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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended March 31, 2005

OR

| ̈ | 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 1-14944

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MAD CATZ INTERACTIVE, INC.

(Exact name of Registrant as specified in its charter)

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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Canada                                                        |  | Not Applicable                     
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|7480 Mission Valley Road, Suite 101San Diego, California      |  | 92108                              
|(Address of principal executive offices)                      |  | (Zip Code)                         

Registrants telephone number, including area code: (619) 683-9830

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Securities registered pursuant to Section 12(b) of the Act:

|                           |  |                                              
|-------------------------- |  | ---------------------------------------------
|Title of each class        |  | Name of each exchange on which registered    
|Common Stock, no par value |  | American Stock ExchangeToronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2).    Yes ̈No  x

The aggregate market value of the voting and non-voting common stock held by non-affiliates based on the closing sale price of common stock as reported on
the American Stock Exchange on September 30, 2004 was $21,597,797. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were
54,244,383 shares of the registrants Common Stock issued and outstanding as of June 15, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the Registrants definitive proxy statement to be filed with the Securities
and Exchange Commission in connection with the solicitation of proxies for the Registrants 2005 Annual Meeting of Shareholders to be held on August 22, 2005.



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MAD CATZ INTERACTIVE, INC.



ANNUAL
REPORT ON FORM 10-K



TABLE OF CONTENTS



|         |  |                                                                                                              |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                              |  | Page
|PART I   |  |                                                                                                             
|         |  |                                                                                                             
|Item 1.  |  | Business                                                                                                     |  | 2   
|         |  |                                                                                                             
|Item 2.  |  | Properties                                                                                                   |  | 9   
|         |  |                                                                                                             
|Item 3.  |  | Legal Proceedings                                                                                            |  | 10  
|         |  |                                                                                                             
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 10  
|         | 
|PART II  |  |                                                                                                             
|         |  |                                                                                                             
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 11  
|         |  |                                                                                                             
|Item 6.  |  | Selected Financial Data                                                                                      |  | 11  
|         |  |                                                                                                             
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 13  
|         |  |                                                                                                             
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 43  
|         |  |                                                                                                             
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 44  
|         |  |                                                                                                             
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 44  
|         |  |                                                                                                             
|Item 9A. |  | Controls and Procedures                                                                                      |  | 44  
|         |  |                                                                                                             
|Item 9B. |  | Other Information                                                                                            |  | 44  
|         | 
|PART III |  |                                                                                                             
|         |  |                                                                                                             
|Item 10. |  | Directors and Executive Officers of the Registrant                                                           |  | 45  
|         |  |                                                                                                             
|Item 11. |  | Executive Compensation                                                                                       |  | 45  
|         |  |                                                                                                             
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 45  
|         |  |                                                                                                             
|Item 13. |  | Certain Relationships and Related Transactions                                                               |  | 45  
|         |  |                                                                                                             
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 45  
|         | 
|PART IV  |  |                                                                                                             
|         |  |                                                                                                             
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 46  



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FORWARD LOOKING STATEMENTS



This Annual Report on Form 10-K and the documents incorporated by reference herein, contain forward-looking statements which
are prospective and reflect managements expectations regarding our business, operations, financial performance and business prospects and opportunities. Forward-looking statements are often, but not always, identified by the use of words such
as seek, anticipate, plan, estimate, expect and intend and statements that an event or result may, will, should, could or
might occur or be achieved and other similar expressions. These forward-looking statements reflect managements current beliefs and expectations and are based on information currently available to management. Forward-looking
statements are subject to significant risks, uncertainties, assumptions and other factors, any of which could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking
statements. More detailed information about these risks, uncertainties, assumptions and other factors is provided under the section entitled Risk Factors. Investors should not place undue reliance on such forward-looking statements. We
assume no obligation to update or alter such forward-looking statements whether as a result of new information, future events or otherwise.



Mad Catz, the Mad Catz logo and GameShark are registered trademarks of Mad Catz, Inc.



Unless otherwise indicated all dollar references herein are in U.S. dollars.



CHANGE IN STATUS OF REGISTRANT



During the fourth quarter of the fiscal year covered by this Annual Report on
Form 10-K, Mad Catz Interactive, Inc. determined that as a result of increases in United States share ownership, under the requirements of the United States federal securities laws, it will file Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, rather than file its Annual Report on Form 20-F as a foreign private issuer.



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PART I



Item 1. Business



In this annual
report on Form 10-K, Mad Catz Interactive, Inc., Mad Catz, the Company, we, us and our refer to Mad Catz Interactive, Inc. and all of our consolidated subsidiaries.



Mad Catz Interactive, Inc. was incorporated under the Canada Business
Corporations Act on August 25, 1993 under the name Patch Ventures Inc. (Patch). In 1994, Patch acquired all of the issued and outstanding shares of Legacy Manufacturing Corporation and changed its name to Legacy Storage Systems
International Inc. In 1996, our Company changed its name to Tecmar Technologies International Inc. At that time, our principal business consisted of designing and developing data storage systems for networks and workstations and marketing such
systems to computer original equipment manufacturers and distributors through several operating subsidiaries.



In 1998, we completed the sale of our operating business, Tecmar Technologies International, Inc., and changed our name to Xencet Investments Inc.
(Xencet). To meet the listing requirements of the Toronto Stock Exchange, we acquired all of the outstanding securities of Games Trader Inc. (Games Trader), a corporation incorporated under the laws of the Ontario, Canada.
Games Trader sold previously played video games, and, in connection with the acquisition, we changed our name to Games Trader Inc. We later changed our name to GTR Group Inc. in 1999.



Effective August 31, 1999, we completed the acquisition of Mad Catz, Inc. (MCI), a corporation incorporated
under the laws of Delaware that designs, manufactures, markets and distributes video game accessories. MCI and its predecessor company have been involved in the video game industry since approximately 1991. In September 2001, we changed our name to
Mad Catz Interactive, Inc. In January 2003, we acquired the intellectual property associated with the GameShark brand of products.



Corporate Structure



We have several operating subsidiaries: (i) MCI, (ii) 1328158 Ontario Inc. (MCC), a corporation incorporated under the laws of Canada that
sells our Mad Catz and GameShark product lines in Canada under the name Mad Catz Canada, and (iii) Mad Catz Europe, Limited (MCE), a corporation incorporated under the laws of England and Wales that sells our Mad Catz product lines in
Europe. We also beneficially own, directly or indirectly, all of the issued and outstanding shares of Mad Catz Interactive Asia Limited (MCIA), a corporation incorporated under the laws of Hong Kong that provides procurement services
related to the manufacture of Mad Catz products. We also beneficially own, directly or indirectly, all of the issued and outstanding shares of the following inactive companies: FX Unlimited Inc., a corporation incorporated under the laws of
Delaware, Mad Catz (Asia) Limited, a corporation incorporated under the laws of Hong Kong, Xencet USA, Inc., a corporation incorporated under the laws of Delaware, Singapore Holdings Inc., a corporation incorporated under the laws of Delaware and
Mad Catz Limited, a corporation incorporated under the laws of England and Wales.



Our Common Stock trades on the Toronto Stock Exchange (TSX) and the American Stock Exchange (AMEX) under the symbol MCZ. Our registered office is located at 181 Bay Street, Suite
2500, Toronto, Ontario, M5J 2T7, and our telephone number is (416) 360-8600. MCI, our primary operating subsidiary and our operational headquarters is located at 7480 Mission Valley Road, Suite 101, San Diego, California, 92108, and our telephone
number is (619) 683-9830.



Overview



We design, manufacture (primarily through third parties in Asia), market and
distribute accessories for all major video game platforms, including the Microsoft Xbox; Nintendo GameCube, Game Boy Advance, Game



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Boy Advance SP, DS and N64; Sony PlayStation, PlayStation 2 and PSP; and Nokia N-Gage QD. In addition, we design, manufacture (primarily through third
parties in Asia), market and distribute accessories for the Apple iPod. Our accessories are marketed under the Mad Catz brand. Our products include video game accessories of all types, such as control pads, steering wheels, joysticks, memory cards,
video cables, light guns, dance pads, microphones, car adapters and carry cases. We also publish game enhancement software under the GameShark brand. In November 2004, we published our first video game title, MC Groovz Dance Craze, on the
Nintendo GameCube platform. The game included a dance pad and was developed by a third party developer.



Our Products



The typical life cycle of successful video game accessories is similar to the life cycle of video game consoles, which generally ranges from two to ten years. Factors such as competition for access to retail shelf space, changing
technology, consumer preferences and seasonality could result in shortening the life cycle for older products and increase the importance of our ability to release new products on a timely basis. We must continuously introduce new products in order
to generate new revenues and/or to replace declining revenues from older products. The complexity of new video game systems has resulted in longer development cycles and the need to carefully monitor and manage the product development process.



In fiscal 2005, approximately 30% of our gross sales were
derived from products designed for use with Sonys PlayStation 2 video game console. Sony launched the PlayStation 2 in the United States in late 2000, and is expected to launch its successor, the PlayStation 3, in 2006. Sony has made public
statements that it will continue to manufacture and market the PlayStation 2 after the PlayStation 3 is launched, and expects the PlayStation 2 to have a life cycle of 10 years in line with the original PlayStation video game console. Sony launched
the PlayStation in the United States in 1995 and continues to market it today. In fiscal 2005, products designed for use with the PlayStation accounted for approximately 4% of our gross sales. Analysts have attributed the longevity of the
PlayStation video game console in part to the reverse compatibility of the PlayStation 2 console. Reverse compatibility means that PlayStation games and some accessories can be used on the PlayStation 2 console. In March 2005, Sony entered the North
American handheld market with the launch of the Sony PSP handheld video game system, MP3 player and movie player. The PSP is expected to launch in Europe in September 2005.



Microsofts Xbox console was launched in the United States in late 2001. The Xbox was Microsofts first video game
console, and sales of Xbox-compatible products accounted for approximately 23% of our gross sales in fiscal 2005. Launch of the successor system to the Xbox, the Xbox 360, is anticipated in November 2005. We expect Microsoft will continue to market
the Xbox for some time after the launch of the new Xbox 360. The Xbox 360 will be reverse compatible for games but not accessories. As such, in May 2005, we entered into a license agreement (titled Xenon Game Peripheral) to produce accessories for
the Xbox 360, in anticipation of the incremental demand for Xbox 360 accessories.



Nintendos GameCube console was also launched in the United States in late 2001. The GameCube console was the successor to Nintendos N64 console, launched in the United States in 1996. In fiscal 2005,
approximately 15% of our gross sales were derived from the sale of products designed for use with the GameCube console. While we continued to sell products for the N64 console in fiscal 2005, such sales were not significant. A successor to the
GameCube console is expected to be launched in the United States in 2006. Nintendo has announced that the new system will be reverse compatible for GameCube games; however, no announcement has been made as to whether the new system will be reverse
compatible for accessories or whether Nintendo will continue to market the GameCube system after the launch of the new system. Nintendos latest generation of its Game Boy handheld product, the Game Boy Advance, was launched in 2001. Nintendo
launched an improved version, the Game Boy Advance SP, in 2003. Both versions continue to be available in the market and gross sales of our products designed for these systems accounted for approximately 8% of our gross sales in fiscal 2005.
Nintendo has announced their intention to launch an additional version, the Game Boy Advance Micro, later this year. It is expected that Nintendo will discontinue the original Game Boy Advance



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system but will continue to market the Nintendo Game Boy Advance SP. In 2004, Nintendo launched a new handheld system, the Nintendo DS.



In 2003, Nokia launched its N-Gage handheld gaming system, in combination
with a cellular phone and in 2004, it was replaced with an updated N-Gage QD. Our sales of products for these systems have not been significant.



The United States market is now in the final stages of the current console lifecycle and entering the transition to the next generation of consoles in
2005/2006. Based on experience from prior transitions, it is expected that the industrys growth trend over the last three years will be difficult to sustain.



Video game console prices typically reduce as the products mature in the market place. In the United States, the
PlayStation2 game console launched with a retail price of $299 in 2000, Xbox launched with a retail price of $299 in 2001 and GameCube launched with a retail price of $199 in 2001. After successive price decreases, the systems currently retail for
$149, $149 and $99, respectively, and additional price decreases are anticipated. Lower console prices usually result in higher unit sales of console systems. Management believes that the more price sensitive late adopter consumer, that
waits for these price reductions before purchasing a system, is also more likely to purchase value-priced accessories.



The European launches of the video game console systems have historically lagged approximately six months behind launches in the United States, which
means that the European market is at an earlier stage in the products lifecycles. Microsoft has announced that the upcoming launch of its Xbox 360 console will be a global launch in North America, Europe and Japan.



Mad Catz Strategy



In fiscal 2005, we focused our efforts on leveraging our product design
leadership, strong brands, and low cost manufacturing to add new revenue streams to our existing distribution network by developing new products in the video game accessory space and adjacent categories. In addition, we published our first video
game, licensed intellectual property to differentiate our product line and launched a line of iPod accessories to generate additional revenues. We also reduced our operating expenses by consolidating our Canadian corporate office to our San Diego
office, downsizing our presence at E3, the major industry tradeshow, from a booth to conference rooms and bringing the hosting of our GameShark.com website in-house. These initiatives helped lead to our improved profitability in fiscal 2005.



Overall, the key initiatives in fiscal 2006 include:



| |  |  | developing new video game accessories for the current and next generation consoles, including a line of products for the Xbox 360;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuing to build a portfolio of licensed properties to develop exclusive accessory products that will command higher price-points and margins;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | publishing and distributing additional video games and software products;
| | - |  | -------------------------------------------------------------------------



| |  |  | expanding our iPod product line and developing additional products in adjacent categories; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | expanding our European distribution.
| | - |  | ------------------------------------



Intellectual Property Needed to Produce our Products



Historically, a majority of our revenue has come from video game accessories that are reverse engineered to work with video game platforms sold by Sony,
Nintendo and Microsoft. Some, but not all, of our products compatible with these video game platforms have been produced under license agreements pursuant to which we



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received proprietary and other useful information, as well as the use of the first party logos. Some of these license agreements have expired and others are
about to expire.



In particular, our North American license for
the Sony PlayStation 2 Memory Card expired on December 31, 2001, and our international license for the Sony PlayStation 2 Memory Card expired on November 27, 2002. As a result, we no longer sell the Sony PlayStation 2 Memory Card. Approximately 16%
of our gross sales in fiscal year 2003 were attributable to sales of the Sony PlayStation 2 Memory Card under these licenses.



We currently do not have any license agreements with Sony. The absence of license agreements with Sony could result in our Company being unable to
efficiently and cost effectively design future generations of compatible accessories. In the event that future Sony video game platforms are developed as closed systems that cannot be reversed engineered, we would not be able to produce,
manufacture and market accessories for those platforms. Moreover, in the event Sony enters into license agreements with companies other than us for these new closed platforms, we would be placed at a substantial competitive disadvantage.



We currently have a three year non-exclusive license to use
the intellectual property rights of Nintendo related to the Nintendo GameCube platform and a three year non-exclusive license to employ the Nintendo intellectual properties in connection with our Nintendo Beat Pad product. We do not have a license
to produce next generation accessories for Nintendo. In the event that future video game platforms from Nintendo are developed as closed systems that cannot be reversed engineered, we would not be able to produce, manufacture and market
accessories for those platforms. Moreover, in the event Nintendo enters into license agreements with companies other than us for these new closed platforms, we would be placed at a substantial competitive disadvantage.



We have a peripheral and compatibility license from Microsoft covering
products relating to Microsofts Xbox video game console. This license will expire on February 28, 2006. Unless either Microsoft or we provide notice of a desire to terminate the license at least 90 days prior to that date, the agreement will
automatically renew for an additional one-year period. While we have no intention to terminate the agreement and have not received any indication from Microsoft that it desires to terminate the agreement, no assurance can be given that the agreement
will not expire in accordance with its terms. We are uncertain whether we will be able to renew or replace the Microsoft license. Nonetheless, this license only relates to the use of Microsofts logo on our products, so even without the
license, we would be able to continue producing and selling similar products, which do not contain the logo.



In May 2005, we entered into a peripheral and compatibility license from Microsoft covering specific product categories, including wired control pads,
steering wheels, arcades sticks, flight sticks and dance mats for the next generation Xbox 360 console. This license will expire in May 2007.



Product Development and Support



We develop products using a group of concept design, production and technical professionals, in coordination with our marketing and finance departments,
with responsibility for the entire development and production process including the supervision and coordination of internal and external resources. Our hardware products are typically conceived and designed by our internal teams in San Diego and
Hong Kong. For these products we own the industrial design, and in most cases the tools, dies and molds used for production. From time to time, we also acquire the rights to produce and distribute products that are, or will be, independently created
by third parties.



In addition, we seek out and engage
independent third party developers to create software products on our behalf. Such products are sometimes owned by us, and usually we have unlimited rights to commercially exploit these products. In other circumstances, the third party developer may
retain ownership of the intellectual property and/or technology included in the product and reserve certain exploitation rights. We typically select these



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independent third party developers based on their expertise in developing products in a specific category. Each of our third party developers is under
contract with us for specific or multiple products. From time to time, we also acquire the license rights to distribute software products that are or will be independently created by third party publishers. In such cases, the agreements with such
publishers provide us with exclusive distribution rights for a specific period of time, often for specified platforms and territories.



In consideration for their services, the independent third party developer usually receives a royalty, generally based on the net sales of the product
that it has developed. Typically, the developer also receives an advance, which we recoup from the royalties otherwise payable to the developer. The advance generally is paid in milestone stages. The payment at each stage is tied to the
completion and delivery of a detailed performance milestone. Working with an independent developer allows us to reduce our fixed development costs, share development risks with the third party developer, take advantage of the third party
developers expertise in connection with certain categories of products or certain platforms, and gain access to proprietary development technologies.



Manufacturing



Our accessory products are manufactured to our specifications by outsourced factories located predominantly in Shenzhen, China. The use of outsourced
manufacturing facilities is designed to take advantage of specific expertise and allow for flexibility and scalability to respond to seasonality and changing demands for our products. Our software products are manufactured by outsourced replication
companies in the United States, Hong Kong and Europe. In some instances, packaging and final assembly is performed at our distribution facility in California or by outsourced suppliers in the United States or Europe.



Distribution



Our products are sold to many of the worlds largest retailers of interactive entertainment products on a direct basis
without the use of intermediaries or distributors. We also appoint distributors in certain territories to service retail accounts not dealt with on a direct basis. We maintain a direct sales force in the United States, Canada and Europe. We operate
a leased 95,000 square foot distribution center in Mira Loma, California which services North American customers and utilize an outsourced logistics solution for the European market. All freight is handled by outsourced transportation companies. We
operate information systems, including electronic data interchange (EDI) and integrated warehouse management systems, to remain compliant with the requirements of our mass market retailers.



Principal Markets



The Company operates as one business segment, which is the design,
manufacture, marketing and distribution of video game accessories and software. In fiscal 2005, approximately 82% of our gross sales were generated in the United States, 8% in Canada, 10% in Europe, and less than 1% in other countries, including
Australia, Japan, Korea, New Zealand, and Singapore. In fiscal 2004, approximately 80% of our gross sales were generated in the United States, 7% in Canada, 9% in Europe, and 4% in other countries. In fiscal 2003, approximately 72% of our gross
sales were generated in the United States, 5% in Canada, 18% in Europe, and 5% in other countries.



Customers



Our
products are sold by many of the largest video game retailers in the world including Army-Air Force Exchange Service (AAFES), Best Buy, Blockbuster Video, Circuit City, EB Games, GameStop, Hollywood Video, Kmart, Meijer, Musicland, Sams Club,
Target and Wal-Mart in the United States; Best Buy, Blockbuster Video, EB Games, Future Shop, Multimicro, Rogers Video, and Wal-Mart in Canada; and ASDA, Argos, Auchan, Blockbuster Video, Carrefour, Comet, Currys, Dixons, FNAC, GameStation,
Karstadt, Media Markt, PC World, ProMarkt, Saturn, and Toys R Us in Europe.



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In fiscal 2005, three of our customers individually accounted for at least 10% of our gross sales. These
customers, Wal-Mart, EB Games and GameStop, accounted for approximately 47% of our gross sales in fiscal 2005. In fiscal 2004 and fiscal 2003, two of our customers individually accounted for at least 10% of our gross sales. These customers accounted
for 39% and 34% of our gross sales in fiscal 2004 and 2003, respectively. Our top 10 customers accounted for 78% of gross sales in fiscal 2005, 79% in fiscal 2004 and 76% in fiscal 2003.



Competitive Environment



The primary markets in which we sell our products are the United States, Canada and Europe. These markets are highly competitive, and we expect that we
may face increased competition if additional companies enter these markets. Historically, price has been a significant competitive factor for interactive video game accessories. We believe that the other principal competitive factors that
historically have affected retailer and consumer choice include value, product features, ease of use and installation, realism in simulation, name brand recognition, product styling and whether the product is licensed. Additional competitive factors
from the perspective of the major retailers include margins, service, support, merchandising and promotional support, reliable and timely delivery, track record and electronic data interchange capability. We seek to differentiate our products
through superior product design, packaging, product innovation and branding. In addition, we aim to provide a higher level of sales service to retailers through our category management capability.



Our principal competitors for video game accessories include Sony, Nintendo,
Microsoft, Big Ben InterActive UK Ltd., Datel Design & Development Limited, Gemini Industries, Inc., Hip Interactive Corp., Intec, Inc., Joytech Europe Ltd., Logitech International S.A., Naki International, Inc., Nuby Interactive LLC, Nyko
Technologies Inc., Pelican Accessories, Radica Games Ltd., and Thrustmaster, Inc.



We believe that our products are targeted to a broad demographic group, and are complementary with consumers of Sony, Nintendo and Microsoft video game consoles. We believe that the major factors that will provide us
with continued viability and competitive edge are low cost products, quality, service, brands and retail relationships.



Employees



At March 31, 2005, we had 144 full-time employees in the following locations:



|               |  |    
|-------------- |  | ---
|Location       |  |    
|United States  |  | 91 
|United Kingdom |  | 5  
|Canada         |  | 2  
|Hong Kong      |  | 26 
|China          |  | 20 
|               |  |    
|Total          |  | 144
|               |  |    



Temporary employees
are used in our distribution center in California during the peak shipping months of October through December. Temporary employees during this period averaged 20 hourly employees. Our ability to attract and retain qualified personnel is essential to
our continued success. None of our employees are covered by a collective bargaining agreement, nor have we ever experienced any work stoppage.



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Executive Officers of the Registrant



Our executive officers and their ages as of March 31, 2005, are as follows:



|                  |  |                                                                             |  |    
|----------------- |  | --------------------------------------------------------------------------- |  | ---
|Name              |  | Position                                                                    |  | Age
|Darren Richardson |  | President and Chief Executive Officer of Mad Catz Interactive, Inc. and MCI |  | 44 
|Cyril Talbot III  |  | Chief Financial Officer of Mad Catz Interactive, Inc. and MCI               |  | 49 
|Warren Cook       |  | Senior Vice President Sales of MCI                                          |  | 44 
|Whitney Peterson  |  | Vice President Corporate Development and General Counsel of MCI             |  | 39 
|Jon Middleton     |  | Vice President Business Development                                         |  | 33 



Darren
Richardson was appointed our President and Chief Executive Officer effective April 1, 2004. Prior to that time, Mr. Richardson served as our Executive Vice President since October 1997 and President and Chief Operating Officer of MCI since
August 1999. Mr. Richardson also served in several senior management capacities with Games Trader, including Chief Operating Officer, and Vice President of Business Development, responsible for sales and marketing with a focus on new account
development. He has a Master of Business Administration degree from Trinity College, Dublin (1993) and a Bachelor of Commerce degree from the University of Wollongong, Australia (1984).



Cyril Talbot III was appointed our Chief Financial Officer on March 17, 2003. Prior to joining us, Mr. Talbot
served as Senior Vice President-Finance, Chief Financial Officer and Secretary at DJ Orthopedics, Inc., a publicly traded orthopedic sports medicine company. During his 11 years as DJ Orthopedics principal financial officer, he oversaw the
companys initial public offering and listing on the New York Stock Exchange and was responsible for merger and acquisition analysis and strategic planning. From 1981 to 1991, he held several management positions at American Hospital Supply
Corporation and McGaw, Inc. Prior to that time, he was an Audit Manager and a Certified Public Accountant at Miller, Cooper & Co. Ltd. Mr. Talbot earned his Bachelor of Science degree in Accounting/Finance at Miami University in Oxford, Ohio.



Warren Cook has been Senior Vice President Sales for
MCI since February 1997. His emphasis is on servicing and developing MCIs existing customers as well as the development of new accounts. With the acquisition of MCI, Mr. Cook was charged with the integration of both sales organizations and the
execution of a customer focused strategy that will leverage the strengths of both product lines. Previously, during the period between August 1991 and February 1997, Mr. Cook fulfilled the role of Manager, Accounts Sales at Marks Work
Warehouse, with a focus on the development of corporate business. Prior to this, Mr. Cook worked from 1988 to 1991 for Grants, a small privately held textile company as National Sales Manager. Mr. Cook graduated from Ryerson Polytechnic University
with a Bachelor of Business Administration in 1986.



Whitney
Peterson has been Vice President Corporate Development and General Counsel for MCI since July 1998. Prior to joining MCI, Mr. Peterson spent seven years working at the international law firm of Latham & Watkins, where he represented and
consulted with numerous Fortune 500 companies. Mr. Peterson received his law degree from the J. Rueben Clark School of Law at Brigham Young University, where he graduated Magna Cum Laude. Mr. Peterson also served as an Articles Editor on the BYU Law
Review in which he was published. Following law school, Mr. Peterson clerked for the Honorable Bruce S. Jenkins, Chief Judge of the Federal District Court in Utah.



Jon Middleton has been Vice President Business Development for MCI since April 2004. Prior to joining MCI, Mr.
Middleton was founder and Chief Executive Officer of Eight Cylinders, Inc., a videogame developer and broadband tools designer which was acquired by On2 Technologies in 2000. At On2 Technologies, Mr. Middleton led all international business
development. Prior to founding Eight Cylinders, Mr. Middleton led business development and game publishing activities for Pulse Entertainment, a PC games publisher. Mr. Middleton graduated from Boston College with a dual Bachelor of English and
Communication in 1994.



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Available Information



We provide our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports free of charge
under Investor Relations on our website at www.madcatz.com as soon as reasonably practicable after we electronically file this material with, or furnish this material to, the SEC. The information contained on our website is not
part of this Annual Report. You may also read and copy the documents to which we refer at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at
www.sec.gov.



We are required to file reports and other
information with the securities commission in the province of Ontario, Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions.
These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the SECs electronic document gathering and retrieval system, as
well as on our website at www.madcatz.com under Investor Relations.



Item 2. Properties



MCI leases
office space for its headquarters at 7480 Mission Valley Road, Ste. 101, San Diego, California, 92108. The lease covers approximately 14,000 square feet. The lease commenced on August 1, 2001 and expires on August 31, 2006.



MCI also leases a 95,000 square foot warehouse located at 12160 Philadelphia
Street, Mira Loma, California, 91752-1188. The lease commenced on May 1, 2000 and expires on April 30, 2006.



On March 30, 2004, MCI entered into a lease providing business premises for MCC located at 2425 Matheson Blvd. E., 8thFloor, Mississauga, Ontario, Canada L4W 5K4. The lease was renewed on June 1, 2005 and will expire on May 31, 2006; however, if neither party gives
notice of the intent to terminate, the agreement will renew automatically for an additional year.



On June 11, 2004, MCI entered into a lease providing business premises for MCE in the United Kingdom. The office is located at Exchange House, 494
Midsummer Boulevard, Central Milton Keynes MK9 2EA. MCI has currently given notice of intent to terminate the lease. The lease will terminate on August 31, 2005. MCE is currently evaluating its leasing options.



On April 17, 2005, MCE began leasing business premises for a sales branch
office in France. The office is located at ZAC Paris Rive Gauche, 118-122, avenue de France, France 75013. The lease expires on February 28, 2007.



MCIA leases business premises at 138 ShaTin Rural Committee Road, Unit 1717-19 and 1720-1721, 17thFloor, Grand Central Plaza, Tower 2, ShaTin, New Territories, Hong Kong. On October 1, 2004 the lease was renewed for an additional two years and will expire
on September 30, 2006.



On December 1, 2004, MCIA entered into
a lease for additional space at Unit No. 1709, 17thFloor, Grand Central Plaza, Tower 2, ShaTin, New Territories,
Hong Kong. The lease expires on September 30, 2006.



MCIA
entered into a lease providing business premises for MCIA at Unit A, 7thFloor, Guang Fa Building, 218 Ji Hua Road,
Buji Town, Longgang District, Shenzhen, PRC. The lease expires on March 1, 2007.



Management believes that our leased facilities are adequate for the near term. However, as a result of our growth, management is reviewing alternatives for additional warehouse facilities in or around Mira Loma,



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California and office facilities in San Diego, CA. At present management is unaware of any environmental issues affecting any of our premises.



Item 3. Legal Proceedings



On
February 10, 2003, Electro Source filed a complaint against MCI, and Fire International, Ltd. (Fire), as well as other defendants, in the Superior Court in Los Angeles County, California entitled, Electro Source, LLC v. Fire
International, Ltd., et al., Case No. BC 290076. On or about November 18, 2003, Electro Source amended its complaint to add us as a defendant. In its amended complaint, Electro Source asserted claims against us and MCI alleging misappropriation
of trade secrets, conspiracy to defraud, interference with contractual relationship and interference with prospective economic advantage in connection with Fires agreement to supply MCI with product to be marketed under our GameShark brand and
for the termination of Fires alleged prior business relationship with Electro Source.



Electro Source moved for a temporary restraining order to prevent MCI from marketing or otherwise distributing the GameShark products. After a hearing on the matter, the Court denied Electro Sources motion and
refused to enter the temporary restraining order. The parties have engaged in written and oral discovery, including depositions. On February 17, 2005, Mad Catz filed a cross-complaint against Electro Source alleging false advertising, state and
federal unfair competition, libel per se, and trade libel arising out of some advertisements and internet statements. Discovery is proceeding on the cross-complaint. The trial date is set for August 31, 2005. While we intend to vigorously defend
this matter, there can be no guarantee that we will ultimately prevail or that damages will not be assessed against us. An adverse determination by the Court or jury could seriously impact our revenues and our ability to continue to distribute the
GameShark products.



