 1999, $19.15 in 1998 and
$19.45 in 1997.

NOTE 12 -- RELATED PARTY TRANSACTIONS

  Purchase of majority interest by Infogrames SA

     On November 15, 1999, Infogrames SA and/or its subsidiaries purchased from
the Company the Short-Term Note. In connection with this transaction, the
Company issued to Infogrames SA warrants to purchase 50,000 shares of common
stock of the Company at an exercise price of $0.01 per share.

     On December 16, 1999, the Company consummated a number of transactions with
Infogrames SA and certain members of the founding Cayre family.

     Infogrames purchased 33,558,531 shares of common stock from the founding
Cayre family for $25.0 million in cash and also purchased from the Cayre family
$10.0 million of subordinated notes (the "Cayre Notes") of the Company.

     Infogrames SA purchased 28,571,429 shares of common stock from the Company
for $50 million in cash ($1.75 per share) and $60.6 million principal amount of
a new 5% subordinated convertible note of the Company (the "5% Note") in
exchange for $25 million in cash, the Cayre Notes, the Short-Term Notes and $0.6
million accrued interest. Interest of $0.9 million accrued on the 5% Note
through March 31, 2000. The 5% Note is convertible into common stock at $1.85
per share.

     As a result of these transactions, as of December 31, 1999, Infogrames SA
owned approximately 62.1 million shares of the Company's common stock, or 60% of
the voting securities of the Company. Pursuant to the Securities Purchase
Agreement dated November 15, 1999 between the Company and Infogrames SA, the
Company was required to pay not more than $2.0 million of Infogrames SA's
attorney's and accountant's fees. As of March 31, 2000, $0.6 million remained
payable to Infogrames SA for these fees.

     In connection with the assumption by Infogrames SA of the Company's credit
agreement as of February 15, 2000, the Company issued to Infogrames SA warrants
to purchase 225,000 shares of common stock at an exercise price of $0.01 per
share.

  Purchases of product from Infogrames SA

     During the fiscal year ended March 31, 2000, the Company purchased $1.2
million of product from Infogrames SA, of which $1.1 million remains
outstanding, representing approximately 1% of total products purchased by the
Company for such period.

     The following transactions occurred between the Company and the former
directors through their date of resignation, and accordingly, the information
presented is from April 1, 1999 through December 16, 1999, the date that
Infogrames SA purchased a majority interest in the Company.

  Leases

     In May 1995, G.T. Interactive Software (Europe) Limited, the Company's
European subsidiary, entered into a lease with respect to its then principal
executive offices with Marylebone 248 Realty LLC ("Marylebone 248"), an entity
controlled by Joseph J. Cayre, former Chairman Emeritus of the Board of
Directors and Jack J. Cayre, former Executive Vice president and a director of
the Company. This lease was

                                      F-20
<PAGE>   64
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

terminated in August 1999. From April 1, 1999 through August 15, 1999, the
Company paid approximately $119,000 in rent to Marylebone 248.

  Transactions with GoodTimes Home Video Corp. ("GTHV")

     GTHV, a majority of whose stock was formerly owned by Joseph J. Cayre,
Stanley Cayre and Kenneth Cayre, performed certain assembly and packaging
services for the Company. The Company enters into arms length manufacturing
transactions with GTHV on an as needed basis. The total amount charged to
operations for manufacturing services for the years ended December 31, 1996 and
1997 amounted to $7,516 and $2,498, respectively. The Company made cash payments
totaling $330 and $1,148 to GTHV during the three months ended March 31, 1998
and the year ended March 31, 1999, respectively. During 1996, the Company sold
approximately $3,488 of software to GTHV at fair market value. GTHV also
performed certain assembly and packaging services for the Company. From April 1,
1999 through December 16, 1999, the Company paid approximately $260,000 in fees
for such services. Additionally, as of March 31, 2000, the Company had
liabilities to GTHV of approximately $2.1 million, which are expected to be
extinguished in fiscal 2001.

  REPS Agreement

     In servicing its mass merchant accounts, the Company uses field
representatives supplied by REPS, a company owned by Joseph J. Cayre, Stanley
Cayre and Kenneth Cayre. REPS provides such services to the Company as well as
to third parties not affiliated with the Cayre family. The Company had an
agreement with REPS pursuant to which REPS supplied such services through May 1,
2000. The Company is currently operating on a month to month basis under the
terms of the expired agreement. The total amount charged to operations for these
services amounted to approximately $3,025, $4,817, $1,434 and $4,089 for the
years ended December 31, 1996 and 1997, the three months ended March 31, 1998
and the year ended March 31, 1999. Prior to entering into the REPS agreement
with GTHV, from April 1, 1999 through December 16, 1999, the Company paid
approximately $2,686,000 in fees to REPS.

