<PAGE>   1

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 2001

                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------
                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                                 GAMESTOP CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<S>                                  <C>                                  <C>
              DELAWARE                               5734                              75-2951347
  (STATE OR OTHER JURISDICTION OF        (PRIMARY STANDARD INDUSTRIAL               (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)        CLASSIFICATION CODE NUMBER)             IDENTIFICATION NUMBER)
</Table>

                            ------------------------
                          2250 WILLIAM D. TATE AVENUE
                             GRAPEVINE, TEXAS 76051
                                 (817) 424-2000
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
                              R. RICHARD FONTAINE
                            CHIEF EXECUTIVE OFFICER
                          2250 WILLIAM D. TATE AVENUE
                             GRAPEVINE, TEXAS 76051
                                 (817) 424-2000
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                            ------------------------
                                   COPIES TO:

<Table>
<S>                                                   <C>
                 JAY M. DORMAN, ESQ.                                  EDWARD S. BEST, ESQ.
                DAVID M. KASTIN, ESQ.                               JENNIFER L. KEATING, ESQ.
   ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP                    MAYER, BROWN & PLATT
             1290 AVENUE OF THE AMERICAS                            190 SOUTH LASALLE STREET
              NEW YORK, NEW YORK 10104                            CHICAGO, ILLINOIS 60603-3441
                   (212) 541-2000                                        (312) 782-0600
</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 to be 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, 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,
check the following box. [ ]
                            ------------------------
                        CALCULATION OF REGISTRATION FEE

<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                                                PROPOSED MAXIMUM
                 TITLE OF EACH CLASS OF                        AGGREGATE OFFERING                   AMOUNT OF
              SECURITIES TO BE REGISTERED                          PRICE(1)(2)                 REGISTRATION FEE(3)
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                             <C>
Class A Common Stock, par value $.001 per share.........          $325,000,000                       $81,250
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</Table>

(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Includes shares that the underwriters have the option to purchase solely to
    cover over-allotments, if any.
(3) Computed in accordance with Section 6(b) of the Securities Act by
    multiplying 0.00025 by the proposed maximum aggregate offering price.
                            ------------------------
     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 OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

                  SUBJECT TO COMPLETION, DATED AUGUST 24, 2001

PROSPECTUS

                                [GAMESTOP LOGO]

                                              SHARES

                                 GAMESTOP CORP.
                              CLASS A COMMON STOCK
                              $         PER SHARE
                               ------------------
     We are selling           shares of our Class A common stock. We have
granted the underwriters an option to purchase up to           additional shares
of our Class A common stock to cover over-allotments.

     This is the initial public offering of our Class A common stock. We are
currently a wholly-owned subsidiary of Barnes & Noble, Inc. Upon completion of
this offering, Barnes & Noble will own 100% of our Class B common stock. Each
share of Class A common stock has one vote and each share of Class B common
stock has ten votes. Following this offering, Barnes & Noble will own common
stock representing      % of the combined voting power of our common stock. We
currently expect the initial public offering price to be between $          and
$     per share. We have applied to have the Class A common stock quoted on the
Nasdaq National Market under the symbol "GSTP."

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

     INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS.   SEE "RISK FACTORS"
BEGINNING ON PAGE 9.

     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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

<Table>
<Caption>
                                                              PER SHARE            TOTAL
                                                              ----------         ----------
<S>                                                           <C>                <C>
Public Offering Price                                         $                  $
Underwriting Discount                                         $                  $
Proceeds to GameStop (before expenses)                        $                  $
</Table>

     The underwriters expect to deliver the shares to purchasers on or about
            , 2001.

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

SALOMON SMITH BARNEY
                                                         UBS WARBURG

            , 2001
<PAGE>   3

     The inside front cover: Pictures of store fronts and the distribution
center.

     The inside back cover: Map of store locations in the United States.

     This prospectus contains product names, trade names, trademarks and service
marks of our company and of other organizations, all of which are the property
of their respective owners.
<PAGE>   4

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
                            ------------------------

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Summary.....................................................    1
The Company.................................................    1
Summary Consolidated Financial Data.........................    6
Risk Factors................................................    9
Forward-Looking Statements..................................   16
Company History.............................................   17
Use of Proceeds.............................................   17
Dividend Policy.............................................   17
Capitalization..............................................   18
Dilution....................................................   19
Selected Consolidated Financial Data........................   20
Pro Forma Condensed Consolidated Financial Information......   22
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   24
Business....................................................   30
Management..................................................   40
Principal Stockholder.......................................   48
Certain Transactions........................................   49
Description of Capital Stock................................   53
Shares Eligible for Future Sale.............................   56
United States Tax Consequences to Non-United States
  Holders...................................................   57
Underwriting................................................   60
Legal Matters...............................................   62
Experts.....................................................   62
Where You Can Find More Information.........................   62
Index to Consolidated Financial Statements..................  F-1
</Table>

     For investors outside the United States, neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than the United States. You are required to inform
yourselves about, and to observe any restrictions relating to, this offering and
the distribution of this prospectus.

     Until and including                , 2001 (25 days after the date of this
prospectus), all dealers that buy, sell or trade our Class A common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

                                        i
<PAGE>   5

                                    SUMMARY

     The following summarizes information in other sections of our prospectus,
including our financial statements, the notes to those financial statements and
the other financial information appearing elsewhere in this prospectus. You
should read the entire prospectus carefully. All references in this prospectus
to "we," "us," "our" or "GameStop" mean GameStop Corp. and its direct and
indirect wholly-owned subsidiaries, GameStop, Inc., Babbage's Etc. LLC and
Sunrise Publications, Inc., unless otherwise indicated. All references in this
prospectus to "Barnes & Noble" mean Barnes & Noble, Inc. and its direct and
indirect wholly-owned subsidiaries, unless otherwise indicated. All store counts
are as of August 4, 2001. Our fiscal year is composed of 52 or 53 weeks, ending
on the Saturday closest to January 31. As used in this prospectus, "fiscal 2000"
means the 53 weeks ending February 3, 2001 and "fiscal 2001" means the 52 weeks
ending February 2, 2002. Except as otherwise indicated, information in this
prospectus assumes no exercise of the underwriters' option to purchase
additional shares of Class A common stock to cover over-allotments.

                                  THE COMPANY

     We are the largest video game and PC entertainment software specialty
retailer in the United States, based on the number of stores we operate and our
total revenues. We carry one of the largest assortments of new and used video
game hardware, video game software and accessories, PC entertainment software,
and related products, including action figures, trading cards and strategy
guides. We operate 990 stores in the United States, Puerto Rico and Guam. We
currently operate our stores under the GameStop, Babbage's, Software Etc. and
FuncoLand names and are in the process of rebranding most of our stores under
the GameStop name. We carry a constantly changing selection of more than 2,800
stock keeping units (SKUs) of electronic game merchandise in most stores. In
addition, we operate a web site at gamestop.com and publish Game Informer, one
of the industry's largest circulation multi-platform video game magazines, with
over 290,000 subscribers.

     Of our 990 stores, 534 stores are located in shopping malls and other
locations and 456 stores are located in strip centers. Our mall stores, which
average approximately 1,200 square feet, carry primarily new video game
hardware, video game software and accessories, which we refer to as video game
products, and PC entertainment software, as well as a limited selection of used
video game products. Our strip center stores, which average approximately 1,500
square feet, carry a balanced mix of new and used video game products and, in
selected stores, PC entertainment software. Our used video game products provide
a unique value proposition to our customers, and our purchasing of video game
products provides our customers with an opportunity to trade in their used video
game products for store credits and apply those credits towards other
merchandise, which, in turn, drives more sales.

     Interactive Digital Software Association estimates that 60% of all
Americans, or approximately 145 million people, play video games on a regular
basis. The electronic game industry, which includes new video game products and
PC entertainment software, was approximately an $8.4 billion market in the U.S.
in 2000, according to NPD Group, Inc., a market research firm. Of this $8.4
billion market, approximately $6.8 billion was attributable to video game
products and approximately $1.6 billion was attributable to PC entertainment
software. According to NPD, the industry grew at a compound annual rate of 13.0%
from 1996 to 2000 and, according to International Data Corporation, an industry
forecaster, the industry is expected to grow by a compound annual rate of 39.0%
over the next three years. Future growth is expected to be fueled by continued
sales of Sony PlayStation 2 introduced in October 2000 and Nintendo Game Boy
Advance introduced in June 2001, and by the introduction of next-generation
platforms by Microsoft and Nintendo in late 2001.

                                        1
<PAGE>   6

OUR BUSINESS STRATEGY

     We seek to enhance our position as the nation's largest specialty retailer
of new and used video game products and new PC entertainment software by
focusing on the following strategies:

     - Targeting a broad audience of game players.  We have created a store
       environment targeting a broad audience including the electronic game
       enthusiast, the casual gamer and the seasonal gift giver. Our mall stores
       primarily focus on the electronic game enthusiast who demands the latest
       merchandise featuring the "hottest" technology immediately on the day of
       release. Our strip center stores also serve the electronic game
       enthusiast, but focus on serving the value-oriented customer by offering
       a wide selection of value-priced used video game products and the
       opportunity to trade in used video game products in exchange for store
       credits applicable to future purchases, which in turn, drives more sales.

     - Enhancing our image as a destination location.  Our stores serve as
       destination locations for electronic game players due to our broad
       selection of products, knowledgeable sales associates, game-oriented
       environment and unique pricing proposition. We offer a larger and more
       current selection of video game products, including all major video game
       platforms, than other retailers.

     - Providing a first-to-market distribution network.  We employ a variety of
       rapid-response distribution methods in our efforts to be the first to
       market for new video game products and PC entertainment software as a
       significant portion of a new title's sales will be generated in the first
       few days and weeks following its release. As the largest specialty
       retailer of video game products and PC entertainment software, with a
       proven capability to distribute new releases to our customers quickly,
       our management believes that we regularly receive a disproportionately
       large allocation of popular new video game products and PC entertainment
       software.

     - Offering the largest selection of used video game products.  We are the
       nation's leading provider and carry the broadest selection of used video
       game products for both current and previous generation platforms. The
       opportunity to trade in and purchase used video game products offers our
       customers a unique value proposition unavailable at mass merchants, toy
       stores and consumer electronic retailers. Used video game products
       generate significantly higher gross margins than new video game products.

     - Rebranding our stores with the GameStop name.  We currently operate
       stores under the GameStop, Babbage's, Software Etc. and FuncoLand names.
       We have initiated a rebranding strategy under which all new stores opened
       since December 2000 operate under the GameStop name and existing stores
       in targeted markets are being rebranded under the GameStop name, with the
       goal of rebranding most of our stores.

     - Investing in our information systems and distribution capabilities.  We
       employ sophisticated and fully-integrated inventory management,
       store-level point of sale and financial systems and a centralized
       state-of-the-art distribution facility. These systems enable us to
       maximize the efficiency of the flow of approximately 2,800 SKUs, improve
       store efficiency, optimize store in-stock positions, and carry a broad
       selection of inventory.

OUR GROWTH STRATEGY

     We intend to continue to execute our proven growth strategies, including:

     - New Store Expansion.  We intend to continue to open new strip center
       stores in our target markets and new mall stores in selected mall
       locations. We opened 62 new stores in fiscal 2000 and 21 new stores to
       date in fiscal 2001. We plan on opening approximately 50 to 55 new stores
       during the remainder of fiscal 2001 and approximately 100 to 150 new
       stores in fiscal 2002. Our primary growth vehicle will be the expansion
       of our strip center store base, which we believe could grow to over 2,000
       stores in the United States. Our strategy is to open clusters of strip
       center stores in targeted major metropolitan markets under the GameStop
       name.
                                        2
<PAGE>   7

     - Increase Comparable Store Sales.  We plan to increase our comparable
       store sales by capitalizing on the growth in the video game industry,
       expanding sales of used video game products and increasing awareness of
       the GameStop name.

      - Capitalize on Industry Growth.  In the first six months of 2001, our
        comparable store sales increased 22.6%, driven in large measure by the
        success of Sony PlayStation 2, which was launched in October 2000, and
        Nintendo Game Boy Advance, which was launched in June 2001. Over the
        next few years, we expect to continue to capitalize on the increasing
        installed base for both platforms, as well as the scheduled launch in
        late 2001 of the Microsoft Xbox and Nintendo GameCube platforms. We
        expect the launch of these four platforms and the related increase in
        the installed hardware base to drive significant growth in video game
        software and accessories sales over the next few years.

      - Increase Sales of Used Video Game Products.  We expect to continue to
        expand the selection and availability of used video game products in
        both our mall and strip center stores. Our strategy consists of
        increasing consumer awareness of the benefits of trading in and buying
        used video game products at our stores through increased marketing
        activities.

      - Increase GameStop Brand Awareness.  We intend to increase customer
        awareness of the benefits of shopping in our stores. In connection with
        our rebranding efforts, we plan to enhance GameStop brand awareness by
        increasing the amount of media advertising in targeted markets,
        expanding our GameStop loyalty card program, aggressively promoting
        trade-ins of used video game products in our stores and leveraging our
        web site at gamestop.com.

ORGANIZATION

     We were incorporated under the laws of the State of Delaware in August 2001
as a holding company for our operating subsidiaries. We are a wholly-owned
subsidiary of Barnes & Noble. After this offering, Barnes & Noble will own about
     % of the outstanding shares of our common stock, or about      % if the
underwriters exercise their over-allotment option in full. Barnes & Noble will
own all of the outstanding shares of our Class B common stock, which will
represent      % of the combined voting power of all classes of our voting
stock, or      % of the combined voting power of all classes of our voting stock
if the underwriters exercise their over-allotment option in full.

     Our principal executive offices are located at 2250 William D. Tate Avenue,
Grapevine, Texas 76051. Our phone number is (817) 424-2000. We also have a web
site located at www.gamestop.com. The information that appears on our web site
is not part of this prospectus.

                                        3
<PAGE>   8

                                  THE OFFERING

<Table>
<S>                                            <C>
Class A common stock offered by us...........  shares
Common stock to be outstanding immediately
  after this offering
  Class A....................................  shares
  Class B....................................  shares
          Total..............................  shares
Common stock to be held by Barnes & Noble
  immediately after this offering
  Class A....................................  0 shares
  Class B....................................  shares (100% of outstanding)
          Total..............................  shares
Voting and conversion rights.................  Our Class A common stock and our Class B
                                               common stock generally have identical rights,
                                               except for voting and conversion rights. The
                                               holders of Class A common stock are entitled
                                               to one vote per share and the holders of
                                               Class B common stock are entitled to ten
                                               votes per share. Holders of Class A common
                                               stock have no conversion rights. At any time
                                               prior to a tax-free distribution, holders of
                                               Class B common stock may convert some or all
                                               of their shares into the same number of
                                               shares of Class A common stock. In addition,
                                               prior to, and except in connection with, a
                                               tax-free distribution, shares of Class B
                                               common stock will automatically convert into
                                               the same number of shares of Class A common
                                               stock if transferred to anyone other than
                                               Barnes & Noble or its affiliates. The shares
                                               of Class B common stock will automatically
                                               convert, subject to limited exceptions, into
                                               shares of Class A common stock on the fifth
                                               anniversary of a tax-free distribution.
Use of proceeds..............................  We intend to use the net proceeds of the
                                               offering to retire a $250 million note
                                               payable to Barnes & Noble and for working
                                               capital and general corporate purposes.
Proposed Nasdaq National Market symbol.......  "GSTP"
</Table>

     The number of shares of our Class A common stock to be outstanding
immediately after this offering assumes that the underwriters do not exercise
their option to purchase additional shares of Class A common stock to cover
over-allotments and does not take into account           shares of our Class A
common stock that will be issuable upon exercise of stock options that have been
granted prior to this offering or will be granted in connection with this
offering and           additional shares of our Class A common stock that will
be reserved for issuance under our 2001 Incentive Plan.

                                  RISK FACTORS

     You should consider the material risks involved in connection with an
investment in our Class A common stock and the impact to investors from various
events that could adversely affect us and our business. See "Risk Factors."

                                        4
<PAGE>   9

                     RELATIONSHIP WITH BARNES & NOBLE, INC.

     We are currently a wholly-owned subsidiary of Barnes & Noble. After
completion of this offering, Barnes & Noble will own approximately      % of the
outstanding shares of our common stock, or about      % if the underwriters
exercise their over-allotment option in full. Barnes & Noble will own 100% of
our outstanding Class B common stock, which will represent      % of the
combined voting power of all classes of our voting stock, or      % of the
combined voting power of all classes of our voting stock if the underwriters
exercise their over-allotment option in full. Until Barnes & Noble holds less
than a majority of the voting power of our common stock, Barnes & Noble will be
able to control the vote on all matters submitted to our stockholders, including
the election of directors and the approval of extraordinary corporate
transactions, such as mergers and acquisitions.

     Barnes & Noble has not reached any decision regarding whether or for how
long it will retain its stock ownership in our company. Barnes & Noble has
advised us that, at present, it has no plan or intention to dispose of its
shares of our Class B common stock. Under current tax law, Barnes & Noble may
not transfer its shares of Class B common stock in a tax-free spinoff to its
stockholders under Section 355 of the federal tax code unless certain conditions
are met, including holding a portion of our underlying assets for at least five
years. This five-year holding period will not be satisfied until October 2004.
Other than in connection with its agreement with the underwriters not to sell
any shares of our common stock for a period of 180 days from the date of this
prospectus, Barnes & Noble is not subject to any contractual obligation to
maintain its share ownership.

     Prior to the consummation of this offering, we will enter into agreements
with Barnes & Noble that will, among other things, provide for the separation of
our business operations from Barnes & Noble and other provisions applicable to
divestiture; a tax disaffiliation arrangement between us and Barnes & Noble; an
insurance agreement for Barnes & Noble to continue to supply us with insurance;
and a license for us to continue to operate video game departments within
certain bookstores operated by Barnes & Noble. For a more complete description
of these agreements, see "Certain Transactions."

                                        5
<PAGE>   10

                      SUMMARY CONSOLIDATED FINANCIAL DATA

     The following table sets forth our summary consolidated financial and
operating data for the periods and at the dates indicated. Our fiscal year is
composed of 52 or 53 weeks ending on the Saturday closest to January 31. The
fiscal years ended January 30, 1999 and January 29, 2000 consisted of 52 weeks
and the fiscal year ended February 3, 2001 consisted of 53 weeks.

     Our wholly-owned subsidiary, Babbage's Etc. LLC, began operations in
November 1996. In October 1999, Babbage's Etc. was acquired by, and became a
wholly-owned subsidiary of, Barnes & Noble. Because our financial statements
subsequent to the acquisition by Barnes & Noble are not directly comparable to
those prior to the acquisition, our financial statements make a distinction
between the "predecessor company" and the "successor company." The statement of
operations data presented below for the fiscal year ended January 29, 2000
consists of the results of operations of the predecessor company for the
thirty-nine weeks ended October 30, 1999 and the results of operations of the
successor company for the thirteen weeks ended January 29, 2000. In June 2000,
Barnes & Noble acquired Funco, Inc. and thereafter, Babbage's Etc. became a
wholly-owned subsidiary of Funco, Inc. The acquisition of Funco, Inc. has been
accounted for under the purchase method of accounting. In December 2000, Funco,
Inc. changed its name to GameStop, Inc.

     The pro forma and as adjusted data for the fiscal year ended February 3,
2001, give effect to the following as if each had occurred as of January 30,
2000: (1) the acquisition of Funco, Inc.; (2) this offering; (3) the repayment
of $250 million of intercompany debt owed to Barnes & Noble; and (4) Barnes &
Noble's capital contribution of other indebtedness owed to it by us. The as
adjusted data for the twenty-six week period ended August 4, 2001 and as of
August 4, 2001 give effect to the following as if each had occurred on February
4, 2001 for statement of operations data and August 4, 2001 for balance sheet
data: (1) this offering; (2) the repayment of $250 million of intercompany debt
owed to Barnes & Noble; and (3) Barnes & Noble's capital contribution of other
indebtedness owed to it by us. No pro forma effect was given to any impact on
operating results which may have occurred from the use of the excess of the net
proceeds of this offering over the $250 million of intercompany debt to be
repaid. The pro forma and as adjusted results are not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisition and this offering taken place on the dates indicated.

     The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Condensed Consolidated Financial Information" and the
consolidated financial statements and notes thereto included elsewhere in this
prospectus. Due to the seasonal nature of our business, the results for the
twenty-six-week periods presented are not indicative of the results for the full
fiscal year.

                                        6
<PAGE>   11
<Table>
<Caption>
                           PREDECESSOR
                           -------------------------
                             FISCAL      THIRTY-NINE    THIRTEEN       FISCAL
                              YEAR          WEEKS         WEEKS         YEAR
                              ENDED         ENDED         ENDED         ENDED
                           JANUARY 30,   OCTOBER 30,   JANUARY 29,   JANUARY 29,
                              1999          1999          2000          2000
                           -----------   -----------   -----------   -----------

                            (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                        <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS
  DATA:
Sales....................   $465,166      $329,392      $223,748      $553,140
Cost of sales............    350,475       246,865       174,808       421,673
                            --------      --------      --------      --------
Gross profit.............    114,691        82,527        48,940       131,467
Selling, general and
  administrative
  expenses...............     84,644        68,112        29,895        98,007
Acquisition incentive
  bonuses................         --        26,789            --        26,789
Depreciation and
  amortization...........      4,805         4,475         1,926         6,401
Amortization of
  goodwill...............         --            --         1,687         1,687
                            --------      --------      --------      --------
Operating earnings
  (loss).................     25,242       (16,849)       15,432        (1,417)
Interest expense
  (income), net..........      3,544           972         3,123         4,095
                            --------      --------      --------      --------
Earnings (loss) before
  income taxes...........     21,698       (17,821)       12,309        (5,512)
Income tax expense
  (benefit)(1)...........         --            --         5,018         5,018
Pro forma income tax
  expense (benefit)(2)...      8,738        (7,111)           --        (7,111)
                            --------      --------      --------      --------
Net earnings (loss)(3)...   $ 12,960      $(10,710)     $  7,291      $ (3,419)
                            ========      ========      ========      ========
Net earnings (loss) per
  share -- basic(3)......
                                                        ========      ========
Weighted average shares
  outstanding -- basic...
                                                        ========      ========
Net earnings (loss) per
  share -- diluted(3)....
                                                        ========      ========
Weighted average shares
outstanding -- diluted...
                                                        ========      ========
OTHER FINANCIAL DATA:
Net earnings (loss)
  excluding the after-tax
  effect of goodwill
  amortization(4)........   $ 12,960      $(10,710)     $  8,398      $ (2,312)
Net earnings (loss) per
  share excluding the
  after-tax effect of
  goodwill
  amortization -- diluted(4)..
STORE OPERATING DATA:
Stores open at the end of
  period.................        473                                       526
Comparable store sales
  increase
  (decrease)(5)..........       22.4%                                     12.5%
Inventory turnover.......        4.7                                       5.0

<Caption>

                              FISCAL YEAR ENDED
                               FEBRUARY 3, 2001            TWENTY-SIX WEEKS ENDED
                           ------------------------   ---------------------------------
                                                                     AUGUST 4, 2001
                                      PRO FORMA AND   JULY 29,   ----------------------
                            ACTUAL     AS ADJUSTED      2000      ACTUAL    AS ADJUSTED
                           --------   -------------   --------   --------   -----------
                                                                      (UNAUDITED)
                               (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                        <C>        <C>             <C>        <C>        <C>
STATEMENT OF OPERATIONS
  DATA:
Sales....................  $756,697     $828,038      $247,157   $408,161    $408,161
Cost of sales............   570,995      616,705       183,531    306,442     306,442
                           --------     --------      --------   --------    --------
Gross profit.............   185,702      211,333        63,626    101,719     101,719
Selling, general and
  administrative
  expenses...............   157,491      181,667        61,819     94,529      94,529
Acquisition incentive
  bonuses................        --           --            --         --          --
Depreciation and
  amortization...........    12,974       15,069         4,863      9,131       9,131
Amortization of
  goodwill...............     9,223       10,992         3,727      5,562       5,562
                           --------     --------      --------   --------    --------
Operating earnings
  (loss).................     6,014        3,605        (6,783)    (7,503)     (7,503)
Interest expense
  (income), net..........    23,411          (36)        8,778     10,801          --
                           --------     --------      --------   --------    --------
Earnings (loss) before
  income taxes...........   (17,397)       3,641       (15,561)   (18,304)     (7,503)
Income tax expense
  (benefit)(1)...........    (5,500)       3,456        (5,700)    (6,322)     (1,978)
Pro forma income tax
  expense (benefit)(2)...        --           --            --         --          --
                           --------     --------      --------   --------    --------
Net earnings (loss)(3)...  $(11,897)    $    185      $ (9,861)  $(11,982)   $ (5,525)
                           ========     ========      ========   ========    ========
Net earnings (loss) per
  share -- basic(3)......
                           ========     ========      ========   ========    ========
Weighted average shares
  outstanding -- basic...
                           ========     ========      ========   ========    ========
Net earnings (loss) per
  share -- diluted(3)....
                           ========     ========      ========   ========    ========
Weighted average shares
outstanding -- diluted...
                           ========     ========      ========   ========    ========
OTHER FINANCIAL DATA:
Net earnings (loss)
  excluding the after-tax
  effect of goodwill
  amortization(4)........  $ (3,788)    $  8,785      $ (6,042)    (7,645)     (1,166)
Net earnings (loss) per
  share excluding the
  after-tax effect of
  goodwill
  amortization -- diluted
STORE OPERATING DATA:
Stores open at the end of
  period.................       978          978           945        990         990
Comparable store sales
  increase
  (decrease)(5)..........      (6.7)%       (7.1)%         7.8%      22.6%       22.6%
Inventory turnover.......       4.6          4.5           1.9        2.3         2.3
</Table>

<Table>
<Caption>
                                                                                                           ----------------------
                                                                                                            AS OF AUGUST 4, 2001
                                                                                                           ----------------------
                                                                                                            ACTUAL    AS ADJUSTED
                                                                                                           --------   -----------
<S>                                      <C>           <C>           <C>        <C>             <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital.........................................................................................   $  3,543
Total assets............................................................................................    510,139
Total debt..............................................................................................    392,339
Total liabilities.......................................................................................    542,593
Stockholders' equity (deficit)..........................................................................    (32,454)
</Table>

---------------
(1) Prior to October 30, 1999, when Babbage's Etc. LLC was acquired by Barnes &
    Noble, Babbage's Etc. LLC was not subject to federal and most state income
    taxes, and its earnings were taxed directly to its members. Accordingly, for
    periods prior to October 30, 1999, our audited financial statements include
    only a provision for state income taxes for those states in which Babbage's
    Etc. LLC was taxed as a "C" corporation. For ease of comparison, these
    provisions for state income taxes for the periods prior to October 30, 1999
    are included in the pro forma income tax expense (benefit), which is
    described in footnote 2. For periods after the acquisition, the financial
    statements reflect income tax expense (benefit) on a stand-alone basis.

                                        7
<PAGE>   12

(2) For periods prior to October 30, 1999, the pro forma income tax expense
    (benefit) reflects taxes as if we had been a "C" corporation in all
    jurisdictions and includes certain state income taxes in the amount of $582
    and $100 for the year ended January 30, 1999 and the 39 weeks ended October
    30, 1999, respectively.

(3) Net earnings (loss) for the periods prior to October 30, 1999 reflect pro
    forma taxes as described in footnote (2) above.

(4) Net earnings (loss) excluding the after-tax effect of goodwill amortization
    is presented here to provide additional information about our operations.
    These items should be considered in addition to, but not as a substitute for
    or superior to, operating earnings, net earnings, cash flow and other
    measures of financial performance prepared in accordance with generally
    accepted accounting principles.

(5) Stores are included in our comparable store sales base beginning in the 13th
    month of operation. Comparable store sales for the fiscal year ended
    February 3, 2001 were computed using the first 52 weeks of the 53 week
    fiscal year.

                                        8
<PAGE>   13

                                  RISK FACTORS

     You should carefully consider the risks described below before investing in
shares of our Class A common stock. If any of the following risks actually
occur, our business, financial condition or results of future operations could
be materially and adversely affected. In such case, the trading price of our
Class A common stock could decline, and you could lose all or part of your
investment.

     This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below.

RISKS RELATED TO OUR BUSINESS

DELAYS IN EXPECTED PRODUCT RELEASES MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.

     We depend on major hardware manufacturers to deliver new video game
platforms on a timely basis and in anticipated quantities. We expect Microsoft
to introduce the Xbox and Nintendo to introduce the GameCube in late 2001. In
addition, we depend on software publishers to introduce new and updated software
titles. Any material delay in the anticipated introduction of hardware platforms
or software titles or inability to deliver them in could adversely impact our
financial results for one or more fiscal quarters.

THE FAILURE BY THIRD PARTIES TO DEVELOP PRODUCTS AND SOFTWARE MAY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.

     Our business depends upon the continued development of new and enhanced
video game platforms, PC hardware and video game and PC entertainment software.
Our business could suffer due to the failure of manufacturers to develop new or
enhanced video game platforms, 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
video game systems or PC hardware.

OUR ABILITY TO OBTAIN FAVORABLE TERMS FROM OUR SUPPLIERS MAY IMPACT OUR
FINANCIAL RESULTS.

     Our financial results depend significantly upon the business terms we can
obtain from our suppliers, including competitive prices, unsold product return
policies, advertising and market development allowances, freight charges and
payment terms. We purchase substantially all of our products directly from
manufacturers, software publishers and approximately five distributors. Our
largest vendors are Sony, Nintendo and Electronic Arts, which accounted for 14%,
11%, and 11%, respectively, of our purchases in fiscal 2000. If our suppliers do
not provide us with favorable business terms, our ability to offer products to
our customers at competitive prices could be adversely affected.

THE VIDEO GAME SYSTEM AND SOFTWARE PRODUCT INDUSTRIES ARE CYCLICAL, WHICH COULD
CAUSE SIGNIFICANT FLUCTUATION IN OUR EARNINGS.

     The electronic game industry has been cyclical in nature in response to the
introduction and maturation of new technology. Following the introduction of new
video game platforms, sales of these platforms and related software and
accessories generally increase due to initial demand, while sales of older
platforms and related products generally decrease as customers migrate towards
the new platforms. New video game platforms have historically been introduced
approximately every five years. If video game platform manufacturers fail to
develop new hardware platforms, our sales of video game products and results of
operations and financial condition could be adversely affected.

                                        9
<PAGE>   14

OUR OPERATING RESULTS ARE SEASONAL, WHICH COULD RESULT IN A LOWER PRICE FOR OUR
CLASS A COMMON STOCK.

     Our business, like that of many specialty retailers, is seasonal, with the
major portion of our sales and operating profit realized during the fourth
fiscal quarter, which includes the holiday selling season. During fiscal 2000,
we generated approximately 43% of our sales and substantially all of our
operating earnings during the fourth quarter. In addition, we have historically
experienced net losses in each of our first three fiscal quarters. Any adverse
trend in sales during the holiday selling season could adversely affect our
results of operations for the quarter and the entire year.

OUR RESULTS OF OPERATIONS MAY FLUCTUATE FROM QUARTER TO QUARTER, WHICH COULD
RESULT IN A LOWER PRICE FOR OUR CLASS A COMMON STOCK.

     Our results of operations may fluctuate from quarter to quarter depending
upon several factors, most of which are beyond our control. These factors
include:

     - the timing of new product releases;

     - the timing of new store openings; and

     - shifts in the timing of certain promotions.

     These and other factors could affect our business, financial condition and
results of operations, and this makes the prediction of our financial results on
a quarterly basis difficult. Also, it is possible that our quarterly financial
results may be below the expectations of public market analysts and investors.
This could adversely affect the price of our Class A common stock.

OUR FAILURE TO MANAGE NEW STORE OPENINGS COULD NEGATIVELY IMPACT OUR OPERATIONAL
AND FINANCIAL RESULTS.

     Our growth strategy is largely dependent upon opening new stores and
operating them profitably. We currently intend to open approximately 50 to 55
new stores in the remainder of the current fiscal year and approximately 100 to
150 new stores in fiscal 2002. Our ability to open new stores and operate them
profitably depends upon a number of factors, some of which may be beyond our
control. These factors include:

     - the ability to identify new store locations, negotiate suitable leases
       and build out the stores in a timely and cost efficient manner;

     - the ability to hire and train skilled associates; and

     - the ability to integrate new stores into our existing operations.

     Our growth will also depend on our ability to process increased merchandise
volume resulting from new store openings through our inventory management
systems and distribution facility in a timely manner.

INTENSE COMPETITION FROM TRADITIONAL RETAIL SOURCES MAY ADVERSELY AFFECT OUR
BUSINESS.

     The electronic game industry is intensely competitive and subject to rapid
changes in consumer preferences and frequent new product introductions. We
compete with mass merchants and regional chains, including Wal-Mart, Kmart and
Target; other video game and PC software specialty stores located in malls and
other locations, including Electronics Boutique; toy retail chains, including
Toys 'R' Us and KB Toys; mail-order businesses; catalogs; direct sales by
software publishers; online retailers; and computer product and consumer
electronics superstores, including Best Buy and Circuit City. Best Buy recently
acquired Musicland, Inc., a music retail chain with over 1,300 stores primarily
located in shopping malls. Our business may be adversely affected to the extent
Best Buy substantially increases the availability of video game products in
these music stores. In addition, video games are available for rental from many
video stores and may also be distributed through other methods which may emerge
in the future. We also compete with sellers of used video game products. Some of
our competitors in the electronic game industry have longer operating histories
and may have greater financial resources than we do. Additionally,
                                        10
<PAGE>   15

we compete with other forms of entertainment activities, including movies,
television, theater, sporting events and family entertainment centers.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY AN ECONOMIC SLOWDOWN OR RECESSION.

     Our business is sensitive to consumer spending patterns, which, in turn,
are generally subject to prevailing economic conditions. Purchases of video game
products may decline in periods of economic uncertainty or downturn. Adverse
economic conditions may cause shifts in consumer spending that could adversely
affect our results of operations and financial condition.

INTERNATIONAL CONCERNS COULD ADVERSELY IMPACT THE DELIVERY OF PRODUCTS AND OUR
FINANCIAL RESULTS.

     Our suppliers rely on foreign sources, primarily in Asia, to manufacture a
significant portion of the products we purchase from them. As a result, any
event causing a disruption of imports, including the imposition of import
restrictions or trade restrictions in the form of tariffs or quotas, could
adversely affect our business by increasing the cost and reducing the supply of
products available to us.

IF WE ARE UNABLE TO RENEW OUR LEASES, OUR REVENUE GROWTH MAY DECLINE.

     All of our retail stores are located in leased premises. We cannot assure
you that we will be able to maintain our existing store locations as leases
expire, that we will be able to enter into new leases on favorable terms or at
all, or that we will be able to locate suitable alternative sites or additional
sites for new store expansion in a timely manner. Our revenues and earnings may
decline if we fail to maintain existing store locations, enter into new leases,
locate alternative sites or find additional sites for new store expansion.

THE ABILITY TO DOWNLOAD VIDEO GAMES AND PLAY VIDEO GAMES ON THE INTERNET COULD
ADVERSELY AFFECT OUR SALES.

     While it is currently not possible to download video game software onto
existing video game platforms over the Internet, at some point in the future
this technology may become available. A limited selection of PC entertainment
software may currently be purchased for download over the Internet, and as
technology advances, a broader selection of PC entertainment software may become
available for purchase and download. If advances in technology continue to
expand our customers' ability to access software through these and other
sources, our sales and earnings could decline.

WE DEPEND UPON OUR KEY PERSONNEL AND THEY WOULD BE DIFFICULT TO REPLACE.

     Our success depends upon our ability to attract, motivate and retain key
management for our stores and skilled merchandising, marketing and
administrative personnel at our headquarters. We depend upon the continued
services of our executive officers, R. Richard Fontaine, our Chief Executive
Officer, Daniel A. DeMatteo, our President and Chief Operating Officer, David W.
Carlson, our Executive Vice President and Chief Financial Officer, and John W.
Woodson, President of Strip Center Stores. We do not have employment contracts
with any of our key personnel. The loss of services of any of our key personnel
could have a negative impact on our business.

RISKS RELATED TO OUR RELATIONSHIP WITH BARNES & NOBLE

BARNES & NOBLE'S CONTROL OF OUR COMPANY COULD INCREASE THE DIFFICULTY OF OUR
ACQUISITION BY ANOTHER COMPANY, EVEN IF SUCH ACQUISITION WOULD BE BENEFICIAL.

     After this offering, Barnes & Noble will own 100% of our outstanding Class
B common stock, which will represent      % of the combined voting power of all
classes of our voting stock, or      % of the combined voting power of all
classes of our voting stock if the underwriters exercise their over-allotment
option in full. As a result, Barnes & Noble will have control over us, the
election of our board of directors and our management and policies. Barnes &
Noble will also have control over all matters requiring stockholder approval,
including the amendment of certain provisions of our certificate of
incorporation and
                                        11
<PAGE>   16

by-laws and the approval of fundamental corporate transactions, including
mergers. In light of this control, other companies could be discouraged from
initiating a potential merger, takeover or any other transaction resulting in a
change of control. Such a transaction potentially could be beneficial to our
business or to our stockholders. This may in turn reduce the price that
investors are willing to pay in the future for shares of our Class A common
stock.

OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF BARNES & NOBLE'S
INTERESTS TAKE PRIORITY OVER OUR INTERESTS.

     There is a possibility that conflicts of interest will arise between Barnes
& Noble and us in various areas pertaining to our past and ongoing
relationships. Potential factors that may create a conflict of interest between
Barnes & Noble and us are:

     - the terms of various intercompany agreements that we intend to enter into
       with Barnes & Noble in connection with this offering;

     - sales or offerings by Barnes & Noble of all or any portion of its
       ownership interest in our company;

     - the fact that several members of our board of directors sit concurrently
       on Barnes & Noble's board of directors, which could result in Barnes &
       Noble's interests being prioritized over our interests; and

     - the fact that our directors currently have, or may have in the future, an
       equity interest in Barnes & Noble, which could affect their decisions in
       resolving potential conflicts between us and Barnes & Noble.

     In addition, Leonard Riggio, one of our directors, is the Chairman of the
Board, Chief Executive Officer and a principal stockholder of Barnes & Noble. As
of August 22, 2001, Mr. Riggio beneficially owned approximately 21.4% of the
outstanding common stock of Barnes & Noble. Mr. Riggio also currently has
options to acquire approximately      % of our Class A common stock. As a
result, Mr. Riggio may have substantial control over the management and affairs
of our company.

     Barnes & Noble is under no obligation to resolve any potential conflicts
between it and us in a manner that is favorable to us, and we cannot guarantee
that such conflicts would not adversely affect our business or prospects.

THE LIMITED VOTING RIGHTS OF OUR CLASS A COMMON STOCK COULD IMPACT ITS
ATTRACTIVENESS TO INVESTORS AND ITS LIQUIDITY AND AS A RESULT, ITS MARKET VALUE.

     The holders of our Class A and Class B common stock generally have
identical rights, except that holders of our Class A common stock are entitled
to one vote per share and holders of our Class B common stock are entitled to
ten votes per share on all matters to be voted on by stockholders. We will be
selling our Class A common stock in this offering. The difference in the voting
rights of the Class A and Class B common stock could diminish the value of the
Class A common stock to the extent that investors or any potential future
purchasers of our Class A common stock ascribe value to the superior voting
rights of the Class B common stock. In addition, if Barnes & Noble distributes
our Class B common stock to its stockholders in a tax-free distribution, we will
have two separate classes of publicly traded common stock prior to the
conversion of the Class B common stock upon the fifth anniversary of the
tax-free distribution. This could result in less liquidity for either class of
our common stock than if there were only one class of common stock and could
result in the market price of our Class A common stock being lower than the
market price of our Class B common stock.

OUR ABILITY TO ISSUE COMMON STOCK MAY BE HAMPERED BECAUSE OF OUR RELATIONSHIP
WITH BARNES & NOBLE, WHICH MAY INTERFERE WITH OUR ABILITY TO GROW OUR BUSINESS.

     Barnes & Noble may wish to maintain until October 2004 or thereafter its
current ownership of our Class B common stock in order to qualify for a tax-free
distribution of such stock to its stockholders. After

                                        12
<PAGE>   17

this offering, Barnes & Noble will own 100% of the outstanding Class B common
stock, which will represent      % of the combined voting power of all classes
of our voting stock, or      % of the combined voting power of all classes of
our voting stock if the underwriters exercise their over-allotment option in
full. It may be difficult for us to issue common stock in the future because of
Barnes & Noble's control of us. In addition, we have entered into a separation
agreement with Barnes & Noble that restricts our ability to issue equity
securities or securities convertible into equity securities if the effect of the
issuance would be to preclude a tax-free distribution by Barnes & Noble to its
stockholders or our consolidation with Barnes & Noble for its financial
reporting purposes.

CERTAIN AFFILIATE AGREEMENTS ENTERED INTO WITH BARNES & NOBLE BY US COULD
ADVERSELY AFFECT OUR BUSINESS, ESPECIALLY THOSE NOT BASED ON ARMS' LENGTH
NEGOTIATIONS.

     We have entered into various agreements with Barnes & Noble, including a
separation agreement, an insurance agreement, an operating agreement, a tax
disaffiliation agreement and a registration rights agreement. Because of our
current status as a wholly-owned subsidiary of Barnes & Noble, these agreements,
or some of our future intercompany agreements with Barnes & Noble, may not be
the result of arms' length negotiations. For example, these agreements may
contain terms and conditions that are less favorable to us than we could have
obtained from independent third parties.

A CHANGE OF CONTROL MAY RESULT IF BARNES & NOBLE DEFAULTS ON ITS CREDIT
FACILITY.

     Barnes & Noble has pledged to its lenders its equity interest in us as
collateral for its credit facility. A default on its credit facility by Barnes &
Noble could result in a transfer to its lenders of ownership and control of
Barnes & Noble's equity interest in us. The lenders are not subject to any
contractual obligation to maintain any equity interest in us.

RISKS RELATED TO THE OFFERING

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK
VALUE PER SHARE OF CLASS A COMMON STOCK.

     You will experience an immediate and substantial dilution in the net
tangible book value of each share of Class A common stock of $     per share
based upon an assumed initial public offering price of $          .

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE COULD CAUSE THE MARKET PRICE FOR OUR CLASS A COMMON STOCK TO DECLINE.

     Upon completion of this offering, we will have        shares of Class A
common stock outstanding. All these shares will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144
promulgated under the Securities Act. Barnes & Noble will hold        shares of
our Class B common stock following this offering, which will be      % of our
outstanding stock, or      % if the underwriters exercise their overallotment
option in full.

     Barnes & Noble and our directors and executive officers have agreed with
Salomon Smith Barney that they will not sell any of their shares for at least
180 days following the offering. After the lock-up period expires,        shares
of our Class A common stock that are issuable upon exercise of stock options
that were granted to our directors, officers and employees under our 2001
Incentive Plan will be available for sale. Salomon Smith Barney may release all
or any portion of these shares from this lock-up agreement at any time. Barnes &
Noble and our directors and executive officers will be able to sell their shares
in accordance with the provisions of Rule 144 under the Securities Act. Barnes &
Noble will also be able to sell its shares pursuant to the registration rights
that we have granted Barnes & Noble. We cannot predict whether substantial
amounts of our Class A common stock will be sold in the open market in
anticipation of, or following, any divestiture by Barnes & Noble or our
directors or executive officers of their shares of

                                        13
<PAGE>   18

our common stock. Additionally, approximately        shares of our Class A
common stock will be issuable upon exercise of stock options which vest and
become exercisable over the next four years. Sales of substantial amounts of
shares of our Class A common stock in the public market following this offering,
or the perception that those sales will occur, could cause the market price of
our Class A common stock to decline. Those sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.

OUR STOCK PRICE MAY BE VOLATILE AND DECLINE SUBSTANTIALLY.

     Prior to this offering, there has been no public market for our Class A
common stock, and there can be no assurance that an active trading market for
our Class A common stock will develop or continue upon completion of the
offering. The initial public offering price will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of the price at which our Class A common stock will trade after the offering.

     The stock market in general has experienced extreme price and volume
fluctuations. These broad market fluctuations may adversely affect the market
price of our Class A common stock, regardless of our actual operating
performance. You may be unable to resell your shares at or above the public
offering price due to a number of factors, including:

     - actual or anticipated quarterly fluctuations in our operating results;

     - changes in expectations of future financial performance or changes in
       estimates of securities analysts;

     - changes in the market valuations of other companies;

     - announcements of technological innovations;

     - announcements relating to strategic relationships, acquisitions or
       industry consolidation; and

     - general economic, market and political conditions not related to our
       business.

OUR MANAGEMENT WILL HAVE BROAD DISCRETION REGARDING THE USE OF PROCEEDS FROM
THIS OFFERING.

     We estimate that we will receive net proceeds from this offering of about
$     million. Of that amount we intend to utilize approximately $     million,
representing approximately      % of the estimated net proceeds of this
offering, for general corporate purposes, including working capital. Our
management will have broad discretion regarding how we use the net proceeds of
this offering and you will not have the opportunity to evaluate the economic,
financial and other relevant information used by management in determining how
to apply such proceeds.

WE HAVE NOT PAID AND CURRENTLY DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON
OUR COMMON STOCK.

     We have not paid any cash dividends on our common stock since our inception
and do not currently anticipate paying dividends on our common stock in the
foreseeable future. Our payment of dividends is and will continue to be
restricted by or subject to, among other limitations, applicable provisions of
federal and state laws, our earnings, our status as a holding company, various
business considerations and credit agreements into which we may enter.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN ANTI-TAKEOVER PROTECTIONS,
WHICH MAY DISCOURAGE OR PREVENT A TAKEOVER OF OUR COMPANY, EVEN IF AN
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Certain provisions of our certificate of incorporation and bylaws, as well
as provisions of the Delaware General Corporation Law, could delay or make it
more difficult to remove incumbent directors or for a

                                        14
<PAGE>   19

third party to acquire us, even if a takeover would benefit our stockholders.
The provisions in our certificate of incorporation and bylaws:

     - authorize the issuance of "blank check" preferred stock that could be
       issued by our board of directors to increase the number of outstanding
       shares, making a takeover more difficult and expensive;

     - establish a staggered board of directors, so that it would take three
       successive annual meetings to replace all of the directors;

     - do not permit cumulative voting in the election of directors, which would
       otherwise allow less than a majority of stockholders to elect director
       candidates; and

     - prohibit removing a director other than for cause.

     We are also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us 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.
Our certificate of incorporation excludes Barnes & Noble as an interested
stockholder. The application of Section 203 could have the effect of delaying or
preventing a change of control of our company.

OUR ISSUANCE OF SHARES OF PREFERRED STOCK COULD DELAY OR PREVENT A CHANGE OF
CONTROL OF OUR COMPANY.

     Our board of directors has the authority to cause our company to issue,
without any further vote or action by the stockholders, up to        shares of
preferred stock, par value $.001 per share, in one or more series, to designate
the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of shares of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of our company without further action by the stockholders, even where
stockholders are offered a premium for their shares. The issuance of shares of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of Class A common stock, including the loss of
voting control. We have no present plans to issue any shares of preferred stock.

                                        15
<PAGE>   20

                           FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements. The forward-looking
statements involve a number of risks and uncertainties. A number of factors
could cause our actual results, performance, achievements or industry results to
be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
but are not limited to:

     - our reliance on suppliers and vendors for new product releases;

     - economic conditions affecting the electronic game industry;

     - the competitive environment in the electronic game industry;

     - our ability to open and operate new stores;

     - our ability to attract and retain qualified personnel; and

     - other factors described in this prospectus, including those set forth
       under the caption "Risk Factors."

     In some cases, forward-looking statements can be identified by the use of
terms such as "anticipates," "believes," "continues," "could," "estimates,"
"expects," "intends," "may," "plans," "potential," "predicts," "will," "should,"
"seeks," "pro forma" or similar expressions. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks described under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. You should not place undue reliance on these
forward-looking statements.

     Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this prospectus. In
light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur, causing actual results
to differ materially from those anticipated or implied by our forward-looking
statements.

                                        16
<PAGE>   21

                                COMPANY HISTORY

     We began operations in November 1996, when Leonard Riggio, one of our
directors, formed Babbage's Etc. LLC, which acquired most of the assets of
NeoStar Retail Group, Inc. at an auction held in the U.S. Bankruptcy Court.
These assets included 467 out of 660 of NeoStar's stores, together with
NeoStar's inventory and the lease for its corporate headquarters and
distribution center. NeoStar, which filed for bankruptcy in September 1996, was
formed in 1994 by the merger of Software Etc. Stores, Inc. (which was founded in
1987 by Leonard Riggio, who was its Chairman of the Board and Treasurer from its
inception through the date of the merger) and Babbage's, Inc. Following the
merger with Babbage's, Inc., Mr. Riggio became a director of NeoStar.

     In October 1999, Mr. Riggio sold Babbage's Etc. LLC to Barnes & Noble. Mr.
Riggio has been the Chairman of the Board, Chief Executive Officer and a
principal stockholder of Barnes & Noble since its inception in 1986. In June
2000, Barnes & Noble acquired Funco, Inc., a publicly traded company. In July
2000, Barnes & Noble transferred its interest in Babbage's Etc. to Funco, Inc.
and Babbage's Etc. became a wholly-owned subsidiary of Funco, Inc. In December
2000, we changed the name of Funco, Inc. to GameStop, Inc. Immediately prior to
the completion of this offering, Barnes & Noble will transfer all of its
interest in GameStop, Inc. to us. After completion of this offering, Barnes &
Noble will own about      % of the outstanding shares of our common stock, or
about      % if the underwriters exercise their over-allotment option in full.
Barnes & Noble will own 100% of our outstanding Class B common stock, which will
represent      % of the combined voting power of all classes of our voting
stock, or      % of the combined voting power of all classes of our voting stock
if the underwriters exercise their over-allotment option in full.

                                USE OF PROCEEDS

     We estimate that we will receive net proceeds from this offering of about
$     million, or about $     million if the underwriters exercise their
over-allotment option in full.

     We intend to use $250 million of the net proceeds of this offering to repay
a portion of our indebtedness to Barnes & Noble. Barnes & Noble incurred an
aggregate of approximately $361 million of indebtedness in connection with its
acquisitions of Babbage's Etc. in October 1999 and Funco in June 2000. Since the
acquisitions, Barnes & Noble has continued to fund our business operations and
these amounts have been treated as an intercompany loan owed to Barnes & Noble
by us. Immediately prior to the closing of this offering, Barnes & Noble will
contribute the difference between the aggregate amount of the intercompany loan
balance and $250 million as additional paid-in capital. As of August 4, 2001,
the capital contribution by Barnes & Noble would have been approximately $142.3
million.

     We intend to use the balance of the net proceeds, including amounts we may
receive from the exercise of the underwriters' over-allotment option, for
working capital and general corporate purposes. Our management will have broad
discretion over the use of this balance. Pending these uses, we may invest this
balance temporarily in short-term, investment grade, interest-bearing securities
or guaranteed obligations of the United States government.

                                DIVIDEND POLICY

     We do not expect to pay dividends on any of our common stock for the
foreseeable future. Instead, we anticipate that all of our earnings in the
foreseeable future will be used for working capital and other general corporate
purposes. Our payment of dividends is and will continue to be restricted by or
subject to, among other limitations, applicable provisions of federal and state
laws, our earnings and various business considerations including our financial
condition, results of operations, cash flow, the level of our capital
expenditures, our future business prospects, our status as a holding company and
such other matters that our board of directors deems relevant. In addition, we
may be restricted in our ability to declare and pay dividends by the terms of
any credit facility or other financial instrument that we elect to enter into
from time to time.
                                        17
<PAGE>   22

                                 CAPITALIZATION

     The following table sets forth our cash and capitalization as of August 4,
2001: (1) on an actual basis; (2) on a pro forma basis to reflect the capital
contribution by Barnes & Noble of an amount equal to the difference between the
aggregate amount of the intercompany loan balance owed to Barnes & Noble by us
and $250 million prior to the offering, which, as of August 4, 2001, would have
been approximately $142.3 million; and (3) on a pro forma as adjusted basis to
further reflect our receipt of the net proceeds from the sale of        shares
of our Class A common stock in this offering at an assumed offering price of
$     per share and the use of a portion of the net proceeds to retire our $250
million note payable to Barnes & Noble. You should read this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Use of Proceeds" and our consolidated financial
statements and the related notes included elsewhere in this prospectus.

<Table>
<Caption>
                                                                        AS OF AUGUST 4, 2001
                                                            ---------------------------------------------
                                                                                             PRO FORMA
                                                              ACTUAL        PRO FORMA       AS ADJUSTED
                                                            -----------    ------------    --------------
                                                            (IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<S>                                                         <C>            <C>             <C>
Cash......................................................   $  7,261        $  7,261
                                                             ========        ========
Long-term debt............................................   $392,339        $250,000
                                                             --------        --------
Total debt................................................    392,339         250,000
                                                             --------        --------
Stockholders' equity:
Class A common stock, par value $.001 per share,
  shares authorized,      shares issued and outstanding;
       shares issued and outstanding as adjusted..........
Class B common stock, par value $.001 per share,
  shares authorized,      shares issued and outstanding;
  shares issued and outstanding as adjusted...............
Additional paid-in capital................................
Retained earnings.........................................
Total stockholders' equity (deficit)......................    (32,454)        109,885
                                                             --------        --------
Total capitalization......................................   $359,885        $359,885
                                                             ========        ========
</Table>

     The number of shares of our Class A common stock to be outstanding after
this offering does not include:

     -        shares issuable upon exercise of the underwriters' over-allotment
              option;

     -        shares issuable upon exercise of stock options that are currently
              issued and outstanding at a weighted average exercise price of
              $     per share;

     -        shares issuable upon exercise of stock options that will be
              granted in connection with this offering at an exercise price
              equal to the public offering price; and

     -        shares available for future issuance under our 2001 Incentive
              Plan.

                                        18
<PAGE>   23

                                    DILUTION

     Our net tangible book value as of        , 2001 was approximately
$       million or $     per share. Net tangible book value per share is equal
to our total tangible assets minus our total liabilities divided by the
aggregate number of shares of common stock outstanding prior to this offering.
Assuming we had also sold the shares of Class A common stock offered hereby at
the initial public offering price of $     per share, and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, our net tangible book value at        , 2001 would have been
approximately $ million, or $     per share. This represents an immediate
increase in net tangible book value of $     per share to Barnes & Noble and an
immediate dilution of $     per share to new investors in this offering.
Dilution is determined by subtracting net tangible book value per share after
the offering from the amount of cash paid by a new investor for a share of Class
A common stock. The following table illustrates the substantial and immediate
per share dilution to new investors:

<Table>
<S>                                                           <C>     <C>
Initial public offering price per share.....................          $
  Net tangible book value per share as of        , 2001.....  $
  Increase per share attributable to new investors..........  $
                                                              ----
Net tangible book value per share after this offering.......          $
                                                                      ----
Dilution per share to new investors.........................          $
                                                                      ====
</Table>

     The following table sets forth as of        , 2001 the number of shares of
common stock purchased from us, the total consideration paid and the average
price per share paid by Barnes & Noble and by new investors purchasing shares of
our Class A common stock in this offering. The calculations with respect to the
Barnes & Noble consideration reflects Barnes & Noble's net investment minus
retained earnings as of        , 2001. The calculations with respect to shares
purchased by new investors in this offering reflect the offering price of
$       per share:

<Table>
<Caption>
                                                                         TOTAL CONSIDERATION
                                                SHARES PURCHASED   --------------------------------
                                                ----------------                      AVERAGE PRICE
                                                NUMBER   PERCENT   AMOUNT   PERCENT     PER SHARE
                                                ------   -------   ------   -------   -------------
<S>                                             <C>      <C>       <C>      <C>       <C>
Existing stockholders.........................
New investors.................................
                                                 ----      ---      ---       ---          ---
          Total...............................
                                                 ====      ===      ===       ===          ===
</Table>

     If the underwriters exercise their over-allotment option in full, the net
tangible book value per share of common stock as of             , 2001 would
have been $     per share, which would result in dilution to the new investors
of $       per share, and the number of shares of Class A common stock held by
the new investors would increase by        or      % of the total number of
shares to be outstanding after this offering.

                                        19
<PAGE>   24

                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth our selected consolidated financial and
operating data for the periods and at the dates indicated. Our fiscal year is
composed of 52 or 53 weeks ending on the Saturday closest to January 31. The
fiscal years ended January 31, 1998, January 30, 1999 and January 29, 2000
consisted of 52 weeks and the fiscal year ended February 3, 2001 consisted of 53
weeks. The "Statement of Operations Data" for the 39 weeks ended October 30,
1999, for the 13 weeks ended January 29, 2000 and for the fiscal years 1998
through 2000 and the "Balance Sheet Data" as of January 29, 2000 and February 3,
2001 are derived from, and are qualified by reference to, our audited financial
statements which are included elsewhere in this prospectus. The "Statement of
Operations Data" for the ten-week period from November 27, 1996 through February
1, 1997 and for the fiscal year ended January 31, 1998 and the "Balance Sheet
Data" as of February 1, 1997, January 31, 1998 and January 30, 1999 are derived
from our audited financial statements which are not included elsewhere in this
prospectus. The "Statement of Operations Data" for the 26 weeks ended July 29,
2000 and August 4, 2001 and the "Balance Sheet Data" as of August 4, 2001 are
derived from our unaudited financial statements included elsewhere in this
prospectus. The "Balance Sheet Data" as of July 29, 2000 is derived from our
unaudited financial statements which are not included elsewhere in this
prospectus. Our unaudited financial statements include all adjustments,
consisting of normal recurring adjustments, which management considers necessary
for a fair presentation of our financial condition and results of operations for
those periods. Due to the seasonal nature of our business, the results for the
26-week period ended August 4, 2001 presented are not indicative of the results
for the full fiscal year.

     Our wholly-owned subsidiary, Babbage's Etc. LLC, began operations in
November 1996. Accordingly, the period ended February 1, 1997 includes the
results of operations from November 27, 1996 through February 1, 1997. In
October 1999, Babbage's Etc. LLC was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble. Because our financial statements subsequent to
the acquisition by Barnes & Noble are not directly comparable to those prior to
the acquisition, our financial statements make a distinction between the
"predecessor company" and the "successor company." The statement of operations
data presented below for the fiscal year ended January 29, 2000 consists of the
results of operations of the predecessor company for the thirty-nine weeks ended
October 30, 1999 and the results of operations of the successor company for the
thirteen weeks ended January 29, 2000. In June 2000, Barnes & Noble acquired
Funco, Inc. and thereafter, Babbage's Etc. LLC became a wholly-owned subsidiary
of, Funco, Inc. The acquisition of Funco, Inc. has been accounted for under the
purchase method of accounting. In December 2000, Funco, Inc. changed its name to
GameStop, Inc.

     Our selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this prospectus.

