10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark  One)

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

For the quarterly period ended November 1, 2003

or

o  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:  000-24603

ELECTRONICS BOUTIQUE HOLDINGS CORP.

(Exact Name of Registrant as Specified in its Charter)

Delaware	51-0379406
(State of Incorporation)	(IRS Employer Identification Number)
931 South Matlack Street West Chester, Pennsylvania	19382
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  610/430-8100

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 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  ý            NO  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  YES  ý            NO  o

At December 4, 2003, there were 24,831,384 shares of common stock outstanding.

ELECTRONICS BOUTIQUE HOLDINGS CORP.
AND SUBSIDIARIES

INDEX

Part I.	Financial Information
	Item 1. Financial Statements
	Consolidated Balance Sheets at November 1, 2003 (unaudited) and February 1, 2003
	Consolidated Statements of Income (unaudited) Thirteen weeks ended and thirty-nine weeks ended November 1, 2003 and November 2, 2002
	Consolidated Statements of Cash Flows (unaudited) Thirty-nine weeks ended November 1, 2003 and November 2, 2002
	Notes to Consolidated Financial Statements (unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4. Disclosure Controls and Procedures
Part II.	Other Information
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
Signatures

2

ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

	November 1, 2003			February 1, 2003
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	72,924		$	121,873
Accounts receivable:
Trade and vendors	23,920			14,298
Other	271			263
Merchandise inventories	258,607			226,866
Deferred tax asset	11,163			9,870
Prepaid expenses and other current assets	15,719			9,310
Total current assets	382,604			382,480
Property and equipment:
Building & leasehold improvements	107,786			97,107
Fixtures and equipment	112,440			93,399
Land	5,788			5,427
Construction in progress	3,595			1,968
	229,609			197,901
Less accumulated depreciation and amortization	105,975			87,975
Net property and equipment	123,634			109,926
Goodwill and other intangible assets, net of accumulated amortization of $626 and $377	13,183			12,041
Deferred tax asset	11,988			11,854
Other noncurrent assets	4,841			5,313
Total assets	$	536,250		$	521,614
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	206,967		$	176,146
Accrued expenses	52,073			43,242
Income taxes payable	1,748			18,595
Total current liabilities	260,788			237,983
Long-term liabilities:
Deferred rent and other long-term liabilities	13,097			9,131
Total long-term liabilities	13,097			9,131
Total liabilities	273,885			247,114
Stockholders’ equity:
Preferred stock – authorized 25,000 shares; $.01 par value; no shares issued and outstanding at November 1, 2003 and February 1, 2003	—			—
Common stock – authorized 100,000 shares; $.01 par value; 26,403 shares issued and 24,903 shares outstanding at November 1, 2003; 25,882 shares issued and outstanding at February 1, 2003	264			259
Treasury stock – 1,500 and 0 shares at November 1, 2003 and February 1, 2003, respectively, at cost	(31,770		)	—
Additional paid-in capital	177,880			169,527
Accumulated other comprehensive income (loss)	3,840			(1,113		)
Retained earnings	112,151			105,827
Total stockholders’ equity	262,365			274,500
Total liabilities and stockholders’ equity	$	536,250		$	521,614

See accompanying notes to consolidated financial statements.

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ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Amounts in thousands, except per share amounts)

	Thirteen weeks ended					Thirty-nine weeks ended
	November 1, 2003		November 2, 2002			November 1, 2003		November 2, 2002
Net sales	$	323,146	$	281,704		$	925,541	$	779,037
Management fees	1,570		1,256			4,722		4,198
Total revenues	324,716		282,960			930,263		783,235
Cost of goods sold	235,538		207,831			678,420		578,888
Gross profit	89,178		75,129			251,843		204,347
Costs and expenses:
Selling, general and administrative expense	80,046		65,945			222,884		182,509
Restructuring and asset impairment reversal	—		(2,237		)	—		(2,611		)
Depreciation and amortization	7,040		5,739			19,967		16,300
Operating income	2,092		5,682			8,992		8,149
Interest income, net	276		375			1,115		1,248
Income before income tax expense and cumulative effect of change in accounting principle	2,368		6,057			10,107		9,397
Income tax expense	886		2,315			3,783		3,590
Income before cumulative effect of change in accounting principle	1,482		3,742			6,324		5,807
Cumulative effect of change in accounting principle, net of income tax	—		—			—		(4,773		)
Net income	$	1,482	$	3,742		$	6,324	$	1,034
Income per share before cumulative effect of change in accounting principle:
Basic	$	0.06	$	0.14		$	0.25	$	0.22
Diluted	$	0.06	$	0.14		$	0.25	$	0.22
Per share cumulative effect of change in accounting principle:
Basic								$	(0.18	)
Diluted								$	(0.18	)
Net income per share:
Basic	$	0.06	$	0.14		$	0.25	$	0.04
Diluted	$	0.06	$	0.14		$	0.25	$	0.04
Weighted average shares outstanding:
Basic	24,742		25,844			25,203		25,820
Diluted	25,243		26,234			25,502		26,286

See accompanying notes to consolidated financial statements.

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ELECTRONICS BOUTIQUE HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)

	Thirty-nine weeks ended
	November 1, 2003			November 2, 2002
Cash flows from operating activities:
Net income	$	6,324		$	1,034
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation of property and equipment	19,749			16,184
Amortization of other assets	218			116
Loss on disposal of property and equipment	173			393
Deferred taxes	(1,343		)	(4,540		)
Foreign currency transaction gain	(362		)	(379		)
Changes in assets and liabilities:
Accounts receivable	(9,128		)	(4,602		)
Merchandise inventories	(25,086		)	(121,104		)
Prepaid expenses	(6,036		)	(2,510		)
Other long-term assets	214			(2,908		)
Accounts payable	25,316			87,342
Accrued expenses	7,693			(3,657		)
Income taxes payable	(17,104		)	(7,480		)
Deferred rent and other long-term liabilities	1,050			4,202
Net cash provided by (used in) operating activities	1,678			(37,909		)
Cash flows from investing activities:
Purchases of property and equipment	(29,436		)	(24,894		)
Proceeds from disposition of assets	108			2,529
Businesses acquired, net of cash	(111		)	(583		)
Net cash used in investing activities	(29,439		)	(22,948		)
Cash flows from financing activities:
Proceeds from exercise of stock options	7,957			909
Repurchase of company stock	(31,770		)	—
Repayments of long-term debt	—			(506		)
Proceeds from issuance of common stock	400			334
Net cash (used in) provided by financing activities	(23,413		)	737
Effects of exchange rates on cash	2,225			1,036
Net decrease in cash and cash equivalents	(48,949		)	(59,084		)
Cash and cash equivalents, beginning of period	121,873			126,524
Cash and cash equivalents, end of period	$	72,924		$	67,440
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	5		$	35
Income taxes	21,545			12,562

See accompanying notes to consolidated financial statements.

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ELECTRONICS BOUTIQUE HOLDINGS CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)  Basis of Presentation

The consolidated financial statements include the accounts of Electronics Boutique Holdings Corp. and its wholly owned subsidiaries (the “Company”). All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the consolidated financial statements and notes thereto for the fiscal year ended February 1, 2003 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Operating results for the thirteen and thirty-nine week periods ended November 1, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2004.

(2)  Change in Accounting Principle

In November 2002, the Emerging Issues Task Force (“EITF”) reached consensus on Issue 02-16, Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor. Issue 02-16 addresses the accounting for cash consideration received from a vendor by a reseller for various vendor funded allowances, including cooperative advertising support. Issue 02-16 is effective for new arrangements or modifications to existing arrangements entered into after December 31, 2002, although early adoption was permitted. The Company elected to adopt early, effective February 3, 2002, the provisions of Issue 02-16 in the preparation of its Annual Report on Form 10-K for the fiscal year ended February 1, 2003. Accordingly, in the thirty-nine week period ended November 2, 2002, the Company recorded a cumulative effect of change in accounting principle of $7.6 million, $4.8 million net of income tax, for the impact of this adoption on prior fiscal years.