  Travel Services

     The Company occasionally hired Excel Aire Service, Inc. ("Excel") to
provide business travel services for its officers and employees. Excel leases
its planes from JT Aviation Corp. ("JTAC"), a company owned by Joseph J. Cayre.
Excel is not owned in whole or in part by any member of the Cayre family. Excel
provided air travel to the Company at an hourly rate and on an as needed as
available basis. During the years ended December 31, 1996 and 1997, the three
months ended March 31, 1998 and the year ended March 31, 1999, the Company's
aggregate air travel fees paid to JTAC were approximately $445, $370, $40 and
$217, respectively. During the year ended March 31, 1999, the Company paid
approximately $311 to Excel. From April 1, 1999 through December 16, 1999, the
Company paid approximately $69,000 to Excel.

     The Company occasionally hired JC Aviation Corp ("JCAC"), a company owned
by Jack J. Cayre, Executive Vice President and Director of the Company, to
provide business transportation services for its officers. During the year ended
December 31, 1997, the Company paid approximately $26 to JCAC. There were no
payments made during the three months ended March 31, 1998 or the year ended
March 31, 1999 to JCAC.

  ClientLogic Corporation

     Transactions with ClientLogic Corporation ("ClientLogic"). The Company has
entered into agreements with ClientLogic (formerly doing business as SOFTBANK
Services Group) pursuant to which ClientLogic (i) provides toll-free customer
support for some of the Company's published products and (ii) takes direct
customer orders and provides fulfillment services for the Company, in each case
on a per service basis. Both
                                      F-21
<PAGE>   65
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

agreements provide for automatic renewal on a month to month basis upon
expiration unless terminated by either party. During the years ended December
31, 1996 and 1997, the three months ended March 31, 1998 and the year ended
March 31, 1999, the Company had charged to operations approximately $164, $230,
$41 and $251, respectively, in fees to ClientLogic. Jordan A. Levy, a former
director of the Company, is Vice-Chairman of ClientLogic.

  RCS Computer Experience

     From time to time, the Company purchases computer equipment from and sells
computer software to RCS Computer Experience, LLC ("RCS"). In June 1998,
Rockwell Computer Services, LLC, a company controlled by Joseph J. Cayre,
purchased approximately a 70% interest in RCS. During the year ended March 31,
1999, the Company paid approximately $24 to RCS and generated approximately $54
in net revenues from RCS.

     The Company has entered into agreements with an unaffiliated leasing
company for computer equipment. This leasing company purchases computer
equipment from various vendors including RCS. During the year ended March 31,
1999, the leasing company paid approximately $231 to RCS for equipment leased by
the Company.

     The Company believes that the terms of the foregoing transactions are no
less favorable to the Company than could be obtained by the Company from
unrelated parties on an arm's-length basis.

  Transactions between Infogrames UK Limited and GT Interactive Software Europe
(Limited)

     GT Interactive Software Europe (Limited) ("GT UK") entered into a number of
transactions with Infogrames UK Limited ("Infogrames UK") relating to the
consolidation of its operations with Infogrames UK. Fixed assets having a net
book value of $722,000 were transferred to Infogrames UK for $626,000. The
resulting loss is included in restructuring charges. Inventory having a cost of
$270,000 was transferred at original cost. Infogrames UK agreed to assume the
ongoing costs of running GT UK's office from March 1, 2000 including the salary
costs of a number of employees who transferred to Infogrames UK. Such salary
charges totaled $265,000 and such charges that relate to ongoing operations
other than salaries totaled $94,000 for the month of March 2000. The lease on
the UK office was formally assigned to Infogrames UK in June 2000, although the
rent for this office has been borne by Infogrames UK from March 1, 2000. $38,000
of such rent was re-charged to Infogrames UK for the month of March 2000. A
deferred rent liability of $203,000 arising from an initial rent free period on
the office was transferred to Infogrames UK.

  Loans

     Gregor Loan.  On August 31, 1996, the Company extended a loan to Andrew
Gregor, a former Chief Financial Officer of the Company, in the principal amount
of $250. The loan, including interest, amounted to $290 and was forgiven as part
of Mr. Gregor's severance package and charged to restructuring charges in the
fourth quarter of fiscal 1999. See Note 21 for information concerning other
restructuring charges.

     FormGen Loans.  The Company has extended loans to the former stockholders
of FormGen in the aggregate amount of $1,098. $181 of such loans have been
repaid as of March 31, 2000.

