##### 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, 2009
 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




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##### 



MAD CATZ INTERACTIVE, INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2009
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2009 and March 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three months ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2009 and 2008
    
    
    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
    
    
    15PART II  OTHER INFORMATION
    
    
    15Item 1.
    
    Legal Proceedings
    
    
    15Item 1a.
    
    Risk Factors
    
    
    15Item 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    16EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 MAD CATZ INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    March 31,2009
    
    2009Current assets:Cash
    
    $
    2,391
    
    
    $
    2,890Accounts receivable, net of allowances of
$5,625 and $5,926 at June 30, 2009 and March
31, 2009, respectively
    
    
    13,191
    
    
    
    15,524Other receivables
    
    
    437
    
    
    
    471Income tax receivable
    
    
    759
    
    
    
    759Inventories
    
    
    20,956
    
    
    
    17,774Deferred tax assets
    
    
    19
    
    
    
    19Prepaid expense and other current assets
    
    
    1,794
    
    
    
    1,491Total current assets
    
    
    39,547
    
    
    
    38,928Deferred tax assets
    
    
    328
    
    
    
    484Other assets
    
    
    760
    
    
    
    362Property and equipment, net
    
    
    2,517
    
    
    
    2,246Intangible assets, net
    
    
    4,490
    
    
    
    5,118Goodwill
    
    
    8,446
    
    
    
    8,467Total assets
    
    $
    56,088
    
    
    $
    55,601Current liabilities:Bank loan
    
    $
    11,763
    
    
    $
    13,272Accounts payable
    
    
    13,782
    
    
    
    13,528Accrued liabilities
    
    
    6,700
    
    
    
    5,929Note payable
    
    
    847
    
    
    
    847Income taxes payable
    
    
    922
    
    
    
    655Total current liabilities
    
    
    34,014
    
    
    
    34,231Other long term liabilities
    
    
    676
    
    
    
    453Convertible notes payable
    
    
    14,500
    
    
    
    14,500Total liabilities
    
    
    49,190
    
    
    
    49,184Shareholders equity:Common stock, no par value, unlimited shares
authorized; 55,098,549 shares issued and
outstanding at June 30, 2009 and March 31,
2009
    
    
    48,408
    
    
    
    48,255Accumulated other comprehensive income
    
    
    1,425
    
    
    
    101Accumulated deficit
    
    
    (42,935
    )
    
    
    (41,939
    )Total shareholders equity
    
    
    6,898
    
    
    
    6,417Total liabilities and shareholders equity
    
    $
    56,088
    
    
    $
    55,601
  3




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedJune 30,2009
    
    
    2008Net sales
    
    $
    22,378
    
    
    $
    23,226Cost of sales
    
    
    16,018
    
    
    
    15,032Gross profit
    
    
    6,360
    
    
    
    8,194Operating expenses:Sales and marketing
    
    
    2,443
    
    
    
    3,130General and administrative
    
    
    3,051
    
    
    
    4,872Research and development
    
    
    309
    
    
    
    464Amortization of intangible assets
    
    
    582
    
    
    
    612Total operating expenses
    
    
    6,385
    
    
    
    9,078Operating loss
    
    
    (25
    )
    
    
    (884
    )Interest expense, net
    
    
    (468
    )
    
    
    (467
    )Foreign exchange loss, net
    
    
    (312
    )
    
    
    (72
    )Other income
    
    
    31
    
    
    
    137Loss before income taxes
    
    
    (774
    )
    
    
    (1,286
    )Income tax expense (benefit)
    
    
    222
    
    
    
    (509
    )Net loss
    
    $
    (996
    )
    
    $
    (777
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.01
    )Shares used in calculating basic and diluted net loss per share
    
    
    55,098,549
    
    
    
    55,060,087
  4




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedJune 30,2009
    
    2008Cash flows from operating activities:Net loss
    
    $
    (996
    )
    
    $
    (777
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,036
    
    
    
    1,102Amortization of deferred financing fees
    
    
    45
    
    
    
    20Increase in sales reserves
    
    
    2,486
    
    
    
    2,037Benefit for deferred income taxes
    
    
    156
    
    
    
    (219
    )Loss (gain) on disposal or sale of assets
    
    
    53
    
    
    
    (18
    )Stock-based compensation
    
    
    153
    
    
    
    68Changes in operating assets and liabilities:Accounts receivable
    
    
    148
    
    
    
    (4,715
    )Other receivables
    
    
    37
    
    
    
