ELECTRONICS BOUTIQUE HOLDINGS CORP, POS AM, 1998-07-28

ELECTRONICS BOUTIQUE HOLDINGS CORP
POS AM, 1998-07-28
COMPUTER & COMPUTER SOFTWARE STORES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998.

REGISTRATION NO. 333-48523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

ELECTRONICS BOUTIQUE HOLDINGS CORP.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)

5734
(Primary Standard Industrial Classification Number)

51-0379406
(I.R.S. Employer Identification Number)

931 SOUTH MATLACK STREET
WEST CHESTER, PENNSYLVANIA 19382
(610) 430-8100
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

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

JOSEPH J. FIRESTONE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
931 SOUTH MATLACK STREET
WEST CHESTER, PENNSYLVANIA 19382
(610) 430-8100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)

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

Copies to:

<TABLE>
<S> <C>
STEPHEN T. BURDUMY, ESQUIRE MARY A. BERNARD, ESQUIRE
KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP KING & SPALDING
1401 WALNUT STREET 1185 AVENUE OF THE AMERICAS
PHILADELPHIA, PENNSYLVANIA 19102 NEW YORK, NEW YORK 10036
(215) 568-6060 (212) 556-2100
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ / _____________

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ / _____________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>
PROSPECTUS
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5,000,000 Shares

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<S> <C>
[LOGO] ELECTRONICS BOUTIQUE HOLDINGS CORP.
</TABLE>

Common Stock

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Of the 5,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 4,375,000 shares are being sold by
Electronics Boutique Holdings Corp. (the "Company"), and 625,000 shares are
being sold by EB Nevada Inc., the Company's parent ("EB Nevada" or the "Selling
Shareholder"). The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Shareholder. See "Principal and Selling
Shareholders."

Prior to the Offering, there has been no public market for the Common Stock. The
Common Stock has been approved for inclusion in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "ELBO." See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.

SEE "RISK FACTORS" ON PAGES 7 TO 11 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholder
<S> <C> <C> <C> <C>
Per Share.................................. $14.00 $0.98 $13.02 $13.02
Total(3)................................... $70,000,000 $4,900,000 $56,962,500 $8,137,500
</TABLE>

(1) The Company, the Selling Shareholder, James J. Kim, the Chairman of the
Company, his wife, Agnes C. Kim, and certain trusts established for benefit
of their children (the "Kim Trusts," and, together with James J. and Agnes
C. Kim, the "Kim Shareholders") have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses estimated to be $1,225,000, payable by the
Company.

(3) The Selling Shareholder has granted the several Underwriters a 30-day
over-allotment option to purchase up to 750,000 additional shares of Common
Stock on the same terms and conditions as set forth above. If all such
additional shares are purchased by the Underwriters, the total Price to
Public will be $80,500,000, the total Underwriting Discounts and Commissions
will be $5,635,000, the total Proceeds to Company will be $56,962,500 and
the total Proceeds to Selling Shareholder will be $17,902,500. See
"Underwriting."

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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Shareholder and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made through the facilities of the Depository Trust Company, New York, New
York, on or about July 31, 1998.

PRUDENTIAL SECURITIES INCORPORATED SALOMON SMITH BARNEY

July 28, 1998

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[PHOTOS, MAPS, ETC.]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS
PROSPECTUS (I) TO THE "COMPANY" MEAN ELECTRONICS BOUTIQUE HOLDINGS CORP., A
DELAWARE CORPORATION ("EB HOLDINGS"), AND ITS SUBSIDIARIES, (II) TO "EB NEVADA"
MEAN EB NEVADA, INC., A NEVADA CORPORATION, WHICH IS THE PARENT OF EB HOLDINGS,
(III) TO "EB" MEAN THE ELECTRONICS BOUTIQUE, INC., A PENNSYLVANIA CORPORATION,
WHICH IS THE SOLE SHAREHOLDER OF EB NEVADA, AND (IV) TO THE COMPANY'S
ELECTRONICS BOUTIQUE STORES INCLUDES THE COMPANY'S SIMILARLY-FORMATTED EBX
STORES. THE COMPANY'S FISCAL YEAR ENDS ON THE SATURDAY NEAREST JANUARY 31.
UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO ANY YEAR REFERS
TO THE FISCAL YEAR OF THE COMPANY ENDED OR ENDING IN JANUARY OR FEBRUARY, AS THE
CASE MAY BE, OF THE FOLLOWING CALENDAR YEAR (E.G., THE FISCAL YEAR ENDED JANUARY
31, 1998 IS REFERRED TO HEREIN AS "1997"). 1997 AND 1996 CONSISTED OF 52 WEEKS
AND 1995 CONSISTED OF 53 WEEKS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED.

THE COMPANY

The Company believes that it is among the world's largest specialty
retailers of electronic games. The Company's primary products are video games
and personal computer ("PC") entertainment software, supported by the sale of
video game hardware, PC productivity software and accessories. As of May 2,
1998, the Company operated 465 stores in 42 states, Puerto Rico, Canada,
Australia and South Korea, primarily under the names Electronics Boutique and
Stop 'N Save Software. As of such date, the Company also provided management
services for an affiliate of EB, Electronics Boutique Plc ("EB-UK"), which
affiliate operated 134 stores and 17 department store-based concessions in the
United Kingdom and Ireland. As of May 2, 1998, the Company also managed 37
mall-based WaldenSoftware stores for Borders Group, Inc. The Company's stores
are primarily located in high traffic areas in regional shopping malls and
average 1,100 square feet in size. The Company believes that its stores generate
sales per square foot that are among the highest of any mall-based retailer. The
Company plans to open approximately 50 to 55 domestic and 30 to 35 foreign
stores in each of 1998 and 1999. The Company's revenues and operating income
have grown from $250.7 million and $6.3 million, respectively, in 1994, to
$454.0 million and $20.5 million, respectively, in 1997. Comparable store sales
increased 3.5%, 20.8%, 15.3% and 13.0% in 1995, 1996, 1997 and the thirteen
weeks ended May 2, 1998, respectively.

The electronic game industry is segmented into two primary product
platforms: video games and PC entertainment software. This industry has
experienced rapid growth in recent years due primarily to the increasing
availability of sophisticated, yet affordable, video game hardware systems and
multimedia PCs featuring fast processors, expanded memories, and enhanced
graphics and audio capabilities. Total domestic retail sales of video game
titles, hardware and accessories were approximately $5.1 billion in calendar
1997, an increase of approximately 40% over retail sales in the prior year.
Domestic sales of PC entertainment software totaled approximately $1.3 billion
in calendar 1997, an increase of approximately 23% over retail sales in the
prior year. In addition, the domestic installed base of multimedia PCs has
increased from approximately 14 million units in calendar 1995 to approximately
23 million units in calendar 1997.

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game titles in its stores each week. The Company believes that this FIRST TO
MARKET strategy establishes its stores as the logical destination of choice for
electronic game enthusiasts. The Company's strict inventory management system
enables it to (i) maintain over 2,600 active stock keeping units ("SKUs"), (ii)
replenish a large and geographically dispersed store base on a daily basis, and
(iii) minimize mark-downs as titles mature. The Company supports its product
offerings with a strong commitment to customer service, which the Company
believes distinguishes it from its competitors. All sales associates receive
extensive training on video game and PC entertainment software products, system
requirements and selling techniques.

The Company believes that it was one of the first video game and PC
entertainment software specialty retailers to offer a World Wide Website
enabling both product review and online purchasing. The Company believes that
its customer base and product mix are ideally suited for online retailing. The
Company's customers are generally males who are technically proficient, a
demographic which has traditionally represented the largest percentage of
consumers who make online purchases. Further, the Company's products are
recognizable brand name items, which serves to provide online customers with a
higher degree of confidence that products purchased will meet expectations. The
Company believes that the local market identity provided by its stores is a
significant competitive advantage over competing online retailers. In April
1998, the Company began providing customers with a complete product offering,
including access to the Company's database of over 4,600 items.

The Company is committed to disciplined store operations, including
merchandising, purchasing and distribution, real estate selection, store
development, point of sale ("POS") financial reporting, and sales training. The
Company believes that this commitment to operational control enables it to
operate substantially all of its stores on a profitable basis, quickly identify
opportunities to improve store productivity and react to shifts in product
pricing and consumer purchasing trends.

The Company was incorporated under the laws of the State of Delaware in
March 1998 as a holding company for EB's operating activities. EB was
incorporated in the Commonwealth of Pennsylvania in 1977. The Company's
principal executive offices are located at 931 South Matlack Street, West
Chester, Pennsylvania 19382 and the Company's telephone number is (610)
430-8100.

4
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THE OFFERING

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Common Stock Offered by the Company........................... 4,375,000 shares

Common Stock Offered by the Selling Shareholder............... 625,000 shares

Common Stock to be Outstanding after the Offering (1)......... 20,169,200 shares

Use of Proceeds by the Company................................ (i) To repay certain outstanding third
party indebtedness, (ii) to repay
certain obligations owed by the
Company to EB, (iii) to repay certain
indebtedness owed to an affiliate of
the Company, and (iv) for general
corporate purposes, including
financing new store openings. See "Use
of Proceeds."

Nasdaq National Market Symbol................................. ELBO
</TABLE>

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(1) Excludes 1,599,128 shares of Common Stock issuable upon exercise of options
to be granted immediately prior to the completion of the Offering under the
1998 Equity Participation Plan of the Company (the "Equity Participation
Plan"), which have an exercise price equal to the initial public offering
price per share. Also excludes an aggregate of 500,872 shares of Common
Stock available for the future grant of stock options and other equity
securities under the Equity Participation Plan. See "Management--Equity
Participation Plan."

RISK FACTORS

Investors should consider the material risks involved in connection with an
investment in the Common Stock and the impact to investors from various events
that could adversely affect the Company's business. See "Risk Factors."

Electronics Boutique-Registered Trademark-, EBX-Registered Trademark- and
Stop 'N Save Software-Registered Trademark- are registered trademarks of the
Company. Nintendo-Registered Trademark- and N64-Registered Trademark- are
registered trademarks of Nintendo Companies Limited ("Nintendo"),
Sega-Registered Trademark- and Sega Saturn-Registered Trademark- are registered
trademarks of Sega Enterprises ("Sega"), and Sony-Registered Trademark- and
Playstation-Registered Trademark- are registered trademarks of Sony Computer
Entertainment, Inc. ("Sony").

5
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SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MAY 3, MAY 2,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................................... $ 240,387 $ 249,552 $ 268,956 $ 337,059 $ 449,180 $ 83,688 $ 106,730
Management fees.................................... 411 1,158 1,905 2,526 4,792 488 571
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................................... 240,798 250,710 270,861 339,585 453,972 84,176 107,301
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cost of goods sold................................. 175,865 182,505 199,226 252,813 338,498 61,941 79,520
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 64,933 68,205 71,635 86,772 115,474 22,235 27,781
Operating expenses................................. 56,187 56,594 58,989 69,828 87,003 18,201 22,270
Depreciation and amortization...................... 4,638 5,324 6,047 6,615 7,997 1,875 2,254
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................. 4,108 6,287 6,599 10,329 20,474 2,159 3,257
Equity in earnings (loss) of affiliates............ (118) (634) (1,319) (573) 2,903 (80) (80)
Interest expense, net.............................. 1,578 1,727 1,818 1,298 1,380 294 214
Preacquisition loss of subsidiaries (1)............ -- -- -- -- 913 296 --
--------- --------- --------- --------- --------- --------- ---------
Income before income tax expense................... 2,412 3,926 3,462 8,458 22,910 2,081 2,963
Income tax expense (2)............................. 391 286 280 550 846 78 113
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 2,021 $ 3,640 $ 3,182 $ 7,908 $ 22,064 $ 2,003 $ 2,850
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

PRO FORMA INCOME DATA:
Pro forma income before income tax expense......... $ 19,909 $ 2,946
Pro forma income tax provision..................... 8,182 1,155
--------- ---------
Pro forma net income (3)........................... $ 11,727 $ 1,791
--------- ---------
--------- ---------
Pro forma net income per share..................... .74 .11
Pro forma weighted average shares
outstanding (4).................................. 15,794 15,794

OPERATING DATA (5):
Stores open at beginning of period (6)............. 274 311 325 341 390 390 452
Stores open at end of period....................... 311 325 341 360 452 393 465
Sales per square foot (7).......................... $ 763 $ 721 $ 729 $ 831 $ 926 $ 187 $ 196
Average sales per store (000s)..................... $ 822 $ 785 $ 808 $ 962 $ 1,106 $ 214 $ 233
Comparable store sales increase (decrease)......... (10.8%) (6.6%) 3.5% 20.8% 15.3% 43.9% 13.0%
Inventory turnover................................. 3.0x 3.6x 3.8x 5.1x 5.3x 1.2x 1.3x
</TABLE>

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<CAPTION>
MAY 2, 1998
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ACTUAL AS ADJUSTED(8)
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<CAPTION>
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................... ($ 37,776) $ (6,313)
Total assets............................................................................ 140,696 134,299
Total liabilities....................................................................... 123,223 102,195
Stockholders' equity.................................................................... 17,473 32,104
</TABLE>

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(1) The results of operations of EB Int'l and EB Canada have been consolidated
since the beginning of 1997. Preacquisition loss of subsidiaries represents
losses in EB Int'l and EB Canada prior to their acquisition by the Company.

(2) The predecessors to the Company were taxed as an S Corporation and a
partnership. As a result, their taxable income was passed through to their
partners and shareholders for federal income tax purposes. Accordingly, the
financial statements do not include a provision for federal income taxes. A
predecessor to the Company elected to be treated as an S corporation for
some states, while remaining subject to corporate tax in other states and,
as a result, the financial statements provide for certain state income
taxes. See Note 1 of Notes to Consolidated and Combined Financial Statements
and Notes to the Unaudited Pro Forma Consolidated Financial Statements.

(3) The pro forma net income gives effect to the application of the pro forma
income tax expense that would have been reported had the Company's
predecessors been corporations subject to federal and all state income taxes
for all periods shown and to the retention by EB of certain assets. See Note
1 of Notes to Consolidated and Combined Financial Statements and Notes to
the Unaudited Pro Forma Consolidated Financial Statements.

(4) Pro forma weighted average shares outstanding is equal to the number of
shares which will be outstanding upon completion of the Reorganization. See
"Reorganization" and Notes to the Unaudited Pro Forma Consolidated Financial
Statements.

(5) Does not reflect stores operated by EB-UK and WaldenSoftware for which the
Company provides management services. See "Business--Management Services."

(6) Stores open at beginning of period reflects, as of February 2, 1997, the
consolidation of EB's domestic stores and its international stores.

(7) Calculated based on stores open for one year or longer.

(8) Adjusted to give effect to the sale by the Company of 4,375,000 shares of
Common Stock offered hereby and the application of the net proceeds
therefrom.

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in connection with an investment in the Common Stock offered hereby.

When used in this Prospectus, the words "expect," "estimate," "anticipate,"
"intend," "predict," "believe," and similar expressions and variations thereof
are intended to identify forward-looking statements. Forward-looking statements
appear in a number of places in this Prospectus and include statements regarding
the intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) trends affecting the Company's
financial condition or results of operations; (ii) the Company's business and
growth strategies; (iii) the use of the net proceeds to the Company of this
Offering; and (iv) the declaration and payment of dividends. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results or outcomes may differ materially from those projected in the
forward-looking statements as a result of various factors. The accompanying
information contained in this Prospectus, including, without limitation, the
information set forth under the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" identify important factors that could cause such differences.

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS. The Company is highly dependent
upon the continued introduction of new and enhanced video game and PC hardware
and software. The failure of manufacturers to introduce new or enhanced video
game systems, a decline in the continued technological development and use of
multimedia PCs or the failure of software publishers to develop popular game and
entertainment titles for current or future generation game systems or PCs could
have a material adverse effect on the Company's results of operations and
financial condition.

VIDEO GAME SYSTEMS AND SOFTWARE PRODUCT CYCLES. The video game market has
historically been cyclical in nature. Following the introduction of new
generation systems, sales of new generation hardware and related titles steadily
increase, while sales of prior generation hardware and related titles steadily
decrease. New generation systems historically have been introduced every four to
five years. Sales of prior generation hardware systems historically have peaked
in the year of introduction of next generation systems, and sales of prior
generation titles historically have peaked in the following year. The failure of
the industry's leading video game systems manufacturers to introduce next
generation systems, or significant enhancements to existing systems, could lead
to a significant decrease in sales of hardware systems and related titles by the
Company. Any such decrease could have a material adverse effect on the Company's
results of operations and financial condition. See "Business--Products."

TECHNOLOGICAL OBSOLESCENCE. The video game and PC industry is subject to
rapid technological changes. The failure of the Company to respond quickly to
such technological changes and to assess accurately their influence on customer
preferences could have a material adverse effect on the Company's results of
operations and financial condition. In addition, technological advances, such as
the ready availability of games and other entertainment software on the Internet
and the ability to down-load such games onto PCs for repeated use, could make
the retail sale of video games and PC entertainment software obsolete. Further
developments in these technologies or other technologies which expand the
ability to access software through other sources could have a material adverse
effect on the Company's results of operations and financial condition.

NEW STORE OPENINGS. The Company's continued growth will depend, in part, on
its ability to open and operate new stores on a profitable basis. The Company
currently intends to open approximately 80 to 90 new stores in each of 1998 and
1999. The Company's ability to open new stores on a timely and profitable basis
is subject to various contingencies, some of which are beyond the Company's
control. These contingencies include the Company's ability to locate suitable
store sites, negotiate acceptable lease terms, build-out or refurbish sites on a
timely and cost-effective basis, hire, train and retain skilled associates,
obtain adequate capital resources and successfully integrate new stores into
existing operations. In

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addition, the management services agreement between EB and EB-UK (the "UK
Services Agreement") significantly restricts the Company's ability to open
stores in Europe. See "Business--Management Services." There can be no assurance
that the Company will be able to achieve its planned expansion or that its new
stores will achieve levels of sales and profitability comparable to the
Company's existing stores. Failure of the Company to achieve its planned
expansion on a profitable basis could have a material adverse effect on the
Company's results of operations and financial condition. See "Business--Retail
Operations."

COMPETITION. The electronic game industry is intensely competitive and
subject to rapid changes in consumer preferences and frequent new product
introductions. The Company competes with other video game and PC software
specialty stores located in malls and other locations, as well as with mass
merchants, toy retail chains, mail-order businesses, catalogs, direct sales by
software publishers, online retailers, and office supply, computer product and
consumer electronics superstores. Increased competition may lead to reduced
profit margins on video games and PC entertainment software, which could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, video games are available for rental from many video
stores and cable television providers. Further, there can be no assurance that
other methods of distribution will not emerge in the future which would result
in increased competition for the Company. Most of the Company's competitors have
longer operating histories and significantly greater financial, managerial,
creative, sales and marketing and other resources than the Company. The Company
also competes with other forms of entertainment activities, including movies,
television, theater, sporting events and family entertainment centers. The
Company's failure to compete effectively or a decrease in the popularity of
video games and PC entertainment software would have a material adverse effect
on the Company's results of operations and financial condition. See "Business--
Competition."

In addition, the Company's ability to retain its existing customers and
attract new customers depends on numerous factors, some of which are beyond the
Company's control. These factors include: (i) the continued introduction of new
and enhanced video game and PC hardware and software; (ii) the availability and
timeliness of new product releases at the Company's stores; and (iii) the
Company's reputation in the industry.

SEASONALITY AND QUARTERLY RESULTS. The Company's business is affected by
the seasonal patterns common to most retailers. Historically, its highest net
sales, management fees and net income have been generated during the fourth
quarter, which includes the holiday selling season. During 1997, approximately
44% of the Company's net sales and approximately 94% of the Company's operating
income were generated during the fourth quarter. Accordingly, any adverse trend
in net sales for such period could have a material adverse effect on the
Company's results of operations for the quarter as well as for the entire year.
In addition, the Company's results of operations may fluctuate from quarter to
quarter depending upon, among other things, the timing of new product
introductions and new store openings, net sales contributed by new stores,
increases or decreases in comparable store sales, adverse weather conditions,
shifts in the timing of certain holidays or promotions and changes in the
Company's merchandise mix. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Quarterly
Results."

DEPENDENCE ON SUPPLIERS. The Company purchases a significant amount of
products from Nintendo, Sony and Electronic Arts, Inc. ("Electronics Arts") and
often receives quantities of certain products disproportionate to its market
share from these suppliers upon initial release. During 1997, products purchased
from Nintendo, Sony and Electronic Arts accounted for 13.5%, 13.3% and 9.4%,
respectively, of the Company's net sales. The Company believes that the loss of
any of these companies as a supplier could have a material adverse effect on the
Company's results of operations and financial condition. In addition, the
Company's financial performance is in large part dependent upon the business
terms it obtains from its suppliers, including unit prices, unsold product
return policies, advertising and market development allowances, freight charges
and payment terms. If the Company is unable to maintain

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favorable business terms with its suppliers, its results of operations and
financial condition could be materially adversely affected.

During 1997, approximately 37% of the Company's product purchases were from
domestic distributors of products manufactured overseas, primarily in Asia. To
the extent that the Company's distributors rely on overseas sources for a large
portion of their products, any event causing a disruption of imports, including
the imposition of import restrictions, could have a material adverse effect on
the Company's results of operations and financial condition. In addition, in
recent months, certain Asian currencies have devalued significantly in relation
to the U.S. dollar and financial markets in Asia have experienced significant
turmoil. There can be no assurance that the Company's ability to purchase from
domestic distributors products manufactured in Asia would not be materially
adversely affected by such developments. Trade restrictions in the form of
tariffs or quotas, or both, applicable to such products could also affect the
importation of such products generally and could increase the cost and reduce
the supply of such products available to the Company.

RISKS OF INTERNATIONAL RETAIL OPERATIONS. The Company has retail operations
in various foreign countries, including Canada, South Korea and Australia, and
intends to pursue opportunities that may arise in these and other countries. Net
sales in these foreign countries represented 7.3% of the Company's net sales in
1997. The Company is subject to the risks inherent in conducting business across
national boundaries, including currency exchange rate fluctuations, currency
devaluations, international incidents, military outbreaks, economic downturns,
government instability, nationalization of foreign assets, government
protectionism and changes in governmental policy, any of which could adversely
affect the Company's business in one or more of its international markets. Since
substantially all of the Company's operations are domestic, the Company does not
believe that currency exchange rate fluctuations would have a material adverse
effect on the Company's results of operations and financial condition and,
accordingly, does not hedge its risk in this area. The Company intends to
monitor its exposure to currency exchange rate fluctuations as it expands its
international presence and to reevaluate its hedging strategies as appropriate.

LEASE EXPIRATIONS AND TERMINATIONS. As of June 19, 1998, 59 of the
Company's stores (12.9% of all stores) were operated under leases with terms
that expire in less than one year, including 6 month-to-month leases. In
connection with the Reorganization (as defined below), all of the leases have
been assigned to the Company by EB. Substantially all of the leases either
required the landlord's prior consent to assign or permitted assignment upon
satisfaction of certain conditions. EB did not solicit and the Company does not
intend to solicit landlord consents for the assignment of the leases in
connection with the Reorganization and/or the Offering; accordingly, affected
landlords could seek to terminate their leases. There can be no assurance that
the Company will be able to maintain its existing store locations as leases
expire or are terminated by landlords or that the Company will be able to locate
suitable alternative sites on acceptable terms. The Company's failure to
maintain existing store locations or to locate alternative sites could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--Properties."

IMPACT OF GENERAL ECONOMIC CONDITIONS. The Company's business is sensitive
to consumer spending patterns, which in turn are subject to prevailing economic
conditions. Adverse local, regional or national economic conditions may cause
shifts in consumer spending that could have a material adverse effect on the
Company's results of operations and financial condition.

CONTROL BY KIM SHAREHOLDERS. Upon completion of the Offering, EB Nevada
will beneficially own approximately 75.2% of the outstanding shares of Common
Stock (71.5% if the Underwriters' over-allotment option is exercised in full).
Accordingly, the Kim Shareholders, through their ownership of all of the
outstanding capital stock of EB, EB Nevada's sole stockholder, will be able to
control the Company, elect all the directors and generally direct the affairs of
the Company. See "Management" and "Principal and Selling Shareholders." Under a
credit facility with Fleet Capital Corporation ("Fleet"), the Kim Shareholders
are obligated to own, directly or indirectly, not less than 25.0% of the issued
and outstanding

9
<PAGE>
capital stock of the Company. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

DEPENDENCE ON KEY PERSONNEL. The success of the Company will depend on its
ability to attract, motivate and retain key management associates for its stores
and skilled merchandising, marketing and administrative personnel at the
Company's headquarters. In the past, the Company has been successful in
maintaining the continuity of its management team, including its executive
officers, Joseph J. Firestone, its President and Chief Executive Officer,
Jeffrey W. Griffiths, its Senior Vice President of Merchandising and
Distribution and John R. Panichello, its Senior Vice President and Chief
Financial Officer. However, there can be no assurance that the Company will
continue to be successful in attracting and retaining such personnel. The loss
of the services of one or more of such persons or other key personnel could have
a material adverse effect on the Company's results of operations and financial
condition. See "Management."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock in
the Offering will experience an immediate and substantial dilution in the net
tangible book value of each share of Common Stock of $12.52 per share based upon
the initial public offering price of $14.00 per share. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 20,169,200 shares of Common Stock outstanding. Of those
shares, a total of 5,000,000 shares (plus 750,000 additional shares if the
Underwriters exercise their over-allotment option in full) will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased or held by "affiliates" of the Company as that term is defined
in Rule 144 under the Securities Act ("Rule 144"). Substantially all of the
remaining shares will be held by EB Nevada, which is an "affiliate" of the
Company. Beginning 360 days after the Offering, EB Nevada will be entitled to
certain rights with respect to registration of such shares. If exercised, such
registration rights could result in such shares being sold in greater amounts
than otherwise allowable under Rule 144. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."

Under Rule 144, sales of Common Stock by affiliates of the Company are
subject to the volume limitations, manner of sale, and notice requirements of
Rule 144. See "Shares Eligible for Future Sale." The Company's executive
officers and directors, EB Nevada, the Kim Shareholders and the Company have
agreed with the Underwriters that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or other capital stock or any securities
convertible into, or exercisable or exchangeable for, or any rights to purchase
or acquire any shares of Common Stock, or other capital stock of the Company for
a period of 360 days after the date of this Prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
except for options granted pursuant to the Equity Participation Plan. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the shares of Common Stock subject to such
lock-up agreements.

Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise capital through a public offering of equity securities. See "Shares
Eligible for Future Sale" and "Underwriting."

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the Offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active trading market for the Common Stock will develop or
continue upon completion of the Offering. The initial public offering price has
been determined by negotiations among the Company, the Selling Shareholder and
the representatives of the Underwriters. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. There
can be no assurance that after completion of the Offering the market price of
the Common Stock will not decline below the initial public offering price. In
addition, the stock markets have experienced extreme price and volume
fluctuations which may affect the market price of the

10
<PAGE>
Common Stock in a manner unrelated or disproportionate to the operating
performance of the Company. These market fluctuations may adversely affect the
market price of the Common Stock. See "Underwriting."

DISCRETION IN USE OF PROCEEDS. The Company intends to utilize approximately
$9.3 million, representing approximately 16.7%, of the net proceeds to the
Company of the Offering, for general corporate purposes, including working
capital. Accordingly, the Company will have broad discretion in the application
of such net proceeds and an investor will not have the opportunity to evaluate
the economic, financial and other relevant information used by the Company in
determining how to apply such proceeds. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS. The Company was formed as
a holding company to effect the Reorganization and does not have any material
assets other than its ownership interests in its subsidiaries and its 99.99%
partnership interest in EB Services. The Common Stock will be junior in right of
payment to all existing and future liabilities and obligations of the Company
and, by virtue of the fact that the Company is a holding company, the Common
Stock will be structurally junior in right of payment to all existing and future
liabilities and obligations of each of the Company's subsidiaries. The Company
has never declared or paid dividends on the Common Stock and does not currently
intend to do so. Further, since the operations of the Company are conducted
through its subsidiaries, its ability to pay dividends on the Common Stock in
any event is dependent on the earnings and cash flow of its subsidiaries.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAW
PROVISIONS. Certain provisions of the Company's Certificate of Incorporation
and Bylaws, as well as the Delaware General Corporation Law, could delay or make
more difficult the removal of incumbent directors as well as a merger, tender
offer or proxy contest involving the Company, even if such events could be
viewed as beneficial by the Company's stockholders. For example, the Board of
Directors of the Company is empowered to issue preferred stock in one or more
series without stockholder action. Any issuance of this "blank-check" preferred
stock could materially limit the rights of holders of the Common Stock and
render more difficult or discourage an attempt to obtain control of the Company
by means of a tender offer, merger, proxy context or otherwise. In addition, the
Certificate of Incorporation and Bylaws contain a number of provisions which
could impede a takeover or change in control of the Company, including, among
other things, staggered terms for members of the Board, no cumulative voting,
and prohibitions on the taking of any stockholder action by written consent or
removing a director other than for cause. The Company is also subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "Description of Capital Stock."

YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in inventory management, distribution, financial business
systems and various administrative functions. To the extent that these software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of such source code or applications will be necessary. The Company
is currently modifying its computer software programs and operating systems to
make them "Year 2000" compliant and intends to complete its "Year 2000"
compliance program in 1998. The Company anticipates spending approximately
$300,000 in connection with its "Year 2000" compliance program. However, there
can be no assurance that the costs necessary to update software, or potential
systems interruptions, will not exceed such amount and have a material adverse
effect on the Company's results of operations or financial condition. See
"Business--Management Information Systems."

11
<PAGE>
REORGANIZATION

The Company was incorporated under the laws of the State of Delaware in
March 1998 as a holding company for EB's operating activities. EB was
incorporated in the Commonwealth of Pennsylvania in 1977.

PRE-REORGANIZATION

Prior to the Reorganization, (i) the Kim Shareholders owned all of the
outstanding shares of capital stock of EB and all of the limited partnership
interests of EB Services, with EB Services Corp., a company wholly-owned by
James J. Kim, as the 1.0% corporate general partner, (ii) EB owned 25.1% of the
outstanding shares of capital stock of EB-UK, and (iii) EB owned all of the
outstanding shares of capital stock of Electronics Boutique Canada Inc. ("EB
Canada") and EB International, Inc. ("EB Int'l").

REORGANIZATION

On May 31, 1998, EB (i) transferred certain assets, including its leases,
leasehold improvements, inventory, employee contracts, fixed assets and prepaid
expenses, subject to all of its liabilities, to Electronics Boutique of America
Inc. ("EBOA") in exchange for all of the outstanding shares of capital stock of
EBOA, (ii) entered into a two year lease with EBOA for the West Chester
distribution center and headquarters, which lease grants EBOA an option to
purchase the property for $6.7 million, and (iii) assigned its intangible
assets, including its trademarks and trade names, to Elbo Inc. ("Elbo"), in
exchange for all of the outstanding shares of capital stock of Elbo. EB retained
(i) all of the outstanding shares of capital stock in its affiliates EBOA, Elbo,
EB Int'l and EB Canada (collectively, the "Operating Shares"), (ii) its shares
of EB-UK capital stock (which represent 25.1% of the outstanding shares of
capital stock of EB-UK), (iii) the West Chester distribution center and
headquarters, (iv) approximately $17.5 million of cash, accounts receivable and
cash surrender value of certain split-dollar life insurance policies and (v)
approximately $7.7 million of intercompany receivables. In addition, EBOA joined
EB as a party to the Fleet loan documents.

Prior to the completion of the Offering, (i) EB will transfer the Operating
Shares and its shares of EB-UK capital stock to EB Nevada in exchange for all of
the outstanding shares of capital stock of EB Nevada, (ii) EB Nevada will then
contribute the Operating Shares to the Company in exchange for 15,794,100 shares
of Common Stock, and (iii) the Company will then acquire from the Kim
Shareholders and EB Services Corp., for an aggregate of 100 shares of Common
Stock, 99.99% of the partnership interests of EB Services, with EB Services
Corp. retaining a 0.01% general partnership interest. The transactions in this
and the preceding paragraph have been or will be made pursuant to the terms of
certain contribution, assignment and exchange agreements among such entities
(the transactions in this and the immediately preceding paragraph are
collectively referred to herein as the "Reorganization").

The Reorganization is structured to allow the shareholders of EB to retain
both the Company's previously taxed earnings, which exceed book earnings due to
timing differences, and the shares of EB-UK capital stock. As a result, the
Company's stockholder's equity account after the Reorganization and prior to the
completion of the Offering will reflect a deficit of approximately $23.6
million. The sale by the Company of the 4,375,000 shares of Common Stock offered
hereby will restore the Company's stockholder's equity account to a positive
balance of approximately $32.1 million.

POST-REORGANIZATION

After the Reorganization and prior to the completion of the Offering, (i) EB
will (A) own cash, accounts receivable, real estate and the cash surrender value
of certain split-dollar life insurance policies with an aggregate value equal to
the sum of EB's paid in capital, retained earnings and previously taxed but
undistributed S Corporation earnings, (B) own all of the outstanding shares of
capital stock of EB Nevada and (C) continue to be a party to the UK Services
Agreement, which will continue in accordance with its original terms, (ii) EB
Nevada will own substantially all of the outstanding shares of Common Stock, and
(iii) the Company, through its wholly-owned subsidiaries, will own substantially
all of the operating assets and all of the liabilities that were owned by EB
prior to the Reorganization. See "Certain Transactions," "Principal and Selling
Shareholders" and Notes to the Unaudited Pro Forma Consolidated Financial
Statements.

12
<PAGE>
Set forth below and on the next page are charts which illustrate the
organizational structure of (i) EB prior to the Reorganization and (ii) the
Company after the Reorganization and prior to the completion of the Offering.

PRE-REORGANIZATION

[FLOWCHART]

13
<PAGE>
POST-REORGANIZATION

[FLOWCHART]

14
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,375,000 shares of
Common Stock offered by the Company hereby (after deducting underwriting
discounts and commissions and estimated Offering expenses) are approximately
$55.7 million. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Shareholder. See "Principal and Selling Shareholders."

The Company intends to use (i) approximately $31.7 million of the net
proceeds to repay borrowings outstanding under the Company's revolving credit
facility with Fleet, (ii) approximately $7.7 million to repay certain
obligations owed by the Company to EB, (iii) approximately $7.0 million to repay
borrowings outstanding to James J. Kim under a demand note between Mr. Kim and
EBOA, and (iv) the balance of the net proceeds for general corporate purposes,
including financing new store openings. See "Certain Transactions", "Risk
Factors--Discretion in Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources."

On March 16, 1998, EB entered into a credit agreement with Fleet, pursuant
to which Fleet agreed to make available to EB an asset based revolving credit
and term loan facility in an amount up to $50.0 million. Borrowings under this
facility bear interest at a per annum rate equal to either LIBOR plus 250 basis
points or Fleet's base rate of interest, at EB's option. As of June 11, 1998, EB
had approximately $31.7 million of borrowings outstanding under the revolving
credit facility with Fleet, which borrowings bear interest at Fleet's base rate.
The revolving credit facility expires and the term loan, if borrowed, is
repayable on March 16, 2001. Of such borrowings, EB used $9.4 million to retire
outstanding indebtedness, approximately $13.9 million to pay dividends to
certain of the Kim Shareholders and approximately $8.4 million for general
working capital purposes. See "Reorganization," "Certain Transactions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

On June 4, 1998, EB loaned $7.0 million to James J. Kim, who in turn loaned
such funds to EBOA. The demand notes reflecting such loans bear interest at the
highest prime rate as published in the Wall Street Journal.

Pending application of the net proceeds of the Company from the Offering,
the Company intends to invest in short-term, interest-bearing, investment grade
securities or guaranteed obligations of the United States government.

DIVIDEND POLICY

EB Services, which was formed in January 1997, paid a distribution to its
partners aggregating $1.0 million in 1997. EB Services has not paid any
distributions to its partners during 1998, but intends to pay a distribution of
approximately $6.1 million of cash and accounts receivable immediately prior to
the Reorganization.

Except as described above, the Company has not declared or paid any cash
dividends or distributions on its capital stock. Pursuant to the Fleet revolving
credit and term loan facility, the Company will not be permitted to declare or
pay any dividends or make any other distributions if (i) there is an outstanding
default under such facility or (ii) the Company does not have $3.5 million of
availability under such facility. The Company currently intends to retain future
earnings, if any, for business use and does not anticipate declaring or paying
any dividends on shares of its Common Stock in the foreseeable future. The Board
of Directors of the Company intends to review this policy from time to time,
after taking into account various factors such as the Company's financial
condition, results of operations, current and anticipated cash needs and plans
for expansion.

15
<PAGE>
CAPITALIZATION

The following table sets forth the current portion of long-term debt and the
capitalization of the Company at May 2, 1998 (i) on an actual basis, (ii) on a
pro forma basis to give effect to the Reorganization and (iii) on a pro forma as
adjusted basis to give effect to the Reorganization, the sale by the Company of
4,375,000 shares of Common Stock offered hereby and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Reorganization." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated and Combined
Financial Statements and Notes thereto and the Unaudited Pro Forma Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MAY 2, 1998
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------

<CAPTION>
(IN THOUSANDS, EXCEPT FOR SHARE
DATA)
(UNAUDITED)
<S> <C> <C> <C>
Current portion of long-term debt............................................ $ 900 $ 900 $ 900

Long-term debt............................................................... 2,749 2,749 2,749
Stockholders' equity:
Preferred stock, $100.00 par value;
200,000 shares authorized;
none issued and outstanding (1).......................................... -- -- --
Common stock, Class A, $.10 par value;
5,000 shares authorized;
1,900 shares issued and outstanding (1).................................. -- -- --
Common stock, Class B, $.10 par value;
25,000 shares authorized;
21,000 shares issued and outstanding (1)................................. 2 -- --
Preferred stock, $.01 par value;
25,000,000 shares authorized;
none issued and outstanding.............................................. -- -- --
Common stock, $.01 par value;
100,000,000 shares authorized;
none issued and outstanding;
15,794,200 shares issued and outstanding pro forma and 20,169,200 shares
issued and outstanding pro forma as adjusted (2)......................... -- 158 202
Partners' capital of EB Services Company LLP................................. 1 -- --
Additional paid-in capital................................................... 7,584 (22,883) 32,810
Accumulated other comprehensive expense...................................... (908) (908) (908)
Retained earnings............................................................ 10,793 -- --
--------- ----------- -----------
Total stockholders' equity (deficit)......................................... 17,472 (23,633) 32,104
--------- ----------- -----------
Total capitalization......................................................... $ 21,121 $ (19,984) $ 35,753
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

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

(1) Represents the capitalization of EB.

(2) Excludes 1,599,128 shares of Common Stock issuable upon exercise of options
to be granted immediately prior to the completion of the Offering under the
Equity Participation Plan, which have an exercise price equal to the initial
public offering price per share. Also excludes an aggregate of 500,872
shares of Common Stock available for the future grant of stock options and
other equity securities under the Equity Participation Plan. See
"Management--Equity Participation Plan."

16
<PAGE>
DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value (total tangible assets
minus total liabilities) of the Common Stock from the initial public offering
price. At May 2, 1998, the pro forma net tangible book value of the Company was
a deficit of $25.8 million, or a deficit of $1.64 per share. After giving effect
to both the Reorganization and the sale by the Company of 4,375,000 shares of
Common Stock offered hereby and the application of the net proceeds therefrom,
the pro forma net tangible book value of the Common Stock would have been $29.9
million, or $1.48 per share. This represents an immediate increase in net
tangible book value of $3.12 per share of Common Stock to existing stockholders
and an immediate and substantial dilution of $12.52 per share of Common Stock to
new investors purchasing shares of Common Stock in the Offering. The following
table illustrates the dilution per share:

<TABLE>
<S> <C> <C>
Initial public offering price............................... $ 14.00
Net tangible book value before the Reorganization......... $ .97
Decrease attributable to the Reorganization............... 2.61
---------
Net tangible book value after the Reorganization and
before the Offering..................................... (1.64)
Increase attributable to new investors.................... 3.12
---------
Pro forma net tangible book value after the Offering........ 1.48
---------
Dilution to new investors................................... $ 12.52
---------
---------
</TABLE>

The following table sets forth the number of shares of Common Stock sold by
the Company, the total consideration paid to the Company and the average price
per share paid by the existing stockholders and by the new investors purchasing
shares of Common Stock in the Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2)....................... 15,794,200 78.3% $ 3,290 0.0% $ 0.0
New investors (2).................................. 4,375,000 21.7 61,250,000 100.0 14.00
------------ ----- ------------- -----
Total...................................... 20,169,200 100.0% $ 61,253,290 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

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

(1) Excludes 1,599,128 shares of Common Stock issuable upon exercise of options
to be granted immediately prior to the completion of the Offering under the
Equity Participation Plan, which have an exercise price at the initial
public offering price per share. Also excludes 500,872 shares of Common
Stock available for the future grant of stock options and other equity
securities under the Equity Participation Plan. See "Management--Equity
Participation Plan."

(2) Sales by the Selling Shareholder will reduce the number of shares of Common
Stock held by existing stockholders to 15,169,200 shares or 75.2% of the
total number of shares of Common Stock outstanding after completion of the
Offering (14,419,200 shares or 71.5% if the Underwriters' over-allotment
option is exercised in full), and will increase the number of shares of
Common Stock held by new investors to 5,000,000 shares or 24.8% of the total
number of shares of Common Stock held by new investors after the Offering
(5,750,000 shares or 28.5% if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Shareholders."

17
<PAGE>
SELECTED CONSOLIDATED AND COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

The following table sets forth, for the periods and at the dates indicated,
summary consolidated and combined financial and operating data for the Company.
The information presented below under the captions "Statement of Income Data"
for 1993 through 1997 and "Balance Sheet Data" as of January 29, 1994, January
28, 1995, February 3, 1996, February 1, 1997 and January 31, 1998 is derived
from the Company's audited Consolidated and Combined Financial Statements. The
Company's audited financial statements for each of the three fiscal years in the
period ended, and as of January 31, 1998, are included elsewhere in this
Prospectus. The information presented below under the captions "Statement of
Income Data" for the thirteen weeks ended May 3, 1997 and May 2, 1998 and
"Balance Sheet Data" as of May 2, 1998 are derived from the Company's unaudited
financial statements. In the opinion of management, such unaudited financial
information contains all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations of the Company as of such dates and for such periods. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
and Combined Financial Statements and Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
--------------------
MAY 3, MAY 2,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................. $ 240,387 $ 249,552 $ 268,956 $ 337,059 $ 449,180 $ 83,688 $ 106,730
Management fees....................... 411 1,158 1,905 2,526 4,792 488 571
--------- --------- --------- --------- ----------- --------- ---------
Total revenues........................ 240,798 250,710 270,861 339,585 453,972 84,176 107,301
Cost of goods sold.................... 175,865 182,505 199,226 252,813 338,498 61,941 79,520
--------- --------- --------- --------- ----------- --------- ---------
Gross profit.......................... 64,933 68,205 71,635 86,772 115,474 22,235 27,781
Operating expenses.................... 56,187 56,594 58,989 69,828 87,003 18,201 22,270
Depreciation and amortization......... 4,638 5,324 6,047 6,615 7,997 1,875 2,254
--------- --------- --------- --------- ----------- --------- ---------
Income from operations................ 4,108 6,287 6,599 10,329 20,474 2,159 3,257
Equity in earnings (loss) of
affiliates.......................... (118) (634) (1,319) (573) 2,903 (80) (80)
Interest expense, net................. 1,578 1,727 1,818 1,298 1,380 294 214
Preacquisition loss of subsidiaries
(1)................................. -- -- -- -- 913 296 --
--------- --------- --------- --------- ----------- --------- ---------
Income before income tax expense...... 2,412 3,926 3,462 8,458 22,910 2,081 2,963
Income tax expense (2)................ 391 286 280 550 846 78 113
--------- --------- --------- --------- ----------- --------- ---------
Net income............................ $ 2,021 $ 3,640 $ 3,182 $ 7,908 $ 22,064 $ 2,003 $ 2,850
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------

PRO FORMA INCOME DATA:
Pro forma income before income tax
expense............................. $ 19,909 $ 2,946
Pro forma income tax provision........ 8,182 1,155
----------- ---------
Pro forma net income (3).............. $ 11,727 $ 1,791
----------- ---------
----------- ---------
Pro forma net income per share........ .74 .11
Pro forma weighted average shares
outstanding (4)..................... 15,794 15,794

Supplemental pro forma net income
(5)................................. $ 12,178 $ 2,077
Supplemental pro forma net income per
share (5)........................... .74 .12
Supplemental pro forma weighted
average shares outstanding (5)...... 16,357 17,108
</TABLE>

18
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
--------------------
MAY 3, MAY 2,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (6):
Stores open at beginning of period
(7)................................. 274 311 325 341 390 390 452
Stores open at end of period.......... 311 325 341 360 452 393 465
Sales per square foot (8)............. $ 763 $ 721 $ 729 $ 831 $ 926 $ 187 $ 196
Average sales per store (000s)........ $ 822 $ 785 $ 808 $ 962 $ 1,106 $ 214 $ 233
Comparable store sales increase
(decrease).......................... (10.8%) (6.6%) 3.5% 20.8% 15.3% 43.9% 13.0%
Inventory turnover.................... 3.0x 3.6x 3.8x 5.1x 5.3x 1.2x 1.3x
</TABLE>

<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1994 1995 1996 1997 1998
------------ ------------ ------------- ------------- ------------ MAY 2,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)... $ (2,531) $ 3,344 $ (11,038) $ 9,893 $ (17,728) $ (37,776)
Total assets................ 80,580 82,900 95,515 139,244 142,791 140,696
Total liabilities........... 68,153 66,833 78,066 118,887 114,392 123,223
Stockholders' equity........ 12,427 16,067 17,449 20,357 28,399 17,473
</TABLE>

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

(1) The results of operations of EB Int'l and EB Canada have been consolidated
since the beginning of 1997. Preacquisition loss of subsidiaries represents
losses in EB Int'l and EB Canada prior to their acquisition by the Company.

(2) The predecessors to the Company were taxed as an S Corporation and a
partnership. As a result, their taxable income was passed through to their
partners and shareholders for federal income tax purposes. Accordingly, the
financial statements do not include a provision for federal income taxes. A
predecessor to the Company elected to be treated as an S Corporation for
some states, while remaining subject to corporate tax in other states and,
as a result, the financial statements provide for certain state income
taxes. See Note 1 of Notes to Consolidated and Combined Financial Statements
and Notes to the Unaudited Pro Forma Consolidated Financial Statements.

(3) The pro forma net income gives effect to the application of the pro forma
income tax expense that would have been reported had EB and EB Services been
corporations subject to federal and all state income taxes for all periods
shown and to the retention by EB of certain assets. See Note 1 of Notes to
Consolidated and Combined Financial Statements and Notes to the Unaudited
Pro Forma Consolidated Financial Statements.

(5) Supplemental pro forma data assumes the issuance of additional shares to
provide proceeds in an amount to pay down the outstanding debt to Fleet at
May 2, 1998 of $21,028,034 and certain debt repaid with the Fleet revolving
credit agreement outstanding at January 31, 1998 of $9,000,000. Interest
saving, net of tax, were assumed based on the rates applicable to the
specific debt outstanding during each period.

(6) Does not reflect stores operated by EB-UK and WaldenSoftware for which the
Company provides management services. See "Business--Management Services."

(7) Stores open at beginning of period reflects, as of February 2, 1997, the
consolidation of EB's domestic stores and its international stores.

(8) Calculated based on stores open for one year or longer.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company's net sales have increased in each of the last three years as a
result of new store openings and sales growth in existing stores. In 1997, the
Company opened 71 new stores (17 of which were in foreign markets) and expects
to open 80 to 90 new stores in 1998 (30 to 35 of which are expected to be in
foreign markets). The Company believes that its success in achieving sales
growth and increased profitability is largely due to efficiencies created by its
inventory management and distribution systems, store operating efficiencies and
its knowledge of its market area and its customers. However, the Company's
comparable store sales have experienced significant fluctuations in the past due
to, among other things, timing of new product introductions and promotions,
adverse weather conditions, shifts in the timing of certain holidays, prevailing
economic conditions, changes in merchandise trends, the Company's ability to
source merchandise efficiently, and the timing and concentration of store
openings. The Company believes the impact of new video game hardware system
introductions on comparable store sales is likely to decline in future periods
due to improvements in hardware technology and the growing popularity of
PC-based games. The Company regularly reviews the performance of each of its
stores and may close or relocate those that are performing inadequately.

Prior to 1997, the Company operated stores in Canada and South Korea with
local joint venture partners. In 1997, the Company acquired its joint venture
partners' interests in these operations. The results of these foreign operations
are consolidated in the Company's financial statements for the entire fiscal
year.

Over the past two years, the video game industry has experienced substantial
growth due to the introduction of next generation video game hardware systems in
the latter part of 1995 and in 1996. Historically, the introduction of a next
generation video game hardware system has resulted in increased sales, as the
new technology encourages current video game players to update their video game
hardware systems and attracts new video game players to purchase their first
systems. The increased sales volume, however, is partially offset as video game
hardware systems have a lower gross margin than the Company's other products.
Following the introduction of next generation video game hardware systems, the
market has traditionally experienced growth in the quantity and sophistication
of related video game titles. In 1997, the Company reduced its gross margins on
these video game titles as well as on PC entertainment titles to increase its
overall sales volume.

20
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth certain income statement items as a
percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MAY 3, MAY 2,
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............................................................ 99.3% 99.3% 98.9% 99.4% 99.5%
Management fees...................................................... 0.7 0.7 1.1 0.6 0.5
--------- --------- --------- ----- -----
Total revenues....................................................... 100.0 100.0 100.0 100.0 100.0
Cost of goods sold................................................... 73.5 74.5 74.6 73.6 74.1
--------- --------- --------- ----- -----
Gross profit......................................................... 26.5 25.5 25.4 26.4 25.9
Operating expenses................................................... 21.8 20.5 19.1 21.6 20.7
Depreciation and amortization........................................ 2.2 1.9 1.8 2.2 2.1
--------- --------- --------- ----- -----
Income from operations............................................... 2.5 3.1 4.5 2.6 3.1
Equity in earnings (loss) of affiliates.............................. (0.5) (0.2) 0.7 (0.1) (0.1)
Interest expense, net................................................ 0.7 0.4 0.3 0.4 0.2
Preacquisition loss of subsidiaries.................................. 0.0 0.0 0.2 0.4 0.0
--------- --------- --------- ----- -----
Income before income tax expense..................................... 1.3 2.5 5.1 2.5 2.8
State income taxes................................................... 0.1 0.2 0.2 0.1 0.1
--------- --------- --------- ----- -----
Net income........................................................... 1.2% 2.3% 4.9% 2.4% 2.7%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>

THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 3, 1997

Net sales increased by 27.5% from $83.7 million in the thirteen weeks ended
May 3, 1997 to $106.7 million in the thirteen weeks ended May 2, 1998. The
increase in net sales was primarily attributable to (i) the opening of 52 net
new domestic stores and one new Canadian store, which resulted in a $9.6 million
increase in net sales, (ii) a 13.0% increase in comparable store sales, which
resulted in a $10.6 million increase in net sales, and (iii) the consolidation
of $2.8 million of net sales from the Company's Australian retail operations,
which commenced business in the second quarter of 1997.

Management fees increased by 17.0% from $0.5 million in the thirteen weeks
ended May 3, 1997 to $0.6 million in the thirteen weeks ended May 2, 1998. The
increase was primarily attributable to increased fees earned under the UK
Services Agreement. See "Business--Managed Stores."

Cost of goods sold increased by 28.4% from $61.9 million in the thirteen
weeks ended May 3, 1997 to $79.5 million in the thirteen weeks ended May 2,
1998. As a percentage of net sales, cost of goods sold increased from 74.0% in
the thirteen weeks ended May 3, 1997 to 74.5% in the thirteen weeks ended May 2,
1998. The increase in cost of goods sold as a percentage of net sales was
primarily attributable to increased freight expenses. This increase is the
result of the Company's decision to switch its primary freight carrier and
reorganize its third-party distribution framework for improved service and
merchandise availability at its stores.

Selling, general and administrative expense increased by 22.4% from $18.2
million in the thirteen weeks ended May 3, 1997 to $22.3 million in the thirteen
weeks ended May 2, 1998. As a percentage of total revenues, selling, general and
administrative expense decreased from 21.6% in 1997 to 20.7% in 1998. The $4.1
million increase was primarily attributable to the increase in the Company's
domestic and international store base and the associated increases in store and
headquarter operating expenses. The decrease in selling, general and
administrative expense as a percentage of total revenues was primarily

21
<PAGE>
attributable to an increase in net sales and management fee income without a
proportional increase in corporate and store-level overhead.

Depreciation and amortization expense increased by 20.2% from $1.9 million
in the thirteen weeks ended May 3, 1997 to $2.3 million in the thirteen weeks
ended May 2, 1998. This increase was primarily attributable to capitalized
expenditures for leasehold improvements and furniture and fixtures for new store
openings.

Operating income increased by 50.9% from $2.2 million in the thirteen weeks
ended May 3, 1997 to $3.3 million in the thirteen weeks ended May 2, 1998. As a
percentage of total revenues, operating income increased from 2.6% in 1997 to
3.1% in 1998, as the increase in cost of goods sold as a percentage of total
revenues was more than offset by the decline in operating expenses as a
percentage of total revenues.

Interest expense, net, decreased by 27.4% from $0.3 million in the thirteen
weeks ended May 3, 1997 to $0.2 million in the thirteen weeks ended May 2, 1998.
The decrease was primarily attributable to the repayment of long-term debt
outstanding in 1997.

As a result of all the above factors, the Company's income before income
taxes increased by 42.4% from $2.1 million in the thirteen weeks ended May 3,
1997 to $3.0 million in the thirteen weeks ended May 2, 1998.

1997 COMPARED TO 1996

Net sales increased by 33.3% from $337.1 million in 1996 to $449.2 million
in 1997. The increase in net sales was primarily attributable to (i) the opening
of 45 net new domestic stores, which resulted in a $29.0 million increase in net
sales, (ii) a 15.3% increase in comparable store sales, which resulted in a
$50.1 million increase in net sales, and (iii) the consolidation of $33.0
million of net sales from international retail operations, which net sales were
fully consolidated as a result of the acquisition of interests of joint venture
partners acquired by the Company in 1997.

Management fees increased by 89.7% from $2.5 million in 1996 to $4.8 million
in 1997. This increase was primarily attributable to the $2.2 million bonus
earned by the Company under the UK Services Agreement. The Company does not
anticipate receiving bonus payments under the UK Services Agreement in the
future.

Cost of goods sold increased by 33.9% from $252.8 million in 1996 to $338.5
million in 1997. As a percentage of net sales, cost of goods sold increased from
75.0% in 1996 to 75.4% in 1997. The increase in cost of goods sold as a
percentage of net sales was primarily attributable to the Company's decision to
reduce prices for selected electronic game titles in order to increase market
share and sales volume.

Selling, general and administrative expense increased by 24.6% from $69.8
million in 1996 to $87.0 million in 1997. As a percentage of total revenues,
selling, general and administrative expense decreased from 20.5% in 1996 to
19.1% in 1997. The $17.2 million increase was primarily a result of the increase
in the Company's store base and the associated increases in store and
headquarter operating expenses. The decrease in selling, general and
administrative expense as a percentage of total revenue was primarily
attributable to an increase in net sales and management fee income without a
proportional increase in corporate and store-level overhead.

Depreciation and amortization expense increased by 20.9% from $6.6 million
in 1996 to $8.0 million in 1997. This increase was primarily attributable to
capitalized expenditures for leasehold improvements and furniture and fixtures
for new store openings.

Operating income increased by 98.2% from $10.3 million in 1996 to $20.5
million in 1997. As a percentage of total revenues, operating income increased
from 3.1% in 1996 to 4.5% in 1997, as the increase in cost of goods sold as a
percentage of total revenues was more than offset by the decline in operating
expenses as a percentage of total revenues.

22
<PAGE>
Equity in earnings of affiliates increased by $3.5 million from a loss of
$0.6 million in 1996 to earnings of $2.9 million in 1997. The increase was
attributable to a $3.2 million increase in equity income recorded for the
Company's 25.1% investment in EB-UK and the effect of consolidating the
Company's equity interests in Canada and Korea beginning in 1997.

Interest expense, net, increased by 6.2% from $1.3 million in 1996 to $1.4
million in 1997. The increase was primarily attributable to the inclusion of
foreign operation interest expense in 1997, which was partially offset by
reduced short-term borrowings and the repayment of long-term debt in 1997.

As a result of all the above factors, the Company's income before income
taxes increased by 171% from $8.5 million in 1996 to $22.9 million in 1997.

