##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 Commission File No. 001-14944
 MAD CATZ INTERACTIVE, INC.
 (Exact name of Registrant as specified in its charter)
 Canada
(State or other jurisdiction of 
incorporation or organization)
    
    Not Applicable
(I.R.S. Employer Identification No.)
 7480 Mission Valley Road, Suite 101
San Diego, California
(Address of principal executive offices)
    
    92108
(Zip Code)
 (619) 683-9830
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



MAD CATZ INTERACTIVE, INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2007
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets as of September 30, 2007 and March 31, 2007 (unaudited)
    
    
    3Consolidated Statements of Operations for the three and six months ended September 30, 2007 and 2006
(unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three and six months ended September 30, 2007 and 2006
(unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II  OTHER INFORMATION
    
    
    23Item 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    24EXHIBIT 3.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 MAD CATZ INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    March 31,2007
    
    
    2007(unaudited)AssetsCurrent assets:Cash
    
    $
    3,022
    
    
    $
    2,350Accounts receivable, net of allowances of $3,216
and $3,583 at September 30, 2007 and March 31,
2007, respectively
    
    
    14,138
    
    
    
    13,937Other receivables
    
    
    245
    
    
    
    542Inventories
    
    
    13,861
    
    
    
    12,804Deferred tax assets
    
    
    2,009
    
    
    
    2,009Other current assets
    
    
    556
    
    
    
    1,385Total current assets
    
    
    33,831
    
    
    
    33,027Deferred tax assets
    
    
    1,390
    
    
    
    1,801Deferred financing fees
    
    
    70
    
    
    
    86Property and equipment, net
    
    
    1,989
    
    
    
    1,658Intangible assets, net
    
    
    2,069
    
    
    
    1,848Goodwill
    
    
    17,483
    
    
    
    17,483Total assets
    
    $
    56,832
    
    
    $
    55,903Liabilities and Shareholders EquityCurrent liabilities:Bank loan
    
    $
    6,971
    
    
    $
    1,345Accounts payable
    
    
    7,596
    
    
    
    13,509Accrued liabilities
    
    
    3,181
    
    
    
    3,338Income taxes payable
    
    
    407
    
    
    
    484Total current liabilities
    
    
    18,155
    
    
    
    18,676Shareholders equity:Common stock, no par value, unlimited shares
authorized; 54,973,949 and 54,244,383 shares
issued and outstanding at September 30, 2007 and
March 31, 2007, respectively
    
    
    47,497
    
    
    
    47,105Accumulated other comprehensive income
    
    
    2,982
    
    
    
    2,615Accumulated deficit
    
    
    (11,802
    )
    
    
    (12,493
    )Total shareholders equity
    
    
    38,677
    
    
    
    37,227Total liabilities and shareholders equity
    
    $
    56,832
    
    
    $
    55,903
  3




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    16,853
    
    
    $
    25,788
    
    
    $
    31,431
    
    
    $
    43,929Cost of sales
    
    
    11,900
    
    
    
    20,218
    
    
    
    21,799
    
    
    
    34,812Gross profit
    
    
    4,953
    
    
    
    5,570
    
    
    
    9,632
    
    
    
    9,117Operating expenses:Sales and marketing
    
    
    1,946
    
    
    
    2,049
    
    
    
    3,679
    
    
    
    4,593General and administrative
    
    
    1,477
    
    
    
    2,397
    
    
    
    4,277
    
    
    
    4,337Research and development
    
    
    299
    
    
    
    485
    
    
    
    613
    
    
    
    704Total operating expenses
    
    
    3,722
    
    
    
    4,931
    
    
    
    8,569
    
    
    
    9,634Operating income (loss)
    
    
    1,231
    
    
    
    639
    
    
    
    1,063
    
    
    
    (517
    )Interest expense, net
    
    
    (110
    )
    
    
    (291
    )
    
    
    (209
    )
    
    
    (564
    )Foreign exchange gain, net
    
    
    307
    
    
    