     SingleTrac Loans.  The Company has extended non-interest bearing loans to
three former employees of the Company who were former stockholders of
SingleTrac. The principal amount of each such loan is $100,000. Such loans
become due and payable at the earliest of the sale of their stock of the
Company, in November 1999 or six months following termination of the borrowers'
respective employment with the Company. Each of the borrowers has pledged 20,000
shares of the Company's common stock, as collateral security for the loans. One
loan was forgiven on July 9, 1999 pursuant to an amended employment agreement,
                                      F-22
<PAGE>   66
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

which provided for the loan forgiveness pursuant to termination of employment.
$20,000 of another loan has been partially earned by the former employee, and
the $80,000 balance repaid to the Company in May 2000. The Company intends to
pursue collection of the third loan, which is still outstanding.

     Humongous Loan.  The Company extended a demand promissory note to the
former President of Humongous, a wholly-owned subsidiary. The note bears
interest at a rate of 8.75% per annum and is secured by a residential first
mortgage and security interest in all shares of common stock of the Company
owned beneficially by such individual. The balance outstanding, including
interest, at March 31, 2000 is approximately $2.5 million. The Company is
currently negotiating a repayment schedule for this outstanding loan.

     OZM Loan.  The Company extended a loan to an employee of OZM in the
principal amount of $150. Such loan bears interest at 7 1/2% per annum and is
due in three equal annual installments commencing December 7, 1998.

NOTE 13 -- LEASES

     The Company accounts for its leases as operating leases, with expiration
dates ranging from 2000 through 2012. Future minimum annual rental payments
under the leases are as follows for the fiscal years then ended:

<TABLE>
<S>                                                  <C>
2001...............................................  $ 6,054
2002...............................................    4,970
2003...............................................    4,408
2004...............................................    3,967
2005...............................................    3,522
Thereafter.........................................    7,326
                                                     -------
                                                     $30,247
                                                     =======
</TABLE>

     Total rent expense charged to operations for the years ended December 31,
1997, the three months ended March 31, 1998 and the years ended March 31, 1999
and 2000 amounted to approximately $4,894, $1,233, $7,344 and $9,065,
respectively.

NOTE 14 -- COMMITMENTS AND CONTINGENCIES

     On January 21, 1997, the Company entered into a revolving credit agreement
(as amended, the "Old Credit Agreement") with certain banks expiring on December
31, 1998. On September 11, 1998, the borrowings under the Old Credit Agreement
were repaid and the Old Credit Agreement was terminated.

     Simultaneously, on September 11, 1998, the Company entered with First Union
National Bank, as agent for a syndicate of banks (the "Banks"), into a new
revolving credit agreement (the "Credit Agreement") as subsequently amended,
expiring on March 31, 2000. Under the Credit Agreement, the Company borrowed
approximately $71 million for ongoing working capital requirements, letters of
credit and other general corporate purposes, secured by domestic accounts
receivable and inventory and other assets of the Company. To induce the Banks to
amend the Credit Agreement, the Company issued the Banks warrants to purchase,
at an exercise price of $0.01 per share, an aggregate of 750,000 shares of the
Company's Common Stock. Of these, warrants to purchase 275,000 shares of Common
Stock were immediately exercisable, warrants to purchase 250,000 shares of
Common Stock became exercisable on October 31, 1999 and warrants to purchase the
remaining 225,000 shares of Common Stock (the "Bank Warrants") became
exercisable on February 28, 2000 if the Credit Agreement was not repaid prior to
that date.

                                      F-23
<PAGE>   67
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     As of February 15, 2000, Infogrames SA entered into an agreement with the
Banks, pursuant to which Infogrames SA assumed the Banks' interest in the Credit
Agreement. In connection with the assumption by Infogrames SA of the Credit
Agreement, (i) the maturity date was extended from March 31, 2000 to June 30,
2000, (ii) the interest rate, which was the Prime Rate plus 1.0% or LIBOR plus
2.5% at the option of the Company, was set at LIBOR plus 2.5%, (iii) a $250,000
amendment fee, which would have been payable to the Banks on March 31, 2000
unless the Credit Agreement was refinanced by February 16, 2000, was reduced to
$125 and paid to Infogrames SA, (iv) certain mandatory prepayment restrictions
and operational covenants were revised to be less restrictive and (v) revisions
were made to provide alternative letter of credit facilities to the Company. In
addition, the Bank Warrants were surrendered and cancelled and warrants to
purchase 225,000 shares of Common Stock, at an exercise price of $0.01 per
share, were issued to Infogrames SA.

     At March 31, 2000, the Company had outstanding borrowings under the Credit
Agreement of approximately $71.7 million, and letters of credit amounting to
approximately $1.6 million.