1996 COMPARED TO 1995

Net sales increased by 25.3% from $269.0 million in 1995 to $337.1 million
in 1996. The increase in net sales was primarily attributable to the opening of
19 net new domestic stores, which resulted in a $14.3 million increase in net
sales and a 20.8% increase in comparable store sales, which resulted in a $53.8
million increase in net sales. The increase in comparable store sales was
primarily a result of a full year of sales of the Sony PlayStation and the Sega
Saturn, which were released in calendar year 1995, and the introduction of the
Nintendo N64, which was released in the fall of 1996.

Management fees increased by 32.6% from $1.9 million in 1995 to $2.5 million
in 1996. This increase was primarily attributable to a full year of management
fees earned under the UK Services Agreement in 1996 as compared to seven months
of management fees earned in 1995, the initial year of the UK Services
Agreement.

Cost of goods sold increased by 26.9% from $199.2 million in 1995 to $252.8
million in 1996. As a percentage of net sales, cost of goods sold increased from
74.1% in 1995 to 75.0% in 1996. The increase in cost of goods sold as a
percentage of net sales was primarily attributable to a greater percentage of
the Company's sales mix being generated from video game hardware systems, which
have a lower gross margin than the Company's other products.

Selling, general and administrative expense increased by 18.4% from $59.0
million in 1995 to $69.8 million in 1996. As a percentage of total revenues,
selling, general and administrative expense decreased from 21.8% in 1995 to
20.5% in 1996. The $10.8 million increase was a result of the increase in the
Company's store base and the associated increases in store and headquarter
operating expenses. The decrease in selling, general and administrative expense
as a percentage of total revenues was primarily attributable to an increase in
net sales and management fee income without a proportional increase in corporate
and store-level overhead.

Depreciation and amortization expense increased by 9.4% from $6.0 million in
1996 to $6.6 million in 1997. This increase was primarily attributable to
capitalized expenditures for leasehold improvements and furniture and fixtures
for new store openings.

Operating income increased by 56.5% from $6.6 million in 1995 to $10.3
million in 1996. As a percentage of total revenues, operating income increased
from 2.5% in 1995 to 3.1% in 1996, as the increase in cost of goods sold as a
percentage of total revenues was more than offset by the decline in operating
expenses as a percentage of total revenues.

Equity in loss of affiliates decreased by $0.7 million from a loss of $1.3
million in 1995 to a loss of $0.6 million in 1996. The decrease was attributable
to the increase of equity income recorded for the Company's 25% investment in
EB-UK of $0.7 million, a reduction in the equity loss of the Company's Canadian
joint venture of $0.5 million, and an increase in the equity loss of the
Company's Korean joint venture of $0.5 million.

23
<PAGE>
Interest expense, net, decreased by 28.6% from $1.8 million in 1995 to $1.3
million in 1996. This decrease is primarily attributable to reduced short-term
borrowings, repayment of long-term debt and an increase in interest income
during 1996.

As a result of all the above factors, the Company's income before income
taxes increased 144% from $3.5 million in 1995 to $8.5 million in 1996.

SEASONALITY AND QUARTERLY RESULTS

The Company's business, like that of most retailers, is highly seasonal. A
significant portion of the Company's net sales, management fees and profits are
generated during the Company's fourth fiscal quarter, which includes the holiday
selling season. Results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly results may
fluctuate materially depending upon, among other factors, the timing of new
product introductions and new store openings, net sales contributed by new
stores, increases or decreases in comparable store sales, adverse weather
conditions, shifts in the timing of certain holidays or promotions and changes
in the Company's merchandise mix. See "Risk Factors--Seasonality and Quarterly
Results."

The following table sets forth certain unaudited quarterly income statement
information for 1996, 1997 and 1998. The unaudited quarterly information
includes all normal recurring adjustments that management considers necessary
for a fair presentation of the information shown.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAY 4, AUG. 3, NOV. 2, FEB. 1, MAY 3, AUG. 2, NOV. 1, JAN. 31, MAY 2,
1996 1996 1996 1997 1997 1997 1997 1998 1998
------- ------- ------- -------- ------- ------- ------- -------- --------

<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues................ $52,413 $51,392 $77,046 $158,734 $84,176 $73,394 $94,239 $202,163 $107,301
Gross profit.................. 14,602 14,504 18,702 38,964 22,235 19,087 24,179 49,973 27,781
Operating income (loss)....... (2,029) (2,885) 1,067 14,176 2,159 (1,800) 640 19,475 3,257
Income (loss) before income
taxes....................... (2,501) (3,733) 354 14,338 2,081 (2,303) 576 22,556 2,963
Net income (loss)............. $(2,339) $(3,490) $ 331 $ 13,406 $ 2,003 $(2,252) $ 514 $ 21,799 $ 2,850

AS A PERCENTAGE OF TOTAL
REVENUES:
Gross profit.................. 27.9% 28.2% 24.3% 24.5% 26.4% 26.0% 25.7% 24.7% 25.9%
Operating income (loss)....... (3.9) (5.6) 1.4 8.9 2.6 (2.5) 0.7 9.6 3.1
Income (loss) before income
taxes....................... (4.8) (7.3) 0.5 9.0 2.5 (3.1) 0.6 11.2 2.8
Net income (loss)............. (4.5%) (6.8%) 0.4% 8.4% 2.4% (3.1%) 0.5% 10.8% 2.7%
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through a combination
of cash generated from operations and bank debt. The Company generated $12.3
million, $37.1 million and $32.3 million in cash from operations in 1995, 1996
and 1997, respectively. The Company used $6.8 million of cash from operations
during the thirteen weeks ended May 2, 1998. The $32.3 million of cash generated
from operations in 1997 was primarily the result of $22.1 million of net income,
$5.7 million of non-cash charges to net income, and a $9.9 million increase in
accounts payable and accrued expenses, partially offset by an increase of $2.5
million in other assets, a $2.1 million increase in due from affiliates and a
$2.0 million decrease in due to affiliates. The $4.8 million decrease in cash
generated from operations in 1997 as compared to 1996 was primarily attributable
to (i) a reduction in accounts payable and accrued expenses of $16.7 million,
(ii) an increase in other assets of $1.8 million, (iii) a decrease in affiliate
payables of $2.4 million, (iv) an increase in affiliate receivables of $1.5
million and (v) a decrease in non-cash charges of

24
<PAGE>
$2.6 million. Such amounts were partially offset by an increase in net income of
$14.2 million and a decrease in inventory of $5.7 million. The $24.8 million
increase in cash generated from operations in 1996 as compared to 1995 was
primarily attributable to an increase in accounts payable and accrued expenses
of $20.7 million, an increase in net income of $4.8 million, an increase in
non-cash charges of $0.9 million and a decrease in receivables from affiliates
of $1.6 million. Such amounts were partially offset by a $4.4 million increase
in inventory.

In 1996, EB Canada entered into a $4.0 million term loan facility with Cho
Hung Bank of Canada. At January 31, 1998, the outstanding balance on this loan
was $3.7 million. The note matures on September 1, 2002 and bears interest at
the bank's prime rate plus 0.125%. In 1997, EB Canada entered into a $1.0
million line of credit with Cho Hung Bank of Canada. At January 31, 1998, there
was no outstanding balance on this line of credit. The line of credit expires on
November 5, 1998 and bears interest at the bank's prime rate plus 0.125%.

On March 16, 1998, EB entered into a credit agreement with Fleet, pursuant
to which Fleet agreed to make available to EB an asset based revolving credit
and term loan facility in an amount up to $50.0 million. The revolving credit
facility expires and the term loan, if borrowed, is repayable on March 16, 2001.
Interest accrues on borrowings at a per annum rate equal to either LIBOR plus
250 basis points or Fleet's base rate of interest, at EB's option. The revolving
credit and term loan facilities are secured by certain assets, including
accounts receivable, inventory, fixtures and equipment, and the term loan
facility is also secured by EB's West Chester, Pennsylvania property. As of June
11, 1998, EB had approximately $31.7 million of outstanding borrowings under the
revolving credit facility and had not borrowed amounts under the term loan. The
borrowings under the revolving credit facility bear interest at Fleet's base
rate of interest. In connection with the Reorganization, EBOA joined EB as a
party to the Fleet loan documents and the Company intends to guarantee the
obligations of EBOA thereunder. See "Reorganization" and "Certain Transactions."
The Company intends to use $31.7 million of its net proceeds of the Offering to
repay its obligations to Fleet.

In June 1998, EB loaned $7.0 million to James J. Kim, who in turn loaned
such funds to EBOA for working capital purposes. The demand notes reflecting
such loans bear interest at the highest prime rate as published in the Wall
Street Journal. The Company intends to use $7.0 million of its net proceeds of
the Offering to repay this obligation to Mr. Kim. See "Use of Proceeds."

A predecessor to the Company made capital expenditures of $18.5 million in
1997, primarily for opening 71 new stores and to acquire its West Chester,
Pennsylvania distribution center, which was previously leased by the predecessor
to the Company. See "Certain Transactions." The Company expects to make capital
expenditures in 1998 of approximately $21.1 million, primarily to open
approximately 80 to 90 new stores.

The Reorganization is structured to allow shareholders of EB to retain both
the Company's previously taxed earnings, which exceed book earnings due to
timing differences, and the shares of EB-UK capital stock. As a result, the
Company's stockholder's equity account after the Reorganization and prior to the
completion of the Offering will reflect a deficit of approximately $23.6
million. The sale by the Company of the 4,375,000 shares of Common Stock offered
hereby will restore the Company's stockholder's equity account to a positive
balance of approximately $32.1 million. See "Reorganization."

The Company believes that the net proceeds of the Offering, together with
cash generated from its operating activities and available bank borrowings, will
be sufficient to fund its operations and store expansion programs through the
end of 1999.

IMPACT OF INFLATION

The Company does not believe that inflation has had a material effect on its
net sales or results of operations.

25
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use." This
statement requires that certain costs related to the development or purchase of
internal use software be capitalized and amortized over the estimated useful
life of the software. This statement also requires that costs related to the
preliminary project stage and post-implementation/operation stage of an internal
use software development project be expensed as incurred. The Company plans to
adopt this Statement for the year ended January 29, 2000, as required.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement provides guidance on accounting for all
derivative instruments and hedging activities. The statement concludes that
derivative instruments be recognized as assets or liabilities and that fair
value is the relevant measure for derivative instruments. Additionally, the
statement provides criteria for the determination of hedge accounting. As the
Company has not entered into derivative instruments, it does not believe the
statement will have a significant impact on its financial statements. To the
extent that the Company, in the future, enters into derivative instruments, it
will be required to comply with FASB No. 133.

YEAR 2000

The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
inventory management, distribution, financial business systems and various
administrative functions. To the extent that these software applications contain
source code that is unable to interpret appropriately the upcoming calendar year
2000, some level of modification or even possible replacement of such source
code or applications will be necessary. The Company is currently modifying its
computer software programs and operating systems to make them "Year 2000"
compliant. The Company anticipates spending approximately $300,000 in connection
with its "Year 2000" compliance programs. However, there can be no assurance
that the costs necessary to update software, or potential systems interruptions,
will not exceed such amount and have a material adverse effect on the Company's
results of operations or financial condition.

26
<PAGE>
BUSINESS

GENERAL

The Company believes that it is among the world's largest specialty
retailers of electronic games. The Company's primary products are video games
and PC entertainment software, supported by the sale of video game hardware, PC
productivity software and accessories. As of May 2, 1998, the Company operated
465 stores in 42 states, Puerto Rico, Canada, Australia and South Korea,
primarily under the names Electronics Boutique and Stop 'N Save Software. As of
such date, the Company also provided management services for EB-UK, which
operated 134 stores and 17 department store-based concessions in the United
Kingdom and Ireland. As of May 2, 1998, the Company also managed 37 mall-based
WaldenSoftware stores for Borders Group, Inc. The Company's stores are primarily
located in high traffic areas in regional shopping malls and average 1,100
square feet in size. The Company plans to open approximately 50 to 55 domestic
and 30 to 35 foreign stores in each of 1998 and 1999. The Company's revenues and
operating income have grown from $250.7 million and $6.3 million, respectively,
in 1994, to $454.0 million and $20.5 million, respectively, in 1997. Comparable
store sales increased 3.5%, 20.8%, 15.3% and 13.0% in 1995, 1996, 1997 and the
thirteen weeks ended May 2, 1998, respectively.

The Company's core customer is the electronic game enthusiast who demands
immediate access to new title releases and who generally purchases more video
game titles and PC entertainment software than the average electronic game
consumer. The Company believes that it attracts the core game enthusiast due to
the Company's: (i) specialty store focus on the electronic game category; (ii)
ability to stock sought-after new releases on its stores' shelves immediately
after release by publishers; (iii) breadth of product selection; and (iv)
knowledgeable sales associates, who are often game enthusiasts themselves and
who have extensive knowledge of game titles and features. The Company places
significant emphasis on offering its customers immediate access to new releases
and has designed its product merchandising strategy and distribution systems to
facilitate such access. The Company introduces, on average, 20 new game titles
in its stores per week. The Company believes that this FIRST TO MARKET strategy
establishes its stores as the logical destination of choice for electronic game
enthusiasts. The Company's strict inventory management system enables it to (i)
maintain over 2,600 active SKUs, (ii) replenish its large and geographically
dispersed store base on a daily basis, and (iii) minimize mark-downs as titles
mature. The Company supports its product offerings with a strong commitment to
customer service, which the Company believes distinguishes it from its
competitors. All sales associates receive extensive training on video game and
PC entertainment software products, system requirements and selling techniques.

INDUSTRY OVERVIEW

The electronic game industry is segmented into two primary product
platforms: video games and PC entertainment software.

VIDEO GAMES. Video game play requires two components, video game consoles
(hardware) and video game titles (software). Video game consoles are specialized
processing devices which are connected to a free-standing monitor or, typically,
a television set. Video game titles are small cartridges or CD-Roms that are
inserted into a video game console. The video game market is dominated by three
manufacturers, Nintendo, Sega and Sony, each of which manufactures proprietary
hardware (in the form of console systems) and publishes game titles which run on
their systems but cannot run on those of its competitors. Third party publishers
also produce a wide range of game titles for each of these major hardware
systems. Growth in the video game industry has been primarily driven by the
periodic introduction of new generations of hardware systems. The current 32/64
bit systems offer highly developed, three dimensional graphics capabilities,
speed, and sound effects. Manufacturers have introduced next generation hardware
technologies every four to five years. Sales of prior generation video game
titles generally peak five years after the introduction of new hardware systems.

Total domestic retail sales of video game titles, hardware and accessories
was approximately $5.1 billion in calendar 1997, an increase of approximately
40% over retail sales in the prior year. This increase was primarily the result
of an increased penetration rate of the fourth generation of video game hardware

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<PAGE>
technology (32/64 bit systems), which was introduced in calendar years 1995 and
1996. As was the case with each prior generation, the introduction of the new
hardware technology has led to an increase in the total installed base of the
new technology over that of the prior generation. The enhanced technological
features of new hardware expand gaming capabilities, thereby encouraging
existing players to upgrade their hardware platforms, and simultaneously
attracting new video game players to purchase their first systems. Management
believes that continued growth in sales of the current generation of hardware
technology and related software will continue in calendar year 1998 and 1999. It
is anticipated that the current generation of hardware systems will be replaced
by a new generation of systems, beginning with the expected U.S. introduction of
a new Sega system called "Dreamcast," which Sega is targeting for release in the
fall of 1999. See "Risk Factors--Video Game Systems and Software Product Life
Cycles."

PC ENTERTAINMENT SOFTWARE. PC entertainment software is generally sold in
the form of a CD-Rom and played on multimedia PCs featuring fast processors,
expanded memories, and enhanced graphics and audio capabilities. The PC
entertainment software industry is more fragmented than the video game industry,
with game publishers producing game titles which can be used on most PCs. The
market for PC entertainment software has experienced steady growth in recent
years, due primarily to the growth in the installed base of multimedia PCs. The
domestic installed base of multimedia PCs has increased from approximately 14
million units in calendar 1995 to approximately 23 million units in calendar
1997. Domestic unit sales of PC entertainment software have increased from
approximately 23 million units in calendar 1995 to approximately 46 million
units in calendar 1997. Domestic retail sales of PC entertainment software
totaled approximately $1.3 billion in calendar 1997, an increase of
approximately 23% over retail sales in the prior year. It is anticipated that
the recent introduction of multimedia PCs priced at or below $1,000 will
accelerate growth in PC unit sales and broaden the appeal of home PCs as an
alternative source of in-home entertainment. Worldwide, the installed base of
multimedia PCs as well as sales of PC entertainment software have experienced
comparable increases to those experienced domestically.

The typical electronic game consumer is male, between the ages of 14 and 34,
and lives in a household with income in excess of $50,000. Owners of video game
hardware systems purchase an average of 3.2 game titles per year. The Company
believes that many electronic game players purchase video game titles as well as
PC entertainment software. Electronic games are principally sold through retail
channels, including mass merchants, toy retail chains, electronics retailers,
computer retailers, specialty software retailers, wholesale clubs, and mail
order.

BUSINESS STRATEGY

The Company seeks to enhance its position as one of the world's premier
specialty retailers of video game titles and PC entertainment software.

BREADTH OF TITLE SELECTION. The Company offers its customers an extensive
selection of video game titles and PC entertainment software at competitive
prices. The Company's typical store offers approximately 1,650 titles at any
given time from over 120 video game and PC entertainment software vendors. The
title selection in each store is continuously updated and tailored to reflect
the tastes and buying patterns of the store's local market. The Company carries
game titles which are compatible with all major video game hardware systems and
PCs. In addition to video game titles and PC entertainment software, the Company
offers a complementary line of productivity and educational software and PC and
video game accessories and peripheral products, including graphics accelerators,
joysticks, memory cards, books and magazines. By offering all major video game
hardware systems and providing a broad but focused assortment of electronic game
software and accessories, the Company seeks to establish its stores as the
logical destination of choice for electronic game enthusiasts.

IMMEDIATE AVAILABILITY OF NEW RELEASES. The Company strives to be the first
in its markets to offer new video game titles upon their release. New release
titles are often preceded by substantial publicity in the form of advertisements
and reviews in publications and, increasingly, are promoted through television.
This publicity tends to create high levels of demand for new releases among
video game enthusiasts, often

28
<PAGE>
well in advance of release dates. This demand has afforded the Company an
important marketing opportunity to create excitement surrounding its stores. To
assure its customers immediate access to new releases, the Company offers its
customers the opportunity to purchase video games prior to their release (the
"EB Pre-Sell Program") and has established a reserve list (the "EB Reserve
List") which guarantees its customers a copy of a new release immediately after
its launch. The Company introduces approximately 20 new game titles in its
stores each week. The Company believes that its FIRST TO MARKET strategy
establishes the Company's stores as the logical destination of choice for
electronic game enthusiasts.

HIGHLY EFFECTIVE INVENTORY MANAGEMENT SYSTEM. The Company emphasizes strict
inventory policies in order to effectively manage over 2,600 SKUs, including
video game titles, PC entertainment software, video game consoles, and
accessories. The Company has developed a sophisticated inventory management
system which enables it to maximize sales of new release titles and avoid
markdowns as titles mature. The Company minimizes its inventory risk by: (i)
conducting extensive research on new release titles to forecast anticipated
daily sell-through; (ii) utilizing POS polling technology to provide daily
sales, margin and inventory reports to the Company's merchandising staff; (iii)
managing inventory on a store-by-store basis in order to address local customer
merchandise preferences; and (iv) replenishing store-level inventories daily
from its fully automated distribution center. The Company introduces an average
of 10 new SKUs in its stores each day. As a result of these inventory management
initiatives, the Company has been able to achieve desired in-stock positions and
increase its inventory turns from 3.8x in 1995 to 5.1x in 1996 to 5.3x in 1997.
In addition, the Company's 1997 inventory shortage was less than 0.8% of cost of
sales.

DISCIPLINED STORE OPERATIONS. The Company's management team exercises
significant control over all aspects of its store operations, from product
research, purchasing and distribution to real estate selection, store
development, POS financial reporting, and sales training. The Company believes
that this commitment to operational control enables it to operate substantially
all of its stores on a profitable basis, to identify quickly opportunities to
improve store productivity and to react to shifts in product pricing and
consumer purchasing trends more quickly than its competitors.

KNOWLEDGEABLE SALES ASSOCIATES. The Company believes that its knowledgeable
sales associates provide the Company with an important competitive advantage
over mass merchants, toy retail chains and electronics and computer superstores,
all of which compete with the Company, but generally offer much lower levels of
customer service in the electronic game category than the Company. All sales
associates are given extensive training on video game and PC entertainment
software products, system requirements and selling techniques. Many of the
Company's sales associates are also electronic game enthusiasts. Training is
facilitated through vendor-sponsored EB University seminars, held semi-annually
for field management associates, as well as through regularly scheduled in-store
seminars conducted by District Training Managers who provide merchandise and
sales training to the Company's sales associates. In addition, sales associates
are encouraged to learn about their customers' game preferences. With this
knowledge, sales associates can introduce customers to a selection of electronic
games and accessories which may suit their preferences or enhance the overall
game experience. In addition, the Company's sales associates advise customers of
pending new releases suited to the customer's expressed interests.

VALUE PRICING AND AFFINITY PROGRAMS. In an effort to offer maximum value to
its customers and discourage comparison shopping, the Company maintains an
everyday low pricing policy and supports this policy with price matching (the
"EB Code of Honor Program") and affinity programs. These affinity programs are
the Frequent Buyer Card (the "EB-FBC"), the EB Pre-Sell Program, and the EB
Reserve List. An extensive selection of merchandise and a high level of customer
service complement the Company's everyday low price policy.

GROWTH STRATEGY

DOMESTIC NEW STORE EXPANSION. The Company plans to expand its domestic
retail operations by opening 35 to 40 Electronics Boutique stores and 10 to 15
Stop 'N Save Software stores in both existing and new markets during 1998 and
1999. As of May 2, 1998, the Company had opened 12 domestic stores,

29
<PAGE>
had executed leases for an additional 16 domestic stores, and is currently
negotiating with landlords with respect to 19 potential domestic stores. The
Company's real estate team applies standardized site selection criteria to
secure the best location for its stores when entering a new market or expanding
within an existing market. The Company believes its store formats can operate
profitably in high traffic/high rent malls as well as in lower traffic/lower
rent malls and strip shopping centers. This flexibility provides the Company
with an extensive selection of locations for future store openings.

INTERNATIONAL OPPORTUNITIES. As of May 2, 1998, the Company operated 19
stores in Australia, 27 stores in Canada, five stores in South Korea, and
provided management services to an affiliate of EB, EB-UK, which affiliate, as
of such date, operated 134 stores and 17 department store-based concessions in
the United Kingdom and Ireland. The Company intends to open 15 stores annually
in both Australia and Canada during 1998 and 1999. As of May 2, 1998, the
Company had opened four stores in Australia, had executed a lease for one store
in Canada, and is currently negotiating with landlords with respect to 11
potential stores in Australia and three potential new stores in Canada. The
Company believes that its current international presence will enable it to
leverage its existing distribution and management infrastructure for further
international expansion. See "Risk Factors--New Store Openings and "--Risks of
International Retail Operations."

EXPANSION OF ONLINE RETAILING. The Company believes that it was one of the
first video game and PC entertainment software specialty retailers to offer a
World Wide Website enabling both product review and online purchasing. The
Company's core game enthusiast customer is technically proficient and, as such,
the Company believes that online retailing is a natural extension of its current
retail operations. Since the Company believes that its primary distribution
center is well configured to enable fulfillment of online orders, the Company
provides its own fulfillment function. The Company intends to pursue
aggressively strategic alliances with directories, search engines, content
providers, and sites geared toward electronic game players. In April 1998, the
Company began providing customers with a complete product offering, including
access to the Company's database of over 4,600 items.

STORE PRODUCTIVITY. The Company constantly strives to increase the
productivity of its stores by focusing on:

- Inventory Management and Controls. Utilizing its sophisticated POS and
inventory management systems, including its fully automated distribution
center, the Company seeks to continuously improve the merchandise mix and
in-stock positions in its stores, increase inventory turns and drive down
shrinkage (which, at less than 0.8% of cost of sales in 1997, the Company
believes is among the lowest of mall-based retailers).

- Managing Store Payroll. The Company seeks to optimize store payroll
expense by utilizing its sophisticated POS reporting systems to assure the
best possible match of sales associate floor coverage to customer traffic.
In an effort to further enhance its store payroll strategy, the Company is
currently testing a new system which electronically measures store
customer traffic throughout the day and provides management with an
analysis of sales conversion rates by store and by sales associate. This
system will allow management to further improve its on-going sales
conversion training.

- Pre-owned Electronic Games. As a result of the proliferation of new titles
and the tendency of electronic game players to seek new game challenges
after mastering a particular title, a growing market for pre-owned video
game titles has evolved in recent years. The Company offers its customers
a store credit for their pre-owned video game titles. Sales of pre-owned
video game titles generate higher margins than new titles and their
availability in the Company's stores tends to attract the Company's core
game enthusiast customer. The Company believes that a significant
opportunity exists to increase sales of pre-owned game titles and is
currently implementing a number of marketing and merchandising programs,
coupled with incentives to its sales associates, to increase its
participation in the growing market for pre-owned game titles.

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<PAGE>
RETAIL OPERATIONS

As of May 2, 1998, the Company operated a total of 465 stores in 42 states,
Puerto Rico, Canada, Australia and South Korea, primarily under the names
Electronics Boutique and Stop 'N Save Software.

STORE FORMATS. Electronics Boutique stores are specialty retail stores that
offer video game hardware and game titles, PC entertainment, educational and
productivity software and video game and PC accessories. Electronics Boutique
stores are primarily located in high traffic areas in regional shopping malls
and generally stock over 2,600 SKUs. The typical mall-based Electronics Boutique
store is approximately 1,100 square feet, but stores range in size from 450
square feet to 1,500 square feet, with retail sales space encompassing
approximately 90% of total square footage. The Company believes that its stores
generate sales per square foot that are among the highest of any mall-based
retailer.

Stop 'N Save Software stores are generally larger format stores located in
urban areas and strip and power shopping centers. The Company's merchandising
strategy at its Stop 'N Save Software stores is comparable to its merchandising
strategy at its Electronics Boutique stores. The Company opened its first Stop
'N Save Software store in 1995. Stop 'N Save Software stores range in size from
1,250 to 5,000 square feet, with retail sales space encompassing approximately
90% of total square footage. In addition, the Company also operates seven stores
that sell sports collectibles and memorabilia under the name Brandywine Sports
Collectables ("BC Collectables"). The Company is developing BC Collectables as a
new concept, as it believes the customer base of BC Collectables shares many of
the same demographic characteristics as the customer base of the Company's
Electronics Boutique stores. BC Collectables stores are located in malls and
strip and power shopping centers and generally range in size from 1,000 to 5,000
square feet.

The following table sets forth information concerning the number of stores
open at the end of the periods indicated:
<TABLE>
<CAPTION>
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Domestic Stores:
Electronics Boutique........................................................... 311 325 338 351
Stop 'N Save Software.......................................................... 0 0 1 3
BC Collectables................................................................ 0 0 2 6
--- --- --- ---
Total...................................................................... 311 325 341 360

Total International Company Stores............................................. 7 22 23 30
--- --- --- ---
Total Company Stores........................................................... 318 347 364 390
--- --- --- ---
--- --- --- ---

<CAPTION>
1997
-----
<S> <C>
Domestic Stores:
Electronics Boutique........................................................... 390
Stop 'N Save Software.......................................................... 8
BC Collectables................................................................ 7
---
Total...................................................................... 405
Total International Company Stores............................................. 47
---
Total Company Stores........................................................... 452
---
---
</TABLE>

SITE SELECTION. Company representatives visit numerous mall and power and
strip shopping center sites throughout the year in the United States and in
several foreign countries in search of suitable store locations. The Company's
standardized site selection criteria include, but are not limited to: population
demographics; psychographics; traffic count; store-front visibility and
presence; adjacencies; competition; lease terms; and accessible parking. The
Company believes its store formats can operate profitably in high traffic/high
rent malls as well as lower traffic/lower rent malls and shopping centers. The
Company, therefore, believes that there is a large selection of locations
available for future sites and views lease terms as the most critical element in
its selection process. The Company has used its knowledge of its market areas to
negotiate favorable lease terms at many of its store locations, which has
resulted in lowered occupancy costs. The Company regularly reviews the
profitability and prospects of each of its stores and evaluates whether any
underperforming stores should be closed or relocated to more desirable
locations. The Company will seek to negotiate with landlords to convert
desirable WaldenSoftware locations into Company stores when their leases
terminate.