On or about May 2, 2005, Mad Catz was
served with a lawsuit filed by Freedom Wave LLC in the United States District Court for the Central District of California entitled, Freedom Wave LLC. v. Mad Catz, Inc. et al., Case No CV5 2954NM (PLAx). The complaint alleges that certain MCI
products infringe U.S. patent numbers 6,878,066 and 6,280,327. MCI answered, denying the allegation in the complaint. The case is still in the early stages and no discovery has been requested by either party. No trial date has been set. We intend to
vigorously defend the allegations of the complaint, however there can be no guarantee that we will ultimately prevail or that damages will not be assessed against MCI. An adverse determination by the Court or jury could seriously impact our revenues
and our ability to continue to distribute the GameShark products.



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



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 2005.



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PART II



Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



Market Information



The Companys Common Stock commenced trading on the Toronto Stock Exchange (TSX) in December 1995 under the symbol GTR. The
Common Stock began trading on the American Stock Exchange (AMEX) in the United States in September 1999 under the symbol GIG. In September 2001, the Common Stock began trading on both the AMEX and the TSX under the symbol
MCZ to reflect our name change to Mad Catz Interactive, Inc. The following table sets forth, for the fiscal quarters indicated, the high and low market prices for the Companys Common Stock on the AMEX and TSX:



|            |  |                |  |                                 |      |                                    |   |      |  |     |      |  |   |     
|----------- |  | -------------- |  | ------------------------------- | ---- | ---------------------------------- | - | ---- |  | --- | ---- |  | - | ----
|            |  |                |  | American Stock Exchange(U.S. $) |      | Toronto Stock Exchange(Canadian $)
|            |  |                |  | High                            |      | Low                                |   | High |  | Low
|Fiscal 2005 |  |                |  |                                 |      |                                    |   |      |  |     |      |  |   |     
|            |  |                |  |                                 |     
|            |  | Fourth Quarter |  | $                               | 1.83 |                                    | $ | 0.81 |  | $   | 2.21 |  | $ | 0.99
|            |  |                |  |                                 |     
|            |  | Third Quarter  |  |                                 | 0.86 |                                    |   | 0.49 |  |     | 1.09 |  |   | 0.62
|            |  |                |  |                                 |     
|            |  | Second Quarter |  |                                 | 0.61 |                                    |   | 0.43 |  |     | 0.80 |  |   | 0.57
|            |  |                |  |                                 |     
|            |  | First Quarter  |  |                                 | 0.79 |                                    |   | 0.54 |  |     | 1.04 |  |   | 0.75
|Fiscal 2004 |  |                |  |                                 |      |                                    |   |      |  |     |      |  |   |     
|            |  |                |  |                                 |     
|            |  | Fourth Quarter |  |                                 | 1.29 |                                    |   | 0.66 |  |     | 1.72 |  |   | 0.87
|            |  |                |  |                                 |     
|            |  | Third Quarter  |  |                                 | 1.36 |                                    |   | 0.75 |  |     | 1.80 |  |   | 1.01
|            |  |                |  |                                 |     
|            |  | Second Quarter |  |                                 | 0.95 |                                    |   | 0.59 |  |     | 1.26 |  |   | 0.77
|            |  |                |  |                                 |     
|            |  | First Quarter  |  |                                 | 0.95 |                                    |   | 0.58 |  |     | 1.31 |  |   | 0.80



Holders



As of July 5, 2005, there were approximately 39 shareholders of record of
our common stock with 54,244,383 shares outstanding.



Dividends



We have never declared or paid any dividends and do
not expect to pay any dividends in the foreseeable future.



Issuer
Purchases of Equity Securities



Neither our Company
nor any affiliated purchaser repurchased any of our equity securities during fiscal 2005.



Item 6. Selected Financial Data



The summary of financial information set forth below is derived from and should be read in conjunction with the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.



We report our financial statements in thousands of U.S. dollars, and have
prepared our financial statements contained in this Form 10-K in accordance with generally accepted accounting principles (GAAP) in the United States, which vary in certain significant respects from GAAP in Canada. See Note 13 to the
consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, elsewhere in this Form 10-K, for a



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reconciliation of net income for fiscal years ended March 31, 2005, 2004 and 2003, determined in accordance with GAAP in the United States to the net income
determined in accordance with GAAP in Canada.



|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|------------------------------------------------------------ |  | --------------------------------------------------------------- | ---------- | - | ----- | - | ---------- | ----- |  | - | ---------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|                                                             |  | Years Ended March 31,                                           |           
|                                                             |  | (in thousands of U.S. dollars, except share and per share data) |           
|                                                             |  | 2005                                                            |            |   | 2004* |   |            | 2003* |  |   | 2002*      |   |  | 2001* |           
|Consolidated Statements of Operations Data:                  |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net sales                                                    |  | $                                                               | 112,071    |   |       | $ | 102,143    |       |  | $ | 91,658     |   |  | $     | 83,337     |   |  | $ | 58,472     |  
|Cost of sales                                                |  |                                                                 | 84,421     |   |       |   | 79,803     |       |  |   | 71,467     |   |  |       | 65,715     |   |  |   | 46,039     |  
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Gross profit                                                 |  |                                                                 | 27,650     |   |       |   | 22,340     |       |  |   | 20,191     |   |  |       | 17,622     |   |  |   | 12,433     |  
|Operating expenses:                                          |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Sales and marketing                                          |  |                                                                 | 10,053     |   |       |   | 11,166     |       |  |   | 8,835      |   |  |       | 7,544      |   |  |   | 5,273      |  
|General and administrative                                   |  |                                                                 | 6,998      |   |       |   | 6,459      |       |  |   | 6,160      |   |  |       | 4,548      |   |  |   | 5,714      |  
|Research and development                                     |  |                                                                 | 897        |   |       |   | 1,079      |       |  |   | 936        |   |  |       | 860        |   |  |   | 629        |  
|Amortization of intangible assets                            |  |                                                                 | 804        |   |       |   | 804        |       |  |   | 36         |   |  |       |           |   |  |   |           |  
|Amortization of goodwill (1)                                 |  |                                                                 |           |   |       |   |           |       |  |   |           |   |  |       | 977        |   |  |   | 997        |  
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Total operating expenses                                     |  |                                                                 | 18,752     |   |       |   | 19,508     |       |  |   | 15,967     |   |  |       | 13,929     |   |  |   | 12,613     |  
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Operating income (loss)                                      |  |                                                                 | 8,898      |   |       |   | 2,832      |       |  |   | 4,224      |   |  |       | 3,693      |   |  |   | (180       | )
|Interest expense, net                                        |  |                                                                 | (1,203     | ) |       |   | (1,330     | )     |  |   | (1,758     | ) |  |       | (1,232     | ) |  |   | (1,278     | )
|Foreign exchange gain (loss), net                            |  |                                                                 | (582       | ) |       |   | 91         |       |  |   | (94        | ) |  |       | 61         |   |  |   | (201       | )
|Other income                                                 |  |                                                                 | 202        |   |       |   | 98         |       |  |   | 47         |   |  |       |           |   |  |   |           |  
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Income (loss) from continuing operations before income taxes |  |                                                                 | 7,315      |   |       |   | 1,691      |       |  |   | 2,419      |   |  |       | 2,522      |   |  |   | (1,659     | )
|Income tax expense                                           |  |                                                                 | 2,733      |   |       |   | 629        |       |  |   | 788        |   |  |       | 1,855      |   |  |   | 3,217      |  
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Income (loss) from continuing operations                     |  |                                                                 | 4,582      |   |       |   | 1,062      |       |  |   | 1,631      |   |  |       | 667        |   |  |   | (4,876     | )
|Income (loss) from discontinued operations                   |  |                                                                 |           |   |       |   |           |       |  |   |           |   |  |       | 302        |   |  |   | (19,137    | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net income (loss)                                            |  | $                                                               | 4,582      |   |       | $ | 1,062      |       |  | $ | 1,631      |   |  | $     | 969        |   |  | $ | (24,013    | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net income (loss) per share from continuing operations       |  | $                                                               | 0.09       |   |       | $ | 0.02       |       |  | $ | 0.03       |   |  | $     | 0.01       |   |  | $ | (0.11      | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net income (loss) per share from discontinued operations     |  | $                                                               |           |   |       |   |           |       |  |   |           |   |  | $     | 0.01       |   |  | $ | (0.42      | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net income (loss) per sharebasic                            |  | $                                                               | 0.09       |   |       | $ | 0.02       |       |  | $ | 0.03       |   |  | $     | 0.02       |   |  | $ | (0.53      | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Net income (loss) per sharediluted                          |  | $                                                               | 0.08       |   |       | $ | 0.02       |       |  | $ | 0.03       |   |  | $     | 0.02       |   |  | $ | (0.53      | )
|                                                             |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Shares used in calculation:                                  |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Basic                                                        |  |                                                                 | 53,506,289 |   |       |   | 53,286,248 |       |  |   | 53,070,890 |   |  |       | 51,188,889 |   |  |   | 45,297,305 |  
|Diluted                                                      |  |                                                                 | 54,481,162 |   |       |   | 53,983,127 |       |  |   | 53,689,972 |   |  |       | 51,956,695 |   |  |   | 45,297,305 |  
|Consolidated Selected Balance Sheet Data:                    |  |                                                                 |            |   |       |   |            |       |  |   |            |   |  |       |            |   |  |   |            |  
|Cash                                                         |  | $                                                               | 1,085      |   |       | $ | 1,728      |       |  | $ | 1,234      |   |  | $     | 1,903      |   |  | $ | 1,455      |  
|Working capital                                              |  |                                                                 | 15,601     |   |       |   | 9,959      |       |  |   | 7,758      |   |  |       | 10,630     |   |  |   | 4,508      |  
|Goodwill and intangible assets, net                          |  |                                                                 | 24,893     |   |       |   | 24,206     |       |  |   | 22,784     |   |  |       | 16,362     |   |  |   | 17,529     |  
|Total assets                                                 |  |                                                                 | 79,136     |   |       |   | 65,923     |       |  |   | 65,591     |   |  |       | 50,195     |   |  |   | 45,668     |  
|Bank loan                                                    |  |                                                                 | 12,100     |   |       |   | 15,182     |       |  |   | 17,077     |   |  |       | 4,335      |   |  |   | 8,671      |  
|Total shareholders equity                                   |  |                                                                 | 42,903     |   |       |   | 36,056     |       |  |   | 32,424     |   |  |       | 29,617     |   |  |   | 24,689     |  

---

|* | Recasted in accordance with U.S. GAAP
|- | -------------------------------------



|(1) | In accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, we discontinued amortizing goodwill
beginning in fiscal year 2003.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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EBITDA RECONCILIATION (Unaudited)



EBITDA, a non-GAAP financial measure, represents net income before interest,
taxes, depreciation and amortization. EBITDA is not intended to represent cash flows for the period, nor is it being presented as an alternative to operating or net income as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. As defined, EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. We believe, however, that in addition to the performance measures found in our financial statements, EBITDA is a useful financial performance measurement for assessing our Companys operating
performance. Our management uses EBITDA as a measurement of operating performance in comparing our performance on a consistent basis over prior periods, as it removes from operating results the impact of our capital structure, including the interest
expense resulting from our outstanding debt, and our asset base, including depreciation and amortization of our capital and intangible assets.





|                                                |  |                                                            |        |       |   |       |  |       |       |       |   |       |  |   |         |  
|----------------------------------------------- |  | ---------------------------------------------------------- | ------ | ----- | - | ----- |  | ----- | ----- | ----- | - | ----- |  | - | ------- | -
|                                                |  | Years Ended March 31,(in thousands, except per share data) |       
|                                                |  | 2005                                                       |        | 2004* |   | 2003* |  | 2002* |       | 2001* |  
|Net income (loss)                               |  | $                                                          | 4,582  |       | $ | 1,062 |  | $     | 1,631 |       | $ | 969   |  | $ | (24,013 | )
|Adjustments:                                    |  |                                                            |        |       |   |       |  |       |       |       |   |       |  |   |         |  
|Interest expense                                |  |                                                            | 1,203  |       |   | 1,330 |  |       | 1,758 |       |   | 1,232 |  |   | 1,278   |  
|Income tax expense                              |  |                                                            | 2,733  |       |   | 629   |  |       | 788   |       |   | 1,855 |  |   | 3,217   |  
|Depreciation and amortization of capital assets |  |                                                            | 1,048  |       |   | 1,027 |  |       | 1,137 |       |   | 1,010 |  |   | 752     |  
|Amortization of intangible assets and goodwill  |  |                                                            | 804    |       |   | 804   |  |       | 36    |       |   | 977   |  |   | 997     |  
|                                                |  |                                                            |        |       |   |       |  |       |       |       |   |       |  |   |         |  
|EBITDA                                          |  | $                                                          | 10,370 |       | $ | 4,852 |  | $     | 5,350 |       | $ | 6,043 |  | $ | (17,769 | )
|                                                |  |                                                            |        |       |   |       |  |       |       |       |   |       |  |   |         |  

---

|* | Recasted in accordance with U.S. GAAP
|- | -------------------------------------



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations



This section contains forward-looking statements involving risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors including those set out under Risk Factors herein. The following discussion should be read in conjunction with our consolidated financial statements and related notes
contained elsewhere in this Annual Report.



Overview



Our Business



We are a leading provider of video game accessories and software marketed under the Mad Catz and GameShark brands. We
design, manufacture (primarily through third parties in Asia), market and distribute accessories for all major video game platforms, including the Microsoft Xbox; Nintendo GameCube, Game Boy Advance, Game Boy Advance SP, DS and N64; Sony
PlayStation, PlayStation 2 and PSP; and Nokia N-Gage QD. In addition, we design, manufacture (primarily through third parties in Asia), market and distribute accessories for the Apple iPod. Our products include video game accessories of all types,
such as control pads, steering wheels, joysticks, memory cards, video cables, light guns, dance pads, microphones, car adapters and carry cases. We also market game enhancement software, and in November 2004, we published our first video game title,
MC Groovz Dance Craze, on the Nintendo GameCube platform. The game included a dance pad and was developed by a third party developer.



Seasonality



We generate a substantial percentage of our net sales in the last three months of every calendar year, our fiscal third quarter. Our quarterly results of
operations can be expected to fluctuate significantly in the future, as a



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result of many factors, including: seasonal influences on its sales; unpredictable consumer preferences and spending trends; the introduction of new video
game platforms; the need to increase inventories in advance of our primary selling season; and timing of introductions of new products. See further discussion and sales by quarter under Net Sales below.



Transition to Next-Generation Consoles



Our industry is cyclical and we believe it has entered into a transition
stage heading into the next cycle. Over the course of the next eighteen months, we expect Sony, Microsoft and Nintendo to introduce new video game consoles into the market. During this transition, we intend to continue to develop and market a range
of accessories to work compatibly with the new console systems and to continue to provide accessories to the significant installed base of current consoles in the marketplace. The transition of consoles provides an opportunity for us to market
products to the value oriented consumer. In addition, we will be expanding our European distribution and adding new revenue streams to leverage our existing infrastructure.



Foreign Currency



Approximately 18% of our annual sales are transacted outside the United States. The majority of our international business is presently conducted in
currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies
in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among
other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience currency losses in the future. In fiscal 2005 and fiscal 2004, we did not hedge against
foreign currency exposure and we cannot predict the effect foreign currency fluctuations will have on us during fiscal 2006.



Conversion to U.S. GAAP



In connection with our past filings with securities regulators in Canada and the United States, we prepared and presented our financial data in accordance
with Canadian GAAP. The financial information presented in this Annual Report has been prepared in accordance with U.S. GAAP, and, accordingly, the information in this Annual Report differs in certain respects from the information previously
published. The treatment of stock-based compensation in fiscal years 2003, 2004 and 2005 differs under U.S. GAAP and Canadian GAAP. As a result, the financial data included in this Annual Report reflects changes to the previously reported
stock-based compensation charges. In addition to these specific differences, certain other differences exist between U.S. and Canadian GAAP, all of which are discussed in Notes to Consolidated Financial Statements- Note 13, Differences Between
Accounting Principles Generally Accepted in the United States and in Canada. We intend to continue to publish our financial information in the future in accordance with U.S. GAAP in reports on Form 10-K, 10-Q and 8-K and otherwise. To the
extent required by securities regulations in Canada in order to maintain our listing on the Toronto Stock Exchange, we will publish reconciliations to Canadian GAAP in our future filings with regulatory authorities in Canada.



Critical Accounting Policies



Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent
assets and liabilities, and revenue and expenses during the reporting periods. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our



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financial condition and results of operations but also because application and interpretation of these policies requires both judgment and estimates of
matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.



Revenue Recognition



We generate revenue from the sale of our products, including interactive software licensed from third party developers. We recognize revenue based on the
applicable provisions of Staff Accounting Bulletin No. 104, Revenue Recognition and on the criteria set forth in Statement of Position 97-2, Software Revenue Recognition. Accordingly, we recognize revenue when
all of these occur (1) there is persuasive evidence that an arrangement with our customer exists, which is generally a customer purchase order, (2) the products are delivered, which occurs when the products are shipped and risk of loss has been
transferred to the customer, (3) the selling price is fixed or determinable and (4) collection of the customer receivable is deemed probable. Our payment arrangements with customers typically provide net 30 and 60-day terms.



Revenues from sales to authorized resellers are subject to terms allowing
price protection, certain rights of return and allowances for customer marketing programs. Reserves for price protection are recorded when the price protection program is approved. Allowances for estimated future returns and customer marketing
programs are provided for upon revenue recognition. Such amounts are estimated and periodically adjusted based on historical and anticipated rates of returns, inventory levels and other factors and are recorded as a reduction of revenue or operating
expense in accordance with EITF 01-9.



Customer Marketing Programs



We record allowances for customer marketing programs,
including certain rights of return, price protection, volume-based cash incentives and cooperative advertising. The estimated cost of these programs is accrued as a reduction to revenue or as an operating expense in the period we have sold the
product or committed to the program. Significant management judgments and estimates must be used to determine the cost of these programs in any accounting period.



We grant limited rights of return for certain products. Estimates of expected future product returns are based on analyses
of historical returns and information regarding inventory levels and the demand and acceptance of our products by the end consumer.



Consistent with industry standards and practices, on a product-by-product basis by customer, we allow price protection credits to be issued to retailers
in the event of a subsequent price reduction. In general, price protection refers to the circumstances when we elect to decrease the price of a product by a certain amount and issue credits to our customers to protect the customers from lower profit
margins on their inventory of our products as a result of reduction in competitive prices. The decision to effect price reductions is influenced by retailer inventory levels, product lifecycle stage, market acceptance, competitive environment and
new product introductions. Credits are issued based upon the number of units that customers have on hand at the date of the price reduction. Upon approval of a price protection program, reserves for the estimated amounts to be reimbursed to
qualifying customers are established. Reserves are estimated based on analyses of qualified inventories on hand with retailers and distributors.



We enter into cooperative advertising arrangements with many of our customers allowing customers to receive a credit for various advertising programs. The
amounts of the credits are based on specific dollar-value programs or a percentage of sales, depending on the terms of the program negotiated with the individual customer. The objective of these programs is to encourage advertising and promotional
events to increase sales of our products. Accruals for the estimated costs of these advertising programs are recorded based on the specific negotiations with individual customers in the period in which the revenue is recognized. We regularly
evaluate the adequacy of these cooperative advertising program accruals.



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We also offer volume rebates to several of our customers and record reserves for such rebates as a
reduction of revenue at the time revenue is recognized. Estimates of required reserves are determined based on programs negotiated with the specific customers.



Future market conditions and product transitions may require us to take action to increase customer programs and incentive offerings that could result
in incremental reductions to revenue or increased operating expenses at the time the incentive is offered.



Allowance for Doubtful Accounts



We sell our products in the United States and internationally primarily through retailers. We generally do not require any collateral from our customers. However, we seek to control our credit risk through ongoing credit evaluations of our
customers financial condition and by purchasing credit insurance on European accounts receivable balances.



We regularly evaluate the collectibility of our accounts receivable and we maintain an allowance for doubtful accounts which we believe is adequate. The
allowance is based on managements assessment of the collectibility of specific customer accounts, including their credit worthiness and financial condition, as well as historical experience with bad debts, receivables aging and current
economic trends.



Our customer base is highly concentrated and
a deterioration of a significant customers financial condition, or a decline in the general economic conditions could cause actual write-offs to be materially different from the estimated allowance. As of March 31, 2005, one customer
represented 26% and another customer represented 23% of total accounts receivable. The customers comprising the eight highest outstanding trade receivable balances accounted for approximately 86% of total accounts receivables as of March 31, 2005.
If any of these customers receivable balances should be deemed uncollectible, we would have to make adjustments to our allowance for doubtful accounts, which could have an adverse affect on our financial condition and results of operations in
the period the adjustments are made.



Inventory



We value inventory at the lower of cost or market value and we regularly
review inventory quantities on hand and in the retail channel in order to recognize any loss of utility in the period incurred.



Software Development Costs



Software development costs primarily consist of payments made to independent software developers under development agreements. The Company accounts for
software development costs in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, which provides for the capitalization of certain software development costs
incurred after technological feasibility of the software is established or for development costs that have alternative future uses. Under our current practice of developing new products, the technological feasibility of the underlying software is
not established until substantially all product development is complete and the first playable version is delivered. The software development costs that have been capitalized to date have been insignificant.



Royalties and Intellectual Property Licenses



Royalty and license expenses consist of royalties and license fees paid to
intellectual property rights holders for use of their trademarks, copyrights, software, technology or other intellectual property or proprietary rights in the development or sale of our products. Royalty payments to independent software developers
are payments for the development of intellectual property related to our games.



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Royalty-based payments that are paid in advance are generally capitalized and expensed to cost of goods
sold at the greater of the contractual or effective royalty rate based on net product sales. With regard to payments made to independent software developers and co-publishing affiliates, the Company is generally subject to development risk prior to
the general release of the product. Accordingly, payments that are due prior to completion of the product are generally expensed as research and development as the services are incurred. Payments due after the general release of the product
(primarily royalty-based in nature) are generally expensed as cost of goods sold at the higher of the contractual or effective royalty rate based on net product sales.



Valuation of Goodwill



We have recorded goodwill in connection with the acquisitions we have completed in prior periods. SFAS No. 142, Goodwill and Other Intangible
Assets prohibits amortization of goodwill and intangible assets with indefinite useful lives but instead requires testing for impairment at least annually. We review goodwill for impairment as of April 1stof each fiscal year or when an event or a change in facts and or circumstances indicates the fair value of a reporting unit may be below its carrying
amount. We have completed our annual assessment of impairment in accordance with SFAS No. 142, which did not indicate any impairment of goodwill as of March 31, 2005 and 2004.



RESULTS OF OPERATIONS



Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004



Net Sales



From a geographical perspective, our net sales for the fiscal years ended March 31, 2005 and 2004 were as follows (in thousands):



|                       |  |                           |         |            |                           |   |           |          |            |  |          |   |  |   |        |   |  |       |   
|---------------------- |  | ------------------------- | ------- | ---------- | ------------------------- | - | --------- | -------- | ---------- |  | -------- | - |  | - | ------ | - |  | ----- | --
|                       |  | Year Ended March 31, 2005 |         |            | Year Ended March 31, 2004 |   |           | $ Change |            |  | % Change |  
|                       |  | Net sales                 |         | % of total |                           |   | Net sales |          | % of total |  |          |  
|United States          |  | $                         | 91,436  |            | 82                        | % |           | $        | 81,434     |  | 80       | % |  | $ | 10,002 |   |  | 12.3  | % 
|Canada                 |  |                           | 9,419   |            | 8                         | % |           |          | 6,644      |  | 7        | % |  |   | 2,775  |   |  | 41.8  | % 
|Europe                 |  |                           | 10,981  |            | 10                        | % |           |          | 10,128     |  | 9        | % |  |   | 853    |   |  | 8.4   | % 
|Other countries        |  |                           | 235     |            | 0                         | % |           |          | 3,937      |  | 4        | % |  |   | (3,702 | ) |  | (94.0 | )%
|                       |  |                           |         |            |                           |   |           |          |            |  |          |   |  |   |        |   |  |       |   
|Consolidated net sales |  | $                         | 112,071 |            | 100                       | % |           | $        | 102,143    |  | 100      | % |  | $ | 9,928  |   |  | 9.7   | % 
|                       |  |                           |         |            |                           |   |           |          |            |  |          |   |  |   |        |   |  |       |   



Net sales in fiscal
2005 increased 9.7% from fiscal 2004. This increase was primarily due to new product introductions of $17.3 million, offset by a decrease of $8.0 million in accessories and other products. Net sales in the United States increased $10.0 million over
the prior year due primarily to sales of new controllers of $10.3 million and sales of our first published software title of $2.9 million, offset by a decrease in sales of $3.2 million related to game enhancement software and $2.0 million related to
other products, such as Game Boy Advance accessories. Net sales in Canada increased $2.8 million primarily due to sales of new controllers of $1.0 million and additional product sales at a majority of our existing customer base. The net sales
increase in Europe of $0.9 million was due to additional product sales of approximately $2.5 million at two existing customers, offset by the loss of revenue due to console shortages and lower holiday sales at one existing customer. The net sales
decrease in other countries was due to non-recurring OEM sales in the second and third quarters of fiscal 2004.



Our sales by quarter were as follows (in thousands):



|           |  |                           |         |            |                           |   |           |   |            |  |     |  
|---------- |  | ------------------------- | ------- | ---------- | ------------------------- | - | --------- | - | ---------- |  | --- | -
|           |  | Year Ended March 31, 2005 |         |            | Year Ended March 31, 2004 |  
|           |  | Net sales                 |         | % of total |                           |   | Net sales |   | % of total | 
|1stquarter |  | $                         | 16,719  |            | 15                        | % |           | $ | 17,812     |  | 17  | %
|2ndquarter |  |                           | 20,670  |            | 18                        | % |           |   | 21,281     |  | 21  | %
|3rdquarter |  |                           | 52,844  |            | 47                        | % |           |   | 41,982     |  | 41  | %
|4thquarter |  |                           | 21,838  |            | 20                        | % |           |   | 21,068     |  | 21  | %
|           |  |                           |         |            |                           |   |           |   |            |  |     |  
|Total      |  | $                         | 112,071 |            | 100                       | % |           | $ | 102,143    |  | 100 | %
|           |  |                           |         |            |                           |   |           |   |            |  |     |  



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In fiscal 2005, third quarter sales included the release of our first published software title, MC Groovz
Dance Craze for the Nintendo GameCube and the launch of our Incredibles licensed accessory line and our Nintendo DS accessories. In fiscal 2004, first quarter sales included the launch of the GameShark line of products, followed in the second
quarter by new product sales to Microsoft of the music mixer microphone and slower sales in the third and fourth quarters, consistent with slower industry results.



Our sales by product group are allocated as follows:



|                     |  |                      |   |  |      |  
|-------------------- |  | -------------------- | - |  | ---- | -
|                     |  | Year Ended March 31, |  
|                     |  | 2005                 |   |  | 2004 |  
|PlayStation 2        |  | 30                   | % |  | 34   | %
|Xbox                 |  | 23                   | % |  | 23   | %
|GameCube             |  | 15                   | % |  | 12   | %
|Handheld Consoles(a) |  | 12                   | % |  | 9    | %
|PlayStation          |  | 4                    | % |  | 8    | %
|All others           |  | 16                   | % |  | 14   | %
|                     |  |                      |   |  |      |  
|Total                |  | 100                  | % |  | 100  | %
|                     |  |                      |   |  |      |  

---

|(a) | Handheld consoles include Game Boy Advance, Game Boy Advance SP, Nintendo DS and Sony PSP.
|--- | ------------------------------------------------------------------------------------------



Our sales by product category are allocated as follows:



|                |  |                      |   |  |      |  
|--------------- |  | -------------------- | - |  | ---- | -
|                |  | Year Ended March 31, |  
|                |  | 2005                 |   |  | 2004 |  
|Control pads    |  | 46                   | % |  | 40   | %
|Bundles         |  | 14                   | % |  | 15   | %
|Software(b)     |  | 11                   | % |  | 11   | %
|Steering wheels |  | 10                   | % |  | 10   | %
|Memory          |  | 5                    | % |  | 7    | %
|All others      |  | 14                   | % |  | 17   | %
|                |  |                      |   |  |      |  
|Total           |  | 100                  | % |  | 100  | %
|                |  |                      |   |  |      |  

---

|(b) | Software includes game enhancement software and published software with related accessories.
|--- | --------------------------------------------------------------------------------------------



Gross Profit



Gross profit is defined as net sales less cost of sales. Cost of sales consists of product costs, cost of licenses and royalties, cost of freight-in and
freight-out and distribution center costs, including depreciation and other overhead.



The following table presents net sales, cost of sales and gross profit for fiscal years ended March 31, 2005 and 2004 (in thousands):



|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |       |  |      |  
|------------- |  | -------------------- | ------- | ------------- | ----- | - | ------ | - | ------------- |  | ----- | -------- |  | -------- | ----- |  | ---- | -
|              |  | Year Ended March 31, |         |               |       |   |        |  
|              |  | 2005                 |         |               | 2004  |   |        |   |               |  |      
|              |  | Amount               |         | % of NetSales |       |   | Amount |   | % of NetSales |  |       | $ Change |  | % Change |      
|Net sales     |  | $                    | 112,071 |               | 100.0 | % |        | $ | 102,143       |  | 100.0 | %        |  | $        | 9,928 |  | 9.7  | %
|Cost of sales |  |                      | 84,421  |               | 75.3  | % |        |   | 79,803        |  | 78.1  | %        |  |          | 4,618 |  | 5.8  | %
|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |       |  |      |  
|Gross profit  |  | $                    | 27,650  |               | 24.7  | % |        | $ | 22,340        |  | 21.9  | %        |  | $        | 5,310 |  | 23.8 | %
|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |       |  |      |  



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Gross profit in fiscal 2005 increased 23.8% from fiscal 2004 while gross profit as a percentage of net
sales, or gross profit margin, increased from 21.9% in fiscal 2004 to 24.7% in fiscal 2005. The increase in gross profit and margin is due to the addition of software and licensed products, which have higher average selling prices and margins than
our other products, as well as improved manufacturing costs and lower freight costs in fiscal 2005.