In accordance with the provisions of Issue 02-16, vendor advertising allowances which exceed specific, incremental and identifiable costs incurred in relation to the advertising and promotional events the Company conducts for its vendors are to be classified as a reduction in the purchase price of merchandise and recognized in income as the merchandise is sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined by calculating the ratio of vendor allowances in excess of specific, incremental and identifiable advertising and promotional costs to merchandise purchases. The Company then applied this ratio to the value of inventory in determining the amount of the vendor reimbursements to be recorded as a reduction to inventory reflected on the balance sheet. This methodology resulted in a $7.6 million reduction in inventory as of February 3, 2002, the date of adoption of Issue 02-16. The $7.6 million, $4.8 million net of tax, is recorded as a cumulative effect of accounting change in the thirty-nine week period ended November 2, 2002. For the thirteen weeks ended November 1, 2003, an additional $5.2 million of vendor allowances was recorded as a reduction to inventory primarily due to an increase in the inventory balance during the quarter. For the thirteen weeks ended November 2, 2002, an additional $5.5 million of vendor allowances was recorded as a reduction to inventory primarily due to an increase in the inventory balance during the quarter. For the thirty-nine weeks ended November 1, 2003 and November 2, 2002, an additional $3.2 million and $4.3 million, respectively, of vendor allowances was recorded as a reduction to inventory primarily due to an increase in the inventory balances during the thirty-nine week periods.

(3)  Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is calculated by adjusting the weighted

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average common shares outstanding during the period for the dilutive effect of common stock equivalents related to stock options.

The following is a reconciliation of the basic weighted average number of shares outstanding to the diluted weighted average number of shares outstanding (amounts in thousands):

	Thirteen weeks ended		Thirty-nine weeks ended
	November 1, 2003	November 2, 2002	November 1, 2003	November 2, 2002
Weighted average shares outstanding—basic	24,742	25,844	25,203	25,820
Dilutive effect of stock options	501	390	299	466
Weighted average shares outstanding—diluted	25,243	26,234	25,502	26,286

(4)  Income Taxes

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.

(5)  Debt

The Company has available a revolving credit facility with Fleet Capital Corporation for maximum borrowings of $50.0 million. As of November 1, 2003, there were no outstanding borrowings on this facility.

(6)  Comprehensive Income

Comprehensive income is computed as follows (amounts in thousands):

	Thirteen weeks ended						Thirty-nine weeks ended
	November 1, 2003			November 2, 2002			November 1, 2003			November 2, 2002 (1)
Net income	$	1,482		$	3,742		$	6,324		$	1,034
Foreign currency translations	3,366			1,422			8,024			3,539
Hedging activities	(949		)	(367		)	(3,071		)	(2,289		)
Comprehensive income	$	3,899		$	4,797		$	11,277		$	2,284

(1)For the thirty-nine weeks ended November 2, 2002, net income includes the cumulative effect of the change in accounting principle of $4.8 million, net of income tax, related to vendor advertising allowance. See Note 2, “Change in Accounting Principle,” for further disclosure regarding the change.

Gains on foreign currency translations are a result of the Company’s investment in its foreign subsidiaries in Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, South Korea and Sweden. Losses on hedging activities are primarily the result of foreign exchange forward contracts and cross currency swap agreements the Company has entered into to protect its investments in its European subsidiaries from foreign currency fluctuations. The net gains on these activities are primarily the result of the Company’s investment in its Australia, Canada and South Korea subsidiaries that have not been hedged.

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(7)  Restructuring and Asset Impairment Charge

On February 1, 2002, the Company’s Board of Directors adopted a plan related to the closing of the Company’s 29 EB Kids stores and the sale of its 22 store BC Sports Collectibles business. The closing of the EB Kids stores was completed in May 2002. The sale of the BC Sports Collectibles business to Sports Collectibles Acquisition Corporation (“SCAC”) was closed in November 2002. See Note 9 for more information on the BC Sports Collectibles sale.

As a result of these decisions, the Company recorded a $14.9 million pre-tax charge ($9.2 million after-tax or $0.35 per diluted share) in the fiscal fourth quarter and year ended February 2, 2002. The pre-tax charge was recorded as a $2.3 million write-down of inventory within cost of goods sold and a $12.6 million restructuring and asset impairment charge. The $12.6 million charge consisted of a $3.5 million write down of store leasehold improvements, a $2.3 million write down of store furniture, fixtures and equipment and $6.7 million in lease termination expenses.

The following table summarizes activity in the restructuring accrual as of November 1, 2003 and November 2, 2002 (amounts in thousands):

	Beginning Balance		Cash Payments			Charges		Reversals			Other		Ending Balance
Quarter ended May 3, 2003	$	240	$	(27	)	$	—	$	—		$	—	$	213
Quarter ended August 2, 2003	$	213	$	(9	)	$	—	$	—		$	—	$	204
Quarter ended November 1, 2003	$	204	$	—		$	—	$	—		$	—	$	204
Quarter ended May 4, 2002	$	7,178	$	(1,325	)	$	—	$	(508	)	$	—	$	5,345
Quarter ended August 3, 2002	$	5,345	$	(1,088	)	$	134	$	—		$	—	$	4,391
Quarter ended November 2, 2002	$	4,391	$	(229	)	$	97	$	(3,628	)	$	—	$	631

The remaining accrual of $204,000, as of November 1, 2003, relates to SCAC’s right to assign back to the Company two of the BC Sports Collectibles store leases.

In the quarter ended May 4, 2002, the Company made $1.2 million in cash payments relating to the termination of certain EB Kids store leases and $89,000 in cash payments of professional services associated with the restructuring. In addition, the Company reversed $0.5 million of the restructuring accrual due to actual expenses being lower than original estimates for the termination of leases of the EB Kids stores.

In the quarter ended August 3, 2002, the Company made $1.0 million in cash payments relating to the termination of certain EB Kids store leases and $102,000 in cash payments for professional services associated with the sale of the BC Sports Collectibles business.  The $134,000 in “Charges” represents actual expenses for the discontinuation of the EB Kids stores and the sale of the BC Sports Collectibles business being higher than original estimates.

In the quarter ended November 2, 2002, the Company made $229,000 in cash payments for professional services associated with the restructuring. The $97,000 in “Charges” represents actual expenses for the discontinuation of the EB Kids stores and the sale of the BC Sports Collectibles business being higher than original estimates.  In addition, the Company reversed $3.6 million of the restructuring accrual for lease termination expenses that were not realized due to the sale of the BC Sports Collectibles business.

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(8)  Goodwill and Other Intangibles

The following tables show the intangible assets and goodwill as of November 1, 2003 (amounts in thousands):

Amortizable Intangible Assets

	Gross Carrying Amount		Accumulated Amortization
Key money (1)	$	1,822	$	439
Other	209		187
Total intangible assets	$	2,031	$	626

(1)Key money represents payments made to landlords, outgoing tenants or other third parties to enter into certain store leases.

Aggregate Amortization Expense

	November 1, 2003		November 2, 2002
Thirteen weeks ended	$	65	$	73
Thirty-nine weeks ended	$	218	$	116

Goodwill

The change in carrying amount of goodwill for the thirty-nine weeks ended November 1, 2003 is as follows (amounts in thousands):

Balance as of February 1, 2003	$	10,938
Foreign exchange fluctuations	446
Balance as of May 3, 2003	11,384
Buyout of German interest (1)	112
Foreign exchange fluctuations	(1		)
Balance as of August 2, 2003	11,495
Foreign exchange fluctuations	283
Balance as of November 1, 2003	$	11,778

(1)In June 2003, the Company bought out the remaining outstanding interest in its German subsidiary. The Company now owns 100% of its German subsidiary.

(9)  Sale of BC Sports Collectibles Business

Effective as of the close of business on November 2, 2002, the Company sold its BC Sports Collectibles business to SCAC for $2.2 million in cash and the assumption of lease related liabilities in excess of $13 million. The purchaser, SCAC, is owned by the family of James Kim, the Company’s Chairman. The transaction included the sale of all assets of the business including inventory, intellectual property and furniture, fixtures and equipment, and transitional services which were provided to SCAC for a six-month period after the closing for an additional $300,000. As of November 1, 2003, all of the 22 store leases have been assigned to SCAC. As the Company remains contingently liable for these leases, Mr. Kim has agreed to indemnify the Company against any liabilities associated with these leases. The purchase agreement provides SCAC the right, exercisable at any time after the second

9

anniversary of the closing date, to assign back to the Company two of the store leases. The Company has retained an accrual of $204,000 for the estimated lease termination expenses related to this option.

(10)  New Accounting Pronouncements

Effective February 2, 2003, the Company adopted Statement of Financial Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” This statement establishes standards for accounting for an obligation associated with the retirement of a long-lived asset. The adoption of this pronouncement had no effect on the Company’s consolidated results of operations and financial condition.

In April 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 149,  “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities under FASB Statement No. 133. The changes in this statement improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this pronouncement had no effect on the Company’s consolidated results of operations and financial condition.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 requires that an issuer classify a financial instrument that is within the pronouncement’s scope as a liability because it embodies an obligation of the issuer.  Many of those instruments were previously classified as equity.  SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this pronouncement had no effect on the Company’s consolidated results of operations and financial condition.