STORE ECONOMICS. The Company believes that its store concepts offer
attractive unit economics. The Company estimates that the average Electronics
Boutique store had net sales of approximately $1.1 million

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<PAGE>
in 1997. The average cost to open an Electronics Boutique store (exclusive of
inventory costs) is $135,000. These costs include furniture, fixtures, leasehold
improvements and equipment. The Company expects such costs to remain constant in
1998. The Company's stores have an average opening inventory of $95,000. The
Company's cost to open an international store is approximately the same in U.S.
dollars as the cost to open a domestic store. Historically, the Company's new
stores have generated a positive store operating contribution within the first
12 months of operations.

STORE OPERATIONS. The Company's North American stores (in the U.S., Canada,
and Puerto Rico) are divided into two geographic regions (East and West), each
consisting of an area encompassing approximately 50% of the Company's stores.
These regions are supervised by two Field Operations Vice Presidents, 11
Regional Vice Presidents/Directors and 42 District Managers. Each District
Manager is responsible for approximately 12 stores. The Company's stores in
Australia and South Korea are supervised by a Regional Vice President. The
Company has recently instituted a program in the U.S. whereby each region has
specialists in sales training, loss prevention and merchandising in an effort to
provide on-going education and training to store associates. Each of the
Company's stores has a full-time manager and a full-time assistant manager in
addition to hourly sales associates, most of whom work part-time. The number of
hourly sales associates fluctuates greatly depending on seasonal needs. The
Company's domestic stores are open seven days per week and generally ten hours
each day. The Company operates its foreign stores in a manner substantially
similar to its domestic stores.

MANAGEMENT SERVICES

As of May 2, 1998, the Company provided management services to 188 specialty
electronic game stores in the United States, the United Kingdom and Ireland.

EB-UK STORES. The Company provides management services for 134 stores and
17 department store-based concessions in the United Kingdom and Ireland under a
contract with EB-UK, a corporation organized under the laws of the United
Kingdom (and an affiliate of EB). As of May 2, 1998, EB owned 25.1% of the
outstanding shares of capital stock of EB-UK, which stock is listed for trading
on the London Stock Exchange. Pursuant to the Reorganization, EB will assign
such shares of capital stock to EB Nevada. See "Reorganization."

EB-UK is one of the leading speciality retailers of electronic games in the
United Kingdom and Ireland. EB-UK's business strategy is substantially similar
to that of the Company's. EB-UK strives to offer its customers an extensive
selection of video games and PC entertainment software, immediate availability
of new releases, knowledgeable sales associates, and value pricing and other
customer incentive programs. EB-UK also has a highly effective inventory
management system and distribution center. EB-UK stores are generally located in
"high street" shopping districts.

On October 13, 1995, EB entered into the UK Services Agreement with EB-UK.
The UK Services Agreement provides that EB shall provide management services to
EB-UK, including assistance with ordering and purchasing inventory, store design
and acquisition, advertising, promotion and publicity information and
information systems. In exchange, EB-UK is responsible for the payment of fees
(payable in cash or EB-UK stock at EB's option), equal to 1.0% of net sales plus
a bonus calculated on the basis of net income in excess of a pre-established
target set by EB-UK. The UK Services Agreement provides for EB-UK to have a
right of first refusal on any business opportunity of which EB becomes aware in
Europe (excluding Scandinavia) relating to electronic game retailing. The UK
Services Agreement also prohibits EB from competing with EB-UK in the United
Kingdom or Ireland during the term of the UK Services Agreement, and for one
year after its termination. The UK Services Agreement has an initial term
expiring on January 31, 2006. In January 1997, EB assigned its rights and
obligations under the UK Services Agreement to EB Services, a partnership in
which, after the Reorganization, the Company will own 99.99% of the partnership
interests. The stockholders of EB-UK elected Joseph J. Firestone, the Company's
President and Chief Executive Officer, and John R. Panichello, the Company's
Senior Vice President and Chief Financial Officer, to serve as non-executive
Directors of EB-UK.

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<PAGE>
WALDENSOFTWARE STORES. The Company manages 37 WaldenSoftware stores under a
management contract with Borders Group, Inc. The WaldenSoftware stores are
domestic mall-based stores that offer the same product lines as the Company's
Electronics Boutique stores. The Company provides management services to
WaldenSoftware in exchange for a fixed fee per store. The Company manages the
stores in a manner substantially similar to the Company's Electronics Boutique
stores. The Company will seek to negotiate with landlords to convert desirable
WaldenSoftware locations into Company stores when their leases terminate.

ONLINE RETAILING

The Company believes that it was one of the first electronic game specialty
retailers to offer a Website that enables visitors to review a broad selection
of products and make purchases online. In 1995, the Company created its Website
and, in 1997, the Website was upgraded to offer online purchasing. The Company
believes that its customer base and product mix are uniquely suited for online
retailing. The Company's customers are generally males who are technically
proficient, a demographic which has traditionally represented the largest
percentage of consumers who make online purchases. Further, the Company's
products are recognizable brand name items, which serves to provide online
customers with a higher degree of confidence that products purchased will meet
the customer's expectations. In addition, the scope of the Company's store
operations enhances the reputation of the Company's Website as a source for
products at competitive prices. The Company believes that the local market
identity provided by the Company's stores is a significant competitive advantage
over competing online retailers.

The Company currently is able to offer over 600 of its most popular
electronic game titles and accessory products for sale through its Website. In
April 1998, the Company began providing customers with a complete product
offering, including access to the Company's database of over 4,600 items. The
Company's Website also features colorful product descriptions, new release
schedules, vendor promotions and other relevant product information. The
Company's Website also serves as a venue for online interaction between
electronic game enthusiasts and popular electronic game authors, producers and
other notables. The Company continually enhances its Website to broaden its
promotional appeal and has recorded a significant increase in the number of
visits to the Website. From February through May 1998, the Company recorded
nearly 2,056,000 unique visits to its Website, compared to a total of 884,000
unique visits during the 11 months from March 1997 through January 1998. In
addition, revenues from the Company's Website in the first eight months of
online purchasing (June 1997 through January 1998) were approximately $399,000,
compared to revenues of approximately $429,000 during the four months from
February through May 1998. The Company intends to pursue aggressively strategic
alliances with directories, search engines, content providers, and sites geared
toward electronic game players. The Company believes that its current in-house
distribution facilities afford the Company a competitive advantage by enabling
it to fulfill online orders rapidly.

PRODUCTS

The Company's primary product line consists of video game titles, PC
entertainment software titles, video game hardware systems and related accessory
products. The Company also markets selected PC productivity and education
software titles. The Company's in-store inventory at any given time consists of

33
<PAGE>
2,600 SKUs. The following table sets forth sales mix, expressed as a percentage
of net sales, for the periods indicated:

<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Video Games:
Video Game Software........................................ 42% 40% 35% 33% 39%
Video Game Hardware........................................ 11 10 13 16 9
PC Software:
PC Entertainment Software.................................. 16 17 18 20 20
PC Productivity Software................................... 13 13 14 10 8
PC Education Software...................................... 3 4 3 4 4
Accessories and Other:
Accessories................................................ 14 15 14 15 17
Other...................................................... 1 1 3 2 3
--------- --------- --------- --------- ---------
Total.................................................... 100% 100% 100% 100% 100%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

VIDEO GAME TITLES AND PC ENTERTAINMENT SOFTWARE. The Company carries over
650 video game titles (excluding pre-owned games) and over 1,000 active PC
entertainment software SKUs at any given time. In 1997, the average sales price
of a video game title was $41.50 and the average sales price of a PC
entertainment software title was $29.60. The Company purchases video game titles
directly from the leading manufacturers, which include Nintendo, Sega and Sony,
as well as a variety of third-party game publishers, such as Electronic Arts,
Acclaim Entertainment, Inc. and Midway Home Entertainment, Inc. The Company
ranks as one of the larger domestic customers of video game products from these
publishers. Within the more fragmented PC entertainment software segment, the
Company purchases titles from approximately 90 vendors. The Company markets
electronic games across a variety of genres, including Action, Strategy,
Adventure/Role Playing, Simulation, Sports, Children's Entertainment and Family
Entertainment. The Company maintains a broad selection of popular new release
titles, which are defined by the Company as titles which have been available for
no more than six weeks from the date of their release.

VIDEO GAME HARDWARE. The Company offers the video game hardware systems of
all major manufacturers, including the Sony PlayStation, Nintendo N64 and Sega
Saturn. In support of its strategy to be the logical destination of choice for
electronic game enthusiasts, the Company aggressively promotes the sale of video
game hardware systems. The Company believes that this policy increases store
traffic and promotes customer loyalty, leading to increased sales of video game
titles, which have higher gross margins. The Company also offers extended
service agreements and extensions of manufacturer warranties of the video game
systems.

PC EDUCATION AND PRODUCTIVITY SOFTWARE. In addition to its category
dominant assortment of video game and PC entertainment software titles, the
Company offers a selection of educational, personal productivity and finance
software titles. Management believes that these titles also appeal to the
electronic game enthusiasts who comprise the Company's core customer base.

ACCESSORIES. In recent years, the growing popularity of electronic games
has led to an increase in sales of accessory products, which generally have
higher gross margins than hardware and software products. Accessory products
enhance the total gaming experience. Presently, the Company's stores offer
approximately 500 accessory product SKUs, including 3-D graphics accelerators,
memory cards and joysticks. The Company also markets instructional books on the
most popular electronic game titles.

34
<PAGE>
INVENTORY MANAGEMENT AND DISTRIBUTION

INVENTORY MANAGEMENT. The Company carefully manages its inventory to
minimize the risk associated with introducing new products. The Company's
merchandising staff evaluates potential products by testing many pre-release
samples received from publishers, reading game reviews, interviewing customers
and store associates, and studying vendor marketing plans. The Company's
centralized merchandising staff also analyzes the EB Pre-Sell Program and EB
Reserve List information and other data to estimate initial demand as well as
the life cycle for a new release. The Company then uses its new product analyses
to plan initial allocations among stores of the total initial purchase of a
newly-released title (which typically ranges from 1,200 to 4,800 units, but has
been as low as 500 units and as high as 60,000 units).

Once initial stocking decisions have been made, the Company uses its
management information system to measure, on a daily basis, SKU level sales,
gross margins and inventory balances. After sales histories for a particular
product are compiled, appropriate stock levels are designed for that specific
product. Sales levels are continuously monitored by the merchandising staff,
which receives sales and inventory reports by SKU on a daily basis through POS
polling technology as well as recommended order quantities and product
discontinuations from each store. Product shortages and replenishment
allocations among stores are then made based on this data. By focusing on
inventory turnover, the Company's allocation, traffic, buying, distribution and
third party functions operate on a "just in time" replenishment basis.

DISTRIBUTION. The Company's primary distribution center is located in West
Chester, Pennsylvania, and supports the Company's full product line. The 120,000
square foot facility allows the Company to replenish its stores on a daily
basis, thereby reducing inventory levels and increasing inventory turns, while
supporting the Company's FIRST TO MARKET new release strategy. The Company's
rapid processing capability in its distribution center is facilitated by several
advanced inventory management technologies, including paperless picking and
radio frequency support. The Company's ability to rapidly process incoming
shipments of new release titles quickly and distribute them to all of its stores
either that same day or by the next morning enables the Company to meet peak
demand.

During peak sales periods, the Company enters into short-term arrangements
for additional retail distribution centers to ensure timely restocking of all
stores. The Company has also developed a flexible third-party network to provide
regional distribution support for all new product releases.

The Company believes that it maintains industry-leading distribution and
inventory management systems. The Company believes that these systems promote a
level of efficiency in inventory management which affords the Company an
important competitive advantage. In addition, when managed effectively, stock
balancing and markdown allowances offered selectively by vendors can reduce a
portion of the risk associated with carrying inventory. Products that either
sell poorly at launch or experience a reduction in sales after a successful
launch often can achieve an acceptable rate of sale at a lower price.

MARKETING

IN-STORE PROMOTIONS. The Company's Electronics Boutique stores are
primarily located in high traffic, high visibility areas in regional shopping
malls. Accordingly, the Company's marketing efforts are designed to draw mall
patrons into the Company's stores through the use of window displays and other
attractions visible from the mall concourse. Inside the stores, the Company
features selected products through the use of vendor displays, signs, fliers,
point of purchase materials and end-cap displays. The Company receives
cooperative advertising and market development funds from manufacturers,
distributors, software publishers and accessory suppliers to promote their
respective products.

THE EB PRE-SELL PROGRAM AND THE EB RESERVE LIST. The EB Pre-Sell Program
offers the Company's customers the opportunity to purchase video games prior to
their release, and the EB Reserve List entitles participants to be placed on a
list for notification when a game has arrived in the Company's stores.

35
<PAGE>
Customers who participate in the EB Pre-Sell Program pay for a game prior to its
release and receive a promotional gift in connection with the purchase (e.g., a
t-shirt or a watch). The EB Pre-Sell Program and the EB Reserve List enable the
Company's customers to receive a new product on the first day on which it is
available in the Company's stores, and are designed to enhance the reputation of
the Company's stores as the logical destination of choice for electronic game
enthusiasts.

FREQUENT BUYER CARDS. Following an initial successful test in Canada, the
Company introduced the EB-FBC in the U.S. in July 1997. For an annual fee, a
cardholder is entitled to receive discounts on all purchases and to participate
in exclusive EB-FBC promotions and events. As of May 2, 1998, over 88,000
EB-FBCs have been sold domestically. The Company is constructing a profile of
these cardholders and intends to use this information to develop marketing
programs designed specifically to meet cardholder buying needs.

CATALOGS. The Company publishes six full color catalogs each year, which
range in size from 48 to 100 pages. These catalogs have been fully vendor funded
since 1986 and feature a broad array of products. The catalogs are available in
the Company's stores and are also mailed to several hundred thousand households
from the Company's proprietary customer lists. The catalogs are also inserted in
leading industry magazines.

PRE-OWNED GAMES. As with music compact discs, video game cartridges have
useful lives of thousands of plays. As a result of the proliferation of new
titles and the tendency of electronic game players to seek new game challenges
after mastering a particular title, a growing market for pre-owned video game
titles has evolved in recent years. The Company offers its customers a store
credit for their pre-owned video game titles, which can be applied towards the
purchase of new or pre-owned products. The Company then resells the pre-owned
video game titles at discount prices, but with gross margins higher than those
for new video game titles. The Company believes its wide assortment of pre-owned
video game titles distinguishes it from its competitors.

OTHER MARKETING PROGRAMS. The Company provides its customers with a liberal
return policy. The Company's customers can return opened software products for a
full credit within ten days after purchase. In addition, the EB Code of Honor
Program discourages comparison shopping, as the Company will match its
competitors' prices. Further, the Company maintains an everyday low pricing
strategy.

MANAGEMENT INFORMATION SYSTEMS

The Company's primary management information system is a customized version
of the AS400-based JDA Merchandise Management System. The proprietary
enhancements made by the Company to this program enable management to analyze
total, comparative and new store sales data at the Company, region, district and
store levels. Additional revisions to the program have enhanced analysis of top
selling items, new release sales and gross margin item rankings. The Company
plans to continue to invest in its management information system by, among other
things, upgrading its global financial reporting and analytical capabilities
through the implementation of the Lawson Associates, Inc. financial software
products. The Company intends to further enhance its management information
systems with client server and data warehousing applications geared towards
sales analysis and targeted consumer marketing. The Company spent $1.1 million
for information system improvements in 1997 and has budgeted $1.5 million for
1998 for additional improvements.

The Company has contracted with a third party to upgrade all programs
running on the AS400 system to be "Year 2000" compliant, with full
implementation targeted for the fourth quarter of 1998. All other Company
software and hardware products are being inventoried and updated as necessary.
The Company intends to address all potential "Year 2000" problems in 1998 and
anticipates spending approximately $300,000 in connection with its "Year 2000"
compliance program. See "Risk Factors--Year 2000 Compliance."

36
<PAGE>
VENDORS

With the exception of certain personal productivity software titles and
accessories, the Company purchases substantially all of its products directly
from manufacturers and software publishers. The Company's top 25 vendors
accounted for approximately 77% of the Company's purchases in 1997. The
Company's largest vendors in 1997 were Nintendo, Sony and Electronic Arts, which
accounted for 13.5%, 13.3% and 9.4%, respectively, of the Company's net sales,
with no other vendor accounting for more than 5.0% of the Company's software or
accessory purchases during that year. The Company believes that maintaining and
strengthening its long-term relationships with its vendors is essential to the
Company's operations and expansion. The Company has no contracts with trade
vendors and conducts business on an order-by-order basis, a practice that is
typical throughout the industry. The Company believes that it has very good
relations with the vendor community. See "Risk Factors--Dependence on
Suppliers."

COMPETITION

The electronic game industry is intensely competitive and subject to rapid
changes in consumer preferences and frequent new product introductions. The
Company believes that key competitive factors are availability of product,
ability to procure product in high demand, knowledgeable service, price,
reputation, and shopping environment. The Company competes with other video game
and PC software stores located in malls, as well as with mass merchants, toy
retail chains, mail-order businesses, catalogs, direct sales by software
publishers, online retailers, and office supply, computer product and consumer
electronics superstores. In addition, video games are available for rental from
many video stores and cable television providers. Further, other methods of
retail distribution may emerge in the future which would result in increased
competition for the Company. Most of the Company's competitors have longer
operating histories and significantly greater financial, managerial, creative,
sales and marketing and other resources than the Company. The Company also
competes with other forms of entertainment activities, including movies,
television, theater, sporting events and family entertainment centers. The
Company's ability to retain its existing customers and attract new customers
depends on numerous factors, some of which are beyond the Company's control.
These factors include: the continued introduction of new and enhanced video game
and PC hardware and software; the availability and timeliness of new product
releases at the Company's stores; and the Company's reputation in the industry.
See "Risk Factors-- Competition."

37
<PAGE>
PROPERTIES

STORE LEASES. All of the Company's stores are leased. The table below sets
forth, as of January 31, 1998, the number of the Company's store leases that
will expire each year (assuming the lease is not terminated by either party
prior to the expiration of the term).

<TABLE>
<CAPTION>
NUMBER OF LEASES
--------------------------------
<S> <C> <C>
CALENDAR YEAR IN
WHICH LEASE EXPIRES DOMESTIC INTERNATIONAL
- --------------------------------------------------- ------------- -----------------
1998............................................... 56(1) 4
1999............................................... 40 2
2000............................................... 35 0
2001............................................... 46 3
2002............................................... 43 3
2003............................................... 39 11
2004............................................... 24 19
2005............................................... 33 4
2006............................................... 33 0
2007............................................... 46 1
2008............................................... 7 0
2009 and thereafter................................ 3 0
</TABLE>

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

(1) Includes, as of June 19, 1998, five leases which have been subsequently
extended, five leases in negotiation and six stores currently leased on a
month-to-month basis, of which three leases are pending term renewals.

In general, the Company's leases have an initial term of seven to ten years,
with some leases having one or more five to seven year options to extend. See
"Risk Factors--Lease Expirations."

HEADQUARTERS. EB owns the Company's headquarters and its primary
distribution center, which are located in a single 140,000 square foot building
on several acres in West Chester, Pennsylvania. In addition, EB owns four acres
adjacent to the distribution center that will allow the Company to expand its
operations at the West Chester site as required. Pursuant to the Reorganization,
as of May 31, 1998, EBOA, an operating subsidiary of the Company, entered into a
lease agreement with EB, pursuant to which EBOA leases the West Chester
headquarters and primary distribution center from EB. The lease has a two year
term and provides EBOA with an option to purchase the property for $6.7 million,
EB's cost of acquisition. The monthly rent pursuant to such lease is $50,000.
See "Reorganization."

TRADEMARKS/REGISTRATIONS

Pursuant to the Reorganization, the Company acquired from EB the Electronics
Boutique-Registered Trademark-, EBX-Registered Trademark- and Stop 'N Save
Software-Registered Trademark- trademarks as well as other registered trademarks
and service marks, both in the United States and in certain foreign
jurisdictions. See "Reorganization."

The Company believes its marks are valuable and, accordingly, intends to
maintain its marks and the related registrations. The Company is not aware of
any pending claims of infringement or other challenges to the Company's right to
use its marks in the United States or elsewhere. The Company has no patents,
licenses, franchises or other concessions which are considered material to its
operations.

ASSOCIATES

As of June 12, 1998, the Company had approximately 3,100 non-seasonal
associates, of which approximately 1,700 were employed on a part-time basis. In
addition, during the 1997 peak holiday shopping season, the Company hired
approximately 650 temporary associates. The Company believes that

38
<PAGE>
its relationship with its associates is very good. None of the Company's
associates is represented by a labor union or is a member of a collective
bargaining unit.

LEGAL PROCEEDINGS

The Company is involved from time to time in legal proceedings arising in
the ordinary course of its business. In the opinion of management, no pending
proceedings will have a material adverse effect on the Company's results of
operations or financial condition.

39
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's executive officers and directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James J. Kim......................................... 62 Chairman of the Board
Joseph J. Firestone.................................. 66 President, Chief Executive Officer and Director
Jeffrey W. Griffiths................................. 47 Senior Vice President of Merchandising and
Distribution
John R. Panichello................................... 36 Senior Vice President and Chief Financial Officer
Dean S. Adler........................................ 41 Director
Susan Y. Kim......................................... 35 Director
Louis J. Siana....................................... 66 Director
</TABLE>

James J. Kim. Mr. Kim has served as the Company's Chairman and a Class III
Director since March 1998. Mr. Kim founded EB in 1977 and has served as its
Chairman since its inception. Mr. Kim has served as Chairman and Chief Executive
Officer of Amkor Technology, Inc. ("Amkor") and Amkor Electronics, Inc. ("AEI")
since September 1997 and 1968, respectively. In April 1998, AEI merged with and
into Amkor. Amkor is a semiconductor packaging and test service company. Mr. Kim
also serves as the Chairman of the Anam group of companies, which consists
principally of companies in South Korea in the electronics industries. Mr. Kim
also serves as the Chairman and Chief Executive Officer of Forte Systems, Inc.,
("Forte"), a company which provides information technology services, and is a
director of CFM Technologies, Inc., a manufacturer of equipment used in the
manufacturing process of semiconductors and flat panel displays.

Joseph J. Firestone. Mr. Firestone has served as the President, Chief
Executive Officer and a Class III Director of the Company since March 1998. Mr.
Firestone has served as the President of EB since February 1984, and the
President and Chief Executive Officer of EB since February 1995. Mr. Firestone
has served as the non-executive Chairman of EB-UK since November 1995. Mr.
Firestone also serves on the Executive Advisory Board of the Center for
Retailing Education and Research of the University of Florida and as a Director
of the National Retail Federation. Mr. Firestone earned a B.S. degree in
Business and an M.B.A. degree from Long Island University.

Jeffrey W. Griffiths. Mr. Griffiths has served as the Company's Senior Vice
President of Merchandising and Distribution since March 1998. Mr. Griffiths has
served as EB's Senior Vice President of Merchandising and Distribution since
March 1996. From March 1987 to February 1996, Mr. Griffiths served as EB's Vice
President of Merchandising and, from April 1984 to February 1987, he served as
the Merchandise Manager of EB. Mr. Griffiths serves as the Chairman of the
Interactive Entertainment Merchants Association. Mr. Griffiths earned a B.A.
degree in History from Albright College and an M.B.A. degree from Temple
University.

John R. Panichello. Mr. Panichello has served as the Senior Vice President
and Chief Financial Officer of the Company since March 1998. Mr. Panichello has
served as the Senior Vice President of Finance of EB and the President of EB's
BC Collectables division since March 1997. From March 1996 to February 1997, Mr.
Panichello served as EB's Senior Vice President of Finance and, from June 1994
to February 1996, he served as the Vice President and Treasurer of EB. Mr.
Panichello served as the President and Chief Executive Officer of Panichello &
Company, a certified public accounting firm, from May 1990 to May 1994. Mr.
Panichello has served as a director of EB-UK since May 1995. Mr. Panichello
earned a B.S. degree in Accounting from West Chester University and an M.B.A.
degree in Finance from Drexel University. Mr. Panichello is a Certified Public
Accountant. Mr. Panichello is the husband of Susan Y. Kim and the son-in-law of
James J. Kim.

40
<PAGE>
Dean S. Adler. Mr. Adler has served as a Class II Director of the Company
since March 1998. In March 1997, Mr. Adler formed Lubert/Adler Partners, LP, a
limited partnership investing primarily in real estate and real estate-related
ventures. For ten years prior thereto, Mr. Adler was a principal and co-head of
the private equity group of CMS Companies, which specialized in acquiring
operating businesses and real estate within the private equity market. Mr. Adler
was also an instructor at The Wharton School of the University of Pennsylvania.
Mr. Adler serves on the Boards of Directors of US Franchise Systems, Inc., Trans
World Entertainment Corporation, and Developers Diversified Realty Corporation.
Mr. Adler earned a B.S. degree in Finance from The Wharton School of the
University of Pennsylvania and a J.D. degree from the University of Pennsylvania
Law School.

Susan Y. Kim. Ms. Kim has served as a Class I Director of the Company since
March 1998. Ms. Kim served as a Senior District Manager of EB from 1991 to 1992,
as EB's Personnel Manager from 1989 to 1991, as a Buyer for EB from 1986 to
1989, and as a Field Manager for EB from 1985 to 1986. Ms. Kim serves as a
Director of EB, AEI and Forte. Ms. Kim earned a B.A. degree in Sociology from
Hamilton College. Ms. Kim is the daughter of James J. Kim and the wife of John
R. Panichello.

Louis J. Siana. Mr. Siana has served as a Class II Director of the Company
since March 1998. Mr. Siana is a certified public accountant and a senior
partner in the accounting firm of Siana, Carr & O'Conner LLP. Mr. Siana earned a
B.S. degree in Accounting from LaSalle University.

Executive officers are elected by, and serve at the discretion of, the Board
of Directors.

TERMS OF OFFICE AND BOARD COMMITTEES

The Company's Certificate of Incorporation provides that directors of the
Company are divided into three classes, as nearly equal in number as possible.
The initial term of office of the Class I Directors expires on the day of the
first annual meeting of stockholders following the end of 1998; the initial term
of office of the Class II Directors expires on the day of the annual meeting of
stockholders following the end of 1999; and the initial term of office of the
Class III Directors expires on the day of the annual meeting of stockholders
following the end of 2000. At each annual meeting of stockholders, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. Thus, directors stand for election only once in three
years. Ms. Kim serves as a Class I director, Messrs. Adler and Siana serves as a
Class II directors, and Messrs. Kim and Firestone serve as Class III directors.

The Board of Directors will establish, effective upon completion of the
Offering, Audit and Compensation Committees. The members of each Committee are
expected to be determined at the first meeting of the Board of Directors
following completion of the Offering. All of the members of the Audit Committee
and at least a majority of the members of the Compensation Committee will be
non-employee directors.

The functions of the Audit Committee will be to recommend annually to the
Board of Directors the appointment of the independent public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit, to review the results thereof with the independent public accountants,
review and approve non-audit services of the independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company,
review management's procedures and policies relative to the adequacy of the
Company's internal accounting control, and compliance with federal and state
laws relating to accounting practices and review and approve (with the
concurrence of a majority of the disinterested Directors of the Company)
transactions, if any, with affiliated parties.

The functions of the Compensation Committee will be to review and approve
annual salaries and bonuses for all officers, review, approve and recommend to
the Board of Directors the terms and conditions of the Equity Participation Plan
or changes thereto.

41
<PAGE>
DIRECTOR COMPENSATION

Upon completion of the Offering, each director who is not an employee of the
Company will receive $1,500 for each meeting of the Board of Directors attended
and for each committee meeting attended, as well as reimbursement of all
reasonable out-of-pocket expenses incurred in attending such meetings. In
consideration for their agreeing to serve as directors of the Company prior to
the Offering, Messrs. Adler and Siana will each be granted options under the
Equity Participation Plan to purchase 15,000 shares of Common Stock at a price
equal to the per share offering price. Such options will vest equally over three
years (the "Vesting Period"). In the event that Mr. Adler or Mr. Siana is no
longer on the Board at the end of the Vesting Period, their options will be
cancelled to the extent not otherwise vested. The Company intends to grant
annually, commencing with the 1999 Annual Meeting of Shareholders, to each non-
employee director (other than Messrs. Adler and Siana until after the Vesting
Period has expired) an option to purchase 2,500 shares of Common Stock at the
"fair market value" (as that term is defined in the Company's Equity
Participation Plan) of such Common Stock on the date of grant. Prior to
completion of the Offering, the Directors were not compensated for their
services.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation earned by the Company's President and Chief Executive Officer and
the other executive officers of the Company whose salary and bonus was in excess
of $100,000 (the "Named Officers") for 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------- ALL OTHER
NAME AND POSITION SALARY BONUS OTHER (1) COMPENSATION
- --------------------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Joseph J. Firestone
President, Chief Executive Officer
and Director............................................... $ 397,159 $ 200,000 -- $ 102,000(2)
Jeffrey W. Griffiths
Senior Vice President of Merchandising and Distribution...... $ 218,110 $ 102,500 -- $ 2,000(3)
John R. Panichello
Senior Vice President and Chief
Financial Officer.......................................... $ 169,262 $ 75,000 -- --
</TABLE>

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

(1) Does not include perquisites and other personal benefits, securities or
property if the aggregate amount of such compensation for each of the
persons listed did not exceed the lesser of (i) $50,000 or (ii) ten percent
of the combined salary and bonus for such person in 1997.

