##### 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 June 30, 2010
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




---



##### 



MAD CATZ INTERACTIVE, INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2010
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2010 and March 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three months ended June 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 4. Controls and Procedures
    
    
    14PART II  OTHER INFORMATION
    
    
    15Item 1. Legal Proceedings
    
    
    15Item 1a. Risk Factors
    
    
    15Item 6. Exhibits
    
    
    15SIGNATURES
    
    
    16EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MAD CATZ INTERACTIVE, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    March 31,2010
    
    
    2010Current assets:Cash
    
    $
    5,836
    
    
    $
    2,245Accounts receivable, net
    
    
    14,381
    
    
    
    14,620Other receivables
    
    
    744
    
    
    
    123Income tax receivable
    
    
    21
    
    
    
    21Inventories
    
    
    23,949
    
    
    
    16,975Deferred tax assets
    
    
    17
    
    
    
    17Prepaid expense and other current assets
    
    
    2,759
    
    
    
    1,410Total current assets
    
    
    47,707
    
    
    
    35,411Deferred tax assets
    
    
    768
    
    
    
    766Other assets
    
    
    554
    
    
    
    626Property and equipment, net
    
    
    3,659
    
    
    
    3,452Intangible assets, net
    
    
    6,208
    
    
    
    2,828Goodwill
    
    
    9,768
    
    
    
    8,466Total assets
    
    $
    68,664
    
    
    $
    51,549Current liabilities:Bank loan
    
    $
    16,477
    
    
    $
    3,829Accounts payable
    
    
    14,754
    
    
    
    11,871Accrued liabilities
    
    
    7,803
    
    
    
    7,988Notes payable, current
    
    
    703
    
    
    
    Contingent consideration, current
    
    
    500
    
    
    
    Income taxes payable
    
    
    1,147
    
    
    
    1,670Total current liabilities
    
    
    41,384
    
    
    
    25,358Other long term liabilities
    
    
    343
    
    
    
    357Contingent consideration
    
    
    2,765
    
    
    
    Convertible notes payable
    
    
    14,500
    
    
    
    14,500Total liabilities
    
    
    58,992
    
    
    
    40,215Shareholders equity:Common
stock, no par value, unlimited shares authorized; 55,098,549 shares issued and
outstanding at June 30, 2010 and March 31, 2010
    
    
    49,010
    
    
    
    48,865Accumulated other comprehensive income
    
    
    (487
    )
    
    
    (55
    )Accumulated deficit
    
    
    (38,851
    )
    
    
    (37,476
    )Total shareholders equity
    
    
    9,672
    
    
    
    11,334Total liabilities and shareholders equity
    
    $
    68,664
    
    
    $
    51,549
  3




---



##### Table of Contents



MAD CATZ INTERACTIVE, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedJune 30,2010
    
    
    2009Net sales
    
    $
    19,911
    
    
    $
    22,378Cost of sales
    
    
    13,967
    
    
    
    16,018Gross profit
    
    
    5,944
    
    
    
    6,360Operating expenses:Sales and marketing
    
    
    2,478
    
    
    
    2,443General and administrative
    
    
    3,283
    
    
    
    3,051Research and development
    
    
    749
    
    
    
    309Amortization of intangible assets
    
    
    241
    
    
    
    582Total operating expenses
    
    
    6,751
    
    
    
    6,385Operating loss
    
    
    (807
    )
    
    
    (25
    )Interest expense, net
    
    
    (525
    )
    
    
    (468
    )Foreign exchange loss, net
    
    
    (214
    )
    
    
    (312
    )Other income
    
    
    60
    
    
    
    31Loss before income taxes
    
    
    (1,486
    )
    
    
    (774
    )Income tax expense (benefit)
    
    
    (111
    )
    
    
    222Net loss
    
    $
    (1,375
    )
    
    $
    (996
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.02
    )Shares used in calculating basic and diluted net loss per share
    
    
    55,098,549
    
    
    
    55,098,549
  4




---



##### Table of Contents



MAD CATZ INTERACTIVE, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedJune 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (1,375
    )
    
    $
    (996
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    667
    
    
    
    1,036Amortization of deferred financing fees
    
    
    37
    
    
    