     Long term debt consists of the following:

<TABLE>
<S>                                                           <C>
5% subordinated convertible note............................  $61,462
GAP 0% subordinated convertible notes.......................   36,367
                                                              -------
                                                              $97,828
                                                              =======
</TABLE>

     The above indebtedness matures in full on December 16, 2004.

     Refer to Note 2 for additional obligations of the Company incurred
concurrent with the Infogrames transaction.

NOTE 15 -- LEGAL PROCEEDINGS

     On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software developer,
filed a lawsuit against the Company in Supreme Court, New York County, claiming
that the Company breached a software development contract between the parties
dated November 28, 1995. Scavenger alleges that the Company, after paying $2.5
million in advances and accepting delivery of gold master disks for two computer
games, refused to pay any more advances, including advances relating to the
development of two additional games under the agreement. Scavenger is suing for
the remaining advances ($4.3 million) and for future royalties ($5 million), and
also seeks consequential damages for allegedly being forced out of business
($100 million) and losing contracts with unspecified third parties ($4 million)
as a result of the Company's alleged breach. The Company filed an answer and
counterclaim, in which it denies any liability to Scavenger and alleges, among
other things, that the contract was lawfully terminated when Scavenger failed to
deliver the two remaining games after receiving from the Company written notice
to cure its material breaches. By its counterclaim, the Company seeks damages
and restitution for at least $5 million on grounds of breach of contract and
unjust enrichment.

     By order entered March 3, 2000, the Court granted Scavenger's motion for
partial summary judgment on its claim for $1.9 million allegedly due on the two
delivered games and judgment was entered on March 14, 2000 in the amount of
$2,411,114 (reflecting pre-judgment interest on the claim). The Company posted a
bond in the amount of the judgment and immediately appealed from this order and
judgment to the Appellate Division, First Department. On June 8, 2000, the
Appellate Division, First Department affirmed the order and judgment entered by
the Supreme Court. The Company has moved for leave to appeal to the Court of
Appeals. As of March 31, 2000 the Company accrued approximately $2.4 million
related to this judgement.

                                      F-24
<PAGE>   68
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     In its order of March 3, 2000, the Court denied Scavenger's motion for
partial summary judgment seeking $2.4 million on the two games never delivered.
In addition, the Court denied Scavenger's motion for leave to amend the
complaint to add claims for fraud and seeking damages of $100 million.

     The Company moved for partial summary judgment seeking dismissal of the
claim for consequential damages ($75-125 million) and additional royalties ($5
million). By order entered June 21, 2000, the Court denied the Company's motion
and granted Scavenger leave to conduct an audit of royalties allegedly due to
Scavenger.

     In January, February and March 1998, ten substantially similar complaints
were filed against the Company, its former Chairman and its former Chief
Executive Officer, and in certain actions, its former Chief Financial Officer,
in the U.S. District Court for the Southern District of New York. The
plaintiffs, in general, purport to sue on behalf of a class of persons who
purchased shares (and as to certain complaints, purchased call options or sold
put options) of the Company during the period from August 1, 1996 through
December 12, 1997. The plaintiffs allege that the Company violated the federal
securities laws by making misrepresentations and omissions of material facts
that allegedly artificially inflated the market price of the Company's common
stock during the class period. The plaintiffs further allege that the Company
failed to expense properly certain prepaid royalties for software products that
had been terminated or had failed to achieve technological feasibility, or had
insufficient sales to recoup the paid advances, which misstatements purportedly
had the effect of overstating the Company's net income and net assets. Motions
were made by certain groups of plaintiffs for their appointment as lead
plaintiffs in the actions. On October 7, 1998, the Court appointed lead
plaintiffs and lead counsel to the plaintiffs in the actions. The plaintiffs'
consolidated and amended complaint was filed and served in early January 1999.
By order dated January 23, 1999, the plaintiffs were granted leave to file a
second consolidated and amended complaint, which added claims under Section
10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 10b-5 under the Exchange Act against the Company's former independent
auditors, Arthur Andersen LLP. The Company and Arthur Andersen LLP each filed
motions to dismiss the second consolidated and amended complaint. By order and
opinion dated November 29, 1999 the Court granted the motion to dismiss.
Plaintiffs have appealed from the dismissal of the action, and oral argument on
the appeal was held on June 8, 2000. The Company believes that these complaints
are without merit and intends to defend itself vigorously against these actions.