Operating Expenses



Operating expenses for fiscal years ended March 31, 2005 and 2004 were as follows (in thousands):



|                                  |  |                |        |              |      |   |                |   |              |  |      |         |  |   |          |   |  |       |   
|--------------------------------- |  | -------------- | ------ | ------------ | ---- | - | -------------- | - | ------------ |  | ---- | ------- |  | - | -------- | - |  | ----- | --
|                                  |  | March 31, 2005 |        | % ofNetSales |      |   | March 31, 2004 |   | % ofNetSales |  |      | $Change |  |   | % Change |  
|Sales and marketing               |  | $              | 10,053 |              | 9.0  | % |                | $ | 11,166       |  | 10.9 | %       |  | $ | (1,113   | ) |  | (10.0 | )%
|General and administrative        |  |                | 6,998  |              | 6.2  | % |                |   | 6,459        |  | 6.3  | %       |  |   | 539      |   |  | 8.3   | % 
|Research and development          |  |                | 897    |              | 0.8  | % |                |   | 1,079        |  | 1.1  | %       |  |   | (182     | ) |  | (16.9 | )%
|Amortization of intangible assets |  |                | 804    |              | 0.7  | % |                |   | 804          |  | 0.8  | %       |  |   | 0        |   |  | 0     | % 
|                                  |  |                |        |              |      |   |                |   |              |  |      |         |  |   |          |   |  |       |   
|Total operating expenses          |  | $              | 18,752 |              | 16.7 | % |                | $ | 19,508       |  | 19.1 | %       |  | $ | (756     | ) |  | (3.9  | )%
|                                  |  |                |        |              |      |   |                |   |              |  |      |         |  |   |          |   |  |       |   



Sales and
Marketing Expenses.  Sales and marketing expenses consist primarily of payroll, commissions, participation at trade shows and travel costs for our worldwide sales and marketing staff, advertising and costs of operating our
GameShark.com website. The decrease in sales and marketing expenses is primarily due to reduction in costs of operating our GameShark.com website due to bringing the hosting in-house, reduction in costs related to the E3 trade show and decreased
cooperative advertising by customers during fiscal 2005.



General and Administrative.  General and administrative expenses include salaries and benefits for our executive and administrative personnel and other expenses, such as facilities costs and professional services,
such as legal and accounting. The increase in general and administrative expenses is primarily due to additional incentive compensation expenses, resulting from the improved fiscal 2005 financial performance and increased legal and accounting fees,
offset by a reduction in costs resulting from the consolidation of our Canadian corporate office to our San Diego office.



Research and Development.  Research and development expenses include the costs of developing and enhancing new and existing
products in addition to the costs of developing software products. The decrease in research and development expenses is primarily a result of reduced product enhancement research due to the impending new console releases and the utilization of
external software developers for the development of our first software product.



Amortization of Intangible Assets.  Amortization of intangible assets results from our acquisition of GameShark in January 2003. Intangible assets with defined useful lives are being amortized
over the estimated useful life of the assets ranging from 3 to 7 years.



Interest Expense, Foreign Exchange Gain (Loss) and Other Income



Interest expense, foreign exchange gain (loss) and other income for fiscal years ended March 31, 2005 and 2004 was as follows (in thousands):



|                             |  |                |        |   |               |     |   |                |   |        |               |  |     |         |  |   |          |   |  |        |   
|---------------------------- |  | -------------- | ------ | - | ------------- | --- | - | -------------- | - | ------ | ------------- |  | --- | ------- |  | - | -------- | - |  | ------ | --
|                             |  | March 31, 2005 |        |   | % of NetSales |     |   | March 31, 2004 |   |        | % of NetSales |  |     | $Change |  |   | % Change |  
|Interest expense             |  | $              | (1,203 | ) |               | 1.1 | % |                | $ | (1,330 | )             |  | 1.3 | %       |  | $ | 127      |   |  | 9.5    | % 
|Foreign exchange gain (loss) |  | $              | (582   | ) |               | 0.5 | % |                | $ | 91     |               |  | 0.1 | %       |  | $ | (673     | ) |  | (739.6 | )%
|Other income                 |  | $              | 202    |   |               | 0.2 | % |                | $ | 98     |               |  | 0.1 | %       |  | $ | 104      |   |  | 106.1  | % 



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The decrease in interest expense is attributed to lower bank loan balances during fiscal 2005. The
primary reason for the foreign exchange loss in fiscal 2005 was the impact of the international sales in Europe and Canada leading to exchange rate exposure from the currency fluctuations against the U.S. dollar during the year. Other income
primarily consists of advertising income from our GameShark.com website and royalties paid by an unrelated third party to distribute our products in Australia. The increase in other income is primarily due to increased advertising income on the
GameShark.com website.



Income Tax Expense



Income tax expense for fiscal years ended March 31, 2005 and 2004 was as
follows (in thousands):



|               |  |                   |  |                |  |                   |  |         |  |         
|-------------- |  | ----------------- |  | -------------- |  | ----------------- |  | ------- |  | --------
|March 31, 2005 |  | EffectiveTax Rate |  | March 31, 2004 |  | EffectiveTax Rate |  | $Change |  | % Change
|$2,733         |  | 37.4%             |  | $629           |  | 37.2%             |  | $2,104  |  | 334.5%  



Income tax expense
increased due to the increase in income generated by increased sales and reduced costs primarily in the United States. The effective tax rate is a blended rate for different jurisdictions in which the Company operates.



Net Income and Net Income Per Share



Net income for fiscal years ended March 31, 2005 and 2004 was as follows (in
thousands):



|               |  |               |  |                |  |               |  |         |  |         
|-------------- |  | ------------- |  | -------------- |  | ------------- |  | ------- |  | --------
|March 31, 2005 |  | % of NetSales |  | March 31, 2004 |  | % of NetSales |  | $Change |  | % Change
|$4,582         |  | 4.1%          |  | $1,062         |  | 1.0%          |  | $3,520  |  | 331.5%  



Net income in fiscal
2005 was increased primarily due to the reasons discussed above. Net income per diluted share for the fiscal year ended 2005 was $0.08 ($0.09 per basic share), compared to basic and diluted net income per share of $0.02 for the fiscal year ended
2004. Net income per share is calculated using the weighted average number of basic and diluted shares outstanding during the fiscal year ended March 31, 2005, which were 53,506,289 basic and 54,481,162 diluted shares, compared to 53,286,248 basic
and 53,983,127 diluted shares during the fiscal year ended March 31, 2004.



Fiscal Year Ended March 31, 2004 Compared to March 31, 2003



Net Sales



From a geographical
perspective, our net sales for the fiscal years ended March 31, 2004 and 2003 were as follows (in thousands):



|                       |  |                           |         |            |                           |   |           |         |            |  |          |   |  |   |        |   |  |       |   
|---------------------- |  | ------------------------- | ------- | ---------- | ------------------------- | - | --------- | ------- | ---------- |  | -------- | - |  | - | ------ | - |  | ----- | --
|                       |  | Year Ended March 31, 2004 |         |            | Year Ended March 31, 2003 |   |           | $Change |            |  | % Change |  
|                       |  | Net sales                 |         | % of total |                           |   | Net sales |         | % of total |  |          |  
|United States          |  | $                         | 81,434  |            | 80                        | % |           | $       | 66,395     |  | 72       | % |  | $ | 15,039 |   |  | 22.7  | % 
|Canada                 |  |                           | 6,644   |            | 7                         | % |           |         | 4,511      |  | 5        | % |  |   | 2,133  |   |  | 47.3  | % 
|Europe                 |  |                           | 10,128  |            | 9                         | % |           |         | 16,624     |  | 18       | % |  |   | (6,496 | ) |  | (39.1 | )%
|Other countries        |  |                           | 3,937   |            | 4                         | % |           |         | 4,128      |  | 5        | % |  |   | (191   | ) |  | (4.6  | )%
|                       |  |                           |         |            |                           |   |           |         |            |  |          |   |  |   |        |   |  |       |   
|Consolidated net sales |  | $                         | 102,143 |            | 100                       | % |           | $       | 91,658     |  | 100      | % |  | $ | 10,485 |   |  | 11.4  | % 
|                       |  |                           |         |            |                           |   |           |         |            |  |          |   |  |   |        |   |  |       |   



Net sales in fiscal
2004 increased 11.4% from fiscal 2003. This increase was primarily due to additional products, including products offered under the GameShark brand, resulting in increased sales to existing customers, offset by a decrease in revenues due to the
expiration of our international license for the Sony



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##### Table of Contents

PlayStation 2 memory card in November 2002, which generated sales through April 2003. The increase in United States net sales was primarily attributed to
$10.5 million of GameShark product sales and $3.1 million of OEM sales. The increase in net sales in Canada was primarily due to increased product placement within the existing customer base, sales to two new customers and $0.4 million of GameShark
product sales. The decrease in net sales in Europe was due to $11.5 million less sales due to the expiration of the PS2 memory card license, offset by an additional $4.4 million of net sales resulting from increased product placement at existing
customers and $0.7 million of sales to new customers. The decrease in net sales in other countries is due entirely to a smaller customer base in these locations.



Our sales by quarter were as follows (in thousands):



|           |  |                           |         |            |                           |   |           |   |            |  |     |  
|---------- |  | ------------------------- | ------- | ---------- | ------------------------- | - | --------- | - | ---------- |  | --- | -
|           |  | Year Ended March 31, 2004 |         |            | Year Ended March 31, 2003 |  
|           |  | Net sales                 |         | % of total |                           |   | Net sales |   | % of total | 
|1stquarter |  | $                         | 17,812  |            | 17                        | % |           | $ | 12,652     |  | 14  | %
|2ndquarter |  |                           | 21,281  |            | 21                        | % |           |   | 17,312     |  | 19  | %
|3rdquarter |  |                           | 41,982  |            | 41                        | % |           |   | 40,051     |  | 44  | %
|4thquarter |  |                           | 21,068  |            | 21                        | % |           |   | 21,643     |  | 23  | %
|           |  |                           |         |            |                           |   |           |   |            |  |     |  
|Total      |  | $                         | 102,143 |            | 100                       | % |           | $ | 91,658     |  | 100 | %
|           |  |                           |         |            |                           |   |           |   |            |  |     |  



In fiscal 2004, first
quarter sales included the launch of the GameShark line of products, followed in the second quarter by new product sales to Microsoft of the music mixer microphone and slower sales in the third and fourth quarters, consistent with slower industry
results.



Our sales by product group are allocated as follows:



|                     |  |                      |   |  |      |  
|-------------------- |  | -------------------- | - |  | ---- | -
|                     |  | Year Ended March 31, |  
|                     |  | 2004                 |   |  | 2003 |  
|PlayStation 2        |  | 34                   | % |  | 40   | %
|Xbox                 |  | 23                   | % |  | 23   | %
|Game Cube            |  | 12                   | % |  | 9    | %
|Handheld Consoles(a) |  | 9                    | % |  | 10   | %
|PlayStation          |  | 8                    | % |  | 7    | %
|All others           |  | 14                   | % |  | 11   | %
|                     |  |                      |   |  |      |  
|Total                |  | 100                  | % |  | 100  | %
|                     |  |                      |   |  |      |  

---

|(a) | Handheld consoles include Game Boy Advance and Game Boy Advance SP.
|--- | -------------------------------------------------------------------



Our sales by product category are allocated as follows:



|                |  |                      |   |  |      |  
|--------------- |  | -------------------- | - |  | ---- | -
|                |  | Year Ended March 31, |  
|                |  | 2004                 |   |  | 2003 |  
|Control pads    |  | 40                   | % |  | 43   | %
|Bundles         |  | 15                   | % |  | 12   | %
|Software        |  | 11                   | % |  | 0    | %
|Steering wheels |  | 10                   | % |  | 8    | %
|Memory          |  | 7                    | % |  | 22   | %
|All others      |  | 17                   | % |  | 15   | %
|                |  |                      |   |  |      |  
|Total           |  | 100                  | % |  | 100  | %
|                |  |                      |   |  |      |  



21



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##### Table of Contents

Gross Profit



The following table presents net sales, cost of sales and gross profit for fiscal years ended March 31, 2004 and 2003 (in thousands):



|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |        |  |      |  
|------------- |  | -------------------- | ------- | ------------- | ----- | - | ------ | - | ------------- |  | ----- | -------- |  | -------- | ------ |  | ---- | -
|              |  | Year Ended March 31, |         |               |       |   |        |  
|              |  | 2004                 |         |               | 2003  |   |        |   |               |  |      
|              |  | Amount               |         | % of NetSales |       |   | Amount |   | % of NetSales |  |       | $ Change |  | % Change |       
|Net sales     |  | $                    | 102,143 |               | 100.0 | % |        | $ | 91,658        |  | 100.0 | %        |  | $        | 10,485 |  | 11.4 | %
|Cost of sales |  |                      | 79,803  |               | 78.1  | % |        |   | 71,467        |  | 78.0  | %        |  |          | 8,336  |  | 11.7 | %
|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |        |  |      |  
|Gross profit  |  | $                    | 22,340  |               | 21.9  | % |        | $ | 20,191        |  | 22.0  | %        |  | $        | 2,149  |  | 10.6 | %
|              |  |                      |         |               |       |   |        |   |               |  |       |          |  |          |        |  |      |  



Gross profit in fiscal
2004 increased 10.6% from fiscal 2003 due to the overall increase in sales for the fiscal year. Gross profit as a percentage of net sales, or gross profit margin, remained consistent from year to year. Although, factory product costs and royalties
were reduced during fiscal 2004, they were offset by increased freight and distribution center costs resulting from increased unit volumes and larger cube size products shipped during fiscal 2004.



Operating Expenses



Operating expenses for fiscal years ended March 31, 2004 and 2003 were as
follows (in thousands):



|                                  |  |                |        |               |      |   |                |   |               |  |      |         |  |          |       |  |        |  
|--------------------------------- |  | -------------- | ------ | ------------- | ---- | - | -------------- | - | ------------- |  | ---- | ------- |  | -------- | ----- |  | ------ | -
|                                  |  | March 31, 2004 |        | % of NetSales |      |   | March 31, 2003 |   | % of NetSales |  |      | $Change |  | % Change |      
|Sales and marketing               |  | $              | 11,166 |               | 10.9 | % |                | $ | 8,835         |  | 9.6  | %       |  | $        | 2,331 |  | 26.4   | %
|General and administrative        |  |                | 6,459  |               | 6.3  | % |                |   | 6,160         |  | 6.7  | %       |  |          | 299   |  | 4.9    | %
|Research and development          |  |                | 1,079  |               | 1.1  | % |                |   | 936           |  | 1.0  | %       |  |          | 143   |  | 15.3   | %
|Amortization of intangible assets |  |                | 804    |               | 0.8  | % |                |   | 36            |  | 0.0  | %       |  |          | 768   |  | 2133.3 | %
|                                  |  |                |        |               |      |   |                |   |               |  |      |         |  |          |       |  |        |  
|Consolidated operating expenses   |  | $              | 19,508 |               | 19.1 | % |                | $ | 15,967        |  | 17.4 | %       |  | $        | 3,541 |  | 22.2   | %
|                                  |  |                |        |               |      |   |                |   |               |  |      |         |  |          |       |  |        |  



Sales and
Marketing Expenses.  In fiscal 2004, we continued to incur higher sales and marketing expenses related to cooperative advertising in some of our retail customers, particularly in Europe. These expenses were intended to establish
the Mad Catz brand at the retail outlets and in the markets they serve. The increase in sales and marketing expense also reflects additional cost related to sales growth and expenses associated with the launch of the GameShark line of products.



General and Administrative.The
increase in general and administrative expenses is primarily due to additional compensation and facility expenses, offset by a decrease in legal and tax consultant fees.



Research and Development.The increase in research and development expenses is related to the
development of new product designs.



Amortization of
Intangible Assets.Amortization of intangible assets results from our acquisition of GameShark in January 2003. The increase in amortization is due to the timing of the acquisition, resulting in a full year of amortization in
fiscal 2004 compared to less than two months of amortization in fiscal 2003.



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Interest Expense, Foreign Exchange Gain (Loss), and Other Income



Interest expense, foreign exchange gain (loss) and other income for fiscal
years ended March 31, 2004 and 2003 was as follows (in thousands):



|                             |  |                |        |   |               |     |   |                |   |        |               |  |     |         |  |          |     |  |       |  
|---------------------------- |  | -------------- | ------ | - | ------------- | --- | - | -------------- | - | ------ | ------------- |  | --- | ------- |  | -------- | --- |  | ----- | -
|                             |  | March 31, 2004 |        |   | % of NetSales |     |   | March 31, 2003 |   |        | % of NetSales |  |     | $Change |  | % Change |    
|Interest expense             |  | $              | (1,330 | ) |               | 1.3 | % |                | $ | (1,758 | )             |  | 1.9 | %       |  | $        | 428 |  | 24.3  | %
|Foreign exchange gain (loss) |  | $              | 91     |   |               | 0.1 | % |                | $ | (94    | )             |  | 0.1 | %       |  | $        | 185 |  | 196.8 | %
|Other income                 |  | $              | 98     |   |               | 0.1 | % |                | $ | 47     |               |  | 0.1 | %       |  | $        | 51  |  | 108.5 | %



The decrease in
interest expense is attributed to lower bank loan balances and the elimination of deferred financing fees, which were fully amortized as of the end of the first quarter of fiscal 2004. Foreign exchange gains and losses result from fluctuations in
the value of the currencies in which we conduct our business relative to the U.S. dollar. The increase in other income is due to advertising income from the GameShark.com website.



Income Tax Expense



Income tax expense for fiscal years ended March 31, 2004 and 2003 was as follows (in thousands):



|               |  |                   |  |                |  |                   |  |         |  |        
|-------------- |  | ----------------- |  | -------------- |  | ----------------- |  | ------- |  | -------
|March 31, 2004 |  | EffectiveTax Rate |  | March 31, 2003 |  | EffectiveTax Rate |  | $Change |  | %Change
|$629           |  | 37.2%             |  | $788           |  | 32.6%             |  | $(159)  |  | (20.2)%



Changes in income tax
expense from one period to the next reflects changes in the jurisdiction of taxable income and the related tax rates for each foreign jurisdiction in which we do business. The effective tax rate is a blended rate for different jurisdictions.



Net Income and Net Income Per Share



Net income for fiscal years ended March 31, 2004 and 2003 was as follows (in
thousands):



|               |  |               |  |                |  |               |  |         |  |        
|-------------- |  | ------------- |  | -------------- |  | ------------- |  | ------- |  | -------
|March 31, 2004 |  | % of NetSales |  | March 31, 2003 |  | % of NetSales |  | $Change |  | %Change
|$1,062         |  | 1.0%          |  | $1,631         |  | 1.8%          |  | $(569)  |  | (34.9)%



Net income in fiscal
2004 decreased primarily due to the reasons discussed above. Basic and diluted net income per share was $0.02 in fiscal 2004 and $0.03 in fiscal 2003. Net income per share is calculated on the basis of the weighted average number of basic common
shares outstanding during the year of 53,286,248 (53,983,127 diluted) compared to 53,070,890 (53,689,972 diluted) in the previous year.



Impact of Recently Issued Accounting Standards



In December 2004, the FASB issued Statement No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R replaced
SFAS 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends Statement No. 95, Statement of Cash Flows.SFAS 123R
will require companies to recognize compensation expense, using a fair-value based method, for all share-based payments including stock options and other forms of stock-based compensation. SFAS No. 123R allows measurement of the cost of share-based
payment transactions to employees at the fair value of the award on the grant date and recognition of expense over the requisite service or vesting period. SFAS No. 123R allows implementation using a modified version of prospective application,
under which compensation expense for the unvested portion of previously granted awards and all new awards will be recognized on or after the date of adoption. SFAS No. 123R also allows companies to adopt SFAS No. 123R by



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restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in their pro forma footnote
disclosures required under SFAS No. 123. In addition, in March 2005, the Securities and Exchange Commission (SEC) released SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB No. 107). SAB No.
107 provides the SEC staffs position regarding the application of SFAS No. 123R and certain SEC rules and regulations, and also provides the staffs views regarding the valuation of share-based payment arrangements for public companies.
In April 2005, the SEC approved an amendment to Rule 4-01(a) of Regulation S-X to amend the date for compliance with SFAS No. 123R. In accordance with this amendment, the accounting provisions of SFAS No. 123R are effective for annual periods
beginning after June 15, 2005. We are required to adopt SFAS No. 123R no later than the first quarter of fiscal 2007. We are evaluating the requirements of SFAS No. 123R and SAB No. 107 and we do not expect the adoption of these pronouncements to
have a significant impact on our consolidated results of operations.



In November 2004, the FASB issued Statement No. 151 (SFAS No. 151), Inventory Costsan Amendment of ARB 43, Chapter 4, to provide clarification that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.
The provisions of this standard are effective for fiscal years beginning after June 15, 2005. The adoption of this standard is not expected to have a material impact on our future consolidated financial statements.



In December 2004, the FASB issued Statement No. 153 (SFAS No.
153), Exchange of Non-monetary Assetsan amendment of APB Opinion No. 29.SFAS No. 153 amends APB No. 29, Accounting for Non-monetary Transactions to eliminate the exception for non-monetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 is effective for non-monetary exchanges occurring in fiscal periods beginning after June
15, 2005. We expect the adoption of SFAS No. 153 will not have a material impact on our future consolidated financial statements.



Liquidity and Capital Resources



Sources of Liquidity



|                                      |  |                                       |        |   |        |   |        |   |  |   |      |  
|------------------------------------- |  | ------------------------------------- | ------ | - | ------ | - | ------ | - |  | - | ---- | -
|                                      |  | As of and for theYear Ended March 31, |        |   | Change |  
|(in thousands)                        |  | 2005                                  |        |   | 2004   |   |       
|Cash                                  |  | $                                     | 1,085  |   |        | $ | 1,728  |   |  | $ | (643 | )
|                                      |  |                                       |        |   |        |   |        |   |  |   |      |  
|Percentage of total assets            |  |                                       | 1.4%   |   |        |   | 2.6%   |   |  |   |      |  
|Cash provided by operating activities |  | $                                     | 3,837  |   |        | $ | 3,542  |   |  | $ | 295  |  
|Cash used in investing activities     |  |                                       | (1,402 | ) |        |   | (911   | ) |  |   | 491  |  
|Cash used in financing activities     |  |                                       | (2,524 | ) |        |   | (1,737 | ) |  |   | 787  |  
|Effect of foreign exchange on cash    |  |                                       | (554   | ) |        |   | (400   | ) |  |   | (154 | )
|                                      |  |                                       |        |   |        |   |        |   |  |   |      |  
|Net increase (decrease) in cash       |  | $                                     | (643   | ) |        | $ | 494    |   |  |   |      |  
|                                      |  |                                       |        |   |        |   |        |   |  |   |      |  



At March 31, 2005,
available cash was approximately $1.1 million compared to cash of approximately $1.7 million at March 31, 2004. Over the last two fiscal years, our primary sources of liquidity have included a revolving line of credit (as discussed below under Cash
Flows from Financing Activities), cash on hand at the beginning of the year and cash flows generated from operations. We have also generated cash flows from the issuance of our common stock to employees through the exercise of options.



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Cash Flows from Operating Activities



Our cash flows from operating activities have typically included the collection of customer receivables generated by the
sale of our products, offset by payments to vendors for materials and manufacture of our products. For the year ended March 31, 2005, cash flows from operating activities were $3.8 million compared to $3.5 million for the year ended March 31, 2004.
The principal components comprising cash flows from operating activities for fiscal 2005 included favorable operating results and increases in accounts payable, partially offset by increases in accounts receivable and other receivables and
inventories.



Cash Flows from Investing Activities



During the two most recent fiscal years, investing activities have consisted
of capital expenditures to support our operations. Cash used in investing activities was $1.4 million in fiscal 2005 and $0.9 million in fiscal 2004.



Cash Flows from Financing Activities



Cash used in financing activities during fiscal 2005 and 2004 was a result of repayments of our line of credit, offset in part by proceeds from the
issuance of our common stock upon the exercise of stock options. For the year ended March 31, 2005, cash used in financing activities was $2.5 million compared to $1.7 million in fiscal 2004. We are focused on effectively managing our overall
liquidity position by continuously monitoring expenses and managing our accounts receivable collection efforts.



We maintain a Credit Facility (the Credit Facility) with Wachovia Capital Finance Corporation (Central) (Wachovia), formerly
Congress Financial Corporation (Central), which allows us to borrow up to $35 million under a revolving line of credit, subject to the availability of eligible collateral (accounts receivable and inventory), which changes throughout the year. The
line of credit accrues interest on the daily outstanding balance at the U.S. prime rate plus 0.75% per annum, and must be repaid in United States dollars. In addition, the Company is required to pay a monthly service fee of $2,000 and an unused line
fee equal to 0.25%. The Credit Facility is secured by a first priority security interest in MCIs inventories, equipment, accounts receivable and investment properties and a pledge in favor of Wachovia of all of the shares of capital stock of
our subsidiaries. The Credit Facility is guaranteed by the Company and requires us to adhere to specified financial operating guidelines. See Note 6 to the consolidated financial statements included in Item 8. Financial Statements and Supplementary
Data, elsewhere in this Form 10-K.



The Credit Facility is
scheduled to expire on September 25, 2005 and will automatically renew for an additional one-year period unless either party gives written notice to the other party seeking to terminate the Credit Facility at least 60 days prior to the expiration
date. Although Wachovia agreed to extend the expiration date of the Credit Facility in each of our last two fiscal years, we do not know the likelihood that they will agree to further extend the expiration of the Credit Facility following September
25, 2005. If Wachovia is unwilling to extend the expiration of the Credit Facility beyond September 25, 2005 on terms acceptable to us, or if we are unable to comply with the restrictive and financial covenants contained in the Credit Facility,
Wachovia may declare the outstanding borrowings under the facility immediately due and payable. In such an event, our liquidity will be materially adversely affected, which could in turn have a material adverse impact on our future financial
position and results of operations. We expect to renew or obtain new financing in the ordinary course of business.



We also established a separate credit line under the Credit Facility of $10.0 million, which may be utilized, with Wachovias consent, for
acquisitions. To date, we have not drawn against this line of credit.



At March 31, 2005 the outstanding balance on our line of credit was $12.1 million and our weighted average annual interest rate during fiscal 2005 was 5.6%. We must meet an adjusted tangible net worth covenant to access the line of credit.
At March 31, 2005, we were in compliance with this loan covenant. At May 31, 2005, the outstanding balance under our line of credit was $16.4 million.



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We believe that our available cash balances, anticipated cash flows from operations and available line of
credit will be sufficient to satisfy our operating needs for at least the next twelve months. However, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash
receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from additional credit facilities. Additional capital, if needed, may not be
available on satisfactory terms, if at all. Furthermore, additional debt financing may contain more restrictive covenants than our existing debt.



Contractual Obligations and Commitments



The following summarizes our contractual payment obligations at March 31, 2005:



|                                         |  |                       |        |                 |   |          |  |          |       |  |   |  
|---------------------------------------- |  | --------------------- | ------ | --------------- | - | -------- |  | -------- | ----- |  | - | -
|                                         |  | Payments Due ($000s)
|                                         |  | Total                 |        | Less Than1 Year |   | 1-3Years |  | 3-5Years
|Bank loan (excludes interest)            |  | $                     | 12,100 |                 | $ | 12,100   |  | $        |      |  | $ | 
|Operating leases                         |  |                       | 1,339  |                 |   | 959      |  |          | 380   |  |   | 
|Royalty & license guaranteed commitments |  |                       | 7,014  |                 |   | 6,954    |  |          | 60    |  |   | 
|Payment obligations(a)                   |  |                       | 6,617  |                 |   | 301      |  |          | 6,316 |  |   | 
|                                         |  |                       |        |                 |   |          |  |          |       |  |   |  
|Total                                    |  | $                     | 27,070 |                 | $ | 20,314   |  | $        | 6,756 |  | $ | 
|                                         |  |                       |        |                 |   |          |  |          |       |  |   |  

---

|(a) | Payment obligations primarily represent our maximum liability under our agreement with Fire.
|--- | --------------------------------------------------------------------------------------------



As of March 31, 2005 and 2004, we did not have any relationships with unconsolidated entities or financial parties, such as
entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not
exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.



RISK FACTORS



You should consider each of the following factors, as well as the other information in this Annual Report, and in our other filings with the SEC,
before deciding whether to invest in or continue to hold our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider
immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common shares could decline. You should also refer to the
other information set forth in this Annual Report, including our financial statements and the related notes.



Risks Concerning Our Customers and Products



A significant portion of our revenue is derived from a few large customers.



The vast majority of our sales are generated from a small number of large customers. Our top three customers accounted for
approximately 47% of our gross sales in fiscal 2005 and our top two customers accounted for approximately 39% of our gross sales in fiscal 2004 and 34% in fiscal 2003. In fiscal 2005, our three largest customers were Wal-Mart, EB Games and GameStop.
Our top 10 customers accounted for approximately 78% of gross sales in fiscal 2005, 79% in fiscal 2004 and 76% in fiscal 2003.



We do not have long-term agreements with these or other significant customers and our agreements with these customers do not require them to purchase any
specific number or amount of our products. As a result, agreements with respect to pricing, shelf space, cooperative advertising or special promotions, among other



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things, are subject to periodic negotiation with each customer. No assurance can be given that these or other customers will continue to do business with us
or that they will maintain their historical levels of business. The loss of any of our significant customers could have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, the uncertainty
of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future
sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.



A significant portion of our revenue is derived from a few core product categories.