    1
    
    
    
    336
    
    
    
    163Other income
    
    
    60
    
    
    
    72
    
    
    
    151
    
    
    
    129Income (loss) before income taxes
    
    
    1,488
    
    
    
    421
    
    
    
    1,341
    
    
    
    (789
    )Income tax expense (benefit)
    
    
    616
    
    
    
    225
    
    
    
    651
    
    
    
    (109
    )Net income (loss)
    
    $
    872
    
    
    $
    196
    
    
    $
    690
    
    
    $
    (680
    )Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.01
    )Diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.01Weighted average shares basic
    
    
    54,970,288
    
    
    
    54,244,383
    
    
    
    54,664,487
    
    
    
    54,244,383Weighted average shares diluted
    
    
    55,877,078
    
    
    
    54,244,383
    
    
    
    55,531,186
    
    
    
    54,244,383
  4




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    690
    
    
    $
    (680
    )Adjustments
to reconcile net income [loss] to net cash used in operating activities:Depreciation and amortization
    
    
    884
    
    
    
    1,015Amortization of deferred financing fees
    
    
    8
    
    
    
    Loss on disposals of assets
    
    
    
    
    
    
    2Foreign
exchange gain
    
    
    (336
    )
    
    
    (163
    )Provision
(benefit) for deferred income taxes
    
    
    411
    
    
    
    (361
    )Stock-based compensation
    
    
    48
    
    
    
    309Changes in operating assets and liabilities:Accounts receivable
    
    
    538
    
    
    
    (7,919
    )Other receivables
    
    
    33
    
    
    
    369Inventories
    
    
    1,164
    
    
    
    2,850Income taxes receivable/payable
    
    
    (96
    )
    
    
    97Other current assets
    
    
    154
    
    
    
    745Accounts payable
    
    
    (5,986
    )
    
    
    (3,099
    )Accrued liabilities
    
    
    395
    
    
    
    689Net cash used in operating activities
    
    
    (2,093
    )
    
    
    (6,146
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (536
    )
    
    
    (156
    )Cash paid
for acquisition
    
    
    (2,983
    )Net cash used in investing activities
    
    
    (3,519
    )
    
    
    (156
    )Cash flows from financing activities:Increase in bank loan
    
    
    5,626
    
    
    
    6,241Proceeds from issuance of common stock
    
    
    344
    
    
    
    Net cash provided by financing activities
    
    
    5,970
    
    
    
    6,241Effects of foreign exchange on cash
    
    
    314
    
    
    
    82Net increase in cash
    
    
    672
    
    
    
    21Cash, beginning of period
    
    
    2,350
    
    
    
    1,607Cash, end of period
    
    $
    3,022
    
    
    $
    1,628Supplemental cash flow information:Income taxes paid
    
    $
    295
    
    
    $
    179Interest paid
    
    $
    235
    
    
    $
    584Supplemental
disclosures of non-cash investing activitiesFair value of
assets acquired in acquisitionProperty and
equipment
    
    
    357
    
    
    
    Inventories
    
    
    2,060
    
    
    
    Intangible
assets
    
    
    566
    
    
    
    $
    2,983
    
    
    $
    
  5




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) Basis of Presentation
     (2) Stock-Based Compensation
 Share-Based Payment
   Three Months Ended

    
    Six Months EndedSeptember 30, 2007
    
    September 30, 2006

    
    September 30, 2007
    
    September 30, 2006Stock based employee compensation before tax.
    