                                        20
<PAGE>   25
<Table>
<Caption>
                                                               PREDECESSOR
                                          -----------------------------------------------------
                                                                                    THIRTY-NINE
                                           TEN WEEKS    FISCAL YEAR   FISCAL YEAR      WEEKS
                                             ENDED         ENDED         ENDED         ENDED
                                          FEBRUARY 1,   JANUARY 31,   JANUARY 30,   OCTOBER 30,
                                             1997          1998          1999          1999
                                          -----------   -----------   -----------   -----------

                                           (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                                       <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Sales...................................    $85,860      $383,359      $465,166      $329,392
Cost of sales...........................     65,724       291,767       350,475       246,865
                                            -------      --------      --------      --------
Gross profit............................     20,136        91,592       114,691        82,527
Selling, general and administrative
  expenses..............................     15,150        76,309        84,644        68,112
Acquisition incentive bonuses...........         --            --            --        26,789
Depreciation and amortization...........      1,005         5,405         4,805         4,475
Amortization of goodwill................         --            --            --            --
                                            -------      --------      --------      --------
Operating earnings (loss)...............      3,981         9,878        25,242       (16,849)
Transaction expenses....................      3,623            --            --            --
                                            -------      --------      --------      --------
Earnings (loss) before interest
  expense...............................        358         9,878        25,242       (16,849)
Interest expense, net...................        927         5,620         3,544           972
                                            -------      --------      --------      --------
Earnings (loss) before income taxes.....       (569)        4,258        21,698       (17,821)
Income tax expense (benefit)(1).........         --            --            --            --
Pro forma income tax expense
  (benefit)(2)..........................       (229)        1,724         8,738        (7,111)
                                            -------      --------      --------      --------
Net earnings (loss)(3)..................    $  (340)     $  2,534      $ 12,960      $(10,710)
                                            =======      ========      ========      ========
Net earnings (loss) per
  share -- basic(3).....................
Weighted average shares outstanding --
  basic.................................
Net earnings (loss) per
  share -- diluted(3)...................
Weighted average shares outstanding --
  diluted...............................
OTHER FINANCIAL DATA:
Net earnings (loss) excluding the
  after-tax effect of goodwill
  amortization(4).......................    $  (340)     $  2,534      $ 12,960      $(10,710)
Net earnings (loss) per share excluding
  the after-tax effect of goodwill
  amortization -- diluted(4)............
STORE OPERATING DATA:
Stores open at the end of period........        460           458           473
Comparable store sales increase
  (decrease)(5).........................        N/A           N/A          22.4%
Inventory turnover......................        N/A           4.2           4.7
BALANCE SHEET DATA:
Working capital (deficit)...............    $20,793      $ 27,716      $ 23,635      $(40,409)
Total assets............................     81,586        91,570       121,023       124,413
Total debt..............................     35,000        35,000        10,000            --
Total liabilities.......................     77,155        82,881        91,218       140,279
Stockholders' equity (deficit)..........      4,431         8,689        29,805       (15,866)

<Caption>

                                             THIRTEEN
                                              WEEKS        FISCAL YEAR   FISCAL YEAR   TWENTY-SIX WEEKS ENDED
                                              ENDED           ENDED         ENDED      ----------------------
                                           JANUARY 29,     JANUARY 29,   FEBRUARY 3,   JULY 29,    AUGUST 4,
                                               2000           2000          2001         2000         2001
                                          --------------   -----------   -----------   ---------   ----------
                                                                                            (UNAUDITED)
                                                  (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                                       <C>              <C>           <C>           <C>         <C>
STATEMENT OF OPERATIONS DATA:
Sales...................................     $223,748       $553,140      $756,697     $247,157     $408,161
Cost of sales...........................      174,808        421,673       570,995      183,531      306,442
                                             --------       --------      --------     --------     --------
Gross profit............................       48,940        131,467       185,702       63,626      101,719
Selling, general and administrative
  expenses..............................       29,895         98,007       157,491       61,819       94,529
Acquisition incentive bonuses...........           --         26,789            --           --           --
Depreciation and amortization...........        1,926          6,401        12,974        4,863        9,131
Amortization of goodwill................        1,687          1,687         9,223        3,727        5,562
                                             --------       --------      --------     --------     --------
Operating earnings (loss)...............       15,432         (1,417)        6,014       (6,783)      (7,503)
Transaction expenses....................           --             --            --           --           --
                                             --------       --------      --------     --------     --------
Earnings (loss) before interest
  expense...............................       15,432         (1,417)        6,014       (6,783)      (7,503)
Interest expense, net...................        3,123          4,095        23,411        8,778       10,801
                                             --------       --------      --------     --------     --------
Earnings (loss) before income taxes.....       12,309         (5,512)      (17,397)     (15,561)     (18,304)
Income tax expense (benefit)(1).........        5,018          5,018        (5,500)      (5,700)      (6,322)
Pro forma income tax expense
  (benefit)(2)..........................           --         (7,111)           --           --           --
                                             --------       --------      --------     --------     --------
Net earnings (loss)(3)..................     $  7,291       $ (3,419)     $(11,897)    $ (9,861)    $(11,982)
                                             ========       ========      ========     ========     ========
Net earnings (loss) per
  share -- basic(3).....................
                                             ========       ========      ========     ========     ========
Weighted average shares outstanding --
  basic.................................
                                             ========       ========      ========     ========     ========
Net earnings (loss) per
  share -- diluted(3)...................
                                             ========       ========      ========     ========     ========
Weighted average shares outstanding --
  diluted...............................
                                             ========       ========      ========     ========     ========
OTHER FINANCIAL DATA:
Net earnings (loss) excluding the
  after-tax effect of goodwill
  amortization(4).......................     $  8,398       $ (2,312)     $ (3,788)    $ (6,042)    $ (7,645)
Net earnings (loss) per share excluding
  the after-tax effect of goodwill
  amortization -- diluted(4)............
STORE OPERATING DATA:
Stores open at the end of period........                         526           978          945          990
Comparable store sales increase
  (decrease)(5).........................                        12.5%         (6.7)%        7.8%        22.6%
Inventory turnover......................                         5.0           4.6          1.9          2.3
BALANCE SHEET DATA:
Working capital (deficit)...............     $(28,775)      $(28,775)     $   (297)    $ 30,427     $  3,543
Total assets............................      307,922        307,922       510,873      498,315      510,139
Total debt..............................      203,613        203,613       386,439      413,515      392,339
Total liabilities.......................      316,497        316,497       531,345      516,751      542,593
Stockholders' equity (deficit)..........       (8,575)        (8,575)      (20,472)     (18,436)     (32,454)
</Table>

---------------
(1) Prior to October 30, 1999, when Babbage's Etc. LLC was acquired by Barnes &
    Noble, Babbage's, Etc. LLC was not subject to federal and most state income
    taxes, and its earnings were taxed directly to its members. For the ten
    weeks ended February 1, 1997 and the fiscal year ended January 31, 1998,
    there were no provisions for taxes. For the fiscal year ended January 30,
    1999 and the thirty-nine weeks ended October 30, 1999, the financial
    statements include only a provision for state income taxes for those states
    in which Babbage's Etc. LLC was taxed as a "C" corporation. For ease of
    comparison, provisions for state income taxes are included in the pro forma
    income tax expense (benefit), which is described in footnote (2). For
    periods after October 30, 1999, the financial statements reflect income tax
    expense (benefit) as if we were taxed as a "C" corporation on a stand-alone
    basis.
(2) For periods prior to October 30, 1999, the pro forma income tax expense
    (benefit) reflects taxes as if we had been a "C" corporation in all
    jurisdictions and includes certain state income taxes in the amount of $582
    and $100 for the year ended January 30, 1999 and the 39 weeks ended October
    30, 1999, respectively.
(3) Net earnings (loss) for the periods prior to October 30, 1999 reflect pro
    forma taxes as described in footnote (2) above.
(4) Net earnings (loss) excluding the after-tax effect of goodwill amortization
    is presented here to provide additional information about our operations.
    These items should be considered in addition to, but not as a substitute for
    or superior to, operating earnings, net earnings, cash flow and other
    measures of financial performance prepared in accordance with generally
    accepted accounting principles.
(5) Stores are included in our comparable store sales base beginning in the
    13(th) month of operation. Comparable store sales for the fiscal year ended
    February 3, 2001 were computed using the first 52 weeks of the 53 week
    fiscal year.

                                        21
<PAGE>   26

             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

INTRODUCTION

     On June 15, 2000, Barnes & Noble acquired all of the outstanding shares of
Funco, Inc. for $24.75 per share in cash. The purchase of the outstanding
shares, retirement of employee stock options and other payments totaled
approximately $159.1 million, which Barnes & Noble financed by using borrowings
available under its credit facility.

     We have accounted for the Funco acquisition as a purchase. Funco's results
of operations were included in our combined results effective as of June 15,
2000. We have based the allocation of excess purchase price on the results of
our integration of Funco into our operations. The amortization of this goodwill
has been recorded in our statement of operations for the fiscal year ended
February 3, 2001 and the twenty-six week periods ended July 29, 2000 and August
4, 2001.

     The $159.1 million in debt incurred by Barnes & Noble has been recorded on
our balance sheet and the related interest expense has been recorded in our
statement of operations for the fiscal year ended February 3, 2001 and the
twenty-six week periods ended July 29, 2000 and August 4, 2001 in accordance
with the "push-down" accounting rules specified in Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 54.

     Our pro forma condensed consolidated statement of operations presents:

     - Our pro forma results of operations for the fiscal year ended February 3,
       2001, as if the Funco acquisition had occurred on January 30, 2000.

     - Our pro forma as adjusted results of operations for the fiscal year ended
       February 3, 2001, as if this offering had been completed on January 30,
       2000, at an assumed initial public offering price of $     per share and
       assuming the underwriters do not exercise their over-allotment option,
       with the estimated net proceeds being used to retire the $250 million
       intercompany debt to Barnes & Noble and the remaining intercompany debt
       being contributed to capital as described elsewhere herein.

     Our pro forma condensed consolidated statement of operations does not give
effect to any synergies that resulted from the merger of Funco's operations and
ours.

     We believe that the assumptions used provide a reasonable basis for
presenting the effects of these transactions. Our pro forma and pro forma as
adjusted results are not necessarily indicative of what actually would have
occurred if the acquisition had been consummated, and this offering had been
completed, on January 30, 2000, nor are they necessarily indicative of our
future operating results.

     Our pro forma condensed consolidated statement of operations should be read
in conjunction with the consolidated financial statements and their accompanying
notes included elsewhere in this prospectus.

                                        22
<PAGE>   27

            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                    HISTORICAL                                   ADJUSTMENTS    PRO FORMA
                                -------------------   ACQUISITION                 FOR THIS         AS
                                GAMESTOP   FUNCO(A)   ADJUSTMENTS    PRO FORMA    OFFERING      ADJUSTED
                                --------   --------   -----------    ---------   -----------    ---------
                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                             <C>        <C>        <C>            <C>         <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................  $756,697   $71,341      $    --      $828,038     $     --      $828,038
Cost of sales.................   570,995    45,710           --       616,705           --       616,705
                                --------   -------      -------      --------     --------      --------
Gross profit..................   185,702    25,631           --       211,333           --       211,333
Selling, general and
  administrative expenses.....   157,491    24,176           --       181,667           --       181,667
Depreciation and
  amortization................    12,974     2,095           --        15,069           --        15,069
Amortization of goodwill......     9,223        --        1,769(b)     10,992           --        10,992
                                --------   -------      -------      --------     --------      --------
Operating earnings (loss).....     6,014      (640)      (1,769)        3,605           --         3,605
Transaction expenses..........        --        --           --            --           --            --
                                --------   -------      -------      --------     --------      --------
Earnings (loss) before
  interest expense............     6,014      (640)      (1,769)        3,605           --         3,605
Interest expense, net.........    23,411      (287)       4,111(c)     27,235      (27,271)(e)       (36)
                                --------   -------      -------      --------     --------      --------
Earnings (loss) before income
  taxes.......................   (17,397)     (353)      (5,880)      (23,630)      27,271         3,641
Income tax expense
  (benefit)...................    (5,500)      (97)      (1,910)(d)    (7,507)      10,963(f)      3,456
                                --------   -------      -------      --------     --------      --------
Net earnings (loss)...........  $(11,897)  $  (256)     $(3,970)     $(16,123)    $ 16,308      $    185
                                ========   =======      =======      ========     ========      ========
PER SHARE DATA:
Net earnings (loss) per
  share -- basic..............  $          $            $            $            $             $
Weighted average shares
  outstanding -- basic........
Net earnings (loss) per
  share -- diluted............  $          $            $            $            $             $
Weighted average shares
  outstanding -- diluted......
</Table>

---------------
(a) The historical Funco column represents the unaudited results of Funco on a
    historical basis for the period from January 30, 2000 through June 14, 2000,
    the day prior to our acquisition of Funco, Inc.

(b) Represents the amortization of goodwill that would have been recorded from
    January 30, 2000 through June 14, 2000 using the straight-line method over
    30 years.

(c) Represents interest expense on the $159.1 million in debt that would have
    been recorded from January 30, 2000 through June 14, 2000.

(d) Recognition of income tax benefit relating to additional interest expense.

(e) Adjustment to give effect to (1) the receipt of the net proceeds of this
    offering as of January 30, 2000, estimated at           , after deduction of
    the estimated underwriting discount and offering expenses aggregating to
              , assuming the sale of           shares of Class A common stock at
    an assumed initial public offering price of           per share; and (2) the
    reduction of interest expense for the fiscal year ended February 3, 2001, to
    reflect the repayment of $250 million in intercompany debt with a portion of
    the net proceeds from this offering and the capital contribution of any
    remaining intercompany debt to Barnes & Noble. The adjustment assumes the
    underwriters do not exercise their over-allotment option. See "Use of
    Proceeds" and "Capitalization."

(f) Recognition of income tax expense relating to a reduction in interest
    expense.

                                        23
<PAGE>   28

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this prospectus.

GENERAL

     We are the largest specialty retailer of video game products and PC
entertainment software in the United States. We sell new and used video game
hardware, video game software and accessories, as well as PC entertainment
software and related accessories and other merchandise. As of August 4, 2001, we
operated 990 stores, in 49 states, Puerto Rico and Guam, under the names
GameStop, Babbage's, Software Etc. and FuncoLand. We also operate an electronic
commerce web site under the name gamestop.com and publish Game Informer, one of
the industry's largest circulation multi-platform video game magazines in the
United States.

     Our fiscal year is composed of 52 or 53 weeks ending on the Saturday
closest to January 31. The fiscal years ended January 30, 1999, or "fiscal
1998," and January 29, 2000, or "fiscal 1999," consisted of 52 weeks and the
fiscal year ended February 3, 2001, or "fiscal 2000," consisted of 53 weeks.

     Our wholly-owned subsidiary, Babbage's Etc., began operations in November
1996. In October 1999, Babbage's Etc. was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble. Because our financial statements subsequent to
the acquisition by Barnes & Noble are not directly comparable to those prior to
the acquisition, the financial statements included elsewhere in this prospectus
make a distinction between the "predecessor company" and the "successor
company." The statement of operations data presented below for fiscal 1998 and
any references to fiscal 1998 include the results of operations for the
predecessor company. The statement of operations data presented below for fiscal
1999 and any references to fiscal 1999 consist of the results of operations for
the predecessor company for the thirty-nine weeks ended October 30, 1999 and the
results of operations for the successor company for the thirteen weeks ended
January 29, 2000. However, for purposes of management's discussion and analysis
of results of operations, the year ended January 29, 2000 for the predecessor
and successor company combined is being compared to fiscal years 1998 and 2000.
In June 2000, Barnes & Noble acquired Funco, Inc. and thereafter, Babbage's Etc.
became a wholly-owned subsidiary of Funco. In December 2000, Funco changed its
name to GameStop, Inc.

     Growth in the video game industry is driven by the introduction of new
technology. Within the past twelve months, two new video game platforms have
been introduced. In October 2000, Sony introduced PlayStation 2 and in June 2001
Nintendo introduced Game Boy Advance. We anticipate that Microsoft will
introduce Xbox and Nintendo will introduce GameCube in late 2001. As is typical
following the introduction of new video game platforms, we expect that the sales
of these four platforms and related software and accessories will increase in
the future. In contrast, we expect the sales of PlayStation, Nintendo 64 and
Dreamcast products to continue to decline as is typically the trend with older
video game platforms when new platforms are anticipated or introduced. Sales of
new video game hardware generally increase as a percentage of sales in the first
full year following the introduction of next generation platforms. As video game
platforms mature, the sales mix attributable to complementary video game
software and accessories, which generate higher gross margins, generally
increases in the second and third years. The net effect is generally a decline
in gross margins in the first full year following new platform releases and an
increase in gross margins in the second and third years.

     Our sales are recognized at the time of the sale of our products. Our
merchandise inventories are carried at the lower of cost or market using the
average cost method. Used video game products traded in by customers are
recorded as inventory at the amount of the store credit given to the customer.
The subsequent sales of used video game products are recorded at the retail
price charged to the customer.

     Goodwill resulted from the acquisition of Babbage's Etc. by Barnes & Noble
in October 1999 and the acquisition of Funco in June 2000. The amortization of
goodwill associated with the acquisition of

                                        24
<PAGE>   29

Babbage's Etc. is deductible for tax purposes, whereas the amortization of
goodwill associated with the Funco acquisition is not deductible for tax
purposes. This non-deductible goodwill amortization affects our effective tax
rate as a stand-alone corporation.

     Based upon the terms of the acquisition of Babbage's Etc. by Barnes &
Noble, if certain financial targets are met by GameStop in the fiscal year ended
February 2, 2002, Barnes & Noble will make an additional payment of
approximately $10 million to the former Babbage's Etc. members and, under push-
down accounting rules, GameStop will recognize additional goodwill of
approximately $10 million with a corresponding increase in paid-in-capital.

     Prior to its acquisition by Barnes & Noble in October 1999, Babbage's Etc.,
as a limited liability company, was not subject to federal and most state income
taxes and its earnings were taxed directly to its members. Effective in the
fourth quarter of fiscal 1999 and for all periods subsequent to that time, we
recorded taxes as a "C" corporation on a stand-alone basis.

RESULTS OF OPERATIONS

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

<Table>
<Caption>
                                                                                          TWENTY-SIX
                                        FISCAL YEAR    FISCAL YEAR    FISCAL YEAR         WEEKS ENDED
                                           ENDED          ENDED          ENDED       ---------------------
                                        JANUARY 30,    JANUARY 29,    FEBRUARY 3,    JULY 29,    AUGUST 4,
                                           1999           2000           2001          2000        2001
                                        -----------    -----------    -----------    --------    ---------
                                                                                          (UNAUDITED)
<S>                                     <C>            <C>            <C>            <C>         <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................     100.0%         100.0%         100.0%       100.0%       100.0%
Cost of sales.........................      75.3           76.2           75.5         74.3         75.1
                                           -----          -----          -----        -----        -----
Gross profit..........................      24.7           23.8           24.5         25.7         24.9
Selling, general and administrative
  expenses............................      18.2           17.7           20.8         25.0         23.2
Acquisition incentive bonuses.........        --            4.9             --           --           --
Depreciation and amortization.........       1.0            1.2            1.7          2.0          2.2
Amortization of goodwill..............        --            0.3            1.2          1.5          1.4
                                           -----          -----          -----        -----        -----
Operating earnings (loss).............       5.5           (0.3)           0.8         (2.8)        (1.9)
Interest expense, net.................       0.8            0.7            3.1          3.5          2.6
                                           -----          -----          -----        -----        -----
Earnings (loss) before income taxes...       4.7           (1.0)          (2.3)        (6.3)        (4.5)
Income tax expense (benefit)..........       1.9           (0.4)          (0.7)        (2.3)        (1.6)
                                           -----          -----          -----        -----        -----
Net earnings (loss)...................       2.8%          (0.6)%         (1.6)%       (4.0)%       (2.9)%
                                           =====          =====          =====        =====        =====
</Table>

TWENTY-SIX WEEKS ENDED AUGUST 4, 2001 COMPARED TO TWENTY-SIX WEEKS ENDED JULY
29, 2000

     Sales increased by $161.0 million, or 65.1%, from $247.2 million in the
twenty-six weeks ended July 29, 2000 to $408.2 million in the twenty-six weeks
ended August 4, 2001. The increase in sales was primarily attributable to the
acquisition of Funco in June 2000 and the related sales for the full twenty-six
week period in 2001, compared to Funco sales for only six weeks included in the
twenty-six week period in 2000. Sales from the acquired FuncoLand stores and
related magazine and e-commerce operations accounted for $106.4 million of the
$161.0 million increase in sales. Sales also increased due to a 22.6% increase
in comparable store sales and the additional sales resulting from 45 net new
stores opened since July 29, 2000. Stores are included in our comparable store
sales base beginning in the 13th month of operation. The increase in comparable
store sales was primarily due to sales of PlayStation 2 and Game Boy Advance
hardware, software and accessories, following the launch of these new video game
platforms in October 2000 and June 2001, respectively. The sales of these new
hardware platforms and related

                                        25
<PAGE>   30

products were partially offset by sales declines in PlayStation, Nintendo 64,
Dreamcast and PC entertainment software and trading cards from the period a year
ago.

     Cost of sales increased by $122.9 million, or 67.0%, from $183.5 million in
the twenty-six weeks ended July 29, 2000 to $306.4 million in the twenty-six
weeks ended August 4, 2001. Cost of sales as a percentage of net sales increased
from 74.3% in the twenty-six weeks ended July 29, 2000 to 75.1% in the
twenty-six weeks ended August 4, 2001. The increase in cost of sales as a
percentage of sales was attributable to increased sales of lower margin video
game hardware. This increase was mostly offset by increases in sales of higher
margin used video game products, which resulted from the acquisition of Funco.

     Selling, general and administrative expenses increased by $32.7 million, or
52.9%, from $61.8 million in the twenty-six weeks ended July 29, 2000 to $94.5
million in the twenty-six weeks ended August 4, 2001. The increase was primarily
attributable to the increase in the number of stores in operation following the
Funco acquisition in June 2000 and the related increases in store, distribution,
and corporate office operating expenses. Selling, general and administrative
expenses as a percentage of sales decreased from 25.0% in the twenty-six weeks
ended July 29, 2000 to 23.2% in the twenty-six weeks ended August 4, 2001. The
decrease in selling, general and administrative expenses as a percentage of
sales was due to the economies achieved in distribution and corporate operating
expenses after the integration of the Funco acquisition and the store operating
efficiencies gained as a result of the increase in comparable store sales.

     Depreciation and amortization expense increased from $4.9 million for the
twenty-six weeks ended July 29, 2000 to $9.1 million in the twenty-six weeks
ended August 4, 2001. This increase of $4.2 million was due to the acquisition
of Funco and capital expenditures for new stores, management information systems
and distribution center enhancements.

     Amortization of goodwill increased from $3.7 million to $5.6 million due to
the Funco acquisition. The related goodwill was amortized for the full
twenty-six week period in 2001 compared to six weeks in 2000.

     Interest expense, net of interest income, increased by $2.0 million, or
23.0%, from $8.8 million in the twenty-six weeks ended July 29, 2000 to $10.8
million in the twenty-six weeks ended August 4, 2001. The increase was
attributable to the $159.1 million in additional debt incurred as a result of
the Funco acquisition. This increase was mostly offset by decreases in average
borrowing rates.

     The income tax benefit recorded during the twenty-six weeks ended August 4,
2001 increased by $0.6 million, from the $5.7 million benefit recorded in the
corresponding period in 2000, to $6.3 million.

FISCAL 2000 COMPARED TO FISCAL 1999

     Sales increased by $203.6 million, or 36.8%, from $553.1 million in fiscal
1999 to $756.7 million in fiscal 2000. The increase in sales was primarily
attributable to the additional sales volume from the acquisition of Funco in
June 2000. Sales from the 400 acquired FuncoLand stores and related magazine and
e-commerce operations accounted for $167.8 million of the $203.6 million
increase in sales. Sales also increased due to the 52 net new stores opened
during fiscal 2000 and because fiscal 2000 included 53 weeks of sales compared
to 52 weeks in fiscal 1999. Offsetting these increases in sales was a decrease
in comparable stores sales of 6.7% for the year. Comparable store sales
decreased due to declines in sales of PlayStation and Nintendo 64 hardware and
software, action figures and trading cards, and PC education and productivity
software, which were partially offset by increases in PlayStation 2 video game
hardware and software, Dreamcast and Game Boy video game software and PC
entertainment software. PlayStation 2 product availability shortages prior to
the holiday selling season resulted in less than expected sales during the
fourth quarter of fiscal 2000.

     Cost of sales increased by 35.4%, or $149.3 million, from $421.7 million in
fiscal 1999 to $571.0 million in fiscal 2000. As a percentage of sales, cost of
sales decreased from 76.2% in fiscal 1999 to 75.5% in fiscal 2000. The decrease
in cost of sales as a percentage of sales was primarily attributable to the
acquisition of Funco and the related increase in sales of higher margin used
video game products. These

                                        26
<PAGE>   31

margin gains were offset, to some extent, by increased sales of low margin
PlayStation 2 hardware and decreased sales of high margin action figures and
trading cards.

     Selling, general and administrative expense increased $59.5 million, or
60.7%, from $98.0 million in fiscal 1999 to $157.5 million in fiscal 2000. The
increase was due primarily to the Funco acquisition and the related costs to
integrate corporate and distribution functions. As a percentage of sales,
selling, general and administrative expense increased from 17.7% in fiscal 1999
to 20.8% in fiscal 2000. The increase in selling, general and administrative
expense as a percentage of sales was primarily attributable to additional
distribution, corporate and store operating expenses during the integration of
the Funco acquisition as well as a decrease in comparable store sales.

     In October 1999, the predecessor company authorized a $26.8 million bonus
to employees upon the sale of the company to Barnes & Noble.

     Depreciation and amortization expense increased from $6.4 million in fiscal
1999 to $13.0 million in fiscal 2000. The $6.6 million increase was primarily
attributable to the Funco acquisition, capital expenditures for new store
openings, remodeling of existing stores and management information systems and
distribution center enhancements.

     Amortization of goodwill increased from $1.7 million to $9.2 million due to
the goodwill associated with the acquisition of Babbage's Etc. by Barnes & Noble
in October 1999 and due to the Funco acquisition in June 2000. The goodwill
generated from the acquisition by Barnes & Noble was amortized for only three
months in fiscal 1999 compared to the full year in fiscal 2000. In addition,
during fiscal 2000, the goodwill related to the Funco acquisition was amortized
from the date of acquisition through February 3, 2001.

     Interest expense, net of interest income, increased by $19.3 million from
$4.1 million in fiscal 1999 to $23.4 million in fiscal 2000. The increase was
due to the $202.4 million of intercompany debt associated with the acquisition
of Babbage's Etc. by Barnes & Noble in October 1999 and the additional $159.1
million of intercompany debt incurred as a result of the acquisition of Funco in
June 2000. The debt incurred as a result of the acquisition of Babbage's Etc. by
Barnes & Noble accrued interest for only three months in fiscal 1999 compared to
the full year in fiscal 2000. In addition, the fiscal 2000 results reflect
interest on the debt related to the Funco acquisition from June 15, 2000 through
February 3, 2001.

     Income tax benefit, which reflects income taxes as if we were taxed as a
"C" corporation on a stand-alone basis, increased from $2.1 million in fiscal
1999 on a pro forma basis to $5.5 million in fiscal 2000.

FISCAL 1999 COMPARED TO FISCAL 1998

     Sales increased by $87.9 million, or 18.9%, from $465.2 million in fiscal
1998 to $553.1 million in fiscal 1999. The increase in sales was due to a 12.5%
increase in comparable store sales, which resulted in a $56.9 million increase
in net sales, and the additional sales volume attributable to 53 net new stores
opened during fiscal 1999. Comparable store sales increased primarily as a
result of sales of the newly introduced Dreamcast video game hardware, software
and accessories. In addition, we experienced strong demand for Game Boy software
and hardware as well as action figures and trading cards.

     Cost of sales increased by 20.3%, or $71.2 million, from $350.5 million in
fiscal 1998 to $421.7 million in fiscal 1999. As a percentage of net sales, cost
of sales increased from 75.3% in fiscal 1998 to 76.2% in fiscal 1999. The
increase in cost of sales as a percentage of sales was due primarily to the
increasing percentage of sales derived from lower margin video game hardware and
additional freight costs incurred to ensure that hot new titles are delivered to
our stores within 24 hours of release. The increase was partially offset by
sales of higher margin products such as trading cards and action figures.

     Selling, general and administrative expenses increased by 15.8% from $84.6
million in fiscal 1998 to $98.0 million in fiscal 1999. The $13.4 million
increase was primarily attributable to additional selling, general and
administrative expenses in store operations, distribution and corporate
functions in support of overall sales growth and opening new stores. Selling,
general and administrative expense as a percentage of

                                        27
<PAGE>   32

sales decreased from 18.2% in fiscal 1998 to 17.7% in fiscal 1999 due to
operating efficiencies experienced with higher comparable store sales levels.

     In October 1999, the predecessor company authorized a $26.8 million bonus
to employees upon the sale of the company to Barnes & Noble.

     Depreciation and amortization expense increased by $1.6 million, from $4.8
million in fiscal 1998 to $6.4 million in fiscal 1999. This increase was due to
capital expenditures for new store openings, remodeling existing stores, and for
distribution and e-commerce enhancements.

     Amortization of goodwill of $1.7 million in fiscal 1999 resulted from the
acquisition of Babbage's Etc. by Barnes & Noble in October 1999.

     Interest expense, net of interest income, increased 15.5% from $3.5 million
in fiscal 1998 to $4.1 million in fiscal 1999. This increase was due to the $3.3
million of interest related to the $202.4 million in debt incurred when
Babbage's Etc. was acquired by Barnes & Noble. Excluding the interest on this
acquisition debt, we experienced a decrease in interest expense of $2.7 million,
due to increased sales during the year.

     In fiscal 1998, pro forma income tax expense was $8.7 million. In fiscal
1999, pro forma income tax benefit was $2.1 million.

LIQUIDITY AND CAPITAL RESOURCES

     We have historically financed our operations through a combination of cash
flow generated from operations and external borrowings. Subsequent to our
acquisition by Barnes & Noble in October 1999, our operations were funded by
cash flows from operations and advances from Barnes & Noble, which advances have
been treated as an intercompany loan owed to Barnes & Noble by us. As of August
4, 2001, we were indebted to Barnes & Noble in the amount of $392.3 million.
Immediately prior to the closing of this offering, Barnes & Noble will
contribute the difference between the aggregate amount of the intercompany loans
and $250 million as additional paid-in capital. As of August 4, 2001, the
capital contribution by Barnes & Noble would have been approximately $142.3
million.

     During the twenty-six-week periods ended August 4, 2001 and July 29, 2000,
cash used in operations was $0.9 million and $45.7 million, respectively. The
cash used in operations in the twenty-six weeks ended August 4, 2001 was
primarily the result of net purchases of inventory and payment of accounts
payable, offset partially by the collection of outstanding tax refunds. The cash
used in operations in the twenty-six weeks ended July 29, 2000 was principally
due to the payment of accounts payable that were outstanding at the end of the
previous fiscal year. In addition, cash was used to fund the net loss and
increases in merchandise inventories and receivables. In fiscal 2000, cash used
in operations of $0.1 million was primarily due to increases in merchandise
inventories.

     Cash used in investing activities was $6.4 million, $162.7 million and
$180.7 million during the twenty-six-week periods ended August 4, 2001 and July
29, 2000 and the fiscal year ended February 3, 2001, respectively. In June 2000,
we used $152.8 million to purchase Funco. During the twenty-six-week periods
ended August 4, 2001 and July 29, 2000, we had capital expenditures of $6.4
million and $11.1 million, respectively, to open new stores, remodel existing
stores, and invest in information systems. Capital expenditures in fiscal 2000
totaled $25.1 million to open new stores, remodel existing stores, and invest in
information systems and distribution capabilities. Our future capital
requirements will depend on the number of new stores we open and the timing of
those openings within a given fiscal year. We plan to open between 50 and 55
stores in the second half of fiscal 2001 and between 100 and 150 stores in
fiscal 2002. Projected capital expenditures for fiscal 2001 and fiscal 2002 are
$21 million and $30 million, respectively, to be used primarily to fund new
store openings.

     We currently intend to enter into a credit facility prior to the effective
date of this offering. Based on our current operating plans, we believe that
cash generated from our operating activities, available borrowings under our
credit facility and the cash proceeds from this offering will be sufficient to
fund our operations, store expansion and remodeling activities and corporate
capital expenditure programs for the foreseeable future.

                                        28
<PAGE>   33

IMPACT OF INFLATION

     We do not believe that inflation has had a material effect on our net sales
or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that we recognize acquired intangible assets apart from goodwill
if the acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that we reclassify the carrying amounts of certain intangible
assets and goodwill based on the criteria in SFAS 141.

     SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that we identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance with the
guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires us to complete a transitional goodwill impairment
test six months from the date of adoption. We are also required to reassess the
useful lives of other intangible assets within the first interim quarter after
adoption of SFAS 142. We intend to complete the transitional goodwill impairment
test within six months from the date of adoption. Currently, we are assessing
but have not yet determined how the adoption of SFAS 141 and SFAS 142 will
impact its financial position and results of operations.

SEASONALITY AND QUARTERLY RESULTS

     Our business, like that of many retailers, is seasonal, with the major
portion of sales and operating profit realized during the 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, 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 our merchandise mix.

     The following table sets forth certain unaudited quarterly income statement
information for fiscal 1999 and fiscal 2000 and the first two fiscal quarters of
2001. The unaudited quarterly information includes all normal recurring
adjustments that management considers necessary for a fair presentation of the
information shown.

<Table>
<Caption>
                                     FISCAL 1999                                FISCAL 2000                      FISCAL 2001
                       ---------------------------------------   -----------------------------------------   -------------------
                         1ST       2ND       3RD        4TH        1ST        2ND        3RD        4TH        1ST        2ND
                       QUARTER   QUARTER   QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                       -------   -------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                                                                 (UNAUDITED)
                                                                    (IN THOUSANDS)
<S>                    <C>       <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Sales................  $98,489   $88,323   $142,580   $223,748   $120,003   $127,154   $182,486   $327,054   $201,355   $206,806
Gross profit.........   26,542    24,889     31,096     48,940     30,007     33,619     47,383     74,693     48,008     53,711
Operating earnings
  (loss)(1)..........    3,434     2,093    (22,376)    15,432        697     (7,480)    (1,453)    14,250     (5,341)    (2,162)
</Table>

---------------
(1) In the third quarter of fiscal year 1999, operating loss reflects $26.8
    million of acquisition bonuses paid to certain of our employees upon the
    acquisition of Babbage's by Barnes & Noble.

                                        29
<PAGE>   34

                                    BUSINESS

GENERAL

     We are the largest video game and PC entertainment software specialty
retailer in the United States, based on the number of stores we operate and our
total revenues. We carry one of the largest assortments of new and used video
game hardware, video game software and accessories, PC entertainment software,
and related products, including action figures, trading cards and strategy
guides. We operate 990 stores in the United States, Puerto Rico and Guam. We
currently operate our stores under the GameStop, Babbage's, Software Etc. and
FuncoLand names and are in the process of rebranding most of our stores under
the GameStop name. We carry a constantly changing selection of more than 2,800
stock keeping units (SKUs) of electronic game merchandise in most stores. In
addition, we operate a web site at gamestop.com and publish Game Informer, one
of the industry's largest circulation multi-platform video game magazines, with
over 290,000 subscribers.

     Of our 990 stores, 534 stores are located in shopping malls and other
locations and 456 stores are located in strip centers. Our mall stores, which
average approximately 1,200 square feet, carry primarily new video game
hardware, video game software and accessories, which we refer to as video game
products, and PC entertainment software, as well as a limited selection of used
video game products. Our strip center stores, which average approximately 1,500
square feet, carry a balanced mix of new and used video game products and, in
selected stores, PC entertainment software. Our used video game products provide
a unique value proposition to our customers, and our purchasing of video game
products provides our customers with an opportunity to trade in their used video
game products for store credits and apply those credits towards other
merchandise, which, in turn, drives more sales.

INDUSTRY BACKGROUND

     According to NPD Group, Inc., a market research firm, the electronic game
industry was approximately an $8.4 billion market in the United States in 2000.
Of this $8.4 billion market, approximately $6.8 billion was attributable to
video game products, excluding sales of used video game products, and
approximately $1.6 billion was attributable to PC entertainment software.

NEW VIDEO GAME PRODUCTS.  Industry experts believe that the electronic game
industry is at the beginning stage of a new expansion cycle. International Data
Corporation, or IDC, an industry forecaster, forecasts that domestic sales of
new video game products will increase at a compound annual growth rate of
approximately 47.5% over the next three years. In addition, Interactive Digital
Software Association, or IDSA, estimates that 60% of all Americans, or
approximately 145 million people, play video or computer games on a regular
basis. We expect the following trends to result in increased sales of video game
products:

     - Hardware Platform Technology Evolution.  Video game hardware has evolved
       significantly from the early products launched in the 1980's. The
       processing speed of video game hardware has increased from 8-bit speeds
       in the 1980's to 128-bit speeds in next-generation systems such as Sony
       PlayStation 2, launched in 2000, Nintendo GameCube and Microsoft Xbox,
       which are both expected to launch early in the fourth quarter of 2001. In
       addition, portable handheld video game devices have evolved from the
       8-bit Nintendo Game Boy to the 32-bit Game Boy Advance, which was
       introduced in June 2001. Technological developments in both chip
       processing speed and data storage have provided significant improvements
       in advanced graphics and audio quality, which allow software developers
       to create more advanced games, encourage existing players to upgrade
       their hardware platforms and attract new video game players to purchase
       an initial system. As general computer technology advances, we expect
       video game technology to make similar advances.

     - Next-generation Systems Provide Multiple Capabilities Beyond
       Gaming.  Many next-generation hardware platforms, including Sony
       PlayStation 2 and Microsoft Xbox, utilize a DVD software format and have
       the potential to serve as multi-purpose entertainment centers by doubling
       as a

                                        30
<PAGE>   35

       player for DVD movies and compact discs. In addition, Sony PlayStation 2
       and Microsoft Xbox are expected to provide Internet connectivity.

     - Backward Compatibility.  Sony PlayStation 2 and Nintendo Game Boy Advance
       are both backward compatible, meaning that titles produced for the
       earlier version of the hardware platform may be used on the new hardware
       platform. We believe that backward compatibility may result in more
       stable industry growth because the decrease in consumer demand for
       products associated with existing hardware platforms that typically
       precedes the release of next-generation hardware platforms may be
       diminished.

     - Introduction of Next-generation Hardware Platforms Drives Software
       Demand.  Sales of video game software generally increase as
       next-generation platforms mature and gain wider acceptance. Historically,
       when a new platform is released, a limited number of compatible game
       titles are immediately available, but the selection grows rapidly as
       manufacturers and third-party publishers develop and release game titles
       for that new platform. For example, when Sony PlayStation 2 was released
       in October 2000, approximately 30 game titles were available for sale. By
       August 2001, over 120 game titles for the Sony PlayStation 2 platform
       were available for sale.

     - Broadening Demographic Appeal.  While the typical electronic game
       enthusiast is male between the ages of 14 and 34, the electronic game
       industry is broadening its appeal. More females are playing electronic
       video games, in part due to the development of video game products that
       appeal to them. According to IDSA, approximately 43% of all electronic
       game players currently are female. More adults are also playing video
       games as a portion of the population that played video games in their
       childhood continue to play and advance to the next-generation video game
       products. In addition, the availability of used video game products for
       sale has enabled a lower-economic demographic, that may not have been
       able to afford the considerably more expensive new video game products,
       to participate in the video game industry.

PC ENTERTAINMENT SOFTWARE.  IDC forecasts that domestic sales of PC
entertainment software will increase at a compound annual growth rate of 7.9%
over the next three years. PC entertainment software is generally sold in the
form of CD-ROMs and played on multimedia PCs featuring fast processors, expanded
memories, and enhanced graphics and audio capabilities.

USED VIDEO GAME MARKET.  As the installed base of video game hardware platforms
has increased and new hardware platforms are introduced, a growing used video
game market has evolved in the United States. Based on industry reports,
management believes that, as of August 2001, the installed base of video game
hardware systems in the United States, based on original sales, totaled over
98.1 million units, including approximately 19.5 million Sony PlayStation units,
2.8 million Sega Dreamcast units, 13.6 million Nintendo 64 units, 20.2 million
Nintendo Game Boy and Game Boy Color units, and approximately 40.9 million total
units of Sega Genesis and Super Nintendo systems, which are no longer being
manufactured. Hardware manufacturers and third-party software publishers produce
a wide variety of software titles for each of these hardware platforms. Based on
industry reports, management believes that the installed base of video game
software units in the United States totals over 500 million units.

BUSINESS STRATEGY

     Our goal is to enhance our position as the nation's largest specialty
retailer of new and used video game products and PC entertainment software by
focusing on the following strategies:

TARGETING A BROAD AUDIENCE OF GAME PLAYERS.  We have created a store environment
targeting a broad audience including the electronic game enthusiast, the casual
gamer and the seasonal gift giver. Our mall stores primarily focus on the
electronic game enthusiast who demands the latest merchandise featuring the
"hottest" technology immediately on the day of release. Our strip center stores
also serve the electronic game enthusiast, but focus on serving the
value-oriented customer by offering a wide selection of value-priced used video
game products and the opportunity to trade in used video game products in
exchange for store credits applicable to future purchases which, in turn, drives
more sales.

                                        31
<PAGE>   36

ENHANCING OUR IMAGE AS A DESTINATION LOCATION.  Our stores serve as destination
locations for game players due to our broad selection of products, knowledgeable
sales associates, game oriented environment and unique pricing proposition. We
offer all major video game platforms, provide a broad assortment of video game
products and offer a larger and more current selection of merchandise than other
retailers. We provide a high level of customer service by hiring game
enthusiasts and providing them with ongoing sales training, as well as training
in the latest technical and functional elements of our products and services.
Our stores are equipped with several video game sampling areas, which provide
our customers the opportunity to play games before purchase, as well as
equipment to play video game clips.

PROVIDING A FIRST-TO-MARKET DISTRIBUTION NETWORK.  We employ a variety of
rapid-response distribution methods in our efforts to be the first to market for
new video game products and PC entertainment software. We strive to deliver
popular new releases to selected stores within hours of release and to all of
our stores within 24 hours of release. This highly efficient distribution
network is essential as a significant portion of a new title's sales will be
generated in the first few days and weeks following its release. As the largest
specialty retailer of video game products and PC entertainment software, with a
proven capability to distribute new releases to our customers quickly, our
management believes that we regularly receive a disproportionately large
allocation of popular new video game products and PC entertainment software. On
a daily basis, we actively monitor sales trends, customer reservations and store
manager feedback to ensure a high in-stock position for each store. To assure
our customers immediate access to new releases, we offer our customers the
opportunity to pre-order products in our stores or through our web site prior to
their release.

OFFERING THE LARGEST SELECTION OF USED VIDEO GAME PRODUCTS.  We are the nation's
leading provider and carry the broadest selection of used video game products
for both current and previous generation platforms. We are one of the only
retailers that provide video game software for previous generation platforms,
giving us a unique advantage in the video game retail industry. The opportunity
to trade in and purchase used video game products offers our customers a unique
value proposition unavailable at mass merchants, toy stores and consumer
electronic retailers. We obtain most of our used video game products from
trade-ins made in our stores by our customers. Used video game products generate
significantly higher gross margins than new video game products.

REBRANDING OUR STORES WITH THE GAMESTOP NAME.  We currently operate stores under
the GameStop, Babbage's, Software Etc. and FuncoLand names. We have initiated a
rebranding strategy under which all new stores opened since December 2000
operate under the GameStop name and existing stores in targeted markets are
being rebranded under the GameStop name. We have completed rebranding of our
stores in Dallas, Houston, San Antonio and Seattle, and are in the process of
rebranding our stores in Philadelphia. By the end of fiscal 2001, we expect to
operate approximately 280 stores under the GameStop name and we intend to
continue to rebrand most of our stores. Rebranding to a single GameStop name
enables us to leverage brand awareness and to capture advertising and marketing
efficiencies. Our rebranding strategy is further supported by the GameStop
loyalty card and our web site. The GameStop loyalty card, which is obtained as a
bonus with a paid subscription to our Game Informer magazine, offers customers
discounts on selected merchandise in our stores. Our web site allows our
customers to buy games on-line and to learn about the latest video game products
and PC entertainment software and their availability in our stores.

INVESTING IN OUR INFORMATION SYSTEMS AND DISTRIBUTION CAPABILITIES.  We employ
sophisticated and fully-integrated inventory management, store-level point of
sale and financial systems and a centralized state-of-the-art distribution
facility. These systems enable us to maximize the efficiency of the flow of
approximately 2,800 SKUs, improve store efficiency, optimize store in-stock
positions, and carry a broad selection of inventory. Our proprietary inventory
management system enables us to maximize sales of new release titles and avoid
markdowns as titles mature and utilizes electronic point-of-sale equipment that
provides corporate headquarters with daily information regarding store-level
sales and available inventory levels to automatically generate replenishment
shipments to each store at least twice a week. In addition, our highly
customized inventory management system allows us to actively manage the pricing
and product availability of our used video game products across our store base
and to reallocate our inventory as

                                        32
<PAGE>   37

necessary. Our systems enable each store to carry a merchandise assortment
uniquely tailored to its own sales mix and customer needs. Our ability to react
quickly to consumer purchasing trends has resulted in a target mix of inventory,
reduced shipping and handling costs for overstocks and reduced our need to
discount products.

GROWTH STRATEGY

NEW STORE EXPANSION.  We intend to continue to open new strip center stores in
our targeted markets and new mall stores in selected mall locations. We opened
62 new stores in fiscal 2000 and 21 new stores to date in fiscal 2001. We plan
on opening approximately 50 to 55 new stores during the remainder of fiscal 2001
and approximately 100 to 150 new stores in fiscal 2002. Our primary growth
vehicle will be the expansion of our strip center store base, which we believe
could grow to over 2,000 stores in the United States. Our strategy is to open
clusters of strip center stores in targeted major metropolitan markets under the
GameStop brand name. For example, we currently operate 17 stores in the Houston
metropolitan area and intend to operate a total of 31 stores in Houston by the
end of fiscal 2001. We analyze each market relative to target population and
other demographic indices, real estate availability, competitive factors and
past operating history, if available.

INCREASE COMPARABLE STORE SALES.  We plan to increase our comparable store sales
by capitalizing on the growth in the video game industry, expanding our sales of
used video game products and increasing awareness of the GameStop name.

     - Capitalize on Industry Growth.  In the first six months of 2001, our
       comparable store sales increased 22.6%, driven in large measure by the
       success of Sony PlayStation 2, which was launched in October 2000, and
       Nintendo Game Boy Advance, which was launched in June 2001. Over the next
       few years, we expect to continue to capitalize on the increasing
       installed base for both platforms, as well as the scheduled launch in
       late 2001 of the Microsoft Xbox and Nintendo GameCube platforms. We
       expect the launch of these four platforms and the related increase in the
       installed hardware base to drive significant growth in video game
       software and accessories sales over the next few years.

     - Increase Sales of Used Video Game Products.  We will continue to expand
       the selection and availability of used video game products in both our
       mall and strip center stores. Our strategy consists of increasing
       consumer awareness of the benefits of trading in and buying used video
       game products at our stores through increased marketing activities. We
       expect the launch of new platform technology to drive trade-ins of
       previous generation products, including Nintendo Game Boy Color and
       Nintendo 64, Sega Dreamcast and Sony PlayStation, thereby expanding the
       supply of used video game products.

     - Increase GameStop Brand Awareness.  We intend to increase customer
       awareness of the benefits of shopping in our stores. In connection with
       our rebranding efforts, we plan to enhance GameStop brand awareness by
       increasing the amount of media advertising in targeted markets, expanding
       our GameStop loyalty card program, aggressively promoting trade-ins of
       used video game products in our stores and leveraging our web site at
       gamestop.com.

MERCHANDISE

     Our product offerings consist of video game products, PC entertainment
software, and related products, such as action figures, trading cards and
strategy guides. We also market selected PC productivity and educational
software titles. Our in-store inventory generally consists of a constantly
changing selection of over 2,800 SKUs. We have a central buying group that
negotiates terms, discounts and cooperative advertising allowances for all of
our stores. We use customer requests and feedback, industry magazines and
product reviews to determine which new releases are expected to be hits. Call
lists and advance orders are tracked at individual stores to distribute titles
and capture demand effectively. This merchandise management is essential because
a significant portion of a game's sales are usually generated in the first days
and weeks following its release. We also carefully manage product pricing
utilizing a tiered
                                        33
<PAGE>   38

pricing strategy that enables us to tailor pricing at our stores based on each
store's competitive environment.

VIDEO GAME HARDWARE.  We offer the video game platforms of all major
manufacturers, including Sony PlayStation 2 and PlayStation, Nintendo Game Boy
Advance, Game Boy Color and Nintendo 64, and Sega Dreamcast. When they are
introduced later this year, we intend to offer Microsoft Xbox and Nintendo
GameCube systems. We also offer extended service agreements on video game
hardware. In support of our strategy to be the destination location for
electronic game players, we aggressively promote the sale of video game
platforms. Video game hardware sales are generally driven by the introduction of
new platform technology and the reduction in price points as platforms mature.
Due to our strong relationships with the manufacturers of these platforms, we
often receive disproportionately large allocations of new release hardware
products which is an important component of our strategy to be the destination
of choice for electronic game players. We believe that selling video game
hardware increases store traffic and promotes customer loyalty, leading to
increased sales of video game software, which have higher gross margins than
video game hardware.

VIDEO GAME SOFTWARE.  We purchase video game software directly from the leading
manufacturers, including Sony, Nintendo and Sega, as well as over 44 third-party
game publishers, such as Electronic Arts, Inc., THQ Inc. and Activision, Inc. We
are one of the largest customers in the United States of video game titles sold
by these publishers. We carry over 1,000 SKUs at any given time across a variety
of genres, including Sports, Action, Strategy, Adventure/Role Playing and
Simulation.

USED VIDEO GAME PRODUCTS.  We are the largest retailer of used video games in
the United States. We provide our customers with an opportunity to trade in
their used video game products in our stores in exchange for store credits which
can be applied towards the purchase of other products, including new
merchandise. We have the largest selection (approximately 1,000 SKUs) of used
video game titles which have an average price of $16 as compared to $37 for new
video game titles and which generate significantly higher gross margins than new
video game products. Our trade-in program provides our customers with a unique
value proposition which is unavailable at mass merchants, toy stores and
consumer electronic retailers. This program provides us with an inventory of
used video game products which we resell to our more value-oriented customers.
In addition, our highly-customized inventory management system allows us to
actively manage the pricing and product availability of our used video game
products across our store base and to reallocate our inventory as necessary. Our
trade-in program also allows us to be one of the only suppliers of previous
generation platforms and related video games. We also operate a refurbishment
center where defective video game products can be tested, cleaned, relabeled,
repackaged, priced and redistributed back to our stores.

PC ENTERTAINMENT AND OTHER SOFTWARE.  We purchase PC entertainment software from
over 42 publishers, including Electronic Arts, Microsoft and Havas. We offer PC
entertainment software across a variety of genres, including Action, Simulation,
Sports, Strategy and Adventure/Role Playing. We also carry a limited assortment
of educational, productivity and reference titles.

ACCESSORIES AND OTHER PRODUCTS.  Video game accessories consist primarily of
controllers, memory cards and other add-ons. PC entertainment accessories
consist primarily of video cards, joysticks and modems. We also carry strategy
guides and magazines, as well as character-related merchandise, including action
figures and trading cards. We carry over 400 SKUs of accessories and other
products. In general, this category has higher margins than new video game and
PC entertainment products.

                                        34
<PAGE>   39

     The following table sets forth sales mix, expressed as a percentage of net
sales for the periods indicated:

<Table>
<Caption>
                                                 53 WEEKS ENDED      52 WEEKS ENDED
                                                FEBRUARY 3, 2001    JANUARY 29, 2000
                                                ----------------    ----------------
<S>                                             <C>                 <C>
Video Games:*
  Video Game Hardware.........................        15.2%               11.4%
  Video Game Software.........................        49.0%               41.0%
PC Software:
  PC Entertainment Software...................        13.0%               15.8%
  Other Software..............................         3.6%                5.4%
Accessories and Other Products................        19.2%               26.4%
</Table>

---------------
* Includes new and used merchandise.

STORE OPERATIONS

     As of August 4, 2001, we operated 990 stores, primarily under the GameStop,
Babbage's, Software Etc., and FuncoLand names. Each of our stores typically
carries over 2,800 SKUs. We design our stores to provide an electronic gaming
atmosphere with an engaging and visually captivating layout. Our stores are
equipped with several video game sampling areas, which provide our customers the
opportunity to play games before purchase, as well as equipment to play video
game clips. We use store configuration, in-store signage and product
demonstrations to produce marketing opportunities both for us and for our
vendors.

STORE FORMATS.

     - Mall-Based Stores.  Our mall-based stores, which average approximately
       1,200 square feet, carry primarily new video game products and PC
       entertainment software, as well as a limited selection of used video game
       products. We currently operate 534 mall stores in high traffic shopping
       malls in targeted locations throughout the United States, Puerto Rico and
       Guam.

     - Strip Center Stores.  Our strip center stores, which average
       approximately 1,500 square feet, carry a balanced mix of new and used
       video game products and, in selected stores, PC entertainment software.
       We currently operate 456 strip center stores in the United States. Our
       strip center stores are located in both high traffic "power strip
       centers" and local neighborhood strip centers, primarily in major
       metropolitan areas. These locations provide visibility, easy access and
       high frequency of visits. We target strip centers that are conveniently
       located, have a mass merchant or supermarket anchor tenant and have a
       high volume of customers.

STORE ECONOMICS.  Average annual sales per mall store were approximately $1.1
million in fiscal 2000, and the average cost to open a new mall store is
approximately $185,000, including $60,000 of inventory net of vendor financing.
Average annual sales per strip center store were approximately $600,000 in
fiscal 2000, and the average cost to open a new strip center store is
approximately $125,000, including $50,000 of inventory net of vendor financing.
We expect these costs to remain relatively constant throughout fiscal 2001. All
of our new stores, lease renewals, relocations and major remodels are evaluated
on the basis of their return on investment, strategic positioning and conditions
of the market. We generally achieve profitability in each of our new stores
within the first holiday season of opening.

SITE SELECTION AND LOCATIONS

SITE SELECTION.  We have a dedicated staff of real estate personnel experienced
in selecting store locations. Site selections for new stores are made after an
extensive review of demographic data and other information relating to market
potential, competitor access and visibility, compatible nearby tenants,
accessible parking, location visibility, lease terms and the location of our
other stores. Most of our stores are located in highly visible locations within
malls and strip centers.

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<PAGE>   40

LOCATIONS.  The table below sets forth the number of our stores located in each
state, Puerto Rico and Guam as of August 4, 2001:

<Table>
<Caption>
                              NUMBER
STATE                        OF STORES
-----                        ---------
<S>                          <C>
Alabama....................       9
Alaska.....................       3
Arizona....................      17
Arkansas...................       4
California.................     110
Colorado...................      13
Connecticut................      17
Delaware...................       3
Florida....................      30
Georgia....................      21
Guam.......................       1
Hawaii.....................       8
Idaho......................       2
Illinois...................      51
Indiana....................      17
Iowa.......................       9
Kansas.....................       5
Kentucky...................      15
Louisiana..................      11
Maine......................       1
Maryland...................      29
Massachusetts..............      28
Michigan...................      48
Minnesota..................      22
Mississippi................       4
Missouri...................      21
</Table>

<Table>
<Caption>
                              NUMBER
STATE                        OF STORES
-----                        ---------
<S>                          <C>
Montana....................       4
Nebraska...................       3
Nevada.....................       3
New Hampshire..............       5
New Jersey.................      50
New Mexico.................       4
New York...................      54
North Carolina.............      21
North Dakota...............       4
Ohio.......................      54
Oklahoma...................       9
Oregon.....................       6
Pennsylvania...............      48
Puerto Rico................       8
Rhode Island...............       1
South Carolina.............      11
South Dakota...............       2
Tennessee..................      20
Texas......................      84
Utah.......................       9
Virginia...................      35
Vermont....................       1
Washington.................      27
West Virginia..............       8
Wisconsin..................      20
</Table>

GAME INFORMER

     We publish Game Informer, a monthly video game magazine featuring reviews
of new title releases, tips and secrets about existing games and news regarding
current developments in the electronic game industry. The magazine is sold
through subscription and through displays in our stores. For its August 2001
issue, the magazine had more than 290,000 paid subscriptions. Game Informer
revenues are also generated through the sale of advertising space. In addition,
we have recently begun offering the GameStop loyalty card as a bonus with each
paid subscription, providing our subscribers with a discount on selected
merchandise.

E-COMMERCE

     We operate an electronic commerce web site at www.gamestop.com that allows
our customers to buy video game products and other merchandise on-line. The site
also offers customers information and content about available games, release
dates for upcoming games, and access to store information, such as location and
product availability. In addition, the site offers the ability to register on a
call list in any store, enabling us to notify customers when a game arrives at a
nearby store.

                                        36
<PAGE>   41

INFORMATION MANAGEMENT

     Our operating strategy involves providing a broad merchandise selection to
our customers as quickly and as cost-effectively as possible. We use our
inventory management systems to maximize the efficiency of the flow of products
to our stores, enhance store efficiency and optimize store in-stock and overall
investment in inventory.

DISTRIBUTION.  We operate a 210,000 square foot state-of-the-art distribution
center in Grapevine, Texas. By operating with a centralized distribution
facility, we effectively control and minimize inventory levels. A
technologically-advanced conveyor system and flow-through racks control costs
and improve speed of fulfillment. The technology used in the distribution center
allows for high-volume receiving, distributions to stores and returns to
vendors. Inventory is shipped to each store at least twice a week, or daily, if
necessary, in order to keep stores in supply of products. In order to support
our first-to-market distribution network, we utilize the services of 15
off-site, third-party operated distribution centers that pick up products from
our suppliers, repackage the products for each of our stores and ship those
products to our stores by package carriers. Our ability to rapidly process
incoming shipments of new release titles and distribute them to all of our
stores, either that day or by the next morning, enables us to meet peak demand
and replenish stores at least twice a week.

MANAGEMENT INFORMATION SYSTEMS.  Our proprietary inventory management system and
point of sale technology show daily sales and in-store stock by title by store.
Systems in place use these data to automatically generate replenishment
shipments to each store from our distribution center in Grapevine, Texas,
enabling each store to carry a merchandise assortment uniquely tailored to its
own sales mix and rate of sale. Our call lists and reservation system also
provide our centralized buying staff with information to determine order size
and inventory management for store-by-store inventory allocation. We constantly
review and edit our merchandise categories with the objective of ensuring that
inventory is up-to-date and meets customer needs. We use a centralized PC
network-based information system based in our corporate offices, in order to
minimize initial outlay of capital while allowing for flexibility and growth as
operations expand.

     Our in-store point-of-sale system enables us to efficiently manage in-store
transactions. This proprietary point-of-sale system has been enhanced to
facilitate trade-in transactions, including automatic look-up of trade-in prices
and printing of machine readable bar codes to facilitate in-store restocking of
used video games. In addition, our central database of all used video game
products allows us to actively manage the pricing and product availability of
our used video game products across our store base and re-allocate our used
video game products as necessary.

ADVERTISING

     Our stores are primarily located in high traffic, high visibility areas of
regional shopping malls and strip centers. Given the high foot traffic drawn
past the stores themselves, we use in-store marketing efforts such as window
displays and "coming soon" signs to attract customers, as well as to promote
used video game products and subscriptions to our Game Informer magazine. Inside
the stores, we feature selected products through the use of vendor displays,
"coming soon" or preview videos, signs, catalogs, point of purchase materials
and end-cap displays. These advertising efforts are designed to increase the
initial sales of new titles upon their release. We receive cooperative
advertising and market development funds from manufacturers, distributors,
software publishers and accessory suppliers to promote their respective
products. As part of our rebranding and targeted growth strategy, we also intend
to expand our advertising to other media, including print and radio.

FIELD MANAGEMENT AND STAFF

     Our store operations are managed regionally by nine store operations
directors. The regions are divided into 79 districts, each with a district
manager covering an average of 13 stores. Each store employs, on average, one
manager, one assistant manager and between two and ten sales associates, many of
whom are part-time employees. We have cultivated a work environment that
attracts employees who are

                                        37
<PAGE>   42

actively interested in electronic games. We seek to hire and retain employees
who know and enjoy working with our products so that they are better able to
assist customers. To encourage them to sell the full range of our products, we
provide our employees with targeted incentive programs to drive sales. We also
provide our employees with the opportunity to take home and try new video games,
which enables them to better discuss those games with our customers. In
addition, employees are casually dressed to encourage customer access and
increase the "game-oriented" focus of the stores. We also employ nine regional
loss prevention managers who assist the field in implementing loss prevention.

     Stores communicate with our corporate offices via daily e-mail. This e-mail
allows for better tracking of trends in upcoming titles, competitor strategies
and in-stock inventory positions. In addition, this communication allows title
selection in each store to be continuously updated and tailored to reflect the
tastes and buying patterns of the store's local market. These communications
also give field management access to relevant inventory levels and loss
prevention information. We also sponsor an annual store managers conference to
which we invite all video game software publishers to attend and operate an
intense educational training program for our employees to provide our employees
with information about the video game products that will be released by those
publishers in the holiday season.

CUSTOMER SERVICE

     Our store personnel provide value-added services to each customer, such as
maintaining lists of regular customers, notifying each customer by phone when
new titles are available, and reserving new releases for customers with a down
payment to ensure product availability. In addition, our store personnel readily
provide product reviews to ensure customers are making informed purchasing
decisions and offering help-line numbers to increase a customer's enjoyment of
the product upon purchase.

VENDORS

     We purchase substantially all of our products from approximately 85
manufacturers and software publishers and approximately five distributors.
Purchases from the top five vendors accounted for approximately 49% of our
purchases in fiscal 2000. Only Sony, Nintendo and Electronic Arts (which
accounted for 14%, 11% and 11%, respectively) accounted for more than 10% of our
purchases during fiscal 2000. We have established price protections and return
privileges with our primary vendors in order to reduce the risk of inventory
obsolescence. In addition, we have no purchase contracts with trade vendors and
conduct business on an order-by-order basis, a practice that is typical
throughout the industry. We believe that maintaining and strengthening our
long-term relationships with our vendors is essential to our operations and
continued expansion. We believe that we have very good relations with our
vendors.

COMPETITION

     The electronic game industry is intensely competitive and subject to rapid
changes in consumer preferences and frequent new product introductions. We
compete with mass merchants and regional chains, including Wal-Mart, Kmart and
Target; other video game and PC software specialty stores located in malls and
other locations, including Electronics Boutique; toy retail chains, including
Toys 'R' Us and KB Toys; mail-order businesses; catalogs; direct sales by
software publishers; online retailers; and computer product and consumer
electronics superstores, including Best Buy and Circuit City. Best Buy recently
acquired Musicland, Inc., a music retail chain with over 1,300 stores primarily
located in shopping malls. Our business may be adversely affected to the extent
Best Buy substantially increases the availability of video game products in
these music stores. In addition, video games are available for rental from many
video stores and may also be distributed through other methods which may emerge
in the future. We also compete with sellers of used video game products.
Additionally, we compete with other forms of entertainment activities, including
movies, television, theater, sporting events and family entertainment centers.

                                        38
<PAGE>   43

PROPERTIES

     All of our stores are leased. Store leases typically provide for an initial
lease term of three to ten years, plus renewal options. This arrangement gives
us the flexibility to pursue extension or relocation opportunities that arise
from changing market conditions. We believe that, as current leases expire, we
will be able to obtain either renewals at present locations or leases for
equivalent locations in the same area.

     In addition to our stores, we lease a 250,000 square foot headquarters and
distribution center in Grapevine, Texas. This lease expires on January 31, 2006.
We have the right to renew the lease for an additional five years.

TRADEMARKS

     We have a number of trademarks and servicemarks, including "GameStop,"
"Game Informer," "Babbage's" and "FuncoLand," all of which have been registered
by us with the United States Patent and Trademark Office. We maintain a policy
of pursuing registration of our principal marks and opposing any infringement of
our marks.

EMPLOYEES

     We have approximately 1,300 full-time salaried, 1,200 full-time hourly and
between 5,000 and 12,000 part-time hourly employees depending on the time of
year. Fluctuation in the number of part-time hourly employees is due to the
seasonality of the electronic game industry. We believe that our relationship
with our employees is excellent, and none of our employees is represented by a
labor union or is a member of a collective bargaining unit.

LEGAL PROCEEDINGS

     In the ordinary course of our business, we are from time to time subject to
various legal proceedings. We do not believe that any current legal proceedings,
individually or in the aggregate, will have a material adverse effect on our
operations or financial condition.

                                        39
<PAGE>   44

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth the names and ages of our directors and
executive officers and the positions they hold:

<Table>
<Caption>
NAME                                                 AGE                     POSITION
----                                                 ---                     --------
<S>                                                  <C>    <C>
R. Richard Fontaine................................   59    Chairman of the Board and Chief Executive
                                                            Officer and Director
Daniel A. DeMatteo.................................   53    President and Chief Operating Officer
David W. Carlson...................................   38    Executive Vice President, Chief Financial
                                                            Officer and Assistant Secretary
John W. Woodson....................................   38    President of Strip Center Stores
Leonard Riggio.....................................   60    Director
Michael N. Rosen...................................   60    Secretary and Director
</Table>

     R. RICHARD FONTAINE is our Chief Executive Officer and a director. Mr.
Fontaine has served in the same capacities for GameStop, Inc. since its
acquisition by Barnes & Noble in June 2000. Upon completion of this offering,
Mr. Fontaine will be our Chairman of the Board. Mr. Fontaine has also been Chief
Executive Officer of Babbage's Etc. since its formation in November 1996. Mr.
Fontaine also served as President of Software Etc. from 1987 to 1991 and as a
director of NeoStar from 1994 until it filed for bankruptcy protection in
September 1996. Mr. Fontaine has had extensive retail experience as the former
president of B. Dalton Bookseller, Inc., both prior to and after its acquisition
by Barnes & Noble in 1986, and has held positions at Michaels Stores Inc. and
Ingram Distribution.

