<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                      FORM 10-K
(Mark one)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                   FOR THE FISCAL YEAR ENDED MARCH 31, 1997

                                         O R

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

               For the transition period from __________ to __________

                            Commission File Number 0-12699

                                   ACTIVISION, INC.
                (Exact name of registrant as specified in its charter)
              DELAWARE                                94-2606438
    (State or other jurisdiction of    (I.R.S. Employer Identification No.)
     incorporation or organization)

    3100 OCEAN PARK BLVD., SANTA MONICA, CA                  90405
    (Address of principal executive offices)               (Zip Code)

         REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (310) 255-2000

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

             SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                      COMMON STOCK, PAR VALUE $.000001 PER SHARE
                      ------------------------------------------
                                   (Title of Class)

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

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

The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on June 10, 1997 was $161,294,682.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  Yes  X     No 
                          -----     -----

The number of shares of the registrant's Common Stock outstanding as of June 10,
1997 was 14,193,620.

                         DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Form 10-K, with respect to the Annual Meeting of
Shareholders to be held on September 24, 1997 are incorporated by reference into

Part III of this Annual Report.


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                                        INDEX
 


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                                                                                                        PAGE NO.
PART I.

<S>                                                                                                     <C>
    Item 1.   Business ............................................................................       3

    Item 2.   Properties ..........................................................................      13
    
    Item 3.   Legal Proceedings ...................................................................      13

    Item 4.   Submission of Matters to a Vote of Security Holders .................................      13

PART II.

    Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters ...............      14

    Item 6.   Selected Consolidated Financial Data ................................................      15

    Item 7.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations ............................................................      16
    
    Item 7A.  Quantitative and Qualitative Disclosures About Market Risk ..........................      21

    Item 8.   Consolidated Financial Statements and Supplementary Data ............................      22

    Item 9.   Changes In and Disagreements with Accountants on Accounting
                and Financial Disclosure ..........................................................      22

PART III.

    Item 10.  Directors and Executive Officers of the Registrant ..................................      23

    Item 11.  Executive Compensation ..............................................................      23

    Item 12.  Security Ownership of Certain Beneficial Owners and Management ......................      23

    Item 13.  Certain Relationships and Related Transactions ......................................      23

PART IV.

    Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....................      24

SIGNATURES .........................................................................................     26
</TABLE>

 


                                          2


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                                        PART I



Item 1.  BUSINESS

         (a)  GENERAL

              Activision, Inc. (together with its subsidiaries, the "Company")
         is a diversified international publisher and developer of interactive
         entertainment software in a wide variety of formats. The Company was
         incorporated in California in 1979.  In December 1992, the Company
         reincorporated in Delaware. 

         (b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
    
              The Company operates in one industry segment: publishing CD-based
         and, to a lesser extent, cartridge and floppy disk entertainment
         software.  See the Consolidated Financial Statements and Notes thereto
         included in Item 8 of this Annual Report on Form 10-K for certain
         financial information required by Item 1.
    
         (c)  NARRATIVE DESCRIPTION OF BUSINESS

         INDUSTRY BACKGROUND
    
              The interactive entertainment software market is composed of two
         markets:  the PC systems   market -- software created for use on
         personal computers ("PCs"), including PCs utilizing the MS-DOS and
         Windows operating systems as well as Apple Macintosh computers; and
         the console systems market -- software created for dedicated game
         consoles that use the television as a display, including the Sony
         PlayStation, Sega Saturn and Nintendo N64 entertainment systems.

              PC SYSTEMS.  According to Access Media International ("AMI"),
         35.5% of U.S. households had at least one multimedia PC ("MPC") at the
         end of 1996.  AMI is projecting this installed base to grow to 37.5%
         by the end of 1997.  This increase in PC ownership appears to be
         spurred by lower-cost Pentium-based MPCs which incorporate
         higher-speed CD-ROM drives, modems and increasingly sophisticated
         graphics capabilities, as well as by the continued growth and interest
         in the Internet.  AMI reports that MPC shipments to the home reached
         8.4 million units in 1996 and are expected to increase to 9.6 million
         units in 1997, bringing the total installed base of MPC units to 27.7
         million by the end of 1997.  The improved functionality and ease-of-
         use provided by Windows 95, the continued production of compelling
         entertainment and education applications, and increasingly favorable
         price to performance ratios for PCs also appear to be major
         contributing factors to the increased growth in this industry.
    
              As a result of all these factors, demand appears to be growing
         for MPC-based entertainment software, as evidenced by increases in the
         sale of entertainment software titles.  According to AMI, North
         American sales of PC entertainment software grew from $750 million in
         1995 to $900 million in 1996.  AMI further expects 1997 sales to
         increase to $1.1 billion.  The Company believes that the continued
         future growth of the PC interactive entertainment software market will
         be dependent upon the development of increasingly sophisticated
         software incorporating advanced graphics and sound, compelling story
         lines and rewarding game play.
    
              CONSOLE SYSTEMS.  The console systems market currently is
         finishing the transition from 16-bit systems to 32 and 64-bit systems
         ("next generation systems").  Next generation systems have experienced
         healthy growth following their introduction in 1995 and have begun to
         establish significant installed bases.  Sony's PlayStation has been
         particularly strong, establishing an installed base of approximately 3
         million units in North America at the end of 1996, according to AMI. 
         The Company currently believes that the PlayStation will continue to
         enjoy major growth through 1997.

              According to AMI, the U.S. installed base of all next generation
         systems at the end of 1996 was approximately 5.8 million units and
         will reach approximately 13.7 million units by the end of 1997.  AMI
         projects further growth in the installed base of next generation
         systems to approximately 21.4 million units by the end of 1998.  The
         Company believes that these systems will continue to be successful as
         hardware manufacturers recently have lowered prices to a level that
         will allow for mass market penetration.  The Company believes that the
         specific level of future success also will be dependent on the ability
         of developers consistently to supply increasingly sophisticated
         software for the consumer.  

              DISTRIBUTION.  The Company believes that the distribution
         channels for entertainment software have expanded in the last several
         years.  During the 1980s, console entertainment software was sold
         primarily through mass merchants and toy stores, while PC
         entertainment software typically was sold through specialty software
         stores.  The distribution of PC software is now expanding into
         traditional console channels such as


                                          3


<PAGE>


         mass merchants, specialty retailers and warehouse stores, and console
         software has begun to penetrate specialty software stores and other
         traditional PC outlets.  Although the number of distribution channels
         for entertainment software has increased overall, an abundance of new
         software titles has forced retailers to be highly selective when
         allocating shelf space.  Competition for shelf space has intensified
         as retailers, especially mass merchants, continue to carry only a
         limited number of products that are expected to sell in high volumes. 
         In addition, in the last year a few specialty retailers have either
         ceased business or consolidated their operations, resulting in even
         greater competition for shelf space. 

              To be successful in this more competitive distribution
         environment, companies must demonstrate to retailers that their
         products have broad appeal and can become best sellers.  In order to
         achieve broad appeal, companies must utilize the enhanced capabilities
         of MPCs and next generation systems to create sophisticated products
         with high production values and appealing game play. Since this
         approach results in higher development budgets, companies that can
         institute disciplined development processes to lower cost overruns and
         innovative marketing campaigns that increase consumer awareness should
         be in the best position to maximize their return on product
         investments.

         CERTAIN CAUTIONARY INFORMATION

              In connection with the Private Securities Litigation Reform Act
         of 1995 (the "Litigation Reform Act"), the Company is hereby
         disclosing certain cautionary information to be used in connection
         with written materials (including this Annual Report on Form 10-K) and
         oral statements made by or on behalf of its employees and
         representatives that may contain "forward-looking statements" within
         the meaning of the Litigation Reform Act.  Such statements consist of
         any statement other than a recitation of historical fact and can be
         identified by the use of forward-looking terminology such as "may,"
         "expect," "anticipate," "estimate" or "continue" or the negative
         thereof or other variations thereon or comparable terminology.  The
         listener or reader is cautioned that all forward-looking statements
         are necessarily speculative and there are numerous risks and
         uncertainties that could cause actual events or results to differ
         materially from those referred to in such forward-looking statements. 
         The discussion below highlights some of the more important risks
         identified by management, but should not be assumed to be the only
         factors that could affect future performance.  The reader or listener
         is cautioned that the Company does not have a policy of updating or
         revising forward-looking statements and thus he or she should not
         assume that silence by management over time means that actual events
         are bearing out as estimated in such forward-looking statements.

              FLUCTUATIONS IN QUARTERLY RESULTS; FUTURE OPERATING RESULTS
         UNCERTAIN; SEASONALITY.  The Company's quarterly operating results
         have in the past varied significantly and will likely in the future
         vary significantly depending on numerous factors, several of which are
         not under the Company's control.  Such factors include, but are not
         limited to, demand for the Company's products and those of its
         competitors, the size and rate of growth of the interactive
         entertainment software market, development and promotional expenses
         relating to the introduction of new products, changes in computing
         platforms, product returns, the timing of orders from major customers,
         delays in shipment, the level of price competition, the timing of
         product introduction by the Company and its competitors, product life
         cycles, software defects and other product quality problems, the level
         of the Company's international revenues, and personnel changes. 
         Products are generally shipped as orders are received, and
         consequently, the Company operates with little or no backlog.  Net
         revenues in any quarter are, therefore, substantially dependent on
         orders booked and shipped in that quarter.

              The Company's expenses are based in part on the Company's product
         development and marketing budgets.  Product development and marketing
         costs generally are expensed as incurred, which is often long before a
         product ever is released.  In addition, a large portion of the
         Company's expenses are fixed.  As the Company increases its
         development and marketing activities, current expenses will increase
         and, if sales from previously released products are below
         expectations, net income is likely to be disproportionately affected.

              Due to all of the foregoing, revenues and operating results for
         any future quarter are not predictable with any significant degree of
         accuracy.  Accordingly, the Company believes that period-to-period
         comparisons of its operating results are not necessarily meaningful
         and should not be relied upon as indications of future performance.

              The Company's business has experienced and is expected to
         continue to experience significant seasonality, in part due to
         consumer buying patterns.  Net revenues typically are significantly
         higher during the fourth calendar quarter, due primarily to the
         increased demand for consumer software during the year-end holiday
         buying season.  Net revenues in other quarters are generally lower and
         vary significantly as a result of new product introductions and other
         factors.  For example, the Company's net revenues in its last five
         quarters were $21.6 million for the quarter ended March 31, 1996, $7.0
         million for the quarter ended June 30, 1996, $19.2 million for the
         quarter ended September 30, 1996, $31.4 million for the quarter ended


                                          4


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         December 31, 1996 and $28.9 million for the quarter ended March 31,
         1997.  The Company expects its net revenues and operating results to
         continue to reflect significant seasonality.

              DEPENDENCE ON NEW PRODUCT DEVELOPMENT; PRODUCT DELAYS.  The
         Company's future success depends on the timely introduction of
         successful new products to replace declining revenues from older
         products.  If, for any reason, revenues from new products were to fail
         to replace declining revenues from older products, the Company's
         business, operating results and financial condition would be
         materially and adversely affected.  In addition, the Company believes
         that the competitive factors in the interactive entertainment software
         marketplace create the need for higher quality, distinctive products
         that incorporate increasingly sophisticated effects and the need to
         support product releases with increased marketing, resulting in higher
         development, acquisition and marketing costs.  The lack of market
         acceptance or significant delay in the introduction of, or the
         presence of a defect in, one or more products could have a material
         adverse effect on the Company's business, operating results and
         financial condition, particularly in view of the seasonality of the
         Company's business.  Further, because a large portion of a product's
         revenue generally is associated with initial shipments, the delay of a
         product introduction expected near the end of a fiscal quarter may
         have a material adverse effect on operating results for that quarter.

              The Company has, in the past, experienced significant delays in
         the introduction of certain new products.  The timing and success of
         interactive entertainment products remain unpredictable due to the
         complexity of product development, including the uncertainty
         associated with technological developments.  Although the Company has
         implemented substantial development controls, there likely will be
         delays in developing and introducing new products in the future. 
         There can be no assurance that new products will be introduced on
         schedule, or at all, or that they will achieve market acceptance or
         generate significant revenues.

              From time to time, the Company utilizes independent contractors
         for certain aspects of product development and production.  The
         Company also has increased its acquisition of products developed
         entirely by independent third party developers.  The Company has less
         control over the scheduling and the quality of work by independent
         contractors and third party developers than that of its own employees. 
         A delay in the work performed by independent contractors and third
         party developers or a lack of quality in such work may result in
         product delays.  Although the Company intends to continue to rely in
         part on internal product development, the Company's business and
         future operating results also will depend, in part, on the Company's
         continued ability to maintain relationships with skilled independent
         contractors and third party developers.  There can be no assurance
         that the Company will be able to maintain such relationships.

              UNCERTAINTY OF MARKET ACCEPTANCE; SHORT PRODUCT LIFE CYCLES.  The
         market for entertainment systems and software has been characterized
         by shifts in consumer preferences and short product life cycles. 
         Consumer preferences for entertainment software products are difficult
         to predict and few entertainment software products achieve sustained
         market acceptance.  There can be no assurance that new products
         introduced by the Company will achieve any significant degree of
         market acceptance, that such acceptance will be sustained for any
         significant period, or that product life cycles will be sufficient to
         permit the Company to recoup development, marketing and other
         associated costs.  In addition, if market acceptance is not achieved,
         the Company could be forced to accept substantial product returns to
         maintain its relationships with retailers and its access to
         distribution channels.  Failure of new products to achieve or sustain
         market acceptance or product returns in excess of the Company's
         expectations would have a material adverse effect on the Company's
         business, operating results and financial condition.

              PRODUCT CONCENTRATION; DEPENDENCE ON HIT PRODUCTS.  A key aspect
         of the Company's strategy is to focus its development and acquisition
         efforts on selected, high quality entertainment software products. The
         Company derives a significant portion of its revenues from a select
         number of high quality entertainment software products released each
         year, and many of these products have substantial production or
         acquisition costs and marketing budgets.  Due to this dependence on a
         limited number of products, the Company may be adversely effected if
         one or more principal entertainment software products fail to achieve
         anticipated results.  During fiscal 1996 and 1997, one title accounted
         for approximately 49% and 23%, respectively, of the Company's
         consolidated net revenues.  In addition, during fiscal 1997, one other
         title accounted for approximately 16% of the Company's consolidated
         net revenues.

              The Company's strategy also includes as a key component
         developing and releasing products that have franchise value, such that
         sequels, enhancements and add-on products can be released over time,
         thereby extending the life of the property in the market.  While the
         focus on franchise properties, if successful, results in extending
         product life cycles, it also results in the Company depending on a
         limited number of titles for its revenues.  There can be no assurance
         that the Company's existing franchise titles can continue to be
         exploited as successfully as in the past.  In addition, new products
         that the Company believes will have potential value as franchise
         properties may not achieve market acceptance and therefore may not be
         a basis for future releases.


                                          5


<PAGE>


              INDUSTRY COMPETITION; COMPETITION FOR SHELF SPACE.  The
         interactive entertainment software industry is intensely competitive. 
         Competition in the industry is principally based on product quality
         and features, the compatibility of products with popular platforms,
         company or product line brand name recognition, access to distribution
         channels, marketing effectiveness, reliability and ease of use, price
         and technical support.  Significant financial resources also have
         become a competitive factor in the entertainment software industry,
         principally due to the substantial cost of product development and
         marketing that is required to support best-selling titles.  In
         addition, competitors with broad product lines and popular titles
         typically have greater leverage with distributors and other customers
         who may be willing to promote titles with less consumer appeal in
         return for access to such competitor's most popular titles.  

              The Company's competitors range from small companies with limited
         resources to large companies with substantially greater financial,
         technical and marketing resources than those of the Company.  The
         Company's competitors currently include Electronic Arts, Inc., Lucas
         Arts Entertainment Company, Microsoft Corporation ("Microsoft"), Sega,
         Nintendo, Sony, Sierra On-Line, Inc., Good Times Interactive, Inc. and
         Spectrum HoloByte, Inc., among many others. 

              As competition increases, significant price competition,
         increased production costs and reduced profit margins may result. 
         Prolonged price competition or reduced demand would have a material
         adverse effect on the Company's business, operating results and
         financial condition.  There can be no assurance that the Company will
         be able to compete successfully against current or future competitors
         or that competitive pressures faced by the Company will not have a
         material adverse effect on its business, operating results and
         financial condition.

              Retailers typically have a limited amount of shelf space, and
         there is intense competition among entertainment software producers
         for adequate levels of shelf space and promotional support from
         retailers.  As the number of entertainment software products increase,
         the competition for shelf space has intensified, resulting in greater
         leverage for retailers and distributors in negotiating terms of sale,
         including price discounts and product return policies.  The Company's
         products constitute a relatively small percentage of a retailer's
         sales volume, and there can be no assurance that retailers will
         continue to purchase the Company's products or promote the Company's
         products with adequate levels of shelf space and promotional support.

              CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS.  The consumer
         software industry is undergoing rapid changes, including evolving
         industry standards, frequent new platform introductions and changes in
         consumer requirements and preferences.  The introduction of new
         technologies, including operating systems such as Microsoft's Windows
         95, technologies that support multi-player games, and new media
         formats such as on-line delivery and digital video disks ("DVD"),
         could render the Company's previously released products obsolete or
         unmarketable.  The development cycle for products utilizing new
         operating systems, microprocessors or formats may be significantly
         longer than the Company's current development cycle for products on
         existing operating systems, microprocessors and formats and may
         require the Company to invest resources in products that may not
         become profitable.  There can be no assurance that the mix of the
         Company's future product offerings will keep pace with technological
         changes or satisfy evolving consumer preferences, or that the Company
         will be successful in developing and marketing products for any future
         operating system or format.  Failure to develop and introduce new
         products and product enhancements in a timely fashion could result in
         significant product returns and inventory obsolescence and could have
         a material adverse effect on the Company's business, operating results
         and financial condition.

              LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
         RIGHTS; RISK OF LITIGATION.  The Company holds copyrights on its
         products, manuals, advertising and other materials and maintains
         trademark rights in the Company name, the ACTIVISION logo, and the
         names of products owned by the Company.  The Company regards its
         software as proprietary and relies primarily on a combination of
         trademark, copyright and trade secret laws, employee and third-party
         nondisclosure agreements, and other methods to protect its proprietary
         rights.  Unauthorized copying is common within the software industry,
         and if a significant amount of unauthorized copying of the Company's
         products were to occur, the Company's business, operating results and
         financial condition could be adversely effected.  There can be no
         assurance that third parties will not assert infringement claims
         against the Company in the future with respect to current or future
         products.  As is common in the industry, from time to time the Company
         receives notices from third parties claiming infringement of
         intellectual property rights of such parties.  The Company
         investigates these claims and responds as it deems appropriate.  Any
         claims or litigation, with or without merit, could be costly and could
         result in a diversion of management's attention, which could have a
         material adverse effect on the Company's business, operating results
         and financial condition.  Adverse determinations in such claims or
         litigation could also have a material adverse effect on the Company's
         business, operating results and financial condition.

              Policing unauthorized use of the Company's products is difficult,
         and while the Company is unable to determine the extent to which
         piracy of its software products exists, software piracy can be
         expected to be a persistent problem.  In selling its products, the
         Company relies primarily on "shrink wrap" licenses that are



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         not signed by licensees and, therefore, may be unenforceable under the
         laws of certain jurisdictions.  Further, the Company enters into
         transactions in countries where intellectual property laws are not
         well developed or are poorly enforced.  Legal protections of the
         Company's rights may be ineffective in such countries.

              DEPENDENCE ON KEY PERSONNEL.  The Company's success depends to a
         significant extent on the performance and continued service of its
         senior management and certain key employees.  Competition for highly
         skilled employees with technical, management, marketing, sales,
         product development and other specialized training is intense, and
         there can be no assurance that the Company will be successful in
         attracting and retaining such personnel.  Specifically, the Company
         may experience increased costs in order to attract and retain skilled
         employees.  Although the Company generally enters into term employment
         agreements with its skilled employees and other key personnel, there
         can be no assurance that such employees will not leave the Company or
         compete against the Company.  The Company's failure to attract or
         retain qualified employees could have a material adverse effect on the
         Company's business, operating results and financial condition.

              DEPENDENCE ON DISTRIBUTORS; RISK OF CUSTOMER BUSINESS FAILURE;
         PRODUCT RETURNS.  Certain mass market retailers have established
         exclusive buying relationships under which such retailers will buy
         consumer software only from one intermediary.  In such instances, the
         price or other terms on which the Company sells to such retailers may
         be adversely effected by the terms imposed by such intermediary, or
         the Company may be unable to sell to such retailers on terms which the
         Company deems acceptable.  The loss of, or significant reduction in
         sales attributable to, any of the Company's principal distributors or
         retailers could materially adversely effect the Company's business,
         operating results and financial condition.  Distributors and retailers
         in the computer industry have from time to time experienced
         significant fluctuations in their businesses and there have been a
         number of business failures among these entities.  The insolvency or
         business failure of any significant distributor or retailer of the
         Company's products could have a material adverse effect on the
         Company's business, operating results and financial condition.  Sales
         are typically made on credit, with terms that vary depending upon the
         customer and the nature of the product. The Company does not hold
         collateral to secure payment.  Although the Company has obtained
         insolvency risk insurance to protect against any bankruptcy filings
         that may be made by its customers, such insurance contains a
         significant deductible as well as a co-payment obligation, and the
         policy does not cover all instances of non-payment.  In addition, the
         Company maintains a reserve for uncollectible receivables that it
         believes to be adequate, but the actual reserve which is maintained
         may not be sufficient in every circumstance.  As a result of the
         foregoing, a payment default by a significant customer could have a
         material adverse effect on the Company's business, operating results
         and financial condition.

              The Company also is exposed to the risk of product returns from
         distributors and retailers.  Although the Company provides reserves
         for returns that it believes are adequate, and although the Company's
         agreements with certain of its customers place certain limits on
         product returns, the Company could be forced to accept substantial
         product returns to maintain its relationships with retailers and its
         access to distribution channels.  Product returns that exceed the
         Company's reserves could have a material adverse effect on the
         Company's business, operating results and financial condition.


              RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.  International
         sales and licensing accounted for 28%, 23% and 26% of the Company's
         total revenues in the fiscal years 1995, 1996 and 1997, respectively. 
         The Company intends to continue to expand its direct and indirect
         sales and marketing activities worldwide.  Such expansion will require
         significant management time and attention and financial resources in
         order to develop adequate international sales and support channels. 
         There can be no assurance, however, that the Company will be able to
         maintain or increase international market demand for its products. 
         International sales are subject to inherent risks, including the
         impact of possible recessionary environments in economies outside the
         United States, the costs of transferring and localizing products for
         foreign markets, longer receivable collection periods and greater
         difficulty in accounts receivable collection, unexpected changes in
         regulatory requirements, difficulties and costs of staffing and
         managing foreign operations, and political and economic instability. 
         There can be no assurance that the Company will be able to sustain or
         increase international revenues or that the foregoing factors will not
         have a material adverse effect on the Company's future international
         revenues and, consequently, on the Company's business, operating
         results and financial condition.  The Company currently does not
         engage in currency hedging activities.  Although exposure to currency
         fluctuations to date has been insignificant, there can be no assurance
         that fluctuations in currency exchange rates in the future will not
         have a material adverse impact on revenues from international sales
         and licensing and thus the Company's business, operating results and
         financial condition.

              RISK OF SOFTWARE DEFECTS.  Software products such as those
         offered by the Company frequently contain errors or defects.  Despite
         extensive product testing, in the past the Company has released
         products with defects and has discovered software errors in certain of
         its product offerings after their introduction.  In particular, the PC
         hardware environment is characterized by a wide variety of
         non-standard peripherals (such as sound cards and graphics cards) and
         configurations that make pre-release testing for programming or
         compatibility errors very difficult and time-consuming.  There can be
         no assurance that, despite testing by


                                          7


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         the Company, errors will not be found in new products or releases
         after commencement of commercial shipments, resulting in a loss of or
         delay in market acceptance, which could have a material adverse effect
         on the Company's business, operating results and financial condition. 

         STRATEGY

              The Company's objective is to be a worldwide leader in the
         development and delivery of exceptional and innovative interactive
         entertainment software designed for a range of platforms, appealing to
         existing and new audiences for entertainment software products, and
         incorporating sophisticated graphics, sound and video, and compelling
         story lines and game experiences.  The Company's strategy includes the
         following elements:
    
              PUBLISH BEST-SELLING TITLES.  The Company believes that
         competitive factors in the interactive entertainment software
         marketplace create the need for very high quality, distinctive
         products that provide superior gaming experiences.  Accordingly, the
         Company intends to focus its publishing efforts on a select number of
         major new titles each year. Several of these titles will be based on
         existing franchises, while others will be based on new concepts.  The
         Company intends to support the development, production, acquisition
         and marketing of these titles with the resources necessary to create
         best selling products.  In order to reduce the financial risks
         associated with the higher budgets required for this strategy, the
         Company may from time to time pre-sell various rights, including
         ancillary rights and rights with respect to hardware platforms which
         the Company does not intend to support itself, in selected
         geographical territories. 
    
              LEVERAGE AND ENHANCE FRANCHISE PROPERTIES.  The Company seeks to
         develop and acquire distribution rights to product franchises that
         have sustainable consumer appeal and brand recognition.  Through its
         long history in personal computer and video gaming, the Company has
         accumulated an extensive backlist of titles, some of which were
         best-sellers when originally released.  The Company has converted
         certain of these popular titles into franchise product lines,
         including its ZORK, SHANGHAI and PITFALL series.  For example, the
         Company has released six additional versions of ZORK since the
         introduction in 1982 of the original ZORK title, including RETURN TO
         ZORK, which has shipped over one million copies since its introduction
         in 1993, and the recently released ZORK NEMESIS.  The Company intends
         to create additional franchises from its library and from new,
         original concepts.
    
              ENFORCE DISCIPLINED PRODUCT DEVELOPMENT AND PRODUCTION PROCESSES. 
         The Company has implemented product development and production
         processes that are designed to limit cost and schedule overruns within
         an environment that fosters creativity.  Such processes often enable
         the Company to identify and address the majority of the technical and
         creative risks before the Company commences production of the title. 
         The Company also has implemented a series of defined, measurable
         milestones throughout development and production in order to help
         increase its ability to maintain control over these processes.  The
         Company develops and produces products using a studio model, in which
         a core group of creative, production, technical, marketing and
         financial professionals at the Company have overall responsibility for
         the entire development and production processes and for the
         supervision and coordination of internal and external resources.  The
         Company believes that this studio model allows the Company to
         supplement internal expertise with top quality external resources on
         an as needed basis. 
    
              ACQUIRE PUBLISHING RIGHTS TO ADDITIONAL PRODUCTS CREATED BY
         ESTABLISHED OUTSIDE DEVELOPERS.  In order to continue to grow its
         business and leverage its existing marketing and sales
         infrastructures, the Company has significantly increased its
         acquisition of publishing and distribution rights to entertainment
         software products that are developed and produced by independent third
         party developers.  The Company's strategy is to develop relationships
         with a limited number of third party developers that have proven track
         records within the industry and that produce products in game genres
         in which the Company's studio may not have comparable expertise.  For
         example, the Company has entered into a series of agreements with id
         Software, Inc., ("id") a premier developer of first-person perspective
         shooting games, pursuant to which the Company has been granted the
         right to publish id's products entitled QUAKE MISSION PACK NO. 1:
         SCOURGE OF ARMAGON, QUAKE MISSION PACK NO. 2: DISSOLUTION OF ETERNITY,
         HEXEN II and QUAKE II. 
    
              FOCUS ON CD BASED SYSTEMS.  The Company seeks to capitalize on
         the popularity of platforms as they are adopted by consumers.  The
         Company's current primary focus is on CD-based products to be used
         with MPCs and/or Sony PlayStation consoles.  During the fiscal year
         ended March 31, 1997, approximately 80% of the Company's revenues were
         from CD-based products to be used with MPCs and approximately 20% of
         the Company's revenues were from Sony PlayStation products. 
    
              DEVELOP AND UTILIZE PROPRIETARY TECHNOLOGIES.  The Company has
         developed proprietary development tools which enable its producers,
         directors, artists and programmers to achieve visual and creative
         effects that differentiate the Company's products.  For example, the
         Company's MECHWARRIOR 2 and MECHWARRIOR 2: MERCENARIES products
         utilized specialized real-time 3-D texture mapping and sophisticated
         artificial intelligence.  ZORK NEMESIS utilized technology allowing
         for 360 degree movement within an


                                          8


<PAGE>


         environment.  All of these tools were developed by the Company's
         technology teams.  The Company intends to continue to develop and
         utilize proprietary technologies to create products that provide
         innovative interactive experiences.
    
              EXPAND DISTRIBUTION CHANNELS.  The Company's strategy is to
         continue to expand its independent, direct distribution of its
         products.  Through its internal sales force, the Company sells its
         software products directly to major computer and software retailing
         organizations, consumer electronic stores, discount warehouses and
         mail order companies in North America.  For the fiscal year ended
         March 31, 1997, 75% of the Company's North America publishing revenues
         were direct to these retail organizations.  The Company believes that
         a direct relationship with retail accounts results in more effective
         inventory management, merchandising and communications than would be
         possible through indirect relationships.  The Company seeks to
         continue to increase the number of retail outlets reached directly
         through its sales force and also is enhancing its current distribution
         relationships by expanding real-time ordering and invoicing links to
         its major distribution partners.  In addition, the Company intends to
         pursue further direct international sales and distribution activities. 
    
         PRODUCTS
    
              The Company is best known for its action, adventure and
         action/simulation products.  However, the Company recently has
         expanded the line of products it distributes into new categories such
         as flight simulation, role playing and strategy products, and it
         expects to continue such expansion efforts.
    
              The Company's platform strategy is to capitalize on the
         popularity of hardware platforms as they are adopted by consumers. 
         Several of the Company's products are released in multiple formats for
         use on more than one MPC or console systems.  The Company has
         developed interactive entertainment software for a variety of
         platforms since its founding in 1979.  Throughout the 1980s, the
         Company developed over 100 titles for the Apple Macintosh, MS-DOS
         compatible, Amiga and Commodore platforms as well as the Atari 2600
         and Sega and Nintendo 8-bit and 16-bit console systems.  The majority
         of the Company's current titles are being developed for MPCs using the
         Windows 95 operating system.  The majority of the Company's current
         console titles are being developed for the Sony PlayStation. 
    
              One of the Company's objectives is to create or acquire product
         franchises owned and controlled by the Company which have sustainable
         consumer appeal and brand recognition.  The Company believes it has
         created or acquired certain product franchises by expanding upon the
         success of an original best selling title through the release of
         sequels, enhancements and add-on packs.  The Company will attempt to
         create and acquire additional product franchises by introducing new
         titles based on original characters and concepts.
    
              From time to time, the Company will selectively license from
         third parties intellectual property or other character or story rights
         for the purpose of developing titles based on such rights.  For
         example, the Company recently obtained a long term license to be the
         exclusive developer and publisher of interactive entertainment
         software products based on the HEAVY GEAR role playing games created
         by an independent board game creator.  Activision's HEAVY GEAR
         products are intended to replace the BATTLETECH/MECHWARRIOR 2 product
         line which was developed and published by the Company under license. 
         In developing products based on licensed intellectual property rights,
         the Company generally seeks to capitalize on the name recognition,
         marketing efforts and goodwill associated with the underlying
         property.
    
              The Company also selectively enters into arrangements with
         celebrities in order to enhance the gaming experience of certain of
         its products.  For example, the Company currently is developing a
         product for the Sony PlayStation entitled APOCALYPSE, in which
         well-known film actor Bruce Willis is expected to act as the player's
         "virtual" partner in their battle against the Four Horsemen of the
         Apocalypse.
         
              In addition to its own internally developed products, the Company
         publishes and distributes software products for other independent
         developers.  As the Company seeks to associate the "ACTIVISION" mark
         only with the highest quality interactive entertainment products, the
         Company attempts to be selective in acquiring publishing and
         distribution rights from third party developers.  All of such products
         are marketed under the Company's name as well as the name of the
         original developer.  The Company believes that these efforts enable
         the Company to leverage its investment in its marketing and sales
         forces and add a new source of products without incurring all of the
         risks inherent in original product development and production.  This
         activity also allows the Company to enter new product genres and
         provide consumers with a wider variety of products. 


                                          9


<PAGE>


         PRODUCT DEVELOPMENT AND ACQUISITION

         ACTIVISION STUDIOS

              Activision Studios, the Company's development and production
         group, generally is responsible for the selection, design, development
         and production of the interactive entertainment software products
         owned by the Company.  Activision Studios also provides quality
         assurance and customer support services for almost all products
         published or distributed by the Company.  The Company's creative
         development and production staff selects and develops new products,
         adapts existing products for additional hardware platforms and manages
         the external development of products or their components by
         independent contractors.  

              PRODUCTION.  The Company develops and produces products using a
         studio model, in which a core group of creative, production,
         technical, marketing and financial professionals on staff at the
         Company have overall responsibility for the entire development and
         production process and for the supervision and coordination of
         internal and external resources.  Each project team, which is led by a
         game producer and game director and includes one or more associate
         producers, game designers, production coordinators, a creative
         executive, a technology executive and a quality assurance manager, all
         of whom are on the Company's staff, assembles the necessary creative
         elements, using where appropriate outside programmers, graphic and
         other artists, animators, musicians and songwriters, sound effects and
         special effects experts, and sound and video studios. The Company
         believes that this model allows the Company to supplement internal
         expertise with top quality external resources on an as needed basis. 
              
              The Company has adopted and implemented a rigorous internal
         procedure for the selection, development, production and quality
         assurance of its entertainment software titles.  The process involves
         one or more pre-development phases, development phases and production
         phases, each of which includes various measurable performance
         milestones.  This procedure is designed to enable the Company to
         manage and control production and development budgets and timetables,
         to identify and address production and technical issues at the
         earliest opportunity, and to coordinate marketing and quality control
         strategies throughout the production and development phases, all in an
         environment that fosters creativity.  Checks and balances are intended
         to be provided through the structured interaction of the project team
         with the Company's creative, technical, marketing and quality
         assurance/customer support personnel, as well as the legal, accounting
         and finance departments. 
              
              QUALITY ASSURANCE AND CUSTOMER SUPPORT.  The Company's quality
         assurance personnel are involved throughout the development and
         production processes for each title, and products are subjected to
         extensive testing before release.  To support its products after
         release, the Company provides on-line support on a 24-hour basis and
         operator help lines during regular business hours.  The customer
         support group tracks customer inquiries and this data is used to
         improve the development and production processes.
              
         ACTIVISION BUSINESS DEVELOPMENT
              
              The Company's Business Development division licenses or acquires
         software products from independent developers for publishing or
         distribution by the Company.  Acquired titles are marketed under the
         Company's name as well as the name of the original developer.  The
         agreements with affiliated developers provide for the grant to the
         Company of exclusive publishing and distribution rights for a specific
         period of time for specified platforms and territories.  
              