     On April 12, 1999, an action was commenced by the administrators for three
children who were murdered on December 1, 1997 by Michael Carneal at the Heath
High School in McCracken County, Kentucky. The action was brought against 25
defendants, including the Company and other corporations in the videogame
business, companies that produced or distributed the movie "The Basketball
Diaries", and companies that provide allegedly obscene internet content. The
complaint alleges, with respect to the Company and other videogame corporations,
that Carneal was influenced by the allegedly violent content of certain
videogames and that the videogame manufacturers are liable for Carneal's
conduct. The complaint seeks $10 million in compensatory damages and $100
million in punitive damages. The Company and approximately 10 other videogame
corporations have entered into a joint defense agreement and have retained
counsel. By order entered April 6, 2000, the Court granted a motion to dismiss
the complaint. Plaintiffs have filed a motion to vacate the dismissal of the
action, and this motion is currently being briefed.

     On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer, filed
a lawsuit in New York Supreme Court claiming that the Company failed to
adequately pursue bundling opportunities for the software game "Rebel Moon
Rising MMX" and unlawfully rejected the ninth milestone deliverable for the
software game "Rebel Moon Revolution" under a development contract between the
parties dated June 26, 1996. The complaint asserts five claims of breach and
intentional interference, which seek $100,000 for the nonpayment and rejection
of milestone nine, $400,000 for the balance of payments under the contract,
$775,000 for alleged lost bundling opportunities, $775,000 for alleged
intentional interference with bundling arrangements and

                                      F-25
<PAGE>   69
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

$500,000 for alleged interference with contractual relations. In an October 20,
1999 opinion and order, the court granted the Company's motion to dismiss three
of the five claims so that only the milestone nine contract and bundling claims
remain. Fenris has filed a notice of appeal from the dismissal of the $400,000
claim for the balance of payments under the contract; and the Company has filed
a counterclaim for breach seeking to recover not less than the $800,000 in
milestone payments advanced for the development of "Rebel Moon Revolution."
Fenris has moved for summary judgment on its first cause of action ($100,000),
and the Company has moved for summary judgment dismissing the bundling claim.
The Company intends to vigorously defend this action and pursue its
counterclaim.

     On February 7, 2000, Hasbro Interactive Inc., its subsidiary Atari
Interactive, Inc. and Zao Elorg d/b/a Elorg Corporation filed a lawsuit against
the Company and five other companies in Massachusetts federal court. The
complaint asserts claims against the Company for copyright infringement and
unfair competition based on the sale of the computer videogames entitled
"HemiRoids," "Patriot Command," "Bricklayer," "3D TetriMadness," "3D Munch Man,"
"3D Munch Man II" and "Mac-Man," as well as claims for trademark infringement
and dilution for use of the name "3D TetriMadness." The complaint seeks
injunctive relief, actual profits, statutory damages, attorneys' fees and costs
pursuant to federal copyright and trademark laws, as well as common law damages.
By settlement agreement dated March 29, 2000, the Company settled this action
and agreed to stop manufacturing and/or distributing the allegedly infringing
games.

     Additionally, the Company is involved in various claims and legal actions
arising in the ordinary course of business, the ultimate resolution of which
management believes will not be material to the Company's results of operations
or financial condition.

NOTE 16 -- EMPLOYEE SAVINGS PLAN

     The Company maintains an Employee Savings Plan which qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
The plan is available to all U.S. employees who meet the eligibility
requirements. Under the plan, participating employees may elect to defer a
portion of their pretax earnings, up to the maximum allowed by the Internal
Revenue Service (up to the lesser of 15% of compensation or $10 for calendar
year 1999), with matching of 50% of the employee's contribution up to 6 percent
provided by the Company. Generally, the plan assets in a participant's account
will be distributed to a participant or his or her beneficiaries upon
termination of employment, retirement, disability or death. All plan
administrative fees are paid by the Company. Generally, the Company does not
provide its employees any other post retirement or post employment benefits,
except discretionary severance payments upon termination of employment. Plan
expense approximated $467, $187, $739 and $530 for the year ended December 31,
1997, the three months ended March 31, 1998 and the year ended March 31, 1999
and 2000, respectively.

NOTE 17 -- ROYALTY ADVANCES

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

<TABLE>
<S>                                                  <C>
2001...............................................  $14,286
2002...............................................      850
2003...............................................      100
Thereafter.........................................       --
                                                     -------
                                                     $15,236
                                                     =======
</TABLE>

                                      F-26
<PAGE>   70
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 18 -- CONCENTRATION OF CREDIT RISK

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

     The Company had sales constituting 46%, 47%, 40% and 35% of net revenue to
two customers in the years ended December 31, 1997, the three months ended March
31, 1998 and the years ended March 31, 1999 and 2000, respectively. Sales to one
customer constituted 38%, 39%, 30% and 24% of net revenue during the year ended
December 31, 1997, the three months ended March 31, 1998 and the years ended
March 31, 1999 and 2000, respectively, while sales to a second customer
constituted 8%, 8%, 10%, and 11% of the net revenue for the same periods,
respectively.