     DANIEL A. DEMATTEO is our President and Chief Operating Officer. Mr.
DeMatteo has served in the same capacities for GameStop, Inc. since its
acquisition by Barnes & Noble in June 2000. Mr. DeMatteo has also been President
and Chief Operating Officer of Babbage's Etc. since its formation in November
1996. Mr. DeMatteo also served as Executive Vice President of NeoStar from
December 1994 until May 1996 and as a director of Neostar from 1994 until it
filed for bankruptcy protection in September 1996. Mr. DeMatteo has also served
in various positions with B. Dalton, most recently as Vice President of MIS.
Prior to joining B. Dalton, Mr. DeMatteo was the Vice President of MIS for Super
Valu Inc.

     DAVID W. CARLSON is our Executive Vice President, Chief Financial Officer
and Assistant Secretary. Mr. Carlson has served in the same capacities for
GameStop, Inc. since its acquisition by Barnes & Noble in June 2000. Mr. Carlson
has also been Vice President and Chief Financial Officer of Babbage's Etc. since
its formation in November 1996. Mr. Carlson has held various positions within
Barnes & Noble since 1989, including Director of Finance, Director of Accounting
and Manager of Financial Reporting. Prior to 1989, Mr. Carlson held various
positions with the public accounting firm of KPMG Peat Marwick.

     JOHN W. WOODSON has been our President of Strip Center Stores since June
2000. From August 1999 to June 2000, Mr. Woodson was Vice President of
CompUSA.com, and from July 1997 to August 1999, he served as the Senior Vice
President of Retail Marketing at Associates First Capital. Prior to that, Mr.
Woodson was Vice President of Technology for Key Corp.

     LEONARD RIGGIO is a director. Since its acquisition by Barnes & Noble, Mr.
Riggio has also been the Chairman of the Board of GameStop, Inc. and Chairman of
the Board of Babbage's Etc., a company Mr. Riggio formed in November 1996. Mr.
Riggio has also been Chairman of the Board, Chief Executive Officer and a
principal stockholder of Barnes & Noble since its inception in 1986. In
addition, Mr. Riggio has been Chairman of the Board of barnesandnoble.com inc.
(Barnes & Noble.com) since its inception in February 1997. Since 1965, Mr.
Riggio has been Chairman of the Board, Chief Executive Officer and the principal
stockholder of Barnes & Noble College Bookstores, Inc. one of the largest
operators of college

                                        40
<PAGE>   45

bookstores in the country. Since 1985, Mr. Riggio has been Chairman of the Board
and a principal beneficial owner of MBS Textbook Exchange, Inc., one of the
nation's largest wholesalers of college textbooks.

     MICHAEL N. ROSEN is our Secretary and a director. Mr. Rosen has served in
the same capacities for GameStop, Inc. since its acquisition by Barnes & Noble
in June 2000. Mr. Rosen has also been Secretary of Babbage's Etc. since its
acquisition by Barnes & Noble in October 1999. Mr. Rosen has been Chairman of
Robinson Silverman Pearce Aronsohn & Berman LLP, counsel to our company, for
more than the past five years. Mr. Rosen is also a director of Barnes & Noble
and Barnes & Noble.com.

BOARD OF DIRECTORS

     Our board of directors currently consists of three directors. Prior to the
completion of this offering, we expect to appoint additional directors.

     Our certificate of incorporation divides our board of directors into three
classes: Class I, whose terms will expire at the annual meeting of stockholders
to be held in 2002, Class II, whose terms will expire at the annual meeting of
stockholders to be held in 2003, and Class III, whose terms will expire at the
annual meeting of stockholders to be held in 2004. Michael N. Rosen is in Class
I; R. Richard Fontaine is in Class II; and Leonard Riggio is in Class III. At
each annual meeting of stockholders beginning in 2002, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.

     In addition, our certificate of incorporation provides that the authorized
number of directors may be changed only by resolution of the board of directors.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total number of directors.

EXECUTIVE OFFICERS

     Our executive officers are elected by our board of directors on an annual
basis and serve until the next annual meeting of our board of directors or until
their successors have been duly elected and qualified.

BOARD COMMITTEES

     Effective upon the completion of this offering, we will establish an audit
committee and a compensation committee. The audit committee will select, subject
to stockholders' approval, the independent public accountants to audit our
annual financial statements and will establish the scope of, and oversee, the
annual audit. The compensation committee will make recommendations to our board
regarding the approval of employment agreements, management and consultant
hiring and executive compensation.

     The audit committee and the compensation committee will each consist of
three directors who meet all requirements imposed by Securities and Exchange
Commission rules and regulations or rules and regulations of any exchange or
trading system on which our securities are listed. The audit committee will be
composed of three independent directors, each of whom will be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement and statement of cash flows. In addition, at least one
member of the audit committee will have had past employment experience in
accounting or finance, including a current or past position as a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities. In keeping with Nasdaq National Market listing
requirements, our board of directors will adopt a charter for our audit
committee. We will file this charter at least once every three years as an
appendix to the annual proxy statement that we will file with the Securities and
Exchange Commission.

     Our board may establish other committees from time to time to facilitate
the management of the business and affairs of our company.

                                        41
<PAGE>   46

COMPENSATION OF DIRECTORS

     Directors who are not employees or officers of our company or Barnes &
Noble will receive compensation in amounts to be determined. In addition, we
will reimburse our directors for expenses in connection with attendance at board
and committee meetings. Other than with respect to reimbursement of expenses,
directors who are our employees or officers will not receive additional
compensation for their services as directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Following this offering, we will establish a compensation committee. None
of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee, except
that Leonard Riggio, one of our directors, is also the Chairman of the Board of
Barnes & Noble and Michael Rosen, our Secretary and a director, is also the
Secretary and a director of Barnes & Noble.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Our certificate of incorporation limits the liability of our directors and
executive officers for monetary damages for breach of their fiduciary duties to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:

     - any breach of their duty of loyalty to our company or our stockholders;

     - acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

     - unlawful payments of dividends or unlawful stock repurchases or
       redemptions as provided in Section 174 of the Delaware General
       Corporation Law; or

     - any transaction from which the director derived an improper personal
       benefit.

     The limits on a director's or officer's liability in our certificate of
incorporation do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies such as injunctive
relief or rescission.

     The effect of these provisions will be to eliminate our rights and those of
our stockholders, through stockholders' derivative suits on behalf of our
company, to recover monetary damages against a director for breach of fiduciary
duty as a director, including breaches resulting from grossly negligent
behavior, except in the situations described above. Our by-laws provide for
indemnification of directors and officers to the maximum extent permitted by
Delaware law.

                                        42
<PAGE>   47

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

     All of our stock is currently owned by Barnes & Noble and, therefore, none
of our officers or directors owns any of our common stock. Our officers and
directors own options to acquire our common stock.

     The following table sets forth the number of shares of Barnes & Noble
common stock and currently exercisable options to purchase such stock
beneficially owned on August 24, 2001 by each director and each of the executive
officers named in the summary compensation table in the "Executive Compensation"
section, and all of our directors and executive officers as a group. Except as
otherwise noted, the individual director or executive officer or his family
members had sole voting and investment power with respect to the identified
securities. The total number of shares of Barnes & Noble common stock
outstanding as of August 22, 2001 was 66,906,747.

<Table>
<Caption>
                                                               SHARES BENEFICIALLY OWNED
                                                              ---------------------------
                                                              BARNES & NOBLE COMMON STOCK
                                                              ---------------------------
                                                              NUMBER OF     PERCENTAGE OF
NAME                                                          SHARES(1)         CLASS
----                                                          ----------    -------------
<S>                                                           <C>           <C>
R. Richard Fontaine.........................................       1,307(2)         *
Daniel A. DeMatteo..........................................       1,089(2)         *
David W. Carlson............................................       5,397(3)         *
John W. Woodson.............................................          --           --
Leonard Riggio..............................................  14,569,722(4)      21.4%
Michael N. Rosen............................................      62,000(5)         *
All directors and executive officers as a group (6
  persons)..................................................  14,639,515         21.4%
</Table>

---------------
 *  Less than one percent.

(1) Includes options exercisable within 60 days following August 22, 2001.

(2) All of these shares are issuable upon exercise of stock options.

(3) Of these shares, 747 shares are issuable upon exercise of stock options.

(4) Includes (i) 2,652,334 shares owned by Barnes & Noble College Bookstores,
    Inc. (Mr. Riggio owns all of the voting securities of Barnes & Noble
    College), (ii) 1,181,500 shares owned by The Riggio Foundation, a charitable
    trust established by Mr. Riggio, with himself and his wife as trustees, and
    (iii) 1,318,750 shares issuable upon the exercise of stock options. The
    shares of common stock owned by Mr. Riggio are, and in the future may be,
    pledged as collateral for certain loans, including loans which were used to
    purchase common stock. The failure of Mr. Riggio to repay such loans,
    together with any sale by the pledgees of the pledged common stock, could
    result in a change of control of Barnes & Noble.

(5) Of these shares, 50,000 shares are issuable upon the exercise of stock
    options. Of the other 12,000 shares, 10,000 shares are owned by Mr. Rosen's
    wife and 2,000 shares are owned by Mr. Rosen's daughter. Mr. Rosen disclaims
    any beneficial ownership of those shares.

                                        43
<PAGE>   48

EXECUTIVE COMPENSATION

     The following table sets forth the compensation earned during the years
indicated by our chief executive officer and our other three most highly
compensated executive officers. All information set forth in this table reflects
compensation earned by the named individuals for services with Barnes & Noble
and its subsidiaries.

<Table>
<Caption>
                                                                                       LONG-TERM
                                                                                     COMPENSATION
                                                                                        AWARDS
                                                                                -----------------------
                                                                                             SECURITIES
                                                                                             UNDERLYING
                                                                                SECURITIES     BARNES
                                                 ANNUAL COMPENSATION            UNDERLYING       &
                                        -------------------------------------    GAMESTOP      NOBLE       ALL OTHER
NAME AND                      FISCAL     SALARY     BONUS      OTHER ANNUAL      OPTIONS      OPTIONS     COMPENSATION
PRINCIPAL POSITION             YEAR       ($)        ($)      COMPENSATION(1)     (SHS.)       (SHS.)         ($)
------------------            ------    --------   --------   ---------------   ----------   ----------   ------------
<S>                           <C>       <C>        <C>        <C>               <C>          <C>          <C>
R. Richard Fontaine.........   2000     $328,933         --         --            62,500          --               --
  Chief Executive              1999      302,885   $210,000         --                --       5,229       $6,048,085(2)(3)(5)
  Officer                      1998      302,885    359,417         --                --          --           20,905(2)(5)
Daniel A. DeMatteo..........   2000      274,111         --         --            62,500          --               --
  President and                1999      252,404    175,000         --                --       4,358        6,040,883(2)(3)(5)
  Chief Operating              1998      252,404    306,917         --                --          --           14,873(2)(5)
  Officer
David W. Carlson............   2000      187,962         --         --            50,000          --            6,500(2)
  Executive Vice               1999      172,500     84,000         --                --       2,988        3,762,324(2)(4)(6)
  President, Chief             1998      156,346    125,000         --                --          --           10,707(2)(6)
  Financial Officer and
  Assistant Secretary
John W. Woodson.............   2000(7)   134,615    100,000         --            50,000          --           62,820
  President of Strip           1999           --         --                           --          --               --
  Center Stores                1998           --         --         --                --          --               --
</Table>

---------------
(1) None of the perquisites or other benefits paid to each named executive
    officer exceeded the lesser of $50,000 or 10% of the total annual salary and
    bonus received by each named executive officer.

(2) Includes contributions under our 401(k) plan.

(3) Includes a $6,025,000 bonus in connection with the sale of Babbage's Etc. to
    Barnes & Noble.

(4) Includes a $3,750,000 bonus in connection with the sale of Babbage's Etc. to
    Barnes & Noble.

(5) Includes insurance premiums paid by us.

(6) Includes automobile expenses paid by us.

(7) Mr. Woodson commenced employment with us in June 2000. His annual salary was
    $250,000 for fiscal 2000. Mr. Woodson also received a signing bonus upon the
    commencement of his employment with us.

GRANTS OF STOCK OPTIONS IN LAST FISCAL YEAR

     The following table shows all grants of options to acquire shares of Barnes
& Noble common stock and our Class A common stock granted to the executive
officers named in the summary compensation table in the "Executive Compensation"
section for the year ended February 3, 2001. There were no grants of options to
the named executive officers to acquire shares of Barnes & Noble common stock in
fiscal 2000. The potential realizable value is calculated based on the term of
the option at its date of grant. It is calculated assuming that the fair market
value of Barnes & Noble common stock and our Class A common stock on the date of
grant appreciates at the indicated annual rates compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the

                                        44
<PAGE>   49

appreciated stock. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect our estimate of future
stock price growth.

<Table>
<Caption>
                                                                                          POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED
                                                                                             ANNUAL RATES OF
                                           % OF                                                STOCK PRICE
                            NUMBER OF      TOTAL                                              APPRECIATION
                            SECURITIES    OPTIONS    EXERCISE     MARKET                     FOR OPTION TERM
                            UNDERLYING    GRANTED     OR BASE    PRICE ON                -----------------------
                             OPTIONS     IN FISCAL     PRICE     DATE OF    EXPIRATION       5%          10%
                             GRANTED       YEAR      ($/SHS.)     GRANT        DATE         ($)          ($)
                            ----------   ---------   ---------   --------   ----------   ----------   ----------
<S>                         <C>          <C>         <C>         <C>        <C>          <C>          <C>
R. Richard Fontaine
  GameStop Class A common
     stock................    62,500       12.53%     $31.74      $31.74     12/5/10     $1,247,570   $3,161,587
Daniel A. DeMatteo
  GameStop Class A common
     stock................    62,500       12.53       31.74       31.74     12/5/10      1,247,570    3,161,587
David W. Carlson
  GameStop Class A common
     stock................    50,000       10.03       31.74       31.74     12/5/10        998,056    2,529,269
John W. Woodson
  GameStop Class A common
     stock................    50,000       10.03       31.74       31.74     12/5/10        998,056    2,529,269
</Table>

FISCAL YEAR END OPTION VALUE

     The following table provides information for the executive officers named
in the summary compensation table in the "Executive Compensation" section
regarding exercises of options to purchase shares of Barnes & Noble common stock
and options to purchase shares of our Class A common stock during the year ended
February 3, 2001 and Barnes & Noble options and our options held as of February
3, 2001 by any of our named executive officers. There were no options to
purchase shares of Barnes & Noble common stock or our Class A common stock
exercised in fiscal 2000. The values in the table have been calculated on the
basis of the fair market value of the shares of Barnes & Noble common stock and
our Class A common stock, as the case may be, on February 3, 2001, less the
applicable exercise price.

<Table>
<Caption>
                                                                                    VALUE OF UNEXERCISED
                                                      NUMBER OF SECURITIES          IN-THE-MONEY OPTIONS
                                                     UNDERLYING UNEXERCISED               AT FISCAL
                                                   OPTIONS AT FISCAL YEAR END          YEAR END(1)(2)
                                                   ---------------------------   ---------------------------
                                                   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
                                                   -----------   -------------   -----------   -------------
                                                             (SHS.)                          ($)
<S>                                                <C>           <C>             <C>           <C>
R. Richard Fontaine
  Barnes & Noble common stock....................     1,307          3,922         $ 8,211        $24,640
  GameStop Class A common stock..................        --         62,500              --             --
Daniel A. DeMatteo
  Barnes & Noble common stock....................     1,089          3,269           6,842         20,537
  GameStop Class A common stock..................        --         62,500              --             --
David W. Carlson
  Barnes & Noble common stock....................     5,738          3,405          47,122         24,084
  GameStop Class A common stock..................        --         50,000              --             --
John W. Woodson
  Barnes & Noble common stock....................        --             --              --             --
  GameStop Class A common stock..................        --         50,000              --             --
</Table>

---------------
(1) The closing price of Barnes & Noble common stock on February 3, 2001 was
    $25.72 per share.

(2) There was no public trading market for our common stock as of February 3,
    2001. Accordingly, these values have been calculated based on our board's
    determination of the fair market value of the underlying shares as of
    February 3, 2001 of $31.74 per share, less the applicable price per share,
    multiplied by the number of shares.

                                        45
<PAGE>   50

STOCK INCENTIVE PLAN

GENERAL.  We have issued stock options to our employees under our 2001 Incentive
Plan. The 2001 Incentive Plan provides for the grant of options to key officers,
employees, consultants, advisors and directors of our company and our parent,
our subsidiaries and affiliates selected from time to time by our compensation
committee. The purpose of the 2001 Incentive Plan is to assist us in attracting
and retaining selected individuals to serve as directors, officers, consultants,
advisors and employees who will contribute to our success and to achieve
long-term objectives which will inure to the benefit of all our stockholders
through the additional incentive inherent in the ownership of our Class A common
stock. Awards under the 2001 Incentive Plan may take the form of stock options,
including corresponding share appreciation rights ("SARs") and reload options,
restricted stock awards and stock purchase awards.

OPTIONS AVAILABLE AND OUTSTANDING.  A total of                shares of Class A
common stock are currently subject to outstanding options. The maximum number of
shares that may be the subject of awards under the 2001 Incentive Plan is
               shares and in any given year, the maximum number of shares with
respect to which options or SARs may be granted to any employee is
               shares.

2001 INCENTIVE PLAN ADMINISTRATION.  Our compensation committee will administer
the 2001 Incentive Plan. Subject to the provisions of the 2001 Incentive Plan,
the compensation committee has authority, in its sole discretion, to grant
awards under the 2001 Incentive Plan, to interpret the provisions of the 2001
Incentive Plan and, subject to the requirements of applicable law, to prescribe,
amend, and rescind rules and regulations relating to the 2001 Incentive Plan or
any award thereunder as it may deem necessary or advisable.

OPTIONS.  The 2001 Incentive Plan permits the granting of "incentive stock
options" meeting the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, which we refer to as the Code, and "nonqualified stock
options" that do not meet such requirements. The term of each option is
determined by the compensation committee, but no incentive stock option may be
exercised more than ten years after the date of grant. Options may also be
subject to restrictions on exercise, such as exercise in periodic installments,
as determined by the compensation committee. In general, the exercise price for
incentive stock options must be at least equal to 100% of the fair market value
of the shares on the date of the grant and the exercise price for nonqualified
stock options will be determined by the compensation committee at the time of
the grant. The exercise price can be paid in cash, or if approved by the
compensation committee, by delivery of a promissory note, by tendering shares
owned by the participant, or any combination of the foregoing. Options are not
transferable except by will or the laws of descent and distribution and may
generally be exercised only by the participant (or his guardian or legal
representative) during his or her lifetime, provided, however, the nonqualified
stock options may, under certain circumstances, be transferable to family
members and trusts for the benefit of the participant or his family members.
Immediately prior to the completion of this offering, we will issue options to
purchase shares of our Class A common stock in replacement of options previously
issued to purchase common stock of GameStop, Inc. The replacement options will
have the same economic and vesting terms as the options they replace.

SHARE APPRECIATION RIGHTS.  The 2001 Incentive Plan provides that SARs may be
granted in connection with the grant of options. Each SAR must be associated
with a specific option and must be granted at the time of grant of such option.
A SAR is exercisable only to the extent the related option is exercisable. Upon
the exercise of a SAR, the recipient is entitled to receive from us up to, but
no more than, an amount in cash or shares equal to the excess of (i) the fair
market value of one share on the date of such exercise over (ii) the exercise
price of any related option, multiplied by the number of shares in respect of
which such SAR shall have been exercised. Upon the exercise of a SAR, the
related option, or the portion thereof in respect of which such SAR is
exercised, will terminate. Upon the exercise of an option granted in tandem with
a SAR, such tandem SAR will terminate.

RELOAD OPTIONS.  The compensation committee may grant, concurrently with the
award of any option, a reload option to purchase for cash or shares a number of
shares equal to (i) the number of shares

                                        46
<PAGE>   51

delivered by the participant to us to exercise the underlying option and (ii)
the number of shares used to satisfy any tax withholding requirement incident to
the exercise of the underlying option. Although an underlying option may be an
incentive stock option, a reload option is not intended to qualify as an
incentive stock option. A reload option will have the same expiration date as
the underlying option and an exercise price equal to the fair market value of
the shares on the date the underlying option is exercised. A reload option is
exercisable six months from the date of grant.

RESTRICTED STOCK.  The compensation committee may award restricted shares under
the 2001 Incentive Plan. Restricted shares give a participant the right to
receive shares subject to a risk of forfeiture based upon certain conditions.
The forfeiture restrictions on the shares may be based upon performance
standards, length of service or other criteria as the compensation committee may
determine. Until all restrictions are satisfied, lapsed or waived, we will
maintain custody over the restricted shares but the participant will be able to
vote the shares and will be entitled to all distributions paid with respect to
the shares, as provided by the compensation committee. During such restrictive
period, the restricted shares may not be sold, assigned, transferred, pledged or
otherwise encumbered. Upon termination of employment, the participant forfeits
the right to the shares to the extent the applicable performance standards,
length of service requirements, or other measurement criteria have not been met.

STOCK PURCHASE AWARDS.  The 2001 Incentive Plan also permits the grant of stock
purchase awards. Participants who are granted a stock purchase award are
provided with a loan to enable them to pay the purchase price for the shares
acquired pursuant to the award. The compensation committee will determine the
term of a stock purchase loan. The purchase price of shares acquired with a
stock purchase loan is the price equal to the fair market value on the date of
the award. The 2001 Incentive Plan provides that up to 100% of the stock
purchase loan may be forgiven over the loan term subject to such terms and
conditions as the compensation committee shall determine, provided that the
participant has not resigned as an employee of our company. At the end of the
loan term, the unpaid balance of the stock purchase loan will be due and
payable. The compensation committee will determine the interest rate, if any, on
a stock purchase loan. Stock purchase loans will be secured by a pledge to us of
the shares purchased pursuant to the stock purchase award and such loans will be
recourse or non-recourse as determined by the compensation committee.

ANTIDILUTION PROVISIONS.  The compensation committee may adjust the number of
shares authorized to be issued under the 2001 Incentive Plan and subject to
outstanding awards (and the grant or exercise price thereof) to prevent dilution
or enlargement of rights in the event of any dividend or other distribution,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of shares
or other securities, the issuance of warrants or other rights to purchase shares
or other securities, or other similar capitalization change.

TERMINATION AND AMENDMENT.  The 2001 Incentive Plan will terminate by its terms
and without any action by the Board of Directors in 2011. No awards may be made
after that date. Awards outstanding on such termination date will remain valid
in accordance with their terms.

     The compensation committee may alter, amend, suspend or terminate the 2001
Incentive Plan as it deems advisable, subject to any requirement for stockholder
approval imposed by applicable law, including Sections 162(m) and 422 of the
Code, or any rule of any stock exchange or quotation system on which shares are
listed or quoted; provided that the compensation committee may not amend the
2001 Incentive Plan, without the approval of our stockholders, to increase the
number of shares that may be the subject of options under the 2001 Incentive
Plan.

                                        47
<PAGE>   52

OPTIONS GRANTED

     The following table sets forth the number of shares of our Class A common
stock subject to options that will be outstanding upon completion of this
offering by the directors, named executive officers and all of our officers and
directors as a group:

<Table>
<Caption>
                                                              NUMBER OF
NAME                                                           SHARES
----                                                          ---------
<S>                                                           <C>
Leonard Riggio..............................................   500,000
R. Richard Fontaine.........................................    62,500
Daniel A. DeMatteo..........................................    62,500
David W. Carlson............................................    50,000
John W. Woodson.............................................    50,000
All of our current executive officers and directors, as a
  group (5 persons).........................................   725,000
</Table>

     Because outstanding options may be forfeited upon the occurrence of certain
events, such as termination of employment, and because we intend to award
options on a discretionary basis in the future, we cannot determine the number
of shares that may be purchased under the plan by our executive officers.

                             PRINCIPAL STOCKHOLDER

     Prior to this offering of Class A common stock, all of the outstanding
shares of our common stock were owned indirectly by Barnes & Noble, a publicly
held company that is listed on the New York Stock Exchange under the symbol
"BKS." Except for Barnes & Noble, no one owns any shares of our common stock at
this time. After the offering, Barnes & Noble will beneficially own 100% of the
outstanding Class B common stock, which will represent   % of the combined
voting power of all classes of our voting stock, or   % of the combined voting
power of all classes of our voting stock if the underwriters exercise their
over-allotment option in full. Leonard Riggio, one of our directors, currently
has options to purchase shares of our Class A common stock, which upon exercise,
will represent   % of our outstanding common stock. Except for Barnes & Noble
and Leonard Riggio, we are not aware of any person or group that will
beneficially own more than 5% of the outstanding shares of our common stock
following the offering. As of        , 2001, Leonard Riggio owned approximately
  % of the outstanding common stock of Barnes & Noble.

                                        48
<PAGE>   53

                              CERTAIN TRANSACTIONS

AGREEMENTS WITH BARNES & NOBLE

     Prior to the consummation of this offering, we will enter into various
agreements with Barnes & Noble relating to our relationship with Barnes & Noble
following the completion of this offering.

SEPARATION AGREEMENT

     We will enter into a "separation agreement" with Barnes & Noble, which
governs our respective rights and duties with respect to this offering and the
possible distribution to Barnes & Noble stockholders of its shares of our
capital stock, if any, and contains covenants designed to facilitate such a
distribution and to protect its intended tax-free nature. However, we cannot
assure you as to whether or when such a distribution will occur.

     If Barnes & Noble decides to pursue a distribution to its stockholders, we
have agreed that we will cooperate with Barnes & Noble in all respects to
accomplish a distribution and, at Barnes & Noble's direction, promptly take all
actions necessary or desirable to effect a distribution to Barnes & Noble
stockholders, including the registration under the Securities Act of 1933, as
amended, of Barnes & Noble's shares of our capital stock.

     We have also agreed that, as a result of the ownership by Barnes & Noble of
a significant portion of our common stock and in order for Barnes & Noble to
pursue a distribution to Barnes & Noble stockholders of our common stock which
would qualify as a tax-free distribution under Section 355 of the Code to Barnes
& Noble and its stockholders (Section 355 distribution), we will not take
certain actions without the approval of Barnes & Noble, including:

     - issuing or agreeing to issue shares of our capital stock in an amount
       that would result in Barnes & Noble ceasing to own an amount of our
       capital stock which constitutes "control" for purposes of Section 368(c)
       of the Code or any successor statute or provision, as such definition may
       be amended from time to time;

     - until two years after a Section 355 distribution, entering into or
       permitting any transaction or series of transactions which would result
       in a person or persons acquiring or having the right to acquire shares of
       our capital stock that would comprise 50% or more of either the value of
       all outstanding shares of our capital stock or the total combined voting
       power of our outstanding voting stock; and

     - until two years after a Section 355 distribution, liquidating, disposing
       of, or otherwise discontinuing the conduct of any portion of our active
       trade or business.

     We have generally agreed to indemnify Barnes & Noble and its affiliates
against any and all tax-related losses incurred by Barnes & Noble in connection
with any proposed tax assessment or tax controversy with respect to a Section
355 distribution to Barnes & Noble stockholders to the extent caused by any
breach by us of any of our representations, warranties or covenants made in the
separation agreement. This indemnification does not apply to actions which
Barnes & Noble permits us to take as a result of a determination under the
tax-related covenants described above.

     In addition, we have agreed that, so long as Barnes & Noble owns at least
50% of our existing common stock, we will not, without their approval:

     - take any action which has the effect of limiting Barnes & Noble's ability
       to freely sell, pledge or otherwise dispose of shares of our common stock
       or limiting the legal rights of or denying any benefit to Barnes & Noble
       as a stockholder of us in a manner not applicable to our stockholders
       generally;

     - issue any shares of common stock or any rights, warrants or options to
       acquire our common stock, if after giving effect to such issuance, Barnes
       & Noble would own less than 50% of the then outstanding shares of our
       common stock; or

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     - to the extent that Barnes & Noble is a party to, or enters into, any
       agreements that provide that actions of its subsidiaries may result in
       its being in breach or default under any agreement, and we have been
       advised of the existence of these agreements, take any actions that may
       result in Barnes & Noble being in breach or default.

     In addition, we have agreed that, for so long as Barnes & Noble is required
to consolidate our results of operations and financial position or account for
its investment in our company, we will (1) provide Barnes & Noble with financial
information regarding our company and our subsidiaries, copies of all quarterly
and annual financial information and other reports and documents we intend to
file with the SEC prior to such filings, as well as final copies upon filing and
copies of our budgets and financial projections, as well as the opportunity to
meet with our management to discuss such budgets and projections; (2) consult
with Barnes & Noble regarding the timing and content of earnings releases; (3)
cooperate fully, and cause our accountants to cooperate fully, with Barnes &
Noble in connection with any of its public filings; (4) use our best efforts to
enable our auditors to complete their audit of our financial statements such
that they will date their opinion the same date that they date their opinion on
Barnes & Noble's financial statements; (5) provide to Barnes & Noble and its
auditors all information required for Barnes & Noble to meet its schedule for
the filing and distribution of its financial statements; (6) make available to
Barnes & Noble and its auditors work papers related to the annual audit of our
company as well as access to the personnel who perform the annual audit and our
and our subsidiaries' books and records so that Barnes & Noble and its auditors
may conduct reasonable audits relating to our financial statements; (7) adhere
to generally accepted accounting principles, applied in a manner consistent with
Barnes & Noble; and (8) notify and consult with Barnes & Noble regarding any
changes to our accounting principles.

     We have generally agreed to indemnify Barnes & Noble and its affiliates
against all liabilities arising out of any incorrect, inaccurate or incomplete
financial or other information we provide to Barnes & Noble pursuant to the
terms of the separation agreement.

INSURANCE AGREEMENT

     We will enter into an "insurance agreement" with Barnes & Noble, pursuant
to which Barnes & Noble will allow us to participate in Barnes & Noble's
worker's compensation, property and general liability insurance programs. In
fiscal 2000, as a subsidiary of Barnes & Noble, Barnes & Noble allocated
approximately $632,000 to us in relation to our insurance program. For the first
six months of fiscal 2001, Barnes & Noble allocated approximately $618,000 to us
in relation to our insurance program.

     The insurance agreement will remain in force unless terminated:

     - by mutual agreement of us and Barnes & Noble;

     - by us, as to all or any portion of the services upon not less than 60
       days' prior notice;

     - by Barnes & Noble upon not less than 180 days' prior notice;

     - by either us or Barnes & Noble because of an uncured default by either of
       us;

     - by declaration of the agreement's invalidity under applicable law or
       force majeure; or

     - automatically, in the event of the bankruptcy or a change of control of
       either us or Barnes & Noble.

OPERATING AGREEMENT

     We will enter into an "operating agreement" with Barnes & Noble, pursuant
to which we will operate the existing video game departments in 12 Barnes &
Noble stores. We will pay Barnes & Noble a licensing fee equal to 7.5% of the
aggregate gross sales of each such department. In fiscal 2000 and for the first
six months of fiscal 2001, Barnes & Noble allocated approximately $886,000 and
$421,000, respectively, to us in connection with our operation of such
departments in Barnes & Noble stores.

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     The operating agreement will remain in force unless terminated:

     - by mutual agreement of us and Barnes & Noble;

     - automatically, in the event that we no longer operate any department
       within Barnes & Noble's stores;

     - by us or Barnes & Noble, with respect to any department, upon not less
       than 30 days prior notice;

     - by Barnes & Noble because of an uncured default by us;

     - automatically, with respect to any department, if the applicable store
       lease in which we operate that department expires or is terminated prior
       to its expiration date; or

     - automatically, in the event of the bankruptcy or a change in control of
       either us or Barnes & Noble.

TAX DISAFFILIATION AGREEMENT

     We will enter into a "tax disaffiliation agreement" with Barnes & Noble
which governs the allocation of federal, state, local and foreign tax
liabilities and contains agreements with respect to other tax matters arising
prior to and after the date of this offering. The tax disaffiliation agreement
becomes effective at the time of the offering and, among other things, sets
forth the procedures for amending returns filed prior to the date of this
offering, tax audits and contests and record retention. In general, we are
responsible for filing and paying our separate taxes for periods after the
offering and Barnes & Noble is responsible for filing and paying its separate
taxes for periods after the offering. In general, with respect to consolidated
or combined returns that include Barnes & Noble and us prior to the offering,
Barnes & Noble is responsible for filing and paying the related tax liabilities
and will retain any related tax refunds.

     Under the tax disaffiliation agreement, without the prior written consent
of Barnes & Noble, we may not amend any tax return for a period in which we were
a member of Barnes & Noble's consolidated tax group. Barnes & Noble has the sole
right to represent the interests of its consolidated tax group, including our
company, in any tax audits, litigation or appeals that involve, directly or
indirectly, periods prior to the time that we ceased to be a member of their
consolidated tax group (the date of this offering), unless we are solely liable
for the taxes at issue and any redetermination of taxes would not result in any
additional tax liability or detriment to any member of Barnes & Noble's
consolidated tax group. In addition, we and Barnes & Noble have agreed to
provide each other with the cooperation and information reasonably requested by
the other in connection with the preparation or filing of any amendment to any
tax return, the determination and payment of any amounts owed relating to
periods prior to the date of this offering and in the conduct any tax audits,
litigation or appeals.

     We and Barnes & Noble have agreed to indemnify each other for tax or other
liabilities resulting from the failure to pay any taxes required to be paid
under the tax disaffiliation agreement, tax or other liabilities resulting from
negligence in supplying inaccurate or incomplete information or the failure to
cooperate with the preparation of any tax return or the conduct of any tax
audits, litigation or appeals. The tax disaffiliation agreement requires us to
retain records, documents and other information necessary for the audit of tax
returns relating to periods prior to the date we ceased to be a member of Barnes
& Noble's consolidated tax group and to provide reasonable access to Barnes &
Noble with respect to such records, documents and information.

REGISTRATION RIGHTS AGREEMENT

     In the event that Barnes & Noble does not divest itself of all of its
shares of our common stock in a distribution, Barnes & Noble could not freely
sell all of its shares without registration under the Securities Act.
Accordingly, we will enter into a registration rights agreement with Barnes &
Noble to provide it with registration rights relating to the shares of our
common stock which it holds.

     The registration rights agreement provides Barnes & Noble with registration
rights relating to the shares of our common stock held by Barnes & Noble
immediately after this offering and any shares of our
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<PAGE>   56

common stock Barnes & Noble acquires thereafter. Barnes & Noble is able to
require us to register under the Securities Act all or any portion of our shares
covered by the registration rights agreement. In addition, the registration
rights agreement provides for various piggyback registration rights for Barnes &
Noble. Whenever we propose to register any of our securities under the
Securities Act for ourselves or others, subject to customary exceptions, we must
provide prompt notice to Barnes & Noble and include in that registration all
shares of our stock which Barnes & Noble owns and requests to be included.

     The registration rights agreement sets forth customary registration
procedures, including an agreement by us to make available our senior management
for roadshow presentations. All registration expenses incurred in connection
with any registration, other than underwriting commissions, will be paid by us.
In addition, we are required to reimburse Barnes & Noble for the fees and
disbursements of its outside counsel retained in connection with any such
registration. The registration rights agreement also imposes customary
indemnification and contribution obligations on us for the benefit of Barnes &
Noble and any underwriters, although Barnes & Noble must indemnify us for any
liabilities resulting from information provided by Barnes & Noble.

     Barnes & Noble's rights under the registration rights agreement remain in
effect with respect to the shares covered by the agreement until:

     - those shares have been sold under an effective registration statement
       under the Securities Act;

     - those shares have been sold to the public under Rule 144 under the
       Securities Act; or

     - those shares have been transferred in a transaction where a subsequent
       public distribution of those shares would not require registration under
       the Securities Act.

INTERCOMPANY LOAN

     Barnes & Noble incurred an aggregate of approximately $202 million of
indebtedness in connection with its acquisition of Babbage's Etc. LLC in October
1999 and an aggregate of approximately $159 million of indebtedness in
connection with its acquisition of Funco, Inc. (now known as GameStop, Inc.) in
June 2000, for an aggregate of approximately $361 million of indebtedness.
Barnes & Noble and we have treated this amount plus additional amounts that
Barnes & Noble has provided from time to time to fund our operations as an
intercompany loan owed to Barnes & Noble by us. Immediately prior to the closing
of this offering, Barnes & Noble will contribute to us as additional paid-in
capital the difference between the aggregate amount of the intercompany loan
balance and $250 million. This $250 million will be evidenced by a demand note
and repaid with a portion of the net proceeds from this offering. As of August
4, 2001, the capital contribution by Barnes & Noble would have been
approximately $142.3 million.

RELATIONSHIP WITH BARNES & NOBLE.COM

     On May 1, 2001, we entered into an agreement with barnesandnoble.com llc, a
company in which Barnes & Noble owns an approximately 36% interest, pursuant to
which we sell video game products and PC entertainment software through
barnesandnoble.com's web site. We pay barnesandnoble.com a referral fee equal to
approximately 7.5% of our net sales revenue resulting from purchases made
through their web site.

OTHER RELATIONSHIPS

     In October 1999, Barnes & Noble acquired Babbage's Etc. for $208,670,000
from the owners of Babbage's Etc., which included Leonard Riggio, R. Richard
Fontaine and Daniel A. DeMatteo. If financial performance targets are met for
fiscal 2001, Barnes & Noble will make an additional payment to the former owners
of Babbage's Etc. of approximately $10,000,000 in 2002.

     In fiscal 2001, we purchased approximately $107,000 of merchandise from
Barnes & Noble.

     Michael N. Rosen, our Secretary and one of our directors, is the Chairman
of Robinson Silverman Pearce Aronsohn & Berman LLP. This law firm represents
Barnes & Noble and its subsidiaries, including us. Mr. Rosen is also the
Secretary and a director of Barnes & Noble.

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                          DESCRIPTION OF CAPITAL STOCK

GENERAL

     At the time of the offering, our authorized capital stock will consist of:

     -
     ------------------ shares of Class A common stock, par value $.001 per
       share,

     -
     ------------------ shares of Class B common stock, par value $.001 per
       share; and

     -
     ------------------ shares of preferred stock, par value $.001 per share.

     Of the authorized shares of Class A common stock,           shares are
being offered hereby, or           shares if the underwriters exercise their
over-allotment option in full. Of the           authorized shares of Class B
common stock, on the closing date           shares will be outstanding and held
by a wholly-owned subsidiary of Barnes & Noble. The material terms and
provisions of our certificate of incorporation affecting the relative rights of
the Class A common stock and the Class B common stock are described below. The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to the forms of our certificate of
incorporation and by-laws filed with the registration statement of which this
prospectus forms a part, and to the Delaware General Corporation Law.

COMMON STOCK

VOTING RIGHTS.  The holders of Class A common stock and Class B common stock
generally have identical rights except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to ten votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A common stock and Class B common stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of Class A common stock and Class B
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights
granted to holders of any outstanding preferred stock, amendments to our
certificate of incorporation generally must be approved by at least 80% of the
combined voting power of all Class A common stock and Class B common stock
voting together as a single class. However, amendments to our certificate of
incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock or the Class B common stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class.

DIVIDENDS.  Holders of Class A common stock and Class B common stock will share
in an equal amount per share in any dividend declared by the board of directors,
subject to any preferential rights of any outstanding preferred stock. Dividends
consisting of shares of Class A common stock and Class B common stock may be
paid only as follows: (1) shares of Class A common stock may be paid only to
holders of Class A common stock and shares of Class B common stock may be paid
only to holders of Class B common stock; and (2) shares shall be paid
proportionally with respect to each outstanding share of Class A common stock
and Class B common stock.

CONVERSION.  Each share of Class B common stock is convertible while held by
Barnes & Noble or any of its subsidiaries, excluding us, at the option of the
holder into one share of Class A common stock. Following any distribution of
Class B common stock to stockholders of Barnes & Noble in a transaction,
including any distribution intended to qualify as a tax-free distribution under
Section 355 of the Code, or any successor statute, shares of Class B common
stock will no longer be convertible into shares of Class A common stock.

     Prior to any tax-free distribution, any shares of Class B common stock
transferred to a person other than Barnes & Noble or any of its affiliates,
excluding us, will automatically be converted into shares of

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Class A common stock. Shares of Class B common stock transferred to Barnes &
Noble's stockholders in any tax-free distribution will not be converted into
shares of Class A common stock. In addition, following any tax-free
distribution, shares of Class B common stock will be transferable as Class B
common stock, subject to applicable laws.

     All shares of Class B common stock will automatically be converted into
Class A common stock if:

     - a tax-free distribution has not occurred; and

     - the number of outstanding shares of Class B common stock owned by Barnes
       & Noble, together with its affiliates, excluding us, falls below 50% of
       the aggregate number of outstanding shares of our common stock.

     This automatic conversion of Class B common stock into Class A common stock
will prevent Barnes & Noble from decreasing its economic interest in us to less
than 50% while still retaining control of more than 80% of the voting power for
our capitalized stock. All conversions will be effected on a share-for-share
basis.

     The shares of Class B common stock will automatically convert into shares
of Class A common stock on the fifth anniversary of the tax-free distribution,
unless prior to such transaction, Barnes & Noble delivers to us an opinion of
counsel reasonably satisfactory to us to the effect that (1) such conversion
could adversely affect the ability of Barnes & Noble to obtain a favorable
ruling from the Internal Revenue Service that the transfer would be a tax-free
distribution under Section 355 of the Code or (2) the Internal Revenue Service
has adopted a general non-ruling policy on tax-free distribution under Section
355 of the Code and that such conversion could adversely affect the status of
the transaction as a tax-free distribution, in which case no such conversion
shall take place.

OTHER RIGHTS.  On our liquidation, dissolution or winding up, after payment in
full of the amounts required to be paid to holders of preferred stock, if any,
all holders of common stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of common stock.
No shares of either class of common stock are subject to redemption or have
preemptive rights to purchase additional shares of common stock. Upon
consummation of the offering, all the outstanding shares of Class A common stock
and Class B common stock will be legally issued, fully paid and nonassessable.

PREFERRED STOCK

     Under our certificate of incorporation, our board of directors has the
authority, without further action by stockholders, to designate up to
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon the preferred stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and reduce the likelihood that common stockholders will
receive dividend payments and payments upon liquidation. The issuance could have
the effect of decreasing the market price of the common stock. The issuance of
preferred stock also could have the effect of delaying, deterring or preventing
a change in control of our company. We have no present plans to issue any
additional shares of preferred stock.

ANTI-TAKEOVER PROVISIONS

DELAWARE LAW.  We are subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly-held
Delaware corporation 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
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
Our certificate of incorporation excludes Barnes & Noble as an interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person
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who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock. This statute could prohibit
or delay the accomplishment of mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.

CERTIFICATE OF INCORPORATION AND BY-LAWS PROVISIONS.  Our certificate of
incorporation and by-laws may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.

CLASSIFIED BOARD OF DIRECTORS

     Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of our board of
directors are to be elected each year. These provisions, when coupled with the
provision of our certificate of incorporation authorizing the board of directors
to fill vacant directorships or increase the size of the board of directors, may
deter a stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies created by such
removal with its own nominees.

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS

     Our by-laws and certificate of incorporation further provide that special
meetings of our stockholders may be called only by the Chairman of the Board of
directors or a majority of the board of directors. Our certificate of
incorporation provides that until Barnes & Noble beneficially owns less than 50%
of our outstanding common stock, actions required or permitted to be taken by
our stockholders may be effected by written consent.

     The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Following this offering, Barnes & Noble, as
the owner of approximately      % of our outstanding common stock, will, on its
own, be able to cause us to amend our certificate of incorporation and by-laws.

AUTHORIZED BUT UNISSUED SHARES

     The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.

LISTING

     We have applied to have our Class A common stock included for quotation on
the Nasdaq National Market under the symbol "GSTP."

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for our common stock is           , New
York, New York.

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                        SHARES ELIGIBLE FOR FUTURE SALE

     Upon completion of this offering,           shares of our Class A common
stock will be outstanding, or           shares if the underwriters exercise
their over-allotment option in full. All of these shares, constituting the
shares sold in this offering, will be freely tradable without restriction or
further registration under the Securities Act, unless held by an affiliate of
our company as that term is defined in Rule 144 under the Securities Act.

     The shares of our Class B common stock that will be held by Barnes & Noble
after the offering, and any shares issuable upon conversion of such Class B
Common Stock, will constitute restricted securities within the meaning of Rule
144.

     In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person or
persons whose shares of common stock are aggregated, including persons who may
be deemed our affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of:

     - one percent of the then-outstanding shares of common stock; and

     - the average weekly trading volume during the four calendar weeks
       preceding the date on which notice of the sale is filed with the
       Securities and Exchange Commission.

     Sales under Rule 144 are also subject to restrictions as to the manner of
sale, notice requirements and the availability of current public information
about us.

     In connection with this offering, we, our executive officers and directors,
the Barnes & Noble subsidiary that is the record holder of our Class B common
stock and certain of our optionholders have agreed that, subject to various
exceptions, for a period of 180 days after the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for common stock. Upon expiration of the lock-up period,
          shares of our Class A common stock that are issuable upon exercise of
options granted pursuant to our 2001 Incentive Plan will be available for sale,
subject to compliance with Rule 144. Salomon Smith Barney in its sole discretion
may release any or all of the securities subject to these lock-up agreements at
any time without public notice.

     Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register the shares of Class A common stock
reserved or to be available for issuance under our 2001 Incentive Plan. Shares
of Class A common stock issued under the 2001 Incentive Plan generally will be
available for sale in the open market by holders who are not our affiliates and,
subject to the volume and other applicable limitations of Rule 144, by holders
who are our affiliates, unless those shares are subject to vesting restrictions
or the contractual restrictions described above.

     Prior to this offering, there has been no public market for our Class A
common stock. No information is currently available and we cannot predict the
timing or amount of future sales of shares, or the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price of the Class A common stock prevailing from time to time. Sales of
substantial amounts of Class A common stock, including shares issuable upon the
exercise of stock options or upon conversion of shares of Class B common stock,
in the public market after the lapse of the restrictions described above, or the
perception that these sales may occur, could materially adversely affect the
prevailing market prices for the Class A common stock and our ability to raise
equity capital in the future.

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          UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

     The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
our Class A common stock by a non-U.S. holder. As used in this discussion, the
term non-U.S. holder means a beneficial owner of our Class A common stock that
is not, for U.S. federal income tax purposes:

     - an individual who is a citizen or resident of the United States;

     - a corporation or partnership created or organized in or under the laws of
       the United States or of any political subdivision of the United States,
       other than a partnership treated as foreign under U.S. Treasury
       Regulations;

     - an estate whose income is includible in gross income for U.S. federal
       income tax purposes regardless of its source; or

     - a trust, in general, if a U.S. court is able to exercise primary
       supervision over the administration of the trust and one or more U.S.
       persons have authority to control all substantial decisions of the trust.

     An individual may be treated as a resident of the United States in any
calendar year for U.S. federal income tax purposes, instead of a nonresident,
by, among other ways, being present in the United States on at least 31 days in
that calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of this calculation,
you would count all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are taxed for U.S. federal income
purposes as if they were U.S. citizens.

     This discussion does not consider:

     - U.S. state and local or non-U.S. tax consequences;

     - specific facts and circumstances that may be relevant to a particular
       non-U.S. holder's tax position, including, if the non-U.S. holder is a
       partnership or trust that the U.S. tax consequences of holding and
       disposing of our Class A common stock may be affected by certain
       determinations made at the partner or beneficiary level;

     - the tax consequences for the stockholders, partners or beneficiaries of a
       non-U.S. holder;

     - special tax rules that may apply to particular non-U.S. holders, such as
       financial institutions, insurance companies, tax-exempt organizations,
       U.S. expatriates, broker-dealers, and traders in securities; or

     - special tax rules that may apply to a non-U.S. holder that holds our
       Class A common stock as part of a straddle, hedge, conversion
       transaction, synthetic security or other integrated investment.

     The following discussion is based on provisions of the Code, applicable
U.S. Treasury Regulations and administrative and judicial interpretations, all
as in effect on the date of this prospectus, and all of which are subject to
change, retroactively or prospectively. The following summary assumes that a
non-U.S. holder holds our Class A common stock as a capital asset. EACH NON-U.S.
HOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF OUR CLASS A COMMON STOCK.

DIVIDENDS

     We do not anticipate paying cash dividends on our Class A common stock in
the foreseeable future. See "Dividend Policy." In the event, however, that we
pay dividends on our Class A common stock, we will have to withhold a U.S.
federal withholding tax at a rate of 30%, or a lower rate under an applicable

                                        57
<PAGE>   62

income tax treaty, from the gross amount of the dividends paid to a non-U.S.
holder. Non-U.S. holders should consult their tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.

     Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are taxed on a
net income basis at the regular graduated rates and in the manner applicable to
U.S. persons. In that case, we will not have to withhold U.S. federal
withholding tax if the non-U.S. holder complies with applicable certification
and disclosure requirements. In addition, a branch profits tax may be imposed at
a 30% rate, or a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected with the
conduct of a trade or business in the United States.

     With respect to the withholding of U.S. federal income tax on the payment
of dividends, a non-U.S. holder who claims the benefit of an applicable income
tax treaty rate generally will be required to satisfy applicable certification
and other requirements. However,

     - in the case of Class A common stock held by a foreign partnership, the
       certification requirement will generally be applied to the partners of
       the partnership and the partnership will be required to provide certain
       information;

     - in the case of Class A common stock held by a foreign trust, the
       certification requirement will generally be applied to the trust or the
       beneficial owners of the trust depending on whether the trust is a
       foreign complex trust, foreign simple trust, or foreign grantor trust as
       defined in the U.S. Treasury Regulations; and

     - look-through rules will apply for tiered partnerships, foreign simple
       trusts and foreign grantor trusts.

     A non-U.S. holder which is a foreign partnership or a foreign trust is
urged to consult its own tax advisor regarding its status under these U.S.
Treasury Regulations and the certification requirements applicable to it.

     A non-U.S. holder that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a refund with the
U.S. Internal Revenue Service.

GAIN ON DISPOSITION OF CLASS A COMMON STOCK

     A non-U.S. holder generally will not be taxed on gain recognized on a
disposition of our Class A common stock unless:

     - the gain is effectively connected with the non-U.S. holder's conduct of a
       trade or business in the United States or, alternatively, if an income
       tax treaty applies, is attributable to a permanent establishment
       maintained by the non-U.S. holder in the United States; in these cases,
       the gain will be taxed on a net income basis at the regular graduated
       rates and in the manner applicable to U.S. persons, unless an applicable
       treaty provides otherwise, and, if the non-U.S. holder is a foreign
       corporation, the branch profits tax described above may also apply;

     - the non-U.S. holder is an individual who holds our Class A common stock
       as a capital asset, is present in the United States for more than 182
       days in the taxable year of the disposition and meets other requirements;
       or

     - we are or have been a U.S. real property holding corporation for U.S.
       federal income tax purposes at any time during the shorter of the
       five-year period ending on the date of disposition or the period that the
       non-U.S. holder held our Class A common stock.

     Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. The tax relating
to stock in a U.S. real property holding corporation generally will not apply to
a non-U.S. holder whose holdings,

                                        58
<PAGE>   63

direct and indirect, at all times during the applicable period, constituted 5%
or less of our Class A common stock, provided that our Class A common stock was
regularly traded on an established securities market. We believe that we are not
currently, and we do not anticipate becoming in the future, a U.S. real property
holding corporation.

FEDERAL ESTATE TAX

     Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

     We must report annually to the U.S. Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to that holder and the tax withheld
from those dividends. Copies of the information returns reporting those
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder is a resident under the provisions of
an applicable income tax treaty or agreement. Under some circumstances, U.S.
Treasury Regulations require additional information reporting and backup
withholding presently at a rate of 30.5% on some payments on common stock.

     Under currently applicable law, the gross amount of dividends paid to a
non-U.S. holder that fails to certify its non-U.S. holder status in accordance
with applicable U.S. Treasury Regulations generally will be reduced by backup
withholding presently at a rate of 30.5%.

     The payment of the proceeds of the disposition of common stock by a
non-U.S. holder to or through the U.S. office of a broker or a non-U.S. office
of a U.S. broker generally will be reported to the U.S. Internal Revenue Service
and reduced by backup withholding presently at a rate of 30.5% unless the non-
U.S. holder either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption and the broker has no actual
knowledge to the contrary. The payment of the proceeds of the disposition of
common stock by a non-U.S. holder to or through a non-U.S. office of a broker
will not be reduced by backup withholding or reported to the U.S. Internal
Revenue Service unless the broker is a U.S. person or a non-U.S. person with
certain enumerated connections with the United States. In general, the payment
of proceeds from the disposition of common stock by or through a non-U.S. office
of a broker that is a U.S. person or a non-U.S. person with certain enumerated
connections with the United States will be reported to the U.S. Internal Revenue
Service and may in limited circumstances be reduced by backup withholding
presently at a rate of 30.5%, unless the broker receives a statement from the
non-U.S. holder, signed under penalty of perjury, certifying its non-U.S. status
or the broker has documentary evidence in its files that the holder is a
non-U.S. holder and the broker has no actual knowledge to the contrary.

     Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them,
including changes to these rules that will become effective after 2000.

     Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information or
appropriate claim for refund is furnished to the U.S. Internal Revenue Service.

                                        59
<PAGE>   64

                                  UNDERWRITING

     Salomon Smith Barney Inc. and UBS Warburg LLC are acting as representatives
of the underwriters named below. Subject to the terms and conditions stated in
the underwriting agreement dated the date of this prospectus, each underwriter
named below has severally agreed to purchase, and we have agreed to sell to each
underwriter, the number of shares set forth opposite its name below:

<Table>
<Caption>
UNDERWRITER                                                   NUMBER OF SHARES
-----------                                                   ----------------
<S>                                                           <C>
Salomon Smith Barney Inc. ..................................
UBS Warburg LLC.............................................

          Total.............................................
</Table>

     The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.

     The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to dealers at the public offering price less a concession not
to exceed of $     per share. The underwriters may allow, and dealers may
reallow, a concession not to exceed $     per share on sales to other dealers.
If all the shares are not sold at the initial offering price, the
representatives may change the public offering price and other selling terms.
The representatives have advised us that the underwriters do not intend to
confirm any sales to any accounts over which they exercise discretionary
authority.

     We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to                additional shares
of our Class A common stock at the public offering price less the underwriting
discount. The underwriters may exercise the option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent the option is exercised, each underwriter must purchase a number of
additional shares approximately proportionate to that underwriter's initial
purchase commitment.

     We, our officers and directors, the Barnes & Noble subsidiary that is the
record holder of our Class B common stock and certain of our option holders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney,
dispose of or hedge any shares of our Class A common stock or any securities
convertible into, or exercisable or exchangeable for, our Class A common stock.
Salomon Smith Barney, in its sole discretion, may release any of the securities
subject to these lock-up agreements at any time without notice.

     At our request, the underwriters have reserved up to      % of the shares
of common stock for sale at the initial public offering price to persons who are
directors, officers or employees, or who are otherwise associated with us
through a directed share program. The number of shares of common stock available
for sale to the general public will be reduced by the number of directed shares
purchased by participants in the program. Any directed shares not purchased will
be offered by the underwriters to the general public on the same basis as all
other shares of common stock offered. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with the sales of the directed shares.

     Prior to this offering, there has been no public market for our Class A
common stock. Consequently, the initial public offering price for the shares was
determined by negotiation between us and the representatives. Among the factors
considered in determining the initial public offering price were: our

                                        60
<PAGE>   65

record of operations; our current financial condition; our future prospects; our
markets; the economic conditions in and future prospects for the industry in
which we compete; our management; and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to our company.

     We cannot assure you, however, that the prices at which the shares will
sell in the public market after this offering will not be lower than the initial
public offering price or that an active trading market in our Class A common
stock will develop and continue after this offering.

     We have applied to have our Class A common stock included for quotation on
the Nasdaq National Market under the symbol "GSTP."

     The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of Class A common stock.

<Table>
<Caption>
                                                              NO EXERCISE    FULL EXERCISE
                                                              -----------    -------------
<S>                                                           <C>            <C>
Per Share...................................................   $               $
Total.......................................................   $               $
</Table>

     In connection with this offering, Salomon Smith Barney, on behalf of the
underwriters, may purchase and sell shares of Class A common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of shares in excess of the number of shares to be purchased by the underwriters
in this offering, which creates a syndicate short position. "Covered" short
sales are sales of shares made in an amount up to the number of shares
represented by the underwriters' over-allotment option. In determining the
source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out the
covered syndicate short involve either purchases of the Class A common stock in
the open market after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make "naked" short sales of
shares in excess of the over-allotment option. The underwriters must close out
any naked short position by purchasing shares of Class A common stock in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of bids
for or purchases of shares in the open market while the offering is in progress.

     The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney repurchases shares originally sold by that syndicate member
in order to cover syndicate short positions or make stabilizing purchases.

     Any of these activities may have the effect of preventing or retarding a
decline in the market price of the Class A common stock. They may also cause the
price of the Class A common stock to be higher than the price that would
otherwise exist in the open market in the absence of these transactions. The
underwriters may conduct these transactions on the Nasdaq National Market or in
the over-the-counter market, or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.

     We estimate that our portion of the total expenses of this offering will be
$          .

     From time to time, Salomon Smith Barney and its affiliates have provided,
and may continue to provide, investment banking services, investment trading
services and general financing and banking services to Barnes & Noble, for which
they receive customary fees. Salomon Smith Barney and it affiliates may in the
future perform various similar investment banking and advisory services for us
from time to time, for which we will pay them customary fees.

                                        61
<PAGE>   66

     We and Barnes & Noble have agreed to indemnify the underwriters against
specified liabilities, including liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.

                                 LEGAL MATTERS

     The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Robinson Silverman Pearce Aronsohn & Berman LLP, 1290
Avenue of the Americas, New York, New York 10104, and for the underwriters by
Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603. Michael
N. Rosen, the Chairman of Robinson Silverman Pearce Aronsohn & Berman LLP, is
our Secretary and a director.

                                    EXPERTS

     The financial statements of GameStop, Inc. included in this prospectus and
in the registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the registration statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.

     The consolidated financial statements of Funco, Inc. at April 2, 2000 and
March 28, 1999, and for each of the three years in the period ended April 2,
2000, appearing in this prospectus and in the registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

     We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits and schedules thereto) under the
Securities Act and the rules and regulations thereunder, for the registration of
the Class A common stock offered hereby. This prospectus is part of the
registration statement. This prospectus does not contain all the information
included in the registration statement because we have omitted parts of the
registration statement as permitted by the Securities and Exchange Commission's
rules and regulations. For further information about us and our capital stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract, agreement or other document referred to are not
necessarily complete. Where the contract or other document is an exhibit to the
registration statement, each statement is qualified by the provisions of that
exhibit.

     You can inspect and copy all or any portion of the registration statements
or any reports, statements or other information we file at the public reference
facility maintained by the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies are available for a copying
fee. You may call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about the operation of the public reference rooms. In
addition, the registration statement is publicly available through the
Securities and Exchange Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov. We will also file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You can also request copies of these documents, for a copying fee,
by writing to the Securities and Exchange Commission. We intend to furnish to
our stockholders annual reports containing audited financial statements for each
fiscal year.

                                        62
<PAGE>   67

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                PAGE
                                                                ----
<S>                                                             <C>
GAMESTOP, INC. CONSOLIDATED FINANCIAL STATEMENTS:

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

Consolidated Financial Statements:
  Balance Sheets............................................     F-3
  Statements of Operations..................................     F-4
  Statements of Stockholders' Equity (Deficit)..............     F-5
  Statements of Cash Flows..................................     F-6
  Notes to Consolidated Financial Statements................     F-7
FUNCO, INC. CONSOLIDATED FINANCIAL STATEMENTS:

Independent Auditors' Report................................    F-17

Consolidated Financial Statements:
  Balance Sheets............................................    F-18
  Statements of Income......................................    F-19
  Statement of Shareholders' Equity.........................    F-20
  Statements of Cash Flows..................................    F-21
  Notes to Consolidated Financial Statements................    F-22
</Table>

                                       F-1
<PAGE>   68

     [The following report is in the form that will be signed prior to the
effectiveness of the registration statement of which this prospectus is a part.]

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and the Stockholder of
GameStop, Inc.
Grapevine, Texas

     We have audited the accompanying consolidated balance sheets of GameStop,
Inc. as of January 29, 2000 and February 3, 2001 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
13 weeks ended January 29, 2000, and 53 weeks ended February 3, 2001 (Successor
Company) and the 52 weeks ended January 30, 1999 and 39 weeks ended October 30,
1999 (Predecessor Company). 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GameStop,
Inc. as of January 29, 2000 and February 3, 2001 and the results of its
operations and its cash flows for the 13 weeks ended January 29, 2000, and 53
weeks ended February 3, 2001 (Successor Company) and the 52 weeks ended January
30, 1999 and 39 weeks ended October 30, 1999 (Predecessor Company) in conformity
with accounting principles generally accepted in the United States of America.

     As discussed in Note 2 of the consolidated financial statements, the
Predecessor Company was acquired on October 30, 1999 in a business combination
accounted for as a purchase. As a result, the consolidated financial statements
of the Successor Company are presented on a new basis of accounting from the
consolidated financial statements of the Predecessor Company and, therefore, are
not comparable.