              The Company acquires titles from affiliated developers during
         various phases of the development and production processes for such
         titles.  To the extent the Company acquires rights early in the
         development process, the Company generally will cause the independent
         developer to comply with the requirements of the pre-development,
         development and production processes applicable to titles internally
         produced by Activision Studios.  The Business Development division
         will assign to a title a game producer who will serve as the principal
         liaison to the independent developer to help insure that performance
         milestones are met timely.  The Company generally has the right to
         cease making payments to an independent developer if such developer
         fails to timely complete its performance milestones. 
              
              In connection with its acquisition of product publishing and
         distribution, the Company may make an investment and hold a minority
         equity interest in the third party developer in order to create a
         closer relationship between the Company and the developer.  In fiscal
         1997, the Company acquired a minority interest in Titanic
         Entertainment, Inc. in connection with the acquisition by the Company
         of the entertainment software product entitled NETSTORM, which
         currently is being developed by Titanic.  There can be no assurance
         that the Company will realize long term benefits from this investment
         or that it will continue to carry such investment at its current
         value.


                                          10


<PAGE>



         PUBLISHING ACTIVITIES

         MARKETING

              The Company's marketing efforts include on-line activities (such
         as the creation of World Wide Web pages to promote specific Company
         titles), public relations, print and broadcast advertising,
         coordinated in-store and industry promotions including merchandising
         and point of purchase displays, participation in cooperative
         advertising programs, direct response vehicles, and product sampling
         through demonstration software distributed through the Internet or on
         compact discs.  In addition, the Company's recent products contain
         software that enables customers to "electronically register" their
         purchases with the Company via modem.  Through this process, the
         Company captures electronic mail addresses for its customers as well
         as a variety of additional market research data.  The Company intends
         to increase its on-line marketing activities using these electronic
         mail addresses for direct response promotions, and making its titles
         and upgrades available for sale through on-line services when
         appropriate.
              
              The Company believes that certain of its franchise properties
         (such as the ZORK series) have loyal and devoted audiences who
         purchase the Company's sequels as a result of dedication to the
         property and satisfaction from previous product purchases.  Marketing
         of these sequels is therefore directed both toward the established
         market as well as broader audiences.  In marketing titles based on
         licensed properties, the Company believes that it derives marketing
         synergies and related benefits from the marketing and promotional
         activities of the property owners.  In marketing affiliated label
         titles, the Company believes that it derives marketing synergies and
         related benefits from the previously established reputation of the
         independent developer and the properties owned by it. 
              
         SALES AND DISTRIBUTION

              DOMESTIC SALES AND DISTRIBUTION.  The Company's products are
         domestically available for sale or rental in thousands of retail
         outlets ranging from consumer electronics and computer specialty
         stores to department stores, discount chains, video rental stores and
         toy stores.  The Company's customers in these categories include Best
         Buy, CompUSA, Computer City, Electronic Boutique, Babbages, etc.,
         WalMart, K-Mart, Target and Toys "R" Us.  During fiscal 1997, no
         single customer accounted for more than 10% of consolidated net
         revenues.  The majority of the Company's North American sales are made
         directly to the retailers.  The Company believes that a direct
         relationship with retail accounts results in more effective inventory
         management, merchandising and communications than would be possible
         through indirect relationships.  The Company has implemented
         electronic data interchange ("EDI") linkage with several retailers to
         facilitate the placing and shipment of orders.  The Company seeks to
         continue to increase the number of retail outlets reached directly
         through its internal sales force.  To a lesser extent, the Company
         sells its products through wholesale distributors, such as Ingram
         Micro, Handelman and Merisel.
              
              INTERNATIONAL SALES AND DISTRIBUTION.  The Company conducts a
         substantial portion of its international sales, licensing and
         distribution activities through its offices in Japan, England and
         Australia.  At present, the Company's office in Australia handles the
         Company's distribution and marketing efforts in Australia, New
         Zealand, Singapore, and certain other Asian and South Pacific Rim
         markets.  Through its office in Japan, the Company facilitates the
         licensing and distribution of its products in the Japanese and certain
         other Asian markets.  The licensing and distribution of the Company's
         products in Europe is performed through the Company's London office. 
         The Company recently established a sales office in Miami to oversee
         the Company's distribution and marketing efforts in Latin America. The
         Company seeks to broaden the distribution of its products in
         international markets by translating and localizing certain of its
         products into foreign languages.  The Company currently intends to
         increase its staff in Europe in order to increase the percentage of
         its European sales that can be made directly to retailers.  In
         furtherance of these objectives, the Company recently acquired Take
         Us! Marketing & Consulting GmbH, an eight-person company located in
         Germany which specializes in marketing and translation activities for
         German-speaking territories.  The Company also currently intends to
         increase its staff in Japan so that new titles can be developed and
         published directly by the Company for the Japanese market.  To this
         end, the Company may seek new development partners in Japan. 
              
              OEM SALES AND DISTRIBUTION.  The Company seeks to enhance the
         distribution of its products through licensing arrangements with
         original equipment manufacturers ("OEM"s).  Under these arrangements,
         one or more of the Company's titles are "bundled" with hardware or
         peripheral devices sold and distributed by the OEM so that the
         purchaser of the hardware or device obtains the Company's software as
         part of the purchase or on a discounted basis.  Although it is
         customary for the Company to receive a lower per unit price on sales
         through OEM bundle arrangements, the OEM customer makes a high unit
         volume commitment to the Company and there are no associated marketing
         costs.  In addition, the Company from time to time receives
         substantial advance payments from the OEM customer.  The Company also
         believes that such arrangements can substantially expand the
         distribution of its titles to a broader audience.  Recent OEM partners
         include Microsoft, IBM, Sony, Apple, NEC and Toshiba.


                                          11


<PAGE>


         LICENSING AND MERCHANDISING 

              The Company believes that a number of its products have the
         potential to be exploited in ancillary markets and media, such as
         product merchandising and traditional entertainment media. Directly
         and through third party agents, the Company seeks opportunities for
         the exploitation of these ancillary rights.  Potential opportunities
         include the publication of strategy guides for selected titles, the
         adaptation of titles into comic books, novels, television or motion
         pictures, and the licensing of product merchandising rights.  The
         Company believes that these types of licensing activities can provide
         additional sources of revenue and increase the visibility of the
         title, thereby leading to additional unit sales and greater  potential
         for additional sequels.  There can be no assurance that the Company
         will be successful in exploiting its properties in ancillary markets
         or media.
              
              Similarly, the Company believes that there are opportunities for
         further exploitation of its titles through the Internet, on-line
         services such as America Online and the Microsoft Network, and through
         recently created on-line gaming services such as TEN, Dwango, and
         MPath. The Company has established "900" telephone numbers as hint
         lines for certain of its titles, and has realized revenues from the
         calls made to these numbers.  The Company also is actively exploring
         the establishment of on-line game playing opportunities, on-line hint
         sites, and Internet services as a method for realizing additional
         revenues from its products.  There can be no assurance that the
         Company will be successful in exploiting these opportunities.
         
         HARDWARE LICENSES
         
              The Company's console products currently are being developed or
         published for one or more systems owned by Sony or Sega.  Each of the
         console systems owned by these companies has unique and proprietary
         configurations.  In order to gain access to the console systems that
         the Company currently is supporting, the Company has obtained licenses
         for each of the PlayStation, Genesis, Sega CD, Saturn and SNES
         systems.  Each license allows the Company to create one or more
         products for the applicable system, subject to certain approval rights
         as to quality which are reserved by each licensor.  Each license also
         requires that the Company pay the licensor a per unit license fee from
         product sales.
         
              In contrast, the Company currently is not required to obtain any
         license for the development and production of PC products. 
         Accordingly, the Company's per unit manufacturing cost for PC products
         is less than the per unit manufacturing cost for console products.
         
         MANUFACTURING
         
              The Company prepares a set of master program copies,
         documentation and packaging materials for its products for each
         respective hardware platform on which the product will be released. 
         Except with respect to products for use on the Sony, Sega and Nintendo
         systems, the Company's disk duplication, packaging, printing,
         manufacturing, warehousing, assembly and shipping are performed by
         third party subcontractors.  
         
              In the case of products for the Sony, Sega and Nintendo systems,
         in order to maintain protection over their hardware technologies, such
         hardware producers generally specify and/or control the manufacturing
         and assembly of finished products.  The Company delivers the master
         materials to the licensor or its approved replicator which then
         manufactures finished goods and delivers them to the Company for
         distribution under the Company's label.  At the time the Company's
         product unit orders are filled by the manufacturer, the Company
         becomes responsible for the costs of manufacturing and the applicable
         per unit royalty on such units, even if the units do not ultimately
         sell.
         
              To date, the Company has not experienced any material
         difficulties or delays in the manufacture and assembly of its products
         or material returns due to product defects. 

         EMPLOYEES
    
              As of March 31, 1997, the Company had 366 employees, including
         227 in Activision Studios and business development, 53 in North
         American sales and marketing, 53 in finance, operations and
         administration, and 33 in its offices in Japan, the United Kingdom and
         Australia.
    
              As of March 31, 1997, 98 of the Company's full-time employees
         were subject to term employment agreements with the Company.  These
         agreements commit such employees to employment terms of between one
         and three years from the commencement of their respective agreements. 
         Most of the employees subject to such agreements are senior executives
         of the Company or members of Activision Studios or the Company's
         business development, sales or marketing divisions, and such
         individuals perform services to the Company as executives, directors,
         producers, associate producers, computer programmers, game designers,


                                          12


<PAGE>


         sales directors and marketing product managers.  The execution by the
         Company of employment agreements with such employees, in the Company's
         experience, significantly reduces the Company's turnover during the
         development and production of its entertainment software products and
         allows the Company to plan more effectively for future development
         activities.
    
              None of the Company's employees are subject to a collective
         bargaining agreement, and the Company has experienced no labor-related
         work stoppages.  

         (d)  FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
         EXPORT SALES

              See Item 7 "Management's Discussion and Analysis of Financial
         Condition and Results of Operations" and Note 5 of Notes to
         Consolidated Financial Statements included in Item 8.  


I
tem 2.  PROPERTIES

              The Company's principal corporate, administrative, and product
         development offices are located in approximately 98,000 square feet of
         leased space in a building located at 3100 Ocean Park Boulevard, Santa
         Monica, California 90405.  The lease in Santa Monica commenced on May
         1, 1997.  Prior to such date, the Company's principal corporate,
         administrative and product development offices were located in
         approximately 57,000 square feet of leased space located in Los
         Angeles, California.  The following is a listing of the principal
         offices maintained by the Company at May 1, 1997:

              Location of
              Principal Facilities     Square Feet    Lease Expiration Date
              ------------------------------------    ---------------------
              Santa Monica, California      98,000         April 30, 2007
              London, United Kingdom        10,625         July 23, 2005
              Tokyo, Japan                     450         July 31, 1997
              Sydney, Australia                400         Month-to-Month




Item 3.  LEGAL PROCEEDINGS

              The Company is party to routine claims and suits brought against
         it in the ordinary course of business including disputes arising over
         the ownership of intellectual property rights and  collection matters. 
         In the opinion of management, the outcome of such routine claims will
         not have a material adverse effect on the Company's business,
         financial condition, results of operations or liquidity.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                          13


<PAGE>



                                       PART II



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

              The Company's Common Stock is quoted on the NASDAQ National
         Market under the symbol "ATVI."


              The following table sets forth for the periods indicated the high
         and low reported closing sale prices for the Company's Common Stock.


<TABLE>
<CAPTION>
 


                                                                   High           Low
                                                                ----------     ---------
         <S>                                                    <C>            <C>
         Fiscal 1996
         -------------
              First Quarter ended June 30, 1995                   $ 7.18        $  5.75
              Second Quarter ended September 30, 1995             $19.75        $  6.75
              Third Quarter ended December 31, 1995               $18.50        $  8.13
              Fourth Quarter ended March 31, 1996                 $15.13        $  8.63
         
         Fiscal 1997
         -------------
              First Quarter ended June 30, 1996                   $15.00        $ 11.63
              Second Quarter ended September 30, 1996             $14.38        $  9.50
              Third Quarter ended December 31, 1996               $14.00        $ 10.56
              Fourth Quarter ended March 31, 1997                 $16.25        $ 10.00
         
         Fiscal 1998
         -------------
              First Quarter through June 10, 1997                 $14.50        $ 10.25

</TABLE>


 


              On June 10, 1997, the reported last sales price for the Common
         Stock was $13.875.  As of March 31, 1997, the Company had
         approximately 5,000 stockholders of record, excluding banks, brokers
         and depository companies that are the stockholders of record for the
         account of beneficial owners.
    
              The Company has never paid cash dividends on its capital stock
         and does not intend to pay cash dividends at any time in the
         foreseeable future.  The Company expects that earnings will be
         retained for the continued growth and development of the Company's
         business.  Future dividends, if any, will depend upon the Company's
         earnings, financial condition, cash requirements, future prospects and
         other factors deemed relevant by the Company's Board of Directors.
    
              During the period from December 11, 1995 to December 14, 1995,
         the Company purchased in open market transactions 500,000 of its
         shares of common stock, at prices ranging from $10.25 to $10.875,
         aggregating approximately $5.3 million.  These purchases were made
         pursuant to the Company's announced share repurchase program.  The
         company may from time to time in the future make additional open
         market purchases of its common stock.
    
              During the fiscal year ended March 31, 1997, the Company granted
         warrants to purchase Common Stock to two of its outside directors in
         connection with their election to the Board.  Neither these warrants
         nor the shares of Common Stock for which they are exercisable have
         been registered under the Securities Act of 1933, as amended (the
         "Securities Act"), by reason of the exemption under Section 4(2) of
         the Act.  On November 1, 1996, the Company granted warrants to
         purchase 16,667 shares to Harold Brown.  The warrants have an exercise
         price of $12.25 per share and become exercisable at the rate of 25% on
         November 1, 1997 and 12.5% each six months thereafter.  The Company
         granted Mr. Brown warrants to purchase an additional 3,333 shares on
         February 27, 1997, which warrants have an exercise price of $11.80 per
         share and become exercisable at the rate of 20% per year, beginning on
         February 27, 1998.  On February 27, 1997, the Company granted to
         Robert Morgado warrants to purchase 20,000 shares of Common Stock. 
         Warrants to purchase 16,667 of the shares have an exercise price of
         $13.88 per share and become exercisable at the rate of 25% on February
         27, 1998 and 12.5% each six months thereafter; the warrants to
         purchase the remaining 3,333 shares have an exercise price of $11.80
         per share and become exercisable at the rate of 20% per year,
         beginning on February 27, 1998.  All of he warrants granted to Messrs.
         Brown and Morgado expire ten years after the date of grant.



                                          14


<PAGE>



Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

              The following table summarizes certain selected consolidated
         financial data, which should be read in conjunction with the Company's
         Consolidated Financial Statements and Notes thereto and with

         Management's Discussion and Analysis of Financial Condition and
         Results of Operations included elsewhere herein.  The selected
         consolidated financial data presented below as of and for each of the 
         fiscal years in the five-year period ended March 31, 1997 are derived
         from the audited consolidated financial statements of the Company. 
         The Consolidated Financial Statements as of March 31, 1997 and 1996
         and for each of the fiscal years in the three-year period ended March
         31, 1997, and the reports thereon, are included elsewhere in this Form
         10-K. 

           (IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS AND EMPLOYEE DATA)

<TABLE>
<CAPTION>
 

                                                                                                                     
                                                                            Fiscal Years ended March 31,
                                                      ------------------------------------------------------------------------

                                                          1997            1996           1995          1994            1993
                                                          -----           ----           ----          ----            ----
<S>                                                   <C>               <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
 Net revenues                                            $86,483        $61,393        $40,669        $26,604        $21,069
 Gross profit                                             56,661         39,644         19,376         11,293          9,535
 Operating income (loss)                                   9,807          2,532         (2,957)        (2,031)          (208)
 Income (loss) before provision
      for income taxes                                    10,731          4,239         (1,365)        (1,853)          (217)
 Net income (loss) from continuing operations              7,107          5,530         (1,520)        (1,987)          (279)
 Loss from discontinued operations                             -              -               -              -        (1,100)
 Net income (loss)                                         7,107          5,530         (1,520)        (1,987)        (1,379)
 Accumulated, unpaid preferred dividends                       -              -               -        (3,296)        (3,163)
 Net income (loss) per common share from
      continuing operations (1)                            $0.49          $0.37         $(0.11)        $(0.97)        $(1.01)
 Net income (loss) per common share (1)                     0.49           0.37          (0.11)         (0.97)         (1.33)
 Weighted average number of shares used in
      computing net income (loss) per common
      share (1)                                           14,619         14,950         13,944          5,432          3,412
OTHER OPERATING DATA:
 Average number of employees                                 342            234             93             62             60
 Net revenues per employee (in thousands)                   $253           $262           $437           $429           $351


                                                                                     As of March 31,
                                                       -----------------------------------------------------------------------
                                                           1997           1996           1995          1994            1993
                                                           ----           ----           ----          ----            ----
BALANCE SHEET DATA:
 Cash and cash equivalents                               $ 17,639       $25,288        $37,355        $38,093        $1,851
 Working capital                                           52,938        40,227         40,648         41,218         5,261
 Intangible assets                                        18, 313        19,580         20,863         22,146        23,429
 Total assets                                              95,670        77,613         68,883         68,677        34,580
 Redeemable preferred stock (2)                                -              -              -              -        25,200
 Preferred shareholders' equity (3)                            -              -              -              -         4,603
 Common shareholders' equity                               80,808        62,999         62,704         63,985          (792)

 

</TABLE>


(1) Reflects the Company's 1-for-3 reverse stock split effective October 20,
    1993.  Accordingly, previously reported net income (loss) per share and
    common share amount have been retroactively restated.