(11)  Stock-based Employee Compensation

The Company accounts for its employee stock options and the purchase plan under the intrinsic value recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of Statement No. 123, “Accounting for Stock-based Compensation,” to stock-based employee compensation.

	(amounts in thousands, except per share amounts)
	Thirteen weeks ended				Thirty-nine weeks ended
	November 1, 2003		November 2, 2002		November 1, 2003		November 2, 2002 (1)
Net income, as reported	$	1,482	$	3,742	$	6,324	$	1,034
Less: stock based employee compensation, net of income tax	1,104		1,291		3,249		3,673
Pro forma net income (loss)	$	378	$	2,451	$	3,075	$	(2,639	)
Net income (loss) per share:
Basic – as reported	$	0.06	$	0.14	$	0.25	$	0.04
Diluted – as reported	$	0.06	$	0.14	$	0.25	$	0.04
Basic – pro forma	$	0.02	$	0.09	$	0.12	$	(0.10	)
Diluted – pro forma	$	0.01	$	0.09	$	0.12	$	(0.10	)

(1)For the thirty-nine weeks ended November 2, 2002, net income includes the cumulative effect of the change in accounting principle of $4.8 million, net of income tax, related to vendor advertising allowance. See Note 2, “Change in Accounting Principle,” for further disclosure regarding the change.

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(12)  Stock Buy-Back Program

On May 1, 2003, the Company announced that its Board of Directors had approved a program to repurchase up to 1.5 million shares of its outstanding common stock. As of November 1, 2003, the Company has completed the program and repurchased 1.5 million shares of common stock at a weighted average cost, including broker commissions, of $21.18 per share. Cash expenditures to complete the stock buy-back totaled $31.8 million.

(13)  Subsequent Event

On November 17, 2003, the Company announced that its Board of Directors had approved a program to repurchase up to 2.0 million additional shares of its outstanding common stock.  Under the buy-back program, the Company may repurchase shares of its common stock from time to time in compliance with SEC regulations and subject to market conditions.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company believes that it is among the world’s largest specialty retailers of video game hardware and software, PC entertainment software and related accessories and products. As of November 1, 2003, the Company operated a total of 1,436 stores in the United States, Australia, Canada, Denmark, Germany, Italy, New Zealand, Norway, Puerto Rico, Sweden and South Korea, primarily under the names EB Games and Electronics Boutique. The Company operates an e-commerce website under the URL address www.ebgames.com. The Company also provides management services for Game Group Plc. (formerly Electronics Boutique Plc.), which operates over 500 stores and department store-based concessions primarily in the United Kingdom, France, Ireland, Spain and Sweden. The Company is a holding company and does not have any significant assets or liabilities, other than all of the outstanding capital stock of its subsidiaries.

Results of operations

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

	Thirteen weeks ended				Thirty-nine weeks ended
	November 1, 2003		November 2, 2002		November 1, 2003		November 2, 2002
Net sales	99.5	%	99.6	%	99.5	%	99.5	%
Management fees	0.5		0.4		0.5		0.5
Total revenues	100.0		100.0		100.0		100.0
Cost of goods sold	72.5		73.4		72.9		73.9
Gross profit	27.5		26.6		27.1		26.1
Selling, general and administrative expense	24.7		23.4		24.0		23.3
Restructuring and asset impairment reversal	—		(0.8	)	—		(0.3	)
Depreciation and amortization	2.2		2.0		2.1		2.1
Operating income	0.6		2.0		1.0		1.0
Interest income, net	0.1		0.1		0.1		0.2
Income before income tax expense and cumulative effect of change in accounting principle	0.7		2.1		1.1		1.2
Income tax expense	0.2		0.8		0.4		0.5
Income before cumulative effect of change in accounting principle	0.5		1.3		0.7		0.7
Cumulative effect of change in accounting principle, net of income tax	—		—		—		(0.6	)
Net income	0.5	%	1.3	%	0.7	%	0.1	%

Thirteen weeks ended November 1, 2003 compared to thirteen weeks ended November 2, 2002

Net sales increased by 14.7% from $281.7 million in the thirteen weeks ended November 2, 2002 to $323.1 million in the thirteen weeks ended November 1, 2003. The increase in net sales was primarily attributable to the additional sales volume resulting from 368 new stores opened since November 2, 2002, of approximately $42.1 million, offset, in part, by a 6.5%, or $18.4 million, decrease in comparable store sales. The decrease in comparable store sales was primarily due to lower volume hardware unit sales, coupled with the timing of new software titles released in the thirteen weeks ended November 2, 2002, which contributed to a significant comparable store sales increase in the prior year period. Net sales from the BC Sports Collectibles stores (see footnotes 7 and 9) for the thirteen weeks ended November 2, 2002 was $3.8 million.

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Management fees increased by 25.0% from $1.3 million in the thirteen weeks ended November 2, 2002 to $1.6 million in the thirteen weeks ended November 1, 2003. The increase was primarily due to increased sales by Game Group along with more favorable currency exchange rates, compared with the prior year period, between the British Pound and the U.S. Dollar.

Cost of goods sold increased by 13.3% from $207.8 million in the thirteen weeks ended November 2, 2002 to $235.5 million in the thirteen weeks ended November 1, 2003. As a percentage of net sales, cost of goods sold decreased from 73.8% in the thirteen weeks ended November 2, 2002 to 72.9% in the thirteen weeks ended November 1, 2003. The cost of goods sold decrease, as a percentage of net sales, was primarily due to a shift in business from lower margin hardware products to higher margin software products. This shift, coupled with increased preowned business, accounted for approximately 0.6% of the decrease. An additional cost of goods sold reduction, as a percentage of net sales, was achieved from an increase in vendor allowances recognized in cost of goods sold, resulting in a 0.4% decrease. Cost of goods sold does not include purchasing and distribution center operating expenses of approximately $4.3 million in the thirteen weeks ended November 1, 2003 and $3.7 million in the thirteen weeks ended November 2, 2002, which are included in selling, general and administrative expense. Accordingly, the Company’s cost of goods sold may not be comparable to the costs of goods sold of other retailers. Cost of goods sold from the BC Sports Collectibles stores for the thirteen weeks ended November 2, 2002 was $2.5 million.

Selling, general and administrative expense increased by 21.4% from $65.9 million in the thirteen weeks ended November 2, 2002 to $80.0 million in the thirteen weeks ended November 1, 2003. The increase is primarily due to expenses associated with a larger domestic and international store base and the associated increase in store expense of $12.6 million. As a percentage of total revenues, selling, general and administrative expense increased from 23.4% in the thirteen weeks ended November 2, 2002 to 24.7% in the thirteen weeks ended November 1, 2003. This increase was primarily attributable to the decrease in comparable store sales. Selling, general and administrative expense from the BC Sports Collectibles stores for the thirteen weeks ended November 2, 2002 was $1.8 million.

The Company recorded a net reversal of $2.2 million of the restructuring and asset impairment accrual in the thirteen weeks ended November 2, 2002. The reversal was primarily related to actual expenses being lower than original estimates for the sale of the BC Sports Collectibles business (see footnote 7).

Depreciation and amortization expense increased by 22.7% from $5.7 million in the thirteen weeks ended November 2, 2002 to $7.0 million in the thirteen weeks ended November 1, 2003. This increase was primarily attributable to capitalized expenditures for leasehold improvements and furniture and fixtures for new store openings and remodeling of existing stores. No depreciation expense was incurred for the BC Sports Collectibles stores for the thirteen weeks ended November 2, 2002.

Operating income decreased 63.2% from $5.7 million in the thirteen weeks ended November 2, 2002 to $2.1 million in the thirteen weeks ended November 1, 2003. Operating income from the BC Sports Collectibles and EB Kids stores for the thirteen weeks ended November 2, 2002 was $1.7 million.

Income tax expense decreased from $2.3 million in the thirteen weeks ended November 2, 2002 to $0.9 million in the thirteen weeks ended November 1, 2003. As a percentage of income before income tax expense, income tax expense decreased from 38.2% in the thirteen weeks ended November 2, 2002 to 37.4% in the thirteen weeks ended November 1, 2003. The Company’s effective tax rate decreased from the prior period as a result of an increase in operations in foreign jurisdictions that have a lower tax rate than the United States and an increase in tax-exempt interest income.