We are dependent on a small number of core product categories to generate a significant proportion of our revenues. Our top 10 core products accounted for
approximately 42% of gross sales in fiscal 2005, 42% in fiscal 2004, and 51% in fiscal 2003. No assurance can be given that these or other products will continue to have consumer acceptance or that they will maintain their historical levels of
sales. The loss of one or more of these products could have a material adverse effect on our business, results of operations, financial condition and liquidity.



We must constantly change our product mix to respond to changes in the market. If we fail to introduce new products, our sales and profitability could be harmed.



At the end of fiscal 2005, we had approximately 119
active products. We define active products as products that have maintained gross sales in excess of $5,000 per quarter. Each product may be configured and sold in a number of different stock keeping units. In fiscal 2005 we introduced
approximately 92 new products and discontinued approximately 85 products for a net increase of approximately 7 active products. At the end of fiscal 2004, we had approximately 112 active products. In fiscal 2004 we introduced approximately 63 new
products and discontinued approximately 67 products for a net decrease of approximately 4 active products. At the end of fiscal 2003, we had approximately 116 active products. In fiscal 2003, we introduced approximately 71 new products and
discontinued approximately 38 products for a net increase of approximately 33 active products. At the end of fiscal 2002, we had approximately 83 active products.



If we do not introduce new products in a timely and efficient manner and in accordance with our operating plans, our results
of operations, financial condition and liquidity could be negatively and materially affected.



Our financial results are dependent on timely introduction of new products, and any failure to introduce new products to the marketplace may materially adversely affect our business, results of operations,
financial condition and liquidity. Our product mix constantly changes.



New products introduced within the fiscal year accounted for approximately 11% of gross sales in fiscal 2005, 13% in fiscal 2004, and 30% in fiscal 2003. In addition, new bundles, consisting of a number of new and/ or
existing products sold in the same package, introduced within the fiscal year accounted for approximately 9% of sales in fiscal 2005, 10% in 2004 and 6% in 2003. There are numerous steps required to develop a product from conception to commercial
introduction and to ensure timely shipment to retail customers, including designing, sourcing and testing the electronic components, receiving approval of hardware and other third party licensors, factory availability and manufacturing and designing
the graphics and packaging. Any difficulties or delays in the product development process will likely result in delays in the contemplated product introduction schedule. It is common in new product introductions or product updates to encounter
technical and other difficulties affecting manufacturing efficiency and, at times, the ability to manufacture the product at all. Although these difficulties can be corrected or improved over time with continued manufacturing experience and
engineering efforts, if one or more aspects necessary for the introduction of products are not completed as scheduled, or if technical difficulties take longer than anticipated to overcome, the product introductions will be delayed, or in some cases
may be terminated. No assurances can be given that products will be introduced in a timely fashion, and if new products are delayed, our sales and revenue growth may be limited or impaired.



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The typical life cycle of successful video game accessories is similar to the life of video game
consoles, which historically has ranged from two to ten years. The extended life cycle is due to the continuing sales of the PlayStation platform since its introduction in 1995, and Sonys contention that PlayStation 2 will have strong sales
for ten years. Factors such as competition for access to retail shelf space, consumer preferences and seasonality could result in the shortening of the life cycle for older products and increase the importance of our ability to release new products
on a timely basis. We must introduce new products in order to generate new revenues and/or to replace declining revenues from older products. The complexity of new video game systems has resulted in higher development expenses, longer development
cycles, and the need to carefully monitor and plan the product development process.



Some of our products have been only recently introduced and although they may experience strong initial market acceptance, no assurance can be given that any initial acceptance will result in future sales. As a
general matter, we expect that sales of these products will decline over the products life cycle. We cannot predict the length of the life cycle for any particular product. In order to control costs, and take advantage of the limited shelf
space provided to us, we must periodically discontinue some of our product offerings. Our long-term operating results will therefore depend largely upon our continued ability to conceive, develop and introduce new appealing products at competitive
prices.



We depend upon third parties to develop products and software.



Our business is dependent upon the continued
development of new and enhanced video game platforms by first party manufacturers, such as Sony, Microsoft and Nintendo, and video games by software publishers, such as Electronic Arts and Take-Two Interactive Software. Our business could suffer if
any of these parties fail to develop new or enhanced video game platforms or popular game and entertainment titles for current or future generation platforms. If a platform is withdrawn from the market or fails to sell, we may be forced to liquidate
our inventories or accept returns resulting in significant losses.



During 2005, Sony, Microsoft and Nintendo all announced plans to introduce new versions of their respective PlayStation, Xbox and GameCube platforms. There is no guarantee that the new platforms will create a demand for related accessories.



New video game platforms and development for multiple consoles create
additional technical and business model uncertainties that could impact our business.



Our revenues are derived primarily from the sale of video game accessories for use with proprietary video game platforms, such as the Sony PlayStation, PlayStation 2 and PSP; the Microsoft Xbox; the Nintendo GameCube,
Game Boy Advance, Game Boy Advance SP and Nintendo DS; and the Nokia N-Gage QD. The success of our products is significantly affected by commercial acceptance of new video game platforms and the life cycle of older platforms. In addition, we
anticipate that the research and development expenses incurred to develop compatible accessories for new and updated video game platforms may impact our profitability.



If first party manufacturers choose to design video game systems that do not operate with third party accessories and are
successful in implementing technological barriers that prevent us from developing, manufacturing, marketing and distributing products for these new video game platforms, our ability to continue our current business would be severely limited and our
business, financial condition, results of operations and liquidity would be harmed.



Changes to current video game platforms or introductions of new video game platforms may result in our products becoming inoperable on some video game platforms, which would reduce sales of our products and adversely affect our
business, results of operations, financial condition and liquidity.



A significant proportion of our revenues are derived from products that are reverse engineered. First party manufacturers continually update their video game platforms to correct problems in the operating systems and



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reduce costs. These manufacturers also expend significant resources to create next generation video game platforms. During the development of such product
updates and new video game platforms, manufacturers may implement changes to the design of the new video game platforms that render our products inoperable. If our products become inoperable on one or more video game platforms, our sales may be
significantly reduced. Moreover, we may have excess inventories of products that do not operate properly with new gaming platforms, which would limit our growth and harm our business, results of operations, financial condition and liquidity.



RoHS and Environmental Compliance



As a result of Directive 2002/95/EC (on the Restriction of Hazardous
Substances) of the European Parliament, effective 1 July 2006, new electrical and electronic equipment introduced into the European market are prohibited from containing lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) or
polybrominated dephenyl ethers (PBDE). Other jurisdictions in which we sell our products have passed similar environmental regulations or are contemplating similar regulations relating to the substances contained in electronics equipment and to the
disposal of products and packaging. We have identified many of the numerous new regulations and are implementing programs to comply with these new regulations and identify future legislation. These regulations are complex and compliance practices
are evolving. We intend to comply with these new laws and regulations; however, compliance will be costly and may increase our costs of good sold and delay the development and manufacture of new products. This may result in lower margins and reduced
profitability and may put us at a competitive disadvantage with those who do not comply. Moreover, if we fail to adequately comply, we could be subject to regulatory action, fines as well as possible product recall.



Errors or defects contained in our products, failure to comply with applicable safety
standards or a product recall could result in delayed shipments or rejection of our products, damage to our reputation and expose us to regulatory or other legal action.



Any defects or errors in the operation of our products may result in delays in their introduction. In addition, errors or
defects may be uncovered after commercial shipments have begun, which could result in the rejection of our products by our customers, damage to our reputation, lost sales, diverted development resources and increased customer service and support
costs and warranty claims, any of which could harm our business. Adults and children could sustain injuries from our products, and we may be subject to claims or lawsuits resulting from such injuries. There is a risk that these claims or liabilities
may exceed, or fall outside the scope of, our insurance coverage. We may also be unable to obtain adequate liability insurance in the future. Because we are a small company, a product recall would be particularly harmful to us because we have
limited financial and administrative resources to effectively manage a product recall and it would detract managements attention from implementing our core business strategies. A significant product defect or product recall could materially
and adversely affect our brand image, causing a decline in our sales, and could reduce or deplete our financial resources.



If we do not correctly anticipate demand for particular products, we could incur additional costs or experience manufacturing delays, which would reduce our gross
margins or cause us to lose sales.



Demand for our
products depends on many factors such as consumer preferences and the introduction or adoption of video game platforms and related content, and can be difficult to forecast. Demand for our products may remain stagnant or decrease. We expect that it
will become more difficult to forecast demand for specific products as we introduce and support additional products, enter additional markets and as competition in our markets intensifies. If we misjudge the demand for our products, we could face
the following problems in our operations, each of which could harm our operating results:



| |  |  | If our forecasts of demand are too high, we may accumulate excess inventories of products, which could lead to markdown allowances or write-offs affecting some or all of such excess
inventories. We may also have to adjust the prices of our existing products to reduce such excess inventories.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | If demand for specific products increases beyond what we forecast, our suppliers and third party manufacturers may not be able to increase production rapidly enough to meet the
demand. Our failure to meet market demand would lead to missed opportunities to increase our base of users, damage our relationships with retailers and harm our business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rapid increases in production levels to meet unanticipated demand could result in increased manufacturing errors, as well as higher component, manufacturing and shipping costs,
including increased air-freight, all of which could reduce our profit margins and harm our relationships with retailers and consumers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our pricing and product return policies and other promotional activities may negatively impact our sales and profitability and harm our business, results of
operations, financial condition and liquidity.



Many
of our products are value-priced or feature-enhanced versions of products offered by first party manufacturers. Sales of products that compete with a similar first party product accounted for approximately 46% of gross sales in fiscal 2005, 45% in
fiscal 2004 and 64% in fiscal 2003. In the event a first party manufacturer or other competitor reduces its prices, we could be forced to respond by lowering our prices to remain competitive. If we are forced to lower prices, we may be required to
price protect the products that remain unsold in our customers inventories at the time of the price reduction. Price protection results in us issuing a credit to our customers in the amount of the price reduction for each unsold
unit in the customers inventory. Our price protection policies, which are customary in the video game industry, can have a major impact on our sales and profitability if we are forced to reduce the price of products for which a large inventory
exists. It is also likely that we will experience additional price competition, which may lead to price protection, as we continue to introduce new and enhanced products.



To the extent we introduce new versions of products or change our product sales mix, the rate of product returns may also
increase above historical levels. Although we established allowances for anticipated product returns and believe our existing policies have resulted in allowances that are adequate, there can be no assurance that such product return obligations will
not exceed our allowances in the future, which would have a material adverse effect on our future operating results and financial condition.



Some of our license agreements with video game console developers have expired or may expire within the next fiscal year, which could limit our product offerings
and significantly reduce our revenues.



Historically,
a majority of our revenues have come from the sale of video game accessories for use with video game consoles sold by first party manufacturers. Some of these products have been produced under license agreements with these first party manufacturers.
Some of these licenses are necessary in order for us to actually produce and sell the products (license dependent products), while other licenses have some perceived or actual marketing or sales benefit, but do not dictate whether we can
produce the product (marketing licenses). License dependent products accounted for approximately 3% of gross sales in fiscal 2005, 1% in fiscal 2004 and 16% in fiscal 2003. Products manufactured under marketing licenses accounted for
approximately 5% of gross sales in fiscal 2005, 6% in fiscal 2004 and 10% in fiscal 2003. Some of these license agreements have expired and others may expire, which could limit our product offerings and significantly reduce our revenues.



On May 12, 2005, we entered into a license agreement with Microsoft
Corporation under which we were granted the right to manufacture, market and sell certain peripheral products for the upcoming Xbox 360 video game console (Xbox 360 Agreement). The products produced pursuant to the Xbox 360 Agreement are
license dependent products. The Xbox 360 Agreement has a term of two years. Should the Xbox 360 Agreement expire, be terminated for cause or fail to be renewed, our product offerings may be limited thereby significantly reducing our revenues.



We have a peripheral and compatibility license from Microsoft
covering products relating to Microsofts Xbox video game console. This license expires on February 28, 2006. Unless either Microsoft or our Company



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provides notice of its desire to terminate the license at least 90 days prior to that date, the agreement will automatically renew for an additional one-year
period. While we do not intend to terminate the agreement and we have not received any indication from Microsoft that it desires to terminate the agreement, no assurance can be given that the agreement will not expire in accordance with its terms.
We are uncertain whether we will be able to renew or replace the Microsoft license. Nonetheless, this license only relates to the use of Microsofts logo on our Companys products, so even without the license, we would be able to continue
producing and selling similar products which do not contain the logo. There can be no assurance, however, that sales of unlicensed products will be equivalent to sales of the licensed products. Any decline in the sale of such products could
significantly reduce our revenues and have a material adverse effect on our financial condition and results of operations.



One or more of our largest customers may directly import or private-label products that are identical or very similar to our products. This could cause a
significant decline in our sales and profitability.



Video game accessories are widely available from manufacturers and other suppliers around the world. Each of our largest customers has substantially greater resources than we do, and has the ability to directly import or private-label video
game accessories from manufacturers and other suppliers, including from some of our own subcontract manufacturers and suppliers.Our customers may believe that higher profit margins can be achieved if they implement a direct import or
private-label program, reducing sales of our products. As a consequence, our sales and profitability could decline significantly.



Our success depends on the continued viability and financial stability of our retailers and distributors.



We sell our products through a network of domestic and international
retailers, as well as some distributors, and our success depends on the continued viability and financial stability of these customers. The retail industry has historically been characterized by rapid change, including periods of widespread
financial difficulties and consolidations, and the emergence of alternative distribution channels.



The loss of one or more of our major retailers or distributors could significantly harm our business, financial condition and operating results. In
addition, because of our sales to large high-volume customers, we maintain individually significant accounts receivable balances with these customers. As of March 31, 2005, our two largest accounts receivable balances accounted for 49% of total
accounts receivable. We generally do not require any collateral from our customers to secure payment of these accounts receivable. However, we do seek to control credit risk through ongoing credit evaluations of our customers financial
condition and by purchasing credit insurance on European retail accounts receivable balances. If any of our major customers were to default in the payment of their obligations to us, our business, financial condition, operating results and cash
flows could be adversely affected.



Risks Concerning Our Suppliers



Provisions in certain of our supply agreements require us to make
minimum annual purchases, and failure to do so could expose us to payment obligations that could adversely affect our cash flows, results of operations and liquidity.



Our five-year agreement (the Fire Agreement) with Fire, which supplies us with game enhancement products sold
under our GameShark brand, includes a provision requiring us to purchase a minimum of $5 million of product per year. If the minimum purchases are not made, Fire may demand payment of 40% of the shortfall. Although we met the minimum purchase
requirement during the first year of the agreement, we did not purchase the required $5 million dollars of product during our fiscal year 2005. However, on February 1, 2005, we amended the Fire Agreement to provide that the minimum purchase
requirement for the period from April 1, 2004 until March 31, 2005 would be waived for that year and deferred and made part of the minimum guarantee for the period from April 1, 2005 until March 31, 2006. Therefore, for the period April 1, 2004 to
March 31, 2006, we are obligated to purchase a minimum of $10 million dollars of product from Fire.



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No assurance can be made that we will meet the new requirement for fiscal years 2005 and 2006 or beyond.
If sales of the GameShark brand products are insufficient to allow us to meet the minimum purchase requirement, we may be required to make cash payments to Fire, which could materially and adversely affect our cash flows, results of operations and
liquidity.



The manufacture and supply of our products is dependent upon
a limited number of third parties, and our success is dependent upon the ability of these parties to manufacture and supply us with sufficient quantities of our products and on the continued viability and financial stability of these third party
suppliers.



We rely on a limited number of
manufacturers and suppliers for our products. There can be no assurance that these manufacturers and suppliers will be able to manufacture or supply us with sufficient quantities of products to ensure consumer availability. In addition, these
parties may not be able to obtain the raw materials or to obtain the energy or oil supply required to manufacture sufficient quantities of our products. Moreover, there can be no assurance that such manufacturers and suppliers will not refuse to
supply us with products, and independently market their own competing products in the future, or will not otherwise discontinue their relationships with or support of our Company. Our failure to maintain our existing manufacturing and supplier
relationships, or to establish new relationships in the future, could have a material adverse effect on our business, results of operations, financial condition and liquidity. If our suppliers are unable or unwilling for any reason to supply us with
a sufficient quantity of our products, our business, revenues, results of operations, financial condition and liquidity would be materially adversely affected. We obtain our GameShark products from third party suppliers, for which an alternative
source may not be available. If any of our key suppliers became financially unstable, our access to these products might be jeopardized, thereby adversely affecting our business, cash flow, financial condition and operational results.



Production levels that do not match demand for our products could result in lost sales
or a reduction in our gross margins.



The video game
accessories industry is characterized by rapid technological change, frequent new product introductions, short-term customer commitments and rapid changes in demand. We determine production levels based on forecasts of the demand for our products.
Actual demand for our products is difficult to forecast. If the actual demand for our products does not match the manufacture of our products, a number of problems could occur, including the loss of potential sales if production cannot be increased
to match demand, and additional expenditures necessary to accelerate the production of some products, resulting in lower gross margins. Additionally, if customers find alternative sources of supply to meet their needs, our revenues, results of
operations and financial condition could be adversely affected.



Any
disruption of shipping and product delivery operations globally could harm our business.



We rely on contract ocean carriers to ship virtually all of our products from Hong Kong to our primary distribution centers in California and the United
Kingdom. Retailers and distributors that take delivery of our products in Hong Kong rely on a variety of carriers to ship those products to their distribution centers and retail outlets. We also rely on a number of sources of ground transportation
to deliver our products from our primary distribution centers to our retail customers and distributors distribution centers and retail outlets. Any disruption or delay in the importation of our products, in the operation of our
distribution centers or in the delivery of our products from our primary distribution centers to our retail customers and distributors distribution centers and retail outlets for any reason, including labor strikes or other labor
disputes, terrorism, international incidents or lack of available shipping containers or vehicles, could significantly harm our business and reputation. In 2002, a collective bargaining agreement between the Pacific Maritime Association and the
International Longshore and Warehouse Union affecting shipping of products to the Western United States, including our products, expired resulting in an eleven-day cessation of work at West Coast docks. Although the Pacific Maritime Association and
International Longshore and Warehouse Union have entered into a new collective bargaining agreement, any further disruption or delay in the importation or delivery of our products for any reason, including any new labor dispute impacting the
transportation of our products, could significantly harm our business, results of operations, financial condition and liquidity.



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Risks of Doing Business Internationally



Any loss of Chinas Normal Trade Relations NTR with the United States, or any changes in tariffs or trade policies,
could increase our manufacturing expenses and make it more difficult for us to manufacture our products in China, if at all.



The majority of our products are manufactured in China and exported from Hong Kong and China to the United States and worldwide. Our products sold in the
United States are currently not subject to United States import duties. However, as a result of opposition to policies of the Chinese government and Chinas growing trade surpluses with the United States, there has been, and in the future may
be, opposition to the extension of NTR status for China. The loss of NTR status for China, changes in current tariff structures or adoption in the United States of other trade policies adverse to China could increase our manufacturing expenses and
make it more difficult for us to manufacture our products in China, if at all.



Our manufacturing relationships in China may be adversely affected by changes in the political, economic and legal environment in China.



We maintain offices in Hong Kong and in China. The success of our operations in Hong Kong and China is highly dependent on the Chinese
governments continued support of economic reform programs that encourage private investment, and particularly foreign private investment. A change in these policies by the Chinese government could adversely affect us by, among other things,
imposing confiscatory taxation, restricting currency conversion, imports and sources of supplies, prohibiting us from manufacturing our products in China or restricting our ability to ship products from China into Hong Kong or to ship finished
products out of Hong Kong or otherwise shutting down our offices in Hong Kong and China. Although the Chinese government has chosen economic reform policies to date, no assurance can be given that it will continue to pursue such policies or that
such policies will not be significantly altered, especially in the event of a change in leadership or other social or political disruption.



Our sources of manufacturing and distribution capabilities could be adversely affected by ongoing tensions between the Chinese and Taiwanese governments.
If Taiwan does not adopt a plan for unifying with China, the Chinese government has threatened military action against Taiwan. As of yet, Taiwan has not indicated that it intends to propose or adopt a reunification plan. If an invasion were to
occur, the supply of components from Taiwanese suppliers that are used in our products could be interrupted, potentially limiting the production of our products. Invasion could also lead to sanctions or military action by the United States and/or
European countries, which could materially affect our sales to those countries.



China does not have a comprehensive system of laws. Enforcement of existing laws may be sporadic and implementation and interpretation thereof inconsistent. The Chinese judiciary is relatively inexperienced in
enforcing the laws that exist, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Even where adequate laws exist in China, it may be impossible to obtain swift and equitable enforcement of such laws, or to
obtain enforcement of a judgment by a court in a different jurisdiction. The Chinese tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain.
There can be no assurance that changes in Chinese tax laws or their interpretation or their application will not subject us to substantial Chinese taxes in the future.



There are numerous risks associated with our international operations, any number of which could harm our business.



We have offices and sales throughout the world. Our
registered office and a sales office are in Canada. Our operational headquarters is in San Diego, California. We also have offices in the United Kingdom, China and Hong Kong. Approximately 90% of our gross sales in fiscal year 2005 were generated in
North America, and a substantial majority of our products are manufactured by third parties in Hong Kong and China. The geographical distances between our operations create a number of logistical and communications challenges.



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These challenges include managing operations across multiple time zones, directing the manufacture and delivery of products across long distances,
coordinating procurement of components and raw materials and their delivery to multiple locations, and coordinating the activities and decisions of the management team, which is based in a number of different countries.



In addition, there are other risks inherent in international operations,
which could result in disruption or termination of supply of our products available for sale. These risks include:



| |  |  | unexpected changes in regulatory requirements, taxes, trade laws and tariffs;
| | - |  | -----------------------------------------------------------------------------



| |  |  | political instability and the potential reversal of current favorable policies encouraging foreign investment or foreign trade by host countries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | differences in labor laws, labor unrest and difficulties in staffing and managing international operations;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | longer payment cycles;
| | - |  | ----------------------



| |  |  | fluctuations in currency exchange rates;
| | - |  | ----------------------------------------



| |  |  | potential adverse tax consequences;
| | - |  | -----------------------------------



| |  |  | limitations on imports or exports of components or assembled products, or other travel restrictions;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | differing intellectual property rights and protections;
| | - |  | -------------------------------------------------------



| |  |  | delays from doing business with customs brokers and governmental agencies; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | higher costs of operations.
| | - |  | ---------------------------



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



Intellectual Property Risks



We may be faced with legal challenges related to our products, including that our
products infringe third parties intellectual property rights of others. These challenges could cause us to incur significant litigation or licensing expenses or could prohibit us from producing or marketing some or all of our products
entirely.



Although we do not believe that our
products infringe the proprietary rights of any third parties, there can be no assurance that infringement or other legal claims will not be asserted against us or that any such claims will not materially adversely affect our business, financial
condition, or results of operations. Regardless of their validity or success, such claims may result in costly litigation, divert managements time and attention, cause product shipment delays or require us to enter into royalty or licensing
agreements, which may not be available on terms acceptable to us, or at all. If licensing arrangements are required but unavailable, we may be prohibited from marketing and distributing these products. In addition, we could also incur substantial
costs to redesign our products to comply with legal orders or contractual arrangements. Any of these costs or outcomes could adversely affect our business, results of operations, financial condition and liquidity.



On February 10, 2003, Electro Source filed a complaint against MCI, and Fire,
as well as other defendants, in the Superior Court in Los Angeles County, California entitled, Electro Source, LLC v. Fire International, Ltd., et al., Case No. BC 290076. On or about November 18, 2003, Electro Source amended its complaint to add us
as a defendant. In its amended complaint, Electro Source asserted claims against us and MCI alleging misappropriation of trade secrets, conspiracy to defraud, interference with contractual relationship and interference with prospective economic
advantage in connection with Fires agreement to supply MCI with product to be marketed under our GameShark brand and for the termination of Fires alleged prior business relationship with Electro Source.



Electro Source moved for a temporary restraining order to prevent MCI from
marketing or otherwise distributing the GameShark products. After a hearing on the matter, the Court denied Electro Sources motion



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and refused to enter the temporary restraining order. The parties have engaged in written and oral discovery, including depositions. On February 17, 2005,
Mad Catz filed a cross-complaint against Electro Source alleging false advertising, state and federal unfair competition, libel per se, and trade libel arising out of some advertisements and internet statements. Discovery is proceeding on the
cross-complaint. The trial date is set for August 31, 2005. While we intend to vigorously defend this matter, there can be no guarantee that we will ultimately prevail or that damages will not be assessed against us. An adverse determination by the
Court or jury could seriously impact our revenues and our ability to continue to distribute the GameShark products.



On or about May 2, 2005, Mad Catz was served with a lawsuit filed by Freedom Wave LLC in the United States District Court for the Central District of
California entitled, Freedom Wave LLC. v. Mad Catz, Inc. et al., Case No CV5 2954NM (PLAx). The complaint alleges that certain MCI products infringe U.S. patent numbers 6,878,066 and 6,280,327. MCI answered, denying the allegation in the complaint.
The case is still in the early stages and no discovery has been requested by either party. No trial date has been set. We intend to vigorously defend the allegations of the complaint, however there can be no guarantee that we will ultimately prevail
or that damages will not be assessed against MCI.



Our intellectual
property rights may not prevent our competitors from using our technologies or similar technologies to develop competing products, which could weaken our competitive position and harm our financial results.



Our success depends in part on the use of proprietary technologies. We rely,
and plan to continue to rely, on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. We have entered into confidentiality and
invention assignment agreements with our employees and contractors, and nondisclosure agreements with selected parties with whom we conduct business to limit access to and disclosure of our proprietary information. These contractual arrangements and
the other steps we have taken to protect our intellectual property may not prevent misappropriation of that intellectual property or deter independent third party development of similar technologies. Monitoring the unauthorized use of proprietary
technology and trademarks is costly, and any dispute or other litigation, regardless of outcome, may be costly and time consuming and may divert our management and key personnel from our business operations. The steps taken by us may not prevent
unauthorized use of our proprietary technology or trademarks. Many features of our products are not protected by patents, and, as a consequence, we may not have the legal right to prevent others from reverse engineering or otherwise copying and
using these features in competitive products. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could adversely affect our financial results.



We may not be able to comply with the terms of our license agreements, which may result
in the loss of one or more of the licenses.



We have
entered into license and royalty agreements with various parties in which we pay fees in exchange for rights to use product inventions or trademarked names, shapes and likenesses in our products. The agreements often include minimum fee guarantees
based on a reasonable expectation of the product sales to be generated throughout the life of the agreement. We cannot assure you that we will be able to meet these expectations and may be obligated to pay unearned fees as a result. Some of our
license agreements also contain stringent requirements regarding the use of the licensors trademarks. Our license and royalty agreements are for fixed terms. We cannot assure you that we will be able to comply with all of the requirements
contained in our licenses or that we will be able to maintain or extend the rights to our existing licenses.



If our products are copied or knocked-off our sales of these products may be materially reduced and our profitability may be negatively affected.



Occasionally in the video game accessories industry, successful products are
knocked-off or copied by competitors. While we strive to protect our intellectual property we cannot guarantee that knock-offs will not



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occur or that they will not have a significant effect on our business. The costs incurred in protecting our intellectual property rights could be significant
and there is no assurance that we will be able to successfully protect our rights.



Financing Risks



We depend upon the availability of
capital under our credit facility to finance our operations. Any additional financing that we may need may not be available on favorable terms, or at all.



In addition to revenue generated from sales of our products, we finance our operations with a $35.0 million Credit Facility
(the Credit Facility) provided by Wachovia Capital Finance Corporation (Central) (Wachovia), formerly Congress Financial Corporation (Central), an unrelated party. The Credit Facility is scheduled to expire on September 25,
2005. The Credit Facility will automatically renew for an additional one-year period unless either party gives written notice to the other party seeking to terminate the Credit Facility at least 60 days prior to the expiration date. Although
Wachovia agreed to extend the expiration date of the Credit Facility in each of our last two fiscal years, we do not know the likelihood that they will agree to further extend the expiration of the Credit Facility following September 25, 2005. If
Wachovia is unwilling to extend the expiration of the Credit Facility beyond September 25, 2005 on terms acceptable to the Company, or if we are unable to comply with the restrictive and financial covenants contained in the Credit Facility, Wachovia
may declare the outstanding borrowings under the facility immediately due and payable. In such an event, our liquidity will be materially adversely affected, which could in turn have a material adverse impact on our future financial position and
results of operations. We would be required to obtain additional financing from other sources. We cannot predict whether or on what terms additional financing might be available. If we are required to seek additional financing and are unable to
obtain it, we may have to change our business and capital expenditure plans, which would have a materially adverse affect our future results of operations.



The Credit Facility contains financial and other covenants that we are obligated to maintain. If we violate any of these
covenants, we will be in default under the Credit Facility. If a default occurs and is not timely cured or waived by Wachovia, Wachovia could seek remedies against us, including: (1) penalty rates of interest, (2) immediate repayment of the
debt or (3) foreclosure on assets securing the Credit Facility. No assurance can be given that we will maintain compliance with these covenants in the future. The Credit Facility is asset based and can only be drawn down in an amount to which
eligible collateral exists and can be negatively impacted by extended collection of accounts receivable, unexpectedly high returns and slow moving inventory, among other factors.



If we need to obtain additional funds for any reason, including the termination of the Credit Facility or acceleration of
amount due there under, increased working capital requirements, possible acquisitions or otherwise, there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all. The failure of our
Company to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that no
alternative financing is available, we would be forced to drastically curtail operations, or dispose of assets, or cease operations altogether.



Accounts receivable represent a large portion of our assets, a large portion of which are owed by a few customers. If these accounts receivable are not paid, we
could suffer a significant decline in cash flow and liquidity which, in turn, could limit our ability pay liabilities and purchase an adequate amount of inventory.



Our accounts receivable represented 22%, 25% and 25% of our total assets as of March 31, 2005, 2004 and 2003, respectively.
As a result of the substantial amount and concentration of our accounts receivable, if any of our major customers fails to timely pay us amounts owed, we could suffer a significant decline in cash flow and liquidity which would negatively affect our
ability to make payments under our Credit Facility and which, in turn, could adversely affect our ability to borrow funds to purchase inventory to sustain or expand our current sales volume. Accordingly, if any of our major customers fails to timely
pay us amounts owed, our sales and profitability may decline.