(2) Does not include accrued dividends of $3,163 as of March 31, 1993.

(3) Represents $5,000 of gross proceeds received from the sale of Series AA
    Preferred Stock, less offering expenses and the amount allocated to
    warrants sold at the time.

                                          15


<PAGE>


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

RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 1997 AND 1996

NET REVENUES

         Net revenues by territory were as follows (amounts in thousands):


<TABLE>
<CAPTION>


                                                         Fiscal Years Ended March 31,
                                            -------------------------------------------------------
                                                       1997                           1996
                                            -----------------------      --------------------------
                                                           % of Net                       % of Net
                                              Amount       Revenues       Amount          Revenues      % Change
                                              --------     --------       -------         --------      --------

         <S>                                  <C>           <C>           <C>              <C>          <C> 
         North America                        $65,049        75.2%        $47,176           76.8%         38.0%
         Europe                                12,211        14.1%          6,501           10.6%         87.8%
         Japan                                  4,504         5.2%          4,768            7.8%         -5.5%
         Australia and Pacific Rim              4,719         5.5%          2,948            4.8%         60.1%
                                            ----------    ---------      --------        ---------     ---------
                                             $86,483        100.0%        $61,393          100.0%         40.9%
                                            ----------    ---------      --------        ---------     ---------
                                            ----------    ---------      --------        ---------     ---------

         Net revenues by platform were as follows (amounts in thousands):

                                                         Fiscal Years Ended March 31,
                                            -------------------------------------------------------
                                                       1997                           1996
                                            -----------------------      --------------------------
                                                            % of Net                       % of Net
                                               Amount       Revenues       Amount          Revenues      % Change
                                               --------     --------       -------         --------      --------

         Console                              $17,367        20.1%         $5,161            8.4%        236.5%
         PC                                    69,116        79.9%         56,232           91.6%         22.9%

                                              $86,483       100.0%        $61,393          100.0%         40.9%
                                            ----------    ---------      --------        ---------     ---------
                                             ----------    ---------      --------        ---------     ---------

         Net revenues by distribution channel were as follows (amounts in thousands):

                                                         Fiscal Years Ended March 31,
                                            -------------------------------------------------------
                                                       1997                           1996
                                            -----------------------      --------------------------
                                                            % of Net                       % of Net
                                               Amount       Revenues       Amount          Revenues      % Change
                                               --------     --------       -------         --------      --------


         Retailer/reseller                    $68,478        79.2%        $46,192           75.2%         48.2%
         OEM                                   13,935        16.1%         10,728           17.5%         29.9%
         On-line, licensing and other           4,070         4.7%          4,473            7.3%         -9.0%
                                             ----------    ---------      --------        ---------     ---------

                                              $86,483       100.0%        $61,393          100.0%         40.9%
                                             ----------    ---------      --------        ---------     ---------
                                             ----------    ---------      --------        ---------     ---------
</TABLE>

 
    Total net revenues and retailer/reseller net revenues for the fiscal year
ended March 31, 1997 increased 40.9% and 48.2%, respectively, over the prior
year, primarily as a result of an increase in the number of new console and PC
title releases. Console net revenues increased 236.5% over the prior year as a
result of the initial release OF BLOOD OMEN: LEGACY OF KAIN (PlayStation),
MECHWARRIOR 2 (PlayStation and Saturn), POWER MOVE PRO WRESTLING (PlayStation)
and TIME COMMANDO (PlayStation).  PC net revenues increased by 22.9% over the
prior year primarily as a result of the initial release of MECHWARRIOR 2:
MERCENARIES  (Windows 95), INTERSTATE  76 (Windows 95), TIME COMMANDO (Windows
95), QUAKE MISSION PACK NO. 1: SCOURGE OF ARMAGON (MS-DOS/Windows 95), QUAKE
MISSION PACK NO. 2: DISSOLUTION OF ETERNITY (MS-DOS/Windows 95) and continued
sales of MECHWARRIOR 2 (Windows 95/Macintosh).
 
    OEM net revenues increased 29.9% over the prior year primarily due to
revenues related to enhanced 3-D versions of MECHWARRIOR 2 (Windows 95) and
MECHWARRIOR 2: MERCENARIES (Windows 95/D3D).  OEM net revenues also included net
revenues from INTERSTATE '76 (Windows 95), TIME COMMANDO (Windows 95) and DVD
versions of SPYCRAFT (Windows 95) and MUPPET TREASURE ISLAND (Windows 95).


                                          16


<PAGE>

    North America, Europe and Australia net revenues increased as a result of
the increase in PC and console revenues discussed above.  The Company expects
revenues in each of these territories to increase in fiscal 1998, but at a more
moderate rate than fiscal 1997 growth.  Japan net revenues decreased primarily
due to a decrease in licensing net revenues, which was partially offset by an
increase in direct publishing net revenues.  The Company expects Japan revenues
to increase in fiscal 1998 due to an increase in the number of products to be
localized for this territory.


COST OF GOODS SOLD; GROSS PROFIT

    Cost of goods sold related to console, PC and OEM net revenues represents
the manufacturing and related costs of computer software and console games. 
Manufacturers of the Company's computer software are located in the United
States and Europe and are readily available.  Console CDs and cartridges are
manufactured by the respective video game console manufacturers, Sony, Sega and
Nintendo, who often require significant lead time to fulfill the Company's
orders.  Also included in cost of goods sold is the royalty expense related to
amounts due developers, product owners and other royalty participants as a
result of product sales.  Various contracts are maintained with developers,
product  owners or other royalty participants which state a royalty rate,
territory and term of agreement, among other items. 

    Cost of goods sold as a percentage of net revenues decreased to 34.5% for
the fiscal year ended March 31, 1997 compared to 35.4% for fiscal 1996.  As a
result, gross profit as a percentage of net revenues increased to 65.5% for the
fiscal year ended March 31, 1997, from 64.6% for fiscal 1996.  The increase in
gross profit as a percentage of net revenues is the result of increased
efficiencies in the manufacturing and distribution processes, partially offset
by an increase in net revenues attributable to console products.  Future
determinations of gross profit as a percentage of net revenues will be driven
primarily by the mix of new PC and console products released by the Company
during the applicable period, as well as the mix of internal versus external
product development, the latter in each case resulting in lower gross profit
margins. 


OPERATING EXPENSES


<TABLE>
<CAPTION>
 

                                               (Amounts in thousands)
                                              Fiscal Years Ended March 31,
                                    ----------------------------------------------
                                            1997                    1996
                                    ---------------------     --------------------
                                                 % of Net                 % of Net
                                    Amount       Revenues     Amount      Revenues       % Change
                                    ------       --------     ------      --------       --------
<S>                              <C>             <C>        <C>           <C>            <C>  
    Product development              $18,195        21.0%     $17,505        28.5%           3.9%
    Sales and marketing               22,351        25.9%      13,920        22.7%          60.6%
    General and administrative         5,041         5.8%       4,404         7.2%          14.4%
    Amortization of intangible 
       assets                          1,267         1.5%       1,283         2.1%          -1.2%
                                 -----------     --------   ---------     --------       --------
    Total operating expenses         $46,854        54.2%     $37,112        60.5%          26.3%
                                 -----------     --------   ---------     --------       --------
                                 -----------     --------   ---------     --------       --------
</TABLE>

 

    Total operating expenses for the 1997 fiscal year decreased as a percentage
of net revenues from the prior fiscal year as a result of the Company's ability
to increase net revenues without incurring comparable increases in product
development and general and administrative expenses.  This decrease was
partially offset, however, by an increase in sales and marketing expenses as a
percentage of net revenues.  Product development expenses in fiscal 1997
increased 3.9% from fiscal 1996 due to the continued growth of Activision
Studios, the increased number of new products in development, and the increased
costs associated with the enhanced production content and new technologies
incorporated into such products.  The impact of these increases, however, was
partially offset by a decrease in the number of products in development that
contain live action video, which generally have higher production costs.  In
addition, operating expenses as a percentage of net revenues decreased due in
part to the change in mix of internally developed and externally developed
products.  The costs of internal product development are generally expensed as
incurred prior to the product's release and are therefore reflected in operating
expenses; the costs of acquired products are generally amortized against product
unit sales or revenues following the release of the product and are identified
as royalty expenses and are included in the cost of goods sold.  During the 1997
fiscal year, products developed internally by Activision Studios accounted for a
smaller portion of the overall number of new products released by the Company as
compared to the 1996 fiscal year.

    Sales and marketing costs in fiscal 1997 increased in amount and as a
percentage of net revenues from fiscal 1996 due to increased marketing and
promotional activities necessary to release new titles in an increasingly
competitive environment and the Company's expansion of its European and Japanese
sales and marketing infrastructures.  General and administrative expenses
increased 14.4% during the 1997 fiscal year due to an increase in worldwide
administrative support needs and headcount related expenses.


                                          17


<PAGE>

OTHER INCOME (EXPENSE)

    Interest income decreased to $924,000 for the fiscal year ended March 31,
1997, from $1,707,000 for the fiscal year ended March 31, 1996, as a result of
lower average cash and cash equivalent balances.  See "Liquidity and Capital
Resources."

PROVISION FOR INCOME TAXES

    The Company's effective tax rate was 33.8% for the fiscal year ended March
31, 1997.  During the fiscal year ended March 31, 1996, the Company recognized a
tax benefit of $1.5 million due to a reduction in the Company's deferred tax
asset valuation allowance. The reduction reflected the remaining portion of the
Company's net operating loss carryforwards, the benefit from which could be
recognized in the Company's provision for income taxes.  During the fiscal year
ended March 31, 1997, the Company recognized an additional $6.6 million
reduction to the Company's deferred tax asset valuation allowance, relating to
net operating loss carryforwards arising prior to the Company's reorganization,
which were credited to additional paid-in capital in shareholders' equity and
did not affect net income. The reductions in the valuation allowance during the
years ended March 31, 1997 and 1996 resulted principally from the Company's
assessment of the realizability of its deferred tax assets, based on recent
operating history, as well as an assessment that operations will continue to
generate taxable income.  Realization of the deferred tax assets depends on the
continued generation of sufficient taxable income prior to expiration of tax
credits and loss carryforwards.  Although realization is not assured, management
believes it is more likely than not that the deferred tax asset of $5.7 million
will be realized.  The amount of deferred tax assets considered realizable,
however, could be reduced in the future if estimates of future taxable income
during the carryforward period are reduced.   The provision for income taxes for
the year ended March 31, 1995 represents foreign taxes withheld.


RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 1996 AND 1995

NET REVENUES

    Net revenues by territory were as follows (amounts in thousands):


<TABLE>
<CAPTION>
 

                                                    Fiscal Years Ended March 31,
                                       ----------------------------------------------------------
                                                  1996                              1995
                                       -----------------------        ---------------------------
                                                      % of Net                           % of Net
                                         Amount       Revenues          Amount           Revenues       % Change
                                         ------       --------          ------           --------       --------

    <S>                                 <C>          <C>              <C>              <C>             <C>
    North America                         $47,176        76.8%          $29,492             72.5%          60.0%
    Europe                                  6,501        10.6%            7,574             18.6%         -14.2%
    Japan                                   4,768         7.8%            2,194              5.4%         117.3%
    Australia and Pacific Rim               2,948         4.8%            1,409              3.5%         109.2%
                                        ---------    ---------        ---------         ---------      ---------

                                          $61,393       100.0%          $40,669            100.0%          51.0%
                                        ---------    ---------        ---------         ---------      ---------
                                        ---------    ---------        ---------         ---------      ---------

    Net revenues by platform were as follows (amounts in thousands):

                                                    Fiscal Years Ended March 31,
                                       -----------------------------------------------------------
                                                  1996                              1995
                                       -----------------------        ---------------------------
                                                      % of Net                           % of Net
                                         Amount       Revenues          Amount           Revenues       % Change
                                         ------       --------          ------           --------       --------

    Console                              $  5,161         8.4%          $26,069             64.1%         -80.2%
    PC                                     56,232        91.6%           14,600             35.9%         285.2%
                                        ---------    ---------        ---------         ---------      ---------
                                         $ 61,393       100.0%          $40,669            100.0%          51.0%
                                        ---------    ---------        ---------         ---------      ---------
                                        ---------    ---------        ---------         ---------      ---------
</TABLE>



                                          18

<PAGE>


    Net revenues by distribution channel were as follows (amounts in
thousands):


<TABLE>
<CAPTION>

                                                Fiscal Years Ended March 31,
                                  -----------------------------------------------------------
                                           1996                              1995
                                  -----------------------        ---------------------------
                                                 % of Net                          % of Net
                                  Amount         Revenues          Amount          Revenues        % Change
                                  ------         --------          ------          --------        --------
    <S>                          <C>           <C>             <C>                 <C>            <C>
    Retailer/reseller             $  46,192         75.2%        $  34,706            85.3%           33.1%
    OEM                              10,728         17.5%            2,637             6.5%          306.8%
    On-line, licensing and other      4,473          7.3%            3,326             8.2%           34.5%
                                 ----------     ---------       ----------         ---------      ---------
                                  $  61,393        100.0%        $  40,669           100.0%           51.0%
                                 ----------     ---------       ----------         ---------      ---------
                                 ----------     ---------       ----------         ---------      ---------
</TABLE>


    Net revenues for the fiscal year ended March 31, 1996 increased by 51% over
the prior year, primarily as a result of an increase in the release of new PC
titles.  PC net revenues increased by 285% over the prior year as a result of
the initial release of MECHWARRIOR 2  (MS-DOS and Windows 95), MECHWARRIOR 2
EXPANSION PACK: GHOST BEAR'S LEGACY  (MS-DOS), ZORK NEMESIS  (MS-DOS/Windows
95), SPYCRAFT: THE GREAT GAME  (MS-DOS/Windows 95 and Macintosh), PITFALL: THE
MAYAN ADVENTURE  (Windows 95), EARTHWORM JIM  (Windows 95) and five MIGHTY
MORPHIN POWER RANGER  titles (MS-DOS and Mac).  The decrease in console net
revenues during the fiscal year was due to the Company's strategic change in its
business emphasis from cartridge-based console systems to CD-based PC and
console systems. 

    On-line, OEM, licensing and other revenues increased over the prior year
due to the Company's increased commitment to generating additional OEM revenues
and the availability of several additional titles for the OEM market.  OEM and
licensing revenues during the 1996 fiscal year primarily were derived from sales
and licenses of MECHWARRIOR 2  (MS-DOS, Windows 95 and an enhanced 3-D ATI
version), EARTHWORM JIM  (Windows 95), PITFALL: THE MAYAN ADVENTURE  (Windows
95) and SHANGHAI: GREAT MOMENTS (MS-DOS and Windows 95).

    North America, Japan and Australia net revenues increased as a result of
the increase in PC, OEM and licensing revenues discussed above.  The decrease in
Europe net revenues was attributable to a change from the publishing by the
Company of its products under an exclusive guaranteed distribution agreement in
fiscal 1995 to the publishing by the Company of its products directly to
retailers and resellers in fiscal 1996, combined with the change of the
Company's business emphasis from cartridge-based console systems to CD-based PC
systems.


COST OF GOODS SOLD

    Cost of goods sold related to console, PC and OEM revenues represents the
manufacturing and related costs of computer software  and video games. 
Manufacturers of the Company's computer software are located in the United
States and Europe and are readily available.  Console cartridges and CDs are
manufactured by the respective video game console manufacturers, Sony, Nintendo
and Sega, who require significant lead time to fulfill the Company's orders.

    Also included in cost of goods sold is royalty expense related to amounts
due to developers, title owners or other royalty participants based on product
sales.  Various contracts are maintained with developers, product title owners
or other royalty participants which state a royalty rate, territory  and term of
agreement, among other items.  The increase in total cost of goods sold is
related to the increase in PC and OEM net revenues.

GROSS PROFIT

    Gross profit as a percentage of net revenues increased to 64.6% for the
fiscal year ended March 31, 1996, from 47.6% for fiscal 1995, as a result of an
increase in PC CD-based net revenues.  Net revenues from CD-based PC products
generally yield a higher gross profit margin than net revenues from console
products as a result of the lower costs of goods sold attributable to such PC
products.  The increase in gross profit also was due to the increase in on-line,
OEM, licensing and other revenues, which also yield higher gross profit margins.


                                          19


<PAGE>

OPERATING EXPENSES


<TABLE>
<CAPTION>


                                               (Amounts in thousands)
                                              Fiscal Years Ended March 31,
                                  --------------------------------------------------------
                                            1996                               1995
                                  -----------------------       --------------------------
                                                 % of Net                         % of Net
                                    Amount       Revenues         Amount          Revenues         % Change
                                    ------       --------         ------          --------         --------

<S>                               <C>          <C>              <C>             <C>               <C>
    Product development             $ 17,505        28.5%          $ 7,274           17.9%           140.7%
    Sales and marketing               13,920        22.7%           10,410           25.6%            33.7%
    General and administrative         4,404         7.2%            3,366            8.3%            30.8%
    Amortization of intangible 
         assets                        1,283         2.1%            1,283            3.2%                -
                                   ----------    ---------       ----------       ---------        ---------
    Total operating expenses        $ 37,112        60.5%         $ 22,333           55.0%            66.2%
                                   ----------    ---------       ----------       ---------        ---------
                                   ----------    ---------       ----------       ---------        ---------
</TABLE>


 

    Total operating expenses increased as a percentage of net revenues as a
result of a substantial increase in product development expenses.  This increase
was partially offset, however, by a decrease in sales and marketing expenses and
general and administrative expenses as a percentage of net revenues.  Product
development expenses increased both in amount and as a percentage of net
revenues due to the continued growth of the Company's product development
departments, the increased number of products in product development, and the
increased costs associated with enhanced production content and new technologies
incorporated into such products.  Sales and marketing expenses increased in
actual amount, but not as a percentage of net revenues, as a result of the
marketing and promotional activity related to newly released titles.  General
and administrative expenses increased in actual amount, but not as a percentage
of net revenues, due to an increase in headcount related expenses.