Thirty-nine weeks ended November 1, 2003 compared to thirty-nine weeks ended November 2, 2002

Net sales increased by 18.8% from $779.0 million in the thirty-nine weeks ended November 2, 2002 to $925.5 million in the thirty-nine weeks ended November 1, 2003. The increase in net sales was primarily attributable to the additional sales volume of approximately $83.0 million resulting from 368 new stores opened since November 2, 2002 and $68.3 million of sales in stores opened in the first thirty-nine weeks of fiscal 2003. This increase is offset, in part, by a 1.2%, or $9.5 million, decrease in comparable store sales. Net sales from the BC Sports Collectibles and EB Kids stores for the thirty-nine weeks ended November 2, 2002 was $13.5 million.

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Management fees increased by 12.5% from $4.2 million in the thirty-nine weeks ended November 2, 2002 to $4.7 million in the thirty-nine weeks ended November 1, 2003. The increase was primarily due to increased sales by Game Group along with more favorable currency exchange rates, compared with the prior year period, between the British Pound and the U.S. Dollar. In addition the Company earned  $150,000 in management fees from SCAC (see footnote 9).

Cost of goods sold increased by 17.2% from $578.9 million in the thirty-nine weeks ended November 2, 2002 to $678.4 million in the thirty-nine weeks ended November 1, 2003. As a percentage of net sales, cost of goods sold decreased from 74.3% in the thirty-nine weeks ended November 2, 2002 to 73.3% in the thirty-nine weeks ended November 1, 2003. This decrease, as a percentage of net sales, was primarily due to a shift in business from lower margin hardware products to higher margin software products. This shift, coupled with increased preowned business, accounted for approximately 0.7% of the decrease. An additional cost of goods sold reduction, as a percentage of net sales, was achieved from an increase in vendor allowances recognized in cost of goods sold, resulting in a 0.2% decrease. Cost of goods sold does not include purchasing and distribution center operating expenses of approximately $12.0 million in the thirty-nine weeks ended November 1, 2003 and $10.7 million in the thirty-nine weeks ended November 2, 2002, which are included in selling, general and administrative expense. Accordingly, the Company’s cost of goods sold may not be comparable to the costs of goods sold of other retailers. Cost of goods sold from the BC Sports Collectibles and EB Kids stores for the thirty-nine weeks ended November 2, 2002 was $9.6 million.

Selling, general and administrative expense increased by 22.1% from $182.5 million in the thirty-nine weeks ended November 2, 2002 to $222.9 million in the thirty-nine weeks ended November 1, 2003. The increase is primarily due to expenses associated with a larger domestic and international store base and the associated increases in store expense of $34.9 million. As a percentage of total revenues, selling, general and administrative expense increased from 23.3% in the thirty-nine weeks ended November 2, 2002 to 24.0% in the thirty-nine weeks ended November 1, 2003. This increase was primarily due to the decrease in comparable store sales coupled with expenses associated with opening 298 stores in the thirty-nine weeks ended November 1, 2003. Selling, general and administrative expense from the BC Sports Collectibles and EB Kids stores for the thirty-nine weeks ended November 2, 2002 was $6.9 million.

The Company had a net reversal of $2.6 million of the restructuring accrual in the thirty-nine weeks ended November 2, 2002. The reversal was primarily related to actual expenses being lower than original estimates for the sale of the BC Sports Collectibles business (see footnote 7).

Depreciation and amortization expense increased by 22.5% from $16.3 million in the thirty-nine weeks ended November 2, 2002 to $20.0 million in the thirty-nine weeks ended November 1, 2003. This increase was primarily attributable to capitalized expenditures for leasehold improvements and furniture and fixtures for new store openings and remodeling of existing stores. Depreciation expense from the BC Sports Collectibles and EB Kids stores for the thirty-nine weeks ended November 2, 2002 was $78,000.

Operating income increased 10.3% from $8.1 million in the thirty-nine weeks ended November 2, 2002 to $9.0 million in the thirty-nine weeks ended November 1, 2003. Operating loss from the BC Sports Collectibles and EB Kids stores for the thirty-nine weeks ended November 2, 2002 was $0.5 million.

Income tax expense increased from $3.6 million in the thirty-nine weeks ended November 2, 2002 to $3.8 million in the thirty-nine weeks ended November 2, 2003. As a percentage of income before income tax expense, income tax expense decreased from 38.2% in the thirty-nine weeks ended November 2, 2002 to 37.4% in the thirty-nine weeks ended November 1, 2003. The Company’s effective tax rate decreased from the prior period as a result of an increase in operations in foreign jurisdictions that have a lower tax rate than the United States and an increase in tax-exempt interest income.

In November 2002, the EITF reached consensus on Issue 02-16, Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor. Issue 02-16 addresses the accounting for cash consideration received from a vendor by a reseller for various vendor funded allowances, including cooperative advertising support. In response to Issue 02-16, the Company changed its accounting policy with respect to the recording of vendor

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advertising allowances effective as of the beginning of fiscal 2003 (see footnote 2). As a result, the Company recorded a non-cash charge of $4.8 million, net of income tax, in the thirty-nine weeks ended November 2, 2002 for the cumulative effect of the change on fiscal years prior to fiscal 2003.

Seasonality and quarterly results

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

Liquidity and capital resources

The $1.7 million of cash provided by operations during the thirty-nine weeks ended November 1, 2003 was primarily a result of $24.8 million of net income and non-cash charges, offset, in part, by the payment of income taxes that were outstanding at the end of the prior fiscal year and an increase in accounts receivable due to vendor marketing programs. The $37.9 million of cash used in operations during the thirty-nine week period ended November 2, 2002 was primarily the result of increased merchandise inventory and the payment of income taxes and accrued expenses that were outstanding at the end of the prior fiscal year, partially offset by an increase in accounts payable and deferred rent. The change in merchandise inventories from an increase of $121.1 million for the thirty-nine weeks ended November 2, 2002 to an increase of $25.1 million for the thirty-nine weeks ended November 1, 2003 was due in part to slower than expected holiday sales in fiscal 2003.

The Company made capital expenditures of $29.4 million in the thirty-nine weeks ended November 1, 2003 and $24.9 million in the thirty-nine weeks ended November 2, 2002, primarily to open new stores and to remodel existing stores, its headquarters and distribution centers.

In September 2003, the Company and certain subsidiaries entered into a third amendment (the “Third Amendment”) to its $50.0 million revolving credit facility with Fleet Capital Corporation. Pursuant to the Third Amendment, the Company agreed to use Fleet Capital Corporation cash concentration accounts under limited circumstances as described in the Third Amendment. In addition, Elbo Inc., a subsidiary of the Company, was released from all obligations under the credit facility and the requirement that the Kim family maintain a certain ownership of the Company’s common stock was eliminated. At November 1, 2003, the Company had no borrowings under this credit facility.

On May 1, 2003, the Company announced that its Board of Directors had approved a program to repurchase up to 1.5 million shares of its outstanding common stock. As of November 1, 2003, the Company has completed the program and repurchased 1.5 million shares of stock at a weighted average cost, including broker commissions, of $21.18 per share. Cash expenditures to complete the stock buy-back totaled $31.8 million.

On November 17, 2003, the Company announced that its Board of Directors had approved a program to repurchase up to 2.0 million additional shares of its outstanding common stock.  Under the buy-back program, the Company may repurchase shares of its common stock from time to time in compliance with Securities and Exchange Commission (SEC) regulations and subject to market conditions.

The Company believes that cash generated from its operating activities and available bank borrowings will be sufficient to fund its operations and store expansion programs for the next 12 months.

Impact of inflation

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

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Item 4.  Disclosure Controls and Procedures

Under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of November 1, 2003 (the “Evaluation Date”), and, based on their evaluation, its chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of the Evaluation Date. There were no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

Disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, as amended are its internal controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Forward-Looking Statements

This Quarterly Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. When used in this report, the words “expect,” “estimate,” “anticipate,” “intend,” “predict,” “believe,” and similar expressions and variations thereof are intended to identify forward-looking statements within the meaning of and subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward-looking statements appear in a number of places in this report and include statements regarding the Company’s intent, belief or current expectations with respect to, among other things, trends affecting its financial condition or results of operations and its business and growth strategies. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results or outcomes may differ materially from those projected in the forward-looking statements as a result of various factors.