    $
    24
    
    
    $
    309
    
    
    $
    48
    
    
    $
    309Related income tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based employee compensation, net of tax
    
    $
    24
    
    
    $
    309
    
    
    $
    48
    
    
    $
    309
 6




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##### Table of Contents



Weighted-AverageStock options outstanding:
    
    Options
    
    
    Exercise PriceBalance at April 1, 2007
    
    
    3,605,500
    
    
    $
    0.54Options granted
    
    
    1,150,000
    
    
    $
    1.19Options exercised
    
    
    (729,166
    )
    
    $
    0.50Options expired/cancelled
    
    
    (451,500
    )
    
    $
    0.99Balance at September 30, 2007
    
    
    3,574,834
    
    
    $
    0.78Exercisable at September 30, 2007
    
    
    1,373,334
    
    
    $
    0.64
 (3) Inventories
  September 30,
    
    
    March 31,2007
    
    
    2007Raw materials
    
    $
    997
    
    
    $
    1,618Finished goods
    
    
    12,864
    
    
    
    11,186Inventories
    
    $
    13,861
    
    
    $
    12,804
 (4) Intangible Assets
  Net Book
    
    
    Net BookAccumulated
    
    
    Value at
    
    
    Value atAmortization at
    
    
    September 30,
    
    
    March 31,
    
    
    Useful lifeCost
    
    
    September 30, 2007
    
    
    2007
    
    
    2007
    
    
    (years)Trademarks
    
    $
    4,336
    
    
    $
    2,617
    
    
    $
    1,719
    
    
    $
    1,762
    
    
    
    4-7Copyrights
    
    
    514
    
    
    
    506
    
    
    
    8
    
    
    
    86
    
    
    
    5Customer
relationships
    
    
    265
    
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    2Product lines
    
    
    77
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    2Website
    
    
    457
    
    
    
    457
    
    
    
    
    
    
    
    
    
    
    
    4Intangible assets
    
    $
    5,649
    
    
    $
    3,580
    
    
    $
    2,069
    
    
    $
    1,848
 (5) Bank Loan
  7




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##### Table of Contents



(6) Legal Proceedings
 Freedom Wave LLC. v. Mad Catz, Inc. et al.,
 (7) Comprehensive Income (Loss)
 Reporting Comprehensive Income,
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    872
    
    
    $
    196
    
    
    $
    690
    
    
    $
    (680
    )Foreign currency translation adjustment
    
    
    397
    
    
    
    174
    
    
    
    367
    
    
    
    1,396Comprehensive income
    
    $
    1,269
    
    
    $
    370
    
    
    $
    1,057
    
    
    $
    716
  (8) Basic and Diluted Net Income (Loss) per Share
   8




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    872
    
    
    $
    196
    
    
    $
    690
    
    
    $
    (680
    )Weighted average common shares outstandingbasic
    
    
    54,970
    
    
    
    54,244
    
    
    
    54,664
    
    
    
    54,244Net income per common sharebasic
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.01
    )Weighted average common shares outstandingbasic
    
    
    54,970
    
    
    
    54,244
    
    
    
    54,664
    
    
    
    54,244Plus dilutive equity instruments
    
    
    907
    
    
    
    
    
    
    
    867
    
    
    
    Weighted average common shares outstandingdiluted
    
    
    55,877
    
    
    
    54,244
    
    
    
    55,531
    
    
    
    54,244Net income per common sharediluted
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.01
    )
 (9) Income Taxes
 Accounting for Uncertainty in
Income TaxesAn Interpretation of FASB Statement No. 109. Accounting for Income Taxes
     (10) Geographic Data
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales:United States
    
    $
    11,103
    
    
    $
    17,432
    
    
    $
    20,818
    
    
    $
    31,121Europe
    
    
    5,062
    
    
    
    6,840
    
    
    
    9,232
    
    
    
    9,302Canada
    
    
    663
    
    
    
    1,516
    
    
    
    1,349
    
    
    
    3,397Other countries
    
    
    25
    
    
    
    
    
    
    
    32
    
    
    
    109$
    16,853
    
    
    $
    25,788
    
    
    $
    31,431
    
    
    $
    43,929
  9




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##### Table of Contents



(11) Acquisition
    Cash paid for Joytech business
    
    $
    2,932Transaction costs
    
    
    51Total purchase price
    
    $
    2,983
   Fair value of tangible assets acquired and liabilities assumed:Property and
equipment
    
    
    
    
    