OTHER INCOME (EXPENSE)

    Interest income increased to $1,707,000 for the fiscal year ended March 31,
1996, from $1,592,000 for the fiscal year ended March 31, 1995, as a result of
higher yields earned on cash and cash equivalents.  See "Liquidity and Capital
Resources."

QUARTERLY OPERATING RESULTS

    The Company's quarterly operating results have in the past varied
significantly and will likely in the future vary significantly depending on
numerous factors, several of which are not under the Company's control.  See

I
tem 1. Business - "Certain Cautionary Information."  Accordingly, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as indications of future
performance.  

The following table is a comparative breakdown of the Company's quarterly
results for the immediately preceding eight quarters (amounts in thousands,
except per share data):


<TABLE>
<CAPTION>
 

                                                                Quarter ended
                            ------------------------------------------------------------------------------
                             March      Dec.     Sept.     June      March     Dec.     Sept.      June 
                              31,        31,      30,       30,       31,       31,       30,       30, 
                             1997      1996      1996      1996      1996      1995      1995      1995 
                             ----      ----      ----      ----      -----     ----      ----      ---- 

<S>                        <C>       <C>       <C>      <C>        <C>       <C>       <C>      <C>     
 Net revenues              $28,926   $31,361   $19,175  $  7,021   $21,648   $17,578   $18,848  $  3,319
 Gross profit               18,203    19,483    13,463     5,512    15,327    10,447    12,105     1,765
 Operating income (loss)     6,054     6,210     1,769   (4,226)     4,607     1,573     2,366   (6,014)
 Net income (loss)           4,282     4,120     1,336   (2,631)     6,345     1,948     2,765   (5,528)
 Net income (loss) per share  0.29      0.28      0.09    (0.19)      0.43      0.13      0.18    (0.39)
</TABLE>

 


LIQUIDITY AND CAPITAL RESOURCES

    On January 31, 1994, the Company completed a private placement of
approximately 5,000,000 shares of its Common Stock.  The net proceeds from this
private placement, approximately $39.5 million, together with funds from
operations, have been the Company's primary sources of liquidity for the fiscal
years ended March 31, 1997 and 1996.  At March 31, 1997, the Company had
approximately $17.6 million of cash and cash equivalents.


                                          20


<PAGE>

    The Company uses its working capital to finance ongoing operations,
including the acquisition of inventory, the development, marketing and
distribution of new products, and the acquisition of products and intellectual
property rights from third parties.

    Cash flows used in operating activities of $6.3 million primarily resulted
from the increase in accounts receivable of approximately $16.5 million to $36.4
million as of March 31, 1997.  The increase in accounts receivable was due to
the overall increase in net revenues during the quarter and year ended March 31,
1997 as compared to the same periods in the prior fiscal year.  

    The Company's working capital increased approximately $12.7 million from
March 31, 1996 to $52.9 million as of March 31, 1997. The increase in working
capital primarily was attributable to the increase in accounts receivable and
prepaid software and license royalties.  

    Net cash used in investing activities primarily was attributable to capital
expenditures incurred by the Company as a result of the increase in headcount
and the number of products in development during the fiscal year.  During fiscal
1998, the Company expects to incur additional capital expenditures relating to
the development of its products, the acquisition of new products and related
intellectual property rights, the general operation of its business and the
relocation of its Los Angeles headquarters to a new leased facility in Santa
Monica, California in May 1997. 

    Management currently believes that the Company's existing capital resources
are sufficient to meet its requirements for at least the next fiscal year. 
Previous common stock and preferred stock private placements have provided, and
will continue to provide, the Company with resources to enable it to acquire
properties for development, engage in more extensive product development and
expand marketing activities, and increase working capital for operations. 

    Management also currently believes that inflation has not had, and will not
have in the foreseeable future, a material impact on continuing operations.

EFFECT OF RECENT ACCOUNTING CHANGES

    In February 1997, the Financial Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 specifies new standards designated to improve
the earnings per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computational include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision, and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has determined the
following impact of the implementation of SFAS No. 128:


<TABLE>
<CAPTION>
 
                                                                      Fiscal Year ended March 31,
                                                           --------------------------------------------
                                                                 1997            1996              1995
                                                           ----------        --------        ----------
    <S>                                                    <C>               <C>              <C>
    Earnings (loss) per share as originally reported          $  0.49         $  0.37         $   (0.11)
    Pro forma basic earnings per share                           0.51            0.39             (0.11)
    Pro forma diluted earnings per share                         0.49            0.37             (0.11)
</TABLE>





Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


                                          21


<PAGE>


Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                                            Page
                                                                            ----

         Independent Auditor's Report                                       F-1

         Independent Auditor's Report                                       F-2

         Consolidated Balance Sheets as of March 31, 1997 and 1996          F-3

         Consolidated Statements of Operations for the Years ended
            March 31, 1997, 1996 and 1995                                   F-4

         Consolidated Statements of Changes in Shareholders' Equity
            for the Years Ended March 31, 1997, 1996 and 1995               F-5

         Consolidated Statements of Cash Flows for the Years Ended
            March 31, 1997, 1996 and 1995                                   F-6

         Notes to Consolidated Financial Statements                         F-7

         Schedule II-Valuation and Qualifying Accounts and Reserves
            as of March 31, 1997, 1996 and 1995                            F-17

         All other schedules of the Registrant are omitted because of the
         absence of conditions under which they are required or because the
         required information is included elsewhere in the financial statements
         or in the notes thereto.


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

              The Company replaced Coopers & Lybrand, LLP ("Coopers & Lybrand")
         as its principal accountants, effective January 17, 1997.  The action
         was recommended by the Audit Committee of the Board of Directors and
         was approved by the Company's Board of Directors.  Coopers & Lybrand's
         reports on the Company's financial statements for the fiscal years
         ended March 31, 1996 and 1995 did not contain an adverse opinion or a
         disclaimer of opinion and were not qualified or modified as to
         uncertainty, audit scope or accounting principles.  During the two
         fiscal years ended March 31, 1996 and 1995 and all interim periods
         through January 17, 1997, (i) there were no disagreements with Coopers
         & Lybrand on any matter of accounting principles or practices,
         financial statement disclosure, or auditing scope or procedure, which
         disagreements, if not resolved to the satisfaction of Coopers &
         Lybrand, would have caused Coopers & Lybrand to make a reference to
         the subject matter of the disagreements in connection with its reports
         in the financial statements for such years, and (ii) there were no
         reportable events as described in Item 304 of Regulation S-K.  
    
              The Company engaged KPMG Peat Marwick, LLP ("Peat Marwick") as
         the Company's principal accountants to audit the Company's financial
         statements, effective January 17, 1997.  The action was recommended by
         the Audit Committee of the Board of Directors and was approved by the
         Company's Board of Directors.


                                          22


<PAGE>


                                       PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for the
         Annual Meeting of Shareholders to be held on September 24, 1997,
         entitled "Election of Directors" and "Executive Officers and Key
         Employees" to be filed with the Securities and Exchange Commission
         within 120 days after the end of the fiscal year covered by this Form
         10-K.
    

Item 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for the
         Annual Meeting of Shareholders to be held on September 24, 1997,
         entitled "Executive Compensation" and "Indebtedness of Management" to
         be filed with the Securities and Exchange Commission within 120 days
         after the end of the fiscal year covered by this Form 10-K.


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for the
         Annual Meeting of Shareholders to be held on September 24, 1997,
         entitled "Security Ownership of Certain Beneficial Owners and
         Management" to be filed with the Securities and Exchange Commission
         within 120 days after the end of the fiscal year covered by this Form
         10-K.


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for the
         Annual Meeting of Shareholders to be held on September 24, 1997,
         entitled "Certain Relationships and Related Transactions" to be filed
         with the Securities and Exchange Commission within 120 days after the
         end of the fiscal year covered by this Form 10-K.


                                          23


<PAGE>

                                       PART IV


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



        (a)   1.   FINANCIAL STATEMENTS  See Item 8. - Consolidated Financial
                   Statements and Supplementary Data Index for Financial
                   Statements and Schedule on page 26 herein.   

              2.   FINANCIAL STATEMENT SCHEDULES  See Item 8. - Consolidated
                   Financial Statements and Supplementary Data Index for
                   Financial Statements and Schedule on page 26 herein.

              3.   EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K

                   Exhibit
                   Number                                  Exhibit
                   --------                                -------

                    2.1      Plan of Reorganization of the Company, as
                             confirmed by the United States Bankruptcy Court
                             for the Northern District of California on
                             November 25, 1991 (incorporated by reference to
                             Exhibit 28.2 of the Company's Current Report on
                             Form 8-K dated October 4, 1991).

                    2.2      Plan and Agreement of Merger, dated March 30,
                             1992, among the Company, Disc Company, Inc. and
                             International Consumer Technologies Corporation
                             (incorporated by reference to Exhibit 28.1 of the
                             Company's Current Report on Form 8-K dated March
                             31, 1992).

                    2.3      Agreement and Plan of Merger between Activision,
                             Inc., a California corporation, and Activision,
                             Inc., a Delaware corporation, as filed with the
                             Secretary of State of the State of Delaware
                             (incorporated by reference to Exhibit 4.7 of
                             Amendment No. 1 to the Company's Form S-8,
                             Registration No. 33-48411 filed on June 1, 1993).

                    2.4      Plan and Agreement of Merger, dated October 28,
                             1994, among the Company, ACTV Acquisition, Inc.
                             and International Consumer Technologies
                             Corporation (incorporated by reference to Exhibit
                             2.4 of the Company's Quarterly Report on Form 10-Q
                             for the period ended December 31, 1994).

                    3.1      Amended and Restated Articles of Incorporation of
                             Activision, Inc., dated October 15, 1992
                             (incorporated by reference to Exhibit 4.5 of
                             Amendment No. 1 to the Company's Form S-8,
                             Registration No. 33-48411 filed on June 1, 1993).

                    3.2      Bylaws of Activision, Inc. (incorporated by
                             reference to Exhibit 4.6 of Amendment No. 1 to the
                             Company's Form S-8, Registration No. 33-48411
                             filed on June 1, 1993).

                    10.7     Mediagenic 1991 Stock Option and Stock Award Plan,
                             as amended (incorporated by reference to Exhibit
                             4.1 to the Company's Registration Statement on
                             Form S-8, Registration No. 33-63638, filed on
                             December 8, 1995).

                    10.8     Mediagenic 1991 Director Warrant Plan as amended
                             (incorporated by reference to Exhibit 28.2 to the
                             Company's Registration Statement on Form S-8,
                             Registration No. 33-63638, filed on June 1, 1993). 

                    10.9     Purchase Agreement, dated as of January 24, 1994,
                             among the Company and each purchaser who is a
                             signatory thereto  (incorporated by reference to
                             Exhibit 28.1 of the Company's Form 8-K filed
                             February 9, 1994).

                    10.10    Registration Rights Agreement, dated as of January
                             31, 1994, among the Company and each purchaser who
                             is a signatory thereto


                                          24

<PAGE>

                             (incorporated by reference to Exhibit 28.2 of the
                             Company's Form 8-K filed February 9, 1994).

                    10.11    Share Exchange and Recapitalization Agreement,
                             dated as of January 14, 1994, among the Company,
                             International Consumer Technologies Corporation,
                             Steven Wynn, J.F. Shea Co., Inc. as Nominee 1993-6
                             and ESL Partners, L.P. (incorporated by reference
                             to Exhibit 28.3 of the Company's Form 8-K filed
                             February 9, 1994).

                    10.12    Registration Rights Agreement, dated as of January
                             31, 1994, among the Company, International
                             Consumer Technologies Corporation, Steven Wynn,
                             J.F. Shea Co., Inc. as Nominee 1993-6 and ESL
                             Partners, L.P. (incorporated by reference to
                             Exhibit 28.4 of the Company's Form 8-K filed
                             February 9, 1994).

                    10.14    Lease Agreement dated as of December 20, 1996,
                             between the Company and Barclay Curci Investment
                             Company (incorporated by reference to Exhibit
                             10.14 of the Company's Form 10-Q for the quarter
                             ended December 31, 1996).

                    11.      Statement regarding computation of per share
                             earnings.

                    16.      Letter from Coopers & Lybrand, LLP pursuant to
                             Item 304 (a) (3) of Regulation S-K (incorporated
                             by reference to exhibit 16 of the Company's Form
                             8-K filed January 17, 1997.)

                    21.      Principal subsidiaries of the Company.

                    23.1     Independent Auditor Consents.

                    23.2     Independent Auditor Consents.

                    27.      Financial Data Schedule.

                                    
        (b)   REPORTS ON FORM 8-K

              The Company filed a Form 8-K on January 17, 1997 reporting a 
              change in the Company's certifying accountant from Coopers & 
              Lybrand, LLP to KPMG Peat Marwick, LLP, effective January 17, 
              1997.

                                          25


<PAGE>



                                      SIGNATURES


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

Date: June 13, 1997

ACTIVISION, INC.


By:     /s/  ROBERT A. KOTICK     
   ------------------------------
          (Robert A. Kotick)
         Chairman and Chief
          Executive Officer


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


 


<TABLE>
<CAPTION>

<S>                                          <C>                                <C>
By:     /s/  ROBERT A. KOTICK               Chairman, Chief Executive          June 13, 1997
   -----------------------------            Officer (Principal Executive
           (Robert A. Kotick)               Officer), President and Director


By:    /s/  HOWARD E. MARKS                 Executive Vice President           June 13, 1997
   ---------------------------              and Director
          (Howard E. Marks)       
              

By:     /s/  BRIAN G. KELLY                 Chief Financial and Operating      June 13, 1997
   ---------------------------              Officer and Director
            (Brian G. Kelly)                (Principal Financial Officer)


By:     /s/  BARRY J. PLAGA                 Chief Accounting Officer           June 13, 1997
   ---------------------------              (Principal Accounting Officer)
            (Barry J. Plaga)


By:     /s/  HAROLD A. BROWN                Director                           June 13, 1997
   ---------------------------
            (Harold A. Brown)


By:     /s/  BARBARA S. ISGUR               Director                           June 13, 1997
   ---------------------------
           (Barbara S. Isgur)


By:     /s/  STEVEN T. MAYER                Director                           June 13, 1997
   ---------------------------
           (Steven T. Mayer)


By:    /s/ ROBERT J. MORGADO                Director                           June 13, 1997
   ---------------------------
         (Robert J. Morgado)

</TABLE>



                                          26


<PAGE>


                             INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders

We have audited the accompanying consolidated balance sheet of ACTIVISION, INC.
and subsidiaries as of March 31, 1997 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year then
ended.  In connection with our audit of the consolidated financial statements,
we also have audited financial statement schedule II for the year ended March
31, 1997. These financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ACTIVISION, INC. and subsidiaries as of March 31, 1997, and the consolidated
results of their operations and their cash flows for the year the ended, in
conformity with generally accepted accounting principles.  In addition, in our
opinion, the related financial statement schedule for the year ended March 31,
1997, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG PEAT MARWICK, LLP


Los Angeles, California
May 8, 1997



                                         F-1


<PAGE>



                          REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of ACTIVISION, INC. and Subsidiaries.

We have audited the accompanying consolidated balance sheet of ACTIVISION, INC.
and subsidiaries as of March 31, 1996 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years ended
March 31, 1996 and 1995.  In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
listed under item 14(a)2 of this Annual Report on 10K for each of the two years
in the period ended March 31, 1996.  These financial statements and financial
statement schedule are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ACTIVISION, INC. and subsidiaries as of March 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.  In
addition, in our opinion, the related financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

COOPERS & LYBRAND, LLP


Los Angeles, California
May 15, 1996, except for Note 9, 

as to which the date is June 10, 1997.