The Company urges you to carefully consider the following important factors that could cause actual results to differ materially from its expectations:

•the timing and continuation of the introduction of new products by manufacturers;

•the cyclical nature of its industry;

•its ability to obtain vendor marketing and merchandising support;

•its ability to keep pace with technological changes;

•its ability to open new stores and renew existing locations;

•its ability to compete in an intensely competitive industry;

•the impact of vendor changes in pricing strategies;

•its ability to complete and integrate future acquisitions;

•the impact of its services agreement with Game Group Plc. on its ability to expand in Europe;

•its dependence on suppliers, including overseas sources;

•changes in tax laws and the application thereof;

•its dependence on common carriers to ship product to its stores;

•its dependence on management information systems;

•the risks involved with its international operations; and

•its ability to recruit and retain skilled personnel.

For a more detailed discussion of these and other important factors that could impact the Company’s results, see the text under the heading “Risk Factors” in Item 1 of its most recent Annual Report on Form 10-K. The forward-looking

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statements made in this report are made only as of the date of publication (December 2003) and it undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

Part II.Other Information

Item 1.Legal Proceedings

On December 3, 2003, a subsidiary of the Company was served with a complaint in a proposed class action suit entitled “Chalmers v. Electronics Boutique of America, Inc.” in the California Superior Court in Los Angeles County. The suit alleges that Electronics Boutique of America Inc. improperly classified store management employees as exempt from the overtime provisions of California wage-and-hour laws and seeks recovery of wages for overtime hours worked. The Company is assessing the merits of, and the potential exposure from, the suit.

In addition, the Company is involved from time to time in legal proceedings arising in the ordinary course of its business. In the opinion of management, none of these pending proceedings could have a material adverse effect on its results of operations or financial condition.

Item 6.Exhibits and Reports on Form 8-K

a.	Exhibits:
	10.1	Amendment No. 3, dated as of September 5, 2003, to Loan and Security Agreement, dated March 16, 1998, by and among the Company, Electronics Boutique of America Inc., EB Investment Corp. and Fleet Capital Corporation.
	31.1	Certification dated December 9, 2003 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Jeffrey W. Griffiths, President and Chief Executive Officer.
	31.2	Certification dated December 9, 2003 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James A. Smith, Senior Vice President and Chief Financial Officer.
	32.1	Certification dated December 9, 2003 of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Jeffrey W. Griffiths, President and Chief Executive Officer and James A. Smith, Senior Vice President and Chief Financial Officer.
b.	Reports on Form 8-K:
	On August 22, 2003, the Company filed a Current Report on Form 8-K, reporting under Item 12 and announcing financial results for the Company’s second quarter of fiscal 2004.

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Signatures

Pursuant to the requirements 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.

		Electronics Boutique Holdings Corp.
		(Registrant)
Date:December 9, 2003	By:	/s/ Jeffrey W. Griffiths
		Jeffrey W. Griffiths
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:December 9, 2003	By:	/s/ James A. Smith
		James A. Smith
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Amendment No. 3, dated as of September 5, 2003, to Loan and Security Agreement, dated March 16, 1998, by and among the Company, Electronics Boutique of America Inc., EB Investment Corp. and Fleet Capital Corporation.
31.1	Certification dated December 9, 2003 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Jeffrey W. Griffiths, President and Chief Executive Officer.
31.2	Certification dated December 9, 2003 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) of the Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James A. Smith, Senior Vice President and Chief Financial Officer.
32.1	Certification dated December 9, 2003 of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Jeffrey W. Griffiths, President and Chief Executive Officer and James A. Smith, Senior Vice President and Chief Financial Officer.

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EX-10.1

Exhibit 10.1

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made as of this 5th day of September, 2003, by and among FLEET CAPITAL CORPORATION, as lender (together with its successors and assigns, the “Lender”), ELECTRONICS BOUTIQUE OF AMERICA INC., as borrower (the “Borrower”), and Electronics Boutique Holdings Corp. (“EB Holdings”) and EB Investment Corp. (together with EB Holdings, the “Guarantors” and each individually as a “Guarantor”; the Guarantors and the Borrower being sometimes referred to herein collectively as the “Credit Parties” and each individually as a “Credit Party”).

RECITALS

WHEREAS, the Borrower and the Lender are parties to a certain Loan and Security Agreement, dated as of March 16, 1998 (as amended, modified or supplemented from time to time, the “Loan Agreement”) pursuant to which the Lender has agreed to extend credit to the Borrower subject to the terms and conditions contained therein;

WHEREAS, the Borrower has requested that the Lender amend certain provisions of the Loan Agreement; and

WHEREAS, the Lender is willing to amend certain provisions of the Loan Agreement, but only on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, based on these premises, and in consideration of the mutual promises, representations and warranties, covenants and conditions contained herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:

Definitions

Capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned to them in the Loan Agreement.

Acknowledgment of Obligations

Each of the Credit Parties acknowledges and agrees that, as of September 4, 2003, the Borrower is unconditionally liable to the Lender under the Loan Agreement and each of the other Loan Documents for Eight Hundred Sixty-Six Thousand Six Hundred Fifty-Six and 60/100 Dollars ($866,656.60) representing the outstanding LC Amount (no cash Revolving Credit Loans being presently outstanding), plus all expenses incurred by the Lender through the Effective Date, including, without limitation reasonable attorneys’ fees and expenses, and that, as of the Effective Date, the Borrower has no defenses, counterclaims or rights of setoff or recoupment with respect to the foregoing obligations.  Each of the Credit Parties acknowledges and agrees that (i) Borrower has from time to time requested that Lender arrange for its affiliate, Fleet Bank, to provide Borrower with one or more Bank Products, (ii) Lender has arranged, and may, in its sole discretion, in the future arrange, for Fleet Bank or its affiliates to provide Borrower with such Bank Products with the express understanding that all Bank Product Agreements constitute part of the Loan Documents and all Bank Product Obligations constitute part of the Obligations secured by a continuing security interest in the Collateral, and (iii) as of the Effective Date, the Borrower is unconditionally liable to the Lender for all payments and other obligations incurred by the Borrower with respect to the Bank Product Agreements (the exposure of Fleet Bank and its affiliates thereunder being underwritten by the Lender on behalf of the Borrower), and that, as of the Effective Date, the Borrower has no defenses, counterclaims or rights of setoff or recoupment with respect to such obligations. Each of the Credit Parties hereby ratifies and confirms its obligations under the Loan Documents to which it is a party and hereby acknowledges and agrees that

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each of the Loan Documents to which it is a party remains in full force and effect. Each Guarantor hereby ratifies and confirms its obligations under its surety agreement and the other Loan Documents to which it is a party and hereby acknowledges and agrees that, as of the Effective Date, it has no defenses, counterclaims or rights of setoff or recoupment with respect to its obligations thereunder. Lender hereby ratifies and confirms that pursuant to Section 4 of that certain Second Amendment to Loan and Security Agreement, dated as of July, 23, 1998 (the “Second Amendment”), among the Lender, the Borrower and The Electronic Boutique, Inc. (“EB”), EB has been released from all Obligations.  Lender further agrees that, effective as of the Effective Date, Elbo is hereby released from all Obligations (it being acknowledged and agreed by each Credit Party that such release shall not impair or limit any of its liabilities or Obligations under the Loan Documents).

Amendments and Modifications

All of the following amendments to the Loan Agreement are effective as of the Effective Date:

Subsection 1.1 of the Loan Agreement is amended by inserting the following words at the end of the last line thereof:

“Lender shall have the right from time to time to establish and adjust (i) reserves in such amounts, and with respect to such matters, as Lender shall deem necessary or appropriate, under the Borrowing Base, including, without limitation, with respect to (A) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrower’s business; (B) shrinkage, spoilage and obsolescence of Inventory; (C) slow moving Inventory; (D) other sums chargeable against Borrower’s Loan Account as Revolving Credit Loans under any section of this Agreement; (E) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower; and (F) such other matters, events, conditions or contingencies as to which Lender, in its sole credit judgment, determines reserves should be established from time to time hereunder; and (ii) reserves against Availability with respect to Bank Products (collectively, the “Bank Product Reserves”) in such amounts as Lender shall deem necessary or appropriate based upon Lender’s determination of the credit exposure of the then extant Bank Products.”

Notwithstanding anything to the contrary contained in Subsection 1.4 of the Loan Agreement, if requested by Borrower, Lender may, in its sole discretion, issue one or more Letters of Credit or LC Guaranties related thereto with expiration dates that are later than 30 days prior to the scheduled Maturity Date.

Subsection 3.1.4 of the Loan Agreement is amended by inserting the following words at the end of the last line thereof:

“All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by Borrower and certified to Lender; provided, that Lender shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation after giving notice thereof to Borrower, (1) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (2) to the extent that such calculation is not in accordance with this Agreement.”