    $
    357Inventories
    
    
    
    
    
    
    2,0602,417Fair value of identifiable intangible assets acquired:Product lines
    
    
    
    
    
    
    77Customer relationships
    
    
    
    
    
    
    265Trademarks
    
    
    
    
    
    
    224566Total fair value of assets acquired
    
    
    
    
    
    $
    2,983
  (12) Subsequent Events
   
 Item 2. 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 Forward-looking Statements herein and in
Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007
and in Part II Other Information  Item 1A. Risk Factors in this Quarterly Report on Form 10-Q .
The following discussion should be read in conjunction with our consolidated financial statements
and related notes included in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal
year ended March 31, 2007.
 10




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Overview
 Our Business
   Seasonality
  Transition to Next-Generation Consoles
  Potential Fluctuations in Foreign Currency
  Critical Accounting Policies
  11




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##### Table of Contents



Revenue Recognition
 Revenue Recognition Software Revenue Recognition.
 Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
 Customer Marketing Programs
       Allowance for Doubtful Accounts
   12




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Inventory Valuation
   Royalties and Intellectual Property Licenses
   Valuation of Goodwill
 Goodwill and Other Intangible Assets
 13




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##### Table of Contents



Share-Based Payments
 Share-Based Payment,
  RESULTS OF OPERATIONS
 Net Sales
  Three months ended September 30,
    
    
    $
    
    
    %2007
    
    
    % of total
    
    
    2006
    
    
    % of total
    
    
    Change
    
    
    ChangeUnited States
    
    $
    11,103
    
    
    
    66
    %
    
    $
    17,432
    
    
    
    68
    %
    
    $
    (6,329
    )
    
    
    (36.3
    )%Europe
    
    
    5,062
    
    
    
    30
    %
    
    
    6,840
    
    
    
    26
    %
    
    
    (1,778
    )
    
    
    (26.0
    )%Canada
    
    
    663
    
    
    
    4
    %
    
    
    1,516
    
    
    
    6
    %
    
    
    (853
    )
    
    
    (56.3
    )%Other countries
    
    
    25
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    25
    
    
    
    N/AConsolidated net sales
    
    $
    16,853
    
    
    
    100
    %
    
    $
    25,788
    
    
    
    100
    %
    
    $
    (8,935
    )
    
    
    (34.6
    )%
 Six months ended September 30,
    
    
    $
    
    
    %2007
    
    
    % of total
    
    
    2006
    
    
    % of total
    
    
    Change
    
    
    ChangeUnited States
    
    $
    20,818
    
    
    
    66
    %
    
    $
    31,121
    
    
    
    71
    %
    
    $
    (10,303
    )
    
    
    (33.1
    )%Europe
    
    
    9,232
    
    
    
    30
    %
    
    
    9,302
    
    
    
    21
    %
    
    
    (70
    )
    
    
    (0.8
    )%Canada
    
    
    1,349
    
    
    
    4
    %
    
    
    3,397
    
    
    
    8
    %
    
    
    (2,048
    )
    
    
    (60.3
    )%Other countries
    
    
    32
    
    
    
    0
    %
    
    
    109
    
    
    
    0
    %
    
    
    (77
    )
    
    
    (70.7
    )%Consolidated net sales
    
    $
    31,431
    
    
    
    100
    %
    
    $
    43,929
    
    
    
    100
    %
    
    $
    (12,498
    )
    
    
    (28.5
    )%
   14




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##### Table of Contents



Three months endedSeptember 30,2007
    
    2006Xbox 360
    
    
    25
    %
    
    
    17
    %PlayStation 2
    
    
    17
    %
    
    
    33
    %PlayStation 3
    
    
    13
    %
    
    
    0
    %Handheld Consoles(a)
    