     Accounts receivable due from three significant customers aggregated 48% and
43% of accounts receivable at March 31, 1999 and 2000, respectively.

NOTE 19 -- OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS

     The Company has two reportable segments: publishing and distribution.
Publishing is comprised of frontline, leisure and children's publishing.
Distribution constitutes the sale of the Company's and other publishers' titles
to various mass merchants and other retailers.

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

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

     The following unaudited summary represents the consolidated net revenues
and operating income (loss) by reportable segment for the years ended December
31, 1996 and 1997, the three months ended March 31, 1998 and the year ended
March 31, 1999:

<TABLE>
<CAPTION>
                                                 PUBLISHING    DISTRIBUTION    CORPORATE     TOTAL
                                                 ----------    ------------    ---------    --------
<S>                                              <C>           <C>             <C>          <C>
1997:
  Net revenues.................................   265,700        264,977             --      530,677
  Operating income (loss)......................    55,629         50,295        (48,455)      57,469
Three months ended March 31, 1998:
  Net revenues.................................    48,700         57,067             --      105,767
  Operating income (loss)......................     7,884          9,151        (14,348)       2,687
Year ended March 31, 1999:
  Net revenues.................................   299,400        272,942             --      572,342
  Operating income (loss)......................    24,447         30,520       (103,569)     (48,602)
Year ended March 31, 2000:
  Net revenues.................................   252,301        123,268             --      375,569
  Operating income (loss)......................    19,156         11,526       (250,915)    (222,233)
</TABLE>

                                      F-27
<PAGE>   71
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     The following represents the reconciliation of operating income (loss) as
reported for reportable segments to consolidated totals for the years ended
December 31, 1996 and 1997, the three months ended March 31, 1998 and the year
ended March 31, 1999:

<TABLE>
<CAPTION>
                                                   THREE MONTHS           YEAR ENDED
                                  YEARS ENDED          ENDED               MARCH 31,
                                  DECEMBER 31,       MARCH 31,       ---------------------
                                      1997             1998            1999        2000
                                  ------------    ---------------    --------    ---------
<S>                               <C>             <C>                <C>         <C>
Operating income (loss) as
  reported for reportable
  segments......................    $ 57,469          $2,687         $(48,602)   $(222,233)
Amortization of goodwill........      (1,295)           (636)          (3,349)      (3,110)
Restructuring and other
  charges.......................     (88,279)              0          (24,159)     (37,948)
                                    --------          ------         --------    ---------
Operating (loss) income.........    $(32,105)         $2,051         $(76,110)   $(263,291)
                                    ========          ======         ========    =========
</TABLE>

     Information about the Company's operations in the U.S. and other geographic
locations for the years ended December 31, 1996 and 1997, the three months ended
March 31, 1998 and year ended March 31, 1999 are presented below.

<TABLE>
<CAPTION>
                                                                           OTHER
                                                  UNITED      UNITED     GEOGRAPHIC
                                                  STATES     KINGDOM     LOCATIONS      TOTAL
                                                 --------    --------    ----------    --------
<S>                                              <C>         <C>         <C>           <C>
1997:
  Net revenues.................................  $423,197    $ 94,322     $ 13,158     $530,677
  Operating (loss) income......................   (44,332)     10,204        2,023      (32,105)
  Capital expenditures.........................     2,257      15,889          123       18,269
  Total assets.................................    55,453     349,019       11,516      415,988
Three months ended March 31, 1998:
  Net revenues.................................  $ 87,538    $ 14,132     $  4,097     $105,767
  Operating income.............................     1,270        (295)       1,076        2,051
  Capital expenditures.........................       144       7,462           35        7,641
  Total assets.................................   281,422      39,904       11,411      332,737
Year ended March 31, 1999:
  Net revenues.................................  $469,670    $ 76,132     $ 26,540     $572,342
  Operating loss...............................   (68,947)    (13,666)       6,503      (76,110)
  Capital expenditures.........................     2,196      20,121          290       22,607
  Total assets.................................   374,084      49,296       15,531      438,911
Year ended March 31, 2000:
  Net revenues.................................  $287,173    $ 70,748     $ 17,648     $375,569
  Operating loss...............................  (222,121)    (37,793)      (3,376)    (263,291)
  Capital expenditures.........................       937       6,115        1,812        8,864
  Total assets.................................   138,783      10,749        9,675      159,207
</TABLE>