                                         F-2


<PAGE>


                          ACTIVISION, INC. AND SUBSIDIARIES 
                             CONSOLIDATED BALANCE SHEETS

                           (In thousands except share data)
 


<TABLE>
<CAPTION>

                                                                                        March 31,             March 31,
                                                                                          1997                  1996   
                                                                                    ---------------       ---------------
<S>                                                                                <C>                   <C>      
ASSETS
   Current assets:
    Cash and cash equivalents                                                        $     17,639          $     25,288
    Accounts receivable, net of allowances of $6,468 and $7,005, respectively              36,367                19,909
    Inventories, net                                                                        4,520                 2,975
    Prepaid software and license royalties                                                  6,559                 3,652
    Prepaid expenses and other current assets                                               1,222                 1,183
    Deferred income taxes                                                                   1,493                 1,500
                                                                                    ---------------       --------------
           Total current assets                                                            67,800                54,507

   Property and equipment, net                                                              5,090                 3,326
   Deferred income taxes                                                                    4,212                     -
   Other assets                                                                               255                   200
   Excess purchase price over identifiable assets acquired, net                            18,313                19,580
                                                                                    ---------------       --------------
           Total assets                                                              $     95,670         $      77,613
                                                                                    ---------------       --------------
                                                                                    ---------------       --------------

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
    Accounts payable                                                                 $      7,054        $        4,592
    Accrued expenses                                                                        7,808                 9,688
                                                                                    ---------------       --------------
           Total current liabilities                                                       14,862                14,280

   Other liabilities                                                                            -                   334
                                                                                    ---------------       --------------
           Total liabilities                                                               14,862                14,614
                                                                                    ---------------       --------------

   Commitments and contingencies

   Shareholders' equity:
    Common stock, $.000001 par value, 50,000,000 shares                                                                
           authorized, 14,644,895 and 14,250,180 shares issued 
           and 14,144,895 and 13,750,180 outstanding, respectively                              -                     -
    Additional paid-in capital                                                             78,484                67,904
    Retained earnings                                                                       7,815                   708
    Cumulative foreign currency translation                                                 (213)                 (335)
    Less: Treasury stock, cost of 500,000 shares                                          (5,278)               (5,278)
                                                                                    ---------------       --------------
           Total shareholders' equity                                                      80,808                62,999
                                                                                    ---------------       --------------
    Total liabilities and shareholders' equity                                      $     95,670         $      77,613
                                                                                    ---------------       --------------
                                                                                    ---------------       --------------
</TABLE>

 



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


                                         F-3


<PAGE>

                          ACTIVISION, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                         (in thousands except per share data)


<TABLE>
<CAPTION>

                                                   For the years ended March 31,
                                              ---------------------------------------
                                                1997          1996           1995
                                              ---------     ----------    -----------
<S>                                           <C>           <C>           <C>
Net revenues                                 $  86,483     $   61,393    $    40,669

Cost of goods sold                              29,822         21,749         21,293
                                              ---------     ----------    -----------
    Gross profit                                56,661         39,644         19,376
                                              ---------     ----------    -----------
Operating expenses:                                                                 
    Product development                         18,195         17,505          7,274
    Sales and marketing                         22,351         13,920         10,410
    General and administrative                   5,041          4,404          3,366
    Amortization of intangible assets            1,267          1,283          1,283
                                              ---------     ----------    -----------
         Total operating expenses               46,854         37,112         22,333
                                              ---------     ----------    -----------
Operating income (loss)                          9,807          2,532        (2,957)
Other income:
    Interest income                                924          1,707          1,592
                                              ---------     ----------    -----------
Income (loss) before income taxes               10,731          4,239        (1,365)
Income tax provision (benefit)                   3,624        (1,291)            155
                                              ---------     ----------    -----------
Net income (loss)                            $   7,107          5,530    $   (1,520)
                                              ---------     ----------    -----------
                                              ---------     ----------    -----------

Net income (loss) per common share            $    0.49     $     0.37    $    (0.11)
                                              ---------     ----------    -----------
                                              ---------     ----------    -----------
Number of shares used in computing
    net income (loss) per common share          14,619         14,950         13,944
                                              ---------     ----------    -----------
                                              ---------     ----------    -----------

</TABLE>


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


                                         F-4


<PAGE>

                         ACTIVISION, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                 (In thousands)

<TABLE>
<CAPTION>

                                                          Common Stock               Common Stock Warrants
                                                          ------------               ---------------------    Additional
                                                     Shares          Amount         Shares        Amount     Paid-in Capital
                                                     ----------------------        -----------------------   ---------------
<S>                                                  <C>            <C>             <C>           <C>        <C>
Balances March 31, 1994                              13,849             -             267        $   120     $   67,356

  Exercise of common stock warrants                     267             -            (267)          (120)           200

  Issuance of common stock pursuant to
    employee stock option plan                           59             -              -              -              99

  Issuance of common stock pursuant to
    directors stock warrant plan                          8             -              -              -              12

  Net loss for the year                                  -              -              -              -              - 

  Foreign currency translation adjustment                -              -              -              -              - 
                                                     ------        ------         ------         ------      ----------
Balances March 31, 1995                              14,183             -              -              -      $   67,667

  Issuance of common stock pursuant to
    employee stock option plan                           50             -              -              -             224

  Issuance of common stock pursuant to
    directors stock warrant plan                         17             -              -              -              13

  Purchase of treasury stock                             -              -              -              -              - 

  Net income for the year                                -              -              -              -              - 

  Foreign currency translation adjustment                -              -              -              -              - 
                                                     ------        ------         ------         ------      ----------
Balances March 31, 1996                              14,250             -              -              -    $     67,904

  Issuance of common stock                               63                            -              -             822

  Issuance of common stock pursuant to
    employee stock option plan                          313             -              -              -           2,209

  Issuance of common stock pursuant to
    employee stock purchase plan                         19             -              -              -             179

  Tax benefit attributable to employee
    stock option plan                                    -              -              -              -             736

  Tax benefit derived from net operating
    loss carryforward utilization                        -                             -              -           6,634

  Net income for the year                                -              -              -              -              - 

  Foreign currency translation adjustment                -              -              -              -              - 
                                                     ------        ------         ------         ------      ----------
Balances March 31, 1997                              14,645          $  -              -           $  -    $     78,484
                                                     ------        ------         ------         ------      ----------
                                                     ------        ------         ------         ------      ----------

<CAPTION>

                                                   Retained         Cumulative          Treasury Stock 
                                                   Earnings      Foreign Currency       --------------      Shareholders'
                                                   (Deficit)        Translation     Shares         Amount       Equity
                                                  ----------    -----------------  ----------------------   -------------
<S>                                               <C>            <C>                <C>            <C>      <C>
Balances March 31, 1994                           $  (3,302)       $  (189)              -            -     $    63,985

  Exercise of common stock warrants                      -              -                -            -              80

  Issuance of common stock pursuant to
    employee stock option plan                           -              -                -            -              99

  Issuance of common stock pursuant to
    directors stock warrant plan                         -              -                -            -              12

  Net loss for the year                              (1,520)            -                -            -          (1,520)

  Foreign currency translation adjustment                -              48               -            -              48
                                                  ---------        --------        -------     ----------     ----------
Balances March 31, 1995                           $  (4,822)       $  (141)              -            -      $  62,704 

  Issuance of common stock pursuant to
    employee stock option plan                           -              -                -            -             224

  Issuance of common stock pursuant to
    directors stock warrant plan                         -              -                -            -              13

  Purchase of treasury stock                             -              -              500        (5,278)        (5,278)

  Net income for the year                             5,530             -                -            -           5,530

  Foreign currency translation adjustment                -            (194)              -            -            (194)
                                                  ---------        --------        -------     ----------     ----------
Balances March 31, 1996                           $     708        $  (335)            500     $  (5,278)     $  62,999

  Issuance of common stock                               -              -                -            -             822

  Issuance of common stock pursuant to
    employee stock option plan                           -              -                -            -           2,209



  Issuance of common stock pursuant to
    employee stock purchase plan                         -              -                -            -             179

  Tax benefit attributable to employee
    stock option plan                                    -              -                -            -             736

  Tax benefit derived from net operating
    loss carryforward utilization                        -              -                -            -           6,634

  Net income for the year                             7,107             -                -            -           7,107

  Foreign currency translation adjustment                -             122               -            -             122
                                                  ---------        --------        -------     ----------     ----------
Balances March 31, 1997                           $   7,815        $  (213)            500     $  (5,278)     $  80,808
                                                  ---------        --------        -------     ----------     ----------
                                                  ---------        --------        -------     ----------     ----------

</TABLE>


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


                                         F-5

<PAGE>

                          ACTIVISION, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    (In thousands)

<TABLE>
<CAPTION>

                                                           For the years ended March 31, 
                                               --------------------------------------------------------
                                                     1997               1996                 1995
                                               ---------------     ---------------      ---------------
<S>                                            <C>                 <C>                  <C>        
Cash flows from operating activities:
    Net income (loss)                            $    7,107          $    5,530           $  (1,520)
    Adjustments to reconcile net income 
       (loss) to net cash used in operating 
       activities:
         Deferred income taxes                        3,165              (1,500)                  -
         Depreciation and amortization                3,335               2,646               1,942
    Change in assets and liabilities:
         Accounts receivable                        (16,458)            (14,343)             (3,641)
         Inventories                                 (1,545)             (1,003)                551
         Prepaid software and license 
           royalties                                 (2,085)             (2,570)               (202)
         Prepaid expenses and other 
           current assets                               (39)               (841)                126
         Other assets                                   (55)               (140)                 37
         Accounts payable                             2,462               2,076                 587
         Accrued liabilities                         (1,880)              6,535                 911
         Other liabilities                             (334)               (176)                (11)
                                                  ----------          ----------           ---------
    Net cash used in operating activities            (6,327)             (3,786)             (1,220)
                                                  ----------          ----------           ---------
Cash flows from investing activities:
    Capital expenditures                             (3,832)             (3,045)             (1,256)
    Restricted cash                                       -                   -               1,500
                                                  ----------          ----------           ---------
    Net cash provided by (used in) investing 
       activities                                    (3,832)             (3,045)                244
                                                  ----------          ----------           ---------
Cash flows from financing activities:
    Proceeds from issuance and exercise of common 
       stock options and warrants                     2,209                 237                 191
    Proceeds from employee stock purchase plan          179                   -                   -
    Payments under line-of-credit agreements              -                   -              (4,695)
    Borrowings under line-of-credit agreements            -                   -               4,695
    Other                                                 -                   -                  (1)
    Purchase of treasury stock                            -              (5,278)                  -
                                                  ----------          ----------           ---------
    Net cash provided by (used in) financing 
      activities                                      2,388              (5,041)                190
                                                  ----------          ----------           ---------
Effect of exchange rate changes on cash                 122                (195)                 48
                                                  ----------          ----------           ---------
Net decrease in cash and cash equivalents            (7,649)            (12,067)               (738)
                                                  ----------          ----------           ---------
Cash and cash equivalents at beginning of year       25,288              37,355              38,093
                                                  ----------          ----------           ---------
Cash and cash equivalents at end of year         $   17,639          $   25,288           $  37,355
                                                  ----------          ----------           ---------
                                                  ----------          ----------           ---------
Non-cash investing activities:
    Stock issued in exchange for licensing 
      rights                                     $      822          $        -           $       -
    Tax benefit derived from stock option 
      exercises                                         736                   -                   -
    Tax benefit derived from net operating 
      loss carryforward utilization                   6,634                   -                   -
Supplemental cash flow information:
    Cash paid for income taxes                   $      291          $      124           $     193
    Cash paid for interest                                -                  20                  18

</TABLE>



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


                                         F-6

<PAGE>

                          ACTIVISION, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1997, 1996 AND 1995


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    BUSINESS

    The Company is a diversified international publisher of interactive
    entertainment software.  The Company develops and publishes entertainment
    software for a variety of platforms, including both personal computer
    CD-ROM systems, including the Windows 95 operating system, and video game
    console hardware systems such as the Sony Playstation ("Playstation") and
    Sega Saturn ("Saturn").  The Company distributes its products worldwide
    primarily through its direct sales force and, to a lesser extent through
    third party distributors and licensees.

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of Activision,
    Inc., a Delaware corporation, and its wholly-owned subsidiaries (the
    Company.)  All intercompany accounts and transactions have been eliminated
    in consolidation.

    CASH AND CASH EQUIVALENTS

    Cash and cash equivalents include cash and short-term investments with
    original maturities of not more than 90 days.

    CONCENTRATION OF CREDIT RISK

    Financial instruments which potentially subject the Company to
    concentration of credit risk consist principally of temporary cash
    investments and accounts receivable.  The Company places its temporary cash
    investments with quality financial institutions.  At various times during
    the fiscal years ended March 31, 1997, 1996 and 1995, the Company had
    deposits in excess of the $100,000 Federal Deposit Insurance Corporation
    ("FDIC") limit at these financial institutions.  At March 31, 1997, the
    Company had approximately $13.4 million invested in short-term United
    States government backed securities.  The Company's customer base includes
    retail outlets and distributors including consumer electronics and computer
    specialty stores, discount chains, video rental stores and toy stores in
    the United States and countries worldwide.  The Company performs ongoing
    credit evaluations of its customers and maintains allowances for potential
    credit losses.  The Company generally does not require collateral or other
    security from its customers.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The fair values of the Company's cash and cash equivalents, accounts
    receivable, accounts payable, and accrued liabilities approximate their
    carrying values due to the relatively short maturities of these
    instruments. Trade receivables are primarily due from retailers and OEM's.

    CAPITALIZED SOFTWARE DEVELOPMENT COSTS

    Statement of Financial Accounting Standards No. 86, "Accounting for the
    Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
    provides for the capitalization of certain software development costs once
    technological feasibility is established.  The capitalized costs are then
    amortized on a straight-line basis over the estimated product life, or on
    the ratio of current revenues to total projected revenues, whichever is
    greater.  The software development costs that have been capitalized to date
    have been immaterial.

    PREPAID SOFTWARE AND LICENSED PROPERTY ROYALTIES

    Prepaid royalties represent prepayments made to independent software
    developers under development agreements.  Prepaid royalties are expensed at
    the contractual royalty rate as cost of goods sold based on actual net
    product sales.  Management evaluates the future realization of prepaid
    royalties quarterly, and charges to cost of goods sold any amounts that
    management deems unlikely to be amortized at the contract royalty rate
    through product sales.

    REVENUE RECOGNITION


                                         F-7

<PAGE>

    Product Sales:  The Company recognizes revenue from the sale of its
    products upon shipment.  Subject to certain limitations, the Company
    permits customers to obtain exchanges within certain specified periods, and
    provides price protection on certain unsold merchandise.  Revenue from
    product sales is reflected net of the allowance for returns and price
    protection.

    Software Licenses:  For those license agreements which provide the
    customers the right to multiple copies in exchange for guaranteed amounts,
    revenue is recognized at delivery of the product master or the first copy.
    Per copy royalties on sales which exceed the guarantee are recognized as
    earned.

    ADVERTISING EXPENSES

    The Company expenses advertising and the related costs as incurred.
    Advertising expenses for the years ended March 31, 1997, 1996 and 1995 were
    approximately $3,144,000, $1,940,000 and $3,564,000, respectively, and are
    included in sales and marketing expense in the statement of operations.

    AMORTIZATION OF INTANGIBLE ASSETS

    The Company's merger with The Disc Company, Inc. effective April 1, 1992
    was accounted for by the purchase method of accounting, resulting in an
    intangible asset of approximately $24,417,000.  This intangible asset is
    being amortized on a straight-line basis over a 20 year period.
    Amortization for each of the years ended March 31, 1997, 1996 and 1995 was
    approximately $1,221,000.  The company adopted the provisions of SFAS No.
    121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets
    to Be Disposed Of," on April 1, 1996.  This Statement requires that
    long-lived assets and certain identifiable intangibles be reviewed for
    impairment whenever events of changes in circumstances indicate that the
    carrying amount of an asset may not be recoverable. Recoverability of
    assets to be held and used is measured by a comparison of the carrying
    amount of the asset to undiscounted cash flows expected  to be generated by
    the asset.  If such assets are considered to be impaired, the impairment to
    be recognized is measured by the amount by which the carrying amount
    exceeds the fair value of the assets.  Adoption of this Statement did not
    have a material impact on the Company's financial position, results of
    operations, or liquidity.

    INCOME TAXES

    The Company accounts for income taxes using Statement of Financial
    Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
    Under SFAS No. 109 income taxes are accounted for under the asset and
    liability method. Deferred tax assets and liabilities are recognized for
    the future tax consequences attributable to differences between the
    financial statement carrying amounts of existing assets and liabilities and
    their respective tax bases and operating loss and tax credit carryforwards.
    Deferred tax assets and liabilities are measured using enacted tax rates
    expected to apply to taxable income in the years in which those temporary
    differences are expected to be recovered or settled.  The effect on
    deferred tax assets and liabilities of a change in tax rates is recognized
    in income in the period that includes the enactment date.

    FOREIGN CURRENCY TRANSLATION

    The Company's foreign subsidiaries maintain their accounting records in
    their local currency.  The currencies are then converted to United States
    dollars and the effect of the foreign currency translation is reflected as
    a component of shareholders' equity in accordance with Statement of
    Financial Accounting Standards No. 52, "Foreign Currency Translation."

    NET INCOME (LOSS) PER COMMON SHARE

    Net income (loss) per common share is computed using the weighted average
    number of common and, when dilutive, common equivalent shares outstanding
    during the period.

    ESTIMATES

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

    STOCK OPTION PLAN

    Prior to April 1, 1996, the Company accounted for its stock option plan in
    accordance with the provisions of Accounting Principles Board ("APB")
    Opinion No. 25, Accounting for Stock Issued to Employees, and related


                                         F-8



<PAGE>

    interpretations.  As such, compensation expense would be recorded on the
    date of the grant only if the current market price of the underlying stock
    exceeded the exercise price.  On April 1, 1996 the Company adopted SFAS No.
    123, Accounting for Stock-Based Compensation, which permits entities to
    recognize as expense over the vesting period  the fair value of all
    stock-based awards on the date of the grant.  Alternatively, SFAS No. 123
    also allows entities to continue to apply the provisions of APB Opinion No.
    25 and provide pro forma net income and pro forma earnings per share
    disclosures for employee stock option grants made in 1995 and future years
    as if the fair-value-based method defined in SFAS No. 123 had been applied.
    The Company has elected to continue to apply the provisions of APB No. 25
    and provide the pro forma disclosure provisions of SFAS No. 123.

    RECLASSIFICATIONS

    Certain amounts in the consolidated financial statements have been
    reclassified to conform with the current year's presentation.