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Increases in interest rates may increase our interest expense and adversely affect our profitability and cash flow
and our ability to service indebtedness.



We depend,
in a significant part, on borrowings under the Credit Facility to finance our operations. At March 31, 2005, the outstanding balance under the Credit Facility was $12.1 million. The interest rate applicable to the Credit Facility varies based on the
U.S. prime rate plus 0.75%. The variable rate debt outstanding under the Credit Facility had a weighted average annual interest rate of approximately 5.6% for the year ended March 31, 2005. Increases in the interest rate under the Credit Facility
will increase our interest expense, which could harm our profitability and cash flow. For example, if the interest rate under the Credit Facility increases by 100 basis points, the increase in interest expense would decrease our future earnings and
cash flows by approximately $120,000 annually.



General Risk Factors



We must stay at the forefront of technology and any inability to do
so would have a material adverse effect on our results of operations, financial condition and liquidity.



The video game accessories industry is characterized by rapid technological advances, evolving industry standards, frequent new product introductions and
enhancements and changing customer requirements. Much of the development of our new product offerings is dependent upon our ability to reverse engineer first party products as they are introduced by the manufacturers, and the introduction of
products that prevent or delay our ability to effectively develop products through reverse engineering could prevent us from developing new products, which would harm our business operations, financial condition, results of operations and liquidity.
The introduction of products embodying or based upon new technologies and the emergence of new industry standards could render our existing inventory of products obsolete, incompatible with new consoles and unmarketable. We believe that any future
success will depend upon our ability to reverse engineer new video game systems, introduce new products that keep pace with technological developments, respond to evolving end-user requirements and achieve market acceptance. If we cannot reverse
engineer the next generation video game platforms or fail to develop and introduce new enhancements or new products for existing platforms, or if changes to existing video game platforms render our products out of date or obsolete, or if our
intended customers do not accept these products, our business would be materially harmed.



Natural disasters or other events outside of our control may damage our facilities or the facilities of third parties on which we depend for the manufacture and distribution of our products.



Our North American distribution center and operational headquarters are
located in California near major earthquake faults that have experienced earthquakes in the past. An earthquake or other natural disaster could disrupt our operations at these facilities. Any of these disruptions or other events outside of our
control could impair the manufacture or distribution of products, damage inventory, interrupt critical functions or otherwise affect our business negatively, harming our business operations and future financial condition, results of operations or
liquidity. In addition, if the facilities of our third party product manufacturers are affected by earthquakes, power shortages, floods, monsoons, terrorism or other events outside of our control, our ability to obtain sufficient manufactured
products could suffer or be impaired.



Our operations are vulnerable
because we have limited redundancy and backup systems. Any failure of our data information systems could negatively impact our financial results.



Our internal order, inventory and product data management system is an electronic system through which we manage customer orders and product pricing,
shipment, returns, among other matters. The continued and uninterrupted performance of our information systems is critical to our day-to-day business operations. Despite our precautions, unanticipated interruptions in our computer and
telecommunications systems have, in the past, caused problems or stoppages in this electronic system. These interruptions, and resulting problems, could occur in the future. We have extremely limited ability and personnel to process purchase orders
and manage product pricing and other matters in any manner other than through this electronic system. Any interruption or delay in the operation of this electronic system could cause a significant decline in our sales and profitability.



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If we fail to maintain an adequate system of internal controls, we may not be able to accurately report our
financial results, which could cause current and potential shareholders to lose confidence in our financial reporting and in turn affect the trading price of our common stock.



We are in the process of reviewing and evaluating our internal control over financial reporting in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations, which require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered
public accounting firm addressing these assessments. We cannot be certain that the measures we have taken to assess, document, improve and validate through testing the adequacy of our internal control process over financial reporting will ensure
that we maintain such adequate controls over our financial reporting process in the future. Failure to implement required new controls could cause us to fail to meet reporting obligations, which in turn could cause current and potential shareholders
to lose confidence in our financial reporting.



Our business is seasonal
and our financial results vary from period to period.



The video game and video game accessory industry is highly seasonal and our operating results vary substantially from period to period. We generate a substantial portion of our sales during the holiday season. The high level of seasonality
causes us to take significant risks in the purchase of inventory for the holiday season. There can be no guarantee that our customers or we will sell all of our inventories. Excess inventory at year-end may result in financial losses from
obsolescence, reserves, returns and markdowns.



Moreover, if
expenses remain relatively fixed, but our revenues are less than anticipated in any quarter, our operating results would be adversely affected for that quarter. In addition, incurring unexpected expenses could adversely affect operating results for
the period in which such expenses are incurred. Failure to achieve periodic revenue, earnings and other operating and financial results as anticipated by brokerage firms or industry analysts could result in an immediate and adverse effect on the
market price of our common shares (Shares). We may not discover, or be able to confirm, revenue or earnings shortfalls until the end of a quarter, which could result in a greater immediate and adverse effect on the Share price.



We cannot assure that we will continue to grow in future periods at the
levels we have in the past or at all.



Our current
business strategy emphasizes the continued addition of new retail accounts, increasing product penetration within existing accounts, introduction of new products and entry into new product categories while focusing on maximizing the profitability of
each sale. Sales to customers that did not have recorded sales in the prior 12 months accounted for approximately 3% of gross sales in fiscal 2005, 3% in fiscal 2004 and 21% in fiscal 2003. North American sales represented approximately 90% of our
total gross sales in fiscal 2005, 87% in fiscal 2004 and 79% in fiscal 2003. European sales accounted for approximately 10% of gross sales in fiscal 2005, 10% in fiscal 2004, and 18% in fiscal 2003. There can be no assurance that we will achieve
future growth in net sales or that we will be able to maintain our present levels of net sales or profitability.



Historically, the video game industry has been cyclical with many consumers delaying the purchase of new video game systems for one to two years following
the launch of a new system. Sonys continued support of older systems and reverse compatibility has reduced the cyclical impact. However, approaching the launch of new systems with Microsofts Xbox 360, expected in 2005 and PlayStation 3
and Nintendos new video game system, Revolution, expected in 2006, the industry may enter a period of decline until the new systems are introduced. Any general decline in the video game industry may also adversely impact our business, results
of operations, financial condition and liquidity.



We are constantly
looking for opportunities to grow our business and diversify our product line. We cannot assure that any of our new endeavors will be successful.



The industry in which we compete is highly competitive. As a result we look for opportunities to grow our business. From time to time, we expand into
related or new revenue streams to diversify and grow our business.



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Examples include the distribution of non-video game related accessories, such as iPod, and the development and publishing of new software titles. No
assurance can be given that we will be successful in developing or growing these products lines or that we will be successful in such ventures.



If we fail to successfully manage the expansion of our business, our sales may not increase commensurately with our capital investments, which would cause our
profitability to decline.



We are expanding our
product offerings and plan to continue the diversification of our product line. Our new product offerings, such as non-video game accessories for the iPod and iPod Mini and our new video game software title, have required and will continue to
require significant resources and managements close attention. In offering new products, our resources are likely to be strained because we have less experience in the new product categories. Our failure to successfully manage our planned
product expansion could result in our sales not increasing commensurately with our capital investments, causing a decline in our profitability.



Changes in environmental rules and regulations could increase our costs and impact our future operating results.



Some of our products are subject to international laws restricting the
presence of certain substances in electronic products. Legislation enacted by the European Union (EU) mandates certain electronic products manufactured or supplied into the EU to be lead-free by July 2006. Further, production of products
in certain countries requires us to provide consumers with the ability to return product for ultimate disposal at the end of its useful life, and places responsibility for environmentally safe disposal or recycling with the producer. The EU has
finalized the Waste Electrical and Electronic Equipment Directive (WEEE), which makes producers of electronic goods financially responsible for specified collection, recycling, treatment and disposal of covered products. Producers are
required to be financially responsible under the WEEE Legislation beginning in August 2005. Similar legislation may be enacted in other jurisdictions, including federal and state legislation in the United States, the cumulative impact of which could
be significant. We apply strict standards for environmental protection to sites inside and outside the United States, even if not subject to regulations imposed by local governments. Although we do not anticipate any material adverse effects in the
future based on the nature of our operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not have a material adverse affect on our business, results of operations, financial condition and liquidity.
Compliance with these and other environmental laws and regulations may be costly, thereby increasing the cost of manufacturing and significantly reducing our margins and profitability. To the extent that our competitors choose not to abide by these
environmental laws and regulations, we will be at a cost disadvantage, thereby hindering our ability to effectively compete in the market place.



We may pursue acquisitions, which would subject our business to additional risks.



We may expand our operations or product offerings through the acquisition of additional businesses, products or
technologies. A recent example is the acquisition of GameShark intellectual property. There can be no assurance that we will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses,
products or technologies into our Company without substantial expenses, delays or other operational or financial problems. Acquisitions involve a number of risks, including:



| |  |  | diversion of managements attention;
| | - |  | ------------------------------------



| |  |  | failure to retain key acquired personnel;
| | - |  | -----------------------------------------



| |  |  | difficulty in integrating and absorbing the acquired business, its employees, corporate culture, managerial systems and services;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | customer dissatisfaction or performance problems with an acquired business;
| | - |  | ---------------------------------------------------------------------------



| |  |  | lawsuits and legal liabilities; and
| | - |  | -----------------------------------



| |  |  | other unanticipated events or circumstances.
| | - |  | --------------------------------------------



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Some or all of these risks could have a material adverse effect on our acquired businesses, products or
technologies. Furthermore, there can be no assurance that any acquired business, product, or technology will be profitable or achieve anticipated revenues and income. The failure by our Company to manage our acquisition strategy successfully could
have a material adverse effect on our business, results of operations and financial condition.



Our operating results are exposed to changes in exchange rates.



We have net monetary asset and liability balances in foreign currencies other than the U.S. dollar, including the Pound Sterling, the Euro, the Canadian
dollar, the Hong Kong dollar and the Chinese Yuan Renminbi (CNY). International sales primarily are generated by our subsidiaries in the United Kingdom and Canada, and are denominated typically in their local currency. The expenses
incurred by these subsidiaries are also denominated in the local currency. As a result, our operating results are exposed to change in exchange rates between the U.S. dollar and the Pound Sterling, the Euro, the Canadian dollar, the Hong Kong dollar
and the CNY. We do not currently hedge our foreign exchange risk, which historically has not been significant. We will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use financial hedging techniques in the
future to minimize the effect of these fluctuations, which may be significant from time to time.



Possible increase in value to Chinese currency vis-à-vis U.S. currency would have a material impact on the cost of our products.



Currently Chinas currency, the CNY, is pegged to the U.S. dollar. The Chinese government is receiving pressure from
other governments to trade its currency on the open market. If the Chinese government was to trade its currency on the open market and the CNY were to increase in value relative to the U.S. dollar, we would experience increased factory and
production costs, including labor and certain raw materials that could have a material impact on the cost of our products.



Failure to attract, retain and motivate skilled personnel would have a material adverse effect on our results of operations, financial condition or liquidity.



Our ability to achieve our revenue and operating
performance objectives will depend in large part on our ability to attract and retain qualified and highly skilled sales, marketing, operations, logistics, management, engineering and finance personnel. We compete for our personnel with other
companies, and competition for such personnel is intense and is expected to remain so for the foreseeable future, particularly for those with relevant technical expertise. Failure to retain and expand our key employee population could adversely
affect our business and operating results.



We are heavily
dependent upon our senior management team. The continued availability of this team will be a major contributing factor to our future growth. In the event that any member of senior management becomes unavailable for any reason, we could be materially
and adversely affected. We do not maintain key-man life insurance on our senior management.



Competition for market acceptance and retail shelf space and pricing competition affects our revenue and profitability.



The video game accessory market is highly competitive and the barriers to entry are low. Only a small percentage of products
introduced in the market achieve any degree of sustained market acceptance. If our products are not successful, our operations and profitability will be negatively impacted. Competition in the video game accessory industry is based primarily upon:



| |  |  | the availability of significant financial resources;
| | - |  | ----------------------------------------------------



| |  |  | the quality of products;
| | - |  | ------------------------



| |  |  | reviews received for products from independent reviewers;
| | - |  | ---------------------------------------------------------



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| |  |  | access to retail shelf space;
| | - |  | -----------------------------



| |  |  | the success of the game console for which the products were developed;
| | - |  | ----------------------------------------------------------------------



| |  |  | the price at which the products are sold; and
| | - |  | ---------------------------------------------



| |  |  | the number of other competing products for the system for which the products were developed.
| | - |  | --------------------------------------------------------------------------------------------



Some of our competitors, particularly the first party manufacturers, enjoy competitive advantages over us, such as longer
operating histories, larger technical staffs, more established and larger sales and marketing organizations, significantly greater financial and other resources, ability to respond more quickly to new or emerging technologies and changes in customer
requirements or ability to establish or strengthen cooperative relationships with retailers, distributors and other marketers.



Increased competition from these and other sources could require us to respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional acquisitions that may be less favorable than what we could otherwise establish or obtain, and thus could have a material adverse effect on our business, financial condition and results of operations. No assurance
can be given that we will be able to compete effectively in our markets.



Any future terrorist attacks and other acts of violence or war may affect the demand for video game accessories, which may negatively affect our operations and financial results.



The continued threat of terrorism within the United States, Europe and the
Middle East and the military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer
orders, a general decrease in the demand for video game accessories, or our inability to effectively market our products, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat
of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material adverse effect on our business, results of operations, financial condition and liquidity.



Our taxes are subject to audit, and as such, additional taxes
may be payable by our Company.



We cannot predict
whether our tax rates will remain as low as they have been in the past as tax regulations and the application or interpretation in the various jurisdictions in which we operate are always subject to change. Our taxes are subject to audit. We cannot
guarantee that additional taxes will not be due as a result of audits or other factors.



Volatility in the mass-market retail sector could have a material adverse effect on our sales.



Most of our sales are made to mass-market retailers. The mass-market retail channel in the U.S. has experienced significant shifts in the market share
among competitors in recent years, causing several of our customers to experience liquidity problems. Additionally, this has caused several customers to file for bankruptcy during the past two years. While we attempt to minimize our credit exposure,
there is always a risk that our customers will not pay or that they will delay payment, subjecting us to exposure to bad debt losses. In addition, if these customers were to cease doing business as a result of bankruptcy, it could have a material
adverse effect on our sales.



Risk Factors Related to Our Shares



We have implemented a rights plan that could prevent or delay an
acquisition of our Company that may be beneficial to our shareholders and could result in additional dilution to our shareholders.



We have adopted a shareholder rights plan in an attempt to ensure that shareholders receive a fair price in the event that a person seeks to acquire our
Company. Under the rights plan, shareholders hold certain rights,



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which entitle them to purchase additional Shares in response to a take-over bid or tender offer, at a substantial discount from the prevailing market price
of the Shares, and to vote the additional Shares. The existence of the rights plan could result in a decrease in investor interest, and an accompanying downward pressure on the market price of the Shares, or could discourage, delay or prevent an
acquisition of our Company under certain circumstances because of the increased difficulty faced by persons making a take-over bid for our Company. In addition, there could be substantial dilution of the Shares in the event that the permitted
shareholders purchase additional Shares pursuant to the rights plan.



Penny stock rules may negatively impact the liquidity of the Shares.



The Shares are subject to rules promulgated by the United States Securities and Exchange Commission (the SEC) relating to penny stocks, which apply to certain companies whose shares trade at
less than $5.00 per share and which do not meet certain other financial requirements specified by the SEC. These rules require brokers who sell penny stocks to persons other than established customers and accredited investors
to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell
the Shares and may affect the secondary market for the Shares. These rules could also have a detrimental effect upon our ability to raise funds in the primary market for Shares.



Volatility of Share price and absence of dividends.



The market price of the Shares has been and is likely to be highly volatile. Many factors could have a significant adverse
impact on the market price of the Shares, including:



| |  |  | our or our competitors announcements of technological innovations or new products by us or our competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | governmental regulatory actions;
| | - |  | --------------------------------



| |  |  | developments with our strategic alliances and collaborators;
| | - |  | ------------------------------------------------------------



| |  |  | developments concerning our proprietary rights or the proprietary rights of our competitors (including litigation);
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | period-to-period fluctuations in our operating results;
| | - |  | -------------------------------------------------------



| |  |  | changes in estimates of our performance by securities analysts;
| | - |  | ---------------------------------------------------------------



| |  |  | market conditions for consumer technology stocks in general; and
| | - |  | ----------------------------------------------------------------



| |  |  | other factors not within our control.
| | - |  | -------------------------------------



We have never paid cash dividends on our Shares and do not anticipate paying any cash dividends in the foreseeable future.



There can be no assurance that the holders or purchasers of our Shares will be able to
resell their Shares at prices equal to or greater than their cost.



The market price of our Shares could be subject to significant fluctuations in response to quarterly variations in our operating results, announcements of technological innovations through new products by us or our
competitors, changes in financial estimates by securities analysts or other events or factors, many of which are beyond our control. In addition, the stock markets have experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many companies whose businesses are dependent on technology and that often have been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect
the market price of our Shares. There can be no assurance that the holders or purchasers of our Shares will be able to resell their Shares at prices equal to or greater than their cost.



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Investors may not be able to secure foreign enforcement of civil liabilities against management.



The enforcement by investors of civil liabilities
under the federal securities laws of the United States may be adversely affected by the fact that we are organized under the laws of Canada, that some of our officers and directors are residents of a foreign country and that all, or a substantial
portion, of such persons assets are located outside of the United States. As a result, it may be difficult for holders of our Shares to affect service of process on such persons within the United States or to realize in the United States upon
judgments rendered against them.



Item 7A. Quantitative and Qualitative Disclosures About Market Risk



Market Risk



Market
risk is the potential loss arising from changes in market rates and market prices. Our market risk exposure results primarily from fluctuations in foreign exchange rates and interest rates. Our views on market risk are not necessarily indicative of
actual results that may occur and do not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based upon actual fluctuations in foreign currency exchange rates and interest
rates and the timing of transactions.



Foreign Currency Exchange Rate
Risk



A majority of our international business is
presently conducted in currencies other than the U.S. dollar and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the CNY, the Pound Sterling, the Euro and the Canadian dollar.
Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business
relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the difficulty in determining and obtaining predictable cash flow forecasts in our foreign
operations based on the overall challenging economic environment and associated contract structures, we do not currently utilize any derivative financial instruments to hedge foreign currency risks. The volatility of the CNY, the Pound Sterling, the
Euro and the Canadian dollar (and any other applicable currencies) will be monitored frequently throughout the coming year. If appropriate, we may enter into hedging transactions in order to mitigate our risk from foreign currency fluctuations. Due
to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience currency losses in the
future. We estimate that an immediate 10% change in foreign exchange rates would not materially impact reported net income for the year ended March 31, 2005. This was estimated using a 10% deterioration factor to the average monthly exchange rates
applied to net income or loss for each of the related subsidiaries in the respective period.



Interest Rate Risk



We are exposed to interest rate risk on borrowings under the Credit Facility. Funds advanced to us pursuant to the Credit Facility bear interest at the U.S. prime rate plus 0.75%. We do not hedge our exposures to interest rate risk. We
estimate that an increase of 100 basis points in the interest rate under our Credit Facility would not materially impact reported net income for the year ended March 31, 2005.



Item 8. Financial Statements and Supplementary Data



The Consolidated Financial Statements and Supplementary Data required by this Item, together with the reports of our independent registered public accounting firm, are set forth at the pages indicated on the Index to
the Financial Statements on Page F-l included in Item 15 of this report.



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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.



None.



Item 9A. Controls and Procedures



We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the Companys reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.



Evaluation of Disclosure Controls and Procedures



As required by Securities and Exchange Commission Rules 13a-15(a) and
13a-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (who is also the Chief Accounting Officer), of the effectiveness of the
design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level.



Changes in Internal Controls over Financial Reporting



There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting.



Item 9B. Other Information

None



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PART III



Item 10. Directors and Executive Officers of the Registrant



Certain information with respect to the executive officers of the Company is set forth in the section entitled Executive Officers of the Registrant in Part I of this Annual Report on Form 10-K.



The information required by this item with respect to the directors of the
Company is incorporated herein by reference to the information under the caption Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance contained in the Companys Management Proxy Circular for
the Companys 2005 Annual Meeting of Shareholders (the Proxy Statement).



We have adopted and maintain a code of business conduct and ethics that all executive officers and management employees must review and abide by (including our principal executive officer and principal financial
officer), which we refer to as our Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.madcatz.com in the Investor Information section under the heading Corporate
Governance.



Item 11. Executive Compensation



The information required by Item 11 is incorporated herein by reference to the information in the Proxy Statement under the caption Compensation of Executive Officers specifically excluding the Compensation Committee
Report on Executive Compensation.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



The information required by Item 12 is incorporated herein by reference to the information in the Proxy Statement under the
captions Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information.



Item 13. Certain Relationships and Related Transactions



The information required by Item 13 is incorporated herein by reference to the information in the Proxy Statement under the caption Certain Transactions.



Item 14. Principal Accountant Fees and Services



The information required by Item 14 is incorporated herein by reference to the information in the Proxy Statement under the caption Principal Accountant Fees and Services.



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PART IV



Item 15. Exhibits and Financial Statement Schedules



(a) The following documents are filed as part of this report:



(1) Financial Statements



The financial statements of the Company are included herein as required under Item 8 of this report. See
Index to Financial Statements on page F-1.



(2) Financial Statement Schedules



For the three fiscal years ended March 31, 2005Schedule II Valuation and Qualifying Accounts



Schedules not listed above have been omitted because information required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.



(3)
Exhibits(numbered in accordance with Item 601 of Regulation S-K)



The following exhibits are filed or incorporated by reference into this report.



|      |   |  |                                                                                                                                                                                
|----- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |   |  | Articles of Incorporation and Amendments thereto. (1)                                                                                                                          
|      |  
|3.2   |   |  | By-Laws of the Company, as amended to date. (2)                                                                                                                                
|      |  
|4.1   |   |  | Shareholder Rights Plan Agreement between GTR Group Inc. and Montreal Trust Company of Canada, dated as of May 26, 2000. (4)                                                   
|      |  
|10.1  |   |  | Loan Agreement between Congress Financial Corporation (Canada) and 1328158 Ontario Inc., dated September 25, 2000. (3)                                                         
|      |  
|10.2  |   |  | Loan Agreement between Congress Corporation (Central) and Mad Catz, Inc., dated September 25, 2000. (3)                                                                        
|      |  
|10.3  |   |  | Guarantee from 1328158 Ontario Inc, to Congress Financial Corporation (Canada), dated September 25, 2000. (3)                                                                  
|      |  
|10.4  |   |  | General Security Agreement among and between Mad Catz, Inc., FX Unlimited, Inc., and Congress Financial Corporation (Central), dated September 25, 2000. (3)                   
|      |  
|10.5  |   |  | Guarantee from Mad Catz, Inc. to Congress Financial Corporation (Central), dated September 25, 2000. (3)                                                                       
|      |  
|10.6  |   |  | First Amended and Restated Loan Agreement between Congress Financial Corporation (Central) and Mad Catz, Inc., dated as of September 5, 2001. (4)                              
|      |  
|10.7  |   |  | Amended and Restated General Security Agreement by and among Mad Catz Inc., FX Unlimited, Inc. and Congress Financial Corporation (Central), dated as of November 30, 2001.
(4)
|      |  
|10.8  |   |  | Amending Agreement between Mad Catz, Inc. and Congress Financial Corporation (Central), dated as of June 18, 2002. (4)                                                         
|      |  
|10.9  |   |  | Standard Industrial Lease between H. G. Fenton Company and Mad Catz Inc., dated July 9, 2001. (4)                                                                              
|      |  
|10.10 | * |  | Amended and Restated Incentive Stock Option Plan of Mad Catz Interactive, Inc. (4)                                                                                             
|      |  
|10.11 | * |  | Form of Incentive Stock Option Plan. (4)                                                                                                                                       



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|      |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  
|10.12 |   |  | Agreement, dated January 17, 2003, as amended by First Amending Agreement dated as of the 14th day of February, 2003, between Fire International Ltd. and its related companies and Mad Catz
Interactive, Inc. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (5)                                                                                             
|      |  
|10.13 |   |  | Letter Agreement, dated January 21, 2003, between and Mad Catz Interactive, Inc., Mad Catz, Inc. and InterAct Accessories, Inc. (5)                                                                                                                                                                                                                                                                                                                                                                   
|      |  
|10.14 |   |  | Second Amending Agreement made as of the 22nd day of January 2003 between Mad Catz, Inc. and Congress Financial Corporation (Central). (5)                                                                                                                                                                                                                                                                                                                                                            
|      |  
|10.15 |   |  | Web Services Agreement made and entered into as of February 11, 2003, by and between IGN Entertainment, Inc. and Mad Catz, Inc. Portions of this exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (5)                                                                                                                                                                            
|      |  
|10.16 |   |  | First Amending Agreement dated as of the 14th day of February 2003 between Mad Catz Interactive, Inc. and Fire International Ltd. and its related companies. Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (5)                                                                                                                                               
|      |  
|10.17 |   |  | Marketing Agreement made and entered into as of April 7, 2003 between IGN Entertainment, Inc. and Mad Catz, Inc. Portions of this exhibit (indicated by asterisks) have been omitted pursuant
to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (5)                                                                                                                                                                                           
|      |  
|10.18 |   |  | First Amendment to Web Services Agreement dated as of May 5, 2003 between IGN Entertainment, Inc. and Mad Catz, Inc. Portions of this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934. (5)
|      |  
|10.19 | * |  | Employment Agreement between Mad Catz, Inc. and Darren Richardson, dated May 18, 2000. (5)                                                                                                                                                                                                                                                                                                                                                                                                            
|      |  
|10.20 | * |  | Amendment to Employment Agreement between Mad Catz Interactive, Inc. and Darren Richardson, dated April 1, 2004. Portions of this exhibit (indicated by asterisks) have been omitted pursuant
to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (6)                                                                                                                                                                                           
|      |  
|10.21 | * |  | Employment Agreement between Mad Catz Interactive, Inc., Mad Catz, Inc. and Cyril Talbot III, dated July 23, 2003. (6)                                                                                                                                                                                                                                                                                                                                                                                
|      |  
|10.22 |   |  | Distribution Agreement between the Company and Mastiff, LLC, dated May 13, 2005. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                               
|      |  
|10.23 |   |  | European Distribution Agreement between the Company and In2Games Limited, dated May 12, 2005. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                  
|      |  
|10.24 |   |  | European Distribution Agreement between the Company and In2Games Limited, dated May 19, 2005. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                  
|      |  
|10.25 |   |  | Third Amending Agreement between the Company and Fire International, Ltd. and its related companies, dated February 1, 2005. Portions of this exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                                                                                                                   



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.26 |  | Xenon Game Peripheral Licensing Certification Agreement, made and entered into on May 12, 2005, by and between the Company and Microsoft Corporation. Portions of this exhibit (indicated by
asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                           
|      | 
|21.1  |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                                           
|      | 
|23.1  |  | Accountants Consent.                                                                                                                                                                                                                                                                                                                                                                                                                  
|      | 
|31.1  |  | Certifications of Registrants Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       
|      | 
|31.2  |  | Certifications of Registrants Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                       
|      | 
|32.1  |  | Certifications of Registrants Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. These certifications are being
furnished solely to accompany this Annual Report on Form 10-K and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the
Company.
|      | 
|32.2  |  | Certifications of Registrants Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. These certifications are being
furnished solely to accompany this Annual Report on Form 10-K and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the
Company.