    
    18
    %
    
    
    17
    %GameCube
    
    
    8
    %
    
    
    11
    %Xbox
    
    
    7
    %
    
    
    10
    %Wii
    
    
    4
    %
    
    
    0
    %All Others
    
    
    8
    %
    
    
    12
    %Total
    
    
    100
    %
    
    
    100
    %
 Six months endedSeptember 30,2007
    
    2006Xbox 360
    
    
    20
    %
    
    
    14
    %PlayStation 3
    
    
    18
    %
    
    
    0
    %Handheld Consoles(a)
    
    
    18
    %
    
    
    16
    %PlayStation 2
    
    
    16
    %
    
    
    33
    %Xbox
    
    
    6
    %
    
    
    13
    %GameCube
    
    
    7
    %
    
    
    11
    %Wii
    
    
    5
    %
    
    
    0
    %All Others
    
    
    10
    %
    
    
    13
    %Total
    
    
    100
    %
    
    
    100
    %
 
 (a)
    
    Handheld consoles include Sony PSP and Nintendo Game Boy Advance, Game Boy Advance SP, DS, DS
Lite, DS Micro and iPod.  15




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Three months endedSeptember 30,2007
    
    2006Control pads
    
    
    36
    %
    
    
    44
    %Bundles
    
    
    14
    %
    
    
    12
    %Software(b)
    
    
    6
    %
    
    
    12
    %Accessories
    
    
    24
    %
    
    
    13
    %Steering wheels
    
    
    2
    %
    
    
    5
    %Memory
    
    
    3
    %
    
    
    4
    %All others
    
    
    15
    %
    
    
    10
    %Total
    
    
    100
    %
    
    
    100
    %
 Six months endedSeptember 30,2007
    
    2006Control pads
    
    
    38
    %
    
    
    42
    %Bundles
    
    
    13
    %
    
    
    10
    %Software(b)
    
    
    8
    %
    
    
    19
    %Accessories
    
    
    21
    %
    
    
    10
    %Steering wheels
    
    
    3
    %
    
    
    6
    %Memory
    
    
    2
    %
    
    
    3
    %All others
    
    
    15
    %
    
    
    10
    %Total
    
    
    100
    %
    
    
    100
    %
 
 (b)
    
    Software includes game enhancement software in addition to published and distributed video
game software with related accessories. Gross Profit
   Three months ended September 30,% of Net
    
    
    
    
    
    
    % of Net
    
    
    $
    
    
    %2007
    
    
    Sales
    
    
    2006
    
    
    Sales
    
    
    Change
    
    
    ChangeNet sales
    
    $
    16,853
    
    
    
    100.0
    %
    
    $
    25,788
    
    
    
    100.0
    %
    
    $
    (8,935
    )
    
    
    (34.6
    )%Cost of sales
    
    
    11,900
    
    
    
    70.6
    %
    
    
    20,218
    
    
    
    78.4
    %
    
    
    (8,318
    )
    
    
    (41.2
    )%Gross profit
    
    $
    4,953
    
    
    
    29.4
    %
    
    $
    5,570
    
    
    
    21.6
    %
    
    $
    (617
    )
    
    
    (11.0
    )%
 Six months ended September 30,% of Net
    
    
    
    
    
    
    % of Net
    
    
    $
    
    
    %2007
    
    
    Sales
    
    
    2006
    
    
    Sales
    
    
    Change
    
    
    ChangeNet sales
    
    $
    31,431
    
    
    
    100.0
    %
    
    $
    43,929
    
    
    
    100.0
    %
    
    $
    (12,498
    )
    
    
    (28.5)
    %Cost of sales
    
    
    21,799
    
    
    
    69.4
    %
    
    
    34,812
    
    
    
    79.2
    %
    
    
    (13,013
    )
    
    
    (37.4
    )%Gross profit
    
    $
    9,632
    
    
    
    30.6
    %
    
    $
    9,117
    
    
    
    20.8
    %
    
    $
    515
    
    
    
    5.7
    %
 16




---



##### Table of Contents



Operating Expenses
  Three months ended September 30,% of Net
    
    
    
    
    