                                      F-28
<PAGE>   72
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 20 -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                  THREE MONTHS     YEARS ENDED
                                                    YEAR ENDED       ENDED          MARCH 31,
                                                   DECEMBER 31,    MARCH 31,     ----------------
                                                       1997           1998        1999      2000
                                                   ------------   ------------   -------   ------
<S>                                                <C>            <C>            <C>       <C>
Issuance of common stock in connection with the
  acquisition of SingleTrac......................     $7,169         $   --      $    --   $   --
Issuance of stock options in connection with the
  acquisition of SingleTrac......................         --          3,007           --       --
Issuance of common stock in connection with the
  acquisition of OZM.............................         --             --       15,473       --
Issuance of stock options in connection with the
  acquisition of OZM.............................         --             --        1,347       --
Issuance of common stock in connection with the
  acquisition of Reflections.....................         --             --       12,279       --
Issuance of common stock in connection with the
  acquisition of Legend..........................         --             --          255       --
Issuance of stock options in connection with the
  acquisition of Legend..........................         --             --            9       --
Accrual for purchase price adjustment for One
  Stop...........................................         --          3,095           --       --
Warrants issued in connection with New Credit
  Agreement......................................         --             --           --    3,188
Warrants issued to GAP and acquired by Infogrames
  SA.............................................         --             --           --    8,835
Warrants issued in connection with Short-Term
  Note...........................................         --             --           --      150
Discount on GAP 0% Subordinated Convertible
  Note...........................................                                          14,351
Deferred financing costs in connection with
  Long-Term debt.................................                                           2,776
Common stock issued in lieu of partial royalty
  payment........................................         --             --           --    4,208
Cash paid for income taxes.......................     10,243              2       11,118    2,713
Cash paid for interest...........................      1,802            727        5,826    7,536
</TABLE>

NOTE 21 -- RESTRUCTURING AND OTHER CHARGES

     During December 1999, the Company's management approved and adopted a
formal plan (the "Restructuring Plan") relating to a reorganization of the
Company's Frontline publishing business, the shutdown of a substantial portion
of European publishing operations and outsourcing and downsizing of the
Company's distribution and assembly function. As a result of the implementation
of the Restructuring Plan, the Company has incurred restructuring and other
charges of approximately $37.9 million in fiscal 2000, mostly recorded in the
three months ended December 31, 1999. As a result of the implementation of the
Restructuring Plan, the Company has incurred approximately $17.6 million
relating to the write-off of goodwill due to the consolidation of the value
distribution division with the Company's publishing division, $12.1 million
relates the shutdown of European operations, including the write-off of all
goodwill other than the Reflections studio, $6.1 million relates to impaired
assets and $2.1 million relates to the planned severance of certain employees.
The liability at March 31, 1999 relates to the planned severance of 135
employees. As of March 31, 2000, the Company terminated 88 employees from the
administration and finance, manufacturing and distribution and product
development departments. Management expects to complete the Company
reorganization by June 30, 2000. The restructuring reserve at March 31, 2000
represents severance due of

                                      F-29
<PAGE>   73
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

$7,933 related to severance to be paid to 221 employees, transition rent of
$384, and anticipated expenses to shut down European operations of $1,892.

     Total restructuring charges of $17,479 in fiscal 1999 includes $7,041 of
asset impairment charges, $635 of additional rent for the transition period, and
$9,803 of severance for 135 employees, including executive officers, to be paid
out over periods not to exceed fifteen months. The restructuring reserve as of
March 31, 1999 of $8,992 represented severance due of $8,357 and transition rent
due of $635. In connection with the reorganization of the Company's Frontline
business, the Company wrote off approximately $3,278 of Singletrac's goodwill.
The remaining balance of $600 related to future use of Singletrac's label. The
majority of the remaining asset impairment charges of $3,763 related to the
write-off of assets located at the Company's distribution center.

     The following table sets forth adjustments to the restructuring reserve:

<TABLE>
<CAPTION>
                                          ADDITIONAL
                          BALANCE,       RESTRUCTURING                                 BALANCE,
                         MARCH 31,         AND OTHER                      CASH        MARCH 31,
                            1999            CHARGES       WRITE-OFFS    PAYMENTS         2000
                       --------------    -------------    ----------    --------    --------------
<S>                    <C>               <C>              <C>           <C>         <C>
Severance............      $8,357           $ 4,720        $     --     $(5,144)       $ 7,933
Shutdown of European
  operations.........          --             3,128              --      (1,236)         1,892
Impairment charges...          --            29,783         (29,783)         --             --
Transition rent......         635               317              --        (568)           384
                           ------           -------        --------     -------        -------
                           $8,992           $37,948        $(29,783)    $(6,948)       $10,209
                           ======           =======        ========     =======        =======
</TABLE>