---

|(1) | This document was filed as an exhibit to the Registrants Annual Report on Form 20-F filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2001
and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This document was filed as an exhibit to the Registrants Registration Statement on Form 20-F, dated June 1, 1999, filed with the Securities and Exchange Commission on
June 3, 1999 and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This document was filed as an exhibit to the Registrants Annual Report on Form 20-F filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2000
and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | This document was filed as an exhibit to the Registrants Annual Report on Form 20-F filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2002
and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | This document was filed as an exhibit to the Registrants Annual Report on Form 20-F filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2003
and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | This document was filed as an exhibit to the Registrants Annual Report on Form 20-F filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2004
and incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Denotes management contract or compensatory plan or arrangement.
|- | ----------------------------------------------------------------



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SIGNATURES



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



MAD CATZ INTERACTIVE INT.By:

/S/    DARREN
RICHARDSONDarren Richardson President and Chief Executive Officer




Date: July 11, 2005



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



|                                          |  |                                                                                        |  |              
|----------------------------------------- |  | -------------------------------------------------------------------------------------- |  | -------------
|Signature                                 |  | Title                                                                                  |  | Date         
|                                          |  |                                                                                       
|/s/    DARREN RICHARDSONDarren Richardson |  | President and Chief Executive Officer (Principal Executive Officer)                    |  | July 11, 2005
|                                          |  |                                                                                       
|/s/    CYRIL TALBOT
IIICyril Talbot III   |  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |  | July 11, 2005
|                                          |  |                                                                                       
|/s/    PATRICK BRIGHAMPatrick Brigham     |  | Chairman of the Board                                                                  |  | July 11, 2005
|                                          |  |                                                                                       
|/s/    DONALD LENZDonald Lenz             |  | Director                                                                               |  | July 11, 2005
|                                          |  |                                                                                       
|Cary McWhinnie                            |  | Director                                                                               |  |              
|                                          |  |                                                                                       
|/s/    MORRIS PERLISMorris Perlis         |  | Director                                                                               |  | July 11, 2005
|                                          |  |                                                                                       
|/s/    ANDREW REDMONDAndrew Redmond       |  | Director                                                                               |  | July 11, 2005



49



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##### Table of Contents

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS



|                                                                         |  |    
|------------------------------------------------------------------------ |  | ---
|Index to Financial Statements                                            |  | F-1
|                                                                         | 
|Report of Independent Registered Public Accounting Firm                  |  | F-2
|                                                                         | 
|Consolidated Balance Sheets                                              |  | F-3
|                                                                         | 
|Consolidated Statements of Operations                                    |  | F-4
|                                                                         | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income |  | F-5
|                                                                         | 
|Consolidated Statements of Cash Flows                                    |  | F-6
|                                                                         | 
|Notes to Consolidated Financial Statements                               |  | F-7



F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Shareholders

Mad Catz Interactive, Inc.:



We have audited the
accompanying consolidated balance sheets of Mad Catz Interactive, Inc. and subsidiaries as of March 31, 2005 and 2004 and the related consolidated statements of operations, shareholders equity and comprehensive income and cash flows for each
of the years in the three-year period ended March 31, 2005. In connection with our audits of the consolidated financial statements, we have also audited financial statement Schedule II. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mad Catz Interactive, Inc. and subsidiaries as of March 31, 2005 and 2004 and
the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement Schedule
II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



/s/    KPMG LLP



San Diego, California

July 7, 2005



F-2



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Consolidated Balance Sheets

March 31, 2005 and 2004

(in thousands of U.S. dollars)



|                                                                                                                                                          |  |      |         |   |       |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ----- | - | ------- | -
|                                                                                                                                                          |  | 2005 |         |   | 2004* |  
|Assets                                                                                                                                                    |  |      |         |   |       |   |         |  
|Current assets:                                                                                                                                           |  |      |         |   |       |   |         |  
|Cash                                                                                                                                                      |  | $    | 1,085   |   |       | $ | 1,728   |  
|Accounts receivable, net of allowances of $6,329 and $5,971 atMarch 31, 2005 and 2004, respectively                                                       |  |      | 17,549  |   |       |   | 16,591  |  
|Other receivables                                                                                                                                         |  |      | 1,804   |   |       |   | 448     |  
|Inventories                                                                                                                                               |  |      | 26,865  |   |       |   | 16,848  |  
|Deferred tax assets                                                                                                                                       |  |      | 3,636   |   |       |   | 2,765   |  
|Other current assets                                                                                                                                      |  |      | 895     |   |       |   | 1,446   |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Total current assets                                                                                                                                      |  |      | 51,834  |   |       |   | 39,826  |  
|                                                                                                                                                          |  |     
|Deferred tax assets                                                                                                                                       |  |      | 578     |   |       |   | 282     |  
|Property and equipment, net                                                                                                                               |  |      | 1,831   |   |       |   | 1,609   |  
|Intangible assets, net                                                                                                                                    |  |      | 3,438   |   |       |   | 4,242   |  
|Goodwill                                                                                                                                                  |  |      | 21,455  |   |       |   | 19,964  |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Total assets                                                                                                                                              |  | $    | 79,136  |   |       | $ | 65,923  |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Liabilities and Shareholders Equity                                                                                                                      |  |      |         |   |       |   |         |  
|Current liabilities:                                                                                                                                      |  |      |         |   |       |   |         |  
|Bank loan                                                                                                                                                 |  | $    | 12,100  |   |       | $ | 15,182  |  
|Accounts payable                                                                                                                                          |  |      | 19,209  |   |       |   | 11,214  |  
|Accrued liabilities                                                                                                                                       |  |      | 3,434   |   |       |   | 2,500   |  
|Accrued taxes payable                                                                                                                                     |  |      | 1,490   |   |       |   | 971     |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Total current liabilities                                                                                                                                 |  |      | 36,233  |   |       |   | 29,867  |  
|                                                                                                                                                          |  |     
|Shareholders equity:                                                                                                                                     |  |      |         |   |       |   |         |  
|Common stock, no par value, unlimited shares authorized; 54,244,383 and 53,462,716 shares issued and outstanding at March 31, 2005 and 2004,
respectively |  |      | 46,746  |   |       |   | 46,038  |  
|Accumulated other comprehensive income                                                                                                                    |  |      | 6,514   |   |       |   | 4,957   |  
|Accumulated deficit                                                                                                                                       |  |      | (10,357 | ) |       |   | (14,939 | )
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Total shareholders equity                                                                                                                                |  |      | 42,903  |   |       |   | 36,056  |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  
|Total liabilities and shareholders equity                                                                                                                |  | $    | 79,136  |   |       | $ | 65,923  |  
|                                                                                                                                                          |  |      |         |   |       |   |         |  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



See accompanying notes to consolidated financial statements.



F-3



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Consolidated Statements of Operations

Years ended March 31, 2005, 2004 and 2003

(in thousands of U.S. dollars, except per share and share data)



|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|------------------------------------------------ |  | ---- | ---------- | - | ----- | - | ---------- | ----- |  | - | ---------- | -
|                                                 |  | 2005 |            |   | 2004* |   |            | 2003* | 
|Net sales                                        |  | $    | 112,071    |   |       | $ | 102,143    |       |  | $ | 91,658     |  
|Cost of sales                                    |  |      | 84,421     |   |       |   | 79,803     |       |  |   | 71,467     |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Gross profit                                     |  |      | 27,650     |   |       |   | 22,340     |       |  |   | 20,191     |  
|Operating expenses:                              |  |      |            |   |       |   |            |       |  |   |            |  
|Sales and marketing                              |  |      | 10,053     |   |       |   | 11,166     |       |  |   | 8,835      |  
|General and administrative                       |  |      | 6,998      |   |       |   | 6,459      |       |  |   | 6,160      |  
|Research and development                         |  |      | 897        |   |       |   | 1,079      |       |  |   | 936        |  
|Amortization of intangible assets                |  |      | 804        |   |       |   | 804        |       |  |   | 36         |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Total operating expenses                         |  |      | 18,752     |   |       |   | 19,508     |       |  |   | 15,967     |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Operating income                                 |  |      | 8,898      |   |       |   | 2,832      |       |  |   | 4,224      |  
|Interest expense, net                            |  |      | (1,203     | ) |       |   | (1,330     | )     |  |   | (1,758     | )
|Foreign exchange gain (loss), net                |  |      | (582       | ) |       |   | 91         |       |  |   | (94        | )
|Other income                                     |  |      | 202        |   |       |   | 98         |       |  |   | 47         |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Income before income taxes                       |  |      | 7,315      |   |       |   | 1,691      |       |  |   | 2,419      |  
|Income tax expense                               |  |      | 2,733      |   |       |   | 629        |       |  |   | 788        |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Net income                                       |  | $    | 4,582      |   |       | $ | 1,062      |       |  | $ | 1,631      |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Net income per share:                            |  |      |            |   |       |   |            |       |  |   |            |  
|Basic                                            |  | $    | 0.09       |   |       | $ | 0.02       |       |  | $ | 0.03       |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Diluted                                          |  | $    | 0.08       |   |       | $ | 0.02       |       |  | $ | 0.03       |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Number of shares used in per share computations: |  |      |            |   |       |   |            |       |  |   |            |  
|Basic                                            |  |      | 53,506,289 |   |       |   | 53,286,248 |       |  |   | 53,070,890 |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  
|Diluted                                          |  |      | 54,481,162 |   |       |   | 53,983,127 |       |  |   | 53,689,972 |  
|                                                 |  |      |            |   |       |   |            |       |  |   |            |  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



See accompanying notes to consolidated financial statements.



F-4



---

##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Consolidated Statements of Shareholders Equity and Comprehensive Income

Years ended March 31, 2005, 2004 and 2003

(in thousands of U.S. dollars, except share data)



|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|------------------------------------------ |  | ------------ |  | ------ | ------------------------------------ | - | ------------------- | - | ----- | ------------------------- | - | ------- | - |  | - | ------ | -
|                                           |  | Common Stock |  |        | AccumulatedOtherComprehensive Income |   | Accumulated Deficit |   |       | TotalShareholders Equity |  
|                                           |  | Shares       |  | Amount |                                      |   |                     |  
|BALANCE, March 31, 2002*                   |  | 52,909,548   |  | $      | 46,072                               |   |                     | $ | 1,177 |                           | $ | (17,632 | ) |  | $ | 29,617 |  
|Stock option exercises                     |  | 97,171       |  |        | 53                                   |   |                     |   |      |                           |   |        |   |  |   | 53     |  
|Stock-based compensation                   |  |             |  |        | (420                                 | ) |                     |   |      |                           |   |        |   |  |   | (420   | )
|Warrant exercises                          |  | 200,000      |  |        | 185                                  |   |                     |   |      |                           |   |        |   |  |   | 185    |  
|Comprehensive income:                      |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Net income                                 |  |             |  |        |                                     |   |                     |   |      |                           |   | 1,631   |   |  |   | 1,631  |  
|Foreign currency translation adjustment    |  |             |  |        |                                     |   |                     |   | 1,358 |                           |   |        |   |  |   | 1,358  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Total comprehensive income                 |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   | 2,989  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|BALANCE, March 31, 2003*                   |  | 53,206,719   |  |        | 45,890                               |   |                     |   | 2,535 |                           |   | (16,001 | ) |  |   | 32,424 |  
|Stock option exercises                     |  | 255,997      |  |        | 164                                  |   |                     |   |      |                           |   |        |   |  |   | 164    |  
|Stock-based compensation                   |  |             |  |        | (16                                  | ) |                     |   |      |                           |   |        |   |  |   | (16    | )
|Comprehensive income:                      |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Net income                                 |  |             |  |        |                                     |   |                     |   |      |                           |   | 1,062   |   |  |   | 1,062  |  
|Foreign currency translation adjustment    |  |             |  |        |                                     |   |                     |   | 2,422 |                           |   |        |   |  |   | 2,422  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Total comprehensive income                 |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   | 3,484  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|BALANCE, March 31, 2004*                   |  | 53,462,716   |  |        | 46,038                               |   |                     |   | 4,957 |                           |   | (14,939 | ) |  |   | 36,056 |  
|Stock option exercises                     |  | 781,667      |  |        | 603                                  |   |                     |   |      |                           |   |        |   |  |   | 603    |  
|Stock-based compensation                   |  |             |  |        | (12                                  | ) |                     |   |      |                           |   |        |   |  |   | (12    | )
|Tax benefit from exercise of stock options |  |             |  |        | 117                                  |   |                     |   |      |                           |   |        |   |  |   | 117    |  
|Comprehensive income:                      |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Net income                                 |  |             |  |        |                                     |   |                     |   |      |                           |   | 4,582   |   |  |   | 4,582  |  
|Foreign currency translation adjustment    |  |             |  |        |                                     |   |                     |   | 1,557 |                           |   |        |   |  |   | 1,557  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|Total comprehensive income                 |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   | 6,139  |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  
|BALANCE, March 31, 2005                    |  | 54,244,383   |  | $      | 46,746                               |   |                     | $ | 6,514 |                           | $ | (10,357 | ) |  | $ | 42,903 |  
|                                           |  |              |  |        |                                      |   |                     |   |       |                           |   |         |   |  |   |        |  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



See accompanying notes to consolidated financial statements.



F-5



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Consolidated Statements of Cash Flows

Years ended March 31, 2005, 2004 and 2003

(in thousands of U.S. dollars)



|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ----- | - | ------ | ----- |  | - | ------ | -
|                                                                                            |  | 2005 |        |   | 2004* |   |        | 2003* | 
|Cash flows from operating activities:                                                       |  |      |        |   |       |   |        |       |  |   |        |  
|Net income                                                                                  |  | $    | 4,582  |   |       | $ | 1,062  |       |  | $ | 1,631  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |      |        |   |       |   |        |       |  |   |        |  
|Deferred tax assets                                                                         |  |      | (1,167 | ) |       |   | (102   | )     |  |   | (1,011 | )
|Depreciation and amortization                                                               |  |      | 1,852  |   |       |   | 1,831  |       |  |   | 1,173  |  
|Amortization of deferred financing fees                                                     |  |      |       |   |       |   | 239    |       |  |   | 484    |  
|Loss on disposals of assets                                                                 |  |      | 41     |   |       |   |       |       |  |   |       |  
|Tax benefit of stock options exercised                                                      |  |      | 117    |   |       |   |       |       |  |   |       |  
|Stock-based compensation                                                                    |  |      | (12    | ) |       |   | (16    | )     |  |   | (420   | )
|Foreign exchange (gains) losses                                                             |  |      | 582    |   |       |   | (91    | )     |  |   | 94     |  
|Changes in operating assets and liabilities:                                                |  |      |        |   |       |   |        |       |  |   |        |  
|Accounts receivable                                                                         |  |      | (824   | ) |       |   | 477    |       |  |   | (6,122 | )
|Other receivables                                                                           |  |      | (1,356 | ) |       |   | (448   | )     |  |   |       |  
|Inventories                                                                                 |  |      | (9,970 | ) |       |   | 1,901  |       |  |   | (2,394 | )
|Other current assets                                                                        |  |      | 602    |   |       |   | (398   | )     |  |   | (272   | )
|Accounts payable                                                                            |  |      | 7,968  |   |       |   | (1,918 | )     |  |   | (865   | )
|Accrued liabilities                                                                         |  |      | 908    |   |       |   | (542   | )     |  |   | 636    |  
|Accrued taxes payable                                                                       |  |      | 514    |   |       |   | 1,547  |       |  |   | (327   | )
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Net cash provided by (used in) operating activities                                         |  |      | 3,837  |   |       |   | 3,542  |       |  |   | (7,393 | )
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Cash flows from investing activities:                                                       |  |      |        |   |       |   |        |       |  |   |        |  
|Purchases of property and equipment                                                         |  |      | (1,402 | ) |       |   | (911   | )     |  |   | (939   | )
|Purchase of intangible assets                                                               |  |      |       |   |       |   |       |       |  |   | (5,083 | )
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Net cash used in investing activities                                                       |  |      | (1,402 | ) |       |   | (911   | )     |  |   | (6,022 | )
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Cash flows from financing activities:                                                       |  |      |        |   |       |   |        |       |  |   |        |  
|Bank loans                                                                                  |  |      | (3,082 | ) |       |   | (1,895 | )     |  |   | 12,742 |  
|Proceeds from issue of share capital                                                        |  |      | 558    |   |       |   | 158    |       |  |   | 239    |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Net cash provided by (used in) financing activities                                         |  |      | (2,524 | ) |       |   | (1,737 | )     |  |   | 12,981 |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Effects of foreign exchange on cash                                                         |  |      | (554   | ) |       |   | (400   | )     |  |   | (235   | )
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Net increase (decrease) in cash                                                             |  |      | (643   | ) |       |   | 494    |       |  |   | (669   | )
|Cash, beginning of year                                                                     |  |      | 1,728  |   |       |   | 1,234  |       |  |   | 1,903  |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Cash, end of year                                                                           |  | $    | 1,085  |   |       | $ | 1,728  |       |  | $ | 1,234  |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Supplemental cash flow information:                                                         |  |      |        |   |       |   |        |       |  |   |        |  
|Income taxes paid                                                                           |  | $    | 3,613  |   |       | $ | 244    |       |  | $ | 1,840  |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  
|Interest paid                                                                               |  | $    | 1,094  |   |       | $ | 989    |       |  | $ | 1,272  |  
|                                                                                            |  |      |        |   |       |   |        |       |  |   |        |  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



See accompanying notes to consolidated financial statements.



F-6



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements

(in U.S. dollars)



(1) Organization and Description of Business



Mad Catz Interactive, Inc. is a corporation incorporated under the Canada
Business Corporations Act. The Company has the following operating subsidiaries: (i) Mad Catz, Inc. (MCI), a corporation incorporated under the laws of Delaware that acts as the Companys primary subsidiary (ii) 1328158 Ontario Inc.
(MCC), a corporation incorporated under the laws of Canada that sells the Companys Mad Catz and GameShark product lines in Canada under the name Mad Catz Canada (iii) Mad Catz Europe, Limited, (MCE), a corporation
incorporated under the laws of England and Wales that sells the Companys Mad Catz product lines in Europe. The Company also beneficially owns, directly or indirectly, all of the issued and outstanding shares of Mad Catz Interactive Asia
Limited (MCIA), a corporation incorporated under the laws of Hong Kong that provides procurement services related to the manufacture of Mad Catz products. The Company also beneficially owns, directly or indirectly, all of the issued and
outstanding shares of the following companies that are currently inactive: FX Unlimited Inc., a corporation incorporated under the laws of Delaware, Mad Catz (Asia) Limited, a corporation incorporated under the laws of Hong Kong, Xencet USA, Inc., a
corporation incorporated under the laws of Delaware, Singapore Holdings Inc., a corporation incorporated under the laws of Delaware and Mad Catz Limited, a company incorporated under the laws of England and Wales.



The Companys products are designed, manufactured (primarily through
third parties), marketed and distributed for all major console based video game systems. The Companys products include video game accessories of all types, such as control pads, steering wheels, joysticks, memory cards, video cables, light
guns, dance pads, microphones, car adapters and carry cases. The Company also publishes game enhancement software and in fiscal 2005, the Company published its first video game title, which was developed by a third party developer.



(2) Basis of Presentation and Summary of Significant Accounting Policies



The Company previously prepared its financial statements in accordance
with accounting principles generally accepted in Canada (Canadian GAAP), and filed its Annual Reports on Form 20-F with the United States Securities and Exchange Commission as a foreign private issuer. During the fourth quarter of fiscal
2005, the Company determined that it no longer met the foreign share ownership requirements applicable to foreign private issuers, and, as a result, that it could no longer file its Annual Report on Form 20-F. Therefore, the consolidated financial
statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the Company will file its Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K. As a result of this change, certain prior year information has been recasted in accordance with U.S. GAAP.



Principles of Consolidation



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



Use of Estimates



The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates.



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Concentration of Credit Risk



Credit risk is primarily concentrated in accounts receivable. The Company generally does not require collateral on accounts
receivable because a majority of its customers are large, well capitalized, established retail entities with operations throughout the United States, Canada and Europe. The Company maintains an allowance for doubtful accounts. For the year ended
March 31, 2005 sales to the three largest customers constituted 47% of gross sales and represented 60% of accounts receivable at March 31, 2005. For the year ended March 31, 2004 sales to the two largest customers constituted 39% of gross sales and
represented 49% of accounts receivable at March 31, 2004. Accounts receivable balances generally are in proportion to the net sales percentages for the Companys largest customers.



Fair Value of Financial Instruments



The carrying values of the Companys financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities
approximate their fair values due to the short maturity of these instruments. The carrying value of the bank loan approximates its fair value as the interest rate and other terms are that which is currently available to the Company.



Revenue Recognition



The Company evaluates the recognition of revenue based on the applicable
provisions of Staff Accounting Bulletin No. 104, Revenue Recognition and on the criteria set forth in Statement of Position 97-2, Software Revenue Recognition. Accordingly, the Company recognizes revenue when
(1) there is persuasive evidence that an arrangement with our customer exists, which is generally a customer purchase order, (2) the products are delivered, which occurs when the products are shipped and risk of loss has been transferred to the
customer, (3) the selling price is fixed or determinable and (4) collection of the customer receivable is deemed probable. Our payment arrangements with customers typically provide net 30 and 60-day terms.



Revenues from sales to authorized resellers are subject to terms allowing
price protection, certain rights of return and allowances for volume rebates and cooperative advertising. Allowances for price protection are recorded when the price protection program is approved. Allowances for estimated future returns,
cooperative advertising and volume rebates are provided for upon revenue recognition. Such amounts are estimated and periodically adjusted based on historical and anticipated rates of returns, inventory levels and other factors and are recorded as a
reduction of revenue or operating expense in accordance with EITF 01-9.



Allowance for Doubtful Accounts and Other Allowances



Accounts receivable are recorded net of an allowance for doubtful accounts and other allowances. When evaluating the adequacy of the allowance for doubtful accounts, the Company analyzes known uncollectible accounts,
the aging of accounts receivable, historical bad debts, customer credit-worthiness and current economic trends.



Other allowances include those for sales returns, price protection, volume rebates and cooperative advertising. When estimating future product returns,
the Company makes an assessment of the rate by which customers and end consumers will return the Companys products by considering historical trends and information regarding inventory levels and demand and acceptance of the Companys
products by the end consumer. Allowances for price protection, cooperative advertising and volume rebates are based upon programs negotiated with specific customers.



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Inventories



Raw materials, packaging materials and accessories are valued at the lower of cost, determined by the first-in, first-out method, or market. Finished
goods are valued at the lower of cost or market, with cost being determined on an average cost basis using the first-in, first-out method. The Company regularly reviews inventory quantities on hand and in the retail channel in order to recognize any
loss of utility in the period incurred.



Property and Equipment



Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of the assets as follows:



|                                   |  |                                                            
|---------------------------------- |  | -----------------------------------------------------------
|Manufacturing and office equipment |  | 3  5 years                                                
|Computer equipment and software    |  | 3 years                                                    
|Furniture and fixtures             |  | 5 years                                                    
|Molds                              |  | 3 years                                                    
|Leasehold improvements             |  | Shorter of estimated useful life or remaining life of lease



Intangible Assets



Intangible assets are stated at cost less accumulated
amortization and are amortized over the estimated useful lives of the assets on a straight-line basis.



Goodwill



The
Company has recorded goodwill in connection with the acquisitions it has completed in prior periods. Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, prohibits amortization of
goodwill and intangible assets with indefinite useful lives but instead requires testing for impairment at least annually. The Company reviews its goodwill for impairment as of April 1stof each fiscal year or when an event or a change in facts and or circumstances indicates the fair value of a reporting unit may be below its carrying amount.
The Company has completed its annual assessment of impairment in accordance with SFAS No. 142, which did not indicate any impairment of goodwill as of March 31, 2005 and 2004.



Impairment of Long-Lived Assets



In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,long-lived assets, such as property,
plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.



Software Development Costs



Software development costs primarily consist of payments made to independent
software developers under development agreements. The Company accounts for software development costs in accordance with SFAS



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, which provides for the
capitalization of certain software development costs incurred after technological feasibility of the software is established or for development costs that have alternative future uses. Under our current practice of developing new products, the
technological feasibility of the underlying software is not established until substantially all product development is complete and the first playable version is delivered. The software development costs that have been capitalized to date have been
insignificant and were fully amortized as of March 31, 2005.



Royalties
and Intellectual Property Licenses



Royalty and
license expenses consist of royalties and license fees paid to intellectual property rights holders for use of their trademarks, copyrights, software, technology or other intellectual property or proprietary rights in the development or sale of our
products. Royalty payments to independent software developers are payments for the development of intellectual property related to our games.



Royalty-based payments that are paid in advance are generally capitalized and expensed to cost of goods sold at the greater of the contractual or
effective royalty rate based on net product sales. With regard to payments made to independent software developers and co-publishing affiliates, the Company is generally subject to development risk prior to the general release of the product.
Accordingly, payments that are due prior to completion of the product are generally expensed as research and development as the services are incurred. Payments due after the general release of the product (primarily royalty-based in nature) are
generally expensed as cost of goods sold at the higher of the contractual or effective royalty rate based on net product sales.



Advertising



Advertising costs are expensed as incurred and amounted to $4,385,000, $5,046,000 and $4,876,000 in 2005, 2004 and 2003, respectively. Cooperative
advertising with distributors and retailers is accrued when revenue is recognized and such amounts are included in sales and marketing expense if there is a separate identifiable benefit with an estimable fair value. Otherwise, such costs are
recognized as a reduction of net revenue.



Income Taxes



Income taxes are accounted for using the asset and
liability method. Under the asset and liability method of accounting for income taxes, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts and
tax basis of assets and liabilities and for tax loss 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. To the extent that it is not more likely than not that a deferred tax asset will be realized, a valuation allowance is provided.
Significant management judgment is required in assessing the realizability of the Companys deferred tax assets. In performing this assessment, management considers whether it is more likely than not that some portion or all of the assets will
not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income in each tax jurisdiction during the periods in which the temporary differences become deductible. Management considers the
scheduled reversal of deferred liabilities, projected future taxable income, and tax planning strategies in making this assessment.



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Foreign Currency Translation



For each of the Companys foreign operating subsidiaries the functional currency is its local currency. Assets and
liabilities of foreign operations are translated into U.S. dollars using month-end exchange rates, and revenue and expenses are translated into U.S. dollars using monthly average exchange rates. The effects of foreign currency translation
adjustments are included as a component of accumulated other comprehensive income in shareholders equity.



Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the
functional currency.



Net Income per Share



Basic earnings per share are computed by dividing the net income for the
period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding, increased by potentially
dilutive securities. Potentially dilutive securities are calculated using the treasury stock method and represent incremental shares issuable upon exercise of outstanding stock options. However, potentially dilutive securities are not included in
the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.



The following table sets forth the computation of diluted weighted average common and potential common shares outstanding for the years ended March 31,
2005, 2004 and 2003:



|                                                                        |  |                       |  |            |  |           
|----------------------------------------------------------------------- |  | --------------------- |  | ---------- |  | ----------
|                                                                        |  | Years ended March 31,
|                                                                        |  | 2005                  |  | 2004       |  | 2003      
|Basic weighted average common shares outstanding                        |  | 53,506,289            |  | 53,286,248 |  | 53,070,890
|Effect of dilutive securities:                                          |  |                       |  |            |  |           
|Options                                                                 |  | 974,873               |  | 696,879    |  | 619,082   
|                                                                        |  |                       |  |            |  |           
|Diluted weighted average common and potential common shares outstanding |  | 54,481,162            |  | 53,983,127 |  | 53,689,972
|                                                                        |  |                       |  |            |  |           



Options to purchase
300,651, 850,651, and 2,076,318 shares of common stock were outstanding as of March 31, 2005, 2004 and 2003, respectively, but were not included in the computation of diluted net income per share, as the effect would be antidilutive.



Stock-Based Compensation



The Company accounts for its stock-based employee compensation plan using
the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,and related Interpretations. Accordingly, compensation cost for stock options issued to
employees is measured as the excess, if any, of the quoted market price of the Companys stock at the date of the grant over the exercise price of the underlying stock options. In December 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS No. 123.SFAS 148 requires certain additional
disclosures of the estimated fair value of stock-based compensation. Such estimated fair value is determined through the use of the Black-Scholes option pricing model. SFAS 123, Accounting for Stock-Based Compensation,encourages,
but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value.



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Had compensation expense for these plans been determined consistent with SFAS 123, the Company would
have recorded net income and basic and diluted net income per share for the years ended March 31, 2005, 2004 and 2003 as follows (in thousands):



|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------------- |  | --------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                     |  | Years Ended March 31, |      
|                                                     |  | 2005                  |       |   | 2004 |   |       | 2003 | 
|Net income as reported                               |  | $                     | 4,582 |   |      | $ | 1,062 |      |  | $ | 1,631 |  
|Stock based compensation using the fair value method |  |                       | (245  | ) |      |   | (195  | )    |  |   | (262  | )
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|Pro forma net income                                 |  | $                     | 4,337 |   |      | $ | 867   |      |  | $ | 1,369 |  
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|Net income per common share:                         |  |                       |       |   |      |   |       |      |  |   |       |  
|Basicas reported                                    |  | $                     | 0.09  |   |      | $ | 0.02  |      |  | $ | 0.03  |  
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|Basicpro forma                                      |  | $                     | 0.08  |   |      | $ | 0.02  |      |  | $ | 0.03  |  
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|Dilutedas reported                                  |  | $                     | 0.08  |   |      | $ | 0.02  |      |  | $ | 0.03  |  
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  
|Dilutedpro forma                                    |  | $                     | 0.08  |   |      | $ | 0.02  |      |  | $ | 0.03  |  
|                                                     |  |                       |       |   |      |   |       |      |  |   |       |  



The fair value of the
options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions for the years ended March 31, 2005, 2004 and 2003: no dividend yield, volatility of 79%, 73% and 76% in fiscal 2005, 2004 and
2003, respectively; risk-free interest rates ranging from 2.9% to 4.0% for fiscal 2005, 2.6% to 3.2% for fiscal 2004 and 5% for fiscal 2003; and an expected life of 3 years. The weighted average estimated fair value of employee stock options
granted during fiscal 2005 ranged from $0.44 to $0.45. The weighted average estimated fair value of employee stock options granted during fiscal 2004 ranged from $0.42 to $0.78. The weighted average estimated fair value of employee stock options
granted during fiscal 2003 was $0.55. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting periods.



Comprehensive Income



SFAS No. 130, Reporting Comprehensive Income, requires classification of other comprehensive income in a financial statement and
display of other comprehensive income separately from retained earnings and additional paid-in capital. Other comprehensive income consists of primarily foreign currency translation adjustments.



Recent Accounting Pronouncements



In December 2004, the FASB issued Statement No. 123 (revised 2004)
(SFAS 123R), Share-Based Payment. SFAS 123R replaced SFAS 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
123R will require companies to recognize compensation expense, using a fair-value based method, for costs related to share-based payments including stock options and other forms of stock-based compensation. SFAS No. 123R allows measurement of the
cost of share-based payment transactions to employees at the fair value of the award on the grant date and recognition of expense over the requisite service or vesting period. SFAS No. 123R allows implementation using a modified version of
prospective application, under which compensation expense for the unvested portion of previously granted awards and all new awards will be recognized on or after the date of adoption. SFAS No. 123R also allows companies to adopt SFAS No. 123R by
restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in their pro forma footnote disclosures required under SFAS No. 123. In addition, in March 2005, the Securities and Exchange
Commission (SEC) released SEC



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Staff Accounting Bulletin No. 107, Share-Based Payment (SAB No. 107). SAB No. 107 provides the SEC staffs position
regarding the application of SFAS No. 123R and certain SEC rules and regulations, and also provides the staffs views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC approved an amendment
to Rule 4-01(a) of Regulation S-X to amend the date for compliance with SFAS No. 123R. In accordance with this amendment, the accounting provisions of SFAS No. 123R are effective for annual periods beginning after June 15, 2005. The Company is
required to adopt SFAS No. 123R no later than the first quarter of fiscal 2007. The Company is evaluating the requirements of SFAS No. 123R and SAB No. 107 and it does not expect the adoption of these pronouncements to have a significant impact on
its consolidated results of operations.



In November 2004, the
FASB issued Statement No. 151 (SFAS No. 151), Inventory Costsan Amendment of ARB 43, Chapter 4, to provide clarification that abnormal amounts of idle facility expense, freight, handling costs, and wasted
material be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this
standard are effective for fiscal years beginning after June 15, 2005. The adoption of this standard is not expected to have a material impact on the Companys future consolidated financial statements.