    
    % of Net
    
    
    $
    
    
    %2007
    
    
    Sales
    
    
    2006
    
    
    Sales
    
    
    Change
    
    
    ChangeSales and marketing
    
    $
    1,946
    
    
    
    11.5
    %
    
    $
    2,049
    
    
    
    7.9
    %
    
    $
    (103
    )
    
    
    (5.0
    )%General and administrative
    
    
    1,477
    
    
    
    8.8
    %
    
    
    2,397
    
    
    
    9.3
    %
    
    
    (920
    )
    
    
    (38.4
    )%Research and development
    
    
    299
    
    
    
    1.8
    %
    
    
    485
    
    
    
    1.9
    %
    
    
    (186
    )
    
    
    (38.4
    )%Total operating expenses
    
    $
    3,722
    
    
    
    22.1
    %
    
    $
    4,931
    
    
    
    19.1
    %
    
    $
    (1,209
    )
    
    
    (24.5
    )%
 Six months ended September 30,% of Net
    
    
    
    
    
    
    % of Net
    
    
    $
    
    
    %2007
    
    
    Sales
    
    
    2006
    
    
    Sales
    
    
    Change
    
    
    ChangeSales and marketing
    
    $
    3,679
    
    
    
    11.7
    %
    
    $
    4,593
    
    
    
    10.4
    %
    
    $
    (914
    )
    
    
    (19.9
    )%General and administrative
    
    
    4,277
    
    
    
    13.6
    %
    
    
    4,337
    
    
    
    9.9
    %
    
    
    (60
    )
    
    
    (1.4
    )%Research and development
    
    
    613
    
    
    
    2.0
    %
    
    
    704
    
    
    
    1.6
    %
    
    
    (91
    )
    
    
    (12.9
    )%Total operating expenses
    
    $
    8,570
    
    
    
    27.4
    %
    
    $
    9,634
    
    
    
    21.9
    %
    
    $
    (1,06
    )
    
    
    (11.0
    )%
 Sales and Marketing Expenses.
 General and Administrative.
 17




---



##### Table of Contents



Research and
Development.
 Interest Expense, Foreign Exchange Gain and Other Income
  Three months ended September 30,% of Net
    
    
    
    
    
    % of Net
    
    $
    
    %2007
    
    Sales
    
    2006
    
    Sales
    
    Change
    
    ChangeInterest expense
    
    $
    (110
    )
    
    
    0.7
    %
    
    $
    (291
    )
    
    
    1.1
    %
    
    $
    (181
    )
    
    
    (62.2
    )%Foreign exchange gain
    
    $
    307
    
    
    
    1.8
    %
    
    $
    1
    
    
    
    0.0
    %
    
    $
    306
    
    
    
    30,600
    %Other income
    
    $
    60
    
    
    
    0.4
    %
    
    $
    72
    
    
    
    0.3
    %
    
    $
    (12
    )
    
    
    (16.7
    )%
 Six months ended September 30,% of Net
    
    
    
    
    
    % of Net
    
    $
    
    %2007
    
    Sales
    
    2006
    
    Sales
    
    Change
    
    ChangeInterest expense
    
    $
    (209
    )
    
    
    0.7
    %
    
    $
    (564
    )
    
    
    1.3
    %
    
    $
    (355
    )
    
    
    (63.0
    )%Foreign exchange gain
    
    $
    336
    
    
    
    1.1
    %
    
    $
    163
    
    
    
    0.4
    %
    
    $
    173
    
    
    
    106.1
    %Other income
    
    $
    151
    
    
    
    0.5
    %
    
    $
    129
    
    
    
    0.3
    %
    
    $
    22
    
    
    
    17.1
    %
   Income Tax Expense (Benefit)
  Three months ended September 30,Effective
    
    
    
    
    
    Effective
    
    $
    
    %2007
    
    Tax Rate
    
    2006
    
    Tax Rate
    
    Change
    
    ChangeIncome tax expense
    $616
    
    
    40.9
    %
    
    $
    225
    
    
    
    53.4
    %
    
    $
    391
    
    
    