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Subsection 3.4 of the Loan Agreement is amended by deleting the last two sentences thereof in their entirety and replacing the same with the following sentence:

“If as the result of the collections of Accounts as authorized by Subsection 6.2.2 hereof or the cash management arrangements described in this Subsection 6.6 hereof, a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be remitted to the Disbursement Account at any time or times for so long as no Default or Event of Default exists, provided that Lender, at its option, may at any time offset such credit balance against any of the Obligations.”

Notwithstanding anything to the contrary contained in Subsections 4.2.2 or 10.3.6 of the Loan Agreement, to the extent Borrower is required to deposit funds with Lender in respect of the LC Amount, such deposit shall be in an amount not less than one hundred fifteen percent (115%) of the LC Amount.

Section 4 of the Loan Agreement is amended by adding new Subsection 4.2.5, which shall read as follows:

“4.2.5Bank Product Obligations.  Without limiting the generality of anything contained in this Section 4, on the date of termination of this Agreement, at Lender’s option, all Bank Product Obligations, as calculated by Fleet Bank or its affiliates in a good faith and commercially reasonable manner, shall become due and payable without notice or demand.  Alternatively, if acceptable to Lender, Borrower may provide cash collateral in an amount satisfactory to Lender to be held by Lender with respect to and to secure the then extant Bank Product Obligations.”

Subsection 5.1 of the Loan Agreement is amended by deleting clause (v) thereof in its entirety and replacing the same with the following:

“(v) General Intangibles (including, without limitation, Software and Payment Intangibles); Investment Property; Chattel Paper; Deposit Accounts; Letter-of-Credit Rights; and Supporting Obligations;”

Section 5 of the Loan Agreement is amended by adding new Subsection 5.4, which shall read as follows:

“5.4Other Collateral.

5.4.1Commercial Tort Claims. As of September 5, 2003, Borrower represents and warrants to Lender that Borrower has no right, title or interest in any Commercial Tort Claim.  Borrower shall promptly notify Lender in writing upon incurring or otherwise obtaining a Commercial Tort Claim after September 5, 2003 against any third party and, upon request of Lender, promptly enter into an amendment to this Agreement and do such other acts or things deemed appropriate by Lender to give Lender a first priority, perfected security interest in any such Commercial Tort Claim subject to no other Liens.

5.4.2Other Collateral. (a) As of September 5, 2003, Borrower represents and warrants to Lender that Borrower has no right, title or interest in any Letter-of-Credit Rights or Electronic Chattel Paper.  Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after September 5, 2003 consisting of Letter-of-Credit Rights

3

or Electronic Chattel Paper and, upon the request of Lender, promptly execute such other documents, and do such other acts or things reasonably deemed appropriate by Lender to deliver to Lender control with respect to such Collateral.

(b) As of September 5, 2003, Borrower represents and warrants to Lender that Borrower has no right, title or interest in any Documents or Instruments.  Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after September 5, 2003 consisting of Documents or Instruments and, upon the request of Lender, will promptly execute such other documents, and do such other acts or things reasonably deemed appropriate by Lender to deliver to Lender possession of such Documents which are negotiable and Instruments, and, with respect to nonnegotiable Documents, to use its best efforts (which shall not include litigation) to have such nonnegotiable Documents issued in the name of Lender.

(c) As of September 5, 2003, Borrower represents and warrants to Lender that Borrower has no right, title or interest in any Investment Property other than the Investment Property consisting of Voting Stock of its Subsidiaries described on the entity organizational chart delivered to Lender on or about the same date.  Without limiting the requirements of Subsection 8.2.9 hereof, Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after September 5, 2003 consisting of Investment Property and, upon the request of Lender, promptly execute such other documents, and do such other acts or things reasonably deemed appropriate by Lender to deliver to Lender control with respect to such Collateral.”

Subsection 6.2.2 of the Loan Agreement is amended by (i) inserting the words “or Secondary Cash Dominion Trigger Event” after the words “Event of Default” in the second sentence thereof, and (ii) inserting the words “in accordance with Subsection 6.6(c) hereof” before the period at the end of the second sentence.

Section 6 of the Loan Agreement is amended by adding new Subsection 6.6, which shall read as follows:

“6.6 Cash Management. (a) Subject to the requirements of this Subsection 6.6, (i) Borrower shall at all times maintain a cash management system substantially in accordance with its existing cash management system described on Exhibit 6.6 hereto, and (ii) Borrower shall cause all cash receipts of sales of Inventory and cash collections of Accounts to be deposited promptly after receipt thereof in the Disbursement Account (defined below) or one or more of the Deposit Accounts set forth on Exhibit 6.6.  Without limiting the generality of the foregoing, Borrower shall at all times maintain its sole concentration and disbursement account (the “Disbursement Account”) with JP Morgan Chase Bank, as depository bank, unless and until Lender gives its prior written approval (which shall not be unreasonably withheld) for the establishment of a successor concentration and disbursement account (in which case such successor account shall be deemed to be the Disbursement Account and the predecessor account shall be closed).  As of September 5, 2003, Borrower represents and warrants to Lender that Borrower has no right, title or interest in any Deposit Accounts

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other than the Deposit Accounts described (by account number, depository bank and account type) on Exhibit 6.6.

(b) If and to the extent requested by Lender upon or at any time after the occurrence of an Initial Cash Dominion Trigger Event, Borrower shall promptly (but in any event within ten (10) Business Days after such request by Lender) (i) establish and maintain the Dominion Account with Fleet Bank and execute such agreements and do such other acts or things deemed appropriate by Lender to deliver to Lender control with respect to the Dominion Account, (ii) execute such agreements and do such other acts or things, and cause the applicable depository bank to execute such agreements and do such other acts or things, reasonably deemed appropriate by Lender to deliver to Lender control with respect to the Disbursement Account (which control agreement shall contain a “standing” instruction consistent with clause (iii) below), and (iii) cause all funds credited to the Disbursement Account to be transferred, on a daily basis, to the Dominion Account for application to the Obligations as determined by Lender.  The requirements described in the foregoing clauses (i), (ii) and (iii) are collectively referred to herein as the “Initial Cash Dominion Procedures”.

(c) In the event that either a Secondary Cash Dominion Trigger Event has occurred or an Event of Default has occurred and is continuing, if and to the extent requested by Lender, Borrower shall immediately (i) implement (if not previously implemented) and maintain the Initial Cash Dominion Procedures, (ii) implement and maintain a lockbox arrangement satisfactory to Lender at Fleet Bank, (iii) notify all of its Account Debtors to remit payments in respect of Collateral directly to the Dominion Account (or the lockbox, as applicable) for application to the Obligations as determined by Lender, and (iv) execute and deliver such agreements, and cause all of its Account Debtors that are credit card issuers or processors to execute and deliver such agreements, in form and substance reasonably satisfactory to Lender whereby such Accounts Debtors shall acknowledge Lender’s first priority Lien in the monies due or to become due to Borrower (including, without limitation, credits and reserves) under the agreements or arrangements between Borrower and such Account Debtors, and agree to transfer all such amounts to the Dominion Account.

(d) In addition to the foregoing, if requested by Lender upon or at any time after the occurrence of an Initial Cash Dominion Trigger Event, Borrower shall also cause all funds credited to each of its other Deposit Accounts (other than payroll accounts and, in any event, net of fees and chargebacks of the applicable depository bank) in excess of $25,000, to be transferred to the Disbursement Account no less frequently than weekly, provided, that if at any time the funds credited to any such Deposit Account exceed $50,000, such excess shall be transferred to the Disbursement Account within one (1) Business Day.  If requested by Lender upon or at any time after the occurrence of a Secondary Cash Dominion Trigger Event or upon the occurrence and during the continuance of an Event of Default, Borrower shall also cause all funds credited to each of its other Deposit Accounts (other than payroll accounts and, in any event, net of fees and chargebacks of the applicable depository bank) in excess of $10,000, to be transferred, on a daily basis, to the Dominion Account.

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(e) Commencing with the fiscal quarter ending September 30, 2003, so long as neither the Initial Cash Dominion Trigger Event nor the Secondary Cash Trigger Event have occurred and no Event of Default has occurred and is continuing, Borrower shall notify Lender in writing on a semi-annual basis of all Deposit Accounts acquired or otherwise obtained by Borrower since the last date covered by Exhibit 6.6 (or any subsequent supplement thereof) by supplementing Exhibit 6.6 hereto; provided, however that if a Initial Cash Trigger Event shall have occurred, Borrower shall promptly notify Lender in writing after the end of each fiscal quarter of all Deposit Accounts acquired or otherwise obtained by Borrower during such fiscal quarter by supplementing Exhibit 6.6 hereto.  Notwithstanding the foregoing, in the event that either a Secondary Cash Dominion Trigger Event has occurred or an Event of Default has occurred and is continuing, Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Deposit Accounts by supplementing Exhibit 6.6 hereto and, upon the request of Lender, promptly execute such agreements and do such other acts or things, and cause the applicable depository banks to execute such agreements and do such other acts or things, reasonably deemed appropriate by Lender to deliver to Lender control with respect to any or all Deposit Accounts of Borrower.