    45Benefit (provision) for deferred income taxes
    
    
    (2
    )
    
    
    156Loss on disposal or sale of assets
    
    
    
    
    
    
    53Stock-based compensation
    
    
    145
    
    
    
    153Changes in
operating assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    933
    
    
    
    2,634Other receivables
    
    
    (640
    )
    
    
    37Inventories
    
    
    (5,002
    )
    
    
    (2,772
    )Prepaid expense and other current assets
    
    
    (1,301
    )
    
    
    (169
    )Other assets
    
    
    27
    
    
    
    (343
    )Accounts payable
    
    
    249
    
    
    
    286Accrued liabilities
    
    
    (362
    )
    
    
    1,000Income taxes receivable/payable
    
    
    (539
    )
    
    
    303Net cash provided by (used in) operating activities
    
    
    (7,163
    )
    
    
    1,423Cash flows from investing activities:Purchases of property and equipment
    
    
    (526
    )
    
    
    (635
    )Cash paid for acquisition, net of cash received
    
    
    (1,189
    )
    
    
    Net cash used in investing activities
    
    
    (1,715
    )
    
    
    (635
    )Cash flows from financing activities:Payment of financing fees
    
    
    
    
    
    
    (50
    )Repayments on bank loan
    
    
    (16,923
    )
    
    
    (22,816
    )Repayments on notes payable
    
    
    (100
    )
    
    
    Borrowings on bank loan
    
    
    29,571
    
    
    
    21,307Net cash provided by (used in) financing activities
    
    
    12,548
    
    
    
    (1,559
    )Effects of foreign exchange on cash
    
    
    (79
    )
    
    
    272Net increase (decrease) in cash
    
    
    3,591
    
    
    
    (499
    )Cash, beginning of period
    
    
    2,245
    
    
    
    2,890Cash, end of period
    
    $
    5,836
    
    
    $
    2,391Supplemental cash flow information:Income taxes paid
    
    $
    431
    
    
    $
    43Interest paid
    
    $
    165
    
    
    $
    198Supplemental disclosures of non cash investing and financing:Fair value of assets acquired in acquisition, net of cash received
    
    $
    3,037
    
    
    $
    Goodwill
    
    $
    1,314
    
    
    $
    Intangible assets
    
    $
    3,700
    
    
    $
    Liabilities assumed in acquisition
    
    $
    (2,794
    )
    
    $
    Notes payable assumed in acquisition
    
    $
    (803
    )
    
    $
    Contingent
consideration liability, net of $735 working capital adjustment
    
    $
    (3,265
    )
    
    $
    Net cash paid for acquisition
    
    $
    1,189
    
    
    $
    
  5




---



##### Table of Contents



MAD CATZ INTERACTIVE, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
    6




---



##### Table of Contents



(2) Acquisition
   Consideration
 Cash paid
    
    
    1,350Preliminary working capital adjustment, net of holdback
    
    
    (735
    )Fair value of contingent consideration
    
    
    4,000Total purchase price
    
    
    4,615
  Recognized amounts of identifiable assets acquired and liabilities assumed
 Net working capital
    
    
    (519
    )Property, plant and equipment and other assets
    
    
    120Goodwill
    
    
    1,314Other intangible assets
    
    
    3,700Total purchase price
    
    
    4,615
  Customer relationships
    
    
    900Trademark and trade names
    
    
    2,800
     Remainder of 2011
    
    
    2302012
    
    
    3462013
    
    
    3462014
    
    
    3462015
    
    
    346Thereafter
    
    
    2,028Total
    
    
    3,642
 7




---



##### Table of Contents



Changes in goodwill
  Goodwill balance as of March 31, 2010
    
    
    8,466Changes due to foreign currency translation
    
    
    (12
    )Increase due to Tritton acquisition
    
    
    1,314Goodwill balance as of June 30, 2010
    
    
    9,768
  (3) Notes Payable
  (4) Inventories
  June 30,
    
    
    March 31,2010
    
    
    2010Raw materials
    
    $
    1,927
    
    
    $
    1,546Finished goods
    
    
    22,022
    
    
    