In December 2004, the FASB issued Statement No. 153 (SFAS No.
153), Exchange of Non-monetary Assetsan amendment of APB Opinion No. 29.SFAS No. 153 amends APB No. 29, Accounting for Non-monetary Transactions to eliminate the exception for non-monetary exchanges
of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 is effective for non-monetary exchanges occurring in fiscal periods beginning after June
15, 2005. The Company expects the adoption of SFAS No. 153 will not have a material impact on its consolidated financial statements.



Reclassifications



Certain prior period amounts have been reclassified to conform to the current year presentation.



(3) Inventories



Inventories consist of the following (in thousands):



|                                    |  |           |        |      |   |       
|----------------------------------- |  | --------- | ------ | ---- | - | ------
|                                    |  | March 31,
|                                    |  | 2005      |        | 2004
|Raw materials                       |  | $         | 2,228  |      | $ | 2,558 
|Finished goods                      |  |           | 24,635 |      |   | 14,288
|Packaging materials and accessories |  |           | 2      |      |   | 2     
|                                    |  |           |        |      |   |       
|Inventories                         |  | $         | 26,865 |      | $ | 16,848
|                                    |  |           |        |      |   |       



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MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



(4) Property and Equipment



Property and equipment consist of the following (in thousands):



|                                                |  |           |        |   |      |   |        |  
|----------------------------------------------- |  | --------- | ------ | - | ---- | - | ------ | -
|                                                |  | March 31, |       
|                                                |  | 2005      |        |   | 2004 |  
|Molds                                           |  | $         | 2,835  |   |      | $ | 2,973  |  
|Computer equipment and software                 |  |           | 1,515  |   |      |   | 1,371  |  
|Manufacturing and office equipment              |  |           | 346    |   |      |   | 297    |  
|Furniture and fixtures                          |  |           | 221    |   |      |   | 220    |  
|Assets not yet in service                       |  |           | 255    |   |      |   | 43     |  
|Leasehold improvements                          |  |           | 414    |   |      |   | 397    |  
|                                                |  |           |        |   |      |   |        |  
|                                                |  |           | 5,586  |   |      |   | 5,301  |  
|Less: Accumulated depreciation and amortization |  |           | (3,755 | ) |      |   | (3,692 | )
|                                                |  |           |        |   |      |   |        |  
|Property and equipment, net                     |  | $         | 1,831  |   |      | $ | 1,609  |  
|                                                |  |           |        |   |      |   |        |  



Depreciation and
amortization expense totaled $1,048,000, $1,027,000, and $1,137,000 for the years ended March 31, 2005, 2004 and 2003, respectively.



(5) Intangible Assets



In January 2003, the Company acquired the rights to the GameShark brand, intellectual property, and the www.gameshark.com web site from InterAct, a
subsidiary of Recoton Corporation, for total cash consideration of $5,083,000. GameShark is the industry leader in video game enhancement software, which enables players to take full advantage of the secret codes, short cuts, hints and cheats
incorporated by video game publishers into their game offerings. In connection with the GameShark acquisition, the Company entered into a five-year technology agreement with Fire International, Ltd. (Fire) to implement Fires
technology in the GameShark brand of video game enhancements. The amounts of the intangible assets and their respective useful lives were determined based upon the allocation of the actual purchase price to the various categories of intellectual
property as determined by an independent external valuation analysis completed in May 2003. In addition, the Company considered the eight year history of the GameShark brand prior to our acquisition and the lifecycle and installed base of the
console systems on which GameShark products can be used. The acquired intangible assets are summarized as follows (in thousands):



|                  |  |      |       |                         |   |                    |  |                    |       |                    |   |       |  |  
|----------------- |  | ---- | ----- | ----------------------- | - | ------------------ |  | ------------------ | ----- | ------------------ | - | ----- |  | -
|                  |  | Cost |       | AccumulatedAmortization |   | 2005 Net BookValue |  | 2004 Net BookValue |       | Useful life(years)
|Trademarks        |  | $    | 4,112 |                         | $ | 1,175              |  | $                  | 2,937 |                    | $ | 3,524 |  | 7
|Copyrights        |  |      | 514   |                         |   | 223                |  |                    | 291   |                    |   | 394   |  | 5
|Website           |  |      | 457   |                         |   | 247                |  |                    | 210   |                    |   | 324   |  | 4
|                  |  |      |       |                         |   |                    |  |                    |       |                    |   |       |  |  
|Intangible assets |  | $    | 5,083 |                         | $ | 1,645              |  | $                  | 3,438 |                    | $ | 4,242 |  |  
|                  |  |      |       |                         |   |                    |  |                    |       |                    |   |       |  |  



For the years ended
March 31, 2005, 2004 and 2003, amortization of $804,000, $804,000 and $36,000, respectively, was recorded with respect to these assets.



(6) Bank Loans



The Company has a Credit Facility with Wachovia Capital Finance Corporation (Central) (Wachovia), formerly Congress Financial Corporation
(Central) to borrow up to $35 million under a revolving line of credit subject to the availability of eligible collateral (accounts receivable and inventory), which changes throughout the



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



year. The line of credit accrues interest on the daily outstanding balance at the U.S. prime rate plus 0.75% per annum, and must be repaid in United States
dollars. The interest rate at March 31, 2005 was 6.25%. In addition, the Company is required to pay a monthly service fee of $2,000 and an unused line fee equal to 0.25%. The Credit Facility is secured by a first priority interest in MCIs
inventories, equipment, accounts receivable and investment properties and by a pledge of all of the capital stock of Mad Catz subsidiaries and is guaranteed by the Company. The Company is required under the Credit Facility to meet a monthly
consolidated tangible net worth covenant.



The Company has also
been granted an additional $10 million line of credit from Wachovia to be used for acquisition purposes under the same conditions and terms as the lines of credit described above. At March 31, 2005, no portion of this line was outstanding.



The Credit Facility with Wachovia is scheduled to expire on
September 25, 2005. The Credit Facility will automatically renew for an additional one-year period unless either party gives written notice to the other party seeking to terminate the Credit Facility at least 60 days prior to the expiration date.
Although Wachovia agreed to extend the expiration date of the Credit Facility in each of our last two fiscal years, the Company does not know the likelihood that Wachovia will agree to further extend the expiration of the Credit Facility following
September 25, 2005. The Company expects to renew or obtain new financing in the ordinary course of business.



(7) Shareholders Equity



Shareholder Rights Plan



The Company
has a shareholder rights plan in an attempt to ensure that shareholders receive a fair price in the event that a person seeks to acquire the Company. Under the rights plan, shareholders hold certain rights, which entitle them to purchase additional
shares of the Companys common stock in response to a take-over bid or tender offer, at a substantial discount from the prevailing market price of the common stock, and to vote the additional shares.



Stock Option Plan



Under the Companys stock option plan (the Plan), options
are granted to purchase shares of common stock and are exercisable over a period of up to five years. Directors options vest immediately and other options generally vest over a period of two years with one-third vesting immediately. The
Company has authorized 6,000,000 shares of common stock to be issued pursuant to options granted under the Plan. The Companys options are denominated in Canadian dollars. For convenience, per share amounts stated below have been translated to
U.S. dollars at the rate of exchange in effect at the balance sheet date.



The following director, officer, and employee stock options have been granted and are outstanding under the Plan:



|                               |  |           |   |      |                              |      |         |           |   |                              |   |         |  |           |                              |  |   |     
|------------------------------ |  | --------- | - | ---- | ---------------------------- | ---- | ------- | --------- | - | ---------------------------- | - | ------- |  | --------- | ---------------------------- |  | - | ----
|                               |  | 2005      |   | 2004 |                              | 2003
|                               |  | Options   |   |      | Weightedaverageexerciseprice |      | Options |           |   | Weightedaverageexerciseprice |   | Options |  |           | Weightedaverageexerciseprice
|Outstanding, beginning of year |  | 3,291,150 |   |      | $                            | 1.18 |         | 3,817,147 |   |                              | $ | 0.99    |  | 3,501,467 |                              |  | $ | 1.16
|Granted                        |  | 600,000   |   |      |                              | 0.75 |         | 302,501   |   |                              |   | 0.98    |  | 900,000   |                              |  |   | 0.89
|Exercised                      |  | (781,667  | ) |      |                              | 0.77 |         | (255,997  | ) |                              |   | 0.64    |  | (97,171   | )                            |  |   | 0.58
|Expired/cancelled              |  | (840,500  | ) |      |                              | 2.13 |         | (572,501  | ) |                              |   | 0.62    |  | (487,149  | )                            |  |   | 1.03
|                               |  |           |   |      |                              |      |         |           |   |                              |   |         |  |           |                              |  |   |     
|Outstanding, end of year       |  | 2,268,983 |   |      | $                            | 0.98 |         | 3,291,150 |   |                              | $ | 1.18    |  | 3,817,147 |                              |  | $ | 0.99
|                               |  |           |   |      |                              |      |         |           |   |                              |   |         |  |           |                              |  |   |     



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



The following summarizes information about stock options outstanding as of March 31, 2005:



|                        |  |                     |  |                                                  |  |                              |      |                   |           |                              |   |     
|----------------------- |  | ------------------- |  | ------------------------------------------------ |  | ---------------------------- | ---- | ----------------- | --------- | ---------------------------- | - | ----
|                        |  | Options outstanding |  | Options exercisable                             
|Range of exercise price |  | Numberoutstanding   |  | Weightedaverageremainingcontractuallife in years |  | Weightedaverageexerciseprice |      | Numberexercisable |           | Weightedaverageexerciseprice
|$0.58-0.76              |  | 998,332             |  | 3.0                                              |  | $                            | 0.74 |                   | 564,983   |                              | $ | 0.73
|$0.95-1.13              |  | 930,000             |  | 2.1                                              |  |                              | 1.09 |                   | 912,833   |                              |   | 1.10
|$1.19-1.32              |  | 190,001             |  | 3.3                                              |  |                              | 1.29 |                   | 140,001   |                              |   | 1.28
|$1.48-1.85              |  | 150,650             |  | 0.5                                              |  |                              | 1.56 |                   | 150,650   |                              |   | 1.56
|                        |  |                     |  |                                                  |  |                              |      |                   |           |                              |   |     
|                        |  | 2,268,983           |  | 2.5                                              |  | $                            | 0.98 |                   | 1,768,467 |                              | $ | 1.03
|                        |  |                     |  |                                                  |  |                              |      |                   |           |                              |   |     



At March 31, 2005,
3,926,123 shares of common stock are reserved for issuance under the Plan and 1,657,140 options are available for future grant.



The Company measures compensation using the intrinsic value method as specified by Accounting Principles Board Opinion 25. In September 2001, upon
approval by the shareholders of the Company, an aggregate of 912,000 options with exercise prices ranging from Cdn. $0.94 to Cdn. $3.25 were repriced to Cdn. $0.84. An additional 100,000 options at Cdn. $2.00 were repriced to Cdn. $0.90. At March
31, 2005, 2004 and 2003, the number of repriced options that had not been exercised or cancelled totaled 21,000, 401,000 and 792,501, respectively. Under U.S. GAAP, subsequent to the repricing, these options are considered variable. Based on the
March 31, 2005, 2004 and 2003 share prices, the Company reduced previously recorded expense by $12,000, $16,000 and $420,000 in fiscal 2005, 2004 and 2003, respectively (initial expense of $517,000 was recognized for the year ended March 31, 2002),
related to the repricing of the above noted options.



(8) Income Taxes



Domestic and foreign income before income taxes and
details of income tax expense are as follows (amounts in thousands):



|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|----------------------------- |  | --------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                              |  | Years Ended March 31, |       
|                              |  | 2005                  |        |   | 2004 |   |       | 2003 | 
|Income before income taxes:   |  |                       |        |   |      |   |       |      |  |   |        |  
|Domestic (U.S.)               |  | $                     | 5,096  |   |      | $ | 266   |      |  | $ | 825    |  
|Foreign                       |  |                       | 2,219  |   |      |   | 1,425 |      |  |   | 1,594  |  
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|                              |  | $                     | 7,315  |   |      | $ | 1,691 |      |  | $ | 2,419  |  
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|Income tax expense (benefit): |  |                       |        |   |      |   |       |      |  |   |        |  
|Current:                      |  |                       |        |   |      |   |       |      |  |   |        |  
|Federal (U.S.)                |  | $                     | 2,503  |   |      | $ | 272   |      |  | $ | 1,099  |  
|State                         |  |                       | 663    |   |      |   | 24    |      |  |   | (12    | )
|Foreign                       |  |                       | 734    |   |      |   | 435   |      |  |   | 712    |  
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|Total current                 |  |                       | 3,900  |   |      |   | 731   |      |  |   | 1,799  |  
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|Deferred:                     |  |                       |        |   |      |   |       |      |  |   |        |  
|Federal (U.S.)                |  |                       | (859   | ) |      |   | 5     |      |  |   | (780   | )
|State                         |  |                       | (179   | ) |      |   | (97   | )    |  |   | (183   | )
|Foreign                       |  |                       | (129   | ) |      |   | (10   | )    |  |   | (48    | )
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|Total deferred                |  |                       | (1,167 | ) |      |   | (102  | )    |  |   | (1,011 | )
|                              |  |                       |        |   |      |   |       |      |  |   |        |  
|Income tax expense            |  | $                     | 2,733  |   |      | $ | 629   |      |  | $ | 788    |  
|                              |  |                       |        |   |      |   |       |      |  |   |        |  



F-16



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



The difference between reported income tax expense and the amount computed by multiplying income
before income taxes by the Companys applicable Canadian statutory tax rate of approximately 36% (200436%; 200338%) is reconciled as follows:



|                                                                    |  |                       |       |   |      |   |      |      |  |   |      |  
|------------------------------------------------------------------- |  | --------------------- | ----- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                    |  | Years Ended March 31, |      
|                                                                    |  | 2005                  |       |   | 2004 |   |      | 2003 | 
|Income tax expense using the Companys Canadian statutory tax rates |  | $                     | 2,642 |   |      | $ | 611  |      |  | $ | 919  |  
|Income taxed in foreign jurisdictions                               |  |                       | (346  | ) |      |   | (475 | )    |  |   | (663 | )
|Temporary differences not tax-benefited                             |  |                       | 437   |   |      |   | 493  |      |  |   | 486  |  
|Other                                                               |  |                       |      |   |      |   |     |      |  |   | 46   |  
|                                                                    |  |                       |       |   |      |   |      |      |  |   |      |  
|                                                                    |  | $                     | 2,733 |   |      | $ | 629  |      |  | $ | 788  |  
|                                                                    |  |                       |       |   |      |   |      |      |  |   |      |  



The sources of
significant temporary differences that give rise to the deferred tax assets and liabilities are as follows:



|                                           |  |           |        |      |   |       
|------------------------------------------ |  | --------- | ------ | ---- | - | ------
|                                           |  | March 31,
|                                           |  | 2005      |        | 2004
|Deferred tax assetscurrent:               |  |           |        |      |   |       
|Inventories                                |  | $         | 1,635  |      | $ | 1,027 
|Accounts receivable                        |  |           | 863    |      |   | 1,132 
|Accruals and reserves                      |  |           | 707    |      |   | 445   
|State taxes paid/deductible in future      |  |           | 227    |      |   | 29    
|Tax loss carryforwards                     |  |           | 48     |      |   | 48    
|Other                                      |  |           | 172    |      |   | 100   
|                                           |  |           |        |      |   |       
|                                           |  |           | 3,652  |      |   | 2,781 
|Less valuation allowance                   |  |           |       |      |   |      
|                                           |  |           |        |      |   |       
|Net deferred tax assetscurrent            |  | $         | 3,652  |      | $ | 2,781 
|                                           |  |           |        |      |   |       
|Deferred tax assetsnoncurrent:            |  |           |        |      |   |       
|Tax loss carryforwards                     |  | $         | 13,332 |      | $ | 13,134
|Property and equipment                     |  |           | 348    |      |   | 325   
|Goodwill and intangibles                   |  |           | 1,149  |      |   | 1,069 
|Deferred financing fees                    |  |           |       |      |   | 7     
|Unclaimed scientific research expenditures |  |           | 236    |      |   | 219   
|Depreciation and amortization              |  |           | 521    |      |   | 245   
|Other                                      |  |           | 182    |      |   | 183   
|                                           |  |           |        |      |   |       
|                                           |  |           | 15,768 |      |   | 15,182
|Less valuation allowance                   |  |           | 15,186 |      |   | 14,867
|                                           |  |           |        |      |   |       
|Net deferred tax assetsnoncurrent         |  | $         | 582    |      | $ | 315   
|                                           |  |           |        |      |   |       
|Deferred tax liabilitiescurrent:          |  |           |        |      |   |       
|Federal liability on state tax loss        |  | $         | 16     |      | $ | 16    
|                                           |  |           |        |      |   |       
|Deferred tax liabilitiesnoncurrent:       |  |           |        |      |   |       
|Other                                      |  | $         | 4      |      | $ | 33    
|                                           |  |           |        |      |   |       



F-17



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



The valuation allowance for deferred tax assets as of March 31, 2005 and 2004 was $15,186,000 and
$14,867,000, respectively. The net change in the total valuation allowance for the year ended March 31, 2005 was an increase of $319,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in each tax jurisdiction during the periods in which temporary differences in
those jurisdictions become deductible. Management considers the scheduled reversal of deferred liabilities, projected future taxable income, and tax planning strategies in making this assessment.



The valuation allowance is entirely attributable to deferred tax assets of
Mad Catz Interactive, Inc. (MCII), the Canadian holding company, and its Canadian subsidiary, MCC. The components of the valuation allowance are as follows:



|                                           |  |           |        |      |   |       
|------------------------------------------ |  | --------- | ------ | ---- | - | ------
|                                           |  | March 31,
|                                           |  | 2005      |        | 2004
|Tax loss carryforwards                     |  | $         | 13,332 |      | $ | 13,134
|Property and equipment                     |  |           | 348    |      |   | 325   
|Goodwill and intangibles                   |  |           | 1,149  |      |   | 1,069 
|Deferred financing fees                    |  |           |       |      |   | 7     
|Unclaimed scientific research expenditures |  |           | 236    |      |   | 219   
|Other                                      |  |           | 121    |      |   | 113   
|                                           |  |           |        |      |   |       
|                                           |  | $         | 15,186 |      | $ | 14,867
|                                           |  |           |        |      |   |       



MCII is a corporate
entity, which has no revenue or other income, and incurs corporate-related expenses. Taxable losses are incurred each year and MCII has a history of operating losses. MCC is a sales office, which generated a pre-tax book loss in the current year,
has a history of losses in prior years, and is projected to generate minimal taxable income in future years. These circumstances are not anticipated to change and therefore we do not expect MCII or MCC to generate sufficient taxable income in the
foreseeable future to enable either entity to utilize the tax-loss carry-forwards. Consequently, the realization of the deferred tax assets of MCII and MCC is unlikely, and as a result, valuation allowances are required.



The total capital and non-capital income tax losses of MCII
and MCC as of March 31, 2005 of $13,332,000 included within the amount of the deferred tax assetsnoncurrent, is based upon the total tax loss carry forward amount in Canadian dollars of Cdn. $44,907,000, translated into U.S. dollars at the
March 31, 2005 exchange rate (1 Canadian Dollar = 0.82196 US Dollar) and tax-effected at a 36.12% estimated rate.



MCII has non-capital income tax losses of approximately Cdn. $20,233,000, which may be carried forward to reduce future years taxable income. These
losses expire as follows (in thousands):



|     |  |            |        |        |   |       
|---- |  | ---------- | ------ | ------ | - | ------
|     |  | Canadian $ |        | U.S. $
|2006 |  | $          | 788    |        | $ | 649   
|2007 |  |            | 2,522  |        |   | 2,073 
|2008 |  |            | 5,818  |        |   | 4,782 
|2009 |  |            | 3,512  |        |   | 2,886 
|2010 |  |            | 3,842  |        |   | 3,158 
|2011 |  |            | 2,591  |        |   | 2,130 
|2012 |  |            | 1,160  |        |   | 953   
|     |  |            |        |        |   |       
|     |  | $          | 20,233 |        | $ | 16,631
|     |  |            |        |        |   |       



F-18



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



MCC has non-capital income tax losses of approximately Cdn. $21,522,000, which may be carried forward
to reduce future years taxable income. These losses expire as follows (in thousands):



|     |  |            |        |        |   |       
|---- |  | ---------- | ------ | ------ | - | ------
|     |  | Canadian $ |        | U.S. $
|2007 |  | $          | 1,005  |        | $ | 826   
|2008 |  |            | 11,378 |        |   | 9,352 
|2009 |  |            | 8,479  |        |   | 6,969 
|2010 |  |            | 59     |        |   | 49    
|2011 |  |            | 379    |        |   | 312   
|2012 |  |            | 222    |        |   | 182   
|     |  |            |        |        |   |       
|     |  | $          | 21,522 |        | $ | 17,690
|     |  |            |        |        |   |       



MCII also has the
following net capital tax losses of approximately Cdn. $3,152,000 (U.S. $2,591,000), which are available indefinitely to offset capital gains (in thousands):



|                                                       |  |            |        |   |        |   |        |  
|------------------------------------------------------ |  | ---------- | ------ | - | ------ | - | ------ | -
|                                                       |  | Canadian $ |        |   | U.S. $ |  
|                                                       |  | $          | 3,152  |   |        | $ | 2,591  |  
|                                                       |  |            |        |   |        |   |        |  
|Total loss carryforwards                               |  | $          | 44,907 |   |        | $ | 36,911 |  
|Tax-effected rate                                      |  |            | 36.12  | % |        |   | 36.12  | %
|                                                       |  |            |        |   |        |   |        |  
|Deferred tax assetnoncurrent  tax loss carryforwards |  | $          | 16,220 |   |        | $ | 13,332 |  
|                                                       |  |            |        |   |        |   |        |  



MCII does not record
deferred income taxes on the undistributed earnings of its non-Canadian subsidiaries based upon the Companys intention to permanently reinvest undistributed earnings. MCII may be subject to income and withholding taxes if earnings of the
non-Canadian subsidiaries were distributed.



(9) Commitments and
Contingencies



Leases



The Company is obligated under certain non-cancelable operating leases,
primarily for warehouses and office space. Rent expense for operating leases was approximately $1,033,000, $1,045,000 and $1,255,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Annual future minimum rental payments required
under operating leases as of March 31, 2005 are as follows (in thousands):



|                      |  |   |      
|--------------------- |  | - | -----
|Year ending March 31: |  |   |      
|2006                  |  | $ | 959  
|2007                  |  |   | 335  
|2008                  |  |   | 45   
|                      |  |   |      
|                      |  | $ | 1,339
|                      |  |   |      



Royalty and License Agreements



The Company has licensing agreements to utilize
existing design and utility technology with its products. The Company also has royalty agreements for use of licensed trademarks and celebrity endorsements. These agreements have royalty and licensing fees based on different percentages of certain
types of sales or a predetermined amount per unit. Royalty and license expenses were $2,376,000, $1,830,000 and $2,831,000 for



F-19



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



the years ended March 31, 2005, 2004 and 2003, respectively. The minimum amount due under royalty and license agreements for fiscal year 2006 is
approximately $7,014,000, which includes several new agreements for distribution of licensed product.



Purchase Commitments



The Company has a five-year agreement with a vendor under which the Company is required to purchase a minimum of $5 million of products per fiscal year, through March 31, 2008. If this volume is not acquired in a particular year, the
Company is required to pay the vendor an amount equal to 40% of the shortfall, with a maximum potential payment of $2 million per year. Although the Company met the minimum purchase requirement during the first year of the agreement, the Company did
not purchase the required $5 million dollars of product during fiscal 2005. However, on February 1, 2005, the Company entered into an agreement with the vendor providing that the minimum purchase requirement for the period from April 1, 2004 until
March 31, 2005 would be waived for that year and deferred and made part of the minimum guarantee for the period from April 1, 2005 until March 31, 2006. Therefore, for the period April 1, 2004 to March 31, 2006, the Companys is required to
purchase a minimum of $10 million dollars of product from this vendor. For this two-year period, the Companys maximum potential payment if no products are purchased after March 31, 2005 is $2,316,000.



Legal Proceedings



On February 10, 2003, Electro Source filed a complaint against MCI, and
Fire, as well as other defendants, in the Superior Court in Los Angeles County, California entitled, Electro Source, LLC v. Fire International, Ltd., et al., Case No. BC 290076. On or about November 18, 2003, Electro Source amended its
complaint to add Mad Catz Interactive, Inc. as a defendant. In its amended complaint, Electro Source asserted claims against the Company and MCI alleging misappropriation of trade secrets, conspiracy to defraud, interference with contractual
relationship and interference with prospective economic advantage in connection with Fires agreement to supply MCI with product to be marketed under our GameShark brand and for the termination of Fires alleged prior business relationship
with Electro Source.



Electro Source moved for a temporary
restraining order to prevent MCI from marketing or otherwise distributing the GameShark products. After a hearing on the matter, the Court denied Electro Sources motion and refused to enter the temporary restraining order. The parties have
engaged in written and oral discovery, including depositions. On February 17, 2005, Mad Catz filed a cross-complaint against Electro Source alleging false advertising, state and federal unfair competition, libel per se, and trade libel arising out
of certain advertisements and internet statements. Discovery is proceeding on the cross-complaint. The trial date is set for August 31, 2005. While we intend to vigorously defend this matter, there can be no guarantee that we will ultimately prevail
or that damages will not be assessed against us. An adverse determination by the Court or jury could seriously impact our revenues and our ability to continue to distribute the GameShark products.



On or about May 2, 2005, Mad Catz was served with a lawsuit filed by Freedom
Wave LLC in the United States District Court for the Central District of California entitled, Freedom Wave LLC. v. Mad Catz, Inc. et al., Case No CV5 2954NM (PLAx). The complaint alleges that certain MCI products infringe U.S. patent numbers
6,878,066 and 6,280,327. MCI answered, denying the allegation in the complaint. The case is still in the early stages and no discovery has been requested by either party. No trial date has been set. We intend to vigorously defend the allegations of
the complaint, however there can be no guarantee that we will ultimately prevail or that damages will not be assessed against MCI.



F-20



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



(10) Employee Savings Plan



MCI has an employee savings plan that permits eligible participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. The Company matches 50% of the first 8% of compensation that is contributed by each participating employee to the plan. The Companys contributions to the plan were $114,000 in fiscal 2005, $96,000
in fiscal 2004 and $84,000 in fiscal 2003.



(11) Geographic Data



The Companys sales are attributed to the following
geographic regions (in thousands):



|                |  |      |         |      |   |         |  |   |       
|--------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------
|                |  | 2005 |         | 2004 |   | 2003   
|Net sales:      |  |      |         |      |   |         |  |   |       
|United States   |  | $    | 91,436  |      | $ | 81,434  |  | $ | 66,395
|Canada          |  |      | 9,419   |      |   | 6,644   |  |   | 4,511 
|Europe          |  |      | 10,981  |      |   | 10,128  |  |   | 16,624
|Other countries |  |      | 235     |      |   | 3,937   |  |   | 4,128 
|                |  |      |         |      |   |         |  |   |       
|                |  | $    | 112,071 |      | $ | 102,143 |  | $ | 91,658
|                |  |      |         |      |   |         |  |   |       



Revenue is attributed
to geographic regions based on the location of the customer. During the year ended March 31, 2005, three customers individually accounted for at least 10% of the Companys gross sales, for a combined total of 47% of gross sales. During each of
the years ended March 31, 2004 and 2003, two customers individually accounted for at least 10% of the Companys gross sales, for a combined total of 39% and 34% of gross sales in fiscal 2004 and 2003, respectively.