                                          BDO SEIDMAN, LLP

Dallas, Texas
March 22, 2001

                                       F-2
<PAGE>   69

                                 GAMESTOP, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                                              AUGUST 4,
                                                                                                                 2001
                                                        JANUARY 29,        FEBRUARY 3,        AUGUST 4,       PRO FORMA
                                                            2000               2001              2001         (NOTE 13)
                                                      ----------------   ----------------   --------------   ------------
                                                                                                     (UNAUDITED)
                                                                                (IN THOUSANDS)
<S>                                                   <C>                <C>                <C>              <C>
ASSETS:
Current assets:
  Cash and cash equivalents.........................      $  6,612           $  8,641          $  7,261        $  7,261
  Receivables, net..................................         2,423              3,726             3,865           3,865
  Merchandise inventories...........................        69,391            108,853           122,922         122,922
  Prepaid expenses and other current assets.........           896             13,682             6,615           6,615
  Deferred taxes....................................         3,093              4,649             6,683           6,683
                                                          --------           --------          --------        --------
         Total current assets.......................        82,415            139,551           147,346         147,346
                                                          --------           --------          --------        --------
Property and equipment:
  Leasehold improvements............................        11,373             20,874            23,453          23,453
  Fixtures and equipment............................        17,019             45,236            48,796          48,796
                                                          --------           --------          --------        --------
                                                            28,392             66,110            72,249          72,249
  Less accumulated depreciation and amortization....         1,926             14,742            23,859          23,859
                                                          --------           --------          --------        --------
         Net property and equipment.................        26,466             51,368            48,390          48,390
                                                          --------           --------          --------        --------
Goodwill, net.......................................       197,280            319,418           313,855         313,855
Other noncurrent assets.............................         1,761                536               548             548
                                                          --------           --------          --------        --------
         Total other assets.........................       199,041            319,954           314,403         314,403
                                                          --------           --------          --------        --------
         Total assets...............................      $307,922           $510,873          $510,139        $510,139
                                                          ========           ========          ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
  Accounts payable..................................      $ 89,606           $102,837          $105,865        $105,865
  Accrued liabilities...............................        21,584             37,011            37,938          37,938
                                                          --------           --------          --------        --------
         Total current liabilities..................       111,190            139,848           143,803         143,803
                                                          --------           --------          --------        --------
Payable to Barnes & Noble, Inc......................       203,613            386,439           392,339         250,000
Deferred taxes......................................           331              2,862             4,116           4,116
Other long-term liabilities.........................         1,363              2,196             2,335           2,335
                                                          --------           --------          --------        --------
                                                           205,307            391,497           398,790         256,451
                                                          --------           --------          --------        --------
         Total liabilities..........................       316,497            531,345           542,593         400,254
                                                          --------           --------          --------        --------
Stockholders' equity (deficit):
  Preferred stock -- authorized 1,000,000 shares; no
    shares issued or outstanding....................            --                 --                --              --
  Class A common stock -- $0.01 par value;
    authorized 1,000,000 shares; 1,000 shares issued
    and outstanding.................................            --                 --                --              --
  Class B common stock -- $0.01 par value;
    authorized 13,000,000 shares; 4,000,000 shares
    issued and outstanding..........................            40                 40                40              40
  Additional paid-in-capital........................       (15,906)           (15,906)          (15,906)        126,433
  Retained earnings (deficit).......................         7,291             (4,606)          (16,588)        (16,588)
                                                          --------           --------          --------        --------
         Total stockholders' equity (deficit).......        (8,575)           (20,472)          (32,454)        109,885
                                                          --------           --------          --------        --------
         Total liabilities and stockholders' equity
           (deficit)................................      $307,922           $510,873          $510,139        $510,139
                                                          ========           ========          ========        ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-3
<PAGE>   70

                                 GAMESTOP, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                    PREDECESSOR COMPANY                        SUCCESSOR COMPANY
                                 -------------------------   -----------------------------------------------------
                                  52 WEEKS      39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                    ENDED         ENDED         ENDED         ENDED      -------------------------
                                 JANUARY 30,   OCTOBER 30,   JANUARY 29,   FEBRUARY 3,    JULY 29,      AUGUST 4,
                                    1999          1999          2000          2001          2000          2001
                                 -----------   -----------   -----------   -----------   -----------   -----------
                                                                                                (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>           <C>           <C>           <C>           <C>           <C>
Sales..........................   $465,166      $329,392      $223,748      $756,697      $247,157      $408,161
Cost of sales..................    350,475       246,865       174,808       570,995       183,531       306,442
                                  --------      --------      --------      --------      --------      --------
  Gross profit.................    114,691        82,527        48,940       185,702        63,626       101,719
Selling, general and
  administrative expenses......     84,644        68,112        29,895       157,491        61,819        94,529
Acquisition incentive
  bonuses......................         --        26,789            --            --            --            --
Depreciation and
  amortization.................      4,805         4,475         1,926        12,974         4,863         9,131
Amortization of goodwill.......         --            --         1,687         9,223         3,727         5,562
                                  --------      --------      --------      --------      --------      --------
  Operating earnings (loss)....     25,242       (16,849)       15,432         6,014        (6,783)       (7,503)
Interest income................       (431)         (169)         (224)          (36)          (25)           --
Interest expense...............      3,975         1,141         3,347        23,447         8,803        10,801
                                  --------      --------      --------      --------      --------      --------
  Earnings (loss) before income
     tax expense (benefit).....     21,698       (17,821)       12,309       (17,397)      (15,561)      (18,304)
Income tax expense (benefit)...        582           100         5,018        (5,500)       (5,700)       (6,322)
                                  --------      --------      --------      --------      --------      --------
  Net earnings (loss)..........   $ 21,116      $(17,921)     $  7,291      $(11,897)     $ (9,861)     $(11,982)
                                  ========      ========      ========      ========      ========      ========
Earnings (loss) before income
  taxes........................     21,698       (17,821)
Pro forma income tax expense
  (benefit)....................      8,738        (7,111)
                                  --------      --------
Pro forma net earnings
  (loss).......................   $ 12,960      $(10,710)
                                  ========      ========
Net earnings (loss) per common
  share -- basic and diluted...                               $             $             $             $
                                                              ========      ========      ========      ========
Weighted average shares of
  common stock-basic and
  diluted......................
                                                              ========      ========      ========      ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-4
<PAGE>   71

                                 GAMESTOP, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                        COMMON STOCK                ADDITIONAL   RETAINED
                                 MEMBERS'   -------------------------------------    PAID IN     EARNINGS
                                  EQUITY    SHARES   CLASS A    SHARES    CLASS B    CAPITAL     (DEFICIT)    TOTAL
                                 --------   ------   -------   ---------  -------   ----------   ---------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>      <C>       <C>        <C>       <C>          <C>         <C>
PREDECESSOR COMPANY
Balance at February 1, 1998....   $5,000       --    $   --           --    $--      $     --    $  3,689    $  8,689
Net earnings for the 52 weeks
  ended January 30, 1999.......       --       --        --           --     --            --      21,116      21,116
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at January 30, 1999....    5,000       --        --           --     --            --      24,805      29,805
Distributions..................       --       --        --           --     --            --     (27,750)    (27,750)
Net loss for the 39 weeks ended
  October 30, 1999.............       --       --        --           --     --            --     (17,921)    (17,921)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
                                   5,000       --        --           --     --            --     (20,866)    (15,866)
                                  ======    =====    ======    =========    ===      ========    ========    ========
SUCCESSOR COMPANY
Issuance of common stock for
  members' equity and
  elimination of deficit upon
  acquisition by Barnes &
  Noble, Inc. on October 30,
  1999.........................       --    1,000        --    4,000,000     40       (15,906)         --     (15,866)
Net earnings for the 13 weeks
  ended January 29, 2000.......       --       --        --           --     --            --       7,291       7,291
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at January 29, 2000....       --    1,000        --    4,000,000     40       (15,906)      7,291      (8,575)
Net loss for the 53 weeks ended
  February 3, 2001.............       --       --        --           --     --            --     (11,897)    (11,897)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at February 3, 2001....       --    1,000        --    4,000,000     40       (15,906)     (4,606)    (20,472)
Net loss for the 26 weeks ended
  August 4, 2001 (unaudited)...       --       --        --           --     --            --     (11,982)    (11,982)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at August 4, 2001
(unaudited)....................   $   --    1,000    $   --    4,000,000    $40      $(15,906)   $(16,588)   $(32,454)
                                  ======    =====    ======    =========    ===      ========    ========    ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-5
<PAGE>   72

                                 GAMESTOP, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<Table>
<Caption>
                                                PREDECESSOR COMPANY                         SUCCESSOR COMPANY
                                            ----------------------------   ----------------------------------------------------
                                               52 WEEKS       39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                                ENDED           ENDED         ENDED         ENDED      ------------------------
                                             JANUARY 30,     OCTOBER 30,   JANUARY 29,   FEBRUARY 3,     JULY 29,     AUGUST 4,
                                                 1999           1999          2000          2001           2000         2001
                                            --------------   -----------   -----------   -----------   ------------   ---------
                                                                                                             (UNAUDITED)
                                                                              (IN THOUSANDS)
<S>                                         <C>              <C>           <C>           <C>           <C>            <C>
Cash flows from operating activities:
  Net earnings (loss).....................     $21,116        $(17,921)     $   7,291     $(11,897)      $ (9,861)    $(11,982)
  Adjustments to reconcile net earnings
    (loss) to net cash flows provided by
    (used in) operating activities:
    Depreciation and amortization.........       4,805           4,475          1,926       12,974          4,863        9,131
    Amortization of goodwill..............          --              --          1,687        9,223          3,727        5,562
    Amortization of loan cost.............         694             207             --           --             --           --
    Deferred taxes........................          --              --            657          975         (2,280)        (780)
    Loss (gain) on disposal of property
      and equipment.......................         946              40             --         (112)            26          259
    Increase in other long-term
      liabilities for scheduled rent
      increases in long-term leases.......         369             278            108          326            157          140
  Changes in operating assets and
    liabilities, net
    Receivables, net......................        (407)           (195)           136         (769)          (648)        (139)
    Merchandise inventories...............      (7,545)        (15,816)        14,675       (9,142)        (2,401)     (14,069)
    Prepaid expenses and other current
      assets..............................        (123)             17            (34)      (1,985)          (821)       7,067
    Accounts payable and accrued
      liabilities.........................      32,968          58,783        (27,834)         278        (38,454)       3,955
                                               -------        --------      ---------     --------       --------     --------
    Net cash flows provided by (used in)
      operating activities................      52,823          29,868         (1,388)        (129)       (45,692)        (856)
                                               -------        --------      ---------     --------       --------     --------
Cash flows from investing activities:
  Purchase of property and equipment......      (6,790)        (12,073)        (4,290)     (25,131)       (11,126)      (6,412)
  Acquisition of Babbage's Etc., LLC by
    Barnes & Noble, Inc., net of cash
    received..............................          --              --       (175,760)          --             --           --
  Acquisition of Funco, Inc., net of cash
    received..............................          --              --             --     (156,764)      (152,762)          --
  Net increase (decrease) in other
    noncurrent assets.....................        (221)         (1,300)           (67)       1,227          1,235          (12)
                                               -------        --------      ---------     --------       --------     --------
  Net cash flows used in investing
    activities............................      (7,011)        (13,373)      (180,117)    (180,668)      (162,653)      (6,424)
                                               -------        --------      ---------     --------       --------     --------
Cash flows from financing activities:
  Repayment of subordinated debt -
    affiliates............................     (25,000)        (10,000)            --           --             --           --
  Increase in payable to Barnes & Noble,
    Inc. attributable to:
    Babbage's Etc. LLC Purchase...........          --              --        175,760           --             --           --
    Funco, Inc. Purchase..................          --              --             --      159,144        159,144           --
  Net increase in other payable to Barnes
    & Noble, Inc..........................          --              --          1,227       23,682         52,417        5,900
  Distribution to members.................          --         (27,750)            --           --             --           --
                                               -------        --------      ---------     --------       --------     --------
  Net cash flows provided by (used in)
    financing activities..................     (25,000)        (37,750)       176,987      182,826        211,561        5,900
                                               -------        --------      ---------     --------       --------     --------
Net increase (decrease) in cash and cash
  equivalents.............................      20,812         (21,255)        (4,518)       2,029          3,216       (1,380)
Cash and cash equivalents at beginning of
  period..................................      11,573          32,385         11,130        6,612          6,612        8,641
                                               -------        --------      ---------     --------       --------     --------
Cash and cash equivalents at end of
  period..................................     $32,385        $ 11,130      $   6,612     $  8,641       $  9,828     $  7,261
                                               =======        ========      =========     ========       ========     ========
</Table>

          See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>   73

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Background and Basis of Presentation

     GameStop Corp. was incorporated under the laws of the State of Delaware in
August 2001 as a holding company for GameStop, Inc. GameStop Corp. is a
wholly-owned subsidiary of Barnes & Noble, Inc.

     GameStop, Inc. (GameStop or the Company) is principally engaged in the sale
of video game systems and software, personal computer software and related
accessories through its GameStop, Babbage's, Software Etc., and FuncoLand trade
names, a Web site (gamestop.com) and Game Informer magazine. The Company
operates their business as a single segment. The Company's stores, which totaled
990 at August 4, 2001, are located in major regional shopping malls and strip
centers in 49 states, Puerto Rico and Guam.

     The Company began operations in November 1996 when Leonard Riggio, the
Chairman of the Board, formed Babbage's Etc. LLC and acquired most of the assets
of Neostar Retail Group, Inc. at an auction held in the U.S. Bankruptcy Court.
In October 1999, Mr. Riggio sold Babbage's Etc. LLC to Barnes & Noble, Inc. and
Babbage's Etc. LLC became a wholly-owned subsidiary of Barnes & Noble, Inc. As a
result of the acquisition of Babbage's Etc. LLC, on October 30, 1999, a change
in control occurred, and a new reporting entity exists. The consolidated
financial statements reflect "push-down" accounting in accordance with
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 54 (SAB
54) under which the allocation of the purchase price and the related acquisition
debt were recorded on the Company's financial statements and the deficit in
retained earnings was eliminated. Because the financial statements of the
Company subsequent to the acquisition by Barnes & Noble, Inc. are not directly
comparable to those of the Company prior to the acquisition, a distinction was
made between the "Predecessor Company" and the "Successor Company" throughout
the financial statements to clearly separate the financial position, results of
operations and cash flows of the Company before and after the change in control.

     During June 2000, Barnes & Noble, Inc. acquired Funco, Inc., a publicly
traded company on the NASDAQ National Market and, thereafter, through a
corporate restructuring, Babbage's Etc. LLC became a wholly-owned subsidiary of
Funco, Inc. In December 2000, the name of Funco, Inc. was changed to GameStop,
Inc.

  Consolidation

     The consolidated financial statements include the accounts of GameStop and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

  Year-End

     The Company's fiscal year is composed of the 52 or 53 weeks ending on the
Saturday closest to the last day of January. Fiscal 1998 consisted of the 52
weeks ending on January 30, 1999. Fiscal 1999 consisted of the 52 weeks ending
on January 29, 2000. Fiscal 2000 consisted of the 53 weeks ending on February 3,
2001.

  Interim Financial Statements

     The financial information for the 26 weeks ended August 4, 2001 and July
29, 2000 is unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the financial position at such dates and the operations and cash
flows for the periods then ended. Operating results for the 26 weeks ended
August 4, 2001 are not necessarily indicative of results that may be expected
for the entire year.

                                       F-7
<PAGE>   74
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Cash and Cash Equivalents

     The Company considers all short-term, highly-liquid instruments purchased
with an original maturity of three months or less to be cash equivalents. The
Company's cash and cash equivalents are carried at cost, which approximates
market value, and consist primarily of time deposits.

  Merchandise Inventories

     Merchandise inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.

  Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
estimated useful lives (ranging from two to seven years). Maintenance and
repairs are expensed as incurred, while betterments and major remodeling costs
are capitalized. Leasehold improvements are capitalized and amortized over the
shorter of their estimated useful lives or the terms of the respective leases
(ranging from three to ten years). Capitalized lease acquisition costs are being
amortized over the average lease terms of the underlying leases. Costs incurred
in purchasing management information systems are capitalized and included in
property and equipment; these costs are amortized over their estimated useful
lives from the date the systems become operational.

  Goodwill

     Goodwill was recorded in the acquisition of Funco, Inc. and through the
application of "push-down" accounting in accordance with SAB 54 in connection
with the acquisition of Babbage's Etc. LLC by a subsidiary of Barnes & Noble,
Inc. Goodwill represents the excess purchase price over tangible net assets
acquired and is being amortized on a straight-line basis over a 30-year period.
Accumulated amortization at January 29, 2000, February 3, 2001, and August 4,
2001 (unaudited) was $1,687, $10,910 and $16,472, respectively.

  Long-Lived Assets

     In accordance with SFAS 121 "Accounting for the Impairment of Long-Lived
Assets to be Disposed of," long-lived assets (property, equipment and
intangibles) are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to their fair value. No write-downs have been necessary through
February 3, 2001.

  Revenue Recognition

     Revenue from the sales of the Company's products is recognized at the time
of sale. Sales returns (which are not significant) are recognized at the time
returns are made.

  Pre-Opening Expenses

     All costs associated with the opening of new stores are expensed as
incurred. Pre-opening expenses in fiscal 1998, 1999, 2000 and 2001, are included
in selling, general and administrative expenses in the accompanying consolidated
statements of operations.

                                       F-8
<PAGE>   75
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Closed Store Expenses

     Upon a formal decision to close or relocate a store, the Company charges
unrecoverable costs to expense. Such costs include the net book value of
abandoned fixtures and leasehold improvements and a provision for future lease
obligations, net of expected sublease recoveries. Costs associated with store
closings during fiscal 1998, 1999, 2000 and 2001 are included in selling,
general and administrative expenses in the accompanying consolidated statements
of operations.

  Income Taxes

     For periods prior to the acquisition of Babbage's Etc. LLC by Barnes &
Noble, Inc., the Company was not subject to federal and most state income taxes,
and its income was taxed directly to its members. Pro forma income taxes on the
accompanying consolidated statements of operations represents what income taxes
would have been had the predecessor been taxed as a "C" corporation in all
jurisdictions for the periods ended January 30, 1999 and October 30, 1999. From
the date of acquisition by Barnes & Noble, Inc., GameStop has been included in
the consolidated federal tax return of Barnes & Noble, Inc.

     Upon the closing of the proposed offering, Barnes & Noble, Inc. will own
less than 80% of GameStop, Inc. and, accordingly, will not be permitted to
consolidate GameStop's operations for income tax purposes. Accordingly, the
financial statements for periods subsequent to the acquisition reflect income
tax expense as if GameStop had filed separate income tax returns. As a result,
the Company accounts for income taxes in accordance with the provisions of SFAS
109 "Accounting for Income Taxes." SFAS 109 utilizes an asset and liability
approach, and deferred taxes are determined based on the estimated future tax
effect of differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates.

  Net Earnings (Loss) Per Common Share

     Net earnings (loss) per common share is presented under Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings (loss) per common share is computed using the weighted average number
of common shares outstanding during the period and excludes any dilutive effects
of the Company's outstanding options.

     Diluted earnings per common share is computed using the weighted average
number of common and dilutive common shares outstanding during the period. Due
to the Company's net loss for the 39 weeks ended October 30, 1999, the 26 weeks
ended July 29, 2000 (unaudited), the 53 weeks ended February 3, 2001, and the 26
weeks ended August 4, 2001 (unaudited), potentially dilutive securities have
been excluded from the computation for those periods, as their effect is
anti-dilutive.

  Stock Options

     The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company or its parent in
amounts based on the price of its stock in accordance with the provisions of
Accounting Principles Board Opinion 25 - "Accounting for Stock Issued to
Employees."

  Use of Estimates

     In preparing financial statements in conformity with accounting principles
generally accepted in the United States, the Company is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and sales and expenses during the reporting periods.
Actual results could differ from those estimates.

                                       F-9
<PAGE>   76
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Fair Values of Financial Instruments

     The carrying values of cash and cash equivalents reported in the
accompanying consolidated balance sheets approximate fair value due to the
short-term maturities of these assets.

  Recently Issued Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of certain intangible assets and goodwill based on the criteria in SFAS
141.

     SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

     The Company's previous business combinations were accounted for using the
purchase method. As of August 4, 2001 (unaudited), the net carrying amount of
goodwill is $313,855. Amortization expense during the six-month period ended
August 4, 2001 (unaudited) was $5,562. The Company intends to complete the
transitional goodwill impairment test within six months from the date of
adoption. Currently, the Company is assessing but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial position and results
of operations.

2. ACQUISITIONS

     On October 30, 1999, the net assets of Babbage's Etc. LLC were purchased by
Barnes & Noble, Inc. The acquisition was accounted for by Barnes & Noble, Inc.
under the purchase method of accounting and the $198,927 excess of the $186,520
purchase price over the fair value of the net liabilities assumed has been
recorded as goodwill by the Company through the application of "push-down"
accounting in accordance with SAB 54. Based upon the purchase agreement, if
certain financial targets are met by GameStop in the fiscal year ended January
2002, Barnes & Noble, Inc. will make an additional payment of approximately
$10,000 to the former shareholders and as such, GameStop will recognize
additional goodwill of approximately $10,000 with a credit to paid-in-capital.
In connection with the acquisition of Babbage's Etc. LLC, its management
approved bonuses for its employees aggregating $26,789 which were charged to
operations during the 39 weeks ended October 30, 1999.

     On June 14, 2000, a wholly-owned subsidiary of Barnes & Noble, Inc.
acquired all of the outstanding shares of Funco, Inc., a Minneapolis-based
electronic games retailer. The acquisition was accounted for by Barnes & Noble,
Inc. under the purchase method of accounting. The excess of the $167,600
purchase price over the fair value of the net assets acquired, in the amount of
$131,400, has been recorded as goodwill.

                                       F-10
<PAGE>   77
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The unaudited pro forma consolidated statements of operations data for the
39 weeks ended October 30, 1999, 13 weeks ended January 29, 2000, and 53 weeks
ended February 3, 2001, set forth below gives effect to the acquisitions of
Babbage's Etc. LLC and Funco, Inc. as if they occurred on January 30, 1999. The
unaudited pro forma results include adjustments to reflect a full year of
amortization of goodwill recorded in conjunction with the acquisition and
interest on the acquisition debt.

<Table>
<Caption>
                                           PREDECESSOR
                                             COMPANY                  SUCCESSOR COMPANY
                                         ----------------    ------------------------------------
                                          39 WEEKS ENDED      13 WEEKS ENDED      53 WEEKS ENDED
                                         OCTOBER 30, 1999    JANUARY 29, 2000    FEBRUARY 3, 2001
                                         ----------------    ----------------    ----------------
                                          (IN THOUSANDS)                (IN THOUSANDS)
<S>                                      <C>                 <C>                 <C>
Sales..................................      $474,300            $328,600            $828,000
Net earnings (loss)....................      $(23,600)           $  9,600            $(16,200)
Net earnings (loss) per share -- basic
  and diluted..........................      $                   $                   $
</Table>

3. PAYABLE TO BARNES & NOBLE, INC.

     On November 18, 1997, Barnes & Noble, Inc. obtained an $850,000, five-year
senior revolving credit facility (the Revolving Credit Facility) with a
syndicate led by the Chase Manhattan Bank. The Revolving Credit Facility permits
borrowings at various interest rate options based upon the prime rate or London
Interbank Office Rate (LIBOR) depending upon certain financial tests. The
Revolving Credit Facility contains covenants, limitations, and events of default
typical of credit facilities of this size and nature, including financial
covenants which require and which limit capital expenditures pertaining to
Barnes & Noble, Inc. The Revolving Credit Facility is secured by the capital
stock, accounts receivable and general intangibles of the subsidiaries
(including the Company) of Barnes & Noble, Inc.

     Amounts available under the Revolving Credit Facility were used to fund the
acquisitions described in Note 2, and Barnes & Noble, Inc. has allocated such
debt to the Company, as reflected in the accompanying consolidated balance
sheets. Barnes & Noble, Inc. charged the Company interest of $3,347, $23,447,
$8,803 and $10,801, relating to this debt for the periods ended January 29, 2000
and February 3, 2001 and the 26 weeks ended July 29, 2000 (unaudited) and August
4, 2001 (unaudited), respectively.

4. RECEIVABLES, NET

     Receivables represent primarily bankcard and other receivables as follows:

<Table>
<Caption>
                                                    JANUARY 29,    FEBRUARY 3,     AUGUST 4,
                                                       2000           2001           2001
                                                    -----------    -----------    -----------
                                                                                  (UNAUDITED)
                                                                 (IN THOUSANDS)
<S>                                                 <C>            <C>            <C>
Bankcard receivables..............................    $2,311         $2,656         $3,102
Other receivables.................................       403          1,198            871
Allowance for doubtful accounts...................      (291)          (128)          (108)
                                                      ------         ------         ------
Total receivables, net............................    $2,423         $3,726         $3,865
                                                      ======         ======         ======
</Table>

5. LEASES

     The Company leases retail stores, warehouse facilities, office space and
equipment. The retail stores are generally leased under noncancelable agreements
that expire at various dates through 2013 with various renewal options for
additional periods. The agreements, which have been classified as operating
leases, generally provide for both minimum and percentage rentals and require
the Company to pay all insurance, taxes and other maintenance costs. Percentage
rentals are based on sales performance in excess of specified minimums at
various stores.

                                       F-11
<PAGE>   78
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Approximate rental expenses under operating leases are as follows:

<Table>
<Caption>
                                    PREDECESSOR COMPANY                        SUCCESSOR COMPANY
                                 -------------------------   -----------------------------------------------------
                                  52 WEEKS      39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                    ENDED         ENDED         ENDED         ENDED      -------------------------
                                 JANUARY 30,   OCTOBER 30,   JANUARY 29,   FEBRUARY 3,    JULY 29,      AUGUST 4,
                                    1999          1999          2000          2001          2000          2001
                                 -----------   -----------   -----------   -----------   -----------   -----------
                                                                                                (UNAUDITED)
                                                                  (IN THOUSANDS)
<S>                              <C>           <C>           <C>           <C>           <C>           <C>
Minimum........................    $21,000       $17,000       $ 6,000       $35,000       $14,000       $21,000
Percentage rentals.............      6,000         4,000         4,000         6,000         2,000         2,000
                                   -------       -------       -------       -------       -------       -------
                                   $27,000       $21,000       $10,000       $41,000       $16,000       $23,000
                                   =======       =======       =======       =======       =======       =======
</Table>

     Future minimum annual rentals, excluding percentage rentals, required under
leases that had initial, noncancelable lease terms greater than one year, as of
February 3, 2001 are approximately:

<Table>
<Caption>
YEAR ENDED                                                   AMOUNT
----------                                               --------------
                                                         (IN THOUSANDS)
<S>                                                      <C>
January 2002...........................................     $ 37,000
January 2003...........................................       33,000
January 2004...........................................       25,000
January 2005...........................................       19,000
January 2006...........................................       14,000
Thereafter.............................................       39,000
                                                            --------
                                                            $167,000
                                                            ========
</Table>

6. LITIGATION

     Various claims and lawsuits arising in the normal course of business are
pending against the Company. The subject matter of these proceedings primarily
includes commercial disputes and employment issues. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of operations.

7. INCOME TAXES

     For periods prior to the acquisition of Babbage's Etc. LLC by Barnes &
Noble, Inc., the Company's predecessor was not subject to federal and most state
income taxes, and its income was taxed directly to its members. Accordingly, the
consolidated statement of operations includes the actual state taxes paid
totaling $582 and $100 for the 52 weeks ended January 30, 1999 and 39 weeks
ended October 30, 1999, respectively.

     Subsequent to the acquisition, the financial statements reflect income
taxes as if the Company had filed separate tax returns as a "C" corporation on a
stand-alone basis.

                                       F-12
<PAGE>   79
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The historical provision for income tax consisted of the following:

<Table>
<Caption>
                                                                                     26 WEEKS ENDED
                                      13 WEEKS ENDED      53 WEEKS ENDED     -------------------------------
                                     JANUARY 29, 2000    FEBRUARY 3, 2001    JULY 29, 2000    AUGUST 4, 2001
                                     ----------------    ----------------    -------------    --------------
                                                                                       (UNAUDITED)
                                                                 (IN THOUSANDS)
<S>                                  <C>                 <C>                 <C>              <C>
Current tax expense (benefit):
  Federal..........................       $3,493              $(5,300)          $(2,800)         $(4,439)
  State............................          868               (1,175)             (620)          (1,103)
                                          ------              -------           -------          -------
                                           4,361               (6,475)           (3,420)          (5,542)
                                          ------              -------           -------          -------
Deferred tax expense (benefit):
  Federal..........................          526                  690            (1,910)            (625)
  State............................          131                  285              (370)            (155)
                                          ------              -------           -------          -------
                                             657                  975            (2,280)            (780)
                                          ------              -------           -------          -------
Total income tax expense
  (benefit)........................       $5,018              $(5,500)          $(5,700)         $(6,322)
                                          ======              =======           =======          =======
</Table>

     The difference in income tax provided and the amounts determined by
applying the statutory rate to income before income taxes result from the
following:

<Table>
<Caption>
                                                                                     26 WEEKS ENDED
                                      13 WEEKS ENDED      53 WEEKS ENDED     -------------------------------
                                     JANUARY 29, 2000    FEBRUARY 3, 2001    JULY 29, 2000    AUGUST 4, 2001
                                     ----------------    ----------------    -------------    --------------
                                                                                       (UNAUDITED)
<S>                                  <C>                 <C>                 <C>              <C>
Federal statutory tax rate.........        35.0%               (35.0%)           (35.0%)          (35.0%)
State income taxes, net of federal
  benefit..........................         5.3                 (2.9)             (3.5)            (4.9)
Non-deductible Goodwill
  amortization.....................         0.5                  6.4               1.6              4.5
Other (including permanent
  differences).....................          --                  0.1               0.2              0.9
                                           ----                -----             -----            -----
                                           40.8%               (31.4%)           (36.7%)          (34.5%)
                                           ====                =====             =====            =====
</Table>

     Differences between financial accounting principles and tax laws cause
differences between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes. The tax effects of these differences, to
the extent they are temporary, are recorded as deferred tax assets and
liabilities under SFAS 109. Deferred tax assets primarily relate to inventory
capitalization temporary differences and deferred tax liabilities primarily
relate to temporary differences in connection with tax-deductible goodwill.

8. STOCK OPTION PLAN

     Effective September 13, 2000, the Company's stockholders approved the 2000
Incentive Plan of GameStop, Inc. (the "Option Plan"). The Option Plan provides a
maximum aggregate amount of 1,000,000 common stock with respect to which options
may be granted and provides for the granting of incentive stock options,
non-qualified stock options, and restricted stock, which may include, without
limitation, restrictions on the right to vote such shares and restrictions on
the right to receive dividends on such shares. The options to purchase common
shares generally are issued at fair market value on the date of grant.
Generally, the options vest and become exercisable ratably over a three-year
period, commencing one year after the grant date, and expire ten years from
issuance.

     On December 5, 2000, the Company granted 498,625 options to its employees
based upon the fair value of the shares at the date of grant ($31.74 per share)
as determined by an independent appraisal. On June 13, 2001 (unaudited), options
to acquire 500,000 shares were granted with immediate vesting at an exercise
price of $40.55 per share to Leonard Riggio based on the fair value at the date
of grant as

                                       F-13
<PAGE>   80
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined by an independent appraisal. During the 26 weeks ended August 4,
2001, (unaudited) 14,625 options were forfeited. At August 4, 2001 (unaudited),
the Company had 984,000 options outstanding.

     During the thirteen weeks ended January 29, 2000, options to acquire
approximately 350,000 shares of Barnes & Noble, Inc. were issued to GameStop
employees pursuant to the Barnes & Noble, Inc. stock option plan. Such grants
were made at the fair market value of Barnes & Noble, Inc. common stock at the
date of grant.

     The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options and, accordingly, no compensation cost has been
recognized for stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options, including options in Barnes & Noble, Inc. common stock granted to
GameStop employees, consistent with the method set forth under SFAS No. 123, the
Company's pro forma net loss and loss per share for the 13 weeks ended January
29, 2000, the 53 weeks ended February 3, 2001 and for the 26 weeks ended August
4, 2001 (unaudited) would have been as follows:

<Table>
<Caption>
                                                            SUCCESSOR COMPANY
                                            --------------------------------------------------
                                            13 WEEKS ENDED    53 WEEKS ENDED    26 WEEKS ENDED
                                             JANUARY 29,       FEBRUARY 3,        AUGUST 4,
                                                 2000              2001              2001
                                            --------------    --------------    --------------
                                                                                 (UNAUDITED)
                                                              (IN THOUSANDS)
<S>                                         <C>               <C>               <C>
Net earnings (loss):
  As reported.............................      $7,291           $(11,897)         $(11,982)
  Pro forma...............................      $7,221           $(13,506)         $(26,540)
Net earnings (loss) per share -- assuming
  dilution:
  As reported.............................      $                $                 $
  Pro forma...............................      $                $                 $
</Table>

     The weighted-average fair value of the options granted during the 13 weeks
ended January 29, 2000, the 53 weeks ended February 3, 2001, and the 26 weeks
ended August 4, 2001 were estimated at $12.26, $19.64 and $24.78, respectively,
using the Black-Scholes option pricing model with the following assumptions:

<Table>
<Caption>
                                                            SUCCESSOR COMPANY
                                            --------------------------------------------------
                                            13 WEEKS ENDED    53 WEEKS ENDED    26 WEEKS ENDED
                                             JANUARY 29,       FEBRUARY 3,        AUGUST 4,
                                                 2000              2001              2001
                                            --------------    --------------    --------------
                                                                                 (UNAUDITED)
<S>                                         <C>               <C>               <C>
Volatility................................       61.1%             61.1%             61.1%
Risk-free interest rate...................       6.54%             5.56%             4.97%
Expected life (years).....................        6.0               6.0               6.0
</Table>

9. EMPLOYEES' DEFINED CONTRIBUTION PLAN

     The Company sponsors a defined contribution plan (the Savings Plan) for the
benefit of substantially all of its employees who meet certain eligibility
requirements, primarily age and length of service. The Savings Plan allows
employees to invest up to 15% of their current gross cash compensation invested
on a pre-tax basis, at their option. The Company's optional contributions to the
Savings Plan are generally in amounts based upon a certain percentage of the
employees' contributions. The Company's contributions to the Savings Plan during
the period ended January 29, 2000 and February 3, 2001, were $364 and $491,
respectively.

                                       F-14
<PAGE>   81
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company also operates departments within bookstores operated by Barnes
& Noble, Inc. (Barnes & Noble), an affiliate of the Company. The Company pays a
license fee to Barnes & Noble in amounts equal to 7.0% of the gross sales of
such departments. During the periods ended January 30, 1999, October 30, 1999,
January 29, 2000, and February 3, 2001, these charges amounted to $822, $641,
$322 and $886, respectively.

     The Company participates in Barnes & Noble's worker's compensation,
property and general liability insurance programs and is allocated a portion of
the program's costs. During the periods ended January 30, 1999, October 30,
1999, January 29, 2000 and February 3, 2001, these charges for inclusion in such
programs amounted to $542, $347, $116 and $632, respectively.

     On May 1, 2001, the Company entered into an agreement with
barnesandnoble.com llc, a company in which Barnes & Noble owns an approximately
36% interest, pursuant to which the Company sells video game products and PC
entertainment software through barnesandnoble.com's web site. The Company pays
barnesandnoble.com llc a referral fee equal to approximately 7.5% of its net
sales revenue resulting from purchases made through barnesandnoble.com llc's web
site. For the period ended August 4, 2001, these referral fees amounted to $7.

11. SUPPLEMENTAL CASH FLOW INFORMATION

<Table>
<Caption>
                               PREDECESSOR COMPANY                           SUCCESSOR COMPANY
                            --------------------------    --------------------------------------------------------
                             52 WEEKS       39 WEEKS       13 WEEKS       53 WEEKS            26 WEEKS ENDED
                               ENDED          ENDED          ENDED          ENDED       --------------------------
                            JANUARY 30,    OCTOBER 30,    JANUARY 29,    FEBRUARY 3,     JULY 29,       AUGUST 4,
                               1999           1999           2000           2001           2000           2001
                            -----------    -----------    -----------    -----------    -----------    -----------
                                                                                               (UNAUDITED)
                                                                (IN THOUSANDS)
<S>                         <C>            <C>            <C>            <C>            <C>            <C>
Cash paid during the
  period for:
  Interest................    $4,797          $862         $     --       $     --       $     --          $--
                              ======          ====         ========       ========       ========          ==
  Income taxes............        --            --              100             --             --          --
                              ======          ====         ========       ========       ========          ==
Subsidiaries acquired:
  Goodwill................    $   --          $ --         $198,927       $131,400       $131,400          $--
  Cash received in
    acquisition...........        --            --          (10,760)       (10,836)       (10,836)         --
  Accrued acquisition
    costs.................        --            --               --             --         (4,002)         --
  Net assets acquired (or
    liabilities
    assumed)..............        --            --          (12,407)        36,200         36,200          --
                              ------          ----         --------       --------       --------          --
Cash paid.................    $   --          $ --         $175,760       $156,764       $152,762          $--
                              ======          ====         ========       ========       ========          ==
</Table>

12. SUBSEQUENT EVENTS

     In August 2001, the Company's Board of Directors authorized the filing of a
Registration Statement on Form S-1 in connection with a planned initial public
offering of the Company's common stock.

     The Company's stockholder approved the 2001 Incentive Plan of GameStop
Corp. The 2001 Incentive Plan will assume all stock options outstanding as of
the effective date under the 2000 Incentive Plan of GameStop, Inc. under the
same terms.

13. PRO FORMA BALANCE SHEET (UNAUDITED)

     Upon the effective date of the initial public offering, Barnes & Noble,
Inc. will contribute the difference between the aggregate amount of the
intercompany loan balance and $250 million as additional

                                       F-15
<PAGE>   82
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

paid-in-capital. The accompanying consolidated balance sheet includes a pro
forma column to reflect this contribution as if it had taken place at August 4,
2001.

14. UNAUDITED QUARTERLY FINANCIAL INFORMATION

     The following table sets forth certain unaudited quarterly consolidated
statement of operations information for fiscal 1999, 2000, and the first two
quarters of fiscal 2001. The unaudited quarterly information includes all normal
recurring adjustments that management considers necessary for a fair
presentation of the information shown.

<Table>
<Caption>
                                     FISCAL 1999                                FISCAL 2000                      FISCAL 2001
                       ---------------------------------------   -----------------------------------------   -------------------
                         1ST       2ND       3RD        4TH        1ST        2ND        3RD        4TH        1ST        2ND
                       QUARTER   QUARTER   QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                       -------   -------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                    (IN THOUSANDS)
<S>                    <C>       <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Sales................  $98,489   $88,323   $142,580   $223,748   $120,003   $127,154   $182,486   $327,054   $201,355   $206,806
Gross profit.........   26,542    24,889     31,096     48,940     30,007     33,619     47,383     74,693     48,008     53,711
Operating earnings
  (loss)(1)..........    3,434     2,093    (22,376)    15,432        697     (7,480)    (1,453)    14,250     (5,341)    (2,162)
Net earnings
  (loss)(1)..........    1,853       965    (20,739)     7,291     (1,689)    (8,172)    (5,683)     3,647     (7,182)    (4,800)
</Table>

---------------
(1) In the third quarter of fiscal year 1999, operating and net losses include
    the payment of $26,789 as a bonus granted to employees of Babbage's Etc.
    LLC.

                                       F-16
<PAGE>   83

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Funco, Inc.

     We have audited the accompanying consolidated balance sheets of Funco, Inc.
as of April 2, 2000 and March 28, 1999, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended April 2, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Funco, Inc. at
April 2, 2000 and March 28, 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended April 2,
2000, in conformity with accounting principles generally accepted in the United
States.

                                          ERNST & YOUNG LLP

May 8, 2000

                                       F-17
<PAGE>   84

                                  FUNCO, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              APRIL 2,    MARCH 28,
                                                                2000        1999
                                                              --------    ---------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $14,701      $ 8,550
  Short-term investments....................................      410           --
  Accounts receivable.......................................    1,195        2,020
  Inventories...............................................   30,280       28,485
  Prepaid expenses..........................................    3,996        2,948
  Current deferred tax asset................................      676          640
                                                              -------      -------
Total current assets........................................   51,258       42,643
Net property and equipment..................................   15,696       11,334
Long-term deferred tax asset................................      982        1,064
Other assets................................................       63           99
                                                              -------      -------
Total assets................................................  $67,999      $55,140
                                                              =======      =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $15,187      $ 9,831
  Accrued liabilities.......................................    4,789        5,266
  Deferred revenue..........................................      948          994
                                                              -------      -------
Total current liabilities...................................   20,924       16,091
Accrued rent................................................      324          213
Shareholders' equity:
  Common stock, $0.01 par value (issued and outstanding for
     2000 and 1999, respectively: 6,014,403 and
     5,894,760).............................................       60           59
  Additional paid-in capital................................   16,427       15,238
  Retained earnings.........................................   30,264       23,539
                                                              -------      -------
Total shareholders' equity..................................   46,751       38,836
                                                              -------      -------
Total liabilities and shareholders' equity..................  $67,999      $55,140
                                                              =======      =======
</Table>

                            See accompanying notes.
                                       F-18
<PAGE>   85

                                  FUNCO, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                           YEAR ENDED
                                                         -----------------------------------------------
                                                           APRIL 2,         MARCH 28,        MARCH 29,
                                                             2000             1999             1998
                                                         -------------    -------------    -------------
                                                         (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                      <C>              <C>              <C>
Net sales..............................................   $  252,653       $  206,673       $  163,316
Cost of sales..........................................      173,543          138,693          106,628
                                                          ----------       ----------       ----------
Gross profit...........................................       79,110           67,980           56,688
Operating expenses.....................................       54,901           41,792           33,746
General and administrative expenses....................       13,427           10,587            9,512
                                                          ----------       ----------       ----------
Operating income.......................................       10,782           15,601           13,430
Interest expense.......................................          (36)             (12)             (20)
Interest income........................................          334              417              295
                                                          ----------       ----------       ----------
Net income before income taxes.........................       11,080           16,006           13,705
Income tax provision...................................        4,355            6,296            5,435
                                                          ----------       ----------       ----------
Net income.............................................   $    6,725       $    9,710       $    8,270
                                                          ==========       ==========       ==========
Basic net income per share:
  Basic net income per share...........................   $     1.13       $     1.60       $     1.35
Weighted average number of common shares...............    5,970,987        6,077,986        6,137,161
Diluted net income per share:
  Diluted net income per share.........................   $     1.08       $     1.53       $     1.26
Weighted average number of common and common equivalent
  shares...............................................    6,246,558        6,353,311        6,572,365
</Table>

                            See accompanying notes.
                                       F-19
<PAGE>   86

                                  FUNCO, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                             COMMON STOCK      ADDITIONAL                    TOTAL
                                           ----------------     PAID-IN      RETAINED    SHAREHOLDERS'
                                           SHARES    AMOUNT     CAPITAL      EARNINGS       EQUITY
                                           ------    ------    ----------    --------    -------------
                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>       <C>       <C>           <C>         <C>
Balance at March 30, 1997................  6,057      $61       $18,698      $ 5,559        $24,318
  Common stock issued, net of costs......    127        1           634           --            635
  Tax benefits of stock options..........     --       --           302           --            302
  Net income.............................     --       --            --        8,270          8,270
                                           -----      ---       -------      -------        -------
Balance at March 29, 1998................  6,184       62        19,634       13,829         33,525
  Common stock issued, net of costs......    125        1           560           --            561
  Tax benefits of stock options..........     --       --           260           --            260
  Repurchase of common stock.............   (414)      (4)       (5,216)          --         (5,220)
  Net income.............................     --       --            --        9,710          9,710
                                           -----      ---       -------      -------        -------
Balance at March 28, 1999................  5,895       59        15,238       23,539         38,836
  Common stock issued, net of costs......    119        1           872           --            873
  Tax benefits of stock options..........     --       --           317           --            317
  Net income.............................     --       --            --        6,725          6,725
                                           -----      ---       -------      -------        -------
Balance at April 2, 2000.................  6,014      $60       $16,427      $30,264        $46,751
                                           =====      ===       =======      =======        =======
</Table>

                            See accompanying notes.
                                       F-20
<PAGE>   87

                                  FUNCO, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                          YEAR ENDED
                                                              ----------------------------------
                                                              APRIL 2,    MARCH 28,    MARCH 29,
                                                                2000        1999         1998
                                                              --------    ---------    ---------
                                                                        (IN THOUSANDS)
<S>                                                           <C>         <C>          <C>
Operating activities
Net income..................................................  $ 6,725      $ 9,710      $ 8,270
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................    4,941        3,650        3,126
  Deferred tax (benefit)....................................       46           21         (209)
  Net loss on disposal of property and equipment............      119          123          105
  Changes in operating assets and liabilities:
     Accounts receivable....................................      825          107       (1,033)
     Inventories............................................   (1,795)      (6,998)      (7,656)
     Prepaid expenses.......................................   (1,048)      (1,773)        (393)
     Accounts payable.......................................    5,356        4,997        3,447
     Accrued liabilities....................................     (366)        (896)       1,102
     Deferred revenue.......................................      (46)         102          145
                                                              -------      -------      -------
Net cash provided by operating activities...................   14,757        9,043        6,904
Investing activities
Additions of property and equipment.........................   (9,378)      (6,838)      (5,380)
Increase in other assets....................................       (8)         (11)        (110)
Purchases of short-term investments.........................     (410)      (3,075)      (1,460)
Sales of short-term investments.............................       --        4,535           --
Proceeds from sales of property and equipment...............       --           --           16
                                                              -------      -------      -------
Net cash used in investing activities.......................   (9,796)      (5,389)      (6,934)
Financing activities
Payments of obligations under capital leases................       --           --          (20)
Payments for repurchase of common stock.....................       --       (5,220)          --
Net proceeds from issuance of common stock..................    1,190          821          937
                                                              -------      -------      -------
Net cash provided by (used in) financing activities.........    1,190       (4,399)         917
                                                              -------      -------      -------
Increase (decrease) in cash and cash equivalents............    6,151         (745)         887
Cash and cash equivalents at beginning of year..............    8,550        9,295        8,408
                                                              -------      -------      -------
Cash and cash equivalents at end of year....................  $14,701      $ 8,550      $ 9,295
                                                              =======      =======      =======
</Table>

                            See accompanying notes.
                                       F-21
<PAGE>   88

                                  FUNCO, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 2, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

  NATURE OF BUSINESS

     Funco, Inc. operates a single business segment, providing interactive home
entertainment primarily through the purchase and resale of new and previously
played video games, related hardware and accessory items through its FuncoLand
stores, mail order operation and FuncoLand Superstore Web site. Accordingly,
additional disclosures under Statement of Financial Accounting Standards No. 131
(SFAS No. 131), "Disclosures About Segments of an Enterprise and Related
Information," are not required. Funco, Inc. also publishes a video game
magazine, Game Informer. The Company was incorporated in Minnesota in March
1988.

  PRINCIPLES OF CONSOLIDATION

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

  REVENUE RECOGNITION

     Revenue from retail sales of the Company's products is recognized at the
time of sale. Deferred revenue represents amounts received for subscriptions to
a specified number of future video game magazine issues. Subscription revenue is
recognized on a straight-line basis as magazine issues are delivered.

  ADVERTISING COSTS

     Advertising costs, included in operating expenses, are expensed as incurred
and were $3,933,000, $2,769,000 and $2,309,000 for the years 2000, 1999 and
1998, respectively.

  FISCAL YEAR

     The Company's fiscal year ends on a Sunday on or near March 31. The fiscal
year ended April 2, 2000 consisted of 53 weeks and fiscal years ended March 28,
1999 and March 29, 1998 consisted of 52 weeks each. Unless otherwise stated,
references to years in this report relate to fiscal years rather than calendar
years.

  CASH EQUIVALENTS

     Cash equivalents represent investments with a maturity of three months or
less at the time of purchase. Cash equivalents are recorded at cost, which
approximates market.

  SHORT-TERM INVESTMENTS

     Short-term investments represent investments with a maturity of greater
than three months at the time of purchase. Realized gains and losses and
declines in value judged to be other-than-temporary on short-term investments
are included in interest income. Short-term investments are recorded at cost,
which approximates market.

  INVENTORIES

     Inventories consist of new and previously played video games, hardware and
accessories and are valued at the lower of cost, determined using the first-in,
first-out (FIFO) method, or market.

                                       F-22
<PAGE>   89
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. The Company uses the
straight-line method of computing depreciation based on the assets' estimated
useful lives, which range from three to five years.

  IMPAIRMENT OF LONG-LIVED ASSETS

     The Company records impairment losses of long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts.

  INTERNAL-USE SOFTWARE

     During fiscal 1999, the Company adopted Statement of Position No. 98-1 (SOP
No. 98-1), "Internal Use Software." Under SOP No. 98-1, companies are required
to capitalize certain development costs related to internal-use software. The
Company is amortizing these costs over five years. Total capitalized costs for
fiscal 2000 and 1999 were $322,000 and $279,000, respectively. The Company
historically expensed these costs.

  PRE-OPENING COSTS

     The Company adopted Statement of Position No. 98-5 (SOP No. 98-5)
"Reporting on the Cost of Start-Up Activities," in fiscal 1999. SOP No. 98-5
requires the costs of start-up activities, including store opening costs, to be
expensed in the period incurred. The Company historically amortized these costs
over 12 months. Annual results were not materially impacted by the adoption.

  STOCK OPTIONS

     The Company has elected to recognize compensation cost for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
expense is recognized for stock options with exercise prices equal to, or in
excess of, the market value of the underlying shares of stock at the date of
grant. The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation."

  NET INCOME PER SHARE

     Basic net income per share is computed based on the weighted average number
of common shares outstanding during each period. Diluted net income per share
includes the incremental shares assumed issued on the exercise of stock options.
Unless otherwise stated, all references to income per share are calculated using
the diluted method.

  USE OF ESTIMATES

     Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reporting amounts in the financial statements and accompanying notes.
Actual results could differ from these estimates.

2. FINANCING ARRANGEMENTS

     The Company has a $5,000,000 unsecured revolving credit facility with a
commercial bank, seasonally increasing to $20,000,000. The interest rate on
outstanding borrowings under the facility (8.04% for the month ended April 2,
2000) is based upon LIBOR plus 200 basis points. The facility requires the

                                       F-23
<PAGE>   90
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company to maintain certain financial ratios and achieve certain operating
results. The Company has no borrowings under the facility at April 2, 2000 or
March 28, 1999.

3. LEASES

     The Company has rental commitments for office space, retail space, office
equipment and vehicles under non-cancelable operating leases. Most of these
leases contain provisions for renewal options and require the Company to pay
other lease-related costs.

     Future minimum lease payments under non-cancelable operating leases consist
of the following:

<Table>
<Caption>
                                                         (IN THOUSANDS)
                                                         --------------
<S>                                                      <C>
2001.................................................       $11,133
2002.................................................         8,185
2003.................................................         5,194
2004.................................................         1,969
2005.................................................           974
                                                            -------
Total................................................       $27,455
                                                            =======
</Table>

     Rent expense was $10,172,000, $7,904,000 and $6,254,000, for the years
2000, 1999 and 1998, respectively.

4. PROPERTY AND EQUIPMENT

     Net property and equipment consist of the following:

<Table>
<Caption>
                                                           2000        1999
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Furniture and fixtures.................................  $ 10,021    $  7,474
Equipment..............................................    13,937      10,528
Leasehold improvements.................................    12,030       9,497
Other..................................................        65          64
                                                         --------    --------
Gross property and equipment...........................    36,053      27,563
Less accumulated depreciation..........................   (20,357)    (16,229)
                                                         --------    --------
Net property and equipment.............................  $ 15,696    $ 11,334
                                                         ========    ========
</Table>

5. ACCRUED LIABILITIES

     Accrued liabilities consist of the following:

<Table>
<Caption>
                                                              2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
<S>                                                          <C>       <C>
Purchase credit memos payable..............................  $2,162    $1,848
Employee compensation and related taxes....................     955     1,338
Sales tax payable..........................................     943       940
Income tax payable.........................................      --       664
Other accrued liabilities..................................     729       476
                                                             ------    ------
Total accrued liabilities..................................  $4,789    $5,266
                                                             ======    ======
</Table>

                                       F-24
<PAGE>   91
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCK OPTIONS

     Under the terms of the Company's various stock option plans, a maximum of
1,450,000 shares of common stock has been reserved for issuance to directors,
officers and employees, upon the exercise of stock options. Annually, on May 1,
the Company reserves an additional 1% of the total number of Common Stock shares
outstanding at fiscal year-end. Subsequent to April 2, 2000, the Company has
reserved an additional 59,897 shares for use in its stock option plan. The stock
options are exercisable over periods up to ten years from date of grant and
include incentive stock options and nonqualified stock options.

     At April 2, 2000, there were 890,029 options outstanding. Options
exercisable at the end of years 2000, 1999 and 1998 were 890,029, 544,056 and
442,961, respectively. A summary of stock option transactions is as follows:

<Table>
<Caption>
                                                                WEIGHTED AVERAGE
                                                                 EXERCISE PRICE
                                                    SHARES         PER SHARE
                                                   ---------    ----------------
<S>                                                <C>          <C>
Outstanding March 30, 1997.......................    799,633         $ 7.16
  Granted........................................    286,936          15.37
  Exercised......................................   (124,771)          5.11
  Canceled.......................................    (22,905)         10.90
                                                   ---------         ------
Outstanding March 29, 1998.......................    938,893           9.85
  Granted........................................    270,434          13.34
  Exercised......................................   (124,583)          4.57
  Canceled.......................................    (46,599)         13.40
                                                   ---------         ------
Outstanding March 28, 1999.......................  1,038,145          11.24
  Granted........................................      7,700          17.40
  Exercised......................................   (119,643)          7.98
  Canceled.......................................    (36,173)         14.13
                                                   ---------         ------
Outstanding April 2, 2000........................    890,029         $11.61
                                                   =========         ======
</Table>

     The following table summarizes information concerning outstanding and
exercisable options:

<Table>
<Caption>
                          WEIGHTED AVERAGE
RANGE OF                     REMAINING
EXERCISE      NUMBER      CONTRACTUAL LIFE   WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
 PRICES     OUTSTANDING       (YEARS)         EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
---------   -----------   ----------------   ----------------   -----------   ----------------
<S>         <C>           <C>                <C>                <C>           <C>
$ 0 - $ 4      11,001           5.36              $ 3.21           11,001          $ 3.21
$ 4 - $ 8     160,733           3.91                5.85          160,733            5.85
$ 8 - $12     193,499           4.74                9.37          193,499            9.37
$12 - $16     482,596           6.76               14.11          482,596           14.11
$16 - $20      42,200           3.29               17.35           42,200           17.35
---------     -------           ----              ------          -------          ------
$ 0 - $20     890,029           5.62              $11.61          890,029          $11.61
=========     =======           ====              ======          =======          ======
</Table>

     In fiscal 2000, the Company issued 119,643 shares of stock through the
exercise of stock options at prices ranging from $3.40 to $15.27 per share,
generating net proceeds, including tax benefits, of $1,190,000.

                                       F-25
<PAGE>   92
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In fiscal 1999, the Company's Board of Directors authorized the repurchase
of up to 700,000 shares of the Company's common stock. During fiscal 1999,
Company repurchased 414,800 shares of common stock at an aggregate price of
$5,220,000.

     The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has elected to continue to account for
stock-based compensation plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," making the pro forma
disclosures of net earnings and earnings per share as if the fair value-based
method had been applied. Accordingly, no compensation expense is recognized for
stock options with exercise prices equal to, or in excess of, the market value
of the underlying shares of stock at the date of grant. Had compensation expense
been recognized based on the fair value at the date of grant following
provisions of SFAS No. 123, the Company's pro forma net income and net income
per share would have been as follows:

<Table>
<Caption>
                                                            2000      1999      1998
                                                           ------    ------    ------
                                                             (IN THOUSANDS, EXCEPT
                                                                PER SHARE DATA)
<S>                                                        <C>       <C>       <C>
Net income
  As reported............................................  $6,725    $9,710    $8,270
  Pro forma..............................................   4,641     8,794     7,594
Income per common share -- basic:
  As reported............................................  $ 1.13    $ 1.60    $ 1.35
  Pro forma..............................................     .78      1.48      1.26
Income per common share -- diluted:
  As reported............................................  $ 1.08    $ 1.53    $ 1.26
  Pro forma..............................................     .74      1.42      1.17
</Table>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:

<Table>
<Caption>
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Expected volatility...................................     66.0%      80.5%      70.1%
Risk-free interest rate...............................      6.0%       5.7%       6.0%
Expected dividend yield...............................      0.0%       0.0%       0.0%
Expected life of options..............................  3 Years    3 Years    3 Years
</Table>

     The pro forma effect on net income and net income per share does not take
into consideration pro forma compensation expense related to grants made prior
to fiscal 1996.

     The weighted average fair value for options with an exercise price equal to
market price granted during years 2000, 1999 and 1998 is $8.57, $6.70 and $7.65
per share, respectively. The weighted average fair value for options with an
exercise price greater than market price granted during fiscal 1998 is $7.03. No
options with an exercise price greater than market price were granted in fiscal
years 2000 or 1999.

                                       F-26
<PAGE>   93
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. NET INCOME PER SHARE

     In accordance with Statement of Financial Accounting Standards No. 128
"Earnings Per Share," the following table presents a reconciliation of the
numerators and denominators of basic and diluted net income per common share for
the years 2000, 1999 and 1998:

<Table>
<Caption>
                                                      2000              1999              1998
                                                 --------------    --------------    --------------
                                                  (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                              <C>               <C>               <C>
Numerator:
  Net income...................................    $    6,725        $    9,710        $    8,270
                                                   ==========        ==========        ==========
Denominator:
  Denominator for basic net income per share --
     weighted average shares...................     5,970,987         6,077,986         6,137,161
Dilutive securities:
  Employee stock options.......................       275,571           275,325           435,204
                                                   ----------        ----------        ----------
Denominator for diluted net income per share --
  adjusted weighted average shares.............     6,246,558         6,353,311         6,572,365
                                                   ==========        ==========        ==========
Basic net income per share.....................    $     1.13        $     1.60        $     1.35
                                                   ==========        ==========        ==========
Diluted net income per share...................    $     1.08        $     1.53        $     1.26
                                                   ==========        ==========        ==========
</Table>

8. INCOME TAXES

     Significant components of the provision for income taxes for the years
2000, 1999 and 1998 are as follows:

<Table>
<Caption>
                                                            2000      1999      1998
                                                           ------    ------    ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Current:
  Federal................................................  $3,404    $4,957    $4,346
  State..................................................     905     1,318     1,298
                                                           ------    ------    ------
Current tax expense......................................   4,309     6,275     5,644
Deferred:
  Federal................................................      37        17      (159)
  State..................................................       9         4       (50)
                                                           ------    ------    ------
Deferred tax expense (benefit)...........................      46        21      (209)
                                                           ------    ------    ------
Net income tax provision.................................  $4,355    $6,296    $5,435
                                                           ======    ======    ======
</Table>

                                       F-27
<PAGE>   94
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes are due to temporary differences between carrying
values of certain assets and liabilities for financial reporting and income tax
purposes. Significant components of deferred taxes at April 2, 2000 and March
28, 1999, are as follows:

<Table>
<Caption>
                                                              2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
<S>                                                          <C>       <C>
Accrued rent...............................................  $  211    $  222
Inventories................................................     254       474
Depreciation...............................................   1,222     1,212
Other......................................................     (29)     (204)
                                                             ------    ------
Net deferred tax asset.....................................  $1,658    $1,704
                                                             ======    ======
</Table>

     Income taxes of $5,338,000, $7,017,000 and $4,518,000 were paid in the
years 2000, 1999 and 1998, respectively.

     Reconciliation of the Company's tax rate is as follows:

<Table>
<Caption>
                                                             2000        1999        1998
                                                           --------    --------    --------
                                                           (IN THOUSANDS, EXCEPT TAX RATE)
<S>                                                        <C>         <C>         <C>
Expected tax expense.....................................   $3,767      $5,442      $4,701
State income tax, net of federal benefit.................      658         870         820
Other....................................................      (70)        (16)        (86)
                                                            ------      ------      ------
Net income tax provision.................................   $4,355      $6,296      $5,435
                                                            ======      ======      ======
Effective tax rate.......................................       39%         39%         40%
                                                            ======      ======      ======
</Table>

9. SUBSEQUENT EVENT

     The Company entered into an Agreement and Plan of Merger with Barnes &
Noble, Inc. and B&N Acquisition Corporation, pursuant to which B&N Acquisition
Corporation, an indirect wholly-owned subsidiary of Barnes & Noble, Inc., will
offer to purchase all of the Company's issued and outstanding common stock for
$24.75 per share, or an aggregate purchase price of approximately $161.5
million. The transaction is expected to close in June 2000. In connection with
the Agreement, Barnes & Noble is obligated to indemnify the Company for payment
of a termination fee of $3,500,000 plus expenses to Electronics Boutique
Holdings Corp.

                                       F-28
<PAGE>   95

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

                                                  SHARES
                                 GAMESTOP CORP.
                              CLASS A COMMON STOCK

                                [GAMESTOP LOGO]

                                  ------------
                                   PROSPECTUS
                                            , 2001

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

                              SALOMON SMITH BARNEY
                                  UBS WARBURG

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   96

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by us:

<Table>
<S>                                                           <C>
SEC Registration fee........................................  $81,250
NASD Filing fee.............................................   30,500
Nasdaq National Market fee..................................         *
Transfer agent and registrar fees and expenses..............         *
Printing and engraving expenses.............................         *
Legal fees and expenses.....................................         *
Accounting fees.............................................         *
Miscellaneous...............................................         *
          Total.............................................  $      *
</Table>

---------------
* To be provided by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Our certificate of incorporation and by-laws require us to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding by reason of the fact that he is or
was our director or officer or any other person designated by the board of
directors (which may include any person serving at our request as a director,
officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise), in each case, against certain liabilities (including damages,
judgments, amounts paid in settlement, fines, penalties and expenses (including
attorneys' fees and disbursements)), except where such indemnification is
expressly prohibited by applicable law, where such person has engaged in willful
misconduct or recklessness or where such indemnification has been determined to
be unlawful. Such indemnification as to expenses is mandatory to the extent the
individual is successful on the merits of the matter. Delaware law permits us to
provide similar indemnification to employees and agents who are not directors or
officers. The determination of whether an individual meets the applicable
standard of conduct may be made by the disinterested directors, independent
legal counsel or the stockholders. Delaware law also permits indemnification in
connection with a proceeding brought by or in our right to procure a judgment in
our favor. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, or
persons controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

     None.

                                       II-1
<PAGE>   97

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

     The following is a list of exhibits filed as part of this Registration
Statement.

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
   1.1    Form of Underwriting Agreement.**
   3.1    Amended and Restated Certificate of Incorporation.**
   3.2    Bylaws.**
   5.1    Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
          regarding legality of the shares of Class A common stock
          being registered.**
  10.1    Separation Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.2    Tax Disaffiliation Agreement, between Barnes & Noble and
          GameStop Corp.**
  10.3    Insurance Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.4    Operating Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.5    2001 Incentive Plan.**
  10.6    Lease, dated as of March 6, 1997, between RREEF Mid-Cities
          Industrial L.P. and Babbage's Etc. LLC.**
  10.7    First Amendment to Lease, dated as of December 30, 1999,
          between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
          LLC.**
  11.1    Statement re: Computation of Per Share Earnings.**
  21.1    Subsidiaries*
  23.1    Consent of BDO Seidman, LLP.*
  23.2    Consent of Ernst & Young LLP*
  23.3    Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
          (included in its opinion filed as Exhibit 5.1 hereto).**
  24.1    Power of Attorney (included on signature page to this
          Registration Statement).*
</Table>

---------------
 * Filed herewith.

** To be filed by amendment.

ITEM 17.  UNDERTAKINGS.

      (i) The undersigned hereby undertakes to provide to the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

      (ii) 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 Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

                                       II-2
<PAGE>   98

     (iii) The undersigned registrant hereby 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.

                                       II-3
<PAGE>   99

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Grapevine, Texas on
August 24, 2001.

                                          GAMESTOP CORP.