(f) Nothing contained in this Subsection 6.6 is intended to limit or otherwise modify Lender’s rights and remedies during the existence of an Event of Default, including, without limitation, Lender’s right to notify Borrower’s Account Debtors to remit payments in respect of the Collateral directly to Lender and further including, without limitation, Lender’s right to (i) require Borrower to cause all funds credited to each of its Deposit Accounts be transferred to the Dominion Account at the frequency determined by Lender and (ii) to issue instructions to the depository banks maintaining Borrower’s Deposit Accounts directing the transfer of all funds credited to such Deposit Accounts to Lender (upon receipt of which Lender shall be entitled to apply to the Obligations).

(g) Borrower acknowledges and agrees that, except as otherwise provided in any Bank Product Agreements relating to the cash management arrangements described in this Subsection 6.6, Lender assumes no responsibility for any of such cash management arrangements.”

Subsection 7.1.5 of the Loan Agreement is amended by adding the following sentence immediately following the second sentence thereof:

“Borrower’s state of incorporation or organization, Type of Organization and Organizational I.D. Number is set forth on Exhibit 7.1.5.  The exact legal name of Borrower is set forth on Exhibit 7.1.5.”

Clause (ii) of Subsection 8.1.3 of the Loan Agreement is amended and restated in its entirety as follows:

“(ii)(A) not later than 45 days after the end of each month, including the last month of Borrower’s fiscal year, an interim management-prepared operating statement of Borrower (and, if request by Lender, each other Obligor) as of the end of such month, in the form previously delivered to Lender (except that each such operating statement shall also (y) contain a separate line item setting forth the domestic cash position of EB Finance

6

Inc., and (z) contain financial information as of the end of such month and for the portion of the fiscal year then elapsed (setting forth comparative figures for the corresponding month and period in the prior fiscal year)), certified by the principal financial officer of Borrower to fairly present the financial position and results of operations of Borrower (and each other Obligor, if applicable), and the domestic cash position of EB Finance Inc., for such month and period; and

(B) not later than 45 days after the end of each fiscal quarter, unaudited, interim financial statements of EB Holdings and its Subsidiaries as of the end of such quarter, on a consolidated basis, in the form filed with EB Holding’s Form 10-Q filing with the Securities and Exchange Commission for such quarter;”

Clause (v) of Subsection 8.1.3 of the Loan Agreement is amended by deleting the words “30 days prior to the close” and replacing the same with the words “the last day of February”.

Subsection 8.2 of the Loan Agreement is amended by adding new Subsection 8.2.11, which shall read as follows:

“8.2.11Structural Changes. Change its state of incorporation or organization or Type of Organization; nor change its legal name.”

Subsection 8.4 of the Loan Agreement (regarding certain stock ownership requirements for the Kim family with respect to EB Holdings) is deleted in its entirety.

Subsection 11.15 of the Loan Agreement is amended by (i) deleting the word “and” at the end of clause (iv) of the first sentence thereof, (ii) deleting the period at the end of clause (v) thereof and replacing the same with a semi-colon, and (iii) inserting the following words immediately following such semi-colon:

“AND (VI) EXCEPT AS PROHIBITED BY LAW, ANY RIGHT TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.”

Notwithstanding anything to the contrary contained in the Loan Agreement, all capitalized terms indicating the Collateral shall have the meanings assigned thereto in the Code. The definitions of “Account Debtor,” “Aggregate Adjusted Availability,” “Availability,” “Loan Documents” and “Obligations” contained in Appendix A to the Loan Agreement are amended and restated in their entirety as follows:

“Account Debtor – any Person who is or may become obligated on or under or on account of any Account, Chattel Paper or General Intangible.”

“Aggregate Adjusted Availability – as of any applicable measurement date, an amount equal to Availability (less Revolving Credit Loans requested to be made, and the face amount of Letters of Credit or LC Guaranties requested to be issued, on such date) minus all sums due and owing to trade creditors which remain outstanding beyond normal trade terms.”

“Availability - - the amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of Revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan

7

Documents and which have not been reimbursed by Borrower), plus the LC Amount and the Bank Product Reserves is subtracted from the lesser of (i) the Maximum Revolving Credit Amount and (ii) the Borrowing Base.  If such amount is equal to or greater than the lesser of (i) the Maximum Revolving Credit Amount and (ii) the Borrowing Base, then Availability is zero (0).”

“Loan Documents – the Agreement, the Other Agreements, the Security Documents and the Bank Product Agreements as each of the same may be amended, modified, renewed, extended, replaced, restated or substituted from time to time.”

“Obligations - all Loans and all other advances, debts, liabilities, obligations, covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrower to Lender, and/or to Fleet Bank or any affiliate of Fleet Bank, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired, including, without limitation, the Bank Product Obligations.”

The definition of “Borrowing Base” contained in Appendix A to the Loan Agreement is amended by deleting the last five words in clause (a) thereof and replacing the same with “first-in, first-out basis”. The definition of “Eligible Inventory” contained in Appendix A to the Loan Agreement is amended by (i) deleting the word “or” at the end of clause (vii) thereof, (ii) deleting the period at the end of the clause (viii) thereof and replacing the same with a semi-colon followed by the word “or” and (iii) inserting a new clause (ix), which shall read as follows:

“(ix) it is subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with, or rights of, any third parties which would require the consent of any third party upon the sale or disposition of that Inventory (including, without limitation, upon the sale or disposition of that Inventory by Lender following an Event of Default) or the payment of any monies to any third party upon any such sale or disposition of that Inventory (unless Lender shall have received one or more “access and use” agreements reasonably acceptable to Lender from such third parties with respect to such Inventory, duly executed and delivered by such third parties).”

Appendix A to the Loan Agreement is amended by adding (and inserting in alphabetical order) the following definitions:

“ACH Transaction - any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Fleet Bank or its affiliates for the account of Borrower.”

“Bank Product Agreements - those certain agreements entered into from time to time by Borrower and those certain agreements entered into from time to time between Fleet Bank and its affiliates, in each case, in connection with any of the Bank Products.”

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“Bank Product Obligations - all obligations, liabilities, contingent reimbursement obligations, fees and expenses owing by Borrower to Fleet Bank or its affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower is obligated to reimburse to Fleet Bank or its affiliates.”

“Bank Product - - any service or facility extended to Borrower by Fleet Bank or its affiliates including, without limitation: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, and (g) Hedge Agreements.”

“Bank Product Reserves - shall have the meaning set forth in Subsection 1.1 hereof.”

“Disbursement Account - shall have the meaning set forth in Subsection 6.6(a) hereof.”

“Dominion Account - a special account established by Borrower pursuant to the Agreement at Fleet Bank and over which Lender shall have sole and exclusive access and control for withdrawal purposes.”

“Fleet Bank – means Fleet National Bank, and references to affiliates of Fleet Bank shall include Lender.”

“Hedge Agreement - any and all transactions, agreements, or documents now existing or hereafter entered into between Borrower and Fleet Bank or its affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Borrower’s exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.”

“Initial Cash Dominion Procedures - shall have the meaning set forth in Subsection 6.6(b) hereof.”

“Initial Cash Dominion Trigger Event – the occurrence of one or more of the following events at any time when 60% of the value of Eligible Inventory, calculated on the basis of the lower of cost or market on a first-in, first-out basis, is less than Seventy Million Dollars ($70,000,000): (i) the numerical average, for any period of three (3) consecutive Business Days, of Availability is less than or equal to Fifteen Million Dollars ($15,000,000), or (ii) the numerical average, for any period of three (3) consecutive Business Days, of the sum of (A) aggregate principal amount of all outstanding Revolving Credit Loans, plus (B) the outstanding LC Amount, plus (C) the Bank Product Reserve, is greater than or equal to Thirty-Five Million Dollars ($35,000,000).”

“Organizational I.D. Number – with respect to any Person, the organizational identification number assigned to such Person by the

9

applicable governmental unit or agency of the jurisdiction of organization of such Person.”