The Companys property and equipment, goodwill and intangible assets are
attributed to the following geographic regions (in thousands):



|                                |  |      |        |      |   |       
|------------------------------- |  | ---- | ------ | ---- | - | ------
|                                |  | 2005 |        | 2004
|Property and equipment:         |  |      |        |      |   |       
|United States                   |  | $    | 1,721  |      | $ | 1,468 
|International                   |  |      | 101    |      |   | 90    
|Canada                          |  |      | 9      |      |   | 8     
|                                |  |      |        |      |   |       
|                                |  |      | 1,831  |      |   | 1,566 
|                                |  |      |        |      |   |       
|Goodwill and intangible assets: |  |      |        |      |   |       
|United States                   |  |      | 3,438  |      |   | 4,242 
|Canada                          |  |      | 21,455 |      |   | 19,964
|                                |  |      |        |      |   |       
|                                |  |      | 24,893 |      |   | 24,206
|                                |  |      |        |      |   |       
|                                |  | $    | 26,724 |      | $ | 25,772
|                                |  |      |        |      |   |       



F-21



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



(12) Quarterly Financial and Market Information (Unaudited)



|                                              |  |               |        |   |          |   |         |  |        |        |  |   |       
|--------------------------------------------- |  | ------------- | ------ | - | -------- | - | ------- |  | ------ | ------ |  | - | ------
|                                              |  | Quarter Ended
|(Amounts in thousands, except per share data) |  | June 30       |        |   | Sept. 30 |   | Dec. 31 |  | Mar 31
|Fiscal 2005 Consolidated:                     |  |               |        |   |          |   |         |  |        |        |  |   |       
|Net sales                                     |  | $             | 16,719 |   |          | $ | 20,670  |  | $      | 52,844 |  | $ | 21,838
|Gross profit*                                 |  |               | 4,114  |   |          |   | 5,042   |  |        | 13,248 |  |   | 5,246 
|Operating income (loss)*                      |  |               | 58     |   |          |   | 805     |  |        | 6,127  |  |   | 1,908 
|Net income (loss)*                            |  |               | (221   | ) |          |   | 333     |  |        | 3,866  |  |   | 604   
|Net income (loss) per sharebasic             |  |               | (0.01  | ) |          |   | 0.01    |  |        | 0.07   |  |   | 0.02  
|Net income (loss) per sharediluted           |  |               | (0.01  | ) |          |   | 0.01    |  |        | 0.07   |  |   | 0.02  
|Common stock price per share:                 |  |               |        |   |          |   |         |  |        |        |  |   |       
|High                                          |  |               | 0.79   |   |          |   | 0.61    |  |        | 0.86   |  |   | 1.83  
|Low                                           |  |               | 0.54   |   |          |   | 0.43    |  |        | 0.49   |  |   | 0.81  
|Fiscal 2004 Consolidated:                     |  |               |        |   |          |   |         |  |        |        |  |   |       
|Net sales                                     |  | $             | 17,812 |   |          | $ | 21,281  |  | $      | 41,982 |  | $ | 21,068
|Gross profit*                                 |  |               | 3,035  |   |          |   | 5,162   |  |        | 9,492  |  |   | 4,651 
|Operating income (loss)*                      |  |               | (1,605 | ) |          |   | 703     |  |        | 3,046  |  |   | 688   
|Net income (loss)*                            |  |               | (1,282 | ) |          |   | 237     |  |        | 1,626  |  |   | 481   
|Net income (loss) per sharebasic             |  |               | (0.02  | ) |          |   | 0.00    |  |        | 0.03   |  |   | 0.01  
|Net income per sharediluted                  |  |               | (0.02  | ) |          |   | 0.00    |  |        | 0.03   |  |   | 0.01  
|Common stock price per share:                 |  |               |        |   |          |   |         |  |        |        |  |   |       
|High                                          |  |               | 0.95   |   |          |   | 0.95    |  |        | 1.36   |  |   | 1.29  
|Low                                           |  |               | 0.58   |   |          |   | 0.59    |  |        | 0.75   |  |   | 0.66  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



(13) Differences Between Accounting Principles Generally Accepted in the United States and in Canada



These consolidated financial statements have been prepared in accordance with U.S. GAAP. In certain respects, U.S. GAAP
differs from Canadian GAAP. Reconciliation of net income determined in accordance with U.S. GAAP to net income determined under Canadian GAAP follows (in thousands):



|                                                                        |  |      |       |   |       |   |       |       |  |   |       |  
|----------------------------------------------------------------------- |  | ---- | ----- | - | ----- | - | ----- | ----- |  | - | ----- | -
|                                                                        |  | 2005 |       |   | 2004* |   |       | 2003* | 
|Net income, as reported                                                 |  | $    | 4,582 |   |       | $ | 1,062 |       |  | $ | 1,631 |  
|Stock-based compensationoptions grants (a)                             |  |      | (245  | ) |       |   | (195  | )     |  |   | (262  | )
|Stock-based compensationoption repricing (b)                           |  |      | (12   | ) |       |   | (16   | )     |  |   | (420  | )
|                                                                        |  |      |       |   |       |   |       |       |  |   |       |  
|Net income in accordance with Canadian GAAP                             |  | $    | 4,325 |   |       | $ | 851   |       |  | $ | 949   |  
|                                                                        |  |      |       |   |       |   |       |       |  |   |       |  
|Net income per share in accordance with Canadian GAAP Basic and diluted |  | $    | 0.08  |   |       | $ | 0.02  |       |  | $ | 0.02  |  
|                                                                        |  |      |       |   |       |   |       |       |  |   |       |  

---

|* | Recasted in accordance with U.S. GAAP. See Note 2.
|- | --------------------------------------------------



The areas of material difference between United States and Canadian GAAP and their impact on the consolidated financial statements of the Company are
described below.



F-22



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



(a) Stock-Based CompensationOption Grants



Under U.S. GAAP, the Company accounts for its stock-based employee
compensation plan using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,and related Interpretations. For purposes of Canadian GAAP, under
the transitional provisions of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3870 (Section 3870), Stock-based Compensation and Other Stock-based Payments,the Company would have adopted the fair value
method of accounting for stock options on a retroactive basis, with prior periods restated.



(b) Stock-Based CompensationOption Repricing



Under U.S. GAAP, the Company measures compensation using the intrinsic value method as specified by Accounting Principles Board Opinion 25. In September
2001, upon approval by the shareholders of the Company, an aggregate of 912,000 options with exercise prices ranging from Cdn. $0.94 to Cdn. $3.25 were repriced to Cdn. $0.84. An additional 100,000 options at Cdn. $2.00 were
repriced to Cdn. $0.90. At March 31, 2005, 2004 and 2003, the number of repriced options that had not been exercised or cancelled totaled 21,000, 401,000 and 792,501, respectively. Under U.S. GAAP, subsequent to the repricing, these options are
considered variable. Based on the March 31, 2005, 2004 and 2003 share prices, the Company reduced previously recorded expense by $12,000, $16,000 and $420,000 in fiscal 2005, 2004 and 2003, respectively (initial expense of $517,000 was recognized
for the year ended March 31, 2002), related to the repricing of the above noted options. Under Canadian GAAP there is no compensation expense recorded for the stock option repricing.



(c) Depreciation Presentation



Under U.S. GAAP, the Company allocates depreciation and amortization expense related to property and equipment to cost of sales, sales and marketing,
general and administrative and research and development expenses. Under Canadian GAAP, the Company presented depreciation and amortization, together with amortization of intangible assets, as a separate expense line item.



F-23



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##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



(d) Canadian GAAP Financial Statements



Consolidated Balance Sheet



March 31, 2005 and 2004

(in
thousands of U.S. dollars)



|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|------------------------------------------ |  | ---------------------- | ------- | - | ----------- | - | ---- | ----- |  | -- | ------------ |  | - | ---------------------- | - |  | ----------- | ------- | - | ----- | - | ---- | ------------ |  | -- | - |  | - | ------- | -
|                                           |  | 2005                   |         |   | 2004        |  
|                                           |  | U.S. GAAP(as reported) |         |   | Differences |   |      | Notes |  |    | CanadianGAAP |  |   | U.S. GAAP(as reported) |   |  | Differences |         |   | Notes |   |      | CanadianGAAP | 
|Assets                                     |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Current assets:                            |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Cash                                       |  | $                      | 1,085   |   |             | $ |     |       |  |    |              |  | $ | 1,085                  |   |  | $           | 1,728   |   |       | $ |     |              |  |    |   |  | $ | 1,728   |  
|Accounts receivable                        |  |                        | 17,549  |   |             |   |     |       |  |    |              |  |   | 17,549                 |   |  |             | 16,591  |   |       |   |     |              |  |    |   |  |   | 16,591  |  
|Other receivables                          |  |                        | 1,804   |   |             |   |     |       |  |    |              |  |   | 1,804                  |   |  |             | 448     |   |       |   |     |              |  |    |   |  |   | 448     |  
|Inventories                                |  |                        | 26,865  |   |             |   |     |       |  |    |              |  |   | 26,865                 |   |  |             | 16,848  |   |       |   |     |              |  |    |   |  |   | 16,848  |  
|Deferred tax assets                        |  |                        | 3,636   |   |             |   |     |       |  |    |              |  |   | 3,636                  |   |  |             | 2,765   |   |       |   |     |              |  |    |   |  |   | 2,765   |  
|Other current assets                       |  |                        | 895     |   |             |   |     |       |  |    |              |  |   | 895                    |   |  |             | 1,446   |   |       |   |     |              |  |    |   |  |   | 1,446   |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Total current assets                       |  |                        | 51,834  |   |             |   |     |       |  |    |              |  |   | 51,834                 |   |  |             | 39,826  |   |       |   |     |              |  |    |   |  |   | 39,826  |  
|Deferred tax assets                        |  |                        | 578     |   |             |   |     |       |  |    |              |  |   | 578                    |   |  |             | 282     |   |       |   |     |              |  |    |   |  |   | 282     |  
|Property and equipment, net                |  |                        | 1,831   |   |             |   |     |       |  |    |              |  |   | 1,831                  |   |  |             | 1,609   |   |       |   |     |              |  |    |   |  |   | 1,609   |  
|Intangible assets, net                     |  |                        | 3,438   |   |             |   |     |       |  |    |              |  |   | 3,438                  |   |  |             | 4,242   |   |       |   |     |              |  |    |   |  |   | 4,242   |  
|Goodwill                                   |  |                        | 21,455  |   |             |   |     |       |  |    |              |  |   | 21,455                 |   |  |             | 19,964  |   |       |   |     |              |  |    |   |  |   | 19,964  |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Total assets                               |  | $                      | 79,136  |   |             | $ |     |       |  |    |              |  | $ | 79,136                 |   |  | $           | 65,923  |   |       | $ |     |              |  |    |   |  | $ | 65,923  |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Liabilities and Shareholders Equity       |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Current liabilities:                       |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Bank loan                                  |  | $                      | 12,100  |   |             | $ |     |       |  |    |              |  | $ | 12,100                 |   |  | $           | 15,182  |   |       | $ |     |              |  |    |   |  | $ | 15,182  |  
|Accounts payable                           |  |                        | 19,209  |   |             |   |     |       |  |    |              |  |   | 19,209                 |   |  |             | 11,214  |   |       |   |      |              |  |    |   |  |   | 11,214  |  
|Accrued liabilities                        |  |                        | 3,434   |   |             |   |     |       |  |    |              |  |   | 3,434                  |   |  |             | 2,500   |   |       |   |     |              |  |    |   |  |   | 2,500   |  
|Accrued taxes payable                      |  |                        | 1,490   |   |             |   |     |       |  |    |              |  |   | 1,490                  |   |  |             | 971     |   |       |   |     |              |  |    |   |  |   | 971     |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Total current liabilities                  |  |                        | 36,233  |   |             |   |     |       |  |    |              |  |   | 36,233                 |   |  |             | 29,867  |   |       |   |     |              |  |    |   |  |   | 29,867  |  
|Shareholders equity:                      |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Common stock                               |  |                        | 46,746  |   |             |   | 631  |       |  | (1 | )            |  |   | 47,377                 |   |  |             | 46,038  |   |       |   | 375  |              |  | (1 | ) |  |   | 46,413  |  
|Accumulated other comprehensive income     |  |                        | 6,514   |   |             |   |     |       |  |    |              |  |   | 6,514                  |   |  |             | 4,957   |   |       |   |     |              |  |    |   |  |   | 4,957   |  
|Accumulated deficit                        |  |                        | (10,357 | ) |             |   | (631 | )     |  | (1 | )            |  |   | (10,988                | ) |  |             | (14,939 | ) |       |   | (375 | )            |  | (1 | ) |  |   | (15,314 | )
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Total shareholders equity                 |  |                        | 42,903  |   |             |   |     |       |  |    |              |  |   | 42,903                 |   |  |             | 36,056  |   |       |   |     |              |  |    |   |  |   | 36,056  |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  
|Total liabilities and shareholders equity |  | $                      | 79,136  |   |             | $ |     |       |  |    |              |  | $ | 79,136                 |   |  | $           | 65,923  |   |       | $ |     |              |  |    |   |  | $ | 65,923  |  
|                                           |  |                        |         |   |             |   |      |       |  |    |              |  |   |                        |   |  |             |         |   |       |   |      |              |  |    |   |  |   |         |  

---

|(1) | See Note 13 (a) and 13 (b)
|--- | --------------------------



F-24



---

##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Consolidated Statements of Operations



Years ended March 31, 2005, 2004 and 2003

(in thousands of U.S. dollars, except per share and share data)



|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|------------------------------------------------ |  | ---------------------- | ---------- | - | ------------ | - | ----- | ----- |  | -- | ------------ |  | - | ---------------------- | - |  | ------------ | ---------- | - | ----- | - | ----- | ------------ |  | -- | ---------------------- |  | - | ------------ | - |  | ----- | ---------- | - | ------------ | - | ----- | - |  | -- | - |  | - | ---------- | -
|                                                 |  | 2005                   |            |   | 2004         |   |       | 2003  | 
|                                                 |  | U.S. GAAP(as reported) |            |   | Differ-ences |   |       | Notes |  |    | CanadianGAAP |  |   | U.S. GAAP(as reported) |   |  | Differ-ences |            |   | Notes |   |       | CanadianGAAP |  |    | U.S. GAAP(as reported) |  |   | Differ-ences |   |  | Notes |            |   | CanadianGAAP |  
|Net sales                                        |  | $                      | 112,071    |   |              | $ |      |       |  |    |              |  | $ | 112,071                |   |  | $            | 102,143    |   |       | $ |      |              |  |    |                        |  | $ | 102,143      |   |  | $     | 91,658     |   |              | $ |      |   |  |    |   |  | $ | 91,658     |  
|Cost of sales                                    |  |                        | 84,421     |   |              |   | (777  | )     |  | (2 | )            |  |   | 83,644                 |   |  |              | 79,803     |   |       |   | (725  | )            |  | (2 | )                      |  |   | 79,078       |   |  |       | 71,467     |   |              |   | (767  | ) |  | (2 | ) |  |   | 70,700     |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Gross profit                                     |  |                        | 27,650     |   |              |   | 777   |       |  |    |              |  |   | 28,427                 |   |  |              | 22,340     |   |       |   | 725   |              |  |    |                        |  |   | 23,065       |   |  |       | 20,191     |   |              |   | 767   |   |  |    |   |  |   | 20,958     |  
|Operating expenses:                              |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Sales and marketing                              |  |                        | 10,053     |   |              |   | (131  | )     |  | (2 | )            |  |   | 9,922                  |   |  |              | 11,166     |   |       |   | (148  | )            |  | (2 | )                      |  |   | 11,018       |   |  |       | 8,835      |   |              |   | (34   | ) |  | (2 | ) |  |   | 8,801      |  
|General and administrative                       |  |                        | 6,998      |   |              |   | (108  | )     |  | (2 | )            |  |   | 6,890                  |   |  |              | 6,459      |   |       |   | (115  | )            |  | (2 | )                      |  |   | 6,344        |   |  |       | 6,160      |   |              |   | 48    |   |  | (2 | ) |  |   | 6,208      |  
|Research and development                         |  |                        | 897        |   |              |   | (21   | )     |  | (2 | )            |  |   | 876                    |   |  |              | 1,079      |   |       |   | (23   | )            |  | (2 | )                      |  |   | 1,056        |   |  |       | 936        |   |              |   | 36    |   |  | (2 | ) |  |   | 972        |  
|Stock-based compensation                         |  |                        |           |   |              |   | 245   |       |  | (1 | )            |  |   | 245                    |   |  |              |           |   |       |   | 195   |              |  | (1 | )                      |  |   | 195          |   |  |       |           |   |              |   | 262   |   |  | (1 | ) |  |   | 262        |  
|Depreciation and amortization                    |  |                        |           |   |              |   | 1,048 |       |  | (2 | )            |  |   | 1,048                  |   |  |              |           |   |       |   | 1,027 |              |  | (2 | )                      |  |   | 1,027        |   |  |       |            |   |              |   | 1,137 |   |  | (2 | ) |  |   | 1,137      |  
|Amortization of intangible assets                |  |                        | 804        |   |              |   |      |       |  |    |              |  |   | 804                    |   |  |              | 804        |   |       |   |      |              |  |    |                        |  |   | 804          |   |  |       | 36         |   |              |   |      |   |  |    |   |  |   | 36         |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Total operating expenses                         |  |                        | 18,752     |   |              |   | 1,033 |       |  |    |              |  |   | 19,785                 |   |  |              | 19,508     |   |       |   | 936   |              |  |    |                        |  |   | 20,444       |   |  |       | 15,967     |   |              |   | 1,449 |   |  |    |   |  |   | 17,416     |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Operating income                                 |  |                        | 8,898      |   |              |   | (256  | )     |  |    |              |  |   | 8,642                  |   |  |              | 2,832      |   |       |   | (211  | )            |  |    |                        |  |   | 2,621        |   |  |       | 4,224      |   |              |   | (682  | ) |  |    |   |  |   | 3,542      |  
|Interest expense, net                            |  |                        | (1,203     | ) |              |   |      |       |  |    |              |  |   | (1,203                 | ) |  |              | (1,330     | ) |       |   |      |              |  |    |                        |  |   | (1,330       | ) |  |       | (1,758     | ) |              |   |      |   |  |    |   |  |   | (1,758     | )
|Foreign exchange gain (loss), net                |  |                        | (582       | ) |              |   |      |       |  |    |              |  |   | (582                   | ) |  |              | 91         |   |       |   |      |              |  |    |                        |  |   | 91           |   |  |       | (94        | ) |              |   |      |   |  |    |   |  |   | (94        | )
|Other income                                     |  |                        | 202        |   |              |   |      |       |  |    |              |  |   | 202                    |   |  |              | 98         |   |       |   |      |              |  |    |                        |  |   | 98           |   |  |       | 47         |   |              |   |      |   |  |    |   |  |   | 47         |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Income before income taxes                       |  |                        | 7,315      |   |              |   | (256  | )     |  |    |              |  |   | 7,059                  |   |  |              | 1,691      |   |       |   | (211  | )            |  |    |                        |  |   | 1,480        |   |  |       | 2,419      |   |              |   | (682  | ) |  |    |   |  |   | 1,737      |  
|Income tax expense                               |  |                        | 2,733      |   |              |   |      |       |  |    |              |  |   | 2,733                  |   |  |              | 629        |   |       |   |      |              |  |    |                        |  |   | 629          |   |  |       | 788        |   |              |   |      |   |  |    |   |  |   | 788        |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Net income                                       |  | $                      | 4,582      |   |              | $ | (256  | )     |  |    |              |  | $ | 4,326                  |   |  | $            | 1,062      |   |       | $ | (211  | )            |  |    |                        |  | $ | 851          |   |  | $     | 1,631      |   |              | $ | (682  | ) |  |    |   |  | $ | 949        |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Net income per share:                            |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Basic                                            |  | $                      | 0.09       |   |              | $ | (0.01 | )     |  |    |              |  | $ | 0.08                   |   |  | $            | 0.02       |   |       | $ |      |              |  |    |                        |  | $ | 0.02         |   |  | $     | 0.03       |   |              | $ | (0.01 | ) |  |    |   |  | $ | 0.02       |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Diluted                                          |  | $                      | 0.08       |   |              | $ |      |       |  |    |              |  | $ | 0.08                   |   |  | $            | 0.02       |   |       | $ |      |              |  |    |                        |  | $ | 0.02         |   |  | $     | 0.03       |   |              | $ | (0.01 | ) |  |    |   |  | $ | 0.02       |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Number of shares used in per share computations: |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Basic                                            |  |                        | 53,506,289 |   |              |   |      |       |  |    |              |  |   | 53,506,289             |   |  |              | 53,286,248 |   |       |   |      |              |  |    |                        |  |   | 53,286,248   |   |  |       | 53,070,890 |   |              |   |      |   |  |    |   |  |   | 53,070,890 |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  
|Diluted                                          |  |                        | 54,481,162 |   |              |   |      |       |  |    |              |  |   | 54,481,162             |   |  |              | 53,983,127 |   |       |   |      |              |  |    |                        |  |   | 53,983,127   |   |  |       | 53,689,972 |   |              |   |      |   |  |    |   |  |   | 53,689,972 |  
|                                                 |  |                        |            |   |              |   |       |       |  |    |              |  |   |                        |   |  |              |            |   |       |   |       |              |  |    |                        |  |   |              |   |  |       |            |   |              |   |       |   |  |    |   |  |   |            |  

---

|(1) | See Note 13 (a)
|--- | ---------------

|(2) | See Note 13 (b) and 13 (c)
|--- | --------------------------



F-25



---

##### Table of Contents

MAD CATZ INTERACTIVE, INC.



Notes to Consolidated Financial Statements(Continued)



Consolidated Statements of Cash Flows



Years ended March 31, 2005, 2004 and 2003

(in thousands of U.S. dollars)



|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------ | - | ---- | ------------ |  | - | ---------------------- | - |  | ------------ | ------ | - | ------------ | - | ---- | ---------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ---- | - |  | - | ------ | -
|                                                                                            |  | 2005                   |        |   | 2004         |   |      | 2003         | 
|                                                                                            |  | U.S. GAAP(as reported) |        |   | Differ-ences |   |      | CanadianGAAP |  |   | U.S. GAAP(as reported) |   |  | Differ-ences |        |   | CanadianGAAP |   |      | U.S. GAAP(as reported) |  |   | Differ-ences |   |  | CanadianGAAP |       
|Cash flows from operating activities:                                                       |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Net income                                                                                  |  | $                      | 4,582  |   |              | $ | (256 | )            |  | $ | 4,326                  |   |  | $            | 1,062  |   |              | $ | (211 | )                      |  | $ | 851          |   |  | $            | 1,631  |   |  | $ | (682 | ) |  | $ | 949    |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Deferred tax assets                                                                         |  |                        | (1,167 | ) |              |   |     |              |  |   | (1,167                 | ) |  |              | (102   | ) |              |   |     |                        |  |   | (102         | ) |  |              | (1,011 | ) |  |   |     |   |  |   | (1,011 | )
|Depreciation and amortization                                                               |  |                        | 1,852  |   |              |   |     |              |  |   | 1,852                  |   |  |              | 1,831  |   |              |   |     |                        |  |   | 1,831        |   |  |              | 1,173  |   |  |   |     |   |  |   | 1,173  |  
|Amortization of deferred financing fees                                                     |  |                        |       |   |              |   |     |              |  |   |                       |   |  |              | 239    |   |              |   |     |                        |  |   | 239          |   |  |              | 484    |   |  |   |     |   |  |   | 484    |  
|Loss on disposals of assets                                                                 |  |                        | 41     |   |              |   |     |              |  |   | 41                     |   |  |              |       |   |              |   |     |                        |  |   |             |   |  |              |       |   |  |   |     |   |  |   |       |  
|Tax benefit of stock options exercised                                                      |  |                        | 117    |   |              |   |     |              |  |   | 117                    |   |  |              |       |   |              |   |     |                        |  |   |             |   |  |              |       |   |  |   |     |   |  |   |       |  
|Stock-based compensation                                                                    |  |                        | (12    | ) |              |   | 256  |              |  |   | 244                    |   |  |              | (16    | ) |              |   | 211  |                        |  |   | 195          |   |  |              | (420   | ) |  |   | 682  |   |  |   | 262    |  
|Foreign exchange (gains) losses                                                             |  |                        | 582    |   |              |   |     |              |  |   | 582                    |   |  |              | (91    | ) |              |   |     |                        |  |   | (91          | ) |  |              | 94     |   |  |   |     |   |  |   | 94     |  
|Changes in operating assets and liabilities:                                                |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Accounts receivable                                                                         |  |                        | (824   | ) |              |   |     |              |  |   | (824                   | ) |  |              | 477    |   |              |   |     |                        |  |   | 477          |   |  |              | (6,122 | ) |  |   |     |   |  |   | (6,122 | )
|Other receivables                                                                           |  |                        | (1,356 | ) |              |   |     |              |  |   | (1,356                 | ) |  |              | (448   | ) |              |   |     |                        |  |   | (448         | ) |  |              |       |   |  |   |     |   |  |   |       |  
|Inventories                                                                                 |  |                        | (9,970 | ) |              |   |     |              |  |   | (9,970                 | ) |  |              | 1,901  |   |              |   |     |                        |  |   | 1,901        |   |  |              | (2,394 | ) |  |   |     |   |  |   | (2,394 | )
|Other current assets                                                                        |  |                        | 602    |   |              |   |     |              |  |   | 602                    |   |  |              | (398   | ) |              |   |     |                        |  |   | (398         | ) |  |              | (272   | ) |  |   |     |   |  |   | (272   | )
|Accounts payable                                                                            |  |                        | 7,968  |   |              |   |     |              |  |   | 7,968                  |   |  |              | (1,918 | ) |              |   |     |                        |  |   | (1,918       | ) |  |              | (865   | ) |  |   |     |   |  |   | (865   | )
|Accrued liabilities                                                                         |  |                        | 908    |   |              |   |     |              |  |   | 908                    |   |  |              | (542   | ) |              |   |     |                        |  |   | (542         | ) |  |              | 636    |   |  |   |     |   |  |   | 636    |  
|Income taxes payable                                                                        |  |                        | 514    |   |              |   |     |              |  |   | 514                    |   |  |              | 1,547  |   |              |   |     |                        |  |   | 1,547        |   |  |              | (327   | ) |  |   |     |   |  |   | (327   | )
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Net cash provided by (used in) operating activities                                         |  |                        | 3,837  |   |              |   |     |              |  |   | 3,838                  |   |  |              | 3,542  |   |              |   |     |                        |  |   | 3,542        |   |  |              | (7,393 | ) |  |   |     |   |  |   | (7,393 | )
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Cash flows from investing activities:                                                       |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Purchases of property and equipment                                                         |  |                        | (1,402 | ) |              |   |     |              |  |   | (1,402                 | ) |  |              | (911   | ) |              |   |     |                        |  |   | (911         | ) |  |              | (939   | ) |  |   |     |   |  |   | (939   | )
|Purchase of intangible assets                                                               |  |                        |       |   |              |   |     |              |  |   |                       |   |  |              |       |   |              |   |     |                        |  |   |             |   |  |              | (5,083 | ) |  |   |     |   |  |   | (5,083 | )
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Net cash used in investing activities                                                       |  |                        | (1,402 | ) |              |   |     |              |  |   | (1,402                 | ) |  |              | (911   | ) |              |   |     |                        |  |   | (911         | ) |  |              | (6,022 | ) |  |   |     |   |  |   | (6,022 | )
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Cash flows from financing activities:                                                       |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Bank loans                                                                                  |  |                        | (3,082 | ) |              |   |     |              |  |   | (3,082                 | ) |  |              | (1,895 | ) |              |   |     |                        |  |   | (1,895       | ) |  |              | 12,742 |   |  |   |     |   |  |   | 12,742 |  
|Proceeds from issue of share capital, net                                                   |  |                        | 558    |   |              |   |     |              |  |   | 558                    |   |  |              | 158    |   |              |   |     |                        |  |   | 158          |   |  |              | 239    |   |  |   |     |   |  |   | 239    |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Net cash provided by (used in) financing activities                                         |  |                        | (2,524 | ) |              |   |     |              |  |   | (2,524                 | ) |  |              | (1,737 | ) |              |   |     |                        |  |   | (1,737       | ) |  |              | 12,981 |   |  |   |     |   |  |   | 12,981 |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Effects of foreign exchange on cash                                                         |  |                        | (554   | ) |              |   |     |              |  |   | (554                   | ) |  |              | (400   | ) |              |   |     |                        |  |   | (400         | ) |  |              | (235   | ) |  |   |     |   |  |   | (235   | )
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Net increase (decrease) in cash                                                             |  |                        | (643   | ) |              |   |     |              |  |   | (643                   | ) |  |              | 494    |   |              |   |     |                        |  |   | 494          |   |  |              | (669   | ) |  |   |     |   |  |   | (669   | )
|Cash, beginning of year                                                                     |  |                        | 1,728  |   |              |   |     |              |  |   | 1,728                  |   |  |              | 1,234  |   |              |   |     |                        |  |   | 1,234        |   |  |              | 1,903  |   |  |   |     |   |  |   | 1,903  |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Cash, end of year                                                                           |  | $                      | 1,085  |   |              | $ |     |              |  | $ | 1,085                  |   |  | $            | 1,728  |   |              | $ |     |                        |  | $ | 1,728        |   |  | $            | 1,234  |   |  | $ |     |   |  | $ | 1,234  |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Supplemental cash flow information:                                                         |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Income taxes paid                                                                           |  | $                      | 3,613  |   |              | $ |     |              |  | $ | 3,613                  |   |  | $            | 244    |   |              | $ |     |                        |  | $ | 244          |   |  | $            | 1,840  |   |  | $ |     |   |  | $ | 1,840  |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  
|Interest paid                                                                               |  | $                      | 1,094  |   |              | $ |     |              |  | $ | 1,094                  |   |  | $            | 989    |   |              | $ |     |                        |  | $ | 989          |   |  | $            | 1,272  |   |  | $ |     |   |  | $ | 1,272  |  
|                                                                                            |  |                        |        |   |              |   |      |              |  |   |                        |   |  |              |        |   |              |   |      |                        |  |   |              |   |  |              |        |   |  |   |      |   |  |   |        |  



F-26



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##### Table of Contents

SCHEDULE II



Mad Catz Interactive, Inc.

Valuation and Qualifying Accounts

(in thousands of U.S. dollars)



|                                                                                              |  |                              |        |   |                       |   |         |                             |  |   |                |   |                         |   |        |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | --------------------- | - | ------- | --------------------------- |  | - | -------------- | - | ----------------------- | - | ------ |  | - | ------ | -
|                                                                                              |  | Additions                    |        |   |                       |   |         |                            
|Description                                                                                   |  | Balance atBeginning ofPeriod |        |   | RevenueReductions (A) |   |         | Expenses andOther Costs (B) |  |   | Deductions (C) |   | Balance atEnd of Period |  
|Year Ended March 31, 2005                                                                     |  |                              |        |   |                       |   |         |                             |  |   |                |   |                         |   |        |  |   |        |  
|Allowance for Doubtful Accounts, Cooperative Advertising, Price Protection and Sales Returns  |  | $                            | (5,971 | ) |                       | $ | (13,525 | )                           |  | $ | (4,337         | ) |                         | $ | 17,504 |  | $ | (6,329 | )
|Year Ended March 31, 2004                                                                     |  |                              |        |   |                       |   |         |                             |  |   |                |   |                         |   |        |  |   |        |  
|Allowances for Doubtful Accounts, Cooperative Advertising, Price Protection and Sales Returns |  | $                            | (5,711 | ) |                       | $ | (13,730 | )                           |  | $ | (4,939         | ) |                         | $ | 18,409 |  | $ | (5,971 | )
|Year Ended March 31, 2003                                                                     |  |                              |        |   |                       |   |         |                             |  |   |                |   |                         |   |        |  |   |        |  
|Allowance for Doubtful Accounts, Cooperative Advertising, Price Protection and Sales Returns  |  | $                            | (1,322 | ) |                       | $ | (10,757 | )                           |  | $ | (5,300         | ) |                         | $ | 11,668 |  | $ | (5,711 | )

---

|(A) | Includes increases in allowance for sales returns, price protection and other sales allowances including volume discounts.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(B) | Includes increase in allowance related to doubtful accounts and cooperative advertising. Also includes the translation effect of using the average exchange rate for expense items
and the year-ended exchange rate for the balance sheet item (allowance account).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | Includes actual write-offs of sales returns, price protection and uncollectible accounts receivable, net of recoveries and the reversal of unused cooperative advertising funds.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-27