                                          By: /s/ R. RICHARD FONTAINE
                                            ------------------------------------
                                              R. Richard Fontaine
                                              Chief Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below hereby constitutes and appoints R. Richard Fontaine, Daniel A. DeMatteo,
David W. Carlson and Michael N. Rosen, and each or any of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective documents
in connection therewith), with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<Table>
<Caption>
                       NAME                                       TITLE                      DATE
                       ----                                       -----                      ----
<C>                                                  <S>                                <C>
              /s/ R. RICHARD FONTAINE                Chief Executive Officer            August 24, 2001
---------------------------------------------------    (Principal Executive Officer)
                R. Richard Fontaine

               /s/ DAVID W. CARLSON                  Chief Financial Officer            August 24, 2001
---------------------------------------------------    (Principal Financial Officer
                 David W. Carlson                      and Principal Accounting
                                                       Officer)

                /s/ LEONARD RIGGIO                   Director                           August 24, 2001
---------------------------------------------------
                  Leonard Riggio

               /s/ MICHAEL N. ROSEN                  Secretary and Director             August 24, 2001
---------------------------------------------------
                 Michael N. Rosen
</Table>

                                       II-4
<PAGE>   100

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
  NO.                             DESCRIPTION
-------                           -----------
<C>       <S>
   1.1    Form of Underwriting Agreement.**
   3.1    Amended and Restated Certificate of Incorporation.**
   3.2    Bylaws.**
   5.1    Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
          regarding legality of the shares of Class A common stock
          being registered.**
  10.1    Separation Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.2    Tax Disaffiliation Agreement, between Barnes & Noble and
          GameStop Corp.**
  10.3    Insurance Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.4    Operating Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.5    2001 Incentive Plan.**
  10.6    Lease, dated as of March 6, 1997, between RREEF Mid-Cities
          Industrial L.P. and Babbage's Etc. LLC.**
  10.7    First Amendment to Lease, dated as of December 30, 1999,
          between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
          LLC.**
  11.1    Statement re: Computation of Per Share Earnings.**
  21.1    Subsidiaries.*
  23.1    Consent of BDO Seidman, LLP.*
  23.2    Consent of Ernst & Young LLP*
  23.3    Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
          (included in its opinion filed as Exhibit 5.1 hereto).**
  24.1    Power of Attorney (included on signature page to this
          Registration Statement).*
</Table>

---------------
 * Filed herewith.

** To be filed by amendment.
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{"company-data": {"conformed-name": "GAMESTOP CORP", "cik": "0001157644", "assigned-sic": "", "irs-number": "752951347", "state-of-incorporation": "DE"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-68294", "film-number": "1722813"}, "business-address": {"street1": "2250 WILLIAM D. TATE AVE.", "city": "GRAPEVINE", "state": "TX", "zip": "76051", "phone": "8174242159"}}
1

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 2001

                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------
                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                                 GAMESTOP CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE                               5734                              75-2951347
  (STATE OR OTHER JURISDICTION OF        (PRIMARY STANDARD INDUSTRIAL               (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)        CLASSIFICATION CODE NUMBER)             IDENTIFICATION NUMBER)
------------------------
                          2250 WILLIAM D. TATE AVENUE
                             GRAPEVINE, TEXAS 76051
                                 (817) 424-2000
              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
                              R. RICHARD FONTAINE
                            CHIEF EXECUTIVE OFFICER
                          2250 WILLIAM D. TATE AVENUE
                             GRAPEVINE, TEXAS 76051
                                 (817) 424-2000
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                            ------------------------
                                   COPIES TO:
JAY M. DORMAN, ESQ.                                  EDWARD S. BEST, ESQ.
                DAVID M. KASTIN, ESQ.                               JENNIFER L. KEATING, ESQ.
   ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP                    MAYER, BROWN & PLATT
             1290 AVENUE OF THE AMERICAS                            190 SOUTH LASALLE STREET
              NEW YORK, NEW YORK 10104                            CHICAGO, ILLINOIS 60603-3441
                   (212) 541-2000                                        (312) 782-0600
------------------------
     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 to be 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, 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,
check the following box. [ ]
                            ------------------------
                        CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                                                PROPOSED MAXIMUM
                 TITLE OF EACH CLASS OF                        AGGREGATE OFFERING                   AMOUNT OF
              SECURITIES TO BE REGISTERED                          PRICE(1)(2)                 REGISTRATION FEE(3)
------------------------------------------------------------------------------------------------------------------------
Class A Common Stock, par value $.001 per share.........          $325,000,000                       $81,250
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Includes shares that the underwriters have the option to purchase solely to
    cover over-allotments, if any.
(3) Computed in accordance with Section 6(b) of the Securities Act by
    multiplying 0.00025 by the proposed maximum aggregate offering price.
                            ------------------------
     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 OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

                  SUBJECT TO COMPLETION, DATED AUGUST 24, 2001

PROSPECTUS

                                [GAMESTOP LOGO]

                                              SHARES

                                 GAMESTOP CORP.
                              CLASS A COMMON STOCK
                              $         PER SHARE
                               ------------------
     We are selling           shares of our Class A common stock. We have
granted the underwriters an option to purchase up to           additional shares
of our Class A common stock to cover over-allotments.

     This is the initial public offering of our Class A common stock. We are
currently a wholly-owned subsidiary of Barnes & Noble, Inc. Upon completion of
this offering, Barnes & Noble will own 100% of our Class B common stock. Each
share of Class A common stock has one vote and each share of Class B common
stock has ten votes. Following this offering, Barnes & Noble will own common
stock representing      % of the combined voting power of our common stock. We
currently expect the initial public offering price to be between $          and
$     per share. We have applied to have the Class A common stock quoted on the
Nasdaq National Market under the symbol "GSTP."

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

     INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS.   SEE "RISK FACTORS"
BEGINNING ON PAGE 9.

     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                               ------------------
PER SHARE            TOTAL
                                                              ----------         ----------
Public Offering Price                                         $                  $
Underwriting Discount                                         $                  $
Proceeds to GameStop (before expenses)                        $                  $
The underwriters expect to deliver the shares to purchasers on or about
            , 2001.

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

SALOMON SMITH BARNEY
                                                         UBS WARBURG

            , 2001
3

     The inside front cover: Pictures of store fronts and the distribution
center.

     The inside back cover: Map of store locations in the United States.

     This prospectus contains product names, trade names, trademarks and service
marks of our company and of other organizations, all of which are the property
of their respective owners.
4

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
                            ------------------------

                               TABLE OF CONTENTS
PAGE
                                                              ----
Summary.....................................................    1
The Company.................................................    1
Summary Consolidated Financial Data.........................    6
Risk Factors................................................    9
Forward-Looking Statements..................................   16
Company History.............................................   17
Use of Proceeds.............................................   17
Dividend Policy.............................................   17
Capitalization..............................................   18
Dilution....................................................   19
Selected Consolidated Financial Data........................   20
Pro Forma Condensed Consolidated Financial Information......   22
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   24
Business....................................................   30
Management..................................................   40
Principal Stockholder.......................................   48
Certain Transactions........................................   49
Description of Capital Stock................................   53
Shares Eligible for Future Sale.............................   56
United States Tax Consequences to Non-United States
  Holders...................................................   57
Underwriting................................................   60
Legal Matters...............................................   62
Experts.....................................................   62
Where You Can Find More Information.........................   62
Index to Consolidated Financial Statements..................  F-1
For investors outside the United States, neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than the United States. You are required to inform
yourselves about, and to observe any restrictions relating to, this offering and
the distribution of this prospectus.

     Until and including                , 2001 (25 days after the date of this
prospectus), all dealers that buy, sell or trade our Class A common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

                                        i
5

                                    SUMMARY

     The following summarizes information in other sections of our prospectus,
including our financial statements, the notes to those financial statements and
the other financial information appearing elsewhere in this prospectus. You
should read the entire prospectus carefully. All references in this prospectus
to "we," "us," "our" or "GameStop" mean GameStop Corp. and its direct and
indirect wholly-owned subsidiaries, GameStop, Inc., Babbage's Etc. LLC and
Sunrise Publications, Inc., unless otherwise indicated. All references in this
prospectus to "Barnes & Noble" mean Barnes & Noble, Inc. and its direct and
indirect wholly-owned subsidiaries, unless otherwise indicated. All store counts
are as of August 4, 2001. Our fiscal year is composed of 52 or 53 weeks, ending
on the Saturday closest to January 31. As used in this prospectus, "fiscal 2000"
means the 53 weeks ending February 3, 2001 and "fiscal 2001" means the 52 weeks
ending February 2, 2002. Except as otherwise indicated, information in this
prospectus assumes no exercise of the underwriters' option to purchase
additional shares of Class A common stock to cover over-allotments.

                                  THE COMPANY

     We are the largest video game and PC entertainment software specialty
retailer in the United States, based on the number of stores we operate and our
total revenues. We carry one of the largest assortments of new and used video
game hardware, video game software and accessories, PC entertainment software,
and related products, including action figures, trading cards and strategy
guides. We operate 990 stores in the United States, Puerto Rico and Guam. We
currently operate our stores under the GameStop, Babbage's, Software Etc. and
FuncoLand names and are in the process of rebranding most of our stores under
the GameStop name. We carry a constantly changing selection of more than 2,800
stock keeping units (SKUs) of electronic game merchandise in most stores. In
addition, we operate a web site at gamestop.com and publish Game Informer, one
of the industry's largest circulation multi-platform video game magazines, with
over 290,000 subscribers.

     Of our 990 stores, 534 stores are located in shopping malls and other
locations and 456 stores are located in strip centers. Our mall stores, which
average approximately 1,200 square feet, carry primarily new video game
hardware, video game software and accessories, which we refer to as video game
products, and PC entertainment software, as well as a limited selection of used
video game products. Our strip center stores, which average approximately 1,500
square feet, carry a balanced mix of new and used video game products and, in
selected stores, PC entertainment software. Our used video game products provide
a unique value proposition to our customers, and our purchasing of video game
products provides our customers with an opportunity to trade in their used video
game products for store credits and apply those credits towards other
merchandise, which, in turn, drives more sales.

     Interactive Digital Software Association estimates that 60% of all
Americans, or approximately 145 million people, play video games on a regular
basis. The electronic game industry, which includes new video game products and
PC entertainment software, was approximately an $8.4 billion market in the U.S.
in 2000, according to NPD Group, Inc., a market research firm. Of this $8.4
billion market, approximately $6.8 billion was attributable to video game
products and approximately $1.6 billion was attributable to PC entertainment
software. According to NPD, the industry grew at a compound annual rate of 13.0%
from 1996 to 2000 and, according to International Data Corporation, an industry
forecaster, the industry is expected to grow by a compound annual rate of 39.0%
over the next three years. Future growth is expected to be fueled by continued
sales of Sony PlayStation 2 introduced in October 2000 and Nintendo Game Boy
Advance introduced in June 2001, and by the introduction of next-generation
platforms by Microsoft and Nintendo in late 2001.

                                        1
6

OUR BUSINESS STRATEGY

     We seek to enhance our position as the nation's largest specialty retailer
of new and used video game products and new PC entertainment software by
focusing on the following strategies:

     - Targeting a broad audience of game players.  We have created a store
       environment targeting a broad audience including the electronic game
       enthusiast, the casual gamer and the seasonal gift giver. Our mall stores
       primarily focus on the electronic game enthusiast who demands the latest
       merchandise featuring the "hottest" technology immediately on the day of
       release. Our strip center stores also serve the electronic game
       enthusiast, but focus on serving the value-oriented customer by offering
       a wide selection of value-priced used video game products and the
       opportunity to trade in used video game products in exchange for store
       credits applicable to future purchases, which in turn, drives more sales.

     - Enhancing our image as a destination location.  Our stores serve as
       destination locations for electronic game players due to our broad
       selection of products, knowledgeable sales associates, game-oriented
       environment and unique pricing proposition. We offer a larger and more
       current selection of video game products, including all major video game
       platforms, than other retailers.

     - Providing a first-to-market distribution network.  We employ a variety of
       rapid-response distribution methods in our efforts to be the first to
       market for new video game products and PC entertainment software as a
       significant portion of a new title's sales will be generated in the first
       few days and weeks following its release. As the largest specialty
       retailer of video game products and PC entertainment software, with a
       proven capability to distribute new releases to our customers quickly,
       our management believes that we regularly receive a disproportionately
       large allocation of popular new video game products and PC entertainment
       software.

     - Offering the largest selection of used video game products.  We are the
       nation's leading provider and carry the broadest selection of used video
       game products for both current and previous generation platforms. The
       opportunity to trade in and purchase used video game products offers our
       customers a unique value proposition unavailable at mass merchants, toy
       stores and consumer electronic retailers. Used video game products
       generate significantly higher gross margins than new video game products.

     - Rebranding our stores with the GameStop name.  We currently operate
       stores under the GameStop, Babbage's, Software Etc. and FuncoLand names.
       We have initiated a rebranding strategy under which all new stores opened
       since December 2000 operate under the GameStop name and existing stores
       in targeted markets are being rebranded under the GameStop name, with the
       goal of rebranding most of our stores.

     - Investing in our information systems and distribution capabilities.  We
       employ sophisticated and fully-integrated inventory management,
       store-level point of sale and financial systems and a centralized
       state-of-the-art distribution facility. These systems enable us to
       maximize the efficiency of the flow of approximately 2,800 SKUs, improve
       store efficiency, optimize store in-stock positions, and carry a broad
       selection of inventory.

OUR GROWTH STRATEGY

     We intend to continue to execute our proven growth strategies, including:

     - New Store Expansion.  We intend to continue to open new strip center
       stores in our target markets and new mall stores in selected mall
       locations. We opened 62 new stores in fiscal 2000 and 21 new stores to
       date in fiscal 2001. We plan on opening approximately 50 to 55 new stores
       during the remainder of fiscal 2001 and approximately 100 to 150 new
       stores in fiscal 2002. Our primary growth vehicle will be the expansion
       of our strip center store base, which we believe could grow to over 2,000
       stores in the United States. Our strategy is to open clusters of strip
       center stores in targeted major metropolitan markets under the GameStop
       name.
                                        2
7

     - Increase Comparable Store Sales.  We plan to increase our comparable
       store sales by capitalizing on the growth in the video game industry,
       expanding sales of used video game products and increasing awareness of
       the GameStop name.

      - Capitalize on Industry Growth.  In the first six months of 2001, our
        comparable store sales increased 22.6%, driven in large measure by the
        success of Sony PlayStation 2, which was launched in October 2000, and
        Nintendo Game Boy Advance, which was launched in June 2001. Over the
        next few years, we expect to continue to capitalize on the increasing
        installed base for both platforms, as well as the scheduled launch in
        late 2001 of the Microsoft Xbox and Nintendo GameCube platforms. We
        expect the launch of these four platforms and the related increase in
        the installed hardware base to drive significant growth in video game
        software and accessories sales over the next few years.

      - Increase Sales of Used Video Game Products.  We expect to continue to
        expand the selection and availability of used video game products in
        both our mall and strip center stores. Our strategy consists of
        increasing consumer awareness of the benefits of trading in and buying
        used video game products at our stores through increased marketing
        activities.

      - Increase GameStop Brand Awareness.  We intend to increase customer
        awareness of the benefits of shopping in our stores. In connection with
        our rebranding efforts, we plan to enhance GameStop brand awareness by
        increasing the amount of media advertising in targeted markets,
        expanding our GameStop loyalty card program, aggressively promoting
        trade-ins of used video game products in our stores and leveraging our
        web site at gamestop.com.

ORGANIZATION

     We were incorporated under the laws of the State of Delaware in August 2001
as a holding company for our operating subsidiaries. We are a wholly-owned
subsidiary of Barnes & Noble. After this offering, Barnes & Noble will own about
     % of the outstanding shares of our common stock, or about      % if the
underwriters exercise their over-allotment option in full. Barnes & Noble will
own all of the outstanding shares of our Class B common stock, which will
represent      % of the combined voting power of all classes of our voting
stock, or      % of the combined voting power of all classes of our voting stock
if the underwriters exercise their over-allotment option in full.

     Our principal executive offices are located at 2250 William D. Tate Avenue,
Grapevine, Texas 76051. Our phone number is (817) 424-2000. We also have a web
site located at www.gamestop.com. The information that appears on our web site
is not part of this prospectus.

                                        3
8

                                  THE OFFERING
Class A common stock offered by us...........  shares
Common stock to be outstanding immediately
  after this offering
  Class A....................................  shares
  Class B....................................  shares
          Total..............................  shares
Common stock to be held by Barnes & Noble
  immediately after this offering
  Class A....................................  0 shares
  Class B....................................  shares (100% of outstanding)
          Total..............................  shares
Voting and conversion rights.................  Our Class A common stock and our Class B
                                               common stock generally have identical rights,
                                               except for voting and conversion rights. The
                                               holders of Class A common stock are entitled
                                               to one vote per share and the holders of
                                               Class B common stock are entitled to ten
                                               votes per share. Holders of Class A common
                                               stock have no conversion rights. At any time
                                               prior to a tax-free distribution, holders of
                                               Class B common stock may convert some or all
                                               of their shares into the same number of
                                               shares of Class A common stock. In addition,
                                               prior to, and except in connection with, a
                                               tax-free distribution, shares of Class B
                                               common stock will automatically convert into
                                               the same number of shares of Class A common
                                               stock if transferred to anyone other than
                                               Barnes & Noble or its affiliates. The shares
                                               of Class B common stock will automatically
                                               convert, subject to limited exceptions, into
                                               shares of Class A common stock on the fifth
                                               anniversary of a tax-free distribution.
Use of proceeds..............................  We intend to use the net proceeds of the
                                               offering to retire a $250 million note
                                               payable to Barnes & Noble and for working
                                               capital and general corporate purposes.
Proposed Nasdaq National Market symbol.......  "GSTP"
The number of shares of our Class A common stock to be outstanding
immediately after this offering assumes that the underwriters do not exercise
their option to purchase additional shares of Class A common stock to cover
over-allotments and does not take into account           shares of our Class A
common stock that will be issuable upon exercise of stock options that have been
granted prior to this offering or will be granted in connection with this
offering and           additional shares of our Class A common stock that will
be reserved for issuance under our 2001 Incentive Plan.

                                  RISK FACTORS

     You should consider the material risks involved in connection with an
investment in our Class A common stock and the impact to investors from various
events that could adversely affect us and our business. See "Risk Factors."

                                        4
9

                     RELATIONSHIP WITH BARNES & NOBLE, INC.

     We are currently a wholly-owned subsidiary of Barnes & Noble. After
completion of this offering, Barnes & Noble will own approximately      % of the
outstanding shares of our common stock, or about      % if the underwriters
exercise their over-allotment option in full. Barnes & Noble will own 100% of
our outstanding Class B common stock, which will represent      % of the
combined voting power of all classes of our voting stock, or      % of the
combined voting power of all classes of our voting stock if the underwriters
exercise their over-allotment option in full. Until Barnes & Noble holds less
than a majority of the voting power of our common stock, Barnes & Noble will be
able to control the vote on all matters submitted to our stockholders, including
the election of directors and the approval of extraordinary corporate
transactions, such as mergers and acquisitions.

     Barnes & Noble has not reached any decision regarding whether or for how
long it will retain its stock ownership in our company. Barnes & Noble has
advised us that, at present, it has no plan or intention to dispose of its
shares of our Class B common stock. Under current tax law, Barnes & Noble may
not transfer its shares of Class B common stock in a tax-free spinoff to its
stockholders under Section 355 of the federal tax code unless certain conditions
are met, including holding a portion of our underlying assets for at least five
years. This five-year holding period will not be satisfied until October 2004.
Other than in connection with its agreement with the underwriters not to sell
any shares of our common stock for a period of 180 days from the date of this
prospectus, Barnes & Noble is not subject to any contractual obligation to
maintain its share ownership.

     Prior to the consummation of this offering, we will enter into agreements
with Barnes & Noble that will, among other things, provide for the separation of
our business operations from Barnes & Noble and other provisions applicable to
divestiture; a tax disaffiliation arrangement between us and Barnes & Noble; an
insurance agreement for Barnes & Noble to continue to supply us with insurance;
and a license for us to continue to operate video game departments within
certain bookstores operated by Barnes & Noble. For a more complete description
of these agreements, see "Certain Transactions."

                                        5
10

                      SUMMARY CONSOLIDATED FINANCIAL DATA

     The following table sets forth our summary consolidated financial and
operating data for the periods and at the dates indicated. Our fiscal year is
composed of 52 or 53 weeks ending on the Saturday closest to January 31. The
fiscal years ended January 30, 1999 and January 29, 2000 consisted of 52 weeks
and the fiscal year ended February 3, 2001 consisted of 53 weeks.

     Our wholly-owned subsidiary, Babbage's Etc. LLC, began operations in
November 1996. In October 1999, Babbage's Etc. was acquired by, and became a
wholly-owned subsidiary of, Barnes & Noble. Because our financial statements
subsequent to the acquisition by Barnes & Noble are not directly comparable to
those prior to the acquisition, our financial statements make a distinction
between the "predecessor company" and the "successor company." The statement of
operations data presented below for the fiscal year ended January 29, 2000
consists of the results of operations of the predecessor company for the
thirty-nine weeks ended October 30, 1999 and the results of operations of the
successor company for the thirteen weeks ended January 29, 2000. In June 2000,
Barnes & Noble acquired Funco, Inc. and thereafter, Babbage's Etc. became a
wholly-owned subsidiary of Funco, Inc. The acquisition of Funco, Inc. has been
accounted for under the purchase method of accounting. In December 2000, Funco,
Inc. changed its name to GameStop, Inc.

     The pro forma and as adjusted data for the fiscal year ended February 3,
2001, give effect to the following as if each had occurred as of January 30,
2000: (1) the acquisition of Funco, Inc.; (2) this offering; (3) the repayment
of $250 million of intercompany debt owed to Barnes & Noble; and (4) Barnes &
Noble's capital contribution of other indebtedness owed to it by us. The as
adjusted data for the twenty-six week period ended August 4, 2001 and as of
August 4, 2001 give effect to the following as if each had occurred on February
4, 2001 for statement of operations data and August 4, 2001 for balance sheet
data: (1) this offering; (2) the repayment of $250 million of intercompany debt
owed to Barnes & Noble; and (3) Barnes & Noble's capital contribution of other
indebtedness owed to it by us. No pro forma effect was given to any impact on
operating results which may have occurred from the use of the excess of the net
proceeds of this offering over the $250 million of intercompany debt to be
repaid. The pro forma and as adjusted results are not necessarily indicative of
future operations or the actual results that would have occurred had the
acquisition and this offering taken place on the dates indicated.

     The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Condensed Consolidated Financial Information" and the
consolidated financial statements and notes thereto included elsewhere in this
prospectus. Due to the seasonal nature of our business, the results for the
twenty-six-week periods presented are not indicative of the results for the full
fiscal year.

                                        6
11
PREDECESSOR
                           -------------------------
                             FISCAL      THIRTY-NINE    THIRTEEN       FISCAL
                              YEAR          WEEKS         WEEKS         YEAR
                              ENDED         ENDED         ENDED         ENDED
                           JANUARY 30,   OCTOBER 30,   JANUARY 29,   JANUARY 29,
                              1999          1999          2000          2000
                           -----------   -----------   -----------   -----------

                            (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS
  DATA:
Sales....................   $465,166      $329,392      $223,748      $553,140
Cost of sales............    350,475       246,865       174,808       421,673
                            --------      --------      --------      --------
Gross profit.............    114,691        82,527        48,940       131,467
Selling, general and
  administrative
  expenses...............     84,644        68,112        29,895        98,007
Acquisition incentive
  bonuses................         --        26,789            --        26,789
Depreciation and
  amortization...........      4,805         4,475         1,926         6,401
Amortization of
  goodwill...............         --            --         1,687         1,687
                            --------      --------      --------      --------
Operating earnings
  (loss).................     25,242       (16,849)       15,432        (1,417)
Interest expense
  (income), net..........      3,544           972         3,123         4,095
                            --------      --------      --------      --------
Earnings (loss) before
  income taxes...........     21,698       (17,821)       12,309        (5,512)
Income tax expense
  (benefit)(1)...........         --            --         5,018         5,018
Pro forma income tax
  expense (benefit)(2)...      8,738        (7,111)           --        (7,111)
                            --------      --------      --------      --------
Net earnings (loss)(3)...   $ 12,960      $(10,710)     $  7,291      $ (3,419)
                            ========      ========      ========      ========
Net earnings (loss) per
  share -- basic(3)......
                                                        ========      ========
Weighted average shares
  outstanding -- basic...
                                                        ========      ========
Net earnings (loss) per
  share -- diluted(3)....
                                                        ========      ========
Weighted average shares
outstanding -- diluted...
                                                        ========      ========
OTHER FINANCIAL DATA:
Net earnings (loss)
  excluding the after-tax
  effect of goodwill
  amortization(4)........   $ 12,960      $(10,710)     $  8,398      $ (2,312)
Net earnings (loss) per
  share excluding the
  after-tax effect of
  goodwill
  amortization -- diluted(4)..
STORE OPERATING DATA:
Stores open at the end of
  period.................        473                                       526
Comparable store sales
  increase
  (decrease)(5)..........       22.4%                                     12.5%
Inventory turnover.......        4.7                                       5.0
FISCAL YEAR ENDED
                               FEBRUARY 3, 2001            TWENTY-SIX WEEKS ENDED
                           ------------------------   ---------------------------------
                                                                     AUGUST 4, 2001
                                      PRO FORMA AND   JULY 29,   ----------------------
                            ACTUAL     AS ADJUSTED      2000      ACTUAL    AS ADJUSTED
                           --------   -------------   --------   --------   -----------
                                                                      (UNAUDITED)
                               (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS
  DATA:
Sales....................  $756,697     $828,038      $247,157   $408,161    $408,161
Cost of sales............   570,995      616,705       183,531    306,442     306,442
                           --------     --------      --------   --------    --------
Gross profit.............   185,702      211,333        63,626    101,719     101,719
Selling, general and
  administrative
  expenses...............   157,491      181,667        61,819     94,529      94,529
Acquisition incentive
  bonuses................        --           --            --         --          --
Depreciation and
  amortization...........    12,974       15,069         4,863      9,131       9,131
Amortization of
  goodwill...............     9,223       10,992         3,727      5,562       5,562
                           --------     --------      --------   --------    --------
Operating earnings
  (loss).................     6,014        3,605        (6,783)    (7,503)     (7,503)
Interest expense
  (income), net..........    23,411          (36)        8,778     10,801          --
                           --------     --------      --------   --------    --------
Earnings (loss) before
  income taxes...........   (17,397)       3,641       (15,561)   (18,304)     (7,503)
Income tax expense
  (benefit)(1)...........    (5,500)       3,456        (5,700)    (6,322)     (1,978)
Pro forma income tax
  expense (benefit)(2)...        --           --            --         --          --
                           --------     --------      --------   --------    --------
Net earnings (loss)(3)...  $(11,897)    $    185      $ (9,861)  $(11,982)   $ (5,525)
                           ========     ========      ========   ========    ========
Net earnings (loss) per
  share -- basic(3)......
                           ========     ========      ========   ========    ========
Weighted average shares
  outstanding -- basic...
                           ========     ========      ========   ========    ========
Net earnings (loss) per
  share -- diluted(3)....
                           ========     ========      ========   ========    ========
Weighted average shares
outstanding -- diluted...
                           ========     ========      ========   ========    ========
OTHER FINANCIAL DATA:
Net earnings (loss)
  excluding the after-tax
  effect of goodwill
  amortization(4)........  $ (3,788)    $  8,785      $ (6,042)    (7,645)     (1,166)
Net earnings (loss) per
  share excluding the
  after-tax effect of
  goodwill
  amortization -- diluted
STORE OPERATING DATA:
Stores open at the end of
  period.................       978          978           945        990         990
Comparable store sales
  increase
  (decrease)(5)..........      (6.7)%       (7.1)%         7.8%      22.6%       22.6%
Inventory turnover.......       4.6          4.5           1.9        2.3         2.3
----------------------
                                                                                                            AS OF AUGUST 4, 2001
                                                                                                           ----------------------
                                                                                                            ACTUAL    AS ADJUSTED
                                                                                                           --------   -----------
BALANCE SHEET DATA:
Working capital.........................................................................................   $  3,543
Total assets............................................................................................    510,139
Total debt..............................................................................................    392,339
Total liabilities.......................................................................................    542,593
Stockholders' equity (deficit)..........................................................................    (32,454)
---------------
(1) Prior to October 30, 1999, when Babbage's Etc. LLC was acquired by Barnes &
    Noble, Babbage's Etc. LLC was not subject to federal and most state income
    taxes, and its earnings were taxed directly to its members. Accordingly, for
    periods prior to October 30, 1999, our audited financial statements include
    only a provision for state income taxes for those states in which Babbage's
    Etc. LLC was taxed as a "C" corporation. For ease of comparison, these
    provisions for state income taxes for the periods prior to October 30, 1999
    are included in the pro forma income tax expense (benefit), which is
    described in footnote 2. For periods after the acquisition, the financial
    statements reflect income tax expense (benefit) on a stand-alone basis.

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(2) For periods prior to October 30, 1999, the pro forma income tax expense
    (benefit) reflects taxes as if we had been a "C" corporation in all
    jurisdictions and includes certain state income taxes in the amount of $582
    and $100 for the year ended January 30, 1999 and the 39 weeks ended October
    30, 1999, respectively.

(3) Net earnings (loss) for the periods prior to October 30, 1999 reflect pro
    forma taxes as described in footnote (2) above.

(4) Net earnings (loss) excluding the after-tax effect of goodwill amortization
    is presented here to provide additional information about our operations.
    These items should be considered in addition to, but not as a substitute for
    or superior to, operating earnings, net earnings, cash flow and other
    measures of financial performance prepared in accordance with generally
    accepted accounting principles.

(5) Stores are included in our comparable store sales base beginning in the 13th
    month of operation. Comparable store sales for the fiscal year ended
    February 3, 2001 were computed using the first 52 weeks of the 53 week
    fiscal year.

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                                  RISK FACTORS

     You should carefully consider the risks described below before investing in
shares of our Class A common stock. If any of the following risks actually
occur, our business, financial condition or results of future operations could
be materially and adversely affected. In such case, the trading price of our
Class A common stock could decline, and you could lose all or part of your
investment.

     This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below.

RISKS RELATED TO OUR BUSINESS

DELAYS IN EXPECTED PRODUCT RELEASES MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.

     We depend on major hardware manufacturers to deliver new video game
platforms on a timely basis and in anticipated quantities. We expect Microsoft
to introduce the Xbox and Nintendo to introduce the GameCube in late 2001. In
addition, we depend on software publishers to introduce new and updated software
titles. Any material delay in the anticipated introduction of hardware platforms
or software titles or inability to deliver them in could adversely impact our
financial results for one or more fiscal quarters.

THE FAILURE BY THIRD PARTIES TO DEVELOP PRODUCTS AND SOFTWARE MAY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.

     Our business depends upon the continued development of new and enhanced
video game platforms, PC hardware and video game and PC entertainment software.
Our business could suffer due to the failure of manufacturers to develop new or
enhanced video game platforms, 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
video game systems or PC hardware.

OUR ABILITY TO OBTAIN FAVORABLE TERMS FROM OUR SUPPLIERS MAY IMPACT OUR
FINANCIAL RESULTS.

     Our financial results depend significantly upon the business terms we can
obtain from our suppliers, including competitive prices, unsold product return
policies, advertising and market development allowances, freight charges and
payment terms. We purchase substantially all of our products directly from
manufacturers, software publishers and approximately five distributors. Our
largest vendors are Sony, Nintendo and Electronic Arts, which accounted for 14%,
11%, and 11%, respectively, of our purchases in fiscal 2000. If our suppliers do
not provide us with favorable business terms, our ability to offer products to
our customers at competitive prices could be adversely affected.

THE VIDEO GAME SYSTEM AND SOFTWARE PRODUCT INDUSTRIES ARE CYCLICAL, WHICH COULD
CAUSE SIGNIFICANT FLUCTUATION IN OUR EARNINGS.

     The electronic game industry has been cyclical in nature in response to the
introduction and maturation of new technology. Following the introduction of new
video game platforms, sales of these platforms and related software and
accessories generally increase due to initial demand, while sales of older
platforms and related products generally decrease as customers migrate towards
the new platforms. New video game platforms have historically been introduced
approximately every five years. If video game platform manufacturers fail to
develop new hardware platforms, our sales of video game products and results of
operations and financial condition could be adversely affected.

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OUR OPERATING RESULTS ARE SEASONAL, WHICH COULD RESULT IN A LOWER PRICE FOR OUR
CLASS A COMMON STOCK.

     Our business, like that of many specialty retailers, is seasonal, with the
major portion of our sales and operating profit realized during the fourth
fiscal quarter, which includes the holiday selling season. During fiscal 2000,
we generated approximately 43% of our sales and substantially all of our
operating earnings during the fourth quarter. In addition, we have historically
experienced net losses in each of our first three fiscal quarters. Any adverse
trend in sales during the holiday selling season could adversely affect our
results of operations for the quarter and the entire year.

OUR RESULTS OF OPERATIONS MAY FLUCTUATE FROM QUARTER TO QUARTER, WHICH COULD
RESULT IN A LOWER PRICE FOR OUR CLASS A COMMON STOCK.

     Our results of operations may fluctuate from quarter to quarter depending
upon several factors, most of which are beyond our control. These factors
include:

     - the timing of new product releases;

     - the timing of new store openings; and

     - shifts in the timing of certain promotions.

     These and other factors could affect our business, financial condition and
results of operations, and this makes the prediction of our financial results on
a quarterly basis difficult. Also, it is possible that our quarterly financial
results may be below the expectations of public market analysts and investors.
This could adversely affect the price of our Class A common stock.

OUR FAILURE TO MANAGE NEW STORE OPENINGS COULD NEGATIVELY IMPACT OUR OPERATIONAL
AND FINANCIAL RESULTS.

     Our growth strategy is largely dependent upon opening new stores and
operating them profitably. We currently intend to open approximately 50 to 55
new stores in the remainder of the current fiscal year and approximately 100 to
150 new stores in fiscal 2002. Our ability to open new stores and operate them
profitably depends upon a number of factors, some of which may be beyond our
control. These factors include:

     - the ability to identify new store locations, negotiate suitable leases
       and build out the stores in a timely and cost efficient manner;

     - the ability to hire and train skilled associates; and

     - the ability to integrate new stores into our existing operations.

     Our growth will also depend on our ability to process increased merchandise
volume resulting from new store openings through our inventory management
systems and distribution facility in a timely manner.

INTENSE COMPETITION FROM TRADITIONAL RETAIL SOURCES MAY ADVERSELY AFFECT OUR
BUSINESS.

     The electronic game industry is intensely competitive and subject to rapid
changes in consumer preferences and frequent new product introductions. We
compete with mass merchants and regional chains, including Wal-Mart, Kmart and
Target; other video game and PC software specialty stores located in malls and
other locations, including Electronics Boutique; toy retail chains, including
Toys 'R' Us and KB Toys; mail-order businesses; catalogs; direct sales by
software publishers; online retailers; and computer product and consumer
electronics superstores, including Best Buy and Circuit City. Best Buy recently
acquired Musicland, Inc., a music retail chain with over 1,300 stores primarily
located in shopping malls. Our business may be adversely affected to the extent
Best Buy substantially increases the availability of video game products in
these music stores. In addition, video games are available for rental from many
video stores and may also be distributed through other methods which may emerge
in the future. We also compete with sellers of used video game products. Some of
our competitors in the electronic game industry have longer operating histories
and may have greater financial resources than we do. Additionally,
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we compete with other forms of entertainment activities, including movies,
television, theater, sporting events and family entertainment centers.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY AN ECONOMIC SLOWDOWN OR RECESSION.

     Our business is sensitive to consumer spending patterns, which, in turn,
are generally subject to prevailing economic conditions. Purchases of video game
products may decline in periods of economic uncertainty or downturn. Adverse
economic conditions may cause shifts in consumer spending that could adversely
affect our results of operations and financial condition.

INTERNATIONAL CONCERNS COULD ADVERSELY IMPACT THE DELIVERY OF PRODUCTS AND OUR
FINANCIAL RESULTS.

     Our suppliers rely on foreign sources, primarily in Asia, to manufacture a
significant portion of the products we purchase from them. As a result, any
event causing a disruption of imports, including the imposition of import
restrictions or trade restrictions in the form of tariffs or quotas, could
adversely affect our business by increasing the cost and reducing the supply of
products available to us.

IF WE ARE UNABLE TO RENEW OUR LEASES, OUR REVENUE GROWTH MAY DECLINE.

     All of our retail stores are located in leased premises. We cannot assure
you that we will be able to maintain our existing store locations as leases
expire, that we will be able to enter into new leases on favorable terms or at
all, or that we will be able to locate suitable alternative sites or additional
sites for new store expansion in a timely manner. Our revenues and earnings may
decline if we fail to maintain existing store locations, enter into new leases,
locate alternative sites or find additional sites for new store expansion.

THE ABILITY TO DOWNLOAD VIDEO GAMES AND PLAY VIDEO GAMES ON THE INTERNET COULD
ADVERSELY AFFECT OUR SALES.

     While it is currently not possible to download video game software onto
existing video game platforms over the Internet, at some point in the future
this technology may become available. A limited selection of PC entertainment
software may currently be purchased for download over the Internet, and as
technology advances, a broader selection of PC entertainment software may become
available for purchase and download. If advances in technology continue to
expand our customers' ability to access software through these and other
sources, our sales and earnings could decline.

WE DEPEND UPON OUR KEY PERSONNEL AND THEY WOULD BE DIFFICULT TO REPLACE.

     Our success depends upon our ability to attract, motivate and retain key
management for our stores and skilled merchandising, marketing and
administrative personnel at our headquarters. We depend upon the continued
services of our executive officers, R. Richard Fontaine, our Chief Executive
Officer, Daniel A. DeMatteo, our President and Chief Operating Officer, David W.
Carlson, our Executive Vice President and Chief Financial Officer, and John W.
Woodson, President of Strip Center Stores. We do not have employment contracts
with any of our key personnel. The loss of services of any of our key personnel
could have a negative impact on our business.

RISKS RELATED TO OUR RELATIONSHIP WITH BARNES & NOBLE

BARNES & NOBLE'S CONTROL OF OUR COMPANY COULD INCREASE THE DIFFICULTY OF OUR
ACQUISITION BY ANOTHER COMPANY, EVEN IF SUCH ACQUISITION WOULD BE BENEFICIAL.

     After this offering, Barnes & Noble will own 100% of our outstanding Class
B common stock, which will represent      % of the combined voting power of all
classes of our voting stock, or      % of the combined voting power of all
classes of our voting stock if the underwriters exercise their over-allotment
option in full. As a result, Barnes & Noble will have control over us, the
election of our board of directors and our management and policies. Barnes &
Noble will also have control over all matters requiring stockholder approval,
including the amendment of certain provisions of our certificate of
incorporation and
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by-laws and the approval of fundamental corporate transactions, including
mergers. In light of this control, other companies could be discouraged from
initiating a potential merger, takeover or any other transaction resulting in a
change of control. Such a transaction potentially could be beneficial to our
business or to our stockholders. This may in turn reduce the price that
investors are willing to pay in the future for shares of our Class A common
stock.

OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF BARNES & NOBLE'S
INTERESTS TAKE PRIORITY OVER OUR INTERESTS.

     There is a possibility that conflicts of interest will arise between Barnes
& Noble and us in various areas pertaining to our past and ongoing
relationships. Potential factors that may create a conflict of interest between
Barnes & Noble and us are:

     - the terms of various intercompany agreements that we intend to enter into
       with Barnes & Noble in connection with this offering;

     - sales or offerings by Barnes & Noble of all or any portion of its
       ownership interest in our company;

     - the fact that several members of our board of directors sit concurrently
       on Barnes & Noble's board of directors, which could result in Barnes &
       Noble's interests being prioritized over our interests; and

     - the fact that our directors currently have, or may have in the future, an
       equity interest in Barnes & Noble, which could affect their decisions in
       resolving potential conflicts between us and Barnes & Noble.

     In addition, Leonard Riggio, one of our directors, is the Chairman of the
Board, Chief Executive Officer and a principal stockholder of Barnes & Noble. As
of August 22, 2001, Mr. Riggio beneficially owned approximately 21.4% of the
outstanding common stock of Barnes & Noble. Mr. Riggio also currently has
options to acquire approximately      % of our Class A common stock. As a
result, Mr. Riggio may have substantial control over the management and affairs
of our company.

     Barnes & Noble is under no obligation to resolve any potential conflicts
between it and us in a manner that is favorable to us, and we cannot guarantee
that such conflicts would not adversely affect our business or prospects.

THE LIMITED VOTING RIGHTS OF OUR CLASS A COMMON STOCK COULD IMPACT ITS
ATTRACTIVENESS TO INVESTORS AND ITS LIQUIDITY AND AS A RESULT, ITS MARKET VALUE.

     The holders of our Class A and Class B common stock generally have
identical rights, except that holders of our Class A common stock are entitled
to one vote per share and holders of our Class B common stock are entitled to
ten votes per share on all matters to be voted on by stockholders. We will be
selling our Class A common stock in this offering. The difference in the voting
rights of the Class A and Class B common stock could diminish the value of the
Class A common stock to the extent that investors or any potential future
purchasers of our Class A common stock ascribe value to the superior voting
rights of the Class B common stock. In addition, if Barnes & Noble distributes
our Class B common stock to its stockholders in a tax-free distribution, we will
have two separate classes of publicly traded common stock prior to the
conversion of the Class B common stock upon the fifth anniversary of the
tax-free distribution. This could result in less liquidity for either class of
our common stock than if there were only one class of common stock and could
result in the market price of our Class A common stock being lower than the
market price of our Class B common stock.

OUR ABILITY TO ISSUE COMMON STOCK MAY BE HAMPERED BECAUSE OF OUR RELATIONSHIP
WITH BARNES & NOBLE, WHICH MAY INTERFERE WITH OUR ABILITY TO GROW OUR BUSINESS.

     Barnes & Noble may wish to maintain until October 2004 or thereafter its
current ownership of our Class B common stock in order to qualify for a tax-free
distribution of such stock to its stockholders. After

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this offering, Barnes & Noble will own 100% of the outstanding Class B common
stock, which will represent      % of the combined voting power of all classes
of our voting stock, or      % of the combined voting power of all classes of
our voting stock if the underwriters exercise their over-allotment option in
full. It may be difficult for us to issue common stock in the future because of
Barnes & Noble's control of us. In addition, we have entered into a separation
agreement with Barnes & Noble that restricts our ability to issue equity
securities or securities convertible into equity securities if the effect of the
issuance would be to preclude a tax-free distribution by Barnes & Noble to its
stockholders or our consolidation with Barnes & Noble for its financial
reporting purposes.

CERTAIN AFFILIATE AGREEMENTS ENTERED INTO WITH BARNES & NOBLE BY US COULD
ADVERSELY AFFECT OUR BUSINESS, ESPECIALLY THOSE NOT BASED ON ARMS' LENGTH
NEGOTIATIONS.

     We have entered into various agreements with Barnes & Noble, including a
separation agreement, an insurance agreement, an operating agreement, a tax
disaffiliation agreement and a registration rights agreement. Because of our
current status as a wholly-owned subsidiary of Barnes & Noble, these agreements,
or some of our future intercompany agreements with Barnes & Noble, may not be
the result of arms' length negotiations. For example, these agreements may
contain terms and conditions that are less favorable to us than we could have
obtained from independent third parties.

A CHANGE OF CONTROL MAY RESULT IF BARNES & NOBLE DEFAULTS ON ITS CREDIT
FACILITY.

     Barnes & Noble has pledged to its lenders its equity interest in us as
collateral for its credit facility. A default on its credit facility by Barnes &
Noble could result in a transfer to its lenders of ownership and control of
Barnes & Noble's equity interest in us. The lenders are not subject to any
contractual obligation to maintain any equity interest in us.

RISKS RELATED TO THE OFFERING

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK
VALUE PER SHARE OF CLASS A COMMON STOCK.

     You will experience an immediate and substantial dilution in the net
tangible book value of each share of Class A common stock of $     per share
based upon an assumed initial public offering price of $          .

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE COULD CAUSE THE MARKET PRICE FOR OUR CLASS A COMMON STOCK TO DECLINE.

     Upon completion of this offering, we will have        shares of Class A
common stock outstanding. All these shares will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144
promulgated under the Securities Act. Barnes & Noble will hold        shares of
our Class B common stock following this offering, which will be      % of our
outstanding stock, or      % if the underwriters exercise their overallotment
option in full.

     Barnes & Noble and our directors and executive officers have agreed with
Salomon Smith Barney that they will not sell any of their shares for at least
180 days following the offering. After the lock-up period expires,        shares
of our Class A common stock that are issuable upon exercise of stock options
that were granted to our directors, officers and employees under our 2001
Incentive Plan will be available for sale. Salomon Smith Barney may release all
or any portion of these shares from this lock-up agreement at any time. Barnes &
Noble and our directors and executive officers will be able to sell their shares
in accordance with the provisions of Rule 144 under the Securities Act. Barnes &
Noble will also be able to sell its shares pursuant to the registration rights
that we have granted Barnes & Noble. We cannot predict whether substantial
amounts of our Class A common stock will be sold in the open market in
anticipation of, or following, any divestiture by Barnes & Noble or our
directors or executive officers of their shares of

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our common stock. Additionally, approximately        shares of our Class A
common stock will be issuable upon exercise of stock options which vest and
become exercisable over the next four years. Sales of substantial amounts of
shares of our Class A common stock in the public market following this offering,
or the perception that those sales will occur, could cause the market price of
our Class A common stock to decline. Those sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.

OUR STOCK PRICE MAY BE VOLATILE AND DECLINE SUBSTANTIALLY.

     Prior to this offering, there has been no public market for our Class A
common stock, and there can be no assurance that an active trading market for
our Class A common stock will develop or continue upon completion of the
offering. The initial public offering price will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of the price at which our Class A common stock will trade after the offering.

     The stock market in general has experienced extreme price and volume
fluctuations. These broad market fluctuations may adversely affect the market
price of our Class A common stock, regardless of our actual operating
performance. You may be unable to resell your shares at or above the public
offering price due to a number of factors, including:

     - actual or anticipated quarterly fluctuations in our operating results;

     - changes in expectations of future financial performance or changes in
       estimates of securities analysts;

     - changes in the market valuations of other companies;

     - announcements of technological innovations;

     - announcements relating to strategic relationships, acquisitions or
       industry consolidation; and

     - general economic, market and political conditions not related to our
       business.

OUR MANAGEMENT WILL HAVE BROAD DISCRETION REGARDING THE USE OF PROCEEDS FROM
THIS OFFERING.

     We estimate that we will receive net proceeds from this offering of about
$     million. Of that amount we intend to utilize approximately $     million,
representing approximately      % of the estimated net proceeds of this
offering, for general corporate purposes, including working capital. Our
management will have broad discretion regarding how we use the net proceeds of
this offering and you will not have the opportunity to evaluate the economic,
financial and other relevant information used by management in determining how
to apply such proceeds.

WE HAVE NOT PAID AND CURRENTLY DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON
OUR COMMON STOCK.

     We have not paid any cash dividends on our common stock since our inception
and do not currently anticipate paying dividends on our common stock in the
foreseeable future. Our payment of dividends is and will continue to be
restricted by or subject to, among other limitations, applicable provisions of
federal and state laws, our earnings, our status as a holding company, various
business considerations and credit agreements into which we may enter.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN ANTI-TAKEOVER PROTECTIONS,
WHICH MAY DISCOURAGE OR PREVENT A TAKEOVER OF OUR COMPANY, EVEN IF AN
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Certain provisions of our certificate of incorporation and bylaws, as well
as provisions of the Delaware General Corporation Law, could delay or make it
more difficult to remove incumbent directors or for a

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third party to acquire us, even if a takeover would benefit our stockholders.
The provisions in our certificate of incorporation and bylaws:

     - authorize the issuance of "blank check" preferred stock that could be
       issued by our board of directors to increase the number of outstanding
       shares, making a takeover more difficult and expensive;

     - establish a staggered board of directors, so that it would take three
       successive annual meetings to replace all of the directors;

     - do not permit cumulative voting in the election of directors, which would
       otherwise allow less than a majority of stockholders to elect director
       candidates; and

     - prohibit removing a director other than for cause.

     We are also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us 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.
Our certificate of incorporation excludes Barnes & Noble as an interested
stockholder. The application of Section 203 could have the effect of delaying or
preventing a change of control of our company.

OUR ISSUANCE OF SHARES OF PREFERRED STOCK COULD DELAY OR PREVENT A CHANGE OF
CONTROL OF OUR COMPANY.

     Our board of directors has the authority to cause our company to issue,
without any further vote or action by the stockholders, up to        shares of
preferred stock, par value $.001 per share, in one or more series, to designate
the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of shares of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of our company without further action by the stockholders, even where
stockholders are offered a premium for their shares. The issuance of shares of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of Class A common stock, including the loss of
voting control. We have no present plans to issue any shares of preferred stock.

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                           FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements. The forward-looking
statements involve a number of risks and uncertainties. A number of factors
could cause our actual results, performance, achievements or industry results to
be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
but are not limited to:

     - our reliance on suppliers and vendors for new product releases;

     - economic conditions affecting the electronic game industry;

     - the competitive environment in the electronic game industry;

     - our ability to open and operate new stores;

     - our ability to attract and retain qualified personnel; and

     - other factors described in this prospectus, including those set forth
       under the caption "Risk Factors."

     In some cases, forward-looking statements can be identified by the use of
terms such as "anticipates," "believes," "continues," "could," "estimates,"
"expects," "intends," "may," "plans," "potential," "predicts," "will," "should,"
"seeks," "pro forma" or similar expressions. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks described under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. You should not place undue reliance on these
forward-looking statements.

     Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this prospectus. In
light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur, causing actual results
to differ materially from those anticipated or implied by our forward-looking
statements.

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                                COMPANY HISTORY

     We began operations in November 1996, when Leonard Riggio, one of our
directors, formed Babbage's Etc. LLC, which acquired most of the assets of
NeoStar Retail Group, Inc. at an auction held in the U.S. Bankruptcy Court.
These assets included 467 out of 660 of NeoStar's stores, together with
NeoStar's inventory and the lease for its corporate headquarters and
distribution center. NeoStar, which filed for bankruptcy in September 1996, was
formed in 1994 by the merger of Software Etc. Stores, Inc. (which was founded in
1987 by Leonard Riggio, who was its Chairman of the Board and Treasurer from its
inception through the date of the merger) and Babbage's, Inc. Following the
merger with Babbage's, Inc., Mr. Riggio became a director of NeoStar.

     In October 1999, Mr. Riggio sold Babbage's Etc. LLC to Barnes & Noble. Mr.
Riggio has been the Chairman of the Board, Chief Executive Officer and a
principal stockholder of Barnes & Noble since its inception in 1986. In June
2000, Barnes & Noble acquired Funco, Inc., a publicly traded company. In July
2000, Barnes & Noble transferred its interest in Babbage's Etc. to Funco, Inc.
and Babbage's Etc. became a wholly-owned subsidiary of Funco, Inc. In December
2000, we changed the name of Funco, Inc. to GameStop, Inc. Immediately prior to
the completion of this offering, Barnes & Noble will transfer all of its
interest in GameStop, Inc. to us. After completion of this offering, Barnes &
Noble will own about      % of the outstanding shares of our common stock, or
about      % if the underwriters exercise their over-allotment option in full.
Barnes & Noble will own 100% of our outstanding Class B common stock, which will
represent      % of the combined voting power of all classes of our voting
stock, or      % of the combined voting power of all classes of our voting stock
if the underwriters exercise their over-allotment option in full.

                                USE OF PROCEEDS

     We estimate that we will receive net proceeds from this offering of about
$     million, or about $     million if the underwriters exercise their
over-allotment option in full.

     We intend to use $250 million of the net proceeds of this offering to repay
a portion of our indebtedness to Barnes & Noble. Barnes & Noble incurred an
aggregate of approximately $361 million of indebtedness in connection with its
acquisitions of Babbage's Etc. in October 1999 and Funco in June 2000. Since the
acquisitions, Barnes & Noble has continued to fund our business operations and
these amounts have been treated as an intercompany loan owed to Barnes & Noble
by us. Immediately prior to the closing of this offering, Barnes & Noble will
contribute the difference between the aggregate amount of the intercompany loan
balance and $250 million as additional paid-in capital. As of August 4, 2001,
the capital contribution by Barnes & Noble would have been approximately $142.3
million.

     We intend to use the balance of the net proceeds, including amounts we may
receive from the exercise of the underwriters' over-allotment option, for
working capital and general corporate purposes. Our management will have broad
discretion over the use of this balance. Pending these uses, we may invest this
balance temporarily in short-term, investment grade, interest-bearing securities
or guaranteed obligations of the United States government.

                                DIVIDEND POLICY

     We do not expect to pay dividends on any of our common stock for the
foreseeable future. Instead, we anticipate that all of our earnings in the
foreseeable future will be used for working capital and other general corporate
purposes. Our payment of dividends is and will continue to be restricted by or
subject to, among other limitations, applicable provisions of federal and state
laws, our earnings and various business considerations including our financial
condition, results of operations, cash flow, the level of our capital
expenditures, our future business prospects, our status as a holding company and
such other matters that our board of directors deems relevant. In addition, we
may be restricted in our ability to declare and pay dividends by the terms of
any credit facility or other financial instrument that we elect to enter into
from time to time.
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                                 CAPITALIZATION

     The following table sets forth our cash and capitalization as of August 4,
2001: (1) on an actual basis; (2) on a pro forma basis to reflect the capital
contribution by Barnes & Noble of an amount equal to the difference between the
aggregate amount of the intercompany loan balance owed to Barnes & Noble by us
and $250 million prior to the offering, which, as of August 4, 2001, would have
been approximately $142.3 million; and (3) on a pro forma as adjusted basis to
further reflect our receipt of the net proceeds from the sale of        shares
of our Class A common stock in this offering at an assumed offering price of
$     per share and the use of a portion of the net proceeds to retire our $250
million note payable to Barnes & Noble. You should read this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Use of Proceeds" and our consolidated financial
statements and the related notes included elsewhere in this prospectus.
AS OF AUGUST 4, 2001
                                                            ---------------------------------------------
                                                                                             PRO FORMA
                                                              ACTUAL        PRO FORMA       AS ADJUSTED
                                                            -----------    ------------    --------------
                                                            (IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
Cash......................................................   $  7,261        $  7,261
                                                             ========        ========
Long-term debt............................................   $392,339        $250,000
                                                             --------        --------
Total debt................................................    392,339         250,000
                                                             --------        --------
Stockholders' equity:
Class A common stock, par value $.001 per share,
  shares authorized,      shares issued and outstanding;
       shares issued and outstanding as adjusted..........
Class B common stock, par value $.001 per share,
  shares authorized,      shares issued and outstanding;
  shares issued and outstanding as adjusted...............
Additional paid-in capital................................
Retained earnings.........................................
Total stockholders' equity (deficit)......................    (32,454)        109,885
                                                             --------        --------
Total capitalization......................................   $359,885        $359,885
                                                             ========        ========
The number of shares of our Class A common stock to be outstanding after
this offering does not include:

     -        shares issuable upon exercise of the underwriters' over-allotment
              option;

     -        shares issuable upon exercise of stock options that are currently
              issued and outstanding at a weighted average exercise price of
              $     per share;

     -        shares issuable upon exercise of stock options that will be
              granted in connection with this offering at an exercise price
              equal to the public offering price; and

     -        shares available for future issuance under our 2001 Incentive
              Plan.

                                        18
23

                                    DILUTION

     Our net tangible book value as of        , 2001 was approximately
$       million or $     per share. Net tangible book value per share is equal
to our total tangible assets minus our total liabilities divided by the
aggregate number of shares of common stock outstanding prior to this offering.
Assuming we had also sold the shares of Class A common stock offered hereby at
the initial public offering price of $     per share, and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, our net tangible book value at        , 2001 would have been
approximately $ million, or $     per share. This represents an immediate
increase in net tangible book value of $     per share to Barnes & Noble and an
immediate dilution of $     per share to new investors in this offering.
Dilution is determined by subtracting net tangible book value per share after
the offering from the amount of cash paid by a new investor for a share of Class
A common stock. The following table illustrates the substantial and immediate
per share dilution to new investors:
Initial public offering price per share.....................          $
  Net tangible book value per share as of        , 2001.....  $
  Increase per share attributable to new investors..........  $
                                                              ----
Net tangible book value per share after this offering.......          $
                                                                      ----
Dilution per share to new investors.........................          $
                                                                      ====
The following table sets forth as of        , 2001 the number of shares of
common stock purchased from us, the total consideration paid and the average
price per share paid by Barnes & Noble and by new investors purchasing shares of
our Class A common stock in this offering. The calculations with respect to the
Barnes & Noble consideration reflects Barnes & Noble's net investment minus
retained earnings as of        , 2001. The calculations with respect to shares
purchased by new investors in this offering reflect the offering price of
$       per share:
TOTAL CONSIDERATION
                                                SHARES PURCHASED   --------------------------------
                                                ----------------                      AVERAGE PRICE
                                                NUMBER   PERCENT   AMOUNT   PERCENT     PER SHARE
                                                ------   -------   ------   -------   -------------
Existing stockholders.........................
New investors.................................
                                                 ----      ---      ---       ---          ---
          Total...............................
                                                 ====      ===      ===       ===          ===
If the underwriters exercise their over-allotment option in full, the net
tangible book value per share of common stock as of             , 2001 would
have been $     per share, which would result in dilution to the new investors
of $       per share, and the number of shares of Class A common stock held by
the new investors would increase by        or      % of the total number of
shares to be outstanding after this offering.

                                        19
24

                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth our selected consolidated financial and
operating data for the periods and at the dates indicated. Our fiscal year is
composed of 52 or 53 weeks ending on the Saturday closest to January 31. The
fiscal years ended January 31, 1998, January 30, 1999 and January 29, 2000
consisted of 52 weeks and the fiscal year ended February 3, 2001 consisted of 53
weeks. The "Statement of Operations Data" for the 39 weeks ended October 30,
1999, for the 13 weeks ended January 29, 2000 and for the fiscal years 1998
through 2000 and the "Balance Sheet Data" as of January 29, 2000 and February 3,
2001 are derived from, and are qualified by reference to, our audited financial
statements which are included elsewhere in this prospectus. The "Statement of
Operations Data" for the ten-week period from November 27, 1996 through February
1, 1997 and for the fiscal year ended January 31, 1998 and the "Balance Sheet
Data" as of February 1, 1997, January 31, 1998 and January 30, 1999 are derived
from our audited financial statements which are not included elsewhere in this
prospectus. The "Statement of Operations Data" for the 26 weeks ended July 29,
2000 and August 4, 2001 and the "Balance Sheet Data" as of August 4, 2001 are
derived from our unaudited financial statements included elsewhere in this
prospectus. The "Balance Sheet Data" as of July 29, 2000 is derived from our
unaudited financial statements which are not included elsewhere in this
prospectus. Our unaudited financial statements include all adjustments,
consisting of normal recurring adjustments, which management considers necessary
for a fair presentation of our financial condition and results of operations for
those periods. Due to the seasonal nature of our business, the results for the
26-week period ended August 4, 2001 presented are not indicative of the results
for the full fiscal year.

     Our wholly-owned subsidiary, Babbage's Etc. LLC, began operations in
November 1996. Accordingly, the period ended February 1, 1997 includes the
results of operations from November 27, 1996 through February 1, 1997. In
October 1999, Babbage's Etc. LLC was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble. Because our financial statements subsequent to
the acquisition by Barnes & Noble are not directly comparable to those prior to
the acquisition, our financial statements make a distinction between the
"predecessor company" and the "successor company." The statement of operations
data presented below for the fiscal year ended January 29, 2000 consists of the
results of operations of the predecessor company for the thirty-nine weeks ended
October 30, 1999 and the results of operations of the successor company for the
thirteen weeks ended January 29, 2000. In June 2000, Barnes & Noble acquired
Funco, Inc. and thereafter, Babbage's Etc. LLC became a wholly-owned subsidiary
of, Funco, Inc. The acquisition of Funco, Inc. has been accounted for under the
purchase method of accounting. In December 2000, Funco, Inc. changed its name to
GameStop, Inc.

     Our selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this prospectus.