“Secondary Cash Dominion Trigger Event - the occurrence of one or more of the following events at any time: (i) the numerical average, for any period of three (3) consecutive Business Days, of Availability is less than or equal to Ten Million Dollars ($10,000,000), or (ii) the numerical average, for any period of three (3) consecutive Business Days, of the sum of (A) aggregate principal amount of all outstanding Revolving Credit Loans, plus (B) the outstanding LC Amount, plus (C) the Bank Product Reserve, is greater than or equal to Forty Million Dollars ($40,000,000).”

“Type of Organization – with respect to any Person, the kind or type of entity by which such Person is organized, such as a corporation or limited liability company.”

The Borrower’s disclosure schedules appended to the Loan Agreement are supplemented by (i) the addition of Schedule 6.6 (Cash Management) attached hereto, and (ii) the replacement of Schedule 7.1.5 to the Loan Agreement with Schedule 7.1.5 (Corporate Names, etc.) attached hereto.

Representations and Warranties; Additional Covenants

In order to induce the Lender to enter into this Amendment, each Credit Party represents and warrants to the Lender that (i) the execution, delivery and performance by the Credit Parties of this Amendment and the transactions contemplated hereby (A) are and will be within the respective corporate powers of the Credit Parties, (B) have been authorized by all necessary corporate action on behalf of the Credit Parties, (C) are not in contravention of any order or decree of any court or governmental unit, or of any law, rule or regulation to which any Credit Party or any Credit Party’s property is bound, (D) are not and will not be in conflict with, or result in a breach of or constitute (with due notice and/or lapse of time) a default under (x) any Credit Party’s articles of incorporation or bylaws or (y) any indenture, agreement, contract or undertaking to which any Credit Party is a party or by which any of them or any of their property is bound, and (E) except for the Liens created under the Loan Documents in favor of the Lender, will not result in the imposition of any Lien on any of the properties of any Credit Party; (ii) this Amendment shall be valid, binding and enforceable against the Credit Parties in accordance with its terms; and (iii), no Default or Event of Default has occurred and is continuing and no Default or Event of Default would result from the execution, delivery or consummation of the transactions contemplated by this Amendment. On and as of Effective Date, each Credit Party confirms, reaffirms and restates, and on the date of each request for a Loan or Letter of Credit each Credit Party shall be deemed to have further confirmed, reaffirmed and restated, to the Lender the representations and warranties set forth in the Loan Agreement, as amended hereby, and the other Loan Documents, except to the extent that such representations and warranties solely relate to a specific earlier date in which case each Credit Party confirms, reaffirms and restates such representations and warranties as of such earlier date. The Borrower represents and warrants to Lender that attached hereto as Exhibit A is a true, correct and complete entity organizational chart of the Borrower, EB Holdings and their Subsidiaries, together with a memorandum summarizing the activities and purpose of each entity within such organizational structure (an “organizational summary memorandum”).  Borrower agrees to promptly deliver to Lender, in connection with any future change to the organizational structure reflected in the attached exhibit, an updated entity organizational chart together with an updated organizational summary memorandum (it being understood and agreed that any such change shall be made in compliance with the Loan Agreement and the other Loan Documents).

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Effectiveness; Conditions Precedent

The effectiveness of the amendments and other provisions hereof are subject to the following conditions precedent, including, where applicable, that the Lender shall have received the following documents and other items, duly executed, where appropriate, by authorized representatives of the Credit Parties and the Lender, as applicable (all such documents and other items must be in form and substance satisfactory to the Lender):

This Amendment (including the Exhibits hereto); Any and all agreements, instruments and documents required by the Lender to effectuate and implement the terms hereof and the Loan Documents;

Evidence that the execution, delivery and performance of this Amendment by each of the Credit Parties have been duly authorized by all necessary action, and that no amendment or other modification to the articles or certificate of incorporation or bylaws of any Credit Party has been made since the date of the original delivery thereof to Lender and that such documents (in the form delivered to the Lender) remain in full force and effect; and Payment of all reasonable fees and expenses of Blank Rome LLP, counsel to the Lender, incurred by the Lender that are outstanding as of the date hereof. The date which all of the conditions precedent set forth in Section 5(a) hereof shall have been satisfied or waived is referred to herein as the “Effective Date.”

Miscellaneous

Except as modified or provided herein or in any other instruments or documents executed in connection herewith, all terms and conditions of the Loan Agreement and the other Loan Documents shall remain in effect in accordance with their original tenor.  Except as otherwise provided herein, each agreement, covenant, representation and warranty of each of the Credit Parties hereunder shall be deemed to be in addition to, and not in substitution for, the agreements, covenants, representations and warranties previously made by such Credit Party. Each Credit Party hereby agrees to take all such actions and to execute and/or deliver to the Lender all such documents, assignments, financing statements and other documents, as the Lender may require from time to time, to effectuate and implement the purposes of this Amendment and the other Loan Documents, and to pay or reimburse the Lender for all reasonable attorneys’ fees and expenses incurred in connection herewith and therewith. Each Credit Party covenants, confirms and agrees that as security for the repayment of the Obligations of the Credit Parties under the Loan Documents, the Lender has, and shall continue to have, a continuing first priority, perfected lien on and security interest in the Collateral, all whether now owned or hereafter acquired, created or arising, together with all proceeds, including insurance proceeds thereof, as set forth in the Loan Agreement and the other Loan Documents, as applicable, subject to no Liens other than Permitted Liens.  Each Credit Party acknowledges and agrees that nothing herein contained in any way impairs the Lender’s existing rights and priority in the Collateral.  The Loan Agreement (as modified by this Amendment), together with the Loan Documents, contains the entire agreement among the parties with respect to the transactions contemplated hereby, and supersedes all negotiations, presentations, warranties, commitments, offers, contracts and writings prior to the date hereof relating to the subject matters hereof.  The Loan Agreement (as modified by this Amendment) and the other Loan Documents may be amended, modified, waived, discharged or terminated only in accordance with the terms thereof. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.  Execution and delivery by facsimile shall bind each of the parties. This Amendment shall be binding upon and inure to the benefit of each of the Credit Parties and the Lender and their respective successors, heirs and assigns, except that no Credit Party may assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. Any provision hereof that is prohibited or unenforceable in any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not

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invalidate or render unenforceable such provision in any other jurisdiction. No rights are intended to be created hereunder for the benefit of any third party donee, creditor or incidental beneficiary, except that Fleet Bank and its affiliates shall be entitled to rely on Section 2(b) hereof. The headings of any section or paragraph of this Amendment are for convenience only and shall not be used to interpret any provision of this Amendment. EACH PARTY TO THIS AMENDMENT KNOWINGLY AND INTENTIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS.

**                                         
60;                                               **

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written.

ELECTRONICS BOUTIQUE OF AMERICA INC., as the Borrower
By:		/s/ James A. Smith
Name:			James A. Smith
Title:			Senior Vice President and Chief Financial Officer
Electronics Boutique Holdings Corp., as a Guarantor
By:		/s/ James A. Smith
Name:			James A. Smith
Title:			Senior Vice President and Chief Financial Officer
EB Investment Corp., as a Guarantor
By:	/s/ James A. Smith
Name:			James A. Smith
Title:			Treasurer and Secretary
FLEET CAPITAL CORPORATION, as the Lender
By:		/s/ Michael Kerneklian
Name:			Michael Kerneklian
Title:			Vice President

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EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer required by SEC Rule 13a-14
(17 CFR 240.13a-14) or Rule 15d-14 (17 CFR 240.15d-14)

I, Jeffrey W. Griffiths, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Electronics Boutique Holdings Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:December 9, 2003	By:	/s/ Jeffrey W. Griffiths
		Jeffrey W. Griffiths
		President and Chief
		Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer required by SEC Rule 13a-14
(17 CFR 240.13a-14) or Rule 15d-14 (17 CFR 240.15d-14)

I, James A. Smith, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Electronics Boutique Holdings Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:December 9, 2003	By:	/s/ James A. Smith
		James A. Smith
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q for the period ended November 1, 2003 as filed with the Securities and Exchange Commission by Electronics Boutique Holdings Corp. (the “Company”) on the date hereof (the “Report”), Jeffrey W. Griffiths, as President and Chief Executive Officer of the Company, and James A. Smith, as Senior Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By:	/s/ Jeffrey W. Griffiths
Name:		Jeffrey W. Griffiths
Title:		President and Chief Executive Officer
Date:		December 9, 2003
By:	/s/ James A. Smith
Name:		James A. Smith
Title:		Senior Vice President and Chief Financial Officer
Date:		December 9, 2003

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this certification required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.