    15,429Inventories
    
    $
    23,949
    
    
    $
    16,975
 (5) Comprehensive Income (Loss)
   Three Months EndedJune 30,2010
    
    
    2009Net loss
    
    $
    (1,375
    )
    
    $
    (996
    )Foreign currency translation adjustment
    
    
    (432
    )
    
    
    1,324Comprehensive income (loss)
    
    $
    (1,807
    )
    
    $
    328
 (6) Basic and Diluted Net Loss per Share
   (7) Geographic Data
  Three Months EndedJune 30,2010
    
    
    2009Net sales:United States
    
    $
    10,432
    
    
    $
    13,610Europe
    
    
    8,344
    
    
    
    7,259Canada
    
    
    369
    
    
    
    858Other countries
    
    
    766
    
    
    
    651$
    19,911
    
    
    $
    22,378
  8




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Unless the context otherwise requires, all references in this section to the Company, we,
us or our refer, collectively, to Mad Catz Interactive Inc. and all of its subsidiaries, and
all references in this section to Mad Catz refer to Mad Catz Interactive Inc.
 This section contains forward-looking statements and forward looking information (collectively
forward-looking statements) as defined in applicable securities legislation 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, 2010 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 condensed 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, 2010.
 Overview
 Our Business
  Seasonality and Fluctuation of Sales
  Potential Fluctuations in Foreign Currency
  Critical Accounting Policies
  RESULTS OF OPERATIONS
 Net Sales
  June 30,
    
    
    
    
    
    
    June 30,
    
    
    
    
    
    
    $
    
    
    %2010
    
    

% of total
    
    
    2009
    
    

% of total
    
    
    Change
    
    
    ChangeUnited States
    
    $
    10,432
    
    
    
    52
    %
    
    $
    13,610
    
    
    
    61
    %
    
    $
    (3,178
    )
    
    
    (23
    )%Europe
    
    
    8,344
    
    
    
    42
    %
    
    
    7,259
    
    
    
    32
    %
    
    
    1,085
    
    
    
    15
    %Canada
    
    
    369
    
    
    
    2
    %
    
    
    858
    
    
    
    4
    %
    
    
    (489
    )
    
    
    (57
    )%Other countries
    
    
    766
    
    
    
    4
    %
    
    
    651
    
    
    
    3
    %
    
    
    115
    
    
    
    18
    %Consolidated net sales
    
    $
    19,911
    
    
    
    100
    %
    
    $
    22,378
    
    
    
    100
    %
    
    $
    (2,467
    )
    
    
    (11
    )%
 9




---



##### Table of Contents



Street
Fighter IV 
  Three Months EndedJune 30,2010
    
    
    2009Xbox 360
    
    
    31
    %
    
    
    32
    %PlayStation 3
    
    
    24
    %
    
    
    19
    %PC
    
    
    17
    %
    
    
    22
    %Wii
    
    
    10
    %
    
    
    8
    %Handheld Consoles(a)
    
    
    3
    %
    
    
    7
    %GameCube
    
    
    2
    %
    
    
    2
    %PlayStation 2
    
    
    1
    %
    
    
    2
    %All others
    
    
    12
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
 
  Street Fighter IV 
  Three Months EndedJune 30,2010
    
    
    2009Audio
    
    
    33
    %
    
    
    10
    %Specialty Controllers
    
    
    22
    %
    
    
    40
    %Controllers
    
    
    22
    %
    
    
    16
    %Accessories
    
    
    16
    %
    
    
    24
    %PC Input Devices
    
    
    6
    %
    
    
    8
    %Games
    
    
    1
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
 Street Fighter IV
 Gross Profit
   June 30,
    
    
    % of Net
    
    
    June 30,
    
    
    % of Net
    
    
    $
    
    
    %2010
    
    
    Sales
    
    
    2009
    
    
    Sales
    
    
    Change
    
    
    ChangeNet sales
    
    $
    19,911
    
    
    
    100
    %
    
    $
    22,378
    
    
    
    100
    %
    
    $
    (2,467
    )
    
    
    (11
    )%Cost of sales
    
    
    13,967
    
    
    
    70
    %
    
    
    16,018
    
    
    
    72
    %
    
    
    (2,051
    )
    
    
    (13
    )%Gross profit
    
    $
    5,944
    
    
    