                                        20
25
PREDECESSOR
                                          -----------------------------------------------------
                                                                                    THIRTY-NINE
                                           TEN WEEKS    FISCAL YEAR   FISCAL YEAR      WEEKS
                                             ENDED         ENDED         ENDED         ENDED
                                          FEBRUARY 1,   JANUARY 31,   JANUARY 30,   OCTOBER 30,
                                             1997          1998          1999          1999
                                          -----------   -----------   -----------   -----------

                                           (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Sales...................................    $85,860      $383,359      $465,166      $329,392
Cost of sales...........................     65,724       291,767       350,475       246,865
                                            -------      --------      --------      --------
Gross profit............................     20,136        91,592       114,691        82,527
Selling, general and administrative
  expenses..............................     15,150        76,309        84,644        68,112
Acquisition incentive bonuses...........         --            --            --        26,789
Depreciation and amortization...........      1,005         5,405         4,805         4,475
Amortization of goodwill................         --            --            --            --
                                            -------      --------      --------      --------
Operating earnings (loss)...............      3,981         9,878        25,242       (16,849)
Transaction expenses....................      3,623            --            --            --
                                            -------      --------      --------      --------
Earnings (loss) before interest
  expense...............................        358         9,878        25,242       (16,849)
Interest expense, net...................        927         5,620         3,544           972
                                            -------      --------      --------      --------
Earnings (loss) before income taxes.....       (569)        4,258        21,698       (17,821)
Income tax expense (benefit)(1).........         --            --            --            --
Pro forma income tax expense
  (benefit)(2)..........................       (229)        1,724         8,738        (7,111)
                                            -------      --------      --------      --------
Net earnings (loss)(3)..................    $  (340)     $  2,534      $ 12,960      $(10,710)
                                            =======      ========      ========      ========
Net earnings (loss) per
  share -- basic(3).....................
Weighted average shares outstanding --
  basic.................................
Net earnings (loss) per
  share -- diluted(3)...................
Weighted average shares outstanding --
  diluted...............................
OTHER FINANCIAL DATA:
Net earnings (loss) excluding the
  after-tax effect of goodwill
  amortization(4).......................    $  (340)     $  2,534      $ 12,960      $(10,710)
Net earnings (loss) per share excluding
  the after-tax effect of goodwill
  amortization -- diluted(4)............
STORE OPERATING DATA:
Stores open at the end of period........        460           458           473
Comparable store sales increase
  (decrease)(5).........................        N/A           N/A          22.4%
Inventory turnover......................        N/A           4.2           4.7
BALANCE SHEET DATA:
Working capital (deficit)...............    $20,793      $ 27,716      $ 23,635      $(40,409)
Total assets............................     81,586        91,570       121,023       124,413
Total debt..............................     35,000        35,000        10,000            --
Total liabilities.......................     77,155        82,881        91,218       140,279
Stockholders' equity (deficit)..........      4,431         8,689        29,805       (15,866)
THIRTEEN
                                              WEEKS        FISCAL YEAR   FISCAL YEAR   TWENTY-SIX WEEKS ENDED
                                              ENDED           ENDED         ENDED      ----------------------
                                           JANUARY 29,     JANUARY 29,   FEBRUARY 3,   JULY 29,    AUGUST 4,
                                               2000           2000          2001         2000         2001
                                          --------------   -----------   -----------   ---------   ----------
                                                                                            (UNAUDITED)
                                                  (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Sales...................................     $223,748       $553,140      $756,697     $247,157     $408,161
Cost of sales...........................      174,808        421,673       570,995      183,531      306,442
                                             --------       --------      --------     --------     --------
Gross profit............................       48,940        131,467       185,702       63,626      101,719
Selling, general and administrative
  expenses..............................       29,895         98,007       157,491       61,819       94,529
Acquisition incentive bonuses...........           --         26,789            --           --           --
Depreciation and amortization...........        1,926          6,401        12,974        4,863        9,131
Amortization of goodwill................        1,687          1,687         9,223        3,727        5,562
                                             --------       --------      --------     --------     --------
Operating earnings (loss)...............       15,432         (1,417)        6,014       (6,783)      (7,503)
Transaction expenses....................           --             --            --           --           --
                                             --------       --------      --------     --------     --------
Earnings (loss) before interest
  expense...............................       15,432         (1,417)        6,014       (6,783)      (7,503)
Interest expense, net...................        3,123          4,095        23,411        8,778       10,801
                                             --------       --------      --------     --------     --------
Earnings (loss) before income taxes.....       12,309         (5,512)      (17,397)     (15,561)     (18,304)
Income tax expense (benefit)(1).........        5,018          5,018        (5,500)      (5,700)      (6,322)
Pro forma income tax expense
  (benefit)(2)..........................           --         (7,111)           --           --           --
                                             --------       --------      --------     --------     --------
Net earnings (loss)(3)..................     $  7,291       $ (3,419)     $(11,897)    $ (9,861)    $(11,982)
                                             ========       ========      ========     ========     ========
Net earnings (loss) per
  share -- basic(3).....................
                                             ========       ========      ========     ========     ========
Weighted average shares outstanding --
  basic.................................
                                             ========       ========      ========     ========     ========
Net earnings (loss) per
  share -- diluted(3)...................
                                             ========       ========      ========     ========     ========
Weighted average shares outstanding --
  diluted...............................
                                             ========       ========      ========     ========     ========
OTHER FINANCIAL DATA:
Net earnings (loss) excluding the
  after-tax effect of goodwill
  amortization(4).......................     $  8,398       $ (2,312)     $ (3,788)    $ (6,042)    $ (7,645)
Net earnings (loss) per share excluding
  the after-tax effect of goodwill
  amortization -- diluted(4)............
STORE OPERATING DATA:
Stores open at the end of period........                         526           978          945          990
Comparable store sales increase
  (decrease)(5).........................                        12.5%         (6.7)%        7.8%        22.6%
Inventory turnover......................                         5.0           4.6          1.9          2.3
BALANCE SHEET DATA:
Working capital (deficit)...............     $(28,775)      $(28,775)     $   (297)    $ 30,427     $  3,543
Total assets............................      307,922        307,922       510,873      498,315      510,139
Total debt..............................      203,613        203,613       386,439      413,515      392,339
Total liabilities.......................      316,497        316,497       531,345      516,751      542,593
Stockholders' equity (deficit)..........       (8,575)        (8,575)      (20,472)     (18,436)     (32,454)
---------------
(1) Prior to October 30, 1999, when Babbage's Etc. LLC was acquired by Barnes &
    Noble, Babbage's, Etc. LLC was not subject to federal and most state income
    taxes, and its earnings were taxed directly to its members. For the ten
    weeks ended February 1, 1997 and the fiscal year ended January 31, 1998,
    there were no provisions for taxes. For the fiscal year ended January 30,
    1999 and the thirty-nine weeks ended October 30, 1999, the financial
    statements include only a provision for state income taxes for those states
    in which Babbage's Etc. LLC was taxed as a "C" corporation. For ease of
    comparison, provisions for state income taxes are included in the pro forma
    income tax expense (benefit), which is described in footnote (2). For
    periods after October 30, 1999, the financial statements reflect income tax
    expense (benefit) as if we were taxed as a "C" corporation on a stand-alone
    basis.
(2) For periods prior to October 30, 1999, the pro forma income tax expense
    (benefit) reflects taxes as if we had been a "C" corporation in all
    jurisdictions and includes certain state income taxes in the amount of $582
    and $100 for the year ended January 30, 1999 and the 39 weeks ended October
    30, 1999, respectively.
(3) Net earnings (loss) for the periods prior to October 30, 1999 reflect pro
    forma taxes as described in footnote (2) above.
(4) Net earnings (loss) excluding the after-tax effect of goodwill amortization
    is presented here to provide additional information about our operations.
    These items should be considered in addition to, but not as a substitute for
    or superior to, operating earnings, net earnings, cash flow and other
    measures of financial performance prepared in accordance with generally
    accepted accounting principles.
(5) Stores are included in our comparable store sales base beginning in the
    13(th) month of operation. Comparable store sales for the fiscal year ended
    February 3, 2001 were computed using the first 52 weeks of the 53 week
    fiscal year.

                                        21
26

             PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

INTRODUCTION

     On June 15, 2000, Barnes & Noble acquired all of the outstanding shares of
Funco, Inc. for $24.75 per share in cash. The purchase of the outstanding
shares, retirement of employee stock options and other payments totaled
approximately $159.1 million, which Barnes & Noble financed by using borrowings
available under its credit facility.

     We have accounted for the Funco acquisition as a purchase. Funco's results
of operations were included in our combined results effective as of June 15,
2000. We have based the allocation of excess purchase price on the results of
our integration of Funco into our operations. The amortization of this goodwill
has been recorded in our statement of operations for the fiscal year ended
February 3, 2001 and the twenty-six week periods ended July 29, 2000 and August
4, 2001.

     The $159.1 million in debt incurred by Barnes & Noble has been recorded on
our balance sheet and the related interest expense has been recorded in our
statement of operations for the fiscal year ended February 3, 2001 and the
twenty-six week periods ended July 29, 2000 and August 4, 2001 in accordance
with the "push-down" accounting rules specified in Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 54.

     Our pro forma condensed consolidated statement of operations presents:

     - Our pro forma results of operations for the fiscal year ended February 3,
       2001, as if the Funco acquisition had occurred on January 30, 2000.

     - Our pro forma as adjusted results of operations for the fiscal year ended
       February 3, 2001, as if this offering had been completed on January 30,
       2000, at an assumed initial public offering price of $     per share and
       assuming the underwriters do not exercise their over-allotment option,
       with the estimated net proceeds being used to retire the $250 million
       intercompany debt to Barnes & Noble and the remaining intercompany debt
       being contributed to capital as described elsewhere herein.

     Our pro forma condensed consolidated statement of operations does not give
effect to any synergies that resulted from the merger of Funco's operations and
ours.

     We believe that the assumptions used provide a reasonable basis for
presenting the effects of these transactions. Our pro forma and pro forma as
adjusted results are not necessarily indicative of what actually would have
occurred if the acquisition had been consummated, and this offering had been
completed, on January 30, 2000, nor are they necessarily indicative of our
future operating results.

     Our pro forma condensed consolidated statement of operations should be read
in conjunction with the consolidated financial statements and their accompanying
notes included elsewhere in this prospectus.

                                        22
27

            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
                                  (UNAUDITED)
HISTORICAL                                   ADJUSTMENTS    PRO FORMA
                                -------------------   ACQUISITION                 FOR THIS         AS
                                GAMESTOP   FUNCO(A)   ADJUSTMENTS    PRO FORMA    OFFERING      ADJUSTED
                                --------   --------   -----------    ---------   -----------    ---------
                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues......................  $756,697   $71,341      $    --      $828,038     $     --      $828,038
Cost of sales.................   570,995    45,710           --       616,705           --       616,705
                                --------   -------      -------      --------     --------      --------
Gross profit..................   185,702    25,631           --       211,333           --       211,333
Selling, general and
  administrative expenses.....   157,491    24,176           --       181,667           --       181,667
Depreciation and
  amortization................    12,974     2,095           --        15,069           --        15,069
Amortization of goodwill......     9,223        --        1,769(b)     10,992           --        10,992
                                --------   -------      -------      --------     --------      --------
Operating earnings (loss).....     6,014      (640)      (1,769)        3,605           --         3,605
Transaction expenses..........        --        --           --            --           --            --
                                --------   -------      -------      --------     --------      --------
Earnings (loss) before
  interest expense............     6,014      (640)      (1,769)        3,605           --         3,605
Interest expense, net.........    23,411      (287)       4,111(c)     27,235      (27,271)(e)       (36)
                                --------   -------      -------      --------     --------      --------
Earnings (loss) before income
  taxes.......................   (17,397)     (353)      (5,880)      (23,630)      27,271         3,641
Income tax expense
  (benefit)...................    (5,500)      (97)      (1,910)(d)    (7,507)      10,963(f)      3,456
                                --------   -------      -------      --------     --------      --------
Net earnings (loss)...........  $(11,897)  $  (256)     $(3,970)     $(16,123)    $ 16,308      $    185
                                ========   =======      =======      ========     ========      ========
PER SHARE DATA:
Net earnings (loss) per
  share -- basic..............  $          $            $            $            $             $
Weighted average shares
  outstanding -- basic........
Net earnings (loss) per
  share -- diluted............  $          $            $            $            $             $
Weighted average shares
  outstanding -- diluted......
---------------
(a) The historical Funco column represents the unaudited results of Funco on a
    historical basis for the period from January 30, 2000 through June 14, 2000,
    the day prior to our acquisition of Funco, Inc.

(b) Represents the amortization of goodwill that would have been recorded from
    January 30, 2000 through June 14, 2000 using the straight-line method over
    30 years.

(c) Represents interest expense on the $159.1 million in debt that would have
    been recorded from January 30, 2000 through June 14, 2000.

(d) Recognition of income tax benefit relating to additional interest expense.

(e) Adjustment to give effect to (1) the receipt of the net proceeds of this
    offering as of January 30, 2000, estimated at           , after deduction of
    the estimated underwriting discount and offering expenses aggregating to
              , assuming the sale of           shares of Class A common stock at
    an assumed initial public offering price of           per share; and (2) the
    reduction of interest expense for the fiscal year ended February 3, 2001, to
    reflect the repayment of $250 million in intercompany debt with a portion of
    the net proceeds from this offering and the capital contribution of any
    remaining intercompany debt to Barnes & Noble. The adjustment assumes the
    underwriters do not exercise their over-allotment option. See "Use of
    Proceeds" and "Capitalization."

(f) Recognition of income tax expense relating to a reduction in interest
    expense.

                                        23
28

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this prospectus.

GENERAL

     We are the largest specialty retailer of video game products and PC
entertainment software in the United States. We sell new and used video game
hardware, video game software and accessories, as well as PC entertainment
software and related accessories and other merchandise. As of August 4, 2001, we
operated 990 stores, in 49 states, Puerto Rico and Guam, under the names
GameStop, Babbage's, Software Etc. and FuncoLand. We also operate an electronic
commerce web site under the name gamestop.com and publish Game Informer, one of
the industry's largest circulation multi-platform video game magazines in the
United States.

     Our fiscal year is composed of 52 or 53 weeks ending on the Saturday
closest to January 31. The fiscal years ended January 30, 1999, or "fiscal
1998," and January 29, 2000, or "fiscal 1999," consisted of 52 weeks and the
fiscal year ended February 3, 2001, or "fiscal 2000," consisted of 53 weeks.

     Our wholly-owned subsidiary, Babbage's Etc., began operations in November
1996. In October 1999, Babbage's Etc. was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble. Because our financial statements subsequent to
the acquisition by Barnes & Noble are not directly comparable to those prior to
the acquisition, the financial statements included elsewhere in this prospectus
make a distinction between the "predecessor company" and the "successor
company." The statement of operations data presented below for fiscal 1998 and
any references to fiscal 1998 include the results of operations for the
predecessor company. The statement of operations data presented below for fiscal
1999 and any references to fiscal 1999 consist of the results of operations for
the predecessor company for the thirty-nine weeks ended October 30, 1999 and the
results of operations for the successor company for the thirteen weeks ended
January 29, 2000. However, for purposes of management's discussion and analysis
of results of operations, the year ended January 29, 2000 for the predecessor
and successor company combined is being compared to fiscal years 1998 and 2000.
In June 2000, Barnes & Noble acquired Funco, Inc. and thereafter, Babbage's Etc.
became a wholly-owned subsidiary of Funco. In December 2000, Funco changed its
name to GameStop, Inc.

     Growth in the video game industry is driven by the introduction of new
technology. Within the past twelve months, two new video game platforms have
been introduced. In October 2000, Sony introduced PlayStation 2 and in June 2001
Nintendo introduced Game Boy Advance. We anticipate that Microsoft will
introduce Xbox and Nintendo will introduce GameCube in late 2001. As is typical
following the introduction of new video game platforms, we expect that the sales
of these four platforms and related software and accessories will increase in
the future. In contrast, we expect the sales of PlayStation, Nintendo 64 and
Dreamcast products to continue to decline as is typically the trend with older
video game platforms when new platforms are anticipated or introduced. Sales of
new video game hardware generally increase as a percentage of sales in the first
full year following the introduction of next generation platforms. As video game
platforms mature, the sales mix attributable to complementary video game
software and accessories, which generate higher gross margins, generally
increases in the second and third years. The net effect is generally a decline
in gross margins in the first full year following new platform releases and an
increase in gross margins in the second and third years.

     Our sales are recognized at the time of the sale of our products. Our
merchandise inventories are carried at the lower of cost or market using the
average cost method. Used video game products traded in by customers are
recorded as inventory at the amount of the store credit given to the customer.
The subsequent sales of used video game products are recorded at the retail
price charged to the customer.

     Goodwill resulted from the acquisition of Babbage's Etc. by Barnes & Noble
in October 1999 and the acquisition of Funco in June 2000. The amortization of
goodwill associated with the acquisition of

                                        24
29

Babbage's Etc. is deductible for tax purposes, whereas the amortization of
goodwill associated with the Funco acquisition is not deductible for tax
purposes. This non-deductible goodwill amortization affects our effective tax
rate as a stand-alone corporation.

     Based upon the terms of the acquisition of Babbage's Etc. by Barnes &
Noble, if certain financial targets are met by GameStop in the fiscal year ended
February 2, 2002, Barnes & Noble will make an additional payment of
approximately $10 million to the former Babbage's Etc. members and, under push-
down accounting rules, GameStop will recognize additional goodwill of
approximately $10 million with a corresponding increase in paid-in-capital.

     Prior to its acquisition by Barnes & Noble in October 1999, Babbage's Etc.,
as a limited liability company, was not subject to federal and most state income
taxes and its earnings were taxed directly to its members. Effective in the
fourth quarter of fiscal 1999 and for all periods subsequent to that time, we
recorded taxes as a "C" corporation on a stand-alone basis.

RESULTS OF OPERATIONS

     The following table sets forth certain income statement items as a
percentage of sales for the periods indicated:
TWENTY-SIX
                                        FISCAL YEAR    FISCAL YEAR    FISCAL YEAR         WEEKS ENDED
                                           ENDED          ENDED          ENDED       ---------------------
                                        JANUARY 30,    JANUARY 29,    FEBRUARY 3,    JULY 29,    AUGUST 4,
                                           1999           2000           2001          2000        2001
                                        -----------    -----------    -----------    --------    ---------
                                                                                          (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Sales.................................     100.0%         100.0%         100.0%       100.0%       100.0%
Cost of sales.........................      75.3           76.2           75.5         74.3         75.1
                                           -----          -----          -----        -----        -----
Gross profit..........................      24.7           23.8           24.5         25.7         24.9
Selling, general and administrative
  expenses............................      18.2           17.7           20.8         25.0         23.2
Acquisition incentive bonuses.........        --            4.9             --           --           --
Depreciation and amortization.........       1.0            1.2            1.7          2.0          2.2
Amortization of goodwill..............        --            0.3            1.2          1.5          1.4
                                           -----          -----          -----        -----        -----
Operating earnings (loss).............       5.5           (0.3)           0.8         (2.8)        (1.9)
Interest expense, net.................       0.8            0.7            3.1          3.5          2.6
                                           -----          -----          -----        -----        -----
Earnings (loss) before income taxes...       4.7           (1.0)          (2.3)        (6.3)        (4.5)
Income tax expense (benefit)..........       1.9           (0.4)          (0.7)        (2.3)        (1.6)
                                           -----          -----          -----        -----        -----
Net earnings (loss)...................       2.8%          (0.6)%         (1.6)%       (4.0)%       (2.9)%
                                           =====          =====          =====        =====        =====
TWENTY-SIX WEEKS ENDED AUGUST 4, 2001 COMPARED TO TWENTY-SIX WEEKS ENDED JULY
29, 2000

     Sales increased by $161.0 million, or 65.1%, from $247.2 million in the
twenty-six weeks ended July 29, 2000 to $408.2 million in the twenty-six weeks
ended August 4, 2001. The increase in sales was primarily attributable to the
acquisition of Funco in June 2000 and the related sales for the full twenty-six
week period in 2001, compared to Funco sales for only six weeks included in the
twenty-six week period in 2000. Sales from the acquired FuncoLand stores and
related magazine and e-commerce operations accounted for $106.4 million of the
$161.0 million increase in sales. Sales also increased due to a 22.6% increase
in comparable store sales and the additional sales resulting from 45 net new
stores opened since July 29, 2000. Stores are included in our comparable store
sales base beginning in the 13th month of operation. The increase in comparable
store sales was primarily due to sales of PlayStation 2 and Game Boy Advance
hardware, software and accessories, following the launch of these new video game
platforms in October 2000 and June 2001, respectively. The sales of these new
hardware platforms and related

                                        25
30

products were partially offset by sales declines in PlayStation, Nintendo 64,
Dreamcast and PC entertainment software and trading cards from the period a year
ago.

     Cost of sales increased by $122.9 million, or 67.0%, from $183.5 million in
the twenty-six weeks ended July 29, 2000 to $306.4 million in the twenty-six
weeks ended August 4, 2001. Cost of sales as a percentage of net sales increased
from 74.3% in the twenty-six weeks ended July 29, 2000 to 75.1% in the
twenty-six weeks ended August 4, 2001. The increase in cost of sales as a
percentage of sales was attributable to increased sales of lower margin video
game hardware. This increase was mostly offset by increases in sales of higher
margin used video game products, which resulted from the acquisition of Funco.

     Selling, general and administrative expenses increased by $32.7 million, or
52.9%, from $61.8 million in the twenty-six weeks ended July 29, 2000 to $94.5
million in the twenty-six weeks ended August 4, 2001. The increase was primarily
attributable to the increase in the number of stores in operation following the
Funco acquisition in June 2000 and the related increases in store, distribution,
and corporate office operating expenses. Selling, general and administrative
expenses as a percentage of sales decreased from 25.0% in the twenty-six weeks
ended July 29, 2000 to 23.2% in the twenty-six weeks ended August 4, 2001. The
decrease in selling, general and administrative expenses as a percentage of
sales was due to the economies achieved in distribution and corporate operating
expenses after the integration of the Funco acquisition and the store operating
efficiencies gained as a result of the increase in comparable store sales.

     Depreciation and amortization expense increased from $4.9 million for the
twenty-six weeks ended July 29, 2000 to $9.1 million in the twenty-six weeks
ended August 4, 2001. This increase of $4.2 million was due to the acquisition
of Funco and capital expenditures for new stores, management information systems
and distribution center enhancements.

     Amortization of goodwill increased from $3.7 million to $5.6 million due to
the Funco acquisition. The related goodwill was amortized for the full
twenty-six week period in 2001 compared to six weeks in 2000.

     Interest expense, net of interest income, increased by $2.0 million, or
23.0%, from $8.8 million in the twenty-six weeks ended July 29, 2000 to $10.8
million in the twenty-six weeks ended August 4, 2001. The increase was
attributable to the $159.1 million in additional debt incurred as a result of
the Funco acquisition. This increase was mostly offset by decreases in average
borrowing rates.

     The income tax benefit recorded during the twenty-six weeks ended August 4,
2001 increased by $0.6 million, from the $5.7 million benefit recorded in the
corresponding period in 2000, to $6.3 million.

FISCAL 2000 COMPARED TO FISCAL 1999

     Sales increased by $203.6 million, or 36.8%, from $553.1 million in fiscal
1999 to $756.7 million in fiscal 2000. The increase in sales was primarily
attributable to the additional sales volume from the acquisition of Funco in
June 2000. Sales from the 400 acquired FuncoLand stores and related magazine and
e-commerce operations accounted for $167.8 million of the $203.6 million
increase in sales. Sales also increased due to the 52 net new stores opened
during fiscal 2000 and because fiscal 2000 included 53 weeks of sales compared
to 52 weeks in fiscal 1999. Offsetting these increases in sales was a decrease
in comparable stores sales of 6.7% for the year. Comparable store sales
decreased due to declines in sales of PlayStation and Nintendo 64 hardware and
software, action figures and trading cards, and PC education and productivity
software, which were partially offset by increases in PlayStation 2 video game
hardware and software, Dreamcast and Game Boy video game software and PC
entertainment software. PlayStation 2 product availability shortages prior to
the holiday selling season resulted in less than expected sales during the
fourth quarter of fiscal 2000.

     Cost of sales increased by 35.4%, or $149.3 million, from $421.7 million in
fiscal 1999 to $571.0 million in fiscal 2000. As a percentage of sales, cost of
sales decreased from 76.2% in fiscal 1999 to 75.5% in fiscal 2000. The decrease
in cost of sales as a percentage of sales was primarily attributable to the
acquisition of Funco and the related increase in sales of higher margin used
video game products. These

                                        26
31

margin gains were offset, to some extent, by increased sales of low margin
PlayStation 2 hardware and decreased sales of high margin action figures and
trading cards.

     Selling, general and administrative expense increased $59.5 million, or
60.7%, from $98.0 million in fiscal 1999 to $157.5 million in fiscal 2000. The
increase was due primarily to the Funco acquisition and the related costs to
integrate corporate and distribution functions. As a percentage of sales,
selling, general and administrative expense increased from 17.7% in fiscal 1999
to 20.8% in fiscal 2000. The increase in selling, general and administrative
expense as a percentage of sales was primarily attributable to additional
distribution, corporate and store operating expenses during the integration of
the Funco acquisition as well as a decrease in comparable store sales.

     In October 1999, the predecessor company authorized a $26.8 million bonus
to employees upon the sale of the company to Barnes & Noble.

     Depreciation and amortization expense increased from $6.4 million in fiscal
1999 to $13.0 million in fiscal 2000. The $6.6 million increase was primarily
attributable to the Funco acquisition, capital expenditures for new store
openings, remodeling of existing stores and management information systems and
distribution center enhancements.

     Amortization of goodwill increased from $1.7 million to $9.2 million due to
the goodwill associated with the acquisition of Babbage's Etc. by Barnes & Noble
in October 1999 and due to the Funco acquisition in June 2000. The goodwill
generated from the acquisition by Barnes & Noble was amortized for only three
months in fiscal 1999 compared to the full year in fiscal 2000. In addition,
during fiscal 2000, the goodwill related to the Funco acquisition was amortized
from the date of acquisition through February 3, 2001.

     Interest expense, net of interest income, increased by $19.3 million from
$4.1 million in fiscal 1999 to $23.4 million in fiscal 2000. The increase was
due to the $202.4 million of intercompany debt associated with the acquisition
of Babbage's Etc. by Barnes & Noble in October 1999 and the additional $159.1
million of intercompany debt incurred as a result of the acquisition of Funco in
June 2000. The debt incurred as a result of the acquisition of Babbage's Etc. by
Barnes & Noble accrued interest for only three months in fiscal 1999 compared to
the full year in fiscal 2000. In addition, the fiscal 2000 results reflect
interest on the debt related to the Funco acquisition from June 15, 2000 through
February 3, 2001.

     Income tax benefit, which reflects income taxes as if we were taxed as a
"C" corporation on a stand-alone basis, increased from $2.1 million in fiscal
1999 on a pro forma basis to $5.5 million in fiscal 2000.

FISCAL 1999 COMPARED TO FISCAL 1998

     Sales increased by $87.9 million, or 18.9%, from $465.2 million in fiscal
1998 to $553.1 million in fiscal 1999. The increase in sales was due to a 12.5%
increase in comparable store sales, which resulted in a $56.9 million increase
in net sales, and the additional sales volume attributable to 53 net new stores
opened during fiscal 1999. Comparable store sales increased primarily as a
result of sales of the newly introduced Dreamcast video game hardware, software
and accessories. In addition, we experienced strong demand for Game Boy software
and hardware as well as action figures and trading cards.

     Cost of sales increased by 20.3%, or $71.2 million, from $350.5 million in
fiscal 1998 to $421.7 million in fiscal 1999. As a percentage of net sales, cost
of sales increased from 75.3% in fiscal 1998 to 76.2% in fiscal 1999. The
increase in cost of sales as a percentage of sales was due primarily to the
increasing percentage of sales derived from lower margin video game hardware and
additional freight costs incurred to ensure that hot new titles are delivered to
our stores within 24 hours of release. The increase was partially offset by
sales of higher margin products such as trading cards and action figures.

     Selling, general and administrative expenses increased by 15.8% from $84.6
million in fiscal 1998 to $98.0 million in fiscal 1999. The $13.4 million
increase was primarily attributable to additional selling, general and
administrative expenses in store operations, distribution and corporate
functions in support of overall sales growth and opening new stores. Selling,
general and administrative expense as a percentage of

                                        27
32

sales decreased from 18.2% in fiscal 1998 to 17.7% in fiscal 1999 due to
operating efficiencies experienced with higher comparable store sales levels.

     In October 1999, the predecessor company authorized a $26.8 million bonus
to employees upon the sale of the company to Barnes & Noble.

     Depreciation and amortization expense increased by $1.6 million, from $4.8
million in fiscal 1998 to $6.4 million in fiscal 1999. This increase was due to
capital expenditures for new store openings, remodeling existing stores, and for
distribution and e-commerce enhancements.

     Amortization of goodwill of $1.7 million in fiscal 1999 resulted from the
acquisition of Babbage's Etc. by Barnes & Noble in October 1999.

     Interest expense, net of interest income, increased 15.5% from $3.5 million
in fiscal 1998 to $4.1 million in fiscal 1999. This increase was due to the $3.3
million of interest related to the $202.4 million in debt incurred when
Babbage's Etc. was acquired by Barnes & Noble. Excluding the interest on this
acquisition debt, we experienced a decrease in interest expense of $2.7 million,
due to increased sales during the year.

     In fiscal 1998, pro forma income tax expense was $8.7 million. In fiscal
1999, pro forma income tax benefit was $2.1 million.

LIQUIDITY AND CAPITAL RESOURCES

     We have historically financed our operations through a combination of cash
flow generated from operations and external borrowings. Subsequent to our
acquisition by Barnes & Noble in October 1999, our operations were funded by
cash flows from operations and advances from Barnes & Noble, which advances have
been treated as an intercompany loan owed to Barnes & Noble by us. As of August
4, 2001, we were indebted to Barnes & Noble in the amount of $392.3 million.
Immediately prior to the closing of this offering, Barnes & Noble will
contribute the difference between the aggregate amount of the intercompany loans
and $250 million as additional paid-in capital. As of August 4, 2001, the
capital contribution by Barnes & Noble would have been approximately $142.3
million.

     During the twenty-six-week periods ended August 4, 2001 and July 29, 2000,
cash used in operations was $0.9 million and $45.7 million, respectively. The
cash used in operations in the twenty-six weeks ended August 4, 2001 was
primarily the result of net purchases of inventory and payment of accounts
payable, offset partially by the collection of outstanding tax refunds. The cash
used in operations in the twenty-six weeks ended July 29, 2000 was principally
due to the payment of accounts payable that were outstanding at the end of the
previous fiscal year. In addition, cash was used to fund the net loss and
increases in merchandise inventories and receivables. In fiscal 2000, cash used
in operations of $0.1 million was primarily due to increases in merchandise
inventories.

     Cash used in investing activities was $6.4 million, $162.7 million and
$180.7 million during the twenty-six-week periods ended August 4, 2001 and July
29, 2000 and the fiscal year ended February 3, 2001, respectively. In June 2000,
we used $152.8 million to purchase Funco. During the twenty-six-week periods
ended August 4, 2001 and July 29, 2000, we had capital expenditures of $6.4
million and $11.1 million, respectively, to open new stores, remodel existing
stores, and invest in information systems. Capital expenditures in fiscal 2000
totaled $25.1 million to open new stores, remodel existing stores, and invest in
information systems and distribution capabilities. Our future capital
requirements will depend on the number of new stores we open and the timing of
those openings within a given fiscal year. We plan to open between 50 and 55
stores in the second half of fiscal 2001 and between 100 and 150 stores in
fiscal 2002. Projected capital expenditures for fiscal 2001 and fiscal 2002 are
$21 million and $30 million, respectively, to be used primarily to fund new
store openings.

     We currently intend to enter into a credit facility prior to the effective
date of this offering. Based on our current operating plans, we believe that
cash generated from our operating activities, available borrowings under our
credit facility and the cash proceeds from this offering will be sufficient to
fund our operations, store expansion and remodeling activities and corporate
capital expenditure programs for the foreseeable future.

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33

IMPACT OF INFLATION

     We do not believe that inflation has had a material effect on our net sales
or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that we recognize acquired intangible assets apart from goodwill
if the acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that we reclassify the carrying amounts of certain intangible
assets and goodwill based on the criteria in SFAS 141.

     SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that we identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance with the
guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years
beginning after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires us to complete a transitional goodwill impairment
test six months from the date of adoption. We are also required to reassess the
useful lives of other intangible assets within the first interim quarter after
adoption of SFAS 142. We intend to complete the transitional goodwill impairment
test within six months from the date of adoption. Currently, we are assessing
but have not yet determined how the adoption of SFAS 141 and SFAS 142 will
impact its financial position and results of operations.

SEASONALITY AND QUARTERLY RESULTS

     Our business, like that of many retailers, is seasonal, with the major
portion of sales and operating profit realized during the 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, 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 our merchandise mix.

     The following table sets forth certain unaudited quarterly income statement
information for fiscal 1999 and fiscal 2000 and the first two fiscal quarters of
2001. The unaudited quarterly information includes all normal recurring
adjustments that management considers necessary for a fair presentation of the
information shown.
FISCAL 1999                                FISCAL 2000                      FISCAL 2001
                       ---------------------------------------   -----------------------------------------   -------------------
                         1ST       2ND       3RD        4TH        1ST        2ND        3RD        4TH        1ST        2ND
                       QUARTER   QUARTER   QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                       -------   -------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                                                                 (UNAUDITED)
                                                                    (IN THOUSANDS)
Sales................  $98,489   $88,323   $142,580   $223,748   $120,003   $127,154   $182,486   $327,054   $201,355   $206,806
Gross profit.........   26,542    24,889     31,096     48,940     30,007     33,619     47,383     74,693     48,008     53,711
Operating earnings
  (loss)(1)..........    3,434     2,093    (22,376)    15,432        697     (7,480)    (1,453)    14,250     (5,341)    (2,162)
---------------
(1) In the third quarter of fiscal year 1999, operating loss reflects $26.8
    million of acquisition bonuses paid to certain of our employees upon the
    acquisition of Babbage's by Barnes & Noble.

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34

                                    BUSINESS

GENERAL

     We are the largest video game and PC entertainment software specialty
retailer in the United States, based on the number of stores we operate and our
total revenues. We carry one of the largest assortments of new and used video
game hardware, video game software and accessories, PC entertainment software,
and related products, including action figures, trading cards and strategy
guides. We operate 990 stores in the United States, Puerto Rico and Guam. We
currently operate our stores under the GameStop, Babbage's, Software Etc. and
FuncoLand names and are in the process of rebranding most of our stores under
the GameStop name. We carry a constantly changing selection of more than 2,800
stock keeping units (SKUs) of electronic game merchandise in most stores. In
addition, we operate a web site at gamestop.com and publish Game Informer, one
of the industry's largest circulation multi-platform video game magazines, with
over 290,000 subscribers.

     Of our 990 stores, 534 stores are located in shopping malls and other
locations and 456 stores are located in strip centers. Our mall stores, which
average approximately 1,200 square feet, carry primarily new video game
hardware, video game software and accessories, which we refer to as video game
products, and PC entertainment software, as well as a limited selection of used
video game products. Our strip center stores, which average approximately 1,500
square feet, carry a balanced mix of new and used video game products and, in
selected stores, PC entertainment software. Our used video game products provide
a unique value proposition to our customers, and our purchasing of video game
products provides our customers with an opportunity to trade in their used video
game products for store credits and apply those credits towards other
merchandise, which, in turn, drives more sales.

INDUSTRY BACKGROUND

     According to NPD Group, Inc., a market research firm, the electronic game
industry was approximately an $8.4 billion market in the United States in 2000.
Of this $8.4 billion market, approximately $6.8 billion was attributable to
video game products, excluding sales of used video game products, and
approximately $1.6 billion was attributable to PC entertainment software.

NEW VIDEO GAME PRODUCTS.  Industry experts believe that the electronic game
industry is at the beginning stage of a new expansion cycle. International Data
Corporation, or IDC, an industry forecaster, forecasts that domestic sales of
new video game products will increase at a compound annual growth rate of
approximately 47.5% over the next three years. In addition, Interactive Digital
Software Association, or IDSA, estimates that 60% of all Americans, or
approximately 145 million people, play video or computer games on a regular
basis. We expect the following trends to result in increased sales of video game
products:

     - Hardware Platform Technology Evolution.  Video game hardware has evolved
       significantly from the early products launched in the 1980's. The
       processing speed of video game hardware has increased from 8-bit speeds
       in the 1980's to 128-bit speeds in next-generation systems such as Sony
       PlayStation 2, launched in 2000, Nintendo GameCube and Microsoft Xbox,
       which are both expected to launch early in the fourth quarter of 2001. In
       addition, portable handheld video game devices have evolved from the
       8-bit Nintendo Game Boy to the 32-bit Game Boy Advance, which was
       introduced in June 2001. Technological developments in both chip
       processing speed and data storage have provided significant improvements
       in advanced graphics and audio quality, which allow software developers
       to create more advanced games, encourage existing players to upgrade
       their hardware platforms and attract new video game players to purchase
       an initial system. As general computer technology advances, we expect
       video game technology to make similar advances.

     - Next-generation Systems Provide Multiple Capabilities Beyond
       Gaming.  Many next-generation hardware platforms, including Sony
       PlayStation 2 and Microsoft Xbox, utilize a DVD software format and have
       the potential to serve as multi-purpose entertainment centers by doubling
       as a

                                        30
35

       player for DVD movies and compact discs. In addition, Sony PlayStation 2
       and Microsoft Xbox are expected to provide Internet connectivity.

     - Backward Compatibility.  Sony PlayStation 2 and Nintendo Game Boy Advance
       are both backward compatible, meaning that titles produced for the
       earlier version of the hardware platform may be used on the new hardware
       platform. We believe that backward compatibility may result in more
       stable industry growth because the decrease in consumer demand for
       products associated with existing hardware platforms that typically
       precedes the release of next-generation hardware platforms may be
       diminished.

     - Introduction of Next-generation Hardware Platforms Drives Software
       Demand.  Sales of video game software generally increase as
       next-generation platforms mature and gain wider acceptance. Historically,
       when a new platform is released, a limited number of compatible game
       titles are immediately available, but the selection grows rapidly as
       manufacturers and third-party publishers develop and release game titles
       for that new platform. For example, when Sony PlayStation 2 was released
       in October 2000, approximately 30 game titles were available for sale. By
       August 2001, over 120 game titles for the Sony PlayStation 2 platform
       were available for sale.

     - Broadening Demographic Appeal.  While the typical electronic game
       enthusiast is male between the ages of 14 and 34, the electronic game
       industry is broadening its appeal. More females are playing electronic
       video games, in part due to the development of video game products that
       appeal to them. According to IDSA, approximately 43% of all electronic
       game players currently are female. More adults are also playing video
       games as a portion of the population that played video games in their
       childhood continue to play and advance to the next-generation video game
       products. In addition, the availability of used video game products for
       sale has enabled a lower-economic demographic, that may not have been
       able to afford the considerably more expensive new video game products,
       to participate in the video game industry.

PC ENTERTAINMENT SOFTWARE.  IDC forecasts that domestic sales of PC
entertainment software will increase at a compound annual growth rate of 7.9%
over the next three years. PC entertainment software is generally sold in the
form of CD-ROMs and played on multimedia PCs featuring fast processors, expanded
memories, and enhanced graphics and audio capabilities.

USED VIDEO GAME MARKET.  As the installed base of video game hardware platforms
has increased and new hardware platforms are introduced, a growing used video
game market has evolved in the United States. Based on industry reports,
management believes that, as of August 2001, the installed base of video game
hardware systems in the United States, based on original sales, totaled over
98.1 million units, including approximately 19.5 million Sony PlayStation units,
2.8 million Sega Dreamcast units, 13.6 million Nintendo 64 units, 20.2 million
Nintendo Game Boy and Game Boy Color units, and approximately 40.9 million total
units of Sega Genesis and Super Nintendo systems, which are no longer being
manufactured. Hardware manufacturers and third-party software publishers produce
a wide variety of software titles for each of these hardware platforms. Based on
industry reports, management believes that the installed base of video game
software units in the United States totals over 500 million units.

BUSINESS STRATEGY

     Our goal is to enhance our position as the nation's largest specialty
retailer of new and used video game products and PC entertainment software by
focusing on the following strategies:

TARGETING A BROAD AUDIENCE OF GAME PLAYERS.  We have created a store environment
targeting a broad audience including the electronic game enthusiast, the casual
gamer and the seasonal gift giver. Our mall stores primarily focus on the
electronic game enthusiast who demands the latest merchandise featuring the
"hottest" technology immediately on the day of release. Our strip center stores
also serve the electronic game enthusiast, but focus on serving the
value-oriented customer by offering a wide selection of value-priced used video
game products and the opportunity to trade in used video game products in
exchange for store credits applicable to future purchases which, in turn, drives
more sales.

                                        31
36

ENHANCING OUR IMAGE AS A DESTINATION LOCATION.  Our stores serve as destination
locations for game players due to our broad selection of products, knowledgeable
sales associates, game oriented environment and unique pricing proposition. We
offer all major video game platforms, provide a broad assortment of video game
products and offer a larger and more current selection of merchandise than other
retailers. We provide a high level of customer service by hiring game
enthusiasts and providing them with ongoing sales training, as well as training
in the latest technical and functional elements of our products and services.
Our stores are equipped with several video game sampling areas, which provide
our customers the opportunity to play games before purchase, as well as
equipment to play video game clips.

PROVIDING A FIRST-TO-MARKET DISTRIBUTION NETWORK.  We employ a variety of
rapid-response distribution methods in our efforts to be the first to market for
new video game products and PC entertainment software. We strive to deliver
popular new releases to selected stores within hours of release and to all of
our stores within 24 hours of release. This highly efficient distribution
network is essential as a significant portion of a new title's sales will be
generated in the first few days and weeks following its release. As the largest
specialty retailer of video game products and PC entertainment software, with a
proven capability to distribute new releases to our customers quickly, our
management believes that we regularly receive a disproportionately large
allocation of popular new video game products and PC entertainment software. On
a daily basis, we actively monitor sales trends, customer reservations and store
manager feedback to ensure a high in-stock position for each store. To assure
our customers immediate access to new releases, we offer our customers the
opportunity to pre-order products in our stores or through our web site prior to
their release.

OFFERING THE LARGEST SELECTION OF USED VIDEO GAME PRODUCTS.  We are the nation's
leading provider and carry the broadest selection of used video game products
for both current and previous generation platforms. We are one of the only
retailers that provide video game software for previous generation platforms,
giving us a unique advantage in the video game retail industry. The opportunity
to trade in and purchase used video game products offers our customers a unique
value proposition unavailable at mass merchants, toy stores and consumer
electronic retailers. We obtain most of our used video game products from
trade-ins made in our stores by our customers. Used video game products generate
significantly higher gross margins than new video game products.

REBRANDING OUR STORES WITH THE GAMESTOP NAME.  We currently operate stores under
the GameStop, Babbage's, Software Etc. and FuncoLand names. We have initiated a
rebranding strategy under which all new stores opened since December 2000
operate under the GameStop name and existing stores in targeted markets are
being rebranded under the GameStop name. We have completed rebranding of our
stores in Dallas, Houston, San Antonio and Seattle, and are in the process of
rebranding our stores in Philadelphia. By the end of fiscal 2001, we expect to
operate approximately 280 stores under the GameStop name and we intend to
continue to rebrand most of our stores. Rebranding to a single GameStop name
enables us to leverage brand awareness and to capture advertising and marketing
efficiencies. Our rebranding strategy is further supported by the GameStop
loyalty card and our web site. The GameStop loyalty card, which is obtained as a
bonus with a paid subscription to our Game Informer magazine, offers customers
discounts on selected merchandise in our stores. Our web site allows our
customers to buy games on-line and to learn about the latest video game products
and PC entertainment software and their availability in our stores.

INVESTING IN OUR INFORMATION SYSTEMS AND DISTRIBUTION CAPABILITIES.  We employ
sophisticated and fully-integrated inventory management, store-level point of
sale and financial systems and a centralized state-of-the-art distribution
facility. These systems enable us to maximize the efficiency of the flow of
approximately 2,800 SKUs, improve store efficiency, optimize store in-stock
positions, and carry a broad selection of inventory. Our proprietary inventory
management system enables us to maximize sales of new release titles and avoid
markdowns as titles mature and utilizes electronic point-of-sale equipment that
provides corporate headquarters with daily information regarding store-level
sales and available inventory levels to automatically generate replenishment
shipments to each store at least twice a week. In addition, our highly
customized inventory management system allows us to actively manage the pricing
and product availability of our used video game products across our store base
and to reallocate our inventory as

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necessary. Our systems enable each store to carry a merchandise assortment
uniquely tailored to its own sales mix and customer needs. Our ability to react
quickly to consumer purchasing trends has resulted in a target mix of inventory,
reduced shipping and handling costs for overstocks and reduced our need to
discount products.

GROWTH STRATEGY

NEW STORE EXPANSION.  We intend to continue to open new strip center stores in
our targeted markets and new mall stores in selected mall locations. We opened
62 new stores in fiscal 2000 and 21 new stores to date in fiscal 2001. We plan
on opening approximately 50 to 55 new stores during the remainder of fiscal 2001
and approximately 100 to 150 new stores in fiscal 2002. Our primary growth
vehicle will be the expansion of our strip center store base, which we believe
could grow to over 2,000 stores in the United States. Our strategy is to open
clusters of strip center stores in targeted major metropolitan markets under the
GameStop brand name. For example, we currently operate 17 stores in the Houston
metropolitan area and intend to operate a total of 31 stores in Houston by the
end of fiscal 2001. We analyze each market relative to target population and
other demographic indices, real estate availability, competitive factors and
past operating history, if available.

INCREASE COMPARABLE STORE SALES.  We plan to increase our comparable store sales
by capitalizing on the growth in the video game industry, expanding our sales of
used video game products and increasing awareness of the GameStop name.

     - Capitalize on Industry Growth.  In the first six months of 2001, our
       comparable store sales increased 22.6%, driven in large measure by the
       success of Sony PlayStation 2, which was launched in October 2000, and
       Nintendo Game Boy Advance, which was launched in June 2001. Over the next
       few years, we expect to continue to capitalize on the increasing
       installed base for both platforms, as well as the scheduled launch in
       late 2001 of the Microsoft Xbox and Nintendo GameCube platforms. We
       expect the launch of these four platforms and the related increase in the
       installed hardware base to drive significant growth in video game
       software and accessories sales over the next few years.

     - Increase Sales of Used Video Game Products.  We will continue to expand
       the selection and availability of used video game products in both our
       mall and strip center stores. Our strategy consists of increasing
       consumer awareness of the benefits of trading in and buying used video
       game products at our stores through increased marketing activities. We
       expect the launch of new platform technology to drive trade-ins of
       previous generation products, including Nintendo Game Boy Color and
       Nintendo 64, Sega Dreamcast and Sony PlayStation, thereby expanding the
       supply of used video game products.

     - Increase GameStop Brand Awareness.  We intend to increase customer
       awareness of the benefits of shopping in our stores. In connection with
       our rebranding efforts, we plan to enhance GameStop brand awareness by
       increasing the amount of media advertising in targeted markets, expanding
       our GameStop loyalty card program, aggressively promoting trade-ins of
       used video game products in our stores and leveraging our web site at
       gamestop.com.

MERCHANDISE

     Our product offerings consist of video game products, PC entertainment
software, and related products, such as action figures, trading cards and
strategy guides. We also market selected PC productivity and educational
software titles. Our in-store inventory generally consists of a constantly
changing selection of over 2,800 SKUs. We have a central buying group that
negotiates terms, discounts and cooperative advertising allowances for all of
our stores. We use customer requests and feedback, industry magazines and
product reviews to determine which new releases are expected to be hits. Call
lists and advance orders are tracked at individual stores to distribute titles
and capture demand effectively. This merchandise management is essential because
a significant portion of a game's sales are usually generated in the first days
and weeks following its release. We also carefully manage product pricing
utilizing a tiered
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pricing strategy that enables us to tailor pricing at our stores based on each
store's competitive environment.

VIDEO GAME HARDWARE.  We offer the video game platforms of all major
manufacturers, including Sony PlayStation 2 and PlayStation, Nintendo Game Boy
Advance, Game Boy Color and Nintendo 64, and Sega Dreamcast. When they are
introduced later this year, we intend to offer Microsoft Xbox and Nintendo
GameCube systems. We also offer extended service agreements on video game
hardware. In support of our strategy to be the destination location for
electronic game players, we aggressively promote the sale of video game
platforms. Video game hardware sales are generally driven by the introduction of
new platform technology and the reduction in price points as platforms mature.
Due to our strong relationships with the manufacturers of these platforms, we
often receive disproportionately large allocations of new release hardware
products which is an important component of our strategy to be the destination
of choice for electronic game players. We believe that selling video game
hardware increases store traffic and promotes customer loyalty, leading to
increased sales of video game software, which have higher gross margins than
video game hardware.

VIDEO GAME SOFTWARE.  We purchase video game software directly from the leading
manufacturers, including Sony, Nintendo and Sega, as well as over 44 third-party
game publishers, such as Electronic Arts, Inc., THQ Inc. and Activision, Inc. We
are one of the largest customers in the United States of video game titles sold
by these publishers. We carry over 1,000 SKUs at any given time across a variety
of genres, including Sports, Action, Strategy, Adventure/Role Playing and
Simulation.

USED VIDEO GAME PRODUCTS.  We are the largest retailer of used video games in
the United States. We provide our customers with an opportunity to trade in
their used video game products in our stores in exchange for store credits which
can be applied towards the purchase of other products, including new
merchandise. We have the largest selection (approximately 1,000 SKUs) of used
video game titles which have an average price of $16 as compared to $37 for new
video game titles and which generate significantly higher gross margins than new
video game products. Our trade-in program provides our customers with a unique
value proposition which is unavailable at mass merchants, toy stores and
consumer electronic retailers. This program provides us with an inventory of
used video game products which we resell to our more value-oriented customers.
In addition, our highly-customized inventory management system allows us to
actively manage the pricing and product availability of our used video game
products across our store base and to reallocate our inventory as necessary. Our
trade-in program also allows us to be one of the only suppliers of previous
generation platforms and related video games. We also operate a refurbishment
center where defective video game products can be tested, cleaned, relabeled,
repackaged, priced and redistributed back to our stores.

PC ENTERTAINMENT AND OTHER SOFTWARE.  We purchase PC entertainment software from
over 42 publishers, including Electronic Arts, Microsoft and Havas. We offer PC
entertainment software across a variety of genres, including Action, Simulation,
Sports, Strategy and Adventure/Role Playing. We also carry a limited assortment
of educational, productivity and reference titles.

ACCESSORIES AND OTHER PRODUCTS.  Video game accessories consist primarily of
controllers, memory cards and other add-ons. PC entertainment accessories
consist primarily of video cards, joysticks and modems. We also carry strategy
guides and magazines, as well as character-related merchandise, including action
figures and trading cards. We carry over 400 SKUs of accessories and other
products. In general, this category has higher margins than new video game and
PC entertainment products.

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     The following table sets forth sales mix, expressed as a percentage of net
sales for the periods indicated:
53 WEEKS ENDED      52 WEEKS ENDED
                                                FEBRUARY 3, 2001    JANUARY 29, 2000
                                                ----------------    ----------------
Video Games:*
  Video Game Hardware.........................        15.2%               11.4%
  Video Game Software.........................        49.0%               41.0%
PC Software:
  PC Entertainment Software...................        13.0%               15.8%
  Other Software..............................         3.6%                5.4%
Accessories and Other Products................        19.2%               26.4%
---------------
* Includes new and used merchandise.

STORE OPERATIONS

     As of August 4, 2001, we operated 990 stores, primarily under the GameStop,
Babbage's, Software Etc., and FuncoLand names. Each of our stores typically
carries over 2,800 SKUs. We design our stores to provide an electronic gaming
atmosphere with an engaging and visually captivating layout. Our stores are
equipped with several video game sampling areas, which provide our customers the
opportunity to play games before purchase, as well as equipment to play video
game clips. We use store configuration, in-store signage and product
demonstrations to produce marketing opportunities both for us and for our
vendors.

STORE FORMATS.

     - Mall-Based Stores.  Our mall-based stores, which average approximately
       1,200 square feet, carry primarily new video game products and PC
       entertainment software, as well as a limited selection of used video game
       products. We currently operate 534 mall stores in high traffic shopping
       malls in targeted locations throughout the United States, Puerto Rico and
       Guam.

     - Strip Center Stores.  Our strip center stores, which average
       approximately 1,500 square feet, carry a balanced mix of new and used
       video game products and, in selected stores, PC entertainment software.
       We currently operate 456 strip center stores in the United States. Our
       strip center stores are located in both high traffic "power strip
       centers" and local neighborhood strip centers, primarily in major
       metropolitan areas. These locations provide visibility, easy access and
       high frequency of visits. We target strip centers that are conveniently
       located, have a mass merchant or supermarket anchor tenant and have a
       high volume of customers.

STORE ECONOMICS.  Average annual sales per mall store were approximately $1.1
million in fiscal 2000, and the average cost to open a new mall store is
approximately $185,000, including $60,000 of inventory net of vendor financing.
Average annual sales per strip center store were approximately $600,000 in
fiscal 2000, and the average cost to open a new strip center store is
approximately $125,000, including $50,000 of inventory net of vendor financing.
We expect these costs to remain relatively constant throughout fiscal 2001. All
of our new stores, lease renewals, relocations and major remodels are evaluated
on the basis of their return on investment, strategic positioning and conditions
of the market. We generally achieve profitability in each of our new stores
within the first holiday season of opening.

SITE SELECTION AND LOCATIONS

SITE SELECTION.  We have a dedicated staff of real estate personnel experienced
in selecting store locations. Site selections for new stores are made after an
extensive review of demographic data and other information relating to market
potential, competitor access and visibility, compatible nearby tenants,
accessible parking, location visibility, lease terms and the location of our
other stores. Most of our stores are located in highly visible locations within
malls and strip centers.

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LOCATIONS.  The table below sets forth the number of our stores located in each
state, Puerto Rico and Guam as of August 4, 2001:
NUMBER
STATE                        OF STORES
-----                        ---------
Alabama....................       9
Alaska.....................       3
Arizona....................      17
Arkansas...................       4
California.................     110
Colorado...................      13
Connecticut................      17
Delaware...................       3
Florida....................      30
Georgia....................      21
Guam.......................       1
Hawaii.....................       8
Idaho......................       2
Illinois...................      51
Indiana....................      17
Iowa.......................       9
Kansas.....................       5
Kentucky...................      15
Louisiana..................      11
Maine......................       1
Maryland...................      29
Massachusetts..............      28
Michigan...................      48
Minnesota..................      22
Mississippi................       4
Missouri...................      21
NUMBER
STATE                        OF STORES
-----                        ---------
Montana....................       4
Nebraska...................       3
Nevada.....................       3
New Hampshire..............       5
New Jersey.................      50
New Mexico.................       4
New York...................      54
North Carolina.............      21
North Dakota...............       4
Ohio.......................      54
Oklahoma...................       9
Oregon.....................       6
Pennsylvania...............      48
Puerto Rico................       8
Rhode Island...............       1
South Carolina.............      11
South Dakota...............       2
Tennessee..................      20
Texas......................      84
Utah.......................       9
Virginia...................      35
Vermont....................       1
Washington.................      27
West Virginia..............       8
Wisconsin..................      20
GAME INFORMER

     We publish Game Informer, a monthly video game magazine featuring reviews
of new title releases, tips and secrets about existing games and news regarding
current developments in the electronic game industry. The magazine is sold
through subscription and through displays in our stores. For its August 2001
issue, the magazine had more than 290,000 paid subscriptions. Game Informer
revenues are also generated through the sale of advertising space. In addition,
we have recently begun offering the GameStop loyalty card as a bonus with each
paid subscription, providing our subscribers with a discount on selected
merchandise.

E-COMMERCE

     We operate an electronic commerce web site at www.gamestop.com that allows
our customers to buy video game products and other merchandise on-line. The site
also offers customers information and content about available games, release
dates for upcoming games, and access to store information, such as location and
product availability. In addition, the site offers the ability to register on a
call list in any store, enabling us to notify customers when a game arrives at a
nearby store.

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INFORMATION MANAGEMENT

     Our operating strategy involves providing a broad merchandise selection to
our customers as quickly and as cost-effectively as possible. We use our
inventory management systems to maximize the efficiency of the flow of products
to our stores, enhance store efficiency and optimize store in-stock and overall
investment in inventory.

DISTRIBUTION.  We operate a 210,000 square foot state-of-the-art distribution
center in Grapevine, Texas. By operating with a centralized distribution
facility, we effectively control and minimize inventory levels. A
technologically-advanced conveyor system and flow-through racks control costs
and improve speed of fulfillment. The technology used in the distribution center
allows for high-volume receiving, distributions to stores and returns to
vendors. Inventory is shipped to each store at least twice a week, or daily, if
necessary, in order to keep stores in supply of products. In order to support
our first-to-market distribution network, we utilize the services of 15
off-site, third-party operated distribution centers that pick up products from
our suppliers, repackage the products for each of our stores and ship those
products to our stores by package carriers. Our ability to rapidly process
incoming shipments of new release titles and distribute them to all of our
stores, either that day or by the next morning, enables us to meet peak demand
and replenish stores at least twice a week.

MANAGEMENT INFORMATION SYSTEMS.  Our proprietary inventory management system and
point of sale technology show daily sales and in-store stock by title by store.
Systems in place use these data to automatically generate replenishment
shipments to each store from our distribution center in Grapevine, Texas,
enabling each store to carry a merchandise assortment uniquely tailored to its
own sales mix and rate of sale. Our call lists and reservation system also
provide our centralized buying staff with information to determine order size
and inventory management for store-by-store inventory allocation. We constantly
review and edit our merchandise categories with the objective of ensuring that
inventory is up-to-date and meets customer needs. We use a centralized PC
network-based information system based in our corporate offices, in order to
minimize initial outlay of capital while allowing for flexibility and growth as
operations expand.

     Our in-store point-of-sale system enables us to efficiently manage in-store
transactions. This proprietary point-of-sale system has been enhanced to
facilitate trade-in transactions, including automatic look-up of trade-in prices
and printing of machine readable bar codes to facilitate in-store restocking of
used video games. In addition, our central database of all used video game
products allows us to actively manage the pricing and product availability of
our used video game products across our store base and re-allocate our used
video game products as necessary.

ADVERTISING

     Our stores are primarily located in high traffic, high visibility areas of
regional shopping malls and strip centers. Given the high foot traffic drawn
past the stores themselves, we use in-store marketing efforts such as window
displays and "coming soon" signs to attract customers, as well as to promote
used video game products and subscriptions to our Game Informer magazine. Inside
the stores, we feature selected products through the use of vendor displays,
"coming soon" or preview videos, signs, catalogs, point of purchase materials
and end-cap displays. These advertising efforts are designed to increase the
initial sales of new titles upon their release. We receive cooperative
advertising and market development funds from manufacturers, distributors,
software publishers and accessory suppliers to promote their respective
products. As part of our rebranding and targeted growth strategy, we also intend
to expand our advertising to other media, including print and radio.

FIELD MANAGEMENT AND STAFF

     Our store operations are managed regionally by nine store operations
directors. The regions are divided into 79 districts, each with a district
manager covering an average of 13 stores. Each store employs, on average, one
manager, one assistant manager and between two and ten sales associates, many of
whom are part-time employees. We have cultivated a work environment that
attracts employees who are

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actively interested in electronic games. We seek to hire and retain employees
who know and enjoy working with our products so that they are better able to
assist customers. To encourage them to sell the full range of our products, we
provide our employees with targeted incentive programs to drive sales. We also
provide our employees with the opportunity to take home and try new video games,
which enables them to better discuss those games with our customers. In
addition, employees are casually dressed to encourage customer access and
increase the "game-oriented" focus of the stores. We also employ nine regional
loss prevention managers who assist the field in implementing loss prevention.

     Stores communicate with our corporate offices via daily e-mail. This e-mail
allows for better tracking of trends in upcoming titles, competitor strategies
and in-stock inventory positions. In addition, this communication allows title
selection in each store to be continuously updated and tailored to reflect the
tastes and buying patterns of the store's local market. These communications
also give field management access to relevant inventory levels and loss
prevention information. We also sponsor an annual store managers conference to
which we invite all video game software publishers to attend and operate an
intense educational training program for our employees to provide our employees
with information about the video game products that will be released by those
publishers in the holiday season.

CUSTOMER SERVICE

     Our store personnel provide value-added services to each customer, such as
maintaining lists of regular customers, notifying each customer by phone when
new titles are available, and reserving new releases for customers with a down
payment to ensure product availability. In addition, our store personnel readily
provide product reviews to ensure customers are making informed purchasing
decisions and offering help-line numbers to increase a customer's enjoyment of
the product upon purchase.

VENDORS

     We purchase substantially all of our products from approximately 85
manufacturers and software publishers and approximately five distributors.
Purchases from the top five vendors accounted for approximately 49% of our
purchases in fiscal 2000. Only Sony, Nintendo and Electronic Arts (which
accounted for 14%, 11% and 11%, respectively) accounted for more than 10% of our
purchases during fiscal 2000. We have established price protections and return
privileges with our primary vendors in order to reduce the risk of inventory
obsolescence. In addition, we have no purchase contracts with trade vendors and
conduct business on an order-by-order basis, a practice that is typical
throughout the industry. We believe that maintaining and strengthening our
long-term relationships with our vendors is essential to our operations and
continued expansion. We believe that we have very good relations with our
vendors.

COMPETITION

     The electronic game industry is intensely competitive and subject to rapid
changes in consumer preferences and frequent new product introductions. We
compete with mass merchants and regional chains, including Wal-Mart, Kmart and
Target; other video game and PC software specialty stores located in malls and
other locations, including Electronics Boutique; toy retail chains, including
Toys 'R' Us and KB Toys; mail-order businesses; catalogs; direct sales by
software publishers; online retailers; and computer product and consumer
electronics superstores, including Best Buy and Circuit City. Best Buy recently
acquired Musicland, Inc., a music retail chain with over 1,300 stores primarily
located in shopping malls. Our business may be adversely affected to the extent
Best Buy substantially increases the availability of video game products in
these music stores. In addition, video games are available for rental from many
video stores and may also be distributed through other methods which may emerge
in the future. We also compete with sellers of used video game products.
Additionally, we compete with other forms of entertainment activities, including
movies, television, theater, sporting events and family entertainment centers.

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PROPERTIES

     All of our stores are leased. Store leases typically provide for an initial
lease term of three to ten years, plus renewal options. This arrangement gives
us the flexibility to pursue extension or relocation opportunities that arise
from changing market conditions. We believe that, as current leases expire, we
will be able to obtain either renewals at present locations or leases for
equivalent locations in the same area.

     In addition to our stores, we lease a 250,000 square foot headquarters and
distribution center in Grapevine, Texas. This lease expires on January 31, 2006.
We have the right to renew the lease for an additional five years.

TRADEMARKS

     We have a number of trademarks and servicemarks, including "GameStop,"
"Game Informer," "Babbage's" and "FuncoLand," all of which have been registered
by us with the United States Patent and Trademark Office. We maintain a policy
of pursuing registration of our principal marks and opposing any infringement of
our marks.

EMPLOYEES

     We have approximately 1,300 full-time salaried, 1,200 full-time hourly and
between 5,000 and 12,000 part-time hourly employees depending on the time of
year. Fluctuation in the number of part-time hourly employees is due to the
seasonality of the electronic game industry. We believe that our relationship
with our employees is excellent, and none of our employees is represented by a
labor union or is a member of a collective bargaining unit.

LEGAL PROCEEDINGS

     In the ordinary course of our business, we are from time to time subject to
various legal proceedings. We do not believe that any current legal proceedings,
individually or in the aggregate, will have a material adverse effect on our
operations or financial condition.

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                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth the names and ages of our directors and
executive officers and the positions they hold:
NAME                                                 AGE                     POSITION
----                                                 ---                     --------
R. Richard Fontaine................................   59    Chairman of the Board and Chief Executive
                                                            Officer and Director
Daniel A. DeMatteo.................................   53    President and Chief Operating Officer
David W. Carlson...................................   38    Executive Vice President, Chief Financial
                                                            Officer and Assistant Secretary
John W. Woodson....................................   38    President of Strip Center Stores
Leonard Riggio.....................................   60    Director
Michael N. Rosen...................................   60    Secretary and Director
R. RICHARD FONTAINE is our Chief Executive Officer and a director. Mr.
Fontaine has served in the same capacities for GameStop, Inc. since its
acquisition by Barnes & Noble in June 2000. Upon completion of this offering,
Mr. Fontaine will be our Chairman of the Board. Mr. Fontaine has also been Chief
Executive Officer of Babbage's Etc. since its formation in November 1996. Mr.
Fontaine also served as President of Software Etc. from 1987 to 1991 and as a
director of NeoStar from 1994 until it filed for bankruptcy protection in
September 1996. Mr. Fontaine has had extensive retail experience as the former
president of B. Dalton Bookseller, Inc., both prior to and after its acquisition
by Barnes & Noble in 1986, and has held positions at Michaels Stores Inc. and
Ingram Distribution.