2.  INVENTORIES

    Inventories are valued at the lower of cost (first-in, first-out) or
    market.  Inventories at March 31, 1997 and 1996 reflect an adjustment to
    net realizable value of approximately $135,000 and $145,000, respectively.
    The provisions for net realizable value for the years ended March 31, 1997,
    1996 and 1995 were approximately $142,000, $532,000 and $134,000,
    respectively.  Inventories, net of reserves consisted of (amounts in
    thousands):

                                            March 31, 1997      March 31, 1996
                                            ---------------     --------------

         Purchased parts and components       $  1,162              $    876
         Finished goods                          3,358                 2,099
                                             ----------            ----------
                                              $  4,520              $  2,975
                                             ----------            ----------
                                             ----------            ----------

    Included in finished goods at March 31, 1997 and 1996 are expected
    inventory returns at a net realizable value of $837,000 and $427,000,
    respectively.

3.  PROPERTY AND EQUIPMENT

    Equipment, furniture and leasehold improvements are recorded at cost.
    Depreciation and amortization are provided using the straight-line method
    over the shorter of the estimated useful lives or the lease term generally
    ranging from three to ten years.  Property and equipment, stated at cost,
    was as follows (amounts in thousands):

                                               March 31, 1997   March 31, 1996
                                               --------------   --------------

         Computer equipment                      $   6,910        $   4,360
         Office furniture and other equipment        1,885            1,338
         Leasehold improvements                      1,029              310
                                                 ---------        ---------
                                                     9,824            6,008
         Less accumulated depreciation   
           and amortization                         (4,734)          (2,682)
                                                 ---------        ---------
                                                 $   5,090        $   3,326
                                                 ---------        ---------
                                                 ---------        ---------

    Depreciation expense for the years ended March 31, 1997, 1996 and 1995 was
    $2,068,000, $1,362,000 and $658,000, respectively.


                                         F-9



<PAGE>

4.  ACCRUED EXPENSES

    Accrued expenses were as follows (amounts in thousands):

                                              March 31, 1997    March 31, 1996
                                              --------------    ---------------

         Accrued royalties                       $  4,173         $   3,104
         Accrued selling and marketing costs        1,680             1,759
         Deferred revenue                               -             2,242
         Other                                      1,955             2,583
                                                 --------         ---------
                                                 $  7,808          $  9,688
                                                 --------         ---------
                                                 --------         ---------

5.  OPERATIONS BY GEOGRAPHIC AREA

    The following table summarizes the geographic operations of the Company
    (amounts in thousands):

                                                  Year ended March 31,
                                         -------------------------------------
                                           1997           1996         1995
                                           ----           ----         ----
    Net revenues:
      North America                    $ 65,049        $ 47,176      $ 29,492
      Europe                             12,211           6,501         7,574
      Japan                               4,504           4,768         2,194
      Australia and Pacific               4,719           2,948         1,409
                                       --------        --------      --------
         Total net revenues            $ 86,483        $ 61,393      $ 40,669
                                       --------        --------      --------
                                       --------        --------      --------
    Operating income (loss):
      North America                    $  2,306         $(5,110)      $(5,114)
      Europe                              3,466           2,547            77
      Japan                               2,022           3,814         1,655
      Australia and Pacific               2,013           1,281           425
                                       --------        --------      --------
        Total operating income (loss)  $  9,807          $2,532       $(2,957)
                                       --------        --------      --------
                                       --------        --------      --------

                                       At March 31,   At March 31,   At March 31
                                         1997            1996          1995
                                         ----            ----          ----
    Assets:
      United States                    $ 81,833        $ 73,377      $ 68,226
      Foreign                            13,837           4,236           657
                                       --------        --------      --------
        Total assets                   $ 95,670        $ 77,613      $ 68,883
                                       --------        --------      --------
                                       --------        --------      --------

    Operating income (loss) by geographic territory is reflected without any
    allocation for product development and general and administrative expenses
    to the geographic territories other than North America.  These expenses are
    incurred primarily in North America.

6.  SIGNIFICANT CUSTOMERS

    The Company had no sales to any one customer in excess of 10% of total net
    revenues for the years ended March 31, 1997 and 1996.  For the fiscal year
    ended March 31, 1995, the Company had sales to one customer which
    represented 14.9% of total net revenues.


                                         F-10


<PAGE>

7.  INCOME TAXES

    Domestic and foreign income (loss) before income taxes and details of the
    income tax provision (benefit) are as follows (amounts in thousands):

                                                       Year ended March 31,
                                                 ------------------------------
                                                   1997      1996       1995
                                                   ----      ----       ----
    Income (loss) before income taxes:
          Domestic                               $  5,896  $  3,681   $ (3,096)
          Foreign                                   4,835       558      1,731
                                                 --------  --------   --------
                                                 $ 10,731  $  4,239   $ (1,365)
                                                 --------  --------   --------
                                                 --------  --------   --------
    Income tax provision:
        Current:
          Federal                                $    383  $    106   $      -
          State                                        31        25          -
          Foreign                                      45        78        155
                                                 --------  --------   --------
             Total current                            459       209        155
                                                 --------  --------   --------
        Deferred:
          Federal                                  (2,961)   (1,369)         -
          State                                    (1,244)     (131)         -
                                                 --------  --------   --------
             Total deferred                        (4,205)   (1,500)         -
                                                 --------  --------   --------
    Add back benefit credited to additional
        paid-in capital:
          Tax benefit related to stock option
              exercises                               736         -          -
          Tax benefit related to utilization of
              pre-bankruptcy net operating 
              loss carryforwards                    6,634         -          -
                                                 --------  --------   --------
                                                    7,370         -          -
                                                 --------  --------   --------

                                                 $  3,624  $ (1,291)  $    155
                                                 --------  --------   --------
                                                 --------  --------   --------

    The items accounting for the difference between income taxes computed at
    the U.S. federal statutory income tax rate and the income tax provision for
    each of the years are as follows:

                                                         Year ended March 31,
                                                       ------------------------
                                                       1997    1996     1995
                                                       ----    ----     ----

    Federal income tax provision at statutory rate     35.0%    34.0%  (34.0%)
    State taxes, net of federal benefit                 3.4%        -        -
    Benefit of net operating loss carryforward             -  (25.7%)        -
    Nondeductible amortization                          3.9%    10.3%    30.4%
    Future (current) deductible reserves                   -   (4.9%)    39.3%
    Research and development credits                  (8.4)%   (8.7%)  (41.9%)
    Incremental effect of foreign tax rates           (4.1)%   (0.5%)    22.2%
    Increase (reduction) of valuation allowance         4.0%  (35.4%)        -
    Other                                                  -     0.4%   (4.5)%
                                                      ------  -------  -------
                                                       33.8%  (30.5%)    11.5%
                                                      ------  -------  -------
                                                      ------  -------  -------


                                         F-11



<PAGE>

    The components of the net deferred tax asset and liability were as follows
    (amounts in thousands):
                                                March 31, 1997  March 31, 1996
                                                --------------  --------------

        Deferred asset:
          Allowance for bad debts                  $    272       $     211
          Allowance  for sales returns                  441             785
          Miscellaneous                                  99              49
          Tax credit carryforwards                    2,553           1,450
          Net operating loss carryforwards           10,447          13,310
                                                  ---------       ---------
             Deferred tax asset                      13,812          15,805
             Valuation allowance                     (8,107)        (14,305)
                                                  ---------       ---------
             Net deferred tax asset                   5,705           1,500
                                                  ---------       ---------
                                                  ---------       ---------

    During the year ended March 31, 1996, the Company recognized a tax benefit
    of $1.5 million through a reduction in the Company's deferred tax asset
    valuation allowance. The reduction reflected the remaining portion of the
    Company's net operating loss carryforwards, the benefit from which could be
    recorded in the Company's provision for income taxes.  In accordance with
    Statement of Position 90-7, "Financial Reporting by Entities in
    Reorganization Under the Bankruptcy Code," issued by the American Institute
    of Certified Public Accountants, benefits from loss carryforwards arising
    prior to the Company's reorganization are recorded as additional paid-in
    capital.  During the year ended March 31, 1997, $6.6 million of such
    benefit have been recognized through a reduction in the valuation
    allowance.  The reductions in the valuation allowance during the years
    ended March 31, 1997 and 1996 were determined based on the Company's
    assessment of the realizability of its deferred tax assets, based on recent
    operating history, and the Company's expectation that operations will
    continue to generate taxable income, as well as other factors.  Realization
    of the deferred tax assets is dependent upon the continued generation of
    sufficient taxable income prior to expiration of tax credits and loss
    carryforwards.  Although realization is not assured, management believes it
    is more likely than not that the deferred tax asset of $5.7 million will be
    realized.  The amount of deferred tax assets considered realizable,
    however, could be reduced in the future if estimates of future taxable
    income are reduced.   The provision for Income taxes for the year ended
    March 31, 1995 represents foreign taxes withheld.

    The Company's available net operating loss carryforward for federal tax
    reporting purposes approximates $28.3 million and is subject to certain
    limitations as defined under Section 382 of the Internal Revenue Code.  The
    net operating loss carryforwards expire from 1999 to 2009.  At March 31,
    1997, the Company had a net operating loss carryforward for California tax
    reporting purposes of approximately $10.7 million.  The California net
    operating loss carryforwards expire from 1998 to 2003.

8.  COMMITMENTS AND CONTINGENCIES

    LEASE OBLIGATIONS

    The Company leases its facilities under non-cancelable operating lease
    agreements.  Total future minimum lease commitments as of March 31, 1997
    are as follows (amounts in thousands):

                   Year ending March 31,

                        1998                     $    2,379
                        1999                          2,116
                        2000                          2,218
                        2001                          2,223
                        2002                          2,223
                        Thereafter                   11,070
                                                 ----------
                                                 $   22,229
                                                 ----------
                                                 ----------

    Rent expense for the years ended March 31, 1997, 1996 and 1995 was
    approximately $1,777,000, $1,348,000 and $811,000, respectively.

    EMPLOYMENT AGREEMENTS

    As of March 31, 1997, the Company has entered into employment agreements
    with various personnel which have obligated the Company to make total
    minimum payments of $3,102,000 and $67,000 during the years ending March
    31, 1998 and 1999, respectively.
                                         F-12

<PAGE>

    LEGAL PROCEEDINGS

    The Company is party to routine claims and suits brought against it in the
    ordinary course of business including disputes arising over the ownership
    of intellectual property rights and  collection matters.  In the opinion of
    management, the outcome of such routine claims will not have a material
    adverse effect on the Company's business, financial condition, results of
    operations or liquidity.

9.  EMPLOYEE BENEFIT PLANS

    STOCK OPTION PLAN

    The Company has a stock option plan (the "Stock Option Plan") for the
    benefit of officers, employees, consultants and others.  The Stock Option
    Plan  permits the granting of non-qualified stock options, incentive stock
    options ("ISOs"), stock appreciation rights ("SARs"), restricted stock
    awards, deferred stock awards and other Common Stock-based awards.  The
    total number of shares of Common Stock available for distribution under the
    Stock Option Plan is 6,066,667.  The plan requires available shares to
    consist in whole or in part of authorized and unissued shares or treasury
    shares.  There were 326,000 remaining shares available for grant under the
    Stock Option Plan as of March 31, 1997.

    The stock option exercise price is determined at the discretion of the
    Board of Directors, and for ISOs, is not to be less than the fair market
    value at the date of grant, or in the case of non-qualified options, must
    exceed or be equal to 85% of fair market value at date of grant.  Options
    typically become exercisable in equal installments over a period not to
    exceed five years and must be exercised within 10 years of date of grant.
    Historically, stock options have been granted with exercise prices equal to
    or greater than the fair market value at the date of grant.

    Stock Option Plan activity was as follows (amounts in thousands, except
    weighted average exercise price amounts):


<TABLE>
<CAPTION>
 
                                                         1997                          1996                         1995
                                              ------------------------------------------------------     ----------------------
<S>                                             <C>          <C>            <C>          <C>              <C>         <C>
                                                Shares        Wtd Avg         Shares        Wtd Avg         Shares      Wtd Avg
                                                 (000)       Ex Price          (000)       Ex Price          (000)     Ex Price
                                               -------       --------       --------      ---------       --------     --------
         Outstanding at beginning of year        3,725         $11.37          1,190       $   5.20            398     $   2.98
            Granted                              1,947          11.28          2,805          13.61          1,073         5.61
            Exercised                            (313)           7.05           (50)           4.54           (59)         1.67
            Forfeited                            (181)           9.24          (220)           6.07          (222)         4.13
            Expired                                  -              -              -              -              -            -
                                               -------       --------       --------      ---------       --------     --------
         Outstanding at end of year              5,178         $11.69          3,725      $   11.37          1,190     $   5.20
                                               -------       --------       --------      ---------       --------     --------
                                               -------       --------       --------      ---------       --------     --------

         Exercisable at end of year              3,242         $12.62            334       $   4.55            176     $   3.82


</TABLE>

 
    The range of exercise prices for options outstanding as of March 31, 1997
    was $1.50 to $21.18.  The range of exercise prices for options is wide due
    to increases in the Company's stock price over the period of the grants.
    For the year ended March 31, 1997, 1,227,000 options were granted at an
    exercise price equal to the fair market value on the date of grant, and
    720,000 options were granted at an exercise price greater than fair market
    value on the date of grant.


    The following tables summarize information about options outstanding at
    March 31, 1997:

                                                Outstanding Options
                                        -------------------------------------
                                                       Remaining
                                                    Weighted Avg
                                                     Contractual      Wtd Avg
                                           Shares           Life     Exercise
                                            (000)     (in years)        Price
                                         --------     ----------     --------


                                         F-13


<PAGE>

         Range of exercise prices:
            $1.50 to $9.75                  1,728            7.9      $  6.53
            $9.78 to $13.00                 1,557            9.4        11.34
            $13.13 to $21.18                1,893            8.3        16.69
                                         --------       --------     --------
            Total                           5,178            8.5       $11.69
                                         --------       --------     --------
                                         --------       --------     --------

                                                      Exercisable Options
                                                  --------------------------
                                                                   Wtd Avg
                                                       Shares     Exercise
                                                        (000)        Price
                                                      -------     --------
         Range of exercise prices:
            $1.50 to $9.75                                829      $  5.92
            $9.78 to $13.00                               789        10.34
            $13.13 to $21.18                            1,624        17.16
                                                      -------     --------
            Total                                       3,242       $12.62
                                                      -------     --------
                                                      -------     --------

    These options will expire if not exercised at specific dates ranging from
    January 2002 to March 2007.  Prices for options exercised during the three
    year period ended March 31, 1997 ranged from $0.75 to $11.05.

    EMPLOYEE STOCK PURCHASE PLAN

    The Company has an employee stock purchase plan for all eligible employees
    (the "Purchase Plan").  Under the Purchase Plan, shares of the Company's
    common stock may be purchased at six-month intervals at 85% of the lower of
    the fair market value on the first or last day of each six-month period
    (the "Offering Period").  Employees may purchase shares having a value not
    exceeding 10% of their gross compensation during an Offering Period.
    During the Purchase Plan's first Offering Period ended March 31, 1997,
    employees purchased 19,000 shares at a price of $9.56 per share.  As of
    March 31, 1997, 181,000 shares were reserved for future issuance under the
    Purchase Plan.

    EMPLOYEE RETIREMENT PLAN

    The Company has a retirement plan covering substantially all of its
    eligible employees.  The retirement plan is qualified in accordance with
    Section 401(k) of the Internal Revenue Code.  Under the plan, employees may
    defer up to 15% of their pre-tax salary, but not more than statutory
    limits.  The Company contributes 5% of each dollar a participant
    contributes.  The Company's matching contributions to the plan were $25,000
    and $10,000 during the years ended March 31, 1997 and March 31, 1996; the
    Company made no matching contributions in the year ended March 31, 1995.

    DIRECTOR WARRANT PLAN

    The Director Warrant Plan provides for the automatic granting of warrants
    ("Director Warrants") to purchase 16,667 shares of the Common Stock to each
    director of the Company who is not an officer or employee of the Company or
    any of its subsidiaries.  The total number of shares of Common Stock
    available for distribution under the Director Warrant Plan was 100,000.
    Director Warrants granted under the Director Warrant Plan vest 25% on the
    first anniversary of the date of grant, and 12.5% each six months
    thereafter.  The Director Warrant Plan expired on December 19, 1996.  The
    expiration had no effect on the outstanding Warrants.

    Director Warrant activity was as follows (amounts in thousands, except
    weighted average exercise price amounts):


<TABLE>
<CAPTION>
 
                                                         1997                          1996                          1995
                                             ---------------------------------------------------------    ---------------------
                                                Shares        Wtd Avg         Shares        Wtd Avg         Shares      Wtd Avg
                                                 (000)       Ex Price          (000)       Ex Price          (000)     Ex Price
                                              --------      ---------       --------      ---------        -------    ---------
         <S>                                    <C>          <C>              <C>          <C>              <C>        <C>
         Outstanding at beginning of year           73          $4.43             50       $   0.75             67      $  0.94
              Granted                                -              -             60           7.50              -            -
              Exercised                              -              -           (17)           0.75            (8)         1.50
              Forfeited                              -              -           (20)           7.50            (9)         1.50


</TABLE>


                                         F-14



<PAGE>


<TABLE>
<CAPTION>
 
          <S>                                    <C>            <C>            <C>          <C>              <C>        <C>
              Expired                                -              -              -              -              -            -
                                                 ------         ------         ------       --------         ------     --------

         Outstanding at end of year                 73          $4.43             73       $   4.43             50     $   0.75
                                                 ------         ------         ------       --------         ------     --------
                                                 ------         ------         ------       --------         ------     --------

         Exercisable at end of year                 73          $4.43             39       $   2.47             38     $   0.75

</TABLE>

 
    During the fiscal year ended March 31, 1997, 40,000 Director Warrants were
    granted to new directors outside of the Director Warrant Plan with an
    average exercise price of $12.85 and vesting consistent with other
    outstanding Director Warrants.