(2) Consists of $100,000 of deferred compensation and the Company's $2,000
matching contribution pursuant to its 401(k) defined contribution plan.

(3) Consists of the Company's $2,000 matching contribution pursuant to its
401(k) defined contribution plan.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Firestone,
Griffiths and Panichello providing for their employment as Chief Executive
Officer, Senior Vice President of Merchandising and Distribution and Senior Vice
President and Chief Financial Officer, respectively. The agreements are each for
a period of three years and, in some cases, may be extended automatically for
additional one year terms, unless terminated by either party in accordance with
their terms. The agreements provide for compensation consisting of base salaries
of $500,000, $242,375 and $181,500 for

42
<PAGE>

Messrs. Firestone, Griffiths and Panichello, respectively and certain fringe and
other employee benefits that are made available to the senior executives of the
Company. Immediately prior to completion of the Offering, Messrs. Firestone,
Griffiths and Panichello will receive grants under the 1998 Equity Participation
Plan of options, which vest equally over three years, to purchase 428,571
shares, 150,000 shares and 128,571 shares, respectively, of Common Stock. In the
event that employment is terminated for any reason other than death, disability
or "cause" (as defined in the agreement), the executive is entitled to receive
his then current base salary for the greater of his remaining term under the
employment agreement or a one year period. The agreement also limits certain
severance payments to an amount equal to $100 less than the maximum that could
be paid to the executive and deducted by the Company under Section 280G of the
Code in the event of termination of employment for any reason other than death,
disability or "cause," or is related to a "change in control." In the event of
disability, the agreements provide for the continuation of the executive's
compensation for a period of one year, or, if greater, the remaining term of the
agreement.

EQUITY PARTICIPATION PLAN

Prior to the completion of the Offering, the Board of Directors will adopt
and approve the Equity Participation Plan and reserve 2,100,000 shares of Common
Stock for stock options and other stock awards to employees of the Company and
its subsidiaries and other eligible participants. The principal purpose of the
Equity Participation Plan is to provide incentives for officers, employees and
consultants of the Company and its subsidiaries through granting of options,
restricted stock and other awards (collectively, "Awards"), thereby stimulating
their personal and active interest in the Company's development and financial
success, and inducing them to remain in the Company's employ. In addition to
Awards made to officers, employees or consultants of the Company, the Equity
Participation Plan permits the granting of stock options ("Director Options") to
non-employee directors ("Independent Directors").

The Compensation Committee of the Board of Directors (the "Compensation
Committee") will administer the Equity Participation Plan with respect to grants
and Awards to officers, employees or consultants and the full Board of Directors
will administer the Equity Participation Plan with respect to grants of Director
Options to Independent Directors. The Compensation Committee will consist of at
least two (2) members of the Board, each of whom is a "non-employee director"
for purposes of Rule 16b-3 under the Exchange Act and an "outside director" for
the purposes of Section 162(m) of the Code. The Equity Participation Plan
provides that the Compensation Committee may grant or issue stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
combination thereof. The Compensation Committee may grant performance based
awards on an individual or group basis. Generally, these Awards will be based
upon specific performance targets and may be paid in cash, Common Stock or a
combination of both.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

To date, executive compensation has been determined by the Company's Chief
Executive Officer, whose compensation has been determined by Mr. Kim. Shortly
after completion of the Offering, the Company intends to establish a
Compensation Committee of the Board of Directors, a majority of whom will be
independent directors.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability of
its directors to the Company for monetary damages. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive
relief. The Certificate of Incorporation provides that the Company shall
indemnify its directors and officers, and may indemnify its other employees and
agents, to the fullest extent permitted by Delaware law, including

43
<PAGE>
in circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has entered into indemnification agreements with its
officers and directors containing provisions that may require the Company, among
other things, to indemnify the officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted.

44
<PAGE>
CERTAIN TRANSACTIONS

In connection with the Reorganization, EB transferred certain of its assets
and all of its liabilities to EBOA and its intangible assets to Elbo.
Immediately prior to the Offering, EB will transfer the Operating Shares and its
shares of EB-UK capital stock to EB Nevada, who in turn will transfer the
Operating Shares to the Company in exchange for 15,794,100 shares of Common
Stock. The Company will also acquire, pursuant to the Reorganization, 99.99% of
the outstanding partnership interests of EB Services from the Kim Shareholders
and EB Services Corp. in exchange for an aggregate of 100 shares of Common
Stock. Accordingly, the Company will be entitled to the benefits under the UK
Services Agreement, while EB will continue to be a party to the agreement, which
will continue in accordance with its original terms. The Company will also enter
into a registration rights agreement with EB Nevada. See "Description of Capital
Stock--Registration Rights."

In September, 1993, EB entered into a joint venture agreement with Eden
Electronics, Inc. ("Eden"), a Canadian corporation, with respect to EB Canada.
EB Canada was created in order to operate electronic game stores in Canada. In
1996, EB, AEI and Anam Industrial Co., Inc. ("Anam"), a South Korean corporation
of which the Kim Shareholders are stockholders, guaranteed the obligations of EB
Canada under a $4.0 million term loan facility from Cho Hung Bank of Canada. The
term loan facility matures on September 1, 2002 and bears interest at the bank's
prime rate plus 0.125%. In 1997, EB purchased Eden's 50% percent interest in EB
Canada for $727,000. In 1997, EB, AEI and Anam guaranteed the obligations of EB
Canada under a $1.0 million revolving credit facility from Cho Hung Bank of
Canada. The revolving credit facility expires on November 5, 1998, bears
interest at the bank's prime rate plus 0.125% and is available to fund EB
Canada's working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

In 1995, EB Int'l, a company then owned by John R. Panichello, EB's Senior
Vice President and Chief Financial Officer and the son-in-law of Mr. James J.
Kim and husband of Ms. Susan Y. Kim, entered into a joint venture agreement with
Ssangyong Corporation, a South Korean corporation ("Ssangyong"), and Fine Land
Enterprises Ltd., a Hong Kong corporation ("Fine Land"), to operate electronic
game stores in South Korea ("EB Korea"). To fund initial operations, EB
contributed $1.0 million on behalf of EB Int'l, Ssangyong contributed $938,000,
and Fine Land contributed $62,000 to EB Korea. In 1997, EB Int'l purchased
Ssangyong's 46.9% joint venture interest and Fine Land's 3.1% joint venture
interest for a total of $611,000, which funds were advanced to EB Int'l by EB.
In January 1998, EB purchased all of the outstanding shares of capital stock of
EB Int'l from Mr. Panichello for $1,000, which amount represents Mr.
Panichello's capital contribution to EB Int'l. See Note 4 to the Consolidated
and Combined Financial Statements.

EB entered into the UK Services Agreement in 1995, and management agreements
with EB Canada in 1993, EB Korea in 1995, and Borders Group, Inc. in 1993,
pursuant to which the Company provides management, administrative and
advertising assistance in exchange for the payment of management fees: (i) by
EB-UK equal to 1.0% of net sales, plus a bonus calculated on the basis of net
income in excess of a pre-established target set by EB-UK, (ii) by EB Canada
equal to 5.0% of the first $10.0 million of net sales and 4.0% of any net sales
in excess of $10.0 million, (iii) by EB Korea equal to 4.0% of annual net sales
subsequent to April 1997 and (iv) by Borders Group, Inc. equal to a fixed dollar
amount per store. See "Business--Management Services." In 1997, EB assigned each
of the aforementioned agreements to EB Services. Management fees aggregating
$1.9 million, $2.5 million and $4.8 million were earned by EB and EB Services
during 1995, 1996 and 1997, respectively. The management fees paid by EB Canada
and EB Korea will be eliminated in consolidation.

Pursuant to the Reorganization, on May 31, 1998, EBOA, an operating
subsidiary of the Company, joined EB as a party to the Fleet loan documents and
entered into a lease agreement with EB, pursuant to which EBOA leases the West
Chester headquarters and primary distribution center from EB. The lease

45
<PAGE>
has a two year term and provides EBOA with an option to purchase the property
for $6.7 million, EB's cost of acquisition. The monthly rent pursuant to such
lease is $50,000. See "Reorganization."

Prior to and in connection with the Reorganization, certain assets have been
or will be paid to or retained by EB and the Kim Shareholders. In March 1998, EB
and EB Services paid a distribution of $13.9 million to the Kim Shareholders.
Immediately prior to the completion of the Reorganization, EB Services intends
to pay a distribution of approximately $6.1 million to the Kim Shareholders.
Pursuant to the Reorganization, EB, which is wholly owned by the Kim
Shareholders, will retain (i) the shares of EB-UK capital stock, (ii) the West
Chester distribution center and headquarters (which is valued at $6.7 million),
(iii) approximately $17.5 million of cash, accounts receivable and the cash
surrender value of certain split-dollar life insurance policies, and (iv)
approximately $7.7 million of intercompany receivables. See "Pro Forma
Consolidated Balance Sheet."

In June 1998, EB loaned $7.0 million to James J. Kim, who in turn loaned
such funds to the Company for working capital purposes. The demand notes
reflecting such loans bear interest at the highest prime rate as published in
the Wall Street Journal. The Company intends to use $7.0 million of its net
proceeds of the Offering to repay this obligation to Mr. Kim.

The Company has a policy to the effect that any future transactions between
it and any of its officers, directors, principal stockholders or the affiliates
of the foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent third
parties, and that any such transactions also be approved by the members of the
Audit Committee who are disinterested in the transaction.

46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock outstanding as of the date of this
Prospectus, and as adjusted to reflect the sale of the shares of Common Stock
offered hereby, by (i) each director of the Company, (ii) each person who is
known by the Company to beneficially own 5.0% or more of the outstanding shares
of Common Stock, (iii) the Named Officers, (iv) the Selling Shareholder, and (v)
all of the Company's executive officers and directors as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING (2) SHARES THE OFFERING
----------------------- BEING -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------ ------------ --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
EB Nevada, Inc. (3)(4)................................ 15,794,100 100.0% 625,000 15,169,100 75.2%
2255-A Renaissance Drive, Suite 4
Las Vegas, Nevada 89119
James J. and Agnes C. Kim (3)(5)...................... 15,794,200 100.0% 625,000 15,169,200 75.2%
931 South Matlack Street
West Chester, Pennsylvania 19382
Joseph J. Firestone (6)............................... -- -- -- 428,571 2.1%
John R. Panichello (5)(6)............................. -- -- -- 128,571 *
Jeffrey W. Griffiths (6).............................. -- -- -- 150,000 *
Dean S. Adler (6)..................................... -- -- -- 15,000 *
Susan Y. Kim (3)(5)................................... -- -- -- -- --
Louis J. Siana (6).................................... -- -- -- 15,000 *
All directors and executive officers
as a group (7 persons) (6)(7)....................... -- -- -- 737,142 3.5%
</TABLE>

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

* Less than 1.0%.

(1) Unless otherwise noted, the Company believes that all persons named in the
above table have sole voting and investment power with respect to the shares
beneficially owned by them.

(2) All share information is calculated based upon the initial public offering
price of $14.00 per share.

(3) EB Nevada is a wholly-owned subsidiary of EB, all of the outstanding capital
stock of which is owned by the Kim Shareholders, which are James J. Kim,
Agnes C. Kim and the Kim Trusts, which are the David D. Kim Trust of
December 31, 1987, the John T. Kim Trust of December 31, 1987 and the Susan
Y. Kim Trust of December 31, 1987. Each of the Kim Trusts has in common
Susan Y. Kim and John F.A. Earley as co-trustees, in addition to a third
trustee (John T. Kim in the case of the Susan Y. Kim trust and the John T.
Kim trust and David D. Kim in the case of the David D. Kim trust) (the
trustees of each trust may be deemed to be the beneficial owners of the
shares held by such trust). In addition, the trust agreement for each of
these trusts encourages the trustees of the trusts to vote the shares of
Common Stock held by them, in their discretion, in concert with James Kim's
family. Accordingly, the trusts, together with their respective trustees and
James J. and Agnes C. Kim, may be considered a "group" under Section 13(d)
of the Exchange Act. This group may be deemed to have beneficial ownership
of the shares owned by EB Nevada.

(4) If the overallotment option is exercised in full, the number of shares being
offered would be 1,375,000 and the number and percent of shares beneficially
owned after the Offering would be 14,419,100 and 71.5%, respectively.

(5) James J. Kim and Agnes C. Kim are the parents of Susan Y. Kim. John R.
Panichello and Susan Y. Kim are husband and wife.

(6) Represents (or otherwise includes) shares of Common Stock which may be
acquired upon the exercise of options to be granted by the Company under the
Equity Participation Plan.

(7) Excludes shares which may be deemed to be beneficially owned by James J.
Kim.

47
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock and 25,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"), none of which shares of Preferred Stock are issued and
outstanding.

The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Certificate
of Incorporation and the Bylaws, which are included as exhibits to the
Registration Statement of which this Prospectus forms a part.

COMMON STOCK

Upon completion of the Reorganization, there will be 15,794,200 shares of
Common Stock outstanding, substantially all of which will be beneficially owned
by EB Nevada.

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors. See "Risk Factors--Anti-Takeover Effects of Delaware Law and Certain
Charter and Bylaw Provisions."

Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between the Company and its debtholders. The Company has never declared or paid
cash dividends on its capital stock, expects to retain future earnings, if any,
for business use, and does not anticipate declaring or paying any cash dividends
on shares of its Common Stock in the foreseeable future. See "Dividend Policy."
In the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets legally
available for distribution after payment of all debts and other liabilities and
subject to the prior rights of any holders of Preferred Stock then outstanding.

PREFERRED STOCK

The Company's Board of Directors is authorized to issue 25,000,000 shares of
Preferred Stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by the Company's
stockholders. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or making more difficult
a change in control of the Company and may adversely affect the market price of,
and the voting and other rights of, the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no current plans to issue any shares of
Preferred Stock and no shares are currently outstanding.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

Set forth below is a summary of certain provisions of the Company's
Certificate of Incorporation and Bylaws, which could be deemed to have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage an unsolicited
takeover of the Company if the Board of Directors determines that such takeover
is not in the best interests of the Company and its stockholders. However, these
provisions could also have the effect of discouraging certain attempts to
acquire the Company or remove incumbent management even if some or a majority of
stockholders

48
<PAGE>
deemed such an attempt to be in their best interests. Insofar as EB Nevada and
the Kim Shareholders will retain a substantial percentage of the outstanding
Common Stock of the Company after the Offering, the Company is not at present
expected to be vulnerable to a takeover without the approval of EB Nevada and
the Kim Shareholders.

The Company's Certificate of Incorporation provides for a classified Board
consisting of three classes as nearly equal in size as the then authorized
number of directors constituting the Board of Directors permits. At each annual
meeting of stockholders, the class of directors to be elected at such meeting
will be elected for a three-year term and the directors in the other two classes
will continue in office. Each class shall hold office until the date of the
third annual meeting for the election of directors following the annual meeting
at which such director was elected, except that the initial terms of Class I,
Class II and Class III expire on the date of the annual meeting in 1999, 2000 or
2001, respectively. As a result, approximately one-third of the Board will be
elected each year. Under the Delaware General Corporation Law, in the case of a
corporation having a classified board, stockholders may remove a director only
for cause. This provision, when coupled with provisions of the Certificate of
Incorporation and Bylaws authorizing the Board to fill vacant directorships,
precludes a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.

The Bylaws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board, of candidates for election as
directors as well as for other stockholder proposals to be considered at annual
meetings of stockholders. In general, notice must be received by the Company not
less than 60 days nor more than 90 days prior to the date of the annual meeting
and must contain certain specified information concerning the persons to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.

The Certificate of Incorporation provides that no action may be taken by
stockholders except at an annual or special meeting of stockholders and
prohibits action by written consent in lieu of a meeting. The Certificate of
Incorporation also authorizes the officers and directors of the Company, when
exercising their respective powers, to consider the interests of other
constituencies, including the Company's employees, suppliers, creditors and
customers. The Certificate of Incorporation also provides that special meetings
of stockholders of the Company may be called only by the Chairman of the Board,
the Chief Executive Officer, the President or by a majority of the members of
the Board. This provision will make it more difficult for stockholders to take
action opposed by the Board. The Certificate of Incorporation also provides that
the stockholders may not amend the Bylaws or the aforementioned provisions of
the Certificate of Incorporation without the approval of two-thirds of the
outstanding capital stock entitled to vote.

EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Anti-takeover Law"), which regulates corporate acquisitions. The
Anti-takeover Law prevents certain Delaware corporations, including those whose
securities are included for quotation in The Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Anti-takeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested stockholder and the sale
of more than 10% of the Company's assets. In general, the Anti-takeover Law
defines an "interested stockholder" as an entity or person beneficially owning
15% or more of the outstanding voting stock of the Company and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the Anti-takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders

49
<PAGE>
of at least a majority of the Company's outstanding voting shares. The Company
has not "opted out" of the provisions of the Anti-takeover Law. See "Risk
Factors."

REGISTRATION RIGHTS

Pursuant to a registration rights agreement between the Company and EB
Nevada, EB Nevada was granted the right to demand that the Company register any
or all of the 15,169,100 shares of Common Stock held by EB Nevada after
completion of the Offering on up to three occasions, at any time commencing 360
days after the effective date of this Prospectus. In addition, EB Nevada has
certain "piggy-back" registration rights with respect to such shares of Common
Stock. These registrations rights expire four years after the closing of the
Offering.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Chicago Trust
Company of New York, Jersey City, New Jersey.

50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 20,169,200 shares of
Common Stock outstanding. Of those shares, a total of 5,000,000 (5,750,000 if
the Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased or held by "affiliates" of the Company as that term is defined
in Rule 144. Substantially all of the remaining shares are held by EB Nevada,
which is an "affiliate" of the Company.

In general, under Rule 144 as currently in effect, any affiliate of the
Company who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of 1.0% of the then outstanding shares of Common Stock (201,692 shares
immediately after the completion of the Offering) or the reported average weekly
trading volume during the four weeks preceding the sale. Sales under Rule 144
are also subject to certain manner of sale restrictions and notice requirements
and to the availability of current public information concerning the Company.
All shares of Common Stock held by affiliates of the Company (including EB
Nevada ) will be eligible for sale commencing one year after the date of this
Prospectus pursuant to Rule 144, subject to the restrictions under Rule 144
referred to above and, as described below, subject to the agreement of certain
holders of Common Stock to certain restrictions on their ability to sell Common
Stock for a period of 360 days following the consummation of the Offering. See
"Underwriting." EB Nevada is entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock-- Registration Rights."

Pursuant to certain lock-up agreements, the Company, its executive officers
and directors, the Kim Shareholders and EB Nevada, have agreed that they will
not, without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock, or other similar securities of the Company for
a period of 360 days from the date of this Prospectus, except that such
agreements do not prevent the Company from granting additional options under the
Equity Participation Plan or from issuing shares pursuant to the Equity
Participation Plan. After such 360 day period, this restriction will expire and
shares permitted to be sold under Rule 144 will be eligible for sale. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to such lock-up
agreements.

Within 90 days after the date of this Prospectus, the Company intends to
file a Registration Statement on Form S-8 covering an aggregate of approximately
2,100,000 shares of Common Stock (including the 1,599,128 shares of Common Stock
which will then be subject to outstanding options) that have been reserved for
issuance under the Equity Participation Plan. Shares of Common Stock issued upon
exercise of options after the effective date of the Form S-8 will be available
for sale in the public market, subject to Rule 144 volume limitations applicable
to affiliates of the Company and to the lock-up agreements.

Prior to this Offering, there has been no public market for the Common
Stock, and no predictions can be made with respect to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the prevailing market price for the Common Stock. Sales of substantial
amounts of Common Stock in the public market following the Offering, or the
perception that such sales may occur, could adversely affect the prevailing
market prices for the Common Stock and impair the Company's ability to raise
capital through the sale of equity securities. See "Risk Factors--Shares
Eligible for Future Sale."

51
<PAGE>
UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the underwiting agreement (the "Underwriting Agreement"), to
purchase from the Company and the Selling Shareholder the number of shares of
Common Stock set forth opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Prudential Securities Incorporated............................................... 1,650,000
Smith Barney Inc................................................................. 1,650,000
Bear, Stearns & Co. Inc. ........................................................ 100,000
BT Alex. Brown Incorporated...................................................... 100,000
CIBC Oppenheimer Corp. .......................................................... 100,000
Credit Suisse First Boston Corporation........................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation.............................. 100,000
Goldman, Sachs & Co. ............................................................ 100,000
Hambrecht & Quist LLC............................................................ 100,000
Lehman Brothers Inc. ............................................................ 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................... 100,000
Morgan Stanley & Co. Incorporated................................................ 100,000
NationsBanc Montgomery Securities LLC............................................ 100,000
PaineWebber Incorporated......................................................... 100,000
SBC Warburg Dillon Read Inc. .................................................... 100,000
SG Cowen Securities Corporation.................................................. 100,000
Janney Montgomery Scott Inc. .................................................... 50,000
Parker/Hunter Incorporated....................................................... 50,000
Pennsylvania Merchant Group...................................................... 50,000
Raymond James & Associates, Inc. ................................................ 50,000
Sutro & Co. Incorporated......................................................... 50,000
Tucker Anthony Incorporated...................................................... 50,000
----------
Total............................................................................ 5,000,000
----------
----------
</TABLE>

The Company and the Selling Shareholder are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby, if any are purchased.

The Underwriters, through their Representatives, have advised the Company
and the Selling Shareholder that they propose to offer the Common Stock at the
initial public offering price set forth on the cover page of this Prospectus;
that the Underwriters may allow to selected dealers a concession of $0.56 per
share; and that such dealers may re-allow a concession of $0.10 per share to
certain other dealers. After the Offering, the initial public offering price and
the concessions may be changed by the Representatives.

The Selling Shareholder has granted the Underwriters an over-allotment
option, exercisable for 30 days from the date of this Prospectus, to purchase in
the aggregate up to 750,000 additional shares of Common Stock at the initial
public offering price, less underwriting discounts and commissions, as set forth
on the cover page of this Prospectus. The Underwriters may exercise such option
solely for the purpose of covering over-allotments incurred in the sale of the
shares of Common Stock offered hereby. To the extent such option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to 5,000,000.

52
<PAGE>
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise authority.

The Company, the Kim Shareholders and the Selling Shareholder have agreed to
indemnify the several Underwriters and contribute to losses arising out of
certain liabilities, including liabilities under the Securities Act.

The Company, its executive officers and directors, the Kim Shareholders and
EB Nevada have agreed not to, directly or indirectly, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or other capital stock of the Company or any securities
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company or any right to purchase or acquire Common
Stock or other capital stock of the Company for a period of 360 days after the
date of this Prospectus without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, except for options
granted pursuant to the Equity Participation Plan. Prudential Securities
Incorporated may, in its sole discretion, at any time and without prior notice,
release all shares or any portion thereof subject to such lock-up agreements.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined through negotiations among the Company, the Selling Shareholder and
the Underwriters. Among the factors considered in making such determination will
be prevailing market conditions, the Company's financial and operating history
and condition, its prospects and the prospects of the industry in general, the
management of the Company, and the market prices of securities for companies in
businesses similar to that of the Company.

In connection with the Offering, certain Underwriters and their respective
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Common Stock. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering than they are committed to purchase from the
Selling Shareholder, and in such case may purchase Common Stock in the open
market following completion of the Offering to cover all or a portion of such
short position. The Underwriters may also cover all or a portion of such short
position, up to 750,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to previously. In addition, Prudential Securities
Incorporated, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter for the account of the other Underwriters, the selling concession
with respect to Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price for the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph are required and, if they are undertaken, then they may be
discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Klehr, Harrison, Harvey, Branzburg & Ellers LLP,
Philadelphia, Pennsylvania, and for the Underwriters by King & Spalding, New
York, New York.

EXPERTS

The financial statements as of February 1, 1997 and January 31, 1998 and for
the fiscal years ended February 3, 1996, February 1, 1997 and January 31, 1998
included in this Prospectus have been so included

53
<PAGE>
in reliance on the report of KPMG Peat Marwick LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement of Form
S-1 under the Securities Act with respect to the Company's Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in the Prospectus as to the contents of any contract or other document
referred to are not necessarily complete and in each instance reference is made
to the Registration Statement and the exhibits and schedules thereto. The
information so omitted, including exhibits and schedules, may be obtained from
the Commission at its principal office in Washington, D.C. upon the payment of
the prescribed fees, or may be examined without charge at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-1004,
or at the following regional offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Such materials also may be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants.

54
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Independent Auditors' Report............................................................................. F-2

FINANCIAL STATEMENTS

Consolidated and Combined Balance Sheets............................................................... F-3

Consolidated and Combined Statements of Income......................................................... F-5

Consolidated and Combined Statements of Stockholders' Equity........................................... F-6

Consolidated and Combined Statements of Cash Flows..................................................... F-7

Notes to Consolidated and Combined Financial Statements................................................ F-8

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Consolidated Statement of Income for the Year ended January 31, 1998......................... F-18

Pro Forma Consolidated Statement of Income for the Thirteen Weeks ended May 2, 1998.................... F-19

Pro Forma Consolidated Balance Sheet as of May 2, 1998................................................. F-20

Notes to the Unaudited Pro Forma Consolidated Financial Statements..................................... F-22
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors of
The Electronics Boutique, Inc. and
Partners of EB Services Company LLP:

We have audited the accompanying consolidated and combined balance sheets of
The Electronics Boutique Group as of February 1, 1997 and January 31, 1998, and
the related consolidated and combined statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended January 31,
1998. 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 the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of The
Electronics Boutique Group as of February 1, 1997 and January 31, 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1998, in conformity with generally accepted
accounting principles.

/s/ KPMG Peat Marwick LLP

Philadelphia, PA

May 7, 1998

F-2
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

CONSOLIDATED AND COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, MAY 2,
1997 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 44,727,846 $ 20,639,610 $ 9,264,474
Account receivable:
Trade and vendors........................................... 2,469,164 2,618,382 3,060,155
Other....................................................... 1,784,902 1,754,691 3,567,108
Due from affiliates (notes 6 and 7)........................... 3,045,224 2,890,554 2,585,544
Merchandise inventories....................................... 47,239,297 52,973,314 58,765,612
Prepaid expenses.............................................. 2,681,965 2,837,647 3,172,832
-------------- -------------- --------------
Total current assets............................................ 101,948,398 83,714,198 80,415,725
-------------- -------------- --------------
Property and equipment:
Leasehold improvements........................................ 34,783,005 40,226,726 40,643,655
Fixtures and equipment........................................ 18,161,153 24,884,217 25,583,252
Building...................................................... -- 6,200,950 6,200,950
Land.......................................................... -- 632,806 632,806
Construction in progress...................................... 207,307 556,663 945,906
-------------- -------------- --------------
53,151,465 72,501,362 74,006,569
Less accumulated depreciation and amortization................ 26,725,475 32,535,305 33,089,952
-------------- -------------- --------------
Net property and equipment...................................... 26,425,990 39,966,057 40,916,617
-------------- -------------- --------------
Investment in affiliated companies (notes 4, 6 and 7)........... 6,813,303 11,025,345 10,945,058
Goodwill and other intangible assets, net of accumulated
amortization of $261,946, $120,151 and $217,741 as of February
1, 1997, January 31, 1998 and May 2, 1998, respectively....... 340,866 2,190,766 2,199,425
Other assets.................................................... 3,715,765 5,894,374 6,219,484
-------------- -------------- --------------
Total assets.................................................... $ 139,244,322 $ 142,790,740 $ 140,696,309
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See accompanying notes to consolidated and combined financial statements.