     DANIEL A. DEMATTEO is our President and Chief Operating Officer. Mr.
DeMatteo has served in the same capacities for GameStop, Inc. since its
acquisition by Barnes & Noble in June 2000. Mr. DeMatteo has also been President
and Chief Operating Officer of Babbage's Etc. since its formation in November
1996. Mr. DeMatteo also served as Executive Vice President of NeoStar from
December 1994 until May 1996 and as a director of Neostar from 1994 until it
filed for bankruptcy protection in September 1996. Mr. DeMatteo has also served
in various positions with B. Dalton, most recently as Vice President of MIS.
Prior to joining B. Dalton, Mr. DeMatteo was the Vice President of MIS for Super
Valu Inc.

     DAVID W. CARLSON is our Executive Vice President, Chief Financial Officer
and Assistant Secretary. Mr. Carlson has served in the same capacities for
GameStop, Inc. since its acquisition by Barnes & Noble in June 2000. Mr. Carlson
has also been Vice President and Chief Financial Officer of Babbage's Etc. since
its formation in November 1996. Mr. Carlson has held various positions within
Barnes & Noble since 1989, including Director of Finance, Director of Accounting
and Manager of Financial Reporting. Prior to 1989, Mr. Carlson held various
positions with the public accounting firm of KPMG Peat Marwick.

     JOHN W. WOODSON has been our President of Strip Center Stores since June
2000. From August 1999 to June 2000, Mr. Woodson was Vice President of
CompUSA.com, and from July 1997 to August 1999, he served as the Senior Vice
President of Retail Marketing at Associates First Capital. Prior to that, Mr.
Woodson was Vice President of Technology for Key Corp.

     LEONARD RIGGIO is a director. Since its acquisition by Barnes & Noble, Mr.
Riggio has also been the Chairman of the Board of GameStop, Inc. and Chairman of
the Board of Babbage's Etc., a company Mr. Riggio formed in November 1996. Mr.
Riggio has also been Chairman of the Board, Chief Executive Officer and a
principal stockholder of Barnes & Noble since its inception in 1986. In
addition, Mr. Riggio has been Chairman of the Board of barnesandnoble.com inc.
(Barnes & Noble.com) since its inception in February 1997. Since 1965, Mr.
Riggio has been Chairman of the Board, Chief Executive Officer and the principal
stockholder of Barnes & Noble College Bookstores, Inc. one of the largest
operators of college

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bookstores in the country. Since 1985, Mr. Riggio has been Chairman of the Board
and a principal beneficial owner of MBS Textbook Exchange, Inc., one of the
nation's largest wholesalers of college textbooks.

     MICHAEL N. ROSEN is our Secretary and a director. Mr. Rosen has served in
the same capacities for GameStop, Inc. since its acquisition by Barnes & Noble
in June 2000. Mr. Rosen has also been Secretary of Babbage's Etc. since its
acquisition by Barnes & Noble in October 1999. Mr. Rosen has been Chairman of
Robinson Silverman Pearce Aronsohn & Berman LLP, counsel to our company, for
more than the past five years. Mr. Rosen is also a director of Barnes & Noble
and Barnes & Noble.com.

BOARD OF DIRECTORS

     Our board of directors currently consists of three directors. Prior to the
completion of this offering, we expect to appoint additional directors.

     Our certificate of incorporation divides our board of directors into three
classes: Class I, whose terms will expire at the annual meeting of stockholders
to be held in 2002, Class II, whose terms will expire at the annual meeting of
stockholders to be held in 2003, and Class III, whose terms will expire at the
annual meeting of stockholders to be held in 2004. Michael N. Rosen is in Class
I; R. Richard Fontaine is in Class II; and Leonard Riggio is in Class III. At
each annual meeting of stockholders beginning in 2002, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.

     In addition, our certificate of incorporation provides that the authorized
number of directors may be changed only by resolution of the board of directors.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total number of directors.

EXECUTIVE OFFICERS

     Our executive officers are elected by our board of directors on an annual
basis and serve until the next annual meeting of our board of directors or until
their successors have been duly elected and qualified.

BOARD COMMITTEES

     Effective upon the completion of this offering, we will establish an audit
committee and a compensation committee. The audit committee will select, subject
to stockholders' approval, the independent public accountants to audit our
annual financial statements and will establish the scope of, and oversee, the
annual audit. The compensation committee will make recommendations to our board
regarding the approval of employment agreements, management and consultant
hiring and executive compensation.

     The audit committee and the compensation committee will each consist of
three directors who meet all requirements imposed by Securities and Exchange
Commission rules and regulations or rules and regulations of any exchange or
trading system on which our securities are listed. The audit committee will be
composed of three independent directors, each of whom will be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement and statement of cash flows. In addition, at least one
member of the audit committee will have had past employment experience in
accounting or finance, including a current or past position as a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities. In keeping with Nasdaq National Market listing
requirements, our board of directors will adopt a charter for our audit
committee. We will file this charter at least once every three years as an
appendix to the annual proxy statement that we will file with the Securities and
Exchange Commission.

     Our board may establish other committees from time to time to facilitate
the management of the business and affairs of our company.

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COMPENSATION OF DIRECTORS

     Directors who are not employees or officers of our company or Barnes &
Noble will receive compensation in amounts to be determined. In addition, we
will reimburse our directors for expenses in connection with attendance at board
and committee meetings. Other than with respect to reimbursement of expenses,
directors who are our employees or officers will not receive additional
compensation for their services as directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Following this offering, we will establish a compensation committee. None
of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee, except
that Leonard Riggio, one of our directors, is also the Chairman of the Board of
Barnes & Noble and Michael Rosen, our Secretary and a director, is also the
Secretary and a director of Barnes & Noble.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Our certificate of incorporation limits the liability of our directors and
executive officers for monetary damages for breach of their fiduciary duties to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:

     - any breach of their duty of loyalty to our company or our stockholders;

     - acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

     - unlawful payments of dividends or unlawful stock repurchases or
       redemptions as provided in Section 174 of the Delaware General
       Corporation Law; or

     - any transaction from which the director derived an improper personal
       benefit.

     The limits on a director's or officer's liability in our certificate of
incorporation do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies such as injunctive
relief or rescission.

     The effect of these provisions will be to eliminate our rights and those of
our stockholders, through stockholders' derivative suits on behalf of our
company, to recover monetary damages against a director for breach of fiduciary
duty as a director, including breaches resulting from grossly negligent
behavior, except in the situations described above. Our by-laws provide for
indemnification of directors and officers to the maximum extent permitted by
Delaware law.

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STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

     All of our stock is currently owned by Barnes & Noble and, therefore, none
of our officers or directors owns any of our common stock. Our officers and
directors own options to acquire our common stock.

     The following table sets forth the number of shares of Barnes & Noble
common stock and currently exercisable options to purchase such stock
beneficially owned on August 24, 2001 by each director and each of the executive
officers named in the summary compensation table in the "Executive Compensation"
section, and all of our directors and executive officers as a group. Except as
otherwise noted, the individual director or executive officer or his family
members had sole voting and investment power with respect to the identified
securities. The total number of shares of Barnes & Noble common stock
outstanding as of August 22, 2001 was 66,906,747.
SHARES BENEFICIALLY OWNED
                                                              ---------------------------
                                                              BARNES & NOBLE COMMON STOCK
                                                              ---------------------------
                                                              NUMBER OF     PERCENTAGE OF
NAME                                                          SHARES(1)         CLASS
----                                                          ----------    -------------
R. Richard Fontaine.........................................       1,307(2)         *
Daniel A. DeMatteo..........................................       1,089(2)         *
David W. Carlson............................................       5,397(3)         *
John W. Woodson.............................................          --           --
Leonard Riggio..............................................  14,569,722(4)      21.4%
Michael N. Rosen............................................      62,000(5)         *
All directors and executive officers as a group (6
  persons)..................................................  14,639,515         21.4%
---------------
 *  Less than one percent.

(1) Includes options exercisable within 60 days following August 22, 2001.

(2) All of these shares are issuable upon exercise of stock options.

(3) Of these shares, 747 shares are issuable upon exercise of stock options.

(4) Includes (i) 2,652,334 shares owned by Barnes & Noble College Bookstores,
    Inc. (Mr. Riggio owns all of the voting securities of Barnes & Noble
    College), (ii) 1,181,500 shares owned by The Riggio Foundation, a charitable
    trust established by Mr. Riggio, with himself and his wife as trustees, and
    (iii) 1,318,750 shares issuable upon the exercise of stock options. The
    shares of common stock owned by Mr. Riggio are, and in the future may be,
    pledged as collateral for certain loans, including loans which were used to
    purchase common stock. The failure of Mr. Riggio to repay such loans,
    together with any sale by the pledgees of the pledged common stock, could
    result in a change of control of Barnes & Noble.

(5) Of these shares, 50,000 shares are issuable upon the exercise of stock
    options. Of the other 12,000 shares, 10,000 shares are owned by Mr. Rosen's
    wife and 2,000 shares are owned by Mr. Rosen's daughter. Mr. Rosen disclaims
    any beneficial ownership of those shares.

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EXECUTIVE COMPENSATION

     The following table sets forth the compensation earned during the years
indicated by our chief executive officer and our other three most highly
compensated executive officers. All information set forth in this table reflects
compensation earned by the named individuals for services with Barnes & Noble
and its subsidiaries.
LONG-TERM
                                                                                     COMPENSATION
                                                                                        AWARDS
                                                                                -----------------------
                                                                                             SECURITIES
                                                                                             UNDERLYING
                                                                                SECURITIES     BARNES
                                                 ANNUAL COMPENSATION            UNDERLYING       &
                                        -------------------------------------    GAMESTOP      NOBLE       ALL OTHER
NAME AND                      FISCAL     SALARY     BONUS      OTHER ANNUAL      OPTIONS      OPTIONS     COMPENSATION
PRINCIPAL POSITION             YEAR       ($)        ($)      COMPENSATION(1)     (SHS.)       (SHS.)         ($)
------------------            ------    --------   --------   ---------------   ----------   ----------   ------------
R. Richard Fontaine.........   2000     $328,933         --         --            62,500          --               --
  Chief Executive              1999      302,885   $210,000         --                --       5,229       $6,048,085(2)(3)(5)
  Officer                      1998      302,885    359,417         --                --          --           20,905(2)(5)
Daniel A. DeMatteo..........   2000      274,111         --         --            62,500          --               --
  President and                1999      252,404    175,000         --                --       4,358        6,040,883(2)(3)(5)
  Chief Operating              1998      252,404    306,917         --                --          --           14,873(2)(5)
  Officer
David W. Carlson............   2000      187,962         --         --            50,000          --            6,500(2)
  Executive Vice               1999      172,500     84,000         --                --       2,988        3,762,324(2)(4)(6)
  President, Chief             1998      156,346    125,000         --                --          --           10,707(2)(6)
  Financial Officer and
  Assistant Secretary
John W. Woodson.............   2000(7)   134,615    100,000         --            50,000          --           62,820
  President of Strip           1999           --         --                           --          --               --
  Center Stores                1998           --         --         --                --          --               --
---------------
(1) None of the perquisites or other benefits paid to each named executive
    officer exceeded the lesser of $50,000 or 10% of the total annual salary and
    bonus received by each named executive officer.

(2) Includes contributions under our 401(k) plan.

(3) Includes a $6,025,000 bonus in connection with the sale of Babbage's Etc. to
    Barnes & Noble.

(4) Includes a $3,750,000 bonus in connection with the sale of Babbage's Etc. to
    Barnes & Noble.

(5) Includes insurance premiums paid by us.

(6) Includes automobile expenses paid by us.

(7) Mr. Woodson commenced employment with us in June 2000. His annual salary was
    $250,000 for fiscal 2000. Mr. Woodson also received a signing bonus upon the
    commencement of his employment with us.

GRANTS OF STOCK OPTIONS IN LAST FISCAL YEAR

     The following table shows all grants of options to acquire shares of Barnes
& Noble common stock and our Class A common stock granted to the executive
officers named in the summary compensation table in the "Executive Compensation"
section for the year ended February 3, 2001. There were no grants of options to
the named executive officers to acquire shares of Barnes & Noble common stock in
fiscal 2000. The potential realizable value is calculated based on the term of
the option at its date of grant. It is calculated assuming that the fair market
value of Barnes & Noble common stock and our Class A common stock on the date of
grant appreciates at the indicated annual rates compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the

                                        44
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appreciated stock. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect our estimate of future
stock price growth.
POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED
                                                                                             ANNUAL RATES OF
                                           % OF                                                STOCK PRICE
                            NUMBER OF      TOTAL                                              APPRECIATION
                            SECURITIES    OPTIONS    EXERCISE     MARKET                     FOR OPTION TERM
                            UNDERLYING    GRANTED     OR BASE    PRICE ON                -----------------------
                             OPTIONS     IN FISCAL     PRICE     DATE OF    EXPIRATION       5%          10%
                             GRANTED       YEAR      ($/SHS.)     GRANT        DATE         ($)          ($)
                            ----------   ---------   ---------   --------   ----------   ----------   ----------
R. Richard Fontaine
  GameStop Class A common
     stock................    62,500       12.53%     $31.74      $31.74     12/5/10     $1,247,570   $3,161,587
Daniel A. DeMatteo
  GameStop Class A common
     stock................    62,500       12.53       31.74       31.74     12/5/10      1,247,570    3,161,587
David W. Carlson
  GameStop Class A common
     stock................    50,000       10.03       31.74       31.74     12/5/10        998,056    2,529,269
John W. Woodson
  GameStop Class A common
     stock................    50,000       10.03       31.74       31.74     12/5/10        998,056    2,529,269
FISCAL YEAR END OPTION VALUE

     The following table provides information for the executive officers named
in the summary compensation table in the "Executive Compensation" section
regarding exercises of options to purchase shares of Barnes & Noble common stock
and options to purchase shares of our Class A common stock during the year ended
February 3, 2001 and Barnes & Noble options and our options held as of February
3, 2001 by any of our named executive officers. There were no options to
purchase shares of Barnes & Noble common stock or our Class A common stock
exercised in fiscal 2000. The values in the table have been calculated on the
basis of the fair market value of the shares of Barnes & Noble common stock and
our Class A common stock, as the case may be, on February 3, 2001, less the
applicable exercise price.
VALUE OF UNEXERCISED
                                                      NUMBER OF SECURITIES          IN-THE-MONEY OPTIONS
                                                     UNDERLYING UNEXERCISED               AT FISCAL
                                                   OPTIONS AT FISCAL YEAR END          YEAR END(1)(2)
                                                   ---------------------------   ---------------------------
                                                   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
                                                   -----------   -------------   -----------   -------------
                                                             (SHS.)                          ($)
R. Richard Fontaine
  Barnes & Noble common stock....................     1,307          3,922         $ 8,211        $24,640
  GameStop Class A common stock..................        --         62,500              --             --
Daniel A. DeMatteo
  Barnes & Noble common stock....................     1,089          3,269           6,842         20,537
  GameStop Class A common stock..................        --         62,500              --             --
David W. Carlson
  Barnes & Noble common stock....................     5,738          3,405          47,122         24,084
  GameStop Class A common stock..................        --         50,000              --             --
John W. Woodson
  Barnes & Noble common stock....................        --             --              --             --
  GameStop Class A common stock..................        --         50,000              --             --
---------------
(1) The closing price of Barnes & Noble common stock on February 3, 2001 was
    $25.72 per share.

(2) There was no public trading market for our common stock as of February 3,
    2001. Accordingly, these values have been calculated based on our board's
    determination of the fair market value of the underlying shares as of
    February 3, 2001 of $31.74 per share, less the applicable price per share,
    multiplied by the number of shares.

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STOCK INCENTIVE PLAN

GENERAL.  We have issued stock options to our employees under our 2001 Incentive
Plan. The 2001 Incentive Plan provides for the grant of options to key officers,
employees, consultants, advisors and directors of our company and our parent,
our subsidiaries and affiliates selected from time to time by our compensation
committee. The purpose of the 2001 Incentive Plan is to assist us in attracting
and retaining selected individuals to serve as directors, officers, consultants,
advisors and employees who will contribute to our success and to achieve
long-term objectives which will inure to the benefit of all our stockholders
through the additional incentive inherent in the ownership of our Class A common
stock. Awards under the 2001 Incentive Plan may take the form of stock options,
including corresponding share appreciation rights ("SARs") and reload options,
restricted stock awards and stock purchase awards.

OPTIONS AVAILABLE AND OUTSTANDING.  A total of                shares of Class A
common stock are currently subject to outstanding options. The maximum number of
shares that may be the subject of awards under the 2001 Incentive Plan is
               shares and in any given year, the maximum number of shares with
respect to which options or SARs may be granted to any employee is
               shares.

2001 INCENTIVE PLAN ADMINISTRATION.  Our compensation committee will administer
the 2001 Incentive Plan. Subject to the provisions of the 2001 Incentive Plan,
the compensation committee has authority, in its sole discretion, to grant
awards under the 2001 Incentive Plan, to interpret the provisions of the 2001
Incentive Plan and, subject to the requirements of applicable law, to prescribe,
amend, and rescind rules and regulations relating to the 2001 Incentive Plan or
any award thereunder as it may deem necessary or advisable.

OPTIONS.  The 2001 Incentive Plan permits the granting of "incentive stock
options" meeting the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, which we refer to as the Code, and "nonqualified stock
options" that do not meet such requirements. The term of each option is
determined by the compensation committee, but no incentive stock option may be
exercised more than ten years after the date of grant. Options may also be
subject to restrictions on exercise, such as exercise in periodic installments,
as determined by the compensation committee. In general, the exercise price for
incentive stock options must be at least equal to 100% of the fair market value
of the shares on the date of the grant and the exercise price for nonqualified
stock options will be determined by the compensation committee at the time of
the grant. The exercise price can be paid in cash, or if approved by the
compensation committee, by delivery of a promissory note, by tendering shares
owned by the participant, or any combination of the foregoing. Options are not
transferable except by will or the laws of descent and distribution and may
generally be exercised only by the participant (or his guardian or legal
representative) during his or her lifetime, provided, however, the nonqualified
stock options may, under certain circumstances, be transferable to family
members and trusts for the benefit of the participant or his family members.
Immediately prior to the completion of this offering, we will issue options to
purchase shares of our Class A common stock in replacement of options previously
issued to purchase common stock of GameStop, Inc. The replacement options will
have the same economic and vesting terms as the options they replace.

SHARE APPRECIATION RIGHTS.  The 2001 Incentive Plan provides that SARs may be
granted in connection with the grant of options. Each SAR must be associated
with a specific option and must be granted at the time of grant of such option.
A SAR is exercisable only to the extent the related option is exercisable. Upon
the exercise of a SAR, the recipient is entitled to receive from us up to, but
no more than, an amount in cash or shares equal to the excess of (i) the fair
market value of one share on the date of such exercise over (ii) the exercise
price of any related option, multiplied by the number of shares in respect of
which such SAR shall have been exercised. Upon the exercise of a SAR, the
related option, or the portion thereof in respect of which such SAR is
exercised, will terminate. Upon the exercise of an option granted in tandem with
a SAR, such tandem SAR will terminate.

RELOAD OPTIONS.  The compensation committee may grant, concurrently with the
award of any option, a reload option to purchase for cash or shares a number of
shares equal to (i) the number of shares

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51

delivered by the participant to us to exercise the underlying option and (ii)
the number of shares used to satisfy any tax withholding requirement incident to
the exercise of the underlying option. Although an underlying option may be an
incentive stock option, a reload option is not intended to qualify as an
incentive stock option. A reload option will have the same expiration date as
the underlying option and an exercise price equal to the fair market value of
the shares on the date the underlying option is exercised. A reload option is
exercisable six months from the date of grant.

RESTRICTED STOCK.  The compensation committee may award restricted shares under
the 2001 Incentive Plan. Restricted shares give a participant the right to
receive shares subject to a risk of forfeiture based upon certain conditions.
The forfeiture restrictions on the shares may be based upon performance
standards, length of service or other criteria as the compensation committee may
determine. Until all restrictions are satisfied, lapsed or waived, we will
maintain custody over the restricted shares but the participant will be able to
vote the shares and will be entitled to all distributions paid with respect to
the shares, as provided by the compensation committee. During such restrictive
period, the restricted shares may not be sold, assigned, transferred, pledged or
otherwise encumbered. Upon termination of employment, the participant forfeits
the right to the shares to the extent the applicable performance standards,
length of service requirements, or other measurement criteria have not been met.

STOCK PURCHASE AWARDS.  The 2001 Incentive Plan also permits the grant of stock
purchase awards. Participants who are granted a stock purchase award are
provided with a loan to enable them to pay the purchase price for the shares
acquired pursuant to the award. The compensation committee will determine the
term of a stock purchase loan. The purchase price of shares acquired with a
stock purchase loan is the price equal to the fair market value on the date of
the award. The 2001 Incentive Plan provides that up to 100% of the stock
purchase loan may be forgiven over the loan term subject to such terms and
conditions as the compensation committee shall determine, provided that the
participant has not resigned as an employee of our company. At the end of the
loan term, the unpaid balance of the stock purchase loan will be due and
payable. The compensation committee will determine the interest rate, if any, on
a stock purchase loan. Stock purchase loans will be secured by a pledge to us of
the shares purchased pursuant to the stock purchase award and such loans will be
recourse or non-recourse as determined by the compensation committee.

ANTIDILUTION PROVISIONS.  The compensation committee may adjust the number of
shares authorized to be issued under the 2001 Incentive Plan and subject to
outstanding awards (and the grant or exercise price thereof) to prevent dilution
or enlargement of rights in the event of any dividend or other distribution,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of shares
or other securities, the issuance of warrants or other rights to purchase shares
or other securities, or other similar capitalization change.

TERMINATION AND AMENDMENT.  The 2001 Incentive Plan will terminate by its terms
and without any action by the Board of Directors in 2011. No awards may be made
after that date. Awards outstanding on such termination date will remain valid
in accordance with their terms.

     The compensation committee may alter, amend, suspend or terminate the 2001
Incentive Plan as it deems advisable, subject to any requirement for stockholder
approval imposed by applicable law, including Sections 162(m) and 422 of the
Code, or any rule of any stock exchange or quotation system on which shares are
listed or quoted; provided that the compensation committee may not amend the
2001 Incentive Plan, without the approval of our stockholders, to increase the
number of shares that may be the subject of options under the 2001 Incentive
Plan.

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OPTIONS GRANTED

     The following table sets forth the number of shares of our Class A common
stock subject to options that will be outstanding upon completion of this
offering by the directors, named executive officers and all of our officers and
directors as a group:
NUMBER OF
NAME                                                           SHARES
----                                                          ---------
Leonard Riggio..............................................   500,000
R. Richard Fontaine.........................................    62,500
Daniel A. DeMatteo..........................................    62,500
David W. Carlson............................................    50,000
John W. Woodson.............................................    50,000
All of our current executive officers and directors, as a
  group (5 persons).........................................   725,000
Because outstanding options may be forfeited upon the occurrence of certain
events, such as termination of employment, and because we intend to award
options on a discretionary basis in the future, we cannot determine the number
of shares that may be purchased under the plan by our executive officers.

                             PRINCIPAL STOCKHOLDER

     Prior to this offering of Class A common stock, all of the outstanding
shares of our common stock were owned indirectly by Barnes & Noble, a publicly
held company that is listed on the New York Stock Exchange under the symbol
"BKS." Except for Barnes & Noble, no one owns any shares of our common stock at
this time. After the offering, Barnes & Noble will beneficially own 100% of the
outstanding Class B common stock, which will represent   % of the combined
voting power of all classes of our voting stock, or   % of the combined voting
power of all classes of our voting stock if the underwriters exercise their
over-allotment option in full. Leonard Riggio, one of our directors, currently
has options to purchase shares of our Class A common stock, which upon exercise,
will represent   % of our outstanding common stock. Except for Barnes & Noble
and Leonard Riggio, we are not aware of any person or group that will
beneficially own more than 5% of the outstanding shares of our common stock
following the offering. As of        , 2001, Leonard Riggio owned approximately
  % of the outstanding common stock of Barnes & Noble.

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                              CERTAIN TRANSACTIONS

AGREEMENTS WITH BARNES & NOBLE

     Prior to the consummation of this offering, we will enter into various
agreements with Barnes & Noble relating to our relationship with Barnes & Noble
following the completion of this offering.

SEPARATION AGREEMENT

     We will enter into a "separation agreement" with Barnes & Noble, which
governs our respective rights and duties with respect to this offering and the
possible distribution to Barnes & Noble stockholders of its shares of our
capital stock, if any, and contains covenants designed to facilitate such a
distribution and to protect its intended tax-free nature. However, we cannot
assure you as to whether or when such a distribution will occur.

     If Barnes & Noble decides to pursue a distribution to its stockholders, we
have agreed that we will cooperate with Barnes & Noble in all respects to
accomplish a distribution and, at Barnes & Noble's direction, promptly take all
actions necessary or desirable to effect a distribution to Barnes & Noble
stockholders, including the registration under the Securities Act of 1933, as
amended, of Barnes & Noble's shares of our capital stock.

     We have also agreed that, as a result of the ownership by Barnes & Noble of
a significant portion of our common stock and in order for Barnes & Noble to
pursue a distribution to Barnes & Noble stockholders of our common stock which
would qualify as a tax-free distribution under Section 355 of the Code to Barnes
& Noble and its stockholders (Section 355 distribution), we will not take
certain actions without the approval of Barnes & Noble, including:

     - issuing or agreeing to issue shares of our capital stock in an amount
       that would result in Barnes & Noble ceasing to own an amount of our
       capital stock which constitutes "control" for purposes of Section 368(c)
       of the Code or any successor statute or provision, as such definition may
       be amended from time to time;

     - until two years after a Section 355 distribution, entering into or
       permitting any transaction or series of transactions which would result
       in a person or persons acquiring or having the right to acquire shares of
       our capital stock that would comprise 50% or more of either the value of
       all outstanding shares of our capital stock or the total combined voting
       power of our outstanding voting stock; and

     - until two years after a Section 355 distribution, liquidating, disposing
       of, or otherwise discontinuing the conduct of any portion of our active
       trade or business.

     We have generally agreed to indemnify Barnes & Noble and its affiliates
against any and all tax-related losses incurred by Barnes & Noble in connection
with any proposed tax assessment or tax controversy with respect to a Section
355 distribution to Barnes & Noble stockholders to the extent caused by any
breach by us of any of our representations, warranties or covenants made in the
separation agreement. This indemnification does not apply to actions which
Barnes & Noble permits us to take as a result of a determination under the
tax-related covenants described above.

     In addition, we have agreed that, so long as Barnes & Noble owns at least
50% of our existing common stock, we will not, without their approval:

     - take any action which has the effect of limiting Barnes & Noble's ability
       to freely sell, pledge or otherwise dispose of shares of our common stock
       or limiting the legal rights of or denying any benefit to Barnes & Noble
       as a stockholder of us in a manner not applicable to our stockholders
       generally;

     - issue any shares of common stock or any rights, warrants or options to
       acquire our common stock, if after giving effect to such issuance, Barnes
       & Noble would own less than 50% of the then outstanding shares of our
       common stock; or

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54

     - to the extent that Barnes & Noble is a party to, or enters into, any
       agreements that provide that actions of its subsidiaries may result in
       its being in breach or default under any agreement, and we have been
       advised of the existence of these agreements, take any actions that may
       result in Barnes & Noble being in breach or default.

     In addition, we have agreed that, for so long as Barnes & Noble is required
to consolidate our results of operations and financial position or account for
its investment in our company, we will (1) provide Barnes & Noble with financial
information regarding our company and our subsidiaries, copies of all quarterly
and annual financial information and other reports and documents we intend to
file with the SEC prior to such filings, as well as final copies upon filing and
copies of our budgets and financial projections, as well as the opportunity to
meet with our management to discuss such budgets and projections; (2) consult
with Barnes & Noble regarding the timing and content of earnings releases; (3)
cooperate fully, and cause our accountants to cooperate fully, with Barnes &
Noble in connection with any of its public filings; (4) use our best efforts to
enable our auditors to complete their audit of our financial statements such
that they will date their opinion the same date that they date their opinion on
Barnes & Noble's financial statements; (5) provide to Barnes & Noble and its
auditors all information required for Barnes & Noble to meet its schedule for
the filing and distribution of its financial statements; (6) make available to
Barnes & Noble and its auditors work papers related to the annual audit of our
company as well as access to the personnel who perform the annual audit and our
and our subsidiaries' books and records so that Barnes & Noble and its auditors
may conduct reasonable audits relating to our financial statements; (7) adhere
to generally accepted accounting principles, applied in a manner consistent with
Barnes & Noble; and (8) notify and consult with Barnes & Noble regarding any
changes to our accounting principles.

     We have generally agreed to indemnify Barnes & Noble and its affiliates
against all liabilities arising out of any incorrect, inaccurate or incomplete
financial or other information we provide to Barnes & Noble pursuant to the
terms of the separation agreement.

INSURANCE AGREEMENT

     We will enter into an "insurance agreement" with Barnes & Noble, pursuant
to which Barnes & Noble will allow us to participate in Barnes & Noble's
worker's compensation, property and general liability insurance programs. In
fiscal 2000, as a subsidiary of Barnes & Noble, Barnes & Noble allocated
approximately $632,000 to us in relation to our insurance program. For the first
six months of fiscal 2001, Barnes & Noble allocated approximately $618,000 to us
in relation to our insurance program.

     The insurance agreement will remain in force unless terminated:

     - by mutual agreement of us and Barnes & Noble;

     - by us, as to all or any portion of the services upon not less than 60
       days' prior notice;

     - by Barnes & Noble upon not less than 180 days' prior notice;

     - by either us or Barnes & Noble because of an uncured default by either of
       us;

     - by declaration of the agreement's invalidity under applicable law or
       force majeure; or

     - automatically, in the event of the bankruptcy or a change of control of
       either us or Barnes & Noble.

OPERATING AGREEMENT

     We will enter into an "operating agreement" with Barnes & Noble, pursuant
to which we will operate the existing video game departments in 12 Barnes &
Noble stores. We will pay Barnes & Noble a licensing fee equal to 7.5% of the
aggregate gross sales of each such department. In fiscal 2000 and for the first
six months of fiscal 2001, Barnes & Noble allocated approximately $886,000 and
$421,000, respectively, to us in connection with our operation of such
departments in Barnes & Noble stores.

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55

     The operating agreement will remain in force unless terminated:

     - by mutual agreement of us and Barnes & Noble;

     - automatically, in the event that we no longer operate any department
       within Barnes & Noble's stores;

     - by us or Barnes & Noble, with respect to any department, upon not less
       than 30 days prior notice;

     - by Barnes & Noble because of an uncured default by us;

     - automatically, with respect to any department, if the applicable store
       lease in which we operate that department expires or is terminated prior
       to its expiration date; or

     - automatically, in the event of the bankruptcy or a change in control of
       either us or Barnes & Noble.

TAX DISAFFILIATION AGREEMENT

     We will enter into a "tax disaffiliation agreement" with Barnes & Noble
which governs the allocation of federal, state, local and foreign tax
liabilities and contains agreements with respect to other tax matters arising
prior to and after the date of this offering. The tax disaffiliation agreement
becomes effective at the time of the offering and, among other things, sets
forth the procedures for amending returns filed prior to the date of this
offering, tax audits and contests and record retention. In general, we are
responsible for filing and paying our separate taxes for periods after the
offering and Barnes & Noble is responsible for filing and paying its separate
taxes for periods after the offering. In general, with respect to consolidated
or combined returns that include Barnes & Noble and us prior to the offering,
Barnes & Noble is responsible for filing and paying the related tax liabilities
and will retain any related tax refunds.

     Under the tax disaffiliation agreement, without the prior written consent
of Barnes & Noble, we may not amend any tax return for a period in which we were
a member of Barnes & Noble's consolidated tax group. Barnes & Noble has the sole
right to represent the interests of its consolidated tax group, including our
company, in any tax audits, litigation or appeals that involve, directly or
indirectly, periods prior to the time that we ceased to be a member of their
consolidated tax group (the date of this offering), unless we are solely liable
for the taxes at issue and any redetermination of taxes would not result in any
additional tax liability or detriment to any member of Barnes & Noble's
consolidated tax group. In addition, we and Barnes & Noble have agreed to
provide each other with the cooperation and information reasonably requested by
the other in connection with the preparation or filing of any amendment to any
tax return, the determination and payment of any amounts owed relating to
periods prior to the date of this offering and in the conduct any tax audits,
litigation or appeals.

     We and Barnes & Noble have agreed to indemnify each other for tax or other
liabilities resulting from the failure to pay any taxes required to be paid
under the tax disaffiliation agreement, tax or other liabilities resulting from
negligence in supplying inaccurate or incomplete information or the failure to
cooperate with the preparation of any tax return or the conduct of any tax
audits, litigation or appeals. The tax disaffiliation agreement requires us to
retain records, documents and other information necessary for the audit of tax
returns relating to periods prior to the date we ceased to be a member of Barnes
& Noble's consolidated tax group and to provide reasonable access to Barnes &
Noble with respect to such records, documents and information.

REGISTRATION RIGHTS AGREEMENT

     In the event that Barnes & Noble does not divest itself of all of its
shares of our common stock in a distribution, Barnes & Noble could not freely
sell all of its shares without registration under the Securities Act.
Accordingly, we will enter into a registration rights agreement with Barnes &
Noble to provide it with registration rights relating to the shares of our
common stock which it holds.

     The registration rights agreement provides Barnes & Noble with registration
rights relating to the shares of our common stock held by Barnes & Noble
immediately after this offering and any shares of our
                                        51
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common stock Barnes & Noble acquires thereafter. Barnes & Noble is able to
require us to register under the Securities Act all or any portion of our shares
covered by the registration rights agreement. In addition, the registration
rights agreement provides for various piggyback registration rights for Barnes &
Noble. Whenever we propose to register any of our securities under the
Securities Act for ourselves or others, subject to customary exceptions, we must
provide prompt notice to Barnes & Noble and include in that registration all
shares of our stock which Barnes & Noble owns and requests to be included.

     The registration rights agreement sets forth customary registration
procedures, including an agreement by us to make available our senior management
for roadshow presentations. All registration expenses incurred in connection
with any registration, other than underwriting commissions, will be paid by us.
In addition, we are required to reimburse Barnes & Noble for the fees and
disbursements of its outside counsel retained in connection with any such
registration. The registration rights agreement also imposes customary
indemnification and contribution obligations on us for the benefit of Barnes &
Noble and any underwriters, although Barnes & Noble must indemnify us for any
liabilities resulting from information provided by Barnes & Noble.

     Barnes & Noble's rights under the registration rights agreement remain in
effect with respect to the shares covered by the agreement until:

     - those shares have been sold under an effective registration statement
       under the Securities Act;

     - those shares have been sold to the public under Rule 144 under the
       Securities Act; or

     - those shares have been transferred in a transaction where a subsequent
       public distribution of those shares would not require registration under
       the Securities Act.

INTERCOMPANY LOAN

     Barnes & Noble incurred an aggregate of approximately $202 million of
indebtedness in connection with its acquisition of Babbage's Etc. LLC in October
1999 and an aggregate of approximately $159 million of indebtedness in
connection with its acquisition of Funco, Inc. (now known as GameStop, Inc.) in
June 2000, for an aggregate of approximately $361 million of indebtedness.
Barnes & Noble and we have treated this amount plus additional amounts that
Barnes & Noble has provided from time to time to fund our operations as an
intercompany loan owed to Barnes & Noble by us. Immediately prior to the closing
of this offering, Barnes & Noble will contribute to us as additional paid-in
capital the difference between the aggregate amount of the intercompany loan
balance and $250 million. This $250 million will be evidenced by a demand note
and repaid with a portion of the net proceeds from this offering. As of August
4, 2001, the capital contribution by Barnes & Noble would have been
approximately $142.3 million.

RELATIONSHIP WITH BARNES & NOBLE.COM

     On May 1, 2001, we entered into an agreement with barnesandnoble.com llc, a
company in which Barnes & Noble owns an approximately 36% interest, pursuant to
which we sell video game products and PC entertainment software through
barnesandnoble.com's web site. We pay barnesandnoble.com a referral fee equal to
approximately 7.5% of our net sales revenue resulting from purchases made
through their web site.

OTHER RELATIONSHIPS

     In October 1999, Barnes & Noble acquired Babbage's Etc. for $208,670,000
from the owners of Babbage's Etc., which included Leonard Riggio, R. Richard
Fontaine and Daniel A. DeMatteo. If financial performance targets are met for
fiscal 2001, Barnes & Noble will make an additional payment to the former owners
of Babbage's Etc. of approximately $10,000,000 in 2002.

     In fiscal 2001, we purchased approximately $107,000 of merchandise from
Barnes & Noble.

     Michael N. Rosen, our Secretary and one of our directors, is the Chairman
of Robinson Silverman Pearce Aronsohn & Berman LLP. This law firm represents
Barnes & Noble and its subsidiaries, including us. Mr. Rosen is also the
Secretary and a director of Barnes & Noble.

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                          DESCRIPTION OF CAPITAL STOCK

GENERAL

     At the time of the offering, our authorized capital stock will consist of:

     -
     ------------------ shares of Class A common stock, par value $.001 per
       share,

     -
     ------------------ shares of Class B common stock, par value $.001 per
       share; and

     -
     ------------------ shares of preferred stock, par value $.001 per share.

     Of the authorized shares of Class A common stock,           shares are
being offered hereby, or           shares if the underwriters exercise their
over-allotment option in full. Of the           authorized shares of Class B
common stock, on the closing date           shares will be outstanding and held
by a wholly-owned subsidiary of Barnes & Noble. The material terms and
provisions of our certificate of incorporation affecting the relative rights of
the Class A common stock and the Class B common stock are described below. The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to the forms of our certificate of
incorporation and by-laws filed with the registration statement of which this
prospectus forms a part, and to the Delaware General Corporation Law.

COMMON STOCK

VOTING RIGHTS.  The holders of Class A common stock and Class B common stock
generally have identical rights except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to ten votes per share on all matters to be voted on by stockholders.
Holders of shares of Class A common stock and Class B common stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority of the
votes entitled to be cast by all shares of Class A common stock and Class B
common stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any preferred
stock. Except as otherwise provided by law, and subject to any voting rights
granted to holders of any outstanding preferred stock, amendments to our
certificate of incorporation generally must be approved by at least 80% of the
combined voting power of all Class A common stock and Class B common stock
voting together as a single class. However, amendments to our certificate of
incorporation that would alter or change the powers, preferences or special
rights of the Class A common stock or the Class B common stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class.

DIVIDENDS.  Holders of Class A common stock and Class B common stock will share
in an equal amount per share in any dividend declared by the board of directors,
subject to any preferential rights of any outstanding preferred stock. Dividends
consisting of shares of Class A common stock and Class B common stock may be
paid only as follows: (1) shares of Class A common stock may be paid only to
holders of Class A common stock and shares of Class B common stock may be paid
only to holders of Class B common stock; and (2) shares shall be paid
proportionally with respect to each outstanding share of Class A common stock
and Class B common stock.

CONVERSION.  Each share of Class B common stock is convertible while held by
Barnes & Noble or any of its subsidiaries, excluding us, at the option of the
holder into one share of Class A common stock. Following any distribution of
Class B common stock to stockholders of Barnes & Noble in a transaction,
including any distribution intended to qualify as a tax-free distribution under
Section 355 of the Code, or any successor statute, shares of Class B common
stock will no longer be convertible into shares of Class A common stock.

     Prior to any tax-free distribution, any shares of Class B common stock
transferred to a person other than Barnes & Noble or any of its affiliates,
excluding us, will automatically be converted into shares of

                                        53
58

Class A common stock. Shares of Class B common stock transferred to Barnes &
Noble's stockholders in any tax-free distribution will not be converted into
shares of Class A common stock. In addition, following any tax-free
distribution, shares of Class B common stock will be transferable as Class B
common stock, subject to applicable laws.

     All shares of Class B common stock will automatically be converted into
Class A common stock if:

     - a tax-free distribution has not occurred; and

     - the number of outstanding shares of Class B common stock owned by Barnes
       & Noble, together with its affiliates, excluding us, falls below 50% of
       the aggregate number of outstanding shares of our common stock.

     This automatic conversion of Class B common stock into Class A common stock
will prevent Barnes & Noble from decreasing its economic interest in us to less
than 50% while still retaining control of more than 80% of the voting power for
our capitalized stock. All conversions will be effected on a share-for-share
basis.

     The shares of Class B common stock will automatically convert into shares
of Class A common stock on the fifth anniversary of the tax-free distribution,
unless prior to such transaction, Barnes & Noble delivers to us an opinion of
counsel reasonably satisfactory to us to the effect that (1) such conversion
could adversely affect the ability of Barnes & Noble to obtain a favorable
ruling from the Internal Revenue Service that the transfer would be a tax-free
distribution under Section 355 of the Code or (2) the Internal Revenue Service
has adopted a general non-ruling policy on tax-free distribution under Section
355 of the Code and that such conversion could adversely affect the status of
the transaction as a tax-free distribution, in which case no such conversion
shall take place.

OTHER RIGHTS.  On our liquidation, dissolution or winding up, after payment in
full of the amounts required to be paid to holders of preferred stock, if any,
all holders of common stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of common stock.
No shares of either class of common stock are subject to redemption or have
preemptive rights to purchase additional shares of common stock. Upon
consummation of the offering, all the outstanding shares of Class A common stock
and Class B common stock will be legally issued, fully paid and nonassessable.

PREFERRED STOCK

     Under our certificate of incorporation, our board of directors has the
authority, without further action by stockholders, to designate up to
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon the preferred stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and reduce the likelihood that common stockholders will
receive dividend payments and payments upon liquidation. The issuance could have
the effect of decreasing the market price of the common stock. The issuance of
preferred stock also could have the effect of delaying, deterring or preventing
a change in control of our company. We have no present plans to issue any
additional shares of preferred stock.

ANTI-TAKEOVER PROVISIONS

DELAWARE LAW.  We are subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly-held
Delaware corporation 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
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
Our certificate of incorporation excludes Barnes & Noble as an interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person
                                        54
59

who, together with affiliates and associates, owns, or within three years did
own, 15% or more of the corporation's voting stock. This statute could prohibit
or delay the accomplishment of mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.

CERTIFICATE OF INCORPORATION AND BY-LAWS PROVISIONS.  Our certificate of
incorporation and by-laws may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.

CLASSIFIED BOARD OF DIRECTORS

     Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of our board of
directors are to be elected each year. These provisions, when coupled with the
provision of our certificate of incorporation authorizing the board of directors
to fill vacant directorships or increase the size of the board of directors, may
deter a stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies created by such
removal with its own nominees.

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS

     Our by-laws and certificate of incorporation further provide that special
meetings of our stockholders may be called only by the Chairman of the Board of
directors or a majority of the board of directors. Our certificate of
incorporation provides that until Barnes & Noble beneficially owns less than 50%
of our outstanding common stock, actions required or permitted to be taken by
our stockholders may be effected by written consent.

     The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Following this offering, Barnes & Noble, as
the owner of approximately      % of our outstanding common stock, will, on its
own, be able to cause us to amend our certificate of incorporation and by-laws.

AUTHORIZED BUT UNISSUED SHARES

     The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.

LISTING

     We have applied to have our Class A common stock included for quotation on
the Nasdaq National Market under the symbol "GSTP."

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for our common stock is           , New
York, New York.

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                        SHARES ELIGIBLE FOR FUTURE SALE

     Upon completion of this offering,           shares of our Class A common
stock will be outstanding, or           shares if the underwriters exercise
their over-allotment option in full. All of these shares, constituting the
shares sold in this offering, will be freely tradable without restriction or
further registration under the Securities Act, unless held by an affiliate of
our company as that term is defined in Rule 144 under the Securities Act.

     The shares of our Class B common stock that will be held by Barnes & Noble
after the offering, and any shares issuable upon conversion of such Class B
Common Stock, will constitute restricted securities within the meaning of Rule
144.

     In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person or
persons whose shares of common stock are aggregated, including persons who may
be deemed our affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of:

     - one percent of the then-outstanding shares of common stock; and

     - the average weekly trading volume during the four calendar weeks
       preceding the date on which notice of the sale is filed with the
       Securities and Exchange Commission.

     Sales under Rule 144 are also subject to restrictions as to the manner of
sale, notice requirements and the availability of current public information
about us.

     In connection with this offering, we, our executive officers and directors,
the Barnes & Noble subsidiary that is the record holder of our Class B common
stock and certain of our optionholders have agreed that, subject to various
exceptions, for a period of 180 days after the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities convertible
into or exchangeable for common stock. Upon expiration of the lock-up period,
          shares of our Class A common stock that are issuable upon exercise of
options granted pursuant to our 2001 Incentive Plan will be available for sale,
subject to compliance with Rule 144. Salomon Smith Barney in its sole discretion
may release any or all of the securities subject to these lock-up agreements at
any time without public notice.

     Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register the shares of Class A common stock
reserved or to be available for issuance under our 2001 Incentive Plan. Shares
of Class A common stock issued under the 2001 Incentive Plan generally will be
available for sale in the open market by holders who are not our affiliates and,
subject to the volume and other applicable limitations of Rule 144, by holders
who are our affiliates, unless those shares are subject to vesting restrictions
or the contractual restrictions described above.

     Prior to this offering, there has been no public market for our Class A
common stock. No information is currently available and we cannot predict the
timing or amount of future sales of shares, or the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price of the Class A common stock prevailing from time to time. Sales of
substantial amounts of Class A common stock, including shares issuable upon the
exercise of stock options or upon conversion of shares of Class B common stock,
in the public market after the lapse of the restrictions described above, or the
perception that these sales may occur, could materially adversely affect the
prevailing market prices for the Class A common stock and our ability to raise
equity capital in the future.

                                        56
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          UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

     The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
our Class A common stock by a non-U.S. holder. As used in this discussion, the
term non-U.S. holder means a beneficial owner of our Class A common stock that
is not, for U.S. federal income tax purposes:

     - an individual who is a citizen or resident of the United States;

     - a corporation or partnership created or organized in or under the laws of
       the United States or of any political subdivision of the United States,
       other than a partnership treated as foreign under U.S. Treasury
       Regulations;

     - an estate whose income is includible in gross income for U.S. federal
       income tax purposes regardless of its source; or

     - a trust, in general, if a U.S. court is able to exercise primary
       supervision over the administration of the trust and one or more U.S.
       persons have authority to control all substantial decisions of the trust.

     An individual may be treated as a resident of the United States in any
calendar year for U.S. federal income tax purposes, instead of a nonresident,
by, among other ways, being present in the United States on at least 31 days in
that calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of this calculation,
you would count all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are taxed for U.S. federal income
purposes as if they were U.S. citizens.

     This discussion does not consider:

     - U.S. state and local or non-U.S. tax consequences;

     - specific facts and circumstances that may be relevant to a particular
       non-U.S. holder's tax position, including, if the non-U.S. holder is a
       partnership or trust that the U.S. tax consequences of holding and
       disposing of our Class A common stock may be affected by certain
       determinations made at the partner or beneficiary level;

     - the tax consequences for the stockholders, partners or beneficiaries of a
       non-U.S. holder;

     - special tax rules that may apply to particular non-U.S. holders, such as
       financial institutions, insurance companies, tax-exempt organizations,
       U.S. expatriates, broker-dealers, and traders in securities; or

     - special tax rules that may apply to a non-U.S. holder that holds our
       Class A common stock as part of a straddle, hedge, conversion
       transaction, synthetic security or other integrated investment.

     The following discussion is based on provisions of the Code, applicable
U.S. Treasury Regulations and administrative and judicial interpretations, all
as in effect on the date of this prospectus, and all of which are subject to
change, retroactively or prospectively. The following summary assumes that a
non-U.S. holder holds our Class A common stock as a capital asset. EACH NON-U.S.
HOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF OUR CLASS A COMMON STOCK.

DIVIDENDS

     We do not anticipate paying cash dividends on our Class A common stock in
the foreseeable future. See "Dividend Policy." In the event, however, that we
pay dividends on our Class A common stock, we will have to withhold a U.S.
federal withholding tax at a rate of 30%, or a lower rate under an applicable

                                        57
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income tax treaty, from the gross amount of the dividends paid to a non-U.S.
holder. Non-U.S. holders should consult their tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.

     Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are taxed on a
net income basis at the regular graduated rates and in the manner applicable to
U.S. persons. In that case, we will not have to withhold U.S. federal
withholding tax if the non-U.S. holder complies with applicable certification
and disclosure requirements. In addition, a branch profits tax may be imposed at
a 30% rate, or a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected with the
conduct of a trade or business in the United States.

     With respect to the withholding of U.S. federal income tax on the payment
of dividends, a non-U.S. holder who claims the benefit of an applicable income
tax treaty rate generally will be required to satisfy applicable certification
and other requirements. However,

     - in the case of Class A common stock held by a foreign partnership, the
       certification requirement will generally be applied to the partners of
       the partnership and the partnership will be required to provide certain
       information;

     - in the case of Class A common stock held by a foreign trust, the
       certification requirement will generally be applied to the trust or the
       beneficial owners of the trust depending on whether the trust is a
       foreign complex trust, foreign simple trust, or foreign grantor trust as
       defined in the U.S. Treasury Regulations; and

     - look-through rules will apply for tiered partnerships, foreign simple
       trusts and foreign grantor trusts.

     A non-U.S. holder which is a foreign partnership or a foreign trust is
urged to consult its own tax advisor regarding its status under these U.S.
Treasury Regulations and the certification requirements applicable to it.

     A non-U.S. holder that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a refund with the
U.S. Internal Revenue Service.

GAIN ON DISPOSITION OF CLASS A COMMON STOCK

     A non-U.S. holder generally will not be taxed on gain recognized on a
disposition of our Class A common stock unless:

     - the gain is effectively connected with the non-U.S. holder's conduct of a
       trade or business in the United States or, alternatively, if an income
       tax treaty applies, is attributable to a permanent establishment
       maintained by the non-U.S. holder in the United States; in these cases,
       the gain will be taxed on a net income basis at the regular graduated
       rates and in the manner applicable to U.S. persons, unless an applicable
       treaty provides otherwise, and, if the non-U.S. holder is a foreign
       corporation, the branch profits tax described above may also apply;

     - the non-U.S. holder is an individual who holds our Class A common stock
       as a capital asset, is present in the United States for more than 182
       days in the taxable year of the disposition and meets other requirements;
       or

     - we are or have been a U.S. real property holding corporation for U.S.
       federal income tax purposes at any time during the shorter of the
       five-year period ending on the date of disposition or the period that the
       non-U.S. holder held our Class A common stock.

     Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. The tax relating
to stock in a U.S. real property holding corporation generally will not apply to
a non-U.S. holder whose holdings,

                                        58
63

direct and indirect, at all times during the applicable period, constituted 5%
or less of our Class A common stock, provided that our Class A common stock was
regularly traded on an established securities market. We believe that we are not
currently, and we do not anticipate becoming in the future, a U.S. real property
holding corporation.

FEDERAL ESTATE TAX

     Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

     We must report annually to the U.S. Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to that holder and the tax withheld
from those dividends. Copies of the information returns reporting those
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder is a resident under the provisions of
an applicable income tax treaty or agreement. Under some circumstances, U.S.
Treasury Regulations require additional information reporting and backup
withholding presently at a rate of 30.5% on some payments on common stock.

     Under currently applicable law, the gross amount of dividends paid to a
non-U.S. holder that fails to certify its non-U.S. holder status in accordance
with applicable U.S. Treasury Regulations generally will be reduced by backup
withholding presently at a rate of 30.5%.

     The payment of the proceeds of the disposition of common stock by a
non-U.S. holder to or through the U.S. office of a broker or a non-U.S. office
of a U.S. broker generally will be reported to the U.S. Internal Revenue Service
and reduced by backup withholding presently at a rate of 30.5% unless the non-
U.S. holder either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption and the broker has no actual
knowledge to the contrary. The payment of the proceeds of the disposition of
common stock by a non-U.S. holder to or through a non-U.S. office of a broker
will not be reduced by backup withholding or reported to the U.S. Internal
Revenue Service unless the broker is a U.S. person or a non-U.S. person with
certain enumerated connections with the United States. In general, the payment
of proceeds from the disposition of common stock by or through a non-U.S. office
of a broker that is a U.S. person or a non-U.S. person with certain enumerated
connections with the United States will be reported to the U.S. Internal Revenue
Service and may in limited circumstances be reduced by backup withholding
presently at a rate of 30.5%, unless the broker receives a statement from the
non-U.S. holder, signed under penalty of perjury, certifying its non-U.S. status
or the broker has documentary evidence in its files that the holder is a
non-U.S. holder and the broker has no actual knowledge to the contrary.

     Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them,
including changes to these rules that will become effective after 2000.

     Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information or
appropriate claim for refund is furnished to the U.S. Internal Revenue Service.

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                                  UNDERWRITING

     Salomon Smith Barney Inc. and UBS Warburg LLC are acting as representatives
of the underwriters named below. Subject to the terms and conditions stated in
the underwriting agreement dated the date of this prospectus, each underwriter
named below has severally agreed to purchase, and we have agreed to sell to each
underwriter, the number of shares set forth opposite its name below:
UNDERWRITER                                                   NUMBER OF SHARES
-----------                                                   ----------------
Salomon Smith Barney Inc. ..................................
UBS Warburg LLC.............................................

          Total.............................................
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.

     The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to dealers at the public offering price less a concession not
to exceed of $     per share. The underwriters may allow, and dealers may
reallow, a concession not to exceed $     per share on sales to other dealers.
If all the shares are not sold at the initial offering price, the
representatives may change the public offering price and other selling terms.
The representatives have advised us that the underwriters do not intend to
confirm any sales to any accounts over which they exercise discretionary
authority.

     We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to                additional shares
of our Class A common stock at the public offering price less the underwriting
discount. The underwriters may exercise the option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent the option is exercised, each underwriter must purchase a number of
additional shares approximately proportionate to that underwriter's initial
purchase commitment.

     We, our officers and directors, the Barnes & Noble subsidiary that is the
record holder of our Class B common stock and certain of our option holders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney,
dispose of or hedge any shares of our Class A common stock or any securities
convertible into, or exercisable or exchangeable for, our Class A common stock.
Salomon Smith Barney, in its sole discretion, may release any of the securities
subject to these lock-up agreements at any time without notice.

     At our request, the underwriters have reserved up to      % of the shares
of common stock for sale at the initial public offering price to persons who are
directors, officers or employees, or who are otherwise associated with us
through a directed share program. The number of shares of common stock available
for sale to the general public will be reduced by the number of directed shares
purchased by participants in the program. Any directed shares not purchased will
be offered by the underwriters to the general public on the same basis as all
other shares of common stock offered. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with the sales of the directed shares.

     Prior to this offering, there has been no public market for our Class A
common stock. Consequently, the initial public offering price for the shares was
determined by negotiation between us and the representatives. Among the factors
considered in determining the initial public offering price were: our

                                        60
65

record of operations; our current financial condition; our future prospects; our
markets; the economic conditions in and future prospects for the industry in
which we compete; our management; and currently prevailing general conditions in
the equity securities markets, including current market valuations of publicly
traded companies considered comparable to our company.

     We cannot assure you, however, that the prices at which the shares will
sell in the public market after this offering will not be lower than the initial
public offering price or that an active trading market in our Class A common
stock will develop and continue after this offering.

     We have applied to have our Class A common stock included for quotation on
the Nasdaq National Market under the symbol "GSTP."

     The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of Class A common stock.
NO EXERCISE    FULL EXERCISE
                                                              -----------    -------------
Per Share...................................................   $               $
Total.......................................................   $               $
In connection with this offering, Salomon Smith Barney, on behalf of the
underwriters, may purchase and sell shares of Class A common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of shares in excess of the number of shares to be purchased by the underwriters
in this offering, which creates a syndicate short position. "Covered" short
sales are sales of shares made in an amount up to the number of shares
represented by the underwriters' over-allotment option. In determining the
source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out the
covered syndicate short involve either purchases of the Class A common stock in
the open market after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make "naked" short sales of
shares in excess of the over-allotment option. The underwriters must close out
any naked short position by purchasing shares of Class A common stock in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of bids
for or purchases of shares in the open market while the offering is in progress.

     The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney repurchases shares originally sold by that syndicate member
in order to cover syndicate short positions or make stabilizing purchases.

     Any of these activities may have the effect of preventing or retarding a
decline in the market price of the Class A common stock. They may also cause the
price of the Class A common stock to be higher than the price that would
otherwise exist in the open market in the absence of these transactions. The
underwriters may conduct these transactions on the Nasdaq National Market or in
the over-the-counter market, or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.

     We estimate that our portion of the total expenses of this offering will be
$          .

     From time to time, Salomon Smith Barney and its affiliates have provided,
and may continue to provide, investment banking services, investment trading
services and general financing and banking services to Barnes & Noble, for which
they receive customary fees. Salomon Smith Barney and it affiliates may in the
future perform various similar investment banking and advisory services for us
from time to time, for which we will pay them customary fees.

                                        61
66

     We and Barnes & Noble have agreed to indemnify the underwriters against
specified liabilities, including liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.

                                 LEGAL MATTERS

     The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Robinson Silverman Pearce Aronsohn & Berman LLP, 1290
Avenue of the Americas, New York, New York 10104, and for the underwriters by
Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603. Michael
N. Rosen, the Chairman of Robinson Silverman Pearce Aronsohn & Berman LLP, is
our Secretary and a director.

                                    EXPERTS

     The financial statements of GameStop, Inc. included in this prospectus and
in the registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the registration statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.

     The consolidated financial statements of Funco, Inc. at April 2, 2000 and
March 28, 1999, and for each of the three years in the period ended April 2,
2000, appearing in this prospectus and in the registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

     We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits and schedules thereto) under the
Securities Act and the rules and regulations thereunder, for the registration of
the Class A common stock offered hereby. This prospectus is part of the
registration statement. This prospectus does not contain all the information
included in the registration statement because we have omitted parts of the
registration statement as permitted by the Securities and Exchange Commission's
rules and regulations. For further information about us and our capital stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract, agreement or other document referred to are not
necessarily complete. Where the contract or other document is an exhibit to the
registration statement, each statement is qualified by the provisions of that
exhibit.

     You can inspect and copy all or any portion of the registration statements
or any reports, statements or other information we file at the public reference
facility maintained by the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies are available for a copying
fee. You may call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about the operation of the public reference rooms. In
addition, the registration statement is publicly available through the
Securities and Exchange Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov. We will also file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You can also request copies of these documents, for a copying fee,
by writing to the Securities and Exchange Commission. We intend to furnish to
our stockholders annual reports containing audited financial statements for each
fiscal year.

                                        62
67

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                                ----
GAMESTOP, INC. CONSOLIDATED FINANCIAL STATEMENTS:

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

Consolidated Financial Statements:
  Balance Sheets............................................     F-3
  Statements of Operations..................................     F-4
  Statements of Stockholders' Equity (Deficit)..............     F-5
  Statements of Cash Flows..................................     F-6
  Notes to Consolidated Financial Statements................     F-7
FUNCO, INC. CONSOLIDATED FINANCIAL STATEMENTS:

Independent Auditors' Report................................    F-17

Consolidated Financial Statements:
  Balance Sheets............................................    F-18
  Statements of Income......................................    F-19
  Statement of Shareholders' Equity.........................    F-20
  Statements of Cash Flows..................................    F-21
  Notes to Consolidated Financial Statements................    F-22
F-1
68

     [The following report is in the form that will be signed prior to the
effectiveness of the registration statement of which this prospectus is a part.]

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and the Stockholder of
GameStop, Inc.
Grapevine, Texas

     We have audited the accompanying consolidated balance sheets of GameStop,
Inc. as of January 29, 2000 and February 3, 2001 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
13 weeks ended January 29, 2000, and 53 weeks ended February 3, 2001 (Successor
Company) and the 52 weeks ended January 30, 1999 and 39 weeks ended October 30,
1999 (Predecessor Company). 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GameStop,
Inc. as of January 29, 2000 and February 3, 2001 and the results of its
operations and its cash flows for the 13 weeks ended January 29, 2000, and 53
weeks ended February 3, 2001 (Successor Company) and the 52 weeks ended January
30, 1999 and 39 weeks ended October 30, 1999 (Predecessor Company) in conformity
with accounting principles generally accepted in the United States of America.

     As discussed in Note 2 of the consolidated financial statements, the
Predecessor Company was acquired on October 30, 1999 in a business combination
accounted for as a purchase. As a result, the consolidated financial statements
of the Successor Company are presented on a new basis of accounting from the
consolidated financial statements of the Predecessor Company and, therefore, are
not comparable.

                                          BDO SEIDMAN, LLP

Dallas, Texas
March 22, 2001

                                       F-2
69

                                 GAMESTOP, INC.