    The range of exercise prices for director warrants outstanding as of March
    31, 1997 was $0.75 to $8.50.  The range of exercise prices for options is
    wide due to increases in the Company's stock price over the period of the
    grants.   As of March 31, 1997, 33,000 of the outstanding and vested
    director warrants have a weighted average remaining contractual life of 4.8
    years and a weighted average exercise price of $0.75, 20,000 of the
    outstanding and vested director warrants have a weighted average remaining
    contractual life of 7.8 years and a weighted average exercise price of
    $6.50 and 20,000 of the outstanding and vested director warrants have a
    weighted average remaining contractual life of 7.8 years and a weighted
    average exercise price of $8.50.

    PRO FORMA INFORMATION

    The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
    Issued to Employees," in accounting for its employee stock options.  Under
    APB No. 25, if the exercise price of the Company's employee stock options
    equals the market price of the underlying stock on the date of grant, no
    compensation expense is recognized in the Company's financial statements.

    Pro forma information regarding net income and earnings per share is
    required by SFAS No. 123.  This information is required to be determined as
    if the Company had accounted for its employee stock options (including
    shares issued under the Purchase Plan and Director Warrant Plan
    collectively called "options") granted during fiscal 1996 and 1997 under
    the fair value method of that statement.  The fair value of options granted
    in the years ended March 31, 1997 and 1996 reported below has been
    estimated at the date of grant using a Black-Scholes option pricing model
    with the following weighted average assumptions:


<TABLE>
<CAPTION>
 
                                               Stock Option Plan             Purchase Plan              Director Warrant Plan
                                           ------------------------------------------------------------------------------------

                                             1997           1996           1997           1996           1997           1996
                                          -------        -------        -------        -------        -------        -------
         <S>                              <C>            <C>            <C>            <C>            <C>            <C>
         Expected life (in years)             2.2            3.7            0.5              -              -            2.0
         Risk free interest rate            6.45%          6.45%          6.45%              -              -          6.45%
         Volatility                           .60            .60            .60              -              -            .60
         Dividend yield                         -              -              -              -              -              -


</TABLE>

 
    The Black-Scholes option valuation model was developed for use in
    estimating the fair value of traded options that have no vesting
    restrictions and are fully transferable.  In addition, option valuation
    models require the input of highly subjective assumptions, including the
    expected stock price volatility.  Because the Company's options have
    characteristics significantly different from those of trade options, and
    because changes in the subjective input assumptions can materially affect
    the fair value estimate, in the opinion of management, the existing models
    do not necessarily provide a reliable single measure of the fair value of
    its options.  The weighted average estimated fair value of Stock Option
    Plan shares granted during the years ended March 31, 1997 and 1996 was
    $4.04 and $3.74 per share, respectively. The weighted average estimated
    fair value of Employee Purchase Plan shares granted during the year ended
    March 31, 1997 was $2.89.  The weighted average estimated fair value of
    Director Warrants granted during the year ended March 31, 1997 was $2.27.

    For purposes of pro forma disclosures, the estimated fair value of the
    options is amortized to expense over the options' vesting period.  The
    Company's pro forma information follows (amounts in thousands except for
    earnings per share information):

                                                 Year ended March 31,
                                            ------------------------------
                                                1997              1996
                                            ------------     -------------
         Pro forma net income               $  3,828          $  2,302
         Pro forma earnings per share       $    .26          $    .15


                                         F-15


<PAGE>

    The effects on pro forma disclosures of applying SFAS No. 123 are not
    likely to be representative of the effects on pro forma disclosures of
    future years.  Because SFAS No. 123 is applicable only to options granted
    during fiscal 1996 and 1997, the pro forma effect will not be fully
    reflected until the fiscal year ended March 31, 2000.

10. RELATED PARTY TRANSACTIONS

    PROMISSORY NOTES RECEIVABLE

    As of March 31, 1997, accounts receivable includes $177,000 in promissory
    notes receivable from Robert A. Kotick, a director, officer and shareholder
    of the Company.  The promissory notes are dated December 28, 1994 and April
    28, 1995, have maturity dates, as amended, of December 31, 1997 and bear
    interest at 9.0% per annum.

    MERGER WITH INTERNATIONAL CONSUMER TECHNOLOGIES CORPORATION (ICT)

    Effective January 1, 1995, ICT was merged with and into a wholly owned
    subsidiary of the Company, with ICT as the surviving corporation.  ICT's
    sole asset at the time of the merger was 5,429,600 shares of the Company's
    Common Stock. As a result of the merger, the shares of the Company's Common
    Stock previously held by ICT were distributed to the shareholders of ICT in
    exchange for their shares of ICT common stock.  No other assets or
    liabilities were acquired or assumed by the Company as a result of the
    merger.

11. QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>


                                                                            Quarter Ended
                                                       ------------------------------------------------------         Year
   (Dollars in thousands, except per share data)         June 30        Sept 30         Dec 31         Mar 31         Ended
                                                         -------        -------         ------         ------         -----
    <S>                                                <C>             <C>            <C>            <C>            <C>
    Fiscal 1997:
         Net revenues                                  $   7,021       $ 19,175       $ 31,361       $ 28,926       $ 86,483
         Operating income (loss)                          (4,226)         1,769          6,210          6,054          9,807
         Net income (loss)                                (2,631)         1,336          4,120          4,282          7,107
         Net income (loss) per common share                (0.19)          0.09           0.28           0.29           0.49

         Common stock price per share
             High                                      $   15.00       $  14.38       $  14.00       $  16.25       $  16.25
             Low                                           11.63           9.50          10.56          10.00           9.50

    Fiscal 1996:
         Net revenues                                  $   3,319       $ 18,848       $ 17,578       $ 21,648         61,393
         Operating income (loss)                          (6,014)         2,366          1,573          4,607          2,532
         Net income (loss)                                (5,528)         2,765          1,948          6,345          5,530
         Net income (loss) per common share                (0.39)          0.18           0.13           0.43           0.37

         Common stock price per share
             High                                      $   7.125       $  19.75       $  18.50       $ 15.125       $  19.75
             Low                                            5.75           6.75          8.125          8.625           5.75

</TABLE>



                                         F-16


<PAGE>

 
                                                                    SCHEDULE II

                          ACTIVISION, INC. AND SUBSIDIARIES
                    VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                (Amounts in thousands)


<TABLE>
<CAPTION>

           Col. A                         Col. B             Col. C                 Col. D             Col. E
           ------                         ------             ------                 ------             ------
                                         Balance at                                                  Balance at
                                         Beginning                                Deductions           End of
         Description                     of Period          Additions             (Describe)           Period
- - -----------------------------------------------------------------------------------------------------------------
<S>                                       <C>                <C>                   <C>                <C>
Year ended March 31, 1997:

    Allowance for sales returns, price
      protection and doubtful             $ 7,005           $  13,249              $13,768 (A)        $ 6,468
      accounts

    Inventory valuation                   $   145           $     142              $   152 (B)        $   135

    Deferred tax valuation allowance      $14,305           $     436              $ 6,634            $ 8,107


Year ended March 31, 1996:

    Allowance for sales returns, price
      protection and doubtful             $ 4,469           $  12,402              $ 9,866            $ 7,005
      accounts

    Inventory valuation                   $   357           $     532              $   744 (B)        $   145

    Deferred tax valuation allowance      $16,500           $   (695)              $ 1,500            $14,305


Year ended March 31, 1995:

    Allowance for sales returns, price
      protection and doubtful             $ 3,266           $   3,795              $ 3,592 (A)        $ 4,469
      accounts

    Inventory valuation                   $   493           $     134              $   270 (B)        $   357

    Deferred tax valuation allowance      $15,531           $     969              $     -            $16,500

</TABLE>

 
(A) Actual write-offs of uncollectible accounts receivable or sales returns and
price protection.
(B) Actual write-offs of obsolete inventory, scrap and reduction in carrying
value of certain portions of inventory.


                                         F-17


<PAGE>


                                    EXHIBIT INDEX


   Exhibit                                                      Sequential Page
    Number    Exhibit                                                Number
    ------     -------                                               ------

    2.1       Plan of Reorganization of the Company, as
              confirmed by the United States Bankruptcy
              Court for the Northern District of California
              on November 25, 1991 (incorporated by reference
              to Exhibit 28.2 of the Company's Current Report
              on Form 8-K dated October 4, 1991).

    2.2       Plan and Agreement of Merger, dated
              March 30, 1992, among the Company, Disc Company,
              Inc. and International Consumer Technologies
              Corporation (incorporated by reference to
              Exhibit 28.1 of the Company's Current Report on
              Form 8-K dated March 31, 1992).

    2.3       Agreement and Plan of Merger between Activision,
              Inc., a California corporation, and Activision,
              Inc., a Delaware corporation, as filed with the
              Secretary of State of the State of Delaware
              (incorporated by reference to Exhibit 4.7 of
              Amendment No. 1 to the Company's Form S-8, Registration
              No. 33-48411 filed on June 1, 1993).

    2.4       Plan and Agreement of Merger, dated October 28, 1994,
              among the Company, ACTV Acquisition, Inc. and
              International Consumer Technologies Corporation
              (incorporated by reference to Exhibit 2.4 of the
              Company's Quarterly Report on Form 10-Q for the
              period ended December 31, 1994).

    3.1       Amended and Restated Articles of Incorporation of
              Activision, Inc., dated October 15, 1992 (incorporated
              by reference to Exhibit 4.5 of Amendment No. 1 to
              the Company's Form S-8, Registration No. 33-48411
              filed on June 1, 1993).

    3.2       Bylaws of Activision, Inc. (incorporated by
              reference to Exhibit 4.6 of Amendment No. 1 to
              the Company's Form S-8, Registration No. 33-48411
              filed on June 1, 1993).

    10.7      Mediagenic 1991 Stock Option and Stock Award Plan,
              as amended (incorporated by reference to
              Exhibit 4.1 to the Company's Registration Statement
              on Form S-8, Registration No. 33-63638, filed on
              December 8, 1995).

    10.8      Mediagenic 1991 Director Warrant Plan as amended
              (incorporated by reference to Exhibit 28.2 to
              the Company's Registration Statement on Form S-8,
              Registration No. 33-63638, filed on June 1, 1993).

    10.9      Purchase Agreement, dated as of January 24, 1994,
              among the Company and each purchaser who is a
              signatory thereto  (incorporated by reference to
              Exhibit 28.1 of the Company's Form 8-K filed
              February 9, 1994).

    10.10     Registration Rights Agreement, dated as of
              January 31, 1994, among the Company and each
              purchaser who is a signatory thereto (incorporated
              by reference to Exhibit 28.2 of the Company's
              Form 8-K filed February 9, 1994).

    10.11     Share Exchange and Recapitalization Agreement, dated
              as of January 14, 1994, among the Company,
              International Consumer Technologies Corporation,
              Steven Wynn, J.F. Shea Co., Inc. as Nominee 1993-6
              and ESL Partners, L.P. (incorporated by reference
              to Exhibit 28.3 of the Company's Form 8-K filed
              February 9, 1994).

    10.12     Registration Rights Agreement, dated as of
              January 31, 1994, among the Company, International
              Consumer Technologies Corporation, Steven Wynn,
              J.F. Shea Co., Inc. as Nominee 1993-6 and ESL
              Partners, L.P. (incorporated by reference to
              Exhibit 28.4 of the Company's Form 8-K filed
              February 9, 1994).


<PAGE>

   Exhibit                                                      Sequential Page
    Number    Exhibit                                                Number
    ------     -------                                               ------


    10.14     Lease Agreement dated as of December 20, 1996,
              between the Company and Barclay Curci Investment
              Company (incorporated by reference to
              Exhibit 10.14 of the Company's Form 10-Q for
              the quarter ended December 31, 1996).

    11.       Statement regarding computation of per share earnings.     46

    16.       Letter from Coopers & Lybrand, LLP pursuant to
              Item 304 (a) (3) of Regulation S-K (incorporated by
              reference to Exhibit 16 of the Company's Form 8-K
              filed January 17, 1997.)

    21.       Principal subsidiaries of the Company.                     47

    23.1      Consent of Independent Accountants.                        48

    23.2      Consent of Independent Accountants.                        49

    27.       Financial Data Schedule.





<PAGE>

                                                                     EXHIBIT 11

                           ACTIVISION AND SUBSIDIARIES

                   COMPUTATION OF NET INCOME (LOSS) PER SHARE
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                         Year ended      Year ended      Year ended
                                                       March 31, 1997  March 31, 1996  March 31, 1995
                                                       --------------  --------------  --------------
<S>                                                    <C>             <C>             <C>
PRIMARY SHARES CALCULATION

Reconciliation of weighted average number of
shares outstanding to amount used in primary
earnings per share computation:

  Weighted average shares outstanding                      13,930          14,011          13,944
  Add-shares issuable from assumed exercise of
     options and warrants                                     689             939               -
                                                         --------        --------        --------

  Weighted average number of shares outstanding
     as adjusted                                           14,619          14,950          13,944
                                                         --------        --------        --------
                                                         --------        --------        --------


FULLY DILUTED SHARES CALCULATION

Reconciliation of weighted average number of
shares outstanding to amount used in fully
diluted earnings per share computation:

  Weighted average shares outstanding                      13,930          14,011          13,944
  Add-shares issuable from assumed exercise
  of options and warrants                                     689             939               -
                                                         --------        --------        --------


  Weighted average number of shares
  outstanding as adjusted                                  14,619          14,950          13,944
                                                         --------        --------        --------
                                                         --------        --------        --------

NET INCOME (LOSS)                                        $  7,107        $  5,530        $ (1,520)
                                                         --------        --------        --------
                                                         --------        --------        --------

PRIMARY EARNINGS PER SHARE                               $   0.49        $   0.37        $  (0.11)
                                                         --------        --------        --------
                                                         --------        --------        --------

FULLY DILUTED EARNINGS PER SHARE (1)                     $   0.49        $   0.37        $  (0.11)
                                                         --------        --------        --------
                                                         --------        --------        --------

</TABLE>


(1)  Net income (loss) per common share presented on the face of the income 
statement represents primary earnings per share.  Dual presentation
 of primary 
and fully diluted earnings per share has not been made on the face of the 
income statement because there are no differences.  This exhibit is presented 
because the common stock equivalents represent more than 3% of weighted average
common shares outstanding.




<PAGE>

                                                                      EXHIBIT 21


                    PRINCIPAL SUBSIDIARIES OF THE REGISTRANT


                                                  State or Other Jurisdiction
                                                       of Incorporation or
     Name of subsidiary                                    Organization
- - ---------------------------------         --------------------------------------

Activision Japan Co., Ltd.                                Japan

Activision (U.K.) Ltd.                                    United Kingdom

Activision Europe SARL                                    France

Activision Australia Pty Ltd.                             Australia

TDC Group, Inc.                                           Delaware

Activision Productions, Inc.                              Delaware

Activision Texas, Inc.                                    Delaware

Activision Illinois, Inc.                                 Delaware






<PAGE>

                                                                   EXHIBIT 23.1


                          INDEPENDENT AUDITORS' CONSENT



     We consent to the incorporation by reference in the registration
     statement (Nos. 33-48411, 33-63638, 33-91074, 333-06130, 333-12621 and
     333-06054) on Form S-8 and (Nos. 33-68144 and 33-75878) on Form S-3 of
     Activision, Inc. of our report dated May 18, 1997, relating to the
     consolidated balance sheet of ACTIVISION, INC. and Subsidiaries as of
     March 31, 1997 and the related consolidated statement of operations,
     changes in shareholders equity, and cash flows for the year then
     ended, and the related financial statement schedule for the year ended
     March 31, 1997, which report appears in the  March 31, 1997 annual
     report on Form 10-K of ACTIVISION, INC.


     KPMG Peat Marwick, LLP

     Los Angeles, California
     June 13, 1997






<PAGE>

                                                                   EXHIBIT 23.2


                       CONSENT OF INDEPENDENT ACCOUNTANTS




     We consent to the incorporation by reference in the registration
     statement of Activision, Inc. on Forms S-8 (File Nos. 33-48411, 33-
     63638, 33-91074, 333-06130, 333-12621 and 333-06054) and Forms S-3
     (File Nos. 33-68144 and 33-75878) of our report dated May 15, 1996
     except for Note 9, as to which the date is June 10, 1997, on our
     audits of the consolidated financial statements and financial
     statement schedules of Activision, Inc. and Subsidiaries as of March
     31, 1996 and for the years ended March 31, 1996 and 1995, which report
     is included in this Annual Report on Form 10-K.


     COOPERS & LYBRAND, LLP

     Los Angeles, California
     June 13, 1997







<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          MAR-31-1997
<PERIOD-START>                             MAR-01-1996
<PERIOD-END>                               MAR-31-1997
<CASH>                                          17,639
<SECURITIES>                                         0
<RECEIVABLES>                                   42,835
<ALLOWANCES>                                     6,468
<INVENTORY>                                      4,520
<CURRENT-ASSETS>                                67,800
<PP&E>                                           9,824
<DEPRECIATION>                                   4,734
<TOTAL-ASSETS>                                  95,670
<CURRENT-LIABILITIES>                           14,862
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                      80,808
<TOTAL-LIABILITY-AND-EQUITY>                    95,670
<SALES>                                         86,483
<TOTAL-REVENUES>                                86,483
<CGS>                                           29,822
<TOTAL-COSTS>                                   29,822
<OTHER-EXPENSES>                                46,854
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               (924)
<INCOME-PRETAX>                                 10,731
<INCOME-TAX>                                     3,624
<INCOME-CONTINUING>                              7,107
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     7,107
<EPS-PRIMARY>                                      .49
<EPS-DILUTED>                                      .49
        

</TABLE>