F-3
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

CONSOLIDATED AND COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, MAY 2,
1997 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (note 2)................................. $ -- $ -- $ 21,028,034
Current portion of long-term debt (note 2)......................... 6,599,996 2,400,396 900,396
Accounts payable................................................... 71,031,406 83,713,983 84,317,275
Accrued expenses................................................... 11,985,246 14,545,119 11,383,614
Due to affiliate (note 4).......................................... 1,981,194 -- 489
Income taxes payable............................................... 457,764 782,988 561,730
-------------- -------------- --------------
Total current liabilities............................................ 92,055,606 101,442,486 118,191,538
-------------- -------------- --------------
Long-term liabilities:
Notes payable (note 2)............................................. 24,208,345 10,541,149 2,749,350
Deferred rent...................................................... 2,623,537 2,408,579 2,282,561
-------------- -------------- --------------
26,831,882 12,949,728 5,031,911
-------------- -------------- --------------
Total liabilities.................................................... 118,887,488 114,392,214 123,223,449
-------------- -------------- --------------
Commitments (note 3)
Stockholders' equity (note 9):
Preferred stock -- authorized 200,000 shares; $100.00 par value; no
shares issued and outstanding.................................... -- -- --
Common stock:
Class A -- authorized 5,000 shares; $.10 par value; issued and
outstanding 1,900 shares....................................... 190 190 190
Class B -- authorized 25,000 shares; $.10 par value; issued and
outstanding 21,000 shares...................................... 2,100 2,100 2,100
Partners' capital of EB Services Company LLP....................... -- 1,000 1,000
Additional paid-in capital......................................... 7,584,365 7,584,365 7,584,365
Accumulated other comprehensive expense............................ -- (1,023,493) (907,833)
Retained earnings.................................................. 12,770,179 21,834,364 10,793,038
-------------- -------------- --------------
Total stockholders' equity........................................... 20,356,834 28,398,526 17,472,860
-------------- -------------- --------------
Total liabilities and stockholders' equity........................... $ 139,244,322 $ 142,790,740 $ 140,696,309
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

F-4
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THIRTEEN WEEKS ENDED
------------------------------------- ------------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales................................... $268,955,902 $337,058,946 $449,179,603 $83,687,709 $106,729,814
Management fees............................. 1,905,449 2,526,107 4,791,553 487,887 571,367
----------- ----------- ----------- ----------- -----------
Total revenues...................... 270,861,351 339,585,053 453,971,156 84,175,596 107,301,181
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Costs of merchandise sold, including
freight................................. 199,225,558 252,812,925 338,497,642 61,941,225 79,519,589
Selling, general and administrative (notes
4 and 5)................................ 58,989,271 69,827,537 87,002,305 18,200,582 22,270,148
Depreciation and amortization (notes 6 and
7)...................................... 6,047,306 6,615,268 7,996,506 1,874,556 2,253,768
----------- ----------- ----------- ----------- -----------
264,262,135 329,255,730 433,496,453 82,016,363 104,043,505
Operating income............................ 6,599,216 10,329,323 20,474,703 2,159,233 3,257,676
Equity in earnings (loss) of affiliates (1,319,417) (573,462) 2,902,780 (80,287) (80,287)
Interest expense, net of interest income of
$819,870, $1,121,562, and $1,217,337 in
1996, 1997 and 1998, and $509,848 and
$337,241 in the thirteen weeks ended May
3, 1997 and May 2, 1998, respectively..... 1,818,105 1,298,296 1,380,046 294,376 213,870
Preacquisition loss of subsidiaries......... -- -- 913,028 296,033 --
----------- ----------- ----------- ----------- -----------
Income before income taxes.................. 3,461,694 8,457,565 22,910,465 2,080,603 2,963,519
Income taxes................................ 280,000 550,000 846,280 77,700 113,300
----------- ----------- ----------- ----------- -----------
Net income.................................. $ 3,181,694 $ 7,907,565 $22,064,185 $ 2,002,903 $ 2,850,219
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per share (note 13).............. $ 0.20 $ 0.50 $ 1.40 $ 0.13 $ 0.18
Supplemental historical pro forma data
(unaudited) (note13):
Income before income taxes.................. $ 3,461,694 $ 8,457,565 $22,910,465 $ 2,080,603 $ 2,963,519
Supplemental historical pro forma income
taxes..................................... 1,604,962 3,513,265 9,415,631 855,128 1,160,493
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental historical pro forma net
income.................................... $ 1,856,732 $ 4,944,300 $13,494,834 $ 1,225,475 $ 1,803,026
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental historical pro forma net income
per share................................. $ 0.12 $ 0.31 $ 0.85 $ 0.08 $ 0.11
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental historical pro forma weighted
average shares outstanding................ 15,794,200 15,794,200 15,794,200 15,794,200 15,794,200
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro forma data (unaudited) (note 13):
Pro forma income before income taxes........ $19,909,360 $ 2,945,481
Pro forma income taxes...................... 8,182,750 1,154,628
----------- -----------
Pro forma net income........................ $11,726,610 $ 1,790,853
----------- -----------
----------- -----------
Pro forma net income per share.............. $ 0.74 $ 0.11
----------- -----------
----------- -----------
Pro forma weighted average shares
outstanding............................... 15,794,200 15,794,200
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to consolidated and combined financial statements.

F-5
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PARTNERS' CAPITAL ADDITIONAL
PREFERRED CLASS A CLASS B OF EB SERVICES PAID-IN
STOCK COMMON STOCK COMMON STOCK COMPANY LLP CAPITAL
------------------------ ------------------------ ------------------------ ------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 29,
1995............... -- $ -- 1,900 $ 190 21,000 $ 2,100 $ -- $7,584,365
Net income........... -- -- -- -- -- -- -- --
Distributions........ -- -- -- -- -- -- -- --
----- ----------- ----- ----------- ----------- ----------- ------ ----------
Balance, February 3,
1996............... -- -- 1,900 190 21,000 2,100 -- 7,584,365
Net income........... -- -- -- -- -- -- -- --
Distributions........ -- -- -- -- -- -- -- --
----- ----------- ----- ----------- ----------- ----------- ------ ----------
Balance, February 1,
1997............... -- -- 1,900 190 21,000 2,100 -- 7,584,365
Net income........... -- -- -- -- -- -- -- --
Distributions........ -- -- -- -- -- -- -- --
Capital
contribution....... -- -- -- -- -- -- 1,000 --
Accumulated other
comprehensive
expense............ -- -- -- -- -- -- -- --
----- ----------- ----- ----------- ----------- ----------- ------ ----------
Balance, January 31,
1998............... -- $ -- 1,900 $ 190 21,000 $ 2,100 $ 1,000 $7,584,365
Net income
(unaudited)........ -- -- -- -- -- -- -- --
Distributions
(unaudited)........ -- -- -- -- -- -- -- --
Accumulated other
comprehensive
expense
(unaudited)........ -- -- -- -- -- -- -- --
----- ----------- ----- ----------- ----------- ----------- ------ ----------
Balance, May 2, 1998
(unaudited)........ -- $ -- 1,900 $ 190 21,000 $ 2,100 $ 1,000 $7,584,365
----- ----------- ----- ----------- ----------- ----------- ------ ----------
----- ----------- ----- ----------- ----------- ----------- ------ ----------

<CAPTION>
FOREIGN
CURRENCY TOTAL
TRANSLATION RETAINED STOCKHOLDERS'
ADJUSTMENT EARNINGS EQUITY
----------- ------------ ------------
<S> <C> <C> <C>

Balance, January 29,
1995............... $ -- $ 8,480,920 $16,067,575
Net income........... -- 3,181,694 3,181,694
Distributions........ -- (1,800,000) (1,800,000)
----------- ------------ ------------
Balance, February 3,
1996............... -- 9,862,614 17,449,269
Net income........... -- 7,907,565 7,907,565
Distributions........ -- (5,000,000) (5,000,000)
----------- ------------ ------------
Balance, February 1,
1997............... -- 12,770,179 20,350,834
Net income........... -- 22,064,185 22,064,185
Distributions........ -- (13,000,000) (13,000,000)
Capital
contribution....... -- -- 1,000
Accumulated other
comprehensive
expense............ (1,023,493) -- (1,023,493)
----------- ------------ ------------
Balance, January 31,
1998............... $(1,023,493) $ 21,834,364 $28,398,526
Net income
(unaudited)........ -- 2,850,219 2,850,219
Distributions
(unaudited)........ -- (13,891,545) (13,891,545)
Accumulated other
comprehensive
expense
(unaudited)........ 115,660 -- 115,660
----------- ------------ ------------
Balance, May 2, 1998
(unaudited)........ $ (907,833) $ 10,793,038 $17,472,860
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

See accompanying notes to consolidated and combined financial statements.

F-6
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED THIRTEEN WEEKS ENDED
------------------------------------- ------------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income.................................. $ 3,181,694 $ 7,907,565 $22,064,185 $ 2,002,903 $ 2,850,219
Adjustments to reconcile net income to cash
provided by operating activities,
excluding the effects of acquisitions:
Depreciation of property and equipment.... 5,984,652 6,555,142 7,571,301 1,779,999 2,156,177
Amortization of other assets.............. 62,654 60,126 425,205 94,587 177,878
Loss on disposal of property and
equipment............................... 126,226 1,170,182 620,916 146,492 72,844
Equity in (earnings) loss of affiliates... 832,088 126,975 (2,902,780) -- --
Loss in investment in affiliated
companies............................... 487,329 446,487 -- 296,033 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................... 832,871 (471,533) 385,737 (2,767,253) (2,254,190)
Due from affiliates................... (2,279,807) (688,891) (2,142,774) (343,453) (305,010)
Merchandise inventories............... (1,248,652) (5,646,658) 95,212 2,196,846 (5,792,298)
Prepaid expenses...................... (594,187) 2,279 (27,311) 169 (335,185)
Other long-term assets................ (1,871,307) 173,570 (1,641,573) (559,687) (440,682)
(Decrease) increase in:
Accounts payable...................... 4,831,833 21,806,206 8,348,016 (13,743,245) 603,292
Accrued expenses...................... 1,082,117 4,832,902 1,619,154 (4,124,085) (3,161,505)
Due to affiliate...................... 1,078,808 402,478 (1,981,194) 1,988 489
Income taxes payable.................. (152,377) 455,187 213,047 (363,779) (221,258)
Deferred rent......................... (15,872) (74,711) (368,059) (108,822) (126,018)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. 12,338,070 37,057,306 32,279,082 (15,491,307) (6,775,247)
----------- ----------- ----------- ----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment......... (6,760,191) (8,610,265) (18,470,432) (1,869,739) (3,142,589)
Proceeds from disposition of assets......... 5,994 275,722 12,455 1,306 4,454
Net cash from business acquired............. -- -- 2,922,411 -- --
Purchase of investment securities in
affiliate................................. (9,340,598) -- (2,215,933) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (16,094,795) (8,334,543) (17,751,499) (1,868,433) (3,138,135)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Distributions............................... (1,800,000) (5,000,000) (13,000,000) (1,000,000) (13,891,545)
Net proceeds from (payments under) revolving
credit facility........................... 10,000,000 (10,000,000) -- 1,455,222 21,437,687
Proceeds from long-term debt................ 500,000 25,000,000 -- -- --
Repayment of long-term debt................. (6,091,663) (1,599,996) (24,514,276) (24,999) (9,291,799)
Capital contribution........................ -- -- 1,000 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities.................................. 2,608,337 8,400,004 (37,513,276) 430,233 (1,745,657)
----------- ----------- ----------- ----------- -----------
Effects of exchange rates on cash............. -- -- (1,102,543) -- 283,903
Net increase (decrease) in cash and cash
equivalents................................. (1,148,388) 37,122,767 (24,088,236) (16,929,517) (11,375,136)
Cash and cash equivalents, beginning of
period...................................... 8,753,467 7,605,079 44,727,846 44,727,846 20,639,610
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period...... $ 7,605,079 $44,727,846 $20,639,610 $27,798,329 $ 9,264,474
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.................................. $ 1,820,492 $ 2,970,932 $ 2,714,593 $ 769,699 $ 261,216
Income taxes.............................. $ 432,377 $ 89,659 $ 672,842 $ 377,106 $ 328,629
</TABLE>

See accompanying notes to consolidated and combined financial statements.

F-7
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Electronics Boutique, Inc. and its subsidiaries (collectively, "EB") are
among the world's largest specialty retailers of electronic games. EB's primary
products are video games and personal computer entertainment software, supported
by the sale of video game hardware, PC productivity software and accessories.
EB's subsidiaries include Electronics Boutique Canada, Inc. ("EB Canada"), EB
International, Inc., Electronics Boutique Korea, Inc. and Electronics Boutique
Australia Pty, Ltd. EB Services Company LLP ("EB Services") provides consulting,
management, administrative and advertising assistance under various management
service contracts. Within these consolidated and combined financial statements,
EB and EB Services are collectively referred to as the EB Group.

The EB Group had 360, 405 and 414 (unaudited) operating retail stores
throughout the United States and Puerto Rico at February 1, 1997, January 31,
1998 and May 2, 1998 (unaudited), respectively. In addition, it operated 27
stores in Canada, 5 in South Korea at January 31, 1998 and May 2, 1998
(unaudited) and 15 and 19 (unaudited) stores in Australia at January 31, 1998
and May 2, 1998 (unaudited), respectively. The EB Group also operates a mail
order business and sells product via the World Wide Web. Approximately 30%, 36%
and 28% of the EB Group's 1996, 1997, and the thirteen weeks ended May 2, 1998
sales, respectively, were generated from merchandise purchased from its three
largest vendors.

FISCAL YEAR-END

The fiscal year of the EB Group ends on the Saturday nearest January 31.
Accordingly, the financial statements for the years ended February 3, 1996
("1995") included 53 weeks of operations and the years ended February 1, 1997
("1996") and January 31, 1998 ("1997") included 52 weeks of operations.

PRINCIPLES OF CONSOLIDATION AND COMBINATION

The consolidated and combined financial statements include the accounts of
EB and EB Services. Significant intercompany accounts and transactions have been
eliminated in consolidation and combination.

REVENUE RECOGNITION

Retail sales are recognized as revenue at point of sale. Mail order and
internet sales are recognized as revenue upon shipment. Management fees are
recognized in the period that related services are provided. Sales are recorded
net of estimated allowance for sales returns and allowances.

CASH AND CASH EQUIVALENTS

EB Group considers all highly liquid investments with original maturities of
three months or less to be cash equivalents for cash flow purposes.

MERCHANDISE INVENTORIES

Merchandise is valued at the lower of cost or market. Cost is determined
principally by a weighted-average method.

F-8
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated or amortized over
the estimated useful life of the asset using the straight-line method. The
estimated useful lives are as follows:

<TABLE>
<S> <C>
Leasehold improvements............... Lesser of 10 years or the lease term
Fixtures and equipment............... 5 years
Transportation equipment............. 3 years
Building............................. 30 years
</TABLE>

Included in selling, general and administrative costs for 1995, 1996, 1997
and the thirteen weeks ended May 2, 1998, are losses of $125,000, $1,170,000,
$556,000 and $69,000 (unaudited), respectively, primarily related to the
write-off of the net book value of property and equipment associated with the
closing of five stores in 1995, nine stores in each of 1996 and 1997 and three
stores in the thirteen weeks ended May 2, 1998 (unaudited) and the remodeling of
several stores each year.

DEFERRED REVENUE

The EB Group defers revenue related to the sale of frequent buyer cards
which entitle the cardholder to receive discounts on purchases for one year from
the date of purchase. Revenue is recognized over the one year period the card is
valid based on expected usage.

Amounts received under the EB Group's pre-sell program are recorded as a
liability. Revenue is recognized when the customer receives the related product.
Certain affinity programs include promotional gifts to customers that are
supplied by vendors at no cost to the EB Group.

GOODWILL AND OTHER INTANGIBLES

Costs in excess of fair value of net assets acquired are being amortized on
a straight-line basis over periods of up to ten years. The EB Group assesses the
recoverability of goodwill and other intangibles by determining whether the
remaining balance can be recovered through projected cash flows.

OTHER ASSETS

Other assets consist principally of life insurance programs for certain key
executives and security deposits.

COMPUTER SOFTWARE COSTS

The EB Group capitalizes significant costs to acquire management information
systems software and significant external costs of system improvements as
incurred. Computer software costs are amortized over estimated useful lives of
three to five years.

RETAINED EARNINGS

Retained earnings, which represent undistributed earnings of Electronics
Boutique Plc, totaled approximately $1,900,000 at January 31, 1998 and May 2,
1998 (unaudited).

F-9
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASING EXPENSES

The EB Group recognizes lease expense on a straight-line basis over the term
of the lease when lease agreements provide for increasing fixed rentals. The
difference between lease expense recognized and actual payments made is included
in deferred rent and prepaid expenses on the balance sheet.

PREOPENING COSTS AND ADVERTISING EXPENSE

Preopening and start-up costs for new stores are charged to operations as
incurred. Costs of advertising and sales promotion programs are charged to
operations, offset by vendor reimbursements, as incurred.

VENDOR PROGRAMS

The EB Group receives manufacturer reimbursements for certain training,
promotional and marketing activities that offset the expenses of these
activities. The expenses and reimbursements are reflected in selling, general
and administrative expenses, as incurred or received.

FOREIGN CURRENCY

The accounts of the foreign subsidiaries are translated in accordance with
Statement of Financial Accounting Standard No. 52, Foreign Currency Translation,
which requires that assets and liabilities of international operations be
translated using the exchange rate in effect at the balance sheet date. The
results of operations are translated using an average exchange rate for the
year. The effects of rate fluctuations in translating assets and liabilities of
international operations into U.S. dollars are accumulated and reflected as a
foreign currency translation adjustment in the statements of stockholders'
equity. Transaction gains and losses are included in net income.

Since substantially all of the EB Group's operations are domestic, it
currently does not hedge currency exchange rate risk and does not believe that
currency exchange rate fluctuations would have a material adverse effect on its
results of operations and financial condition.

INCOME TAXES

Federal income taxes are payable personally by the stockholders of EB
pursuant to an election by EB under Subchapter "S" of the Internal Revenue Code
and by the partners of EB Services. Accordingly, no provision has been made for
federal income taxes on taxable income of EB or EB Services. EB elected
Subchapter "S" status for some states while remaining subject to corporate tax
in other states and, as a result, has provided for certain state income taxes.

In accordance with the terms of EB's loan agreements, EB may declare
dividends to its stockholders to pay their personal tax liabilities. EB made
distributions of $1,800,000, $5,000,000, $12,000,000 and $13,892,000 (unaudited)
to its stockholders for taxes in 1995, 1996, 1997 and the thirteen weeks ended
May 2, 1998, respectively. EB Services made a $1,000,000 distribution to its
partners in 1997.

The tax basis of the assets and liabilities exceeded their financial
reporting basis by approximately $18,200,000 at February 1, 1997, $19,737,000 at
January 31, 1998 and $20,332,000 at May 2, 1998, primarily due to differences
relating to depreciation, deferred rent, and other nondeductible expenses. State
tax provisions have been recorded in the accompanying financial statements based
on taxable income. This has

F-10
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
resulted in an effective state income tax rate in excess of the statutory state
rates. EB's foreign subsidiaries had net operating losses of approximately
$4,600,000 (unaudited) at May 2, 1998 available to offset future taxable foreign
earnings. No benefit has been reflected in the consolidated and combined
financial statements for such operating losses as a valuation allowance has been
provided.

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 amount of assets and liabilities and
disclosure 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The EB Group's financial instruments are accounts receivable, accounts
payable, long-term debt, and certain long-term investments. The carrying value
of accounts receivable and accounts payable approximates fair value due to the
short maturity of these instruments. The carrying value of long-term debt
approximates fair value based on current rates available to the EB Group for
debt with similar maturities. The carrying value of life insurance policies
included in other assets approximates fair value based on estimates received
from insurance companies.

(2) DEBT

The EB Group had available a revolving credit facility allowing for maximum
borrowings of $17,000,000 at February 1, 1997 and January 31, 1998. There were
no outstanding amounts at February 1, 1997 and January 31, 1998 on this
facility. The EB Group has a second revolving credit facility allowing for
maximum borrowings of $1,000,000 at January 31, 1998. There was no outstanding
balance at January 31, 1998 on this facility. The EB Group has available a
revolving credit facility with Fleet allowing for maximum borrowings of
$50,000,000 at May 2, 1998. There was $20,959,000 (unaudited) outstanding on
this facility at May 2, 1998.

F-11
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(2) DEBT (CONTINUED)
Long-term debt at February 1, 1997, January 31, 1998 and May 2, 1998 is
summarized as follows:

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, MAY 2,
1997 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Bank term loan; interest payable monthly at the bank's prime rate
(8.50% at January 31, 1998). Principal payments of $500,000
payable semi-annually, with the balance payable July 31, 1999..... $ 6,000,000 $ 5,000,000 $ --
Bank term loan; interest payable monthly at the bank's prime rate
(8.50% at January 31, 1998). Five semi-annual principal payments
of $250,000 on every July 1 and February 1, commencing on July 1,
1996 and continuing through July 1, 1998, with the balance payable
January 31, 1999.................................................. 4,500,000 4,000,000 --
Term loan; interest payable quarterly at the average LIBOR rate for
a three-month period, plus 1.5% (7% at February 1, 1997).
Principal payments of $833,333 payable monthly beginning October
1, 1998 with the balance payable September 30, 2000............... 20,000,000 -- --
Promissory note, maturing on February 1, 2000 with interest and
principal payable monthly at 6.00%................................ 308,341 208,345 183,346
Bank term loan; interest payable monthly at the U.S. prime rate plus
0.125% (8.625% at January 31, 1998). Principal payments of
$66,700, payable monthly beginning October, 1997 with the balance
payable on September 1, 2002...................................... -- 3,733,200 3,466,400
------------- ------------- -------------
30,808,341 12,941,545 3,649,746
Less current installments........................................... 6,599,996 2,400,396 900,396
------------- ------------- -------------
$ 24,208,345 $ 10,541,149 $ 2,749,350
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

Certain of the EB Group's revolving credit agreement and term loans are
guaranteed by a company affiliated through common ownership, and a stockholder,
and are secured by all of the EB Group's assets. The revolving credit agreement
and term loans contain restrictive covenants regarding transactions with
affiliates, the payment of dividends, and other financial and nonfinancial
matters.

Scheduled repayments of long-term debt as of January 31, 1998 are as
follows:

<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
1998........................................................................... $ 2,400,396
1999........................................................................... 8,400,396
2000........................................................................... 808,753
2001........................................................................... 800,400
2002........................................................................... 531,600
-------------
$ 12,941,545
-------------
-------------
</TABLE>

F-12
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(3) COMMITMENTS

LEASE COMMITMENTS

At January 31, 1998, the future annual minimum lease payments under
operating leases for the following five fiscal years and thereafter were as
follows:

<TABLE>
<CAPTION>
RETAIL
STORE DISTRIBUTION TOTAL LEASE
LOCATIONS FACILITIES COMMITMENTS
-------------- ----------- --------------
<S> <C> <C> <C>
1998............................................................... $ 20,327,567 $ 128,764 $ 20,456,331
1999............................................................... 19,131,737 109,358 19,241,095
2000............................................................... 17,179,036 112,617 17,291,653
2001............................................................... 15,552,449 115,104 15,667,553
2002............................................................... 13,656,361 51,620 13,707,981
Thereafter......................................................... 35,264,546 -- 35,264,546
-------------- ----------- --------------
$ 121,111,696 $ 517,463 $ 121,629,159
-------------- ----------- --------------
-------------- ----------- --------------
</TABLE>

The total future minimum lease payments include lease commitments for new
retail locations not in operation at January 31, 1998, and exclude contingent
rentals based upon sales volume and owner expense reimbursements. Contingent
rentals were approximately $3,640,000, $5,422,000, $8,132,000 and $919,000
(unaudited) in 1995, 1996, 1997 and the thirteen weeks ended May 2, 1998,
respectively.

The terms of the operating leases for the retail locations provide that, in
addition to the minimum lease payments, the EB Group is required to pay
additional rent to the extent retail sales, as defined, exceed amounts set forth
in the lease agreements and to reimburse the landlord for the EB Group's
proportionate share of the landlord's costs and expenses incurred in the
maintenance and operation of the shopping mall. Rent expense, including
contingent rental amounts, was approximately $25,104,000, $28,448,000,
$35,138,000 and $9,219,000 (unaudited) in 1995, 1996, 1997 and the thirteen
weeks ended May 2, 1998, respectively.

Certain of the EB Group's lease agreements provide for varying lease
payments over the life of the leases. For financial statement purposes, rental
expense is recognized on a straight-line basis over the original term of the
agreements. Actual lease payments are greater than (less than) the rental
expense reflected in the statements of operations by approximately ($210,000),
($70,000), $139,000 and ($126,000) (unaudited) for years 1995, 1996, 1997 and
the thirteen weeks ended May 2, 1998, respectively.

(4) RELATED-PARTY TRANSACTIONS

INVESTMENT IN EB INTERNATIONAL

As of February 1, 1997, the EB Group had amounts due from an affiliated
company (EB International, Inc.) that was wholly-owned by a member of senior
management acting on behalf of EB. The amounts advanced to EB International,
Inc., were used to acquire a 50% interest in a joint venture which operates a
chain of retail stores that sells computer software, video games, accessories,
and supplies in South Korea. The amounts advanced for investment in the joint
venture totaling $1,136,000 have been included in the balance sheet as
investment in affiliated companies. Prior to 1997, the investment in the joint
venture was accounted for under the equity method of accounting and,
accordingly, the EB Group's proportionate interest in net income and losses has
been reflected in the statements of income. In 1997 EB International acquired
the remaining 50% interest in the joint venture with $611,000 of additional
funds

F-13
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(4) RELATED-PARTY TRANSACTIONS (CONTINUED)
provided by EB. The fair value of assets acquired totaled $3,579,000, while
liabilities assumed totaled $3,497,000 resulting in goodwill of $529,000 that is
being amortized over the expected period of benefit of ten years. Additionally
in 1997, EB formally acquired 100% of the capital stock in EB International,
whose sole activities were related to the joint venture, from the member of
senior management for a nominal amount. The EB Group has consolidated the
results of operations of the joint venture since the beginning of 1997. The
$677,000 loss of the joint venture prior to the acquisition of the remaining 50%
by EB in 1997 has been included in preacquisition loss of subsidiaries on the
consolidated and combined statement of income. The pro forma effect of the
acquisition is not material to 1996.

LOANS AND ADVANCES FROM AFFILIATES

During 1995 and 1996, the EB Group borrowed varying amounts from a company
affiliated through common ownership. The advances bear interest at the prime
rate plus 0.25% (8.50% at February 1, 1997). The EB Group had no outstanding
borrowings from affiliates at February 1, 1997, January 31, 1998 and May 2, 1998
(unaudited). Interest expense on affiliate borrowings was approximately $858,000
and $250,000 for 1995 and 1996, respectively, and $0 for 1997 and the thirteen
weeks ended May 2, 1998.

TRANSACTIONS WITH AFFILIATES

Insurance and other expenses are paid to an affiliated company through
intercompany billings. The amount of these expenses was approximately $721,000,
$575,000, $431,000 and $7,000 (unaudited) for 1995, 1996, 1997 and the thirteen
weeks ended May 2, 1998, respectively, and is included in selling, general and
administrative expenses.

Equity in earnings (loss) of affiliates includes the following:

<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
<S> <C> <C> <C>
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
------------- ----------- ------------
EB International, Inc............................... $ 79,156 $ (373,031) $ --
EB Canada........................................... (566,485) (73,456) --
Electronics Boutique Plc............................ (832,088) (126,975) 2,902,780
------------- ----------- ------------
$ (1,319,417) $ (573,462) $ 2,902,780
------------- ----------- ------------
------------- ----------- ------------
</TABLE>

(5) CONSULTING AGREEMENT

In July 1993, the EB Group entered into a consulting agreement with a
business that owns and operates retail stores. The EB Group provides consulting,
management, administrative, marketing, and advertising assistance to this retail
business. The EB Group received $744,000, $641,000, $633,000 and $128,000
(unaudited) during 1995, 1996, 1997 and the thirteen weeks ended May 2, 1998,
respectively, as reimbursement for incremental costs incurred based on a formula
as defined. Amounts owed to the EB Group for these items and trade credit at
February 1, 1997, January 31, 1998 and May 2, 1998, are included in accounts
receivable. Reimbursements offset selling, general and administrative expenses.
Based on certain performance criteria as defined, the EB Group can also earn a
performance fee. No performance fee was earned during 1995, 1996, 1997 and the
thirteen weeks ended May 2, 1998.