    173.7
    %
 Six months ended September 30,Effective
    
    
    
    
    
    Effective
    
    $
    
    %2007
    
    Tax Rate
    
    2006
    
    Tax Rate
    
    Change
    
    ChangeIncome tax expense (benefit)
    $651
    
    
    47.2
    %
    
    $
    (109
    )
    
    
    13.8
    %
    
    $
    760
    
    
    
    697.2
    %
 18




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity
 As of and for thesix months endedSeptember 30,(in thousands)
    
    2007
    
    
    2006
    
    
    ChangeCash
    
    $
    3,022
    
    
    $
    1,628
    
    
    $
    1,394Percentage of total assets
    
    
    5.3
    %
    
    
    2.2
    %Cash used in operating activities
    
    $
    (2,093
    )
    
    $
    (6,146
    )
    
    $
    4,053Cash used in investing activities
    
    $
    (3,519
    )
    
    
    (156
    )
    
    
    (3,363
    )Cash provided by financing activities
    
    
    5,970
    
    
    
    6,241
    
    
    
    (271
    )Effects of foreign exchange on cash
    
    
    314
    
    
    
    82
    
    
    
    232Net increase in cash
    
    $
    672
    
    
    $
    21
    
    
    
    651
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
   19




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments DueLess Than
    
    
    1-3
    
    
    3-5Total
    
    
    1 Year
    
    
    Years
    
    
    YearsBank loan (excludes interest)
    
    $
    6,971
    
    
    $
    6,971
    
    
    $
    
    
    
    $
    Operating leases
    
    
    1,947
    
    
    
    1,061
    
    
    
    886
    
    
    
    Royalty & license guaranteed commitments
    
    
    264
    
    
    
    264
    
    
    
    Total
    
    $
    9,182
    
    
    $
    8,296
    
    
    $
    886
    
    
    $
    
  EBITDA
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    872
    
    
    $
    196
    
    
    $
    690
    
    
    $
    (680
    )Adjustments:Interest expense
    
    
    110
    
    
    
    291
    
    
    
    209
    
    
    
    564Income tax expense (benefit)
    
    
    616
    
    
    
    225
    
    
    
    651
    
    
    
    (109
    )Depreciation and amortization
    
    
    436
    
    
    
    504
    
    
    
    884
    
    
    
    1,015EBITDA
    
    $
    2,034
    
    
    $
    1,216
    
    
    $
    2,434
    
    
    $
    790
 Recent Accounting Pronouncements
 Fair
Value Measurements
 20




---



##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities
 Forward-Looking Statements
   
    
    Our dependence upon a few large customers, and their continued viability and
financial stability, and a few core products to generate a significant portion of our
revenues,
    
    Our need to constantly change our product mix by introducing new products in
response to changing competitive and market conditions, and our need to obtain
sufficient retail shelf space at our retailers to display and market our products,
    
    Risks associated with the introduction of new video game consoles, including
technological compatibility of our products and obsolescence of our older products,
    
    Our dependence upon third parties to manufacture, ship and sell our products,
    
    Our dependence upon third parties to develop new and enhanced video game consoles
and software that promote demand for our products and the commercial acceptance of the
new consoles and software,
    
    The seasonality of our business, with the bulk of our sales coming in our fiscal
third quarter,
    
    Regulatory requirements of new laws related to environmental practices in
connection with developing, manufacturing and distributing electronics products,
    
    Potential political events, particularly in China, that may negatively affect
economic conditions generally and our ability to obtain sufficient quantities of our
products in a timely and efficient manner,
    
    Product liability claims, product defects, recalls and other manufacturing
activity risks,
    
    Risks related to our pricing, product return, promotion and production practices,
    
    Risks related to acquisitions and related integration of
acquired businesses.
 21




---



##### Table of Contents




    
    Our ability to negotiate and comply with licensing arrangements with first party
manufacturers and other parties that are necessary to manufacture our products,
    