    30
    %
    
    $
    6,360
    
    
    
    28
    %
    
    $
    (416
    )
    
    
    (7
    )%
 10




---



##### Table of Contents



Operating Expenses
  June 30,
    
    
    % of
    
    
    June 30,
    
    
    % of
    
    
    $
    
    
    %2010
    
    
    Net sales
    
    
    2009
    
    
    Net sales
    
    
    Change
    
    
    ChangeSales and marketing
    
    $
    2,478
    
    
    
    12
    %
    
    $
    2,443
    
    
    
    11
    %
    
    $
    35
    
    
    
    1
    %General and administrative
    
    
    3,283
    
    
    
    17
    %
    
    
    3,051
    
    
    
    14
    %
    
    
    232
    
    
    
    8
    %Research and development
    
    
    749
    
    
    
    4
    %
    
    
    309
    
    
    
    1
    %
    
    
    440
    
    
    
    142
    %Amortization
    
    
    241
    
    
    
    1
    %
    
    
    582
    
    
    
    3
    %
    
    
    (341
    )
    
    
    (59
    )%Total operating expenses
    
    $
    6,751
    
    
    
    34
    %
    
    $
    6,385
    
    
    
    29
    %
    
    $
    366
    
    
    
    6
    %
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Research and Development Expenses. .
 Amortization Expenses.
 Interest Expense, net, Foreign Exchange Loss and Other Income
  June 30,
    
    
    June 30,
    
    
    $
    
    
    %2010
    
    
    2009
    
    
    Change
    
    
    ChangeInterest expense, net
    
    $
    (525
    )
    
    $
    (468
    )
    
    $
    (57
    )
    
    
    12
    %Foreign exchange loss
    
    $
    (214
    )
    
    $
    (312
    )
    
    $
    98
    
    
    
    (31
    )%Other income
    
    $
    60
    
    
    $
    31
    
    
    $
    29
    
    
    
    94
    %
    Income Tax Expense (Benefit)
  June 30,
    
    
    Effective
    
    
    June 30,
    
    
    Effective
    
    
    $


    
    %2010
    
    
    Tax Rate
    
    
    2009
    
    
    Tax Rate

    
    Change
    
    
    Change$
    (111
    )
    
    
    7.4
    %
    
    $
    222
    
    
    
    (28.6
    )%
    
    $
    (333
    )%
    
    $
    (150
    )%
 11




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity
 As of and for theThree months ended June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    ChangeCash
    
    $
    5,836
    
    
    $
    2,391
    
    
    $
    3,445Percentage of total assets
    
    
    8.3
    %
    
    
    4.3
    %Cash provided by (used in) operating activities
    
    $
    (7,163
    )
    
    $
    1,423
    
    
    $
    (8,586
    )Cash used in investing activities
    
    
    (1,715
    )
    
    
    (635
    )
    
    
    (1,080
    )Cash provided by (used in) financing activities
    
    
    12,548
    
    
    
    (1,559
    )
    
    
    14,107Effect of foreign exchange on cash
    
    
    (79
    )
    
    
    272
    
    
    
    (351
    )Net increase (decrease) in cash
    
    $
    3,591
    
    
    $
    (499
    )
    
    $
    4,090
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
    12




---



##### Table of Contents



Contractual Obligations and Commitments
   EBITDA
  Three months endedJune 30,2010
    
    
    2009(in thousands)Net loss
    
    $
    (1,375
    )
    
    $
    (996
    )Adjustments:Interest expense, net
    
    
    525
    
    
    
    468Income tax expense (benefit)
    
    
    (111
    )
    
    
    222Depreciation and amortization
    
    
    667
    
    
    
    1,036EBITDA
    
    $
    (294
    )
    
    $
    730
 Forward-Looking Statements
  13




---



##### Table of Contents



Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  14




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 6.
    
    Exhibits
 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.
 15




---



##### Table of Contents



MAD CATZ INTERACTIVE, INC.August 05, 2010
    /s/ Darren RichardsonDarren RichardsonPresident and Chief Executive OfficerAugust 05, 2010
    /s/ Stewart A. HalpernStewart A. HalpernChief Financial Officer 16