F-14
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(6) EB CANADA

In September 1993, EB advanced funds to obtain a 50% interest in a Canadian
corporation ("EB Canada") formed for the purpose of selling computer, video
games and hand-held entertainment hardware, software, and related peripherals
and accessories in shopping malls throughout Canada.

During 1995, EB exchanged the principal amount of an outstanding shareholder
note receivable and accrued interest for 286 shares of nonvoting cumulative
preferred stock of EB Canada. The exchange of the shareholder notes receivable
for the preferred stock had no impact on the results of operations of the EB
Group.

EB had a security interest in certain assets of EB Canada to secure the
payment of all management fees, interest, and receivables associated with the
sale of merchandise by EB to EB Canada. At February 1, 1997, EB Canada owed EB
approximately $2,017,000 for trade credit, management fees, and other expenses,
which is included in due from affiliates.

EB purchased the remaining 50% of EB Canada in October 1997 for $727,000,
resulting in goodwill of $1,180,000 which is being amortized over the expected
period of benefit of ten years, and now owns 100% of EB Canada. The fair value
of assets acquired totaled $3,879,000, while liabilities assumed totaled
$4,332,000 resulting in goodwill of $1,180,000. The EB Group has consolidated
the results of operations of EB Canada since the beginning of 1997. The $236,000
loss in EB Canada prior to the acquisition of the remaining 50% by EB in 1997
has been included in preacquisition loss of subsidiaries on the consolidated and
combined statement of income. The proforma effect of the acquisition is not
material to 1996. Prior to 1997, the investment in EB Canada was accounted for
under the equity method of accounting and, accordingly, the EB Group's
proportionate interest in net income and losses has been reflected in the
statements of income. The EB Group has recorded losses in excess of its
investment in EB Canada prior to the acquisition of the remaining 50% of
approximately $1,300,000 which is included in investment in affiliated companies
as of February 1, 1997.

(7) INVESTMENT IN AFFILIATED COMPANY

In 1995, the EB Group acquired 25 percent of the outstanding shares of
Electronics Boutique Plc (formerly Rhino Group Plc). The EB Group accounts for
the investment in Electronics Boutique Plc under the equity method, which
requires the EB Group to recognize goodwill and 25 percent of the results of
operations of Electronics Boutique plc from the date of acquisition in 1995.

The goodwill is being amortized over the expected period of benefit of 10
years. The $3,200,000 of goodwill from this transaction resulted in amortization
expense of $133,000 in 1995 and $321,000 in each of 1996 and 1997, and $80,000
(unaudited) in the thirteen weeks ended May 2, 1998. The carrying value of the
investment exceeds the EB Group's 25 percent share of the underlying net assets
of Electronics Boutique Plc by the amount of goodwill.

At February 1, 1997, January 31, 1998 and May 2, 1998, the fair market value
of the investment was $21,691,000, $52,615,000 and $99,667,000 (unaudited),
based on the closing market price quotation of the London Stock Exchange.

In 1995, the EB Group entered into a services agreement with Electronics
Boutique Plc to provide consulting, management, training, and advertising
assistance. The agreement provides for a fee to be paid to the EB Group based on
a formula of 1% of adjusted sales and if budgeted profits are exceeded for the
year, a bonus equal to 25% of such excess. For the year ended January 31, 1998,
a bonus was earned in the

F-15
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(7) INVESTMENT IN AFFILIATED COMPANY (CONTINUED)
amount of $2,206,000. The management fee receivable, which is included in due
from affiliates, was $397,000 $2,826,000 and $2,361,000 (unaudited) at February
1, 1997, January 31, 1998 and May 2, 1998 (unaudited). Included in management
fees for 1995, 1996, 1997 and the thirteen weeks ended May 2, 1998 was $577,000,
$1,092,000, $1,953,000 and $443,000 (unaudited), respectively. Additionally, the
agreement provides that the EB Group is to be reimbursed by Electronics Boutique
Plc for all reasonable travel and subsistence expenses incurred by employees of
the EB Group during their performance of the agreement. At February 1, 1997,
January 31, 1998 and May 2, 1998, these amounts were $435,000, $52,000 and
$219,000 (unaudited), respectively, and are included in due from affiliates.

Summary financial information for Electronics Boutique Plc, a UK company, as
of and for the years ended February 3, 1996, February 1, 1997 and January 31,
1998, are as follows:

<TABLE>
<CAPTION>
FEBRUARY 3 FEBRUARY 1 JANUARY 31
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Current Assets.................................................. $ 26,061,000 $ 29,486,000 $ 49,404,000
Current Liabilities............................................. 17,816,000 22,201,000 31,338,000
-------------- -------------- --------------
Working Capital................................................. 8,245,000 7,285,000 18,016,000

Property, Plant, and Equipment, Net............................. 11,768,000 13,698,000 15,987,000
-------------- -------------- --------------
Other Assets.................................................... 81,000 80,000 --
Long-Term Debt.................................................. 3,476,000 2,086,000 1,825,000
-------------- -------------- --------------
Stockholders' equity............................................ $ 16,618,000 $ 18,977,000 $ 32,178,000

Sales........................................................... $ 93,244,000 $ 116,341,000 $ 203,596,000
-------------- -------------- --------------
-------------- -------------- --------------
Net income (loss)............................................... $ (13,337,000) $ 777,000 $ 12,895,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

The summary balance sheet amounts have been converted from UK pounds to U.S.
dollars at year-end published exchange rates. Summary income statement amounts
have been converted using average exchange rates prevailing during the
respective periods.

(8) EMPLOYEES' RETIREMENT PLAN

The EB Group provides employees with retirement benefits under a 401(k)
salary reduction plan. Generally, employees are eligible to participate in the
plan after attaining age 21 and completing one year of service. Eligible
employees may contribute up to 17% of their compensation to the plan. EB Group
contributions are at the EB Group's discretion and may not exceed 15% of an
eligible employee's compensation. EB Group contributions to the plan are fully
vested for eligible employees with five years or more of service. EB Group
contributions under this plan were approximately $235,000, $357,000, $302,000
and $109,000 (unaudited) in 1995, 1996, 1997 and the thirteen weeks ended May 2,
1998, respectively.

(9) STOCKHOLDERS' EQUITY

The capital structure of the EB consists of two classes of common stock,
Class A and Class B. The rights, duties and privileges of the Class A and Class
B common stock are identical in all aspects except that the Class A shares have
voting rights and Class B shares have no voting rights. In addition, preferred
stock is authorized that contains a 10% non-cumulative dividend and is
non-participating, non-convertible,

F-16
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(9) STOCKHOLDERS' EQUITY (CONTINUED)
non-redeemable and preferred as to the rights of the holders of the Class A and
Class B common stock in the event of the liquidation of EB.

(10) COMPREHENSIVE INCOME

Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
requires that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is computed as follows:

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
MAY 2, 1998 MAY 3, 1997
------------ ------------
<S> <C> <C>
Net income.................................................... $2,850,219 $2,080,603
Foreign currency translation adjustment....................... 115,660 (408,324)
------------ ------------
Comprehensive income.......................................... $2,965,879 $1,672,279
------------ ------------
------------ ------------
</TABLE>

(11) SUBSEQUENT EVENTS

In March 1998, EB Holdings' Board of Directors authorized the filing of a
Registration Statement on Form S-1 in connection with a planned initial public
offering of EB Holdings' common stock.

(12) EQUITY PARTICIPATION PLAN (UNAUDITED)

Immediately prior to the completion of the Offering, EB Holdings will
establish an equity participation plan pursuant to which 2,100,000 shares of
common stock will be reserved for future issuance upon the exercise of stock
options granted to employees, consultants and directors. The options will be
issued at fair value and will vest over the period determined by EB Holdings'
Compensation Committee.

(13) PRO FORMA AND SUPPLEMENTAL HISTORICAL PRO FORMA DATA (UNAUDITED)

Net income per share is based on The EB Group's net income as an "S"
corporation.

Pro forma data reflects the pro forma adjustments described in the notes to
the Unaudited Pro Forma Consolidated Financial Statements on pages F-23 to F-25.

Supplemental historical pro forma data is based on historical income before
income taxes of The EB Group, which includes The EB Group's earnings or loss
from its investment in Electronics Boutique Plc.

F-17
<PAGE>
THE ELECTRONICS BOUTIQUE GROUP

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

(13) PRO FORMA AND SUPPLEMENTAL HISTORICAL PRO FORMA DATA (UNAUDITED)
(CONTINUED)
This investment will not be contributed by The EB Group to EB Holdings and its
subsidiaries as part of the reorganization transactions and, therefore, will not
contribute to EB Holdings' income.

Historical, pro forma and supplemental historical pro forma income per share
are calculated using the weighted average number of shares of common stock
outstanding during the period, which is based on the number of shares of common
stock of EB Holdings that will be outstanding upon the completion of the
reorganization transactions, but before the issuance of any shares in the public
offering.

Supplemental historical pro forma income taxes are based on the historical
income before income taxes calculated as if The EB Group were taxed as a "C"
corporation. The difference between the federal statutory income tax rate and
the supplemental historical pro forma income tax rate is as follows:

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEARS ENDED
------------------------------------- --------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1996 1997 1998 1997 1998
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Federal statutory tax rate........................... 34.00% 34.00% 35.00% 35.00% 35.00%
State income taxes, net of federal benefit........... 5.98 5.36 3.74 3.74 3.55
Loss of foreign subsidiaries......................... 4.78 1.80 0.51 0.51 --
Other................................................ 1.60 0.38 1.85 1.85 0.61
----------- ----------- ----------- --------- ---------

Supplemental historical pro forma income tax rate.... 46.36% 41.54% 41.10% 41.10% 39.16%
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>

F-18
<PAGE>
ELECTRONICS BOUTIQUE HOLDINGS CORP.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME

FOR THE YEAR ENDED JANUARY 31, 1998

(UNAUDITED)

<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------------- ------------- --------------
<S> <C> <C> <C>
Net sales..................................................... $ 449,179,603 $ -- $ 449,179,603
Management fees............................................... 4,791,353 -- 4,791,353
-------------- ------------- --------------
Total revenues.......................................... 453,971,156 -- 453,971,156
-------------- ------------- --------------
Costs and expenses
Costs of merchandise sold, including freight................ 338,497,642 -- 338,497,642
Selling, general and administrative......................... 87,002,305 150,000(a) 87,152,305
Depreciation and amortization............................... 7,996,506 (51,675 (b) 7,944,831
-------------- ------------- --------------
433,496,453 98,325 433,594,778
Operating income.............................................. 20,474,703 98,325 20,376,378
Equity in earnings of affiliates.............................. 2,902,780 2,902,780(c) --
Interest expense, net of interest income...................... 1,380,046 -- 1,380,046
Preacquisition loss of subsidiaries........................... 913,028 -- 913,028
-------------- ------------- --------------
Income before income taxes.................................... 22,910,465 3,001,105 19,909,360
Income taxes.................................................. 846,280 7,336,470(d) 8,182,750
-------------- ------------- --------------
Net income.................................................... $ 22,064,185 $ 10,740,633 $ 11,726,610
-------------- ------------- --------------
-------------- ------------- --------------
Pro forma net income per share................................ $ 0.74
Pro forma weighted average shares outstanding................. 15,794,200
</TABLE>

F-19
<PAGE>
ELECTRONICS BOUTIQUE HOLDINGS CORP.

PRO FORMA CONSOLIDATED STATEMENT OF INCOME

FOR THE THIRTEEN WEEKS ENDED MAY 2, 1998
(UNAUDITED)

Costs and expenses:
Costs of merchandise sold, including freight 79,519,589 -- 79,519,589
Selling, general and administrative........................... 22,270,148 150,000(a) 22,420,148
Depreciation and amortization................................. 2,253,768 (51,675 (b) 2,202,093
-------------- ------------- --------------

Operating income................................................ 3,257,676 98,325 3,159,351
Equity in loss of affiliates (80,287) (80,287 (c) --
Interest expense. net of interest income........................ 213,870 -- 213,870
-------------- ------------- --------------

Income before income taxes...................................... 2,963,519 18,038 2,945,481
Income taxes.................................................... 113,300 1,041,328(d) 1,154,628
-------------- ------------- --------------
Net income...................................................... $ 2,850,219 $ 1,059,366 $ 1,790,853
-------------- ------------- --------------
-------------- ------------- --------------
Pro forma net income per share.................................. $ 0.11
Pro forma weighted average
shares outstanding............................................ 15,794,200
</TABLE>

F-20
<PAGE>
ELECTRONICS BOUTIQUE HOLDINGS CORP.

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MAY 2, 1998

(UNAUDITED)

<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 9,264,474 $ (8,139,347 (e) $ 1,125,127
Account receivable:
Trade and vendors................................... 3,060,155 (1,773,476 (e) 1,286,679
Other............................................... 3,567,108 (3,567,108 (e) --
Due from affiliates................................... 2,585,544 (218,953 (e) 2,366,591
Merchandise inventories............................... 58,765,612 -- 58,765,612
Deferred tax asset.................................... -- 3,011,000(f) 3,011,000
Prepaid expenses...................................... 3,172,832 -- 3,172,832
-------------- -------------- --------------
Total current assets.................................... 80,415,725 (10,687,884) 69,727,841
-------------- -------------- --------------
Property and equipment:
Leasehold improvements................................ 40,643,655 -- 40,643,655
Fixtures and equipment................................ 25,583,252 -- 25,583,252
Building.............................................. 6,200,950 (6,200,950 (e) --
Land.................................................. 632,806 (632,806 (e) --
Construction in progress.............................. 945,906 -- 945,906
-------------- -------------- --------------
74,006,569 (6,833,756) 67,172,813
Less accumulated depreciation and amortization........ 33,089,952 (103,349 (e) 32,986,603
-------------- -------------- --------------
Net property and equipment.............................. 40,916,617 (6,730,407) 34,186,210
-------------- -------------- --------------
Investment in affiliated companies...................... 10,945,058 (10,945,058 (g) --
Goodwill and other intangible assets, net of accumulated
amortization........................................... 2,199,425 -- 2,199,425
Deferred tax asset...................................... -- 4,817,000(f) 4,817,000
Other assets............................................ 6,219,484 (3,972,082 (e) 2,247,402
-------------- -------------- --------------
Total assets............................................ $ 140,696,309 $ (27,518,431) $ 113,177,878
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

F-21
<PAGE>
ELECTRONICS BOUTIQUE HOLDINGS CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MAY 2, 1998

(UNAUDITED)

<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------------- -------------- --------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility...................................... $ 21,028,034 $ -- $ 21,028,034
Current portion of long-term debt.............................. 900,396 -- 900,396
Accounts payable............................................... 84,317,275 -- 84,317,275
Accrued expenses............................................... 11,383,614 -- 11,383,614
Due to affiliate............................................... 489 7,487,617(h) 7,488,106
Income taxes payable........................................... 561,730 -- 561,730
Distribution payable........................................... -- 6,100,000(i) 6,100,000
-------------- -------------- --------------
Total current liabilities........................................ 118,191,538 13,587,617 131,779,155
-------------- -------------- --------------
Long-term liabilities:
Notes payable.................................................. 2,749,350 -- 2,749,350
Deferred rent.................................................. 2,282,561 -- 2,282,561
-------------- -------------- --------------
5,031,911 -- 5,031,911
-------------- -------------- --------------
Total liabilities................................................ 123,223,449 13,587,617 136,811,066
-------------- -------------- --------------
Commitments

Stockholders' equity (deficit):
Preferred stock -- authorized 200,000 shares; $100.00 par
value; no shares issued and outstanding...................... -- -- --
Common stock:
Class A -- authorized 5,000 shares; $.10 par value; issued
and outstanding 1,900 shares............................... 190 (190 (j) --
Class B -- authorized 25,000 shares; $.10 par value; issued
and outstanding 21,000 shares.............................. 2,100 (2,100 (j) --
Common stock -- authorized 100,000,000 shares; $.01 par value;
pro forma issued and outstanding 15,794,200.................. -- 157,942(j) 157,942
Partners' capital of EB Services Company LLP................... 1,000 -- --
Additional paid-in capital..................................... 7,584,365 (30,467,662 (k) (22,883,297)
Accumulated other comprehensive expense........................ (907,833) -- (907,833)
Retained earnings (deficit).................................... 10,793,038 (10,793,038 (k) --
-------------- -------------- --------------
Total stockholders' equity (deficit)............................. 17,472,860 (41,106,048) (23,633,188)
-------------- -------------- --------------
Total liabilities and stockholders' equity....................... $ 140,696,309 ($ 27,518,431) $ 113,177,878
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

F-22
<PAGE>
ELECTRONICS BOUTIQUE HOLDINGS CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

In contemplation of the public offering, a series of reorganization
transactions that are described in the "Reorganization" section of the
prospectus have occurred or will occur. Upon completion and as a result of the
reorganization transactions, certain assets will be retained by The Electronics
Boutique, Inc. (EB) and, therefore, will not be included in the consolidated
balance sheet of Electronics Boutique Holdings Corp. and its subsidiaries at the
time of the consummation of the offering. EB will retain the West Chester
distribution center and headquarters; cash, receivables and other assets
representing the undistributed previously taxed S Corporation earnings,
undistributed C Corporation earnings from years prior to 1988 and additional
paid in capital of EB; and shares of Electronics Boutique plc. In addition,
pursuant to the Reorganization, EB will acquire 99.99% of the outstanding
partnership interests of EB Services Company LLP. Accordingly, EB Holdings will
be entitled to the benefits under the Services Agreement with Electronics
Boutique plc, while EB will continue to be a party to the agreement, which will
continue in accordance with its terms.

Prior to the offering EB has been taxed as an S Corporation for federal and
certain state income tax purposes resulting in taxable income being passed
through to its shareholders. Additionally, EB Services Company LLP, which will
become 99.99% owned by EB Holdings in connection with the reorganization, has
been taxed as a partnership with its taxable income being passed through to its
partners, EB Services Company LLP plans to distribute its previously taxed but
undistributed earnings to its partners prior to or contemporaneously with the
public offering. Subsequent to the public offering, EB Holdings and its
subsidiaries will be subject to tax as a C Corporation.

The pro forma data presented in the unaudited pro forma consolidated
financial statements are included in order to illustrate the effect on the
financial statements of The Electronics Boutique Group of the reorganization
transactions described above as if such transactions occurred on May 2, 1998 as
they relate to the pro forma balance sheet and as of February 2, 1997 and
February 1, 1998 as they relate to the pro forma statements of income for the
fiscal year ended January 31, 1998 and the thirteen weeks ended May 2, 1998,
respectively. The pro forma information is based on the historical financial
statements of The Electronics Boutique Group. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
data. The unaudited pro forma consolidated financial statements do not include
the effect of issuance of shares upon the consummation of the public offering
contemplated in this prospectus.

The pro forma consolidated financial statements should be read in
conjunction with the audited consolidated and combined financial statements of
The Electronics Boutique Group and the notes thereto. The pro forma consolidated
statement of income data are not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor are they indicative of future results.

Pro forma adjustments for the unaudited pro forma consolidated statements of
income for the year ended January 31, 1998 and the thirteen weeks ended May 2,
1998 are as follows:

F-23
<PAGE>
(a) Represents lease expense for the three months for the West Chester
distribution center and headquarters which were purchased by EB in October
1997. The West Chester distribution center and headquarters are being
retained by EB.

(b) Represents reduction in depreciation expense for three months for the
West Chester distribution center and headquarters which were purchased in
October 1997 by EB. The West Chester distribution center and headquarters
are being retained by EB.

(c) Represents elimination of the equity in earnings (loss) of investment in
Electronics Boutique Plc and goodwill amortization as EB is retaining its
shares of Electronics Boutique Plc.

(d) Represents adjustment to record income taxes as if EB and EB Services
Company LLP had been taxed as a C Corporation for federal and state income
taxes purposes. The difference between the federal statutory income tax rate
and the pro forma income tax rate was as follows:

<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS
JANUARY 31, 1998 ENDED MAY 2, 1998
------------------- ---------------------

<S> <C> <C>
Federal statutory tax rate............................... 35.0% 35.0%
State income taxes, net of federal benefit............... 3.7 3.6
Loss of foreign subsidiaries............................. 0.5 --
Other.................................................... 1.9 0.6
--- ---
Pro forma income tax rate................................ 41.1% 39.2%
--- ---
--- ---
</TABLE>

Pro forma adjustments for the unaudited pro forma consolidated balance sheet
as of May 2, 1998 are as follows:

(e) Represents elimination of assets retained by EB representing
undistributed previously taxed S Corporation earnings, additional paid in
capital, and undistributed C corporation earnings from years prior to 1988
of EB.

(f) Represents effect of cumulative differences between the financial
reporting and income tax basis of certain assets and liabilities as a result
of the creation of EB Holdings as a C Corporation for federal and state
income tax purposes, whereas EB was an S Corporation for federal and certain
state tax purposes and EB Services Company LLP was a partnership for federal
and state tax purposes. The significant items comprising EB Holdings' pro
forma net deferred income tax assets and liabilities as of May 2, 1998 are
temporary differences relating to the following:

<TABLE>
<S> <C>
Deferred tax assets:
Inventory capitalized costs................................... $1,565,000
Accrued expenses.............................................. 1,446,000
Fixed assets.................................................. 3,858,000
Deferred rent................................................. 847,000
Amortization of goodwill...................................... 112,000
Foreign net operating loss carryforward....................... 1,622,000
----------
Total gross deferred tax asset................................ 9,450,000
Valuation allowance........................................... (1,622,000)
----------
Deferred tax assets........................................... $7,828,000
----------
----------
</TABLE>

Since EB Holdings does not intend to repatriate the earnings of its foreign
subsidiaries, no U.S. deferred income taxes have been recorded on such
amounts.

(g) Represents the elimination of the investment in Electronics Boutique Plc
as EB will retain its shares of Electronics Boutique Plc.

F-24
<PAGE>
(h) Represents payable to EB by EB Holdings for receivables that will be
retained by EB representing undistributed previously taxed S Corporation
earnings, additional paid in capital, and undistributed C corporation
earnings from years prior to 1988 of EB. These were previously intercompany
receivables eliminated in the consolidated and combined financial statements
of the EB Group.

(i) Represents estimated distribution of previously taxed partnership
earnings to the partners of EB Services Company LLP.

(j) Represents adjustment to reflect common stock of EB Holdings outstanding
upon the reorganization transactions.

(k) Represents the elimination of retained earnings and additional paid in
capital as a result of the reorganization transactions.

F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

UNTIL AUGUST 22, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

<TABLE>
<S> <C>
TABLE OF CONTENTS

PAGE
----
Prospectus Summary........................ 3
Risk Factors.............................. 7
Reorganization............................ 12
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated and Combined
Financial and Operating Data............ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 27
Management................................ 40
Certain Transactions...................... 45
Principal and Selling Shareholders........ 47
Description of Capital Stock.............. 48
Shares Eligible for Future Sale........... 51
Underwriting.............................. 52
Legal Matters............................. 53
Experts................................... 53
Additional Information.................... 53
Index to Consolidated and Combined
Financial Statements.................... F-1
</TABLE>

5,000,000 Shares

[LOGO]

Common Stock

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

P R O S P E C T U S
------------------

PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY

July 28, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses expected to be incurred
in connection with the Offering. All amounts are estimates except the Commission
Registration Fee, the NASD Filing Fee and the NASDAQ National Market Fee.

<TABLE>
<S> <C>
Commission Registration Fee..................................................... $ 43,255
NASD Filing Fee................................................................. 15,163
NASDAQ National Market Fee...................................................... 94,000
EDGAR and Printing Expenses..................................................... 150,000
Legal Fees and Expenses......................................................... 500,000
Accounting Fees and Expenses.................................................... 250,000
Blue Sky Fees and Expenses...................................................... 5,000
Transfer Agent's Fees and Expenses.............................................. 10,000
Directors and Officers Insurance Premiums....................................... 100,000
Miscellaneous Expenses.......................................................... 14,327
---------
Total........................................................................... $1,225,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.

The Company's Certificate of Incorporation provides for the indemnification
of directors to the fullest extent permissible under Delaware Law.

The Company's Bylaws provide for the indemnification of officers, directors
and third parties acting on behalf of the Company if such person acted in good
faith and in a manner reasonably believed to be in and not opposed to the best
interest of the Company, and, with respect to any criminal action or proceeding,
the indemnified party had no reason to believe his conduct was unlawful.

The Company has entered into indemnification agreements with its directors
and executive officers in addition to the indemnification provided for in the
Company's Bylaws, and intends to enter into indemnification agreements with any
new directors and executive officers in the future.

The form of Underwriting Agreement filed as an Exhibit hereto provides for
the indemnification of the Company's directors and officers in certain
circumstances as provided therein.

The Company intends to procure insurance, which would afford officers and
directors insurance coverage for losses arising from claims based on breaches of
duty, negligence, error and other wrongful acts, including liabilities under the
Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with the Reorganization, an aggregate of 100 shares of Common
Stock will be issued to the Kim Shareholders and EB Services Corp. in exchange
for 99.99% of the outstanding partnership interests of EB Services, and
15,794,100 shares of common stock will be issued to EB Nevada in exchange for
the Operating Shares. Such issuances will be made pursuant to the exemption from
registration under Section 4(2) of the Securities Act. See "Reorganization."

II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<S> <C> <C>
* 1.1 Form of Underwriting Agreement

* 3.1 Certificate of Incorporation of the Company

* 3.2 Bylaws of the Company

* 4.1 Specimen Stock Certificate

* 5.1 Opinion of Klehr, Harrison, Harvey, Branzburg & Ellers LLP

* 10.2 Form of Indemnification Agreement for Directors and Officers of the Company

* 10.3 Form of 1998 Equity Participation Plan of the Company

* 10.4 Services Agreement, dated October 13, 1995, by and between EB and EB-UK (f/k/a
Rhino Group Plc)

* 10.5 Loan and Security Agreement, dated March 16, 1998, by and between EB and Fleet
Capital Corporation

* 10.6 Joinder Agreement by and between EBOA and Fleet Capital Corporation

* 10.7 Form of Employment Agreement by and between the Company and Joseph J. Firestone

* 10.8 Form of Employment Agreement by and between the Company and John R. Panichello

* 10.9 Form of Employment Agreement by and between the Company and Jeffrey W. Griffiths

* 10.10 Assignment, Bill of Sale, and Assumption Agreement, dated May 31, 1998, by and
between EB and EBOA

* 10.11 Form of Registration Rights Agreement between the Company and EB Nevada

* 10.12 Form of Demand Note by and between James J. Kim and EBOA

* 10.13 Assignment of Trademarks, dated May 31, 1998, by and between EB and Elbo

* 10.14 Addendum to Assignment of Trademarks by and between EB and Elbo

* 10.15 Form of Agreement of Lease by and between EB and EBOA

* 10.16 Agreement and Bill of Sale, dated as of July 13, 1998, by and between the Company
and EB Nevada

* 10.17 Agreement and Consent to Assignment and Assumption of Partnership Interests,
dated as of July 13, 1998

10.18 Amendment No. 1 to Loan and Security Agreement by and among EB, EBOA and Fleet
Capital Corporation

10.19 Amendment No. 2 to Loan and Security Agreement by and among EB, EBOA and Fleet
Capital Corporation

** 11.1 Statement re computation of per share earnings

** 12.1 Statement re computation of ratios

* 21.1 Subsidiaries of the Company

23.1 Consent of KPMG Peat Marwick LLP

* 23.2 Consent of Klehr, Harrison, Harvey, Branzburg & Ellers LLP (included in Exhibit
5.1)

* 25.1 Powers of Attorney

* 27.1 Financial Data Schedule
</TABLE>

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

* Previously filed

** Not applicable

II-2
<PAGE>
(b) Consolidated Financial Statement Schedules

None

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The Registrant further undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.

The Registrant undertakes to provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Borough of West Chester,
Commonwealth of Pennsylvania, on July 27, 1998.

ELECTRONICS BOUTIQUE HOLDINGS CORP.