    Provisions in some of our supply agreements that could require us to make
substantial minimum annual purchases,
    
    The impact on our sales of disruptions of shipping and product delivery
operations worldwide,
    
    Costs associated with defending our intellectual property rights and with
defending assertions by other parties that we infringe their intellectual property
rights,
    
    Risks associated with our international operations,
    
    The fact that accounts receivable represent a large portion of our assets and are
owed by a few large customers,
    
    Our dependence upon the availability of capital under our credit facility to
finance our operations,
    
    Potential inability to sustain or manage growth, including the failure to
continue to develop new products and markets,
    
    Our reliance on the use of information technology,
    
    Our need to attract, train and retain skilled personnel to manage our business,
develop new products and market our products to retailers,
    
    The loss of product market share to competitors,
    
    Potential adverse effects of domestic and international taxation and transfer
pricing regulations, and
    
    Fluctuations in the value of foreign currencies against the U.S. dollar.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
  Foreign Currency Exchange Rate Risk.
  Interest Rate Risk.
  
 Item 4. Controls and Procedures
  22




---



##### Table of Contents



Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The benefits we anticipate
from acquiring the assets of the Joytech business
may not be realized in the manner anticipated.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  1.
    
    Election of Directors
 For
    
    Withhold
    
    Invalid
    
    Non-VotesGeofrey Myers
    
    
    40,268,746
    
    
    
    1,403,314
    
    
    
    0
    
    
    
    1Darren Richardson
    
    
    39,213,716
    
    
    
    2,458,344
    
    
    
    0
    
    
    
    1Thomas R. Brown
    
    
    40,270,596
    
    
    
    1,401,464
    
    
    
    0
    
    
    
    1Robert J. Molyneaux
    
    
    40,268,066
    
    
    
    1,403,994
    
    
    
    0
    
    
    
    1William Woodward
    
    
    40,194,799
    
    
    
    1,477,261
    
    
    
    0
    
    
    
    1
 2.
    
    Proposal to appoint KPMG LLP as the Independent Registered Public Accounting Firm and Auditor
of the Company and to authorize the Board of Director to approve the Independent Registered Public
Accounting Firm and Auditors remuneration.
 For
    
    Withhold
    
    Invalid
    
    Invalid41,082,539
    
    545,522
    
    0
    
    1
 3.
    
    Proposal to approve the Mad Catz Interactive, Inc. Stock Option Plan  2007 and the grant
under that plan of options to purchase 1,000,000 shares of common stock.
 For
    
    Withhold
    
    Invalid
    
    Invalid13,906,902
    
    5,206,799
    
    0
    
    22,445,560
 
 Item 5. Other Information
  
 Item 6. Exhibits
 2.1
    
    Asset Purchase Agreement, dated as of September 6, 2007, by and between Mad Catz Interactive,
Inc. and Take-Two Interactive Software, Inc. (incorporated by reference to the Companys
Current Report on Form 8-K filed with the Securities and Exchange Commission on September 11,
2007)3.1
    
    Amendment to By-Law Number 2 of Mad Catz Interactive, Inc.10.1
    
    Mad Catz Interactive, Inc. Stock Option Plan  2007 (incorporated by reference to the
Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 9, 2007)10.2
    
    Stock Option Agreement under the Mad Catz Interactive, Inc. Stock Option Plan  2007
(incorporated by reference to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 9, 2007)31.1
    
    Certification of Registrants Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Registrants Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification 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. This certification is being furnished solely to
accompany this Quarterly Report on Form 10-Q and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not to be incorporated by reference into any filing
of the Company.32.2
    
    Certification 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. This certification is being furnished solely to
accompany this Quarterly Report on Form 10-Q and is not being filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not to be incorporated by reference into any filing
of the Company.
 23




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.November 14, 2007
    /s/ Darren RichardsonDarren RichardsonPresident and Chief Executive OfficerNovember 14, 2007
    /s/ Stewart A. HalpernStewart A. HalpernChief Financial Officer 24