                          CONSOLIDATED BALANCE SHEETS
AUGUST 4,
                                                                                                                 2001
                                                        JANUARY 29,        FEBRUARY 3,        AUGUST 4,       PRO FORMA
                                                            2000               2001              2001         (NOTE 13)
                                                      ----------------   ----------------   --------------   ------------
                                                                                                     (UNAUDITED)
                                                                                (IN THOUSANDS)
ASSETS:
Current assets:
  Cash and cash equivalents.........................      $  6,612           $  8,641          $  7,261        $  7,261
  Receivables, net..................................         2,423              3,726             3,865           3,865
  Merchandise inventories...........................        69,391            108,853           122,922         122,922
  Prepaid expenses and other current assets.........           896             13,682             6,615           6,615
  Deferred taxes....................................         3,093              4,649             6,683           6,683
                                                          --------           --------          --------        --------
         Total current assets.......................        82,415            139,551           147,346         147,346
                                                          --------           --------          --------        --------
Property and equipment:
  Leasehold improvements............................        11,373             20,874            23,453          23,453
  Fixtures and equipment............................        17,019             45,236            48,796          48,796
                                                          --------           --------          --------        --------
                                                            28,392             66,110            72,249          72,249
  Less accumulated depreciation and amortization....         1,926             14,742            23,859          23,859
                                                          --------           --------          --------        --------
         Net property and equipment.................        26,466             51,368            48,390          48,390
                                                          --------           --------          --------        --------
Goodwill, net.......................................       197,280            319,418           313,855         313,855
Other noncurrent assets.............................         1,761                536               548             548
                                                          --------           --------          --------        --------
         Total other assets.........................       199,041            319,954           314,403         314,403
                                                          --------           --------          --------        --------
         Total assets...............................      $307,922           $510,873          $510,139        $510,139
                                                          ========           ========          ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
  Accounts payable..................................      $ 89,606           $102,837          $105,865        $105,865
  Accrued liabilities...............................        21,584             37,011            37,938          37,938
                                                          --------           --------          --------        --------
         Total current liabilities..................       111,190            139,848           143,803         143,803
                                                          --------           --------          --------        --------
Payable to Barnes & Noble, Inc......................       203,613            386,439           392,339         250,000
Deferred taxes......................................           331              2,862             4,116           4,116
Other long-term liabilities.........................         1,363              2,196             2,335           2,335
                                                          --------           --------          --------        --------
                                                           205,307            391,497           398,790         256,451
                                                          --------           --------          --------        --------
         Total liabilities..........................       316,497            531,345           542,593         400,254
                                                          --------           --------          --------        --------
Stockholders' equity (deficit):
  Preferred stock -- authorized 1,000,000 shares; no
    shares issued or outstanding....................            --                 --                --              --
  Class A common stock -- $0.01 par value;
    authorized 1,000,000 shares; 1,000 shares issued
    and outstanding.................................            --                 --                --              --
  Class B common stock -- $0.01 par value;
    authorized 13,000,000 shares; 4,000,000 shares
    issued and outstanding..........................            40                 40                40              40
  Additional paid-in-capital........................       (15,906)           (15,906)          (15,906)        126,433
  Retained earnings (deficit).......................         7,291             (4,606)          (16,588)        (16,588)
                                                          --------           --------          --------        --------
         Total stockholders' equity (deficit).......        (8,575)           (20,472)          (32,454)        109,885
                                                          --------           --------          --------        --------
         Total liabilities and stockholders' equity
           (deficit)................................      $307,922           $510,873          $510,139        $510,139
                                                          ========           ========          ========        ========
See accompanying notes to consolidated financial statements.
                                       F-3
70

                                 GAMESTOP, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR COMPANY                        SUCCESSOR COMPANY
                                 -------------------------   -----------------------------------------------------
                                  52 WEEKS      39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                    ENDED         ENDED         ENDED         ENDED      -------------------------
                                 JANUARY 30,   OCTOBER 30,   JANUARY 29,   FEBRUARY 3,    JULY 29,      AUGUST 4,
                                    1999          1999          2000          2001          2000          2001
                                 -----------   -----------   -----------   -----------   -----------   -----------
                                                                                                (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales..........................   $465,166      $329,392      $223,748      $756,697      $247,157      $408,161
Cost of sales..................    350,475       246,865       174,808       570,995       183,531       306,442
                                  --------      --------      --------      --------      --------      --------
  Gross profit.................    114,691        82,527        48,940       185,702        63,626       101,719
Selling, general and
  administrative expenses......     84,644        68,112        29,895       157,491        61,819        94,529
Acquisition incentive
  bonuses......................         --        26,789            --            --            --            --
Depreciation and
  amortization.................      4,805         4,475         1,926        12,974         4,863         9,131
Amortization of goodwill.......         --            --         1,687         9,223         3,727         5,562
                                  --------      --------      --------      --------      --------      --------
  Operating earnings (loss)....     25,242       (16,849)       15,432         6,014        (6,783)       (7,503)
Interest income................       (431)         (169)         (224)          (36)          (25)           --
Interest expense...............      3,975         1,141         3,347        23,447         8,803        10,801
                                  --------      --------      --------      --------      --------      --------
  Earnings (loss) before income
     tax expense (benefit).....     21,698       (17,821)       12,309       (17,397)      (15,561)      (18,304)
Income tax expense (benefit)...        582           100         5,018        (5,500)       (5,700)       (6,322)
                                  --------      --------      --------      --------      --------      --------
  Net earnings (loss)..........   $ 21,116      $(17,921)     $  7,291      $(11,897)     $ (9,861)     $(11,982)
                                  ========      ========      ========      ========      ========      ========
Earnings (loss) before income
  taxes........................     21,698       (17,821)
Pro forma income tax expense
  (benefit)....................      8,738        (7,111)
                                  --------      --------
Pro forma net earnings
  (loss).......................   $ 12,960      $(10,710)
                                  ========      ========
Net earnings (loss) per common
  share -- basic and diluted...                               $             $             $             $
                                                              ========      ========      ========      ========
Weighted average shares of
  common stock-basic and
  diluted......................
                                                              ========      ========      ========      ========
See accompanying notes to consolidated financial statements.
                                       F-4
71

                                 GAMESTOP, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK                ADDITIONAL   RETAINED
                                 MEMBERS'   -------------------------------------    PAID IN     EARNINGS
                                  EQUITY    SHARES   CLASS A    SHARES    CLASS B    CAPITAL     (DEFICIT)    TOTAL
                                 --------   ------   -------   ---------  -------   ----------   ---------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR COMPANY
Balance at February 1, 1998....   $5,000       --    $   --           --    $--      $     --    $  3,689    $  8,689
Net earnings for the 52 weeks
  ended January 30, 1999.......       --       --        --           --     --            --      21,116      21,116
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at January 30, 1999....    5,000       --        --           --     --            --      24,805      29,805
Distributions..................       --       --        --           --     --            --     (27,750)    (27,750)
Net loss for the 39 weeks ended
  October 30, 1999.............       --       --        --           --     --            --     (17,921)    (17,921)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
                                   5,000       --        --           --     --            --     (20,866)    (15,866)
                                  ======    =====    ======    =========    ===      ========    ========    ========
SUCCESSOR COMPANY
Issuance of common stock for
  members' equity and
  elimination of deficit upon
  acquisition by Barnes &
  Noble, Inc. on October 30,
  1999.........................       --    1,000        --    4,000,000     40       (15,906)         --     (15,866)
Net earnings for the 13 weeks
  ended January 29, 2000.......       --       --        --           --     --            --       7,291       7,291
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at January 29, 2000....       --    1,000        --    4,000,000     40       (15,906)      7,291      (8,575)
Net loss for the 53 weeks ended
  February 3, 2001.............       --       --        --           --     --            --     (11,897)    (11,897)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at February 3, 2001....       --    1,000        --    4,000,000     40       (15,906)     (4,606)    (20,472)
Net loss for the 26 weeks ended
  August 4, 2001 (unaudited)...       --       --        --           --     --            --     (11,982)    (11,982)
                                  ------    -----    ------    ---------    ---      --------    --------    --------
Balance at August 4, 2001
(unaudited)....................   $   --    1,000    $   --    4,000,000    $40      $(15,906)   $(16,588)   $(32,454)
                                  ======    =====    ======    =========    ===      ========    ========    ========
See accompanying notes to consolidated financial statements.
                                       F-5
72

                                 GAMESTOP, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
PREDECESSOR COMPANY                         SUCCESSOR COMPANY
                                            ----------------------------   ----------------------------------------------------
                                               52 WEEKS       39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                                ENDED           ENDED         ENDED         ENDED      ------------------------
                                             JANUARY 30,     OCTOBER 30,   JANUARY 29,   FEBRUARY 3,     JULY 29,     AUGUST 4,
                                                 1999           1999          2000          2001           2000         2001
                                            --------------   -----------   -----------   -----------   ------------   ---------
                                                                                                             (UNAUDITED)
                                                                              (IN THOUSANDS)
Cash flows from operating activities:
  Net earnings (loss).....................     $21,116        $(17,921)     $   7,291     $(11,897)      $ (9,861)    $(11,982)
  Adjustments to reconcile net earnings
    (loss) to net cash flows provided by
    (used in) operating activities:
    Depreciation and amortization.........       4,805           4,475          1,926       12,974          4,863        9,131
    Amortization of goodwill..............          --              --          1,687        9,223          3,727        5,562
    Amortization of loan cost.............         694             207             --           --             --           --
    Deferred taxes........................          --              --            657          975         (2,280)        (780)
    Loss (gain) on disposal of property
      and equipment.......................         946              40             --         (112)            26          259
    Increase in other long-term
      liabilities for scheduled rent
      increases in long-term leases.......         369             278            108          326            157          140
  Changes in operating assets and
    liabilities, net
    Receivables, net......................        (407)           (195)           136         (769)          (648)        (139)
    Merchandise inventories...............      (7,545)        (15,816)        14,675       (9,142)        (2,401)     (14,069)
    Prepaid expenses and other current
      assets..............................        (123)             17            (34)      (1,985)          (821)       7,067
    Accounts payable and accrued
      liabilities.........................      32,968          58,783        (27,834)         278        (38,454)       3,955
                                               -------        --------      ---------     --------       --------     --------
    Net cash flows provided by (used in)
      operating activities................      52,823          29,868         (1,388)        (129)       (45,692)        (856)
                                               -------        --------      ---------     --------       --------     --------
Cash flows from investing activities:
  Purchase of property and equipment......      (6,790)        (12,073)        (4,290)     (25,131)       (11,126)      (6,412)
  Acquisition of Babbage's Etc., LLC by
    Barnes & Noble, Inc., net of cash
    received..............................          --              --       (175,760)          --             --           --
  Acquisition of Funco, Inc., net of cash
    received..............................          --              --             --     (156,764)      (152,762)          --
  Net increase (decrease) in other
    noncurrent assets.....................        (221)         (1,300)           (67)       1,227          1,235          (12)
                                               -------        --------      ---------     --------       --------     --------
  Net cash flows used in investing
    activities............................      (7,011)        (13,373)      (180,117)    (180,668)      (162,653)      (6,424)
                                               -------        --------      ---------     --------       --------     --------
Cash flows from financing activities:
  Repayment of subordinated debt -
    affiliates............................     (25,000)        (10,000)            --           --             --           --
  Increase in payable to Barnes & Noble,
    Inc. attributable to:
    Babbage's Etc. LLC Purchase...........          --              --        175,760           --             --           --
    Funco, Inc. Purchase..................          --              --             --      159,144        159,144           --
  Net increase in other payable to Barnes
    & Noble, Inc..........................          --              --          1,227       23,682         52,417        5,900
  Distribution to members.................          --         (27,750)            --           --             --           --
                                               -------        --------      ---------     --------       --------     --------
  Net cash flows provided by (used in)
    financing activities..................     (25,000)        (37,750)       176,987      182,826        211,561        5,900
                                               -------        --------      ---------     --------       --------     --------
Net increase (decrease) in cash and cash
  equivalents.............................      20,812         (21,255)        (4,518)       2,029          3,216       (1,380)
Cash and cash equivalents at beginning of
  period..................................      11,573          32,385         11,130        6,612          6,612        8,641
                                               -------        --------      ---------     --------       --------     --------
Cash and cash equivalents at end of
  period..................................     $32,385        $ 11,130      $   6,612     $  8,641       $  9,828     $  7,261
                                               =======        ========      =========     ========       ========     ========
See accompanying notes to consolidated financial statements.
                                       F-6
73

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Background and Basis of Presentation

     GameStop Corp. was incorporated under the laws of the State of Delaware in
August 2001 as a holding company for GameStop, Inc. GameStop Corp. is a
wholly-owned subsidiary of Barnes & Noble, Inc.

     GameStop, Inc. (GameStop or the Company) is principally engaged in the sale
of video game systems and software, personal computer software and related
accessories through its GameStop, Babbage's, Software Etc., and FuncoLand trade
names, a Web site (gamestop.com) and Game Informer magazine. The Company
operates their business as a single segment. The Company's stores, which totaled
990 at August 4, 2001, are located in major regional shopping malls and strip
centers in 49 states, Puerto Rico and Guam.

     The Company began operations in November 1996 when Leonard Riggio, the
Chairman of the Board, formed Babbage's Etc. LLC and acquired most of the assets
of Neostar Retail Group, Inc. at an auction held in the U.S. Bankruptcy Court.
In October 1999, Mr. Riggio sold Babbage's Etc. LLC to Barnes & Noble, Inc. and
Babbage's Etc. LLC became a wholly-owned subsidiary of Barnes & Noble, Inc. As a
result of the acquisition of Babbage's Etc. LLC, on October 30, 1999, a change
in control occurred, and a new reporting entity exists. The consolidated
financial statements reflect "push-down" accounting in accordance with
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 54 (SAB
54) under which the allocation of the purchase price and the related acquisition
debt were recorded on the Company's financial statements and the deficit in
retained earnings was eliminated. Because the financial statements of the
Company subsequent to the acquisition by Barnes & Noble, Inc. are not directly
comparable to those of the Company prior to the acquisition, a distinction was
made between the "Predecessor Company" and the "Successor Company" throughout
the financial statements to clearly separate the financial position, results of
operations and cash flows of the Company before and after the change in control.

     During June 2000, Barnes & Noble, Inc. acquired Funco, Inc., a publicly
traded company on the NASDAQ National Market and, thereafter, through a
corporate restructuring, Babbage's Etc. LLC became a wholly-owned subsidiary of
Funco, Inc. In December 2000, the name of Funco, Inc. was changed to GameStop,
Inc.

  Consolidation

     The consolidated financial statements include the accounts of GameStop and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

  Year-End

     The Company's fiscal year is composed of the 52 or 53 weeks ending on the
Saturday closest to the last day of January. Fiscal 1998 consisted of the 52
weeks ending on January 30, 1999. Fiscal 1999 consisted of the 52 weeks ending
on January 29, 2000. Fiscal 2000 consisted of the 53 weeks ending on February 3,
2001.

  Interim Financial Statements

     The financial information for the 26 weeks ended August 4, 2001 and July
29, 2000 is unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the financial position at such dates and the operations and cash
flows for the periods then ended. Operating results for the 26 weeks ended
August 4, 2001 are not necessarily indicative of results that may be expected
for the entire year.

                                       F-7
74
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Cash and Cash Equivalents

     The Company considers all short-term, highly-liquid instruments purchased
with an original maturity of three months or less to be cash equivalents. The
Company's cash and cash equivalents are carried at cost, which approximates
market value, and consist primarily of time deposits.

  Merchandise Inventories

     Merchandise inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.

  Property and Equipment

     Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
estimated useful lives (ranging from two to seven years). Maintenance and
repairs are expensed as incurred, while betterments and major remodeling costs
are capitalized. Leasehold improvements are capitalized and amortized over the
shorter of their estimated useful lives or the terms of the respective leases
(ranging from three to ten years). Capitalized lease acquisition costs are being
amortized over the average lease terms of the underlying leases. Costs incurred
in purchasing management information systems are capitalized and included in
property and equipment; these costs are amortized over their estimated useful
lives from the date the systems become operational.

  Goodwill

     Goodwill was recorded in the acquisition of Funco, Inc. and through the
application of "push-down" accounting in accordance with SAB 54 in connection
with the acquisition of Babbage's Etc. LLC by a subsidiary of Barnes & Noble,
Inc. Goodwill represents the excess purchase price over tangible net assets
acquired and is being amortized on a straight-line basis over a 30-year period.
Accumulated amortization at January 29, 2000, February 3, 2001, and August 4,
2001 (unaudited) was $1,687, $10,910 and $16,472, respectively.

  Long-Lived Assets

     In accordance with SFAS 121 "Accounting for the Impairment of Long-Lived
Assets to be Disposed of," long-lived assets (property, equipment and
intangibles) are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to their fair value. No write-downs have been necessary through
February 3, 2001.

  Revenue Recognition

     Revenue from the sales of the Company's products is recognized at the time
of sale. Sales returns (which are not significant) are recognized at the time
returns are made.

  Pre-Opening Expenses

     All costs associated with the opening of new stores are expensed as
incurred. Pre-opening expenses in fiscal 1998, 1999, 2000 and 2001, are included
in selling, general and administrative expenses in the accompanying consolidated
statements of operations.

                                       F-8
75
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Closed Store Expenses

     Upon a formal decision to close or relocate a store, the Company charges
unrecoverable costs to expense. Such costs include the net book value of
abandoned fixtures and leasehold improvements and a provision for future lease
obligations, net of expected sublease recoveries. Costs associated with store
closings during fiscal 1998, 1999, 2000 and 2001 are included in selling,
general and administrative expenses in the accompanying consolidated statements
of operations.

  Income Taxes

     For periods prior to the acquisition of Babbage's Etc. LLC by Barnes &
Noble, Inc., the Company was not subject to federal and most state income taxes,
and its income was taxed directly to its members. Pro forma income taxes on the
accompanying consolidated statements of operations represents what income taxes
would have been had the predecessor been taxed as a "C" corporation in all
jurisdictions for the periods ended January 30, 1999 and October 30, 1999. From
the date of acquisition by Barnes & Noble, Inc., GameStop has been included in
the consolidated federal tax return of Barnes & Noble, Inc.

     Upon the closing of the proposed offering, Barnes & Noble, Inc. will own
less than 80% of GameStop, Inc. and, accordingly, will not be permitted to
consolidate GameStop's operations for income tax purposes. Accordingly, the
financial statements for periods subsequent to the acquisition reflect income
tax expense as if GameStop had filed separate income tax returns. As a result,
the Company accounts for income taxes in accordance with the provisions of SFAS
109 "Accounting for Income Taxes." SFAS 109 utilizes an asset and liability
approach, and deferred taxes are determined based on the estimated future tax
effect of differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates.

  Net Earnings (Loss) Per Common Share

     Net earnings (loss) per common share is presented under Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings (loss) per common share is computed using the weighted average number
of common shares outstanding during the period and excludes any dilutive effects
of the Company's outstanding options.

     Diluted earnings per common share is computed using the weighted average
number of common and dilutive common shares outstanding during the period. Due
to the Company's net loss for the 39 weeks ended October 30, 1999, the 26 weeks
ended July 29, 2000 (unaudited), the 53 weeks ended February 3, 2001, and the 26
weeks ended August 4, 2001 (unaudited), potentially dilutive securities have
been excluded from the computation for those periods, as their effect is
anti-dilutive.

  Stock Options

     The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company or its parent in
amounts based on the price of its stock in accordance with the provisions of
Accounting Principles Board Opinion 25 - "Accounting for Stock Issued to
Employees."

  Use of Estimates

     In preparing financial statements in conformity with accounting principles
generally accepted in the United States, the Company is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and sales and expenses during the reporting periods.
Actual results could differ from those estimates.

                                       F-9
76
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Fair Values of Financial Instruments

     The carrying values of cash and cash equivalents reported in the
accompanying consolidated balance sheets approximate fair value due to the
short-term maturities of these assets.

  Recently Issued Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of certain intangible assets and goodwill based on the criteria in SFAS
141.

     SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

     The Company's previous business combinations were accounted for using the
purchase method. As of August 4, 2001 (unaudited), the net carrying amount of
goodwill is $313,855. Amortization expense during the six-month period ended
August 4, 2001 (unaudited) was $5,562. The Company intends to complete the
transitional goodwill impairment test within six months from the date of
adoption. Currently, the Company is assessing but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial position and results
of operations.

2. ACQUISITIONS

     On October 30, 1999, the net assets of Babbage's Etc. LLC were purchased by
Barnes & Noble, Inc. The acquisition was accounted for by Barnes & Noble, Inc.
under the purchase method of accounting and the $198,927 excess of the $186,520
purchase price over the fair value of the net liabilities assumed has been
recorded as goodwill by the Company through the application of "push-down"
accounting in accordance with SAB 54. Based upon the purchase agreement, if
certain financial targets are met by GameStop in the fiscal year ended January
2002, Barnes & Noble, Inc. will make an additional payment of approximately
$10,000 to the former shareholders and as such, GameStop will recognize
additional goodwill of approximately $10,000 with a credit to paid-in-capital.
In connection with the acquisition of Babbage's Etc. LLC, its management
approved bonuses for its employees aggregating $26,789 which were charged to
operations during the 39 weeks ended October 30, 1999.

     On June 14, 2000, a wholly-owned subsidiary of Barnes & Noble, Inc.
acquired all of the outstanding shares of Funco, Inc., a Minneapolis-based
electronic games retailer. The acquisition was accounted for by Barnes & Noble,
Inc. under the purchase method of accounting. The excess of the $167,600
purchase price over the fair value of the net assets acquired, in the amount of
$131,400, has been recorded as goodwill.

                                       F-10
77
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The unaudited pro forma consolidated statements of operations data for the
39 weeks ended October 30, 1999, 13 weeks ended January 29, 2000, and 53 weeks
ended February 3, 2001, set forth below gives effect to the acquisitions of
Babbage's Etc. LLC and Funco, Inc. as if they occurred on January 30, 1999. The
unaudited pro forma results include adjustments to reflect a full year of
amortization of goodwill recorded in conjunction with the acquisition and
interest on the acquisition debt.
PREDECESSOR
                                             COMPANY                  SUCCESSOR COMPANY
                                         ----------------    ------------------------------------
                                          39 WEEKS ENDED      13 WEEKS ENDED      53 WEEKS ENDED
                                         OCTOBER 30, 1999    JANUARY 29, 2000    FEBRUARY 3, 2001
                                         ----------------    ----------------    ----------------
                                          (IN THOUSANDS)                (IN THOUSANDS)
Sales..................................      $474,300            $328,600            $828,000
Net earnings (loss)....................      $(23,600)           $  9,600            $(16,200)
Net earnings (loss) per share -- basic
  and diluted..........................      $                   $                   $
3. PAYABLE TO BARNES & NOBLE, INC.

     On November 18, 1997, Barnes & Noble, Inc. obtained an $850,000, five-year
senior revolving credit facility (the Revolving Credit Facility) with a
syndicate led by the Chase Manhattan Bank. The Revolving Credit Facility permits
borrowings at various interest rate options based upon the prime rate or London
Interbank Office Rate (LIBOR) depending upon certain financial tests. The
Revolving Credit Facility contains covenants, limitations, and events of default
typical of credit facilities of this size and nature, including financial
covenants which require and which limit capital expenditures pertaining to
Barnes & Noble, Inc. The Revolving Credit Facility is secured by the capital
stock, accounts receivable and general intangibles of the subsidiaries
(including the Company) of Barnes & Noble, Inc.

     Amounts available under the Revolving Credit Facility were used to fund the
acquisitions described in Note 2, and Barnes & Noble, Inc. has allocated such
debt to the Company, as reflected in the accompanying consolidated balance
sheets. Barnes & Noble, Inc. charged the Company interest of $3,347, $23,447,
$8,803 and $10,801, relating to this debt for the periods ended January 29, 2000
and February 3, 2001 and the 26 weeks ended July 29, 2000 (unaudited) and August
4, 2001 (unaudited), respectively.

4. RECEIVABLES, NET

     Receivables represent primarily bankcard and other receivables as follows:
JANUARY 29,    FEBRUARY 3,     AUGUST 4,
                                                       2000           2001           2001
                                                    -----------    -----------    -----------
                                                                                  (UNAUDITED)
                                                                 (IN THOUSANDS)
Bankcard receivables..............................    $2,311         $2,656         $3,102
Other receivables.................................       403          1,198            871
Allowance for doubtful accounts...................      (291)          (128)          (108)
                                                      ------         ------         ------
Total receivables, net............................    $2,423         $3,726         $3,865
                                                      ======         ======         ======
5. LEASES

     The Company leases retail stores, warehouse facilities, office space and
equipment. The retail stores are generally leased under noncancelable agreements
that expire at various dates through 2013 with various renewal options for
additional periods. The agreements, which have been classified as operating
leases, generally provide for both minimum and percentage rentals and require
the Company to pay all insurance, taxes and other maintenance costs. Percentage
rentals are based on sales performance in excess of specified minimums at
various stores.

                                       F-11
78
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Approximate rental expenses under operating leases are as follows:
PREDECESSOR COMPANY                        SUCCESSOR COMPANY
                                 -------------------------   -----------------------------------------------------
                                  52 WEEKS      39 WEEKS      13 WEEKS      53 WEEKS          26 WEEKS ENDED
                                    ENDED         ENDED         ENDED         ENDED      -------------------------
                                 JANUARY 30,   OCTOBER 30,   JANUARY 29,   FEBRUARY 3,    JULY 29,      AUGUST 4,
                                    1999          1999          2000          2001          2000          2001
                                 -----------   -----------   -----------   -----------   -----------   -----------
                                                                                                (UNAUDITED)
                                                                  (IN THOUSANDS)
Minimum........................    $21,000       $17,000       $ 6,000       $35,000       $14,000       $21,000
Percentage rentals.............      6,000         4,000         4,000         6,000         2,000         2,000
                                   -------       -------       -------       -------       -------       -------
                                   $27,000       $21,000       $10,000       $41,000       $16,000       $23,000
                                   =======       =======       =======       =======       =======       =======
Future minimum annual rentals, excluding percentage rentals, required under
leases that had initial, noncancelable lease terms greater than one year, as of
February 3, 2001 are approximately:
YEAR ENDED                                                   AMOUNT
----------                                               --------------
                                                         (IN THOUSANDS)
January 2002...........................................     $ 37,000
January 2003...........................................       33,000
January 2004...........................................       25,000
January 2005...........................................       19,000
January 2006...........................................       14,000
Thereafter.............................................       39,000
                                                            --------
                                                            $167,000
                                                            ========
6. LITIGATION

     Various claims and lawsuits arising in the normal course of business are
pending against the Company. The subject matter of these proceedings primarily
includes commercial disputes and employment issues. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of operations.

7. INCOME TAXES

     For periods prior to the acquisition of Babbage's Etc. LLC by Barnes &
Noble, Inc., the Company's predecessor was not subject to federal and most state
income taxes, and its income was taxed directly to its members. Accordingly, the
consolidated statement of operations includes the actual state taxes paid
totaling $582 and $100 for the 52 weeks ended January 30, 1999 and 39 weeks
ended October 30, 1999, respectively.

     Subsequent to the acquisition, the financial statements reflect income
taxes as if the Company had filed separate tax returns as a "C" corporation on a
stand-alone basis.

                                       F-12
79
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The historical provision for income tax consisted of the following:
26 WEEKS ENDED
                                      13 WEEKS ENDED      53 WEEKS ENDED     -------------------------------
                                     JANUARY 29, 2000    FEBRUARY 3, 2001    JULY 29, 2000    AUGUST 4, 2001
                                     ----------------    ----------------    -------------    --------------
                                                                                       (UNAUDITED)
                                                                 (IN THOUSANDS)
Current tax expense (benefit):
  Federal..........................       $3,493              $(5,300)          $(2,800)         $(4,439)
  State............................          868               (1,175)             (620)          (1,103)
                                          ------              -------           -------          -------
                                           4,361               (6,475)           (3,420)          (5,542)
                                          ------              -------           -------          -------
Deferred tax expense (benefit):
  Federal..........................          526                  690            (1,910)            (625)
  State............................          131                  285              (370)            (155)
                                          ------              -------           -------          -------
                                             657                  975            (2,280)            (780)
                                          ------              -------           -------          -------
Total income tax expense
  (benefit)........................       $5,018              $(5,500)          $(5,700)         $(6,322)
                                          ======              =======           =======          =======
The difference in income tax provided and the amounts determined by
applying the statutory rate to income before income taxes result from the
following:
26 WEEKS ENDED
                                      13 WEEKS ENDED      53 WEEKS ENDED     -------------------------------
                                     JANUARY 29, 2000    FEBRUARY 3, 2001    JULY 29, 2000    AUGUST 4, 2001
                                     ----------------    ----------------    -------------    --------------
                                                                                       (UNAUDITED)
Federal statutory tax rate.........        35.0%               (35.0%)           (35.0%)          (35.0%)
State income taxes, net of federal
  benefit..........................         5.3                 (2.9)             (3.5)            (4.9)
Non-deductible Goodwill
  amortization.....................         0.5                  6.4               1.6              4.5
Other (including permanent
  differences).....................          --                  0.1               0.2              0.9
                                           ----                -----             -----            -----
                                           40.8%               (31.4%)           (36.7%)          (34.5%)
                                           ====                =====             =====            =====
Differences between financial accounting principles and tax laws cause
differences between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes. The tax effects of these differences, to
the extent they are temporary, are recorded as deferred tax assets and
liabilities under SFAS 109. Deferred tax assets primarily relate to inventory
capitalization temporary differences and deferred tax liabilities primarily
relate to temporary differences in connection with tax-deductible goodwill.

8. STOCK OPTION PLAN

     Effective September 13, 2000, the Company's stockholders approved the 2000
Incentive Plan of GameStop, Inc. (the "Option Plan"). The Option Plan provides a
maximum aggregate amount of 1,000,000 common stock with respect to which options
may be granted and provides for the granting of incentive stock options,
non-qualified stock options, and restricted stock, which may include, without
limitation, restrictions on the right to vote such shares and restrictions on
the right to receive dividends on such shares. The options to purchase common
shares generally are issued at fair market value on the date of grant.
Generally, the options vest and become exercisable ratably over a three-year
period, commencing one year after the grant date, and expire ten years from
issuance.

     On December 5, 2000, the Company granted 498,625 options to its employees
based upon the fair value of the shares at the date of grant ($31.74 per share)
as determined by an independent appraisal. On June 13, 2001 (unaudited), options
to acquire 500,000 shares were granted with immediate vesting at an exercise
price of $40.55 per share to Leonard Riggio based on the fair value at the date
of grant as

                                       F-13
80
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined by an independent appraisal. During the 26 weeks ended August 4,
2001, (unaudited) 14,625 options were forfeited. At August 4, 2001 (unaudited),
the Company had 984,000 options outstanding.

     During the thirteen weeks ended January 29, 2000, options to acquire
approximately 350,000 shares of Barnes & Noble, Inc. were issued to GameStop
employees pursuant to the Barnes & Noble, Inc. stock option plan. Such grants
were made at the fair market value of Barnes & Noble, Inc. common stock at the
date of grant.

     The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options and, accordingly, no compensation cost has been
recognized for stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options, including options in Barnes & Noble, Inc. common stock granted to
GameStop employees, consistent with the method set forth under SFAS No. 123, the
Company's pro forma net loss and loss per share for the 13 weeks ended January
29, 2000, the 53 weeks ended February 3, 2001 and for the 26 weeks ended August
4, 2001 (unaudited) would have been as follows:
SUCCESSOR COMPANY
                                            --------------------------------------------------
                                            13 WEEKS ENDED    53 WEEKS ENDED    26 WEEKS ENDED
                                             JANUARY 29,       FEBRUARY 3,        AUGUST 4,
                                                 2000              2001              2001
                                            --------------    --------------    --------------
                                                                                 (UNAUDITED)
                                                              (IN THOUSANDS)
Net earnings (loss):
  As reported.............................      $7,291           $(11,897)         $(11,982)
  Pro forma...............................      $7,221           $(13,506)         $(26,540)
Net earnings (loss) per share -- assuming
  dilution:
  As reported.............................      $                $                 $
  Pro forma...............................      $                $                 $
The weighted-average fair value of the options granted during the 13 weeks
ended January 29, 2000, the 53 weeks ended February 3, 2001, and the 26 weeks
ended August 4, 2001 were estimated at $12.26, $19.64 and $24.78, respectively,
using the Black-Scholes option pricing model with the following assumptions:
SUCCESSOR COMPANY
                                            --------------------------------------------------
                                            13 WEEKS ENDED    53 WEEKS ENDED    26 WEEKS ENDED
                                             JANUARY 29,       FEBRUARY 3,        AUGUST 4,
                                                 2000              2001              2001
                                            --------------    --------------    --------------
                                                                                 (UNAUDITED)
Volatility................................       61.1%             61.1%             61.1%
Risk-free interest rate...................       6.54%             5.56%             4.97%
Expected life (years).....................        6.0               6.0               6.0
9. EMPLOYEES' DEFINED CONTRIBUTION PLAN

     The Company sponsors a defined contribution plan (the Savings Plan) for the
benefit of substantially all of its employees who meet certain eligibility
requirements, primarily age and length of service. The Savings Plan allows
employees to invest up to 15% of their current gross cash compensation invested
on a pre-tax basis, at their option. The Company's optional contributions to the
Savings Plan are generally in amounts based upon a certain percentage of the
employees' contributions. The Company's contributions to the Savings Plan during
the period ended January 29, 2000 and February 3, 2001, were $364 and $491,
respectively.

                                       F-14
81
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company also operates departments within bookstores operated by Barnes
& Noble, Inc. (Barnes & Noble), an affiliate of the Company. The Company pays a
license fee to Barnes & Noble in amounts equal to 7.0% of the gross sales of
such departments. During the periods ended January 30, 1999, October 30, 1999,
January 29, 2000, and February 3, 2001, these charges amounted to $822, $641,
$322 and $886, respectively.

     The Company participates in Barnes & Noble's worker's compensation,
property and general liability insurance programs and is allocated a portion of
the program's costs. During the periods ended January 30, 1999, October 30,
1999, January 29, 2000 and February 3, 2001, these charges for inclusion in such
programs amounted to $542, $347, $116 and $632, respectively.

     On May 1, 2001, the Company entered into an agreement with
barnesandnoble.com llc, a company in which Barnes & Noble owns an approximately
36% interest, pursuant to which the Company sells video game products and PC
entertainment software through barnesandnoble.com's web site. The Company pays
barnesandnoble.com llc a referral fee equal to approximately 7.5% of its net
sales revenue resulting from purchases made through barnesandnoble.com llc's web
site. For the period ended August 4, 2001, these referral fees amounted to $7.

11. SUPPLEMENTAL CASH FLOW INFORMATION
PREDECESSOR COMPANY                           SUCCESSOR COMPANY
                            --------------------------    --------------------------------------------------------
                             52 WEEKS       39 WEEKS       13 WEEKS       53 WEEKS            26 WEEKS ENDED
                               ENDED          ENDED          ENDED          ENDED       --------------------------
                            JANUARY 30,    OCTOBER 30,    JANUARY 29,    FEBRUARY 3,     JULY 29,       AUGUST 4,
                               1999           1999           2000           2001           2000           2001
                            -----------    -----------    -----------    -----------    -----------    -----------
                                                                                               (UNAUDITED)
                                                                (IN THOUSANDS)
Cash paid during the
  period for:
  Interest................    $4,797          $862         $     --       $     --       $     --          $--
                              ======          ====         ========       ========       ========          ==
  Income taxes............        --            --              100             --             --          --
                              ======          ====         ========       ========       ========          ==
Subsidiaries acquired:
  Goodwill................    $   --          $ --         $198,927       $131,400       $131,400          $--
  Cash received in
    acquisition...........        --            --          (10,760)       (10,836)       (10,836)         --
  Accrued acquisition
    costs.................        --            --               --             --         (4,002)         --
  Net assets acquired (or
    liabilities
    assumed)..............        --            --          (12,407)        36,200         36,200          --
                              ------          ----         --------       --------       --------          --
Cash paid.................    $   --          $ --         $175,760       $156,764       $152,762          $--
                              ======          ====         ========       ========       ========          ==
12. SUBSEQUENT EVENTS

     In August 2001, the Company's Board of Directors authorized the filing of a
Registration Statement on Form S-1 in connection with a planned initial public
offering of the Company's common stock.

     The Company's stockholder approved the 2001 Incentive Plan of GameStop
Corp. The 2001 Incentive Plan will assume all stock options outstanding as of
the effective date under the 2000 Incentive Plan of GameStop, Inc. under the
same terms.

13. PRO FORMA BALANCE SHEET (UNAUDITED)

     Upon the effective date of the initial public offering, Barnes & Noble,
Inc. will contribute the difference between the aggregate amount of the
intercompany loan balance and $250 million as additional

                                       F-15
82
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

paid-in-capital. The accompanying consolidated balance sheet includes a pro
forma column to reflect this contribution as if it had taken place at August 4,
2001.

14. UNAUDITED QUARTERLY FINANCIAL INFORMATION

     The following table sets forth certain unaudited quarterly consolidated
statement of operations information for fiscal 1999, 2000, and the first two
quarters of fiscal 2001. The unaudited quarterly information includes all normal
recurring adjustments that management considers necessary for a fair
presentation of the information shown.
FISCAL 1999                                FISCAL 2000                      FISCAL 2001
                       ---------------------------------------   -----------------------------------------   -------------------
                         1ST       2ND       3RD        4TH        1ST        2ND        3RD        4TH        1ST        2ND
                       QUARTER   QUARTER   QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                       -------   -------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                    (IN THOUSANDS)
Sales................  $98,489   $88,323   $142,580   $223,748   $120,003   $127,154   $182,486   $327,054   $201,355   $206,806
Gross profit.........   26,542    24,889     31,096     48,940     30,007     33,619     47,383     74,693     48,008     53,711
Operating earnings
  (loss)(1)..........    3,434     2,093    (22,376)    15,432        697     (7,480)    (1,453)    14,250     (5,341)    (2,162)
Net earnings
  (loss)(1)..........    1,853       965    (20,739)     7,291     (1,689)    (8,172)    (5,683)     3,647     (7,182)    (4,800)
---------------
(1) In the third quarter of fiscal year 1999, operating and net losses include
    the payment of $26,789 as a bonus granted to employees of Babbage's Etc.
    LLC.

                                       F-16
83

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Funco, Inc.

     We have audited the accompanying consolidated balance sheets of Funco, Inc.
as of April 2, 2000 and March 28, 1999, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended April 2, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Funco, Inc. at
April 2, 2000 and March 28, 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended April 2,
2000, in conformity with accounting principles generally accepted in the United
States.

                                          ERNST & YOUNG LLP

May 8, 2000

                                       F-17
84

                                  FUNCO, INC.

                          CONSOLIDATED BALANCE SHEETS
APRIL 2,    MARCH 28,
                                                                2000        1999
                                                              --------    ---------
                                                                 (IN THOUSANDS)
ASSETS
Current assets:
  Cash and cash equivalents.................................  $14,701      $ 8,550
  Short-term investments....................................      410           --
  Accounts receivable.......................................    1,195        2,020
  Inventories...............................................   30,280       28,485
  Prepaid expenses..........................................    3,996        2,948
  Current deferred tax asset................................      676          640
                                                              -------      -------
Total current assets........................................   51,258       42,643
Net property and equipment..................................   15,696       11,334
Long-term deferred tax asset................................      982        1,064
Other assets................................................       63           99
                                                              -------      -------
Total assets................................................  $67,999      $55,140
                                                              =======      =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $15,187      $ 9,831
  Accrued liabilities.......................................    4,789        5,266
  Deferred revenue..........................................      948          994
                                                              -------      -------
Total current liabilities...................................   20,924       16,091
Accrued rent................................................      324          213
Shareholders' equity:
  Common stock, $0.01 par value (issued and outstanding for
     2000 and 1999, respectively: 6,014,403 and
     5,894,760).............................................       60           59
  Additional paid-in capital................................   16,427       15,238
  Retained earnings.........................................   30,264       23,539
                                                              -------      -------
Total shareholders' equity..................................   46,751       38,836
                                                              -------      -------
Total liabilities and shareholders' equity..................  $67,999      $55,140
                                                              =======      =======
See accompanying notes.
                                       F-18
85

                                  FUNCO, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED
                                                         -----------------------------------------------
                                                           APRIL 2,         MARCH 28,        MARCH 29,
                                                             2000             1999             1998
                                                         -------------    -------------    -------------
                                                         (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales..............................................   $  252,653       $  206,673       $  163,316
Cost of sales..........................................      173,543          138,693          106,628
                                                          ----------       ----------       ----------
Gross profit...........................................       79,110           67,980           56,688
Operating expenses.....................................       54,901           41,792           33,746
General and administrative expenses....................       13,427           10,587            9,512
                                                          ----------       ----------       ----------
Operating income.......................................       10,782           15,601           13,430
Interest expense.......................................          (36)             (12)             (20)
Interest income........................................          334              417              295
                                                          ----------       ----------       ----------
Net income before income taxes.........................       11,080           16,006           13,705
Income tax provision...................................        4,355            6,296            5,435
                                                          ----------       ----------       ----------
Net income.............................................   $    6,725       $    9,710       $    8,270
                                                          ==========       ==========       ==========
Basic net income per share:
  Basic net income per share...........................   $     1.13       $     1.60       $     1.35
Weighted average number of common shares...............    5,970,987        6,077,986        6,137,161
Diluted net income per share:
  Diluted net income per share.........................   $     1.08       $     1.53       $     1.26
Weighted average number of common and common equivalent
  shares...............................................    6,246,558        6,353,311        6,572,365
See accompanying notes.
                                       F-19
86

                                  FUNCO, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON STOCK      ADDITIONAL                    TOTAL
                                           ----------------     PAID-IN      RETAINED    SHAREHOLDERS'
                                           SHARES    AMOUNT     CAPITAL      EARNINGS       EQUITY
                                           ------    ------    ----------    --------    -------------
                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at March 30, 1997................  6,057      $61       $18,698      $ 5,559        $24,318
  Common stock issued, net of costs......    127        1           634           --            635
  Tax benefits of stock options..........     --       --           302           --            302
  Net income.............................     --       --            --        8,270          8,270
                                           -----      ---       -------      -------        -------
Balance at March 29, 1998................  6,184       62        19,634       13,829         33,525
  Common stock issued, net of costs......    125        1           560           --            561
  Tax benefits of stock options..........     --       --           260           --            260
  Repurchase of common stock.............   (414)      (4)       (5,216)          --         (5,220)
  Net income.............................     --       --            --        9,710          9,710
                                           -----      ---       -------      -------        -------
Balance at March 28, 1999................  5,895       59        15,238       23,539         38,836
  Common stock issued, net of costs......    119        1           872           --            873
  Tax benefits of stock options..........     --       --           317           --            317
  Net income.............................     --       --            --        6,725          6,725
                                           -----      ---       -------      -------        -------
Balance at April 2, 2000.................  6,014      $60       $16,427      $30,264        $46,751
                                           =====      ===       =======      =======        =======
See accompanying notes.
                                       F-20
87

                                  FUNCO, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
                                                              ----------------------------------
                                                              APRIL 2,    MARCH 28,    MARCH 29,
                                                                2000        1999         1998
                                                              --------    ---------    ---------
                                                                        (IN THOUSANDS)
Operating activities
Net income..................................................  $ 6,725      $ 9,710      $ 8,270
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................    4,941        3,650        3,126
  Deferred tax (benefit)....................................       46           21         (209)
  Net loss on disposal of property and equipment............      119          123          105
  Changes in operating assets and liabilities:
     Accounts receivable....................................      825          107       (1,033)
     Inventories............................................   (1,795)      (6,998)      (7,656)
     Prepaid expenses.......................................   (1,048)      (1,773)        (393)
     Accounts payable.......................................    5,356        4,997        3,447
     Accrued liabilities....................................     (366)        (896)       1,102
     Deferred revenue.......................................      (46)         102          145
                                                              -------      -------      -------
Net cash provided by operating activities...................   14,757        9,043        6,904
Investing activities
Additions of property and equipment.........................   (9,378)      (6,838)      (5,380)
Increase in other assets....................................       (8)         (11)        (110)
Purchases of short-term investments.........................     (410)      (3,075)      (1,460)
Sales of short-term investments.............................       --        4,535           --
Proceeds from sales of property and equipment...............       --           --           16
                                                              -------      -------      -------
Net cash used in investing activities.......................   (9,796)      (5,389)      (6,934)
Financing activities
Payments of obligations under capital leases................       --           --          (20)
Payments for repurchase of common stock.....................       --       (5,220)          --
Net proceeds from issuance of common stock..................    1,190          821          937
                                                              -------      -------      -------
Net cash provided by (used in) financing activities.........    1,190       (4,399)         917
                                                              -------      -------      -------
Increase (decrease) in cash and cash equivalents............    6,151         (745)         887
Cash and cash equivalents at beginning of year..............    8,550        9,295        8,408
                                                              -------      -------      -------
Cash and cash equivalents at end of year....................  $14,701      $ 8,550      $ 9,295
                                                              =======      =======      =======
See accompanying notes.
                                       F-21
88

                                  FUNCO, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 APRIL 2, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

  NATURE OF BUSINESS

     Funco, Inc. operates a single business segment, providing interactive home
entertainment primarily through the purchase and resale of new and previously
played video games, related hardware and accessory items through its FuncoLand
stores, mail order operation and FuncoLand Superstore Web site. Accordingly,
additional disclosures under Statement of Financial Accounting Standards No. 131
(SFAS No. 131), "Disclosures About Segments of an Enterprise and Related
Information," are not required. Funco, Inc. also publishes a video game
magazine, Game Informer. The Company was incorporated in Minnesota in March
1988.

  PRINCIPLES OF CONSOLIDATION

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

  REVENUE RECOGNITION

     Revenue from retail sales of the Company's products is recognized at the
time of sale. Deferred revenue represents amounts received for subscriptions to
a specified number of future video game magazine issues. Subscription revenue is
recognized on a straight-line basis as magazine issues are delivered.

  ADVERTISING COSTS

     Advertising costs, included in operating expenses, are expensed as incurred
and were $3,933,000, $2,769,000 and $2,309,000 for the years 2000, 1999 and
1998, respectively.

  FISCAL YEAR

     The Company's fiscal year ends on a Sunday on or near March 31. The fiscal
year ended April 2, 2000 consisted of 53 weeks and fiscal years ended March 28,
1999 and March 29, 1998 consisted of 52 weeks each. Unless otherwise stated,
references to years in this report relate to fiscal years rather than calendar
years.

  CASH EQUIVALENTS

     Cash equivalents represent investments with a maturity of three months or
less at the time of purchase. Cash equivalents are recorded at cost, which
approximates market.

  SHORT-TERM INVESTMENTS

     Short-term investments represent investments with a maturity of greater
than three months at the time of purchase. Realized gains and losses and
declines in value judged to be other-than-temporary on short-term investments
are included in interest income. Short-term investments are recorded at cost,
which approximates market.

  INVENTORIES

     Inventories consist of new and previously played video games, hardware and
accessories and are valued at the lower of cost, determined using the first-in,
first-out (FIFO) method, or market.

                                       F-22
89
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. The Company uses the
straight-line method of computing depreciation based on the assets' estimated
useful lives, which range from three to five years.

  IMPAIRMENT OF LONG-LIVED ASSETS

     The Company records impairment losses of long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts.

  INTERNAL-USE SOFTWARE

     During fiscal 1999, the Company adopted Statement of Position No. 98-1 (SOP
No. 98-1), "Internal Use Software." Under SOP No. 98-1, companies are required
to capitalize certain development costs related to internal-use software. The
Company is amortizing these costs over five years. Total capitalized costs for
fiscal 2000 and 1999 were $322,000 and $279,000, respectively. The Company
historically expensed these costs.

  PRE-OPENING COSTS

     The Company adopted Statement of Position No. 98-5 (SOP No. 98-5)
"Reporting on the Cost of Start-Up Activities," in fiscal 1999. SOP No. 98-5
requires the costs of start-up activities, including store opening costs, to be
expensed in the period incurred. The Company historically amortized these costs
over 12 months. Annual results were not materially impacted by the adoption.

  STOCK OPTIONS

     The Company has elected to recognize compensation cost for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
expense is recognized for stock options with exercise prices equal to, or in
excess of, the market value of the underlying shares of stock at the date of
grant. The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation."

  NET INCOME PER SHARE

     Basic net income per share is computed based on the weighted average number
of common shares outstanding during each period. Diluted net income per share
includes the incremental shares assumed issued on the exercise of stock options.
Unless otherwise stated, all references to income per share are calculated using
the diluted method.

  USE OF ESTIMATES

     Preparing financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reporting amounts in the financial statements and accompanying notes.
Actual results could differ from these estimates.

2. FINANCING ARRANGEMENTS

     The Company has a $5,000,000 unsecured revolving credit facility with a
commercial bank, seasonally increasing to $20,000,000. The interest rate on
outstanding borrowings under the facility (8.04% for the month ended April 2,
2000) is based upon LIBOR plus 200 basis points. The facility requires the

                                       F-23
90
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company to maintain certain financial ratios and achieve certain operating
results. The Company has no borrowings under the facility at April 2, 2000 or
March 28, 1999.

3. LEASES

     The Company has rental commitments for office space, retail space, office
equipment and vehicles under non-cancelable operating leases. Most of these
leases contain provisions for renewal options and require the Company to pay
other lease-related costs.

     Future minimum lease payments under non-cancelable operating leases consist
of the following:
(IN THOUSANDS)
                                                         --------------
2001.................................................       $11,133
2002.................................................         8,185
2003.................................................         5,194
2004.................................................         1,969
2005.................................................           974
                                                            -------
Total................................................       $27,455
                                                            =======
Rent expense was $10,172,000, $7,904,000 and $6,254,000, for the years
2000, 1999 and 1998, respectively.

4. PROPERTY AND EQUIPMENT

     Net property and equipment consist of the following:
2000        1999
                                                         --------    --------
                                                            (IN THOUSANDS)
Furniture and fixtures.................................  $ 10,021    $  7,474
Equipment..............................................    13,937      10,528
Leasehold improvements.................................    12,030       9,497
Other..................................................        65          64
                                                         --------    --------
Gross property and equipment...........................    36,053      27,563
Less accumulated depreciation..........................   (20,357)    (16,229)
                                                         --------    --------
Net property and equipment.............................  $ 15,696    $ 11,334
                                                         ========    ========
5. ACCRUED LIABILITIES

     Accrued liabilities consist of the following:
2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
Purchase credit memos payable..............................  $2,162    $1,848
Employee compensation and related taxes....................     955     1,338
Sales tax payable..........................................     943       940
Income tax payable.........................................      --       664
Other accrued liabilities..................................     729       476
                                                             ------    ------
Total accrued liabilities..................................  $4,789    $5,266
                                                             ======    ======
F-24
91
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCK OPTIONS

     Under the terms of the Company's various stock option plans, a maximum of
1,450,000 shares of common stock has been reserved for issuance to directors,
officers and employees, upon the exercise of stock options. Annually, on May 1,
the Company reserves an additional 1% of the total number of Common Stock shares
outstanding at fiscal year-end. Subsequent to April 2, 2000, the Company has
reserved an additional 59,897 shares for use in its stock option plan. The stock
options are exercisable over periods up to ten years from date of grant and
include incentive stock options and nonqualified stock options.

     At April 2, 2000, there were 890,029 options outstanding. Options
exercisable at the end of years 2000, 1999 and 1998 were 890,029, 544,056 and
442,961, respectively. A summary of stock option transactions is as follows:
WEIGHTED AVERAGE
                                                                 EXERCISE PRICE
                                                    SHARES         PER SHARE
                                                   ---------    ----------------
Outstanding March 30, 1997.......................    799,633         $ 7.16
  Granted........................................    286,936          15.37
  Exercised......................................   (124,771)          5.11
  Canceled.......................................    (22,905)         10.90
                                                   ---------         ------
Outstanding March 29, 1998.......................    938,893           9.85
  Granted........................................    270,434          13.34
  Exercised......................................   (124,583)          4.57
  Canceled.......................................    (46,599)         13.40
                                                   ---------         ------
Outstanding March 28, 1999.......................  1,038,145          11.24
  Granted........................................      7,700          17.40
  Exercised......................................   (119,643)          7.98
  Canceled.......................................    (36,173)         14.13
                                                   ---------         ------
Outstanding April 2, 2000........................    890,029         $11.61
                                                   =========         ======
The following table summarizes information concerning outstanding and
exercisable options:
WEIGHTED AVERAGE
RANGE OF                     REMAINING
EXERCISE      NUMBER      CONTRACTUAL LIFE   WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
 PRICES     OUTSTANDING       (YEARS)         EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
---------   -----------   ----------------   ----------------   -----------   ----------------
$ 0 - $ 4      11,001           5.36              $ 3.21           11,001          $ 3.21
$ 4 - $ 8     160,733           3.91                5.85          160,733            5.85
$ 8 - $12     193,499           4.74                9.37          193,499            9.37
$12 - $16     482,596           6.76               14.11          482,596           14.11
$16 - $20      42,200           3.29               17.35           42,200           17.35
---------     -------           ----              ------          -------          ------
$ 0 - $20     890,029           5.62              $11.61          890,029          $11.61
=========     =======           ====              ======          =======          ======
In fiscal 2000, the Company issued 119,643 shares of stock through the
exercise of stock options at prices ranging from $3.40 to $15.27 per share,
generating net proceeds, including tax benefits, of $1,190,000.

                                       F-25
92
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In fiscal 1999, the Company's Board of Directors authorized the repurchase
of up to 700,000 shares of the Company's common stock. During fiscal 1999,
Company repurchased 414,800 shares of common stock at an aggregate price of
$5,220,000.

     The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has elected to continue to account for
stock-based compensation plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," making the pro forma
disclosures of net earnings and earnings per share as if the fair value-based
method had been applied. Accordingly, no compensation expense is recognized for
stock options with exercise prices equal to, or in excess of, the market value
of the underlying shares of stock at the date of grant. Had compensation expense
been recognized based on the fair value at the date of grant following
provisions of SFAS No. 123, the Company's pro forma net income and net income
per share would have been as follows:
2000      1999      1998
                                                           ------    ------    ------
                                                             (IN THOUSANDS, EXCEPT
                                                                PER SHARE DATA)
Net income
  As reported............................................  $6,725    $9,710    $8,270
  Pro forma..............................................   4,641     8,794     7,594
Income per common share -- basic:
  As reported............................................  $ 1.13    $ 1.60    $ 1.35
  Pro forma..............................................     .78      1.48      1.26
Income per common share -- diluted:
  As reported............................................  $ 1.08    $ 1.53    $ 1.26
  Pro forma..............................................     .74      1.42      1.17
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
2000       1999       1998
                                                        -------    -------    -------
Expected volatility...................................     66.0%      80.5%      70.1%
Risk-free interest rate...............................      6.0%       5.7%       6.0%
Expected dividend yield...............................      0.0%       0.0%       0.0%
Expected life of options..............................  3 Years    3 Years    3 Years
The pro forma effect on net income and net income per share does not take
into consideration pro forma compensation expense related to grants made prior
to fiscal 1996.

     The weighted average fair value for options with an exercise price equal to
market price granted during years 2000, 1999 and 1998 is $8.57, $6.70 and $7.65
per share, respectively. The weighted average fair value for options with an
exercise price greater than market price granted during fiscal 1998 is $7.03. No
options with an exercise price greater than market price were granted in fiscal
years 2000 or 1999.

                                       F-26
93
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. NET INCOME PER SHARE

     In accordance with Statement of Financial Accounting Standards No. 128
"Earnings Per Share," the following table presents a reconciliation of the
numerators and denominators of basic and diluted net income per common share for
the years 2000, 1999 and 1998:
2000              1999              1998
                                                 --------------    --------------    --------------
                                                  (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Numerator:
  Net income...................................    $    6,725        $    9,710        $    8,270
                                                   ==========        ==========        ==========
Denominator:
  Denominator for basic net income per share --
     weighted average shares...................     5,970,987         6,077,986         6,137,161
Dilutive securities:
  Employee stock options.......................       275,571           275,325           435,204
                                                   ----------        ----------        ----------
Denominator for diluted net income per share --
  adjusted weighted average shares.............     6,246,558         6,353,311         6,572,365
                                                   ==========        ==========        ==========
Basic net income per share.....................    $     1.13        $     1.60        $     1.35
                                                   ==========        ==========        ==========
Diluted net income per share...................    $     1.08        $     1.53        $     1.26
                                                   ==========        ==========        ==========
8. INCOME TAXES

     Significant components of the provision for income taxes for the years
2000, 1999 and 1998 are as follows:
2000      1999      1998
                                                           ------    ------    ------
                                                                 (IN THOUSANDS)
Current:
  Federal................................................  $3,404    $4,957    $4,346
  State..................................................     905     1,318     1,298
                                                           ------    ------    ------
Current tax expense......................................   4,309     6,275     5,644
Deferred:
  Federal................................................      37        17      (159)
  State..................................................       9         4       (50)
                                                           ------    ------    ------
Deferred tax expense (benefit)...........................      46        21      (209)
                                                           ------    ------    ------
Net income tax provision.................................  $4,355    $6,296    $5,435
                                                           ======    ======    ======
F-27
94
                                  FUNCO, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes are due to temporary differences between carrying
values of certain assets and liabilities for financial reporting and income tax
purposes. Significant components of deferred taxes at April 2, 2000 and March
28, 1999, are as follows:
2000      1999
                                                             ------    ------
                                                              (IN THOUSANDS)
Accrued rent...............................................  $  211    $  222
Inventories................................................     254       474
Depreciation...............................................   1,222     1,212
Other......................................................     (29)     (204)
                                                             ------    ------
Net deferred tax asset.....................................  $1,658    $1,704
                                                             ======    ======
Income taxes of $5,338,000, $7,017,000 and $4,518,000 were paid in the
years 2000, 1999 and 1998, respectively.

     Reconciliation of the Company's tax rate is as follows:
2000        1999        1998
                                                           --------    --------    --------
                                                           (IN THOUSANDS, EXCEPT TAX RATE)
Expected tax expense.....................................   $3,767      $5,442      $4,701
State income tax, net of federal benefit.................      658         870         820
Other....................................................      (70)        (16)        (86)
                                                            ------      ------      ------
Net income tax provision.................................   $4,355      $6,296      $5,435
                                                            ======      ======      ======
Effective tax rate.......................................       39%         39%         40%
                                                            ======      ======      ======
9. SUBSEQUENT EVENT

     The Company entered into an Agreement and Plan of Merger with Barnes &
Noble, Inc. and B&N Acquisition Corporation, pursuant to which B&N Acquisition
Corporation, an indirect wholly-owned subsidiary of Barnes & Noble, Inc., will
offer to purchase all of the Company's issued and outstanding common stock for
$24.75 per share, or an aggregate purchase price of approximately $161.5
million. The transaction is expected to close in June 2000. In connection with
the Agreement, Barnes & Noble is obligated to indemnify the Company for payment
of a termination fee of $3,500,000 plus expenses to Electronics Boutique
Holdings Corp.

                                       F-28
95

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

                                                  SHARES
                                 GAMESTOP CORP.
                              CLASS A COMMON STOCK

                                [GAMESTOP LOGO]

                                  ------------
                                   PROSPECTUS
                                            , 2001

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

                              SALOMON SMITH BARNEY
                                  UBS WARBURG

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
96

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by us:
SEC Registration fee........................................  $81,250
NASD Filing fee.............................................   30,500
Nasdaq National Market fee..................................         *
Transfer agent and registrar fees and expenses..............         *
Printing and engraving expenses.............................         *
Legal fees and expenses.....................................         *
Accounting fees.............................................         *
Miscellaneous...............................................         *
          Total.............................................  $      *
---------------
* To be provided by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Our certificate of incorporation and by-laws require us to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding by reason of the fact that he is or
was our director or officer or any other person designated by the board of
directors (which may include any person serving at our request as a director,
officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise), in each case, against certain liabilities (including damages,
judgments, amounts paid in settlement, fines, penalties and expenses (including
attorneys' fees and disbursements)), except where such indemnification is
expressly prohibited by applicable law, where such person has engaged in willful
misconduct or recklessness or where such indemnification has been determined to
be unlawful. Such indemnification as to expenses is mandatory to the extent the
individual is successful on the merits of the matter. Delaware law permits us to
provide similar indemnification to employees and agents who are not directors or
officers. The determination of whether an individual meets the applicable
standard of conduct may be made by the disinterested directors, independent
legal counsel or the stockholders. Delaware law also permits indemnification in
connection with a proceeding brought by or in our right to procure a judgment in
our favor. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, or
persons controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

     None.

                                       II-1
97

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

     The following is a list of exhibits filed as part of this Registration
Statement.
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
1.1    Form of Underwriting Agreement.**
   3.1    Amended and Restated Certificate of Incorporation.**
   3.2    Bylaws.**
   5.1    Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
          regarding legality of the shares of Class A common stock
          being registered.**
  10.1    Separation Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.2    Tax Disaffiliation Agreement, between Barnes & Noble and
          GameStop Corp.**
  10.3    Insurance Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.4    Operating Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.5    2001 Incentive Plan.**
  10.6    Lease, dated as of March 6, 1997, between RREEF Mid-Cities
          Industrial L.P. and Babbage's Etc. LLC.**
  10.7    First Amendment to Lease, dated as of December 30, 1999,
          between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
          LLC.**
  11.1    Statement re: Computation of Per Share Earnings.**
  21.1    Subsidiaries*
  23.1    Consent of BDO Seidman, LLP.*
  23.2    Consent of Ernst & Young LLP*
  23.3    Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
          (included in its opinion filed as Exhibit 5.1 hereto).**
  24.1    Power of Attorney (included on signature page to this
          Registration Statement).*
---------------
 * Filed herewith.

** To be filed by amendment.

ITEM 17.  UNDERTAKINGS.

      (i) The undersigned hereby undertakes to provide to the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

      (ii) 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 Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

                                       II-2
98

     (iii) The undersigned registrant hereby 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.

                                       II-3
99

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Grapevine, Texas on
August 24, 2001.

                                          GAMESTOP CORP.

                                          By: /s/ R. RICHARD FONTAINE
                                            ------------------------------------
                                              R. Richard Fontaine
                                              Chief Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below hereby constitutes and appoints R. Richard Fontaine, Daniel A. DeMatteo,
David W. Carlson and Michael N. Rosen, and each or any of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective documents
in connection therewith), with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME                                       TITLE                      DATE
                       ----                                       -----                      ----
/s/ R. RICHARD FONTAINE                Chief Executive Officer            August 24, 2001
---------------------------------------------------    (Principal Executive Officer)
                R. Richard Fontaine

               /s/ DAVID W. CARLSON                  Chief Financial Officer            August 24, 2001
---------------------------------------------------    (Principal Financial Officer
                 David W. Carlson                      and Principal Accounting
                                                       Officer)

                /s/ LEONARD RIGGIO                   Director                           August 24, 2001
---------------------------------------------------
                  Leonard Riggio

               /s/ MICHAEL N. ROSEN                  Secretary and Director             August 24, 2001
---------------------------------------------------
                 Michael N. Rosen
II-4
100

                                 EXHIBIT INDEX
EXHIBIT
  NO.                             DESCRIPTION
-------                           -----------
1.1    Form of Underwriting Agreement.**
   3.1    Amended and Restated Certificate of Incorporation.**
   3.2    Bylaws.**
   5.1    Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
          regarding legality of the shares of Class A common stock
          being registered.**
  10.1    Separation Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.2    Tax Disaffiliation Agreement, between Barnes & Noble and
          GameStop Corp.**
  10.3    Insurance Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.4    Operating Agreement, between Barnes & Noble and GameStop
          Corp.**
  10.5    2001 Incentive Plan.**
  10.6    Lease, dated as of March 6, 1997, between RREEF Mid-Cities
          Industrial L.P. and Babbage's Etc. LLC.**
  10.7    First Amendment to Lease, dated as of December 30, 1999,
          between RREEF Mid-Cities Industrial L.P. and Babbage's Etc.
          LLC.**
  11.1    Statement re: Computation of Per Share Earnings.**
  21.1    Subsidiaries.*
  23.1    Consent of BDO Seidman, LLP.*
  23.2    Consent of Ernst & Young LLP*
  23.3    Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
          (included in its opinion filed as Exhibit 5.1 hereto).**
  24.1    Power of Attorney (included on signature page to this
          Registration Statement).*
---------------
 * Filed herewith.

** To be filed by amendment.