By: /s/ JOSEPH J. FIRESTONE
-----------------------------------------
Joseph J. Firestone,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on July 27, 1998 by the following
persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>

/s/ JAMES J. KIM* Chairman of the Board
-------------------------------------------
James J. Kim

/s/ JOSEPH J. FIRESTONE President, Chief Executive Officer and Director
------------------------------------------- (Principal Executive Officer)
Joseph J. Firestone

/s/ DEAN S. ADLER* Director
-------------------------------------------
Dean S. Adler

/s/ SUSAN Y. KIM* Director
-------------------------------------------
Susan Y. Kim

/s/ LOUIS J. SIANA* Director
-------------------------------------------
Louis J. Siana

/s/ JOHN R. PANICHELLO* Senior Vice President and Chief Financial Officer
------------------------------------------- (Principal Financial and Accounting Officer)
John R. Panichello
</TABLE>

*By: /s/ JOSEPH J. FIRESTONE
-------------------------
Joseph J. Firestone
(ATTORNEY-IN-FACT)

II-4

<PAGE>

Exhibit 10.18

FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT

This First Amendment to Loan and Security Agreement ("Amendment") is
made as of the ____ day of July, 1998 by and among Fleet Capital Corporation,
("Lender"), a Rhode Island corporation with an office at 200 Glastonbury Road,
Glastonbury, CT 06033 and The Electronics Boutique, Inc. and Electronic Boutique
of America Inc. (each a "Borrower" and collectively "Borrowers") each having its
chief executive office at 931 South Matlack Street, West Chester, PA 19382.

BACKGROUND

A. Borrowers and Lender are parties to a certain Loan and Security
Agreement dated as of March 16, 1998 (as may be modified and amended from time
to time, "Loan Agreement") pursuant to which Borrowers established certain
financing arrangements with Lender. The Loan Agreement and all instruments,
documents and agreements executed in connection therewith, or related thereto
are referred to herein collectively as the "Existing Loan Documents". All
capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Loan Agreement.

B. Borrowers have requested that Lender create a sublimit under the
Total Credit Facility for the issuance of Letters of Credit and/or LC Guaranties
in an aggregate maximum amount not to exceed $5,000,000. Lender has agreed to
create such a sublimit, subject to the terms and conditions set forth below.

NOW, THEREFORE, with the foregoing Background incorporated by reference
and made a part hereof and intending to be legally bound, the parties agree as
follows:

1. Amendments to Loan Agreement.

1.1 Section 1.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

1.1 Revolving Credit Loans. Lender agrees,
for so long as no Event of Default exists, to make
Revolving Credit Loans to Borrowers from time to
time, as requested by Borrowers in the manner set
forth in subsection 3.1.1 hereof, up to a maximum
principal amount at any time outstanding equal to the
lesser of (a) an amount equal to the Maximum
Revolving Credit Amount minus the outstanding balance
of the Supplemental Loan minus the LC Amount, or (b)
the Borrowing Base, which shall be repayable in
accordance with the terms of the Revolving Credit
Note. If the unpaid balance of the Revolving Credit
Loans should exceed the Borrowing Base or any other
limitation set forth in this Agreement, such
Revolving Credit Loans shall

<PAGE>

nevertheless constitute Obligations that are due and
payable on demand, secured by the Collateral other
than the Mortgage and entitled to all benefits
thereof.

1.2 Section 1 of the Loan Agreement is hereby
amended by adding the following Section 1.4:

1.4 Letter of Credit; LC Guaranties. Lender
agrees, for so long as no Default or Event of Default
exists and if requested by Borrowers, to (i) issue
its, or cause to be issued by its Affiliate, Letters
of Credit for the account of Borrowers or (ii)
execute LC Guaranties by which Lender or its
Affiliate shall guaranty the payment or performance
by Borrowers of Borrowers' reimbursement obligations
with respect to Letters of Credit and letters of
credit issued for Borrowers' account by other Persons
in support of Borrowers' obligations (other than
obligations for the repayment of Money Borrowed),
provided that the LC Amount at any time shall not
exceed the LC Cap. No stand-by Letter of Credit or LC
Guaranty related thereto may have an expiration date
that is later than the earlier of 365 days after the
date of issuance or 30 days prior to the scheduled
Maturity Date. No documentary Letter of Credit or LC
Guaranty related thereto may have an expiration dated
that is later than the earlier of 120 days after the
date of issuance or 30 days prior to the scheduled
Maturity Date. Any amounts paid by Lender under any
LC Guaranty or in connection with any Letter of
Credit shall be immediately reimbursed by Borrowers
to Lender and any amounts not so immediately
reimbursed shall be treated as Revolving Credit
Loans, shall be secured by all of the Collateral and
shall bear interest and be payable at the same rate
and in the same manner as Revolving Credit Loans.

1.3 Section 2 of the Loan Agreement is hereby
amended by adding the following Section 2.9:

2.9 Letter of Credit and LC Guaranty Fees.
Borrowers shall pay to Lender for Letters of Credit
and LC Guaranties of Letters of Credit, a fee equal
to 1.5% per annum of the aggregate face amount of
such Letters of Credit and LC Guaranties outstanding
from time to time during the term of this Agreement,
based on the actual number of days outstanding, which
fee shall be due and payable on the first Business
Day of

2
<PAGE>

each month. Borrowers shall also pay all applicable
reasonable and customary fees and charges associated
with the issuance, amendment, drawing, modification,
renewal, transfer or termination thereof, which fees
and charges shall be deemed fully earned and shall be
payable upon issuance, amendment, modification,
renewal, transfer or termination of each such Letter
of Credit or LC Guaranty, and shall not be subject to
rebate or proration upon the termination of this
Agreement for any reason.

1.4 Section 3.1.3 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

3.1.3 Authorization. Borrowers hereby
irrevocably authorize Lender, in Lender's sole
discretion, to advance to Borrowers and to charge to
either Borrower's Loan Account hereunder as a
Revolving Credit Loan (regardless of whether an
Overadvance is thereby created) a sum sufficient to
pay all interest, when due, accrued on the
Obligations during the immediately preceding month,
all principal when due, all reimbursement obligations
under any Letter of Credit or LC Guaranty, and all
costs, fees and expenses at any time owed by
Borrowers to Lender hereunder.

1.5 Section 4.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

4.1 Term of Agreement. Subject to Lender's
right to cease making Loans to Borrowers and issuing
or procuring Letters of Credit or LC Guaranties, upon
or after the occurrence, and during the continuance,
of any Default or Event of Default, this Agreement
shall be in effect for a period of three (3) years
from March 16, 1998 (the "Original Term") and this
Agreement shall automatically renew itself for
one-year periods thereafter (the "Renewal Terms")
unless terminated as provided in Section 4.2 hereof.

1.6 Section 4.2.2 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:

4.2.2 Termination by Borrowers. Upon at
least 45 days prior written notice to Lender,
Borrowers may, at their option, terminate this
Agreement; provided, however, no such

3
<PAGE>

termination shall be effective until Borrowers have
paid all of the Obligations in immediately available
funds, including without limitation, depositing with
Lender funds in an amount equal to the LC Amount to
be held by Lender as cash collateral (without
interest accruing to Borrowers) to fund future
payments on such LC Guaranties and future drawings
against such Letters of Credit. At such time as all
LC Guaranties have been paid or terminated and all
Letters of Credit have been drawn upon or expired,
any amounts remaining in such reserve shall be
applied against any outstanding Obligations, or, if
all Obligations have been indefeasibly paid in full,
returned to Borrowers. Any notice of termination
given by Borrowers shall be irrevocable unless Lender
otherwise agrees in writing, and Lender shall have no
obligation to make any Loans or issue or procure any
Letters of Credit or LC Guaranties on or after the
termination date stated in such notice. Subject to
Section 4.2.4 below, Borrowers may elect to terminate
this Agreement in its entirety only and no section of
this Agreement or type of Loan available hereunder
may be terminated singly.

1.7 Section 10 of the Loan Agreement is hereby
amended by adding the following Section 10.3.6:

10.3.6 Lender may, at its option, require
Borrowers to deposit with Lender funds equal to the
sum of the LC Amount and, if Borrowers fail to
promptly make such deposit, Lender may advance such
amount as a Revolving Credit Loan (whether or not an
Overadvance is created thereby). Any such deposit or
advance shall be held by Lender as cash collateral
(without interest accruing in favor of Borrowers), to
fund future payments on such LC Guaranties and future
drawings against such Letters of Credit. At such time
as all LC Guaranties have been paid or terminated and
all Letters of Credit have been drawn upon or
expired, any amounts remaining in such reserve shall
be applied against any outstanding Obligations, or,
if all Obligations have been indefeasibly paid in
full, returned to Borrowers.

2. Amendments to Appendix A - General Definitions.

2.1 The definition of "Availability" is hereby
deleted in its entirety and replaced with the following:

4
<PAGE>

Availability - the amount of money which
Borrowers are entitled to borrow from time to time as
Revolving Credit Loans, such amount being the
difference derived when the sum of the principal
amount of Revolving Credit Loans then outstanding
(including any amounts which Lender may have paid for
the account of Borrowers pursuant to any of the Loan
Documents and which have not been reimbursed by
Borrowers) is subtracted from the lesser of (i) the
Maximum Revolving Credit Amount (minus the
outstanding balance of the Supplemental Loan and the
LC Amount) or (ii) the Borrowing Base. If the amount
outstanding is equal to or greater than the lesser of
(a) the amount resulting from clause (i) above or (b)
the Borrowing Base, Availability is 0.

2.2 The definition of "Borrowing Base" is hereby
deleted in its entirety and replaced with the following:

Borrowing Base - As at any date of determination
thereof, an amount equal to:

(a) 60% of the value of Eligible Inventory
at such date calculated on the basis of the lower of
cost or market on a first income or first outbasis;

MINUS

(b) The L/C Amount.

MINUS

2.3 The definition of "Obligations" is hereby
deleted in its entirety and replaced with the following:

Obligations - all Loans and all other advances,
debts, liabilities, obligations, covenants and
duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from
any Borrower to Lender of any kind or nature, present
or future, whether or not evidenced by any note,
guaranty or other

5
<PAGE>

instrument, whether arising under the Agreement or
any of the other Loan Documents or otherwise whether
direct or indirect (including those acquired by
assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or
hereafter arising and however acquired (including,
without limitation, reimbursement obligations in
respect of Letters of Credit and LC Guaranties). The
term includes without limitation, all interest,
charges, fees, expenses, attorneys' fees, and any
other sums chargeable to Borrowers, under any of the
Loan Documents.

2.4 Appendix A - General Definitions, is hereby
amended by adding the following definitions:

LC Amount - at any time, the aggregate
undrawn face amount of all Letters of Credit and LC
Guaranties then outstanding plus the aggregate amount
of all unreimbursed draws on all Letters of Credit
and LC Guaranties.

LC Cap - $5,000,000.

LC Guaranty - any guaranty pursuant to which
Lender or any Affiliate of Lender shall guaranty the
payment or performance by Borrowers of their
reimbursement obligation to anyone other than Lender
under any letter of credit.

Letter of Credit - any stand-by or
documentary letter of credit, issued by Lender or any
of Lender's Affiliates for the account of a Borrower
to support non-borrowed obligations of Borrowers
incurred in the ordinary course of business.

3. Confirmation of Indebtedness. Each Borrower hereby
acknowledges and confirms that as of the close of business on July ____, 1998,
it is indebted to Lender, without defense, setoff, claim or counterclaim under
the Loan Documents, in the aggregate principal amount of ______, plus all fees,
costs and expenses (including attorneys' fees) incurred to date in connection
with this Amendment and the Existing Loan Documents.
4. Representations and Warranties.

4.1 Each Borrower represents and warrants that as of
the date hereof, no Default or Event of Default has occurred or is existing
under the Existing Loan Documents.

6
<PAGE>

4.2 The execution and delivery by Borrowers of this
Amendment and performance by it of the transactions herein contemplated (a) are
and will be within their powers, (b) have been authorized by all necessary
corporate action, and (c) are not and will not be in contravention of any order
of any court or other agency of government, of any law or of any indenture,
agreement or undertaking to which either Borrower is a party or by which the
Property of either Borrower is bound, or be in conflict with, result in a breach
of or constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or undertaking or result in the imposition of any Lien,
charge or incumbrance of any nature on any of the Properties of either Borrower.

4.3 This Amendment and each other agreement,
instrument or document executed and/or delivered in connection herewith, shall
be valid, binding and enforceable in accordance with its respective terms.

5. Ratification of Existing Loan Documents. Except as
expressly set forth herein, all of the terms and conditions of the Loan
Agreement and Existing Loan Documents are hereby ratified and confirmed and
continue unchanged and in full force and effect. All references to the Loan
Agreement shall mean the Loan Agreement as modified by this Amendment.

6. Collateral. Each Borrower hereby confirms and agrees that
all security interests and Liens granted to Lender continue in full force and
effect and shall continue to secure the Obligations. All Collateral remains free
and clear of any Liens other than Permitted Liens or Liens in favor of Lender.
Nothing herein contained is intended to in any impair or limit the validity,
priority and extent of Lender's existing security interest in and Liens upon the
Collateral.

7. Governing Law. This Amendment shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the principles of conflicts of laws.

8. Counterparts. This Amendment may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
respective agreement.

7
<PAGE>

IN WITNESS WHEREOF, the parties have executed this First Amendment to
Loan and Security Agreement the day and year first above written.

ATTEST: BORROWERS:

THE ELECTRONICS BOUTIQUE,
INC.

/s/ By: /s/
- ------------------------------ -------------------------------
Assistant Secretary Title:

ATTEST: ELECTRONICS BOUTIQUE OF
AMERICA INC.

/s/ By: /s/
- ------------------------------ -------------------------------
Assistant Secretary Title:

LENDER:

FLEET CAPITAL CORPORATION

By: /s/
-------------------------------
Title:

<PAGE>

SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
---------------------------

This Second Amendment to Loan and Security Agreement ("Amendment") is
made as of the ____ day of July, 1998 by and among Fleet Capital Corporation
("Lender"), a Rhode Island corporation with an office at 200 Glastonbury Road,
Glastonbury, CT 06033 and The Electronics Boutique, Inc. ("EB"), a Pennsylvania
corporation and Electronics Boutique of America Inc. (sometimes referred to
herein as "EBOA" and sometimes as "Borrower"), a Pennsylvania corporation, each
having its chief executive office at 931 South Matlack Street, West Chester, PA
19382.
BACKGROUND
----------

A. On March 16, 1998, EB and Lender entered into a certain Loan and
Security Agreement dated March 16, 1998, as amended from time to time ("Loan
Agreement") pursuant to which Lender established certain financing arrangements
with EB. The Loan Agreement and all instruments, documents and agreements
executed in connection therewith or related thereto are referred to herein
collectively as the "Existing Loan Documents". All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Loan
Agreement.

B. On June 30, 1998, EBOA entered into a certain Joinder to Loan and
Security Agreement with EB and Lender, and certain other instruments, documents
and agreements related thereto, pursuant to which EBOA became a Borrower under
the Loan Agreement and became jointly and severally obligated with EB to Lender
for all Obligations and granted a security interest in all of its Collateral to
Lender to secure the Obligations.

C. On May 31, 1998 EB transferred certain of its tangible assets,
subject to all of its

<PAGE>

liabilities, to EBOA and transferred certain of its intangible assets to Elbo,
Inc. ("Elbo") pursuant to the terms of those certain Assignment, Assumption and
Bill of Sale Agreements dated May 31, 1998 between EB and EBOA and EB and Elbo,
respectively ("Asset Sales"). EB retained (i) all of the outstanding shares of
capital stock of its affiliates: EBOA, Elbo, EB International, Inc. ("EB
International") and Electronics Boutique Canada Inc. ("EB Canada")
(collectively, the "Operating Shares"), (ii) its shares of the capital stock of
Electronics Boutique Plc ("EB-UK") (which represents 25.1% of the outstanding
shares of capital stock of EB-UK), (iii) the manufacturing and distribution
facility located in West Chester, Pennsylvania ("West Chester Facility"), (iv)
approximately $17,500,000 worth of cash, accounts receivable and cash surrender
value of split-dollar life insurance policies and (v) approximately $7,700,000
in intercompany receivables.

D. EB and Borrower have informed Lender that in connection with the
proposed initial public offering of 6,250,000 shares of common stock of
Electronics Boutique Holdings Corp. ("EB Holdings"), a Delaware corporation, the
following events are to take place on or about the date hereof
("Restructuring"): (i) EB will transfer the Operating Shares, as well as shares
it holds in EB-UK, to EB Nevada Inc. ("EB Nevada"), a wholly-owned subsidiary of
EB; (ii) EB will lease (effective May 31, 1998) to EBOA the West Chester
Facility pursuant to a triple net lease with an option to purchase at the end of
two years, exercisable at a purchase price equal to EB's cost of acquisition of
the West Chester Facility ($6,700,000); (iii) EB Nevada will contribute the
Operating Shares to EB Holdings in return for 15,794,100 shares of EB Holdings'
common stock; and (iv) immediately thereafter, EB Holdings will contribute the
Operating Shares to EB Investment Corp. ("EB Investment") in exchange for all of
the stock of EB Investment (EB Investment thereafter retaining the Operating
Shares). The reorganization affected by the foregoing is described and depicted
graphically on Exhibit "A", which is attached hereto and

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forms a part hereof.

E. EB and Borrower have requested that Lender consent in writing to the
above described Asset Sales and Restructuring and amend the Loan Agreement on
the terms and conditions set forth herein. Lender has agreed to consent to the
Asset Sale and Restructuring and to amend the Loan Agreement on the terms, and
subject to the conditions, set forth herein.

NOW, THEREFORE, with the foregoing Background incorporated by reference
and made a part hereof, and intending to be legally bound, the parties agree as
follows:

1. Amendments to Loan Agreement. The Loan Agreement is amended
as follows:

1.1 The following definitions are added to Appendix A (General
Definitions) to the Loan Agreement as follows:

A. Obligor or Obligors - Singly or collectively as
the context requires, Borrower, EB Holdings, EB Investment and Elbo.

2. EB Nevada - EB Nevada Inc.

3. EB Holdings - Electronics Boutique Holdings
Corp.

D. EB Investment - EB Investment Corp.

E. EBOA - Electronics Boutique of America Inc.

1.2 Section 8.1.3 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:

8.1.3 Financial Statements. Cause each of the
Obligors to keep adequate records and books of account with respect to
their respective business activities in which proper entries are made
reflecting all of their financial transactions; and cause to be
prepared and furnished to Lender the following (all to be prepared on a
consistent basis; for each Obligor on a consolidating basis and for all
Obligors on a consolidated basis):

(i) not later than 120 days after the
close of each fiscal year of each Obligor, unqualified audited
financial statements of each Obligor as of the end of such

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<PAGE>

year, certified by a firm of independent certified public accountants
of recognized standing selected by Borrower but acceptable to Lender
to have been prepared in accordance with GAAP;

(ii) not later than 45 days after the end of
each month hereafter including the last month of each Obligor's fiscal
year, unaudited interim financial statements of each Obligor as of the
end of such month and of the portion of each Obligor's fiscal year
then elapsed, certified by the principal financial officer of each
Obligor to have been prepared in accordance with GAAP and fairly to
present the financial position and results of operations of each
Obligor for such month and period subject only to changes from audit
and year-end adjustment and except that such statements need not
contain notes;

(iii) promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which any Obligor has sent to all of its
respective shareholders and copies of any regular, periodic and
special reports or registration statements which any Obligor files
with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national
securities exchange;

(iv) promptly after the filing thereof,
copies of any annual report to be filed under ERISA in connection with
each Plan;

(v) upon completion, but not later
than 30 days prior to the close of each fiscal year of each Obligor,
financial Projections for each Obligor, for each Obligor's upcoming
fiscal year, prepared on a month by month basis, in form acceptable to
Lender; and

(vi) such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral or each Obligor's
financial condition or results of operations, including without
limitation, detailed monthly accounts payable agings.

Within 45 days after the delivery of the financial
statements described in clause (i) of this subsection 8.1.3, Borrower
shall forward to Lender a copy of the accountants' letter to each
Obligor's management that is prepared in connection with such financial
statements and also shall cause to be prepared and shall furnish to
Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the
financial

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<PAGE>

statements of each Obligor performed in connection with their
examination of financial statements, they are not aware of an Event of
Default, or, if they are aware of such an Event of Default, specifying
the nature thereof, and acknowledging in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial
statements in making its decision with respect to the Loans.
Concurrently with the delivery of the financial statements described in
clauses (i) and (ii) of this subsection 8.1.3, or more frequently if
requested by Lender, Borrower shall cause to be prepared and furnished
to Lender a Compliance Certificate in the form of Exhibit 8.1.3 hereto
executed by the chief financial officer of Borrower.

1.3 The preamble to Section 8.2 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following (all of the
subsections within Section 8.2 of the Loan Agreement shall remain unmodified and
in full force and effect except as expressly modified herein):

8.2 Negative Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to
Lender, Borrower covenants that, unless Lender has first consented
thereto in writing, no Obligor will:

1.4 Subsection 8.2.4 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:

8.2.4 Affiliate Transactions. Enter into, or be a
party to, any transaction with any Affiliate of any Obligor or any
stockholder, except (a) in the ordinary course of and pursuant to the
reasonable requirements of the applicable Obligor's business and upon
fair and reasonable terms which are fully disclosed to Lender and are
no less favorable to the applicable Obligor than the applicable Obligor
would obtain in a comparable arm's length transaction with a Person not
an Affiliate or stockholder of such Obligor or (b) if (i) Aggregate
Adjusted Availability would be at least $3,500,000 after taking into
effect such transaction and (ii) no Event of Default is then
outstanding or would otherwise occur after taking into effect such
transaction.

1.5 Section 8.3.1 of the Loan Agreement is deemed deleted in
its entirety as of the date of the Loan Agreement and replaced with the
following:

8.3.1 Minimum Net Worth. Maintain a Net Worth of not
less than $11,000,000 at all times through July 30, 1998 and of not
less than $14,000,000 as of July

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31, 1998 and at all times thereafter.

1.6 Section 8.3 of the Loan Agreement is hereby further
modified to provide that as of the date hereof each of the financial covenants
contained therein (and therefore the definitions of Net Worth and Cash Flow)
shall apply to the Obligors on a consolidated basis.

1.7 Section 8.4 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:

8.4 Stock Ownership. James J. Kim, his wife Agnes C.
Kim, and certain trusts established for the benefit of their children,
Susan Y. Kim, David D. Kim and John T. Kim, shall at all times own and
control, beneficially and of record, all of the issued and outstanding
capital stock of EB. EB shall at all times own, beneficially and of
record, all of the outstanding shares of capital stock of EB Nevada. EB
Nevada shall at all times own and control, beneficially and of record,
at least 25% of the issued and outstanding capital stock of EB
Holdings. EB Holdings shall at all times own, beneficially and of
record, all of the outstanding shares of capital stock of EB
Investment. EB Investment shall at all times own, beneficially and of
record all of the outstanding shares of capital stock of EBOA.

1.8 Section 10.1 of the Loan Agreement is hereby modified to
provide that the provisions of each Subsection thereof shall apply with equal
force and effect to each Obligor.

1.9 Section 10.1 of the Loan Agreement is hereby
further amended by adding the following Section 10.1.15 thereto:

10.1.15 Surety Agreements. Any Obligor shall disclaim
liability under, or attempt to revoke or terminate, any surety
agreement executed by any such Obligor whereby such Obligor agreed to
become surety for the Obligations.

1.10 The Loan Agreement is hereby further modified to delete
Section 1.2 therefrom, thereby unconditionally terminating Lender's obligation
to make the Supplemental Loan.

2. Conditions to Effectiveness. This Amendment shall become effective
upon satisfaction of each of the following conditions ("Effectiveness
Conditions") (all documents to be

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<PAGE>

in form and substance satisfactory to Lender):

(a) delivery to Lender of this Amendment, fully executed by
EB, EBOA and Lender; (b) delivery to Lender of surety
agreements, executed respectively by EB Holdings, EB
Investment and Elbo;

(c) delivery to Lender of a landlord's waiver from EB whereby
EB subordinates its interest in and waives its right to destrain on or foreclose
against the Collateral located at the West Chester Facility and agrees to allow
Lender to remain on such premises to dispose of or deal with any Collateral
located on such premises;

(d) delivery to Lender of certified copies of resolutions of
each Obligor's board of directors authorizing the execution of this Amendment
and all agreements, documents and instruments required to be executed by the
applicable Obligor by any section hereof;

(e) delivery to Lender of an incumbency certificate for each
Obligor identifying all of the officers executing each of the documents required
pursuant to this Amendment, with specimen signatures;

(f) delivery to Lender of certified copies of the articles of
incorporation and bylaws of each Obligor;

(g) delivery to Lender of certificates of good standing for
each Obligor from the Secretary's of State of their respective states of
incorporation;

(h) no Event of Default shall have occurred and be
continuing under the Loan Agreement;and

(i) each of the warranties and representations contained in
the Loan

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<PAGE>

Agreement and the other Existing Loan Documents shall be true and
correct in all material respects on the date hereof with the same effect as
though made on and as of the date hereof.

3. Consent to Asset Sale and Restructuring. Upon satisfaction of each
of the Effectiveness Conditions, Lender hereby consents to the Asset Sale and
Restructuring as described in the Background section hereof.

4. Release of EB. Upon satisfaction of each of the Effectiveness
Conditions and upon the written request of EB and EBOA, Lender shall release EB
from all Obligations. Upon execution and delivery hereof (even though, pending
the release described in the preceding sentence, EB shall remain liable for
payment of the Obligations and its Property subject to Lender's Lien), no
Property of EB shall be included in the Borrowing Base.

5. EB's Release of Lender. Borrower and EB agree that, upon EB
receiving the release described in Section 4 above, EB shall, without the need
for further action, be deemed to have released and forever discharged Lender and
its officers, directors, attorneys, agents and employees from any claim for any
liability, damage, loss or expense of any kind that EB may have now or hereafter
against Lender or any of them arising out of or relating to the Obligations, the
Existing Loan Documents, this Amendment or any of the transactions referred to
herein or therein or related hereto or thereto.

6. Confirmation of Indebtedness. Borrower and EB hereby acknowledge and
confirm that as of the close of business on July 21, 1998, they were jointly and
severally indebted to Lender, without defense, setoff, claim or counterclaim
under the Loan Agreement and the other Existing Loan Documents, in the aggregate
(rounded) principal amount of $25,770,000 with respect to cash advances and
Letters of Credit, plus all unpaid interest, fees, costs and expenses

8
<PAGE>

(including attorneys' fees) incurred to date in connection with this Amendment
and the Existing Loan Documents.

7. Representations and Warranties.

7.1 Borrower and EB represent and warrant that as of the date
hereof, no Default or Event of Default is outstanding under the Loan Agreement
or the Existing Loan Documents.

7.2 The execution and delivery by Borrower and EB of this
Amendment and performance by them of the transactions herein contemplated (a)
are and will be within their corporate powers, (b) have been authorized by all
necessary corporate action, and (c) are not and will not be in contravention of
any order of any court or other agency of government, of any law or of any
indenture, agreement or undertaking to which EB or Borrower is a party or by
which the Property of EB or Borrower is bound, or be in conflict with, result in
a breach of or constitute (with due notice and/or lapse of time) a default under
any such indenture, agreement or undertaking or result in the imposition of any
Lien, charge or incumbrance of any nature on any of the Properties of EB or
Borrower.

7.3 This Amendment and each other agreement, instrument or
document executed and/or delivered in connection herewith, shall be valid,
binding and enforceable in accordance with its respective terms.

8. Further Assurances. EB and Borrower agree to execute all
instruments, documents and agreements reasonably required by Lender from time to
time to effectuate the agreements and undertakings set forth herein.

9. Ratification of Existing Loan Documents. Except as expressly set
forth herein, all of the terms and conditions of the Loan Agreement and Existing
Loan Documents are hereby

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ratified and confirmed and continue unchanged and in full force and effect. All
references to the Loan Agreement shall mean the Loan Agreement as modified by
this Amendment.

10. Collateral. Borrower and EB hereby confirm and agree that all
security interests and Liens granted to Lender continue in full force and effect
and shall continue to secure the Obligations. All Collateral remains free and
clear of any Liens other than Permitted Liens or Liens in favor of Lender.
Nothing herein contained is intended to in any way impair or limit the validity,
priority and extent of Lender's existing security interest in and Liens upon the
Collateral.

11. Governing Law. This Amendment shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflicts of laws.

12. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same respective
agreement.

IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Loan and Security Agreement the day and year first above written.

THE ELECTRONICS BOUTIQUE, INC.

Attest: /s/ By: /s/
---------------------------- -------------------------------
Assistant Secretary Title:

ELECTRONICS BOUTIQUE OF
AMERICA INC.

Attest: /s/ By: /s/
---------------------------- -------------------------------
Assistant Secretary Title:

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FLEET CAPITAL CORPORATION

By: /s/
----------------------------
Title:

<PAGE>

Exhibit 23.1

Consent of Independent Certified Public Accountants

Board of Directors of
The Electronics Boutique, Inc. and
Partners of EB Services Company LLP:

We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.

/s/ KPMG Peat Marwick LLP

Philadelphia, Pennsylvania
July 27, 1998