                                      F-30
<PAGE>   74
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 22 -- QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data for the fiscal year ended March 31,
1999 are as follows:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                     ------------------------------------------------------
                                     JUNE 30,    SEPTEMBER 30,    DECEMBER 31,    MARCH 31,
                                     --------    -------------    ------------    ---------
<S>                                  <C>         <C>              <C>             <C>
Net revenues.......................  $116,391      $116,151         $246,303      $  93,497
Gross profit.......................    60,495        60,193          126,691         (4,990)
Operating income (loss)............     4,112         3,034           33,706       (116,962)
Net income (loss) from continuing
  operations.......................     1,803         1,369           17,332        (72,301)
Loss from discontinued
  operations.......................        --            --             (560)       (18,481)
Net income (loss) before dividends
  on preferred stock...............     1,803         1,369           16,772        (90,782)
Basic net income (loss) per share
  from continuing operations.......  $   0.13      $   0.10         $   1.24      $   (4.97)
Basic net (loss) per share from
  discontinued operations..........  $     --      $     --         $  (0.04)     $   (1.27)
Basic net income (loss) per
  share............................  $   0.13      $   0.10         $   1.20      $   (6.24)
Weighted average shares
  outstanding......................    13,612        13,616           13,949         14,555
Diluted net income (loss) per share
  from continuing operations.......  $   0.13      $   0.10         $   1.24      $   (4.97)
Diluted net (loss) per share from
  discontinued operations..........  $     --      $     --         $  (0.04)     $   (1.27)
Diluted net income (loss) per
  share............................  $   0.13      $   0.10         $   1.22      $   (6.24)
Weighted average shares
  outstanding......................    13,798        13,713           14,019         14,555
</TABLE>

     Summarized quarterly financial data for the fiscal year ended March 31,
2000 are as follows:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                     ------------------------------------------------------
                                     JUNE 30,    SEPTEMBER 30,    DECEMBER 31,    MARCH 31,
                                     --------    -------------    ------------    ---------
<S>                                  <C>         <C>              <C>             <C>
Net revenues.......................  $121,325       $91,426         $101,727      $  61,091
Gross profit.......................    59,182        26,806           12,307        (24,027)
Operating loss.....................    (3,709)      (52,112)         (94,943)      (112,527)
Net loss from continuing
  operations.......................    (3,852)      (56,060)        (121,594)      (140,627)
Loss from discontinued
  operations.......................        --          (477)              --             --
Net loss before extraordinary
  items............................    (3,852)      (56,537)        (119,706)      (140,627)
Gain from extraordinary item, net
  of tax of $1,312.................        --            --            1,888             --
Net loss before dividends on
  preferred stock..................    (3,852)      (56,537)        (119,706)      (140,627)
Basic and diluted net loss per
  share from continuing
  operations.......................  $  (0.26)      $ (3.80)        $  (7.69)     $   (9.66)
Basic and diluted net loss per
  share from discontinued
  operations.......................  $     --       $ (0.03)        $     --      $      --
Basic and diluted net income per
  share from extraordinary items...  $     --       $    --         $   0.12      $      --
Basic and diluted net loss per
  share............................  $  (0.26)      $ (3.83)        $  (7.57)     $   (9.66)
Weighted average shares
  outstanding......................    14,574        14,772           15,816         14,555
</TABLE>

                                      F-31
<PAGE>   75
                       INFOGRAMES, INC. AND SUBSIDIARIES

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                     ($'S IN THOUSANDS, EXCEPT SHARE DATA)

     The quarterly earnings per share information is computed separately for
such period. Therefore, the sum of such quarters per share amounts may differ
from the total for the year.

NOTE 23 -- SUBSEQUENT EVENTS (UNAUDITED)

     On April 6, 2000, the Company's Board of Directors approved a one-for-five
reverse stock split of the issued and outstanding shares of the Company's common
stock, which became effective June 26, 2000.

     Effective May 10, 2000, the Company changed its name from "GT Interactive
Software Corp." to "Infogrames, Inc." The Company continues to be listed on the
Nasdaq National Market under the trading symbol "GTIS". The Company's name
change is reflective of the new corporate branding strategy being implemented by
the Company and Infogrames SA, its indirect majority shareholder. Pursuant to
this branding strategy, the Company will adopt the Infogrames brand across the
Company and its products.

     On June 26, 2000, the Company repurchased approximately 1.6 million shares
of its common stock in connection with severance agreements with certain of its
employees. The repurchased shares of common stock will be held as treasury
stock.

     On June 27, 2000, the Board of Directors approved a change in the Company's
fiscal year from March 31 to June 30, to conform to Infogrames SA's fiscal year
end.

     On June 29, 2000, Infogrames SA and the Company amended the Credit
Agreement to increase the aggregate commitment available under the facility to
$125,000 and to extend the maturity date to September 30, 2000.

                                      F-32