    (78
    )Inventories
    
    
    (2,772
    )
    
    
    (1,156
    )Prepaid expense and other current assets
    
    
    (169
    )
    
    
    91Other assets
    
    
    (343
    )
    
    
    (283
    )Accounts payable
    
    
    286
    
    
    
    (133
    )Accrued liabilities
    
    
    1,000
    
    
    
    230Income taxes receivable/payable
    
    
    303
    
    
    
    (635
    )Net cash provided by (used in) operating activities
    
    
    1,423
    
    
    
    (4,466
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (635
    )
    
    
    (275
    )Net cash used in investing activities
    
    
    (635
    )
    
    
    (275
    )Cash flows from financing activities:Proceeds from stock option exercises
    
    
    
    
    
    
    56Payment of financing fees
    
    
    (50
    )
    
    
    Repayments on bank loan
    
    
    (22,816
    )
    
    
    (17,783
    )Borrowings on bank loan
    
    
    21,307
    
    
    
    19,189Net cash (used in) provided by financing activities
    
    
    (1,559
    )
    
    
    1,462Effects of foreign exchange on cash
    
    
    272
    
    
    
    (1
    )Net decrease in cash
    
    
    (499
    )
    
    
    (3,280
    )Cash, beginning of period
    
    
    2,890
    
    
    
    5,230Cash, end of period
    
    $
    2,391
    
    
    $
    1,950Supplemental cash flow information:Income taxes paid
    
    $
    43
    
    
    $
    178Interest paid
    
    $
    198
    
    
    $
    177
  5




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##### Table of Contents



MAD CATZ INTERACTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) Basis of Presentation
     Recently Adopted Accounting Pronouncements
 Subsequent Events
 Interim Disclosures about Fair Value of Financial Instruments
 Fair Value Measurements
 Determining Fair Value When Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
 6




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##### Table of Contents



Business Combinations Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies
 Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Defensive Intangible Assets
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings per Share
 7




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##### Table of Contents



Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
 (2) Inventories
  June 30,
    
    
    March 31,2009
    
    
    2009Raw materials
    
    $
    1,132
    
    
    $
    949Finished goods
    
    
    19,824
    
    
    
    16,825Inventories
    
    $
    20,956
    
    
    $
    17,774
 (3) Bank Loan
  (4) Convertible Notes Payable
  (5) Completion Note
  (6) Comprehensive Income (Loss)
 Reporting Comprehensive Income,
  Three Months EndedJune 30,2009
    
    
    2008Net loss
    
    $
    (996
    )
    
    $
    (777
    )Foreign currency translation adjustment
    
    
    1,324
    
    
    
    (775
    )Comprehensive income (loss)
    
    $
    328
    
    
    $
    (1,552
    )
 8




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##### Table of Contents



(7) Basic and Diluted Net Loss per Share
   (8) Geographic Data
  Three months endedJune 30,2009
    
    2008Net sales:United States
    
    $
    13,610
    
    
    $
    12,615Europe
    
    
    7,259
    
    
    
    10,022Canada
    
    
    858
    
    
    
    240Other countries
    
    
    651
    
    
    
    349$
    22,378
    
    
    $
    23,226
  (9) Subsequent Events
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 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, 2009 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, 2009.
 Overview
 Our Business
  Seasonality and Fluctuation of Sales
  Potential Fluctuations in Foreign Currency
  9




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##### Table of Contents



Critical Accounting Policies
  RESULTS OF OPERATIONS
 Net Sales
  June 30,
    
    
    
    
    
    
    June 30,
    
    
    
    
    
    
    $
    
    
    %2009
    
    
    % of total
    
    
    2008
    
    
    % of total
    
    
    Change
    
    
    ChangeUnited States
    
    $
    13,610
    
    
    
    61
    %
    
    $
    12,615
    
    
    
    55
    %
    
    $
    995
    
    
    
    8
    %Europe
    
    
    7,259
    
    
    
    32
    %
    
    
    10,022
    
    
    
    43
    %
    
    
    (2,763
    )
    
    
    (28
    )%Canada
    
    
    858
    
    
    
    4
    %
    
    
    240
    
    
    
    1
    %
    
    
    618
    
    
    
    258
    %Other countries
    
    
    651
    
    
    
    3
    %
    
    
    349
    
    
    
    1
    %
    
    
    302
    
    
    
    87
    %Consolidated net sales
    
    $
    22,378
    
    
    
    100
    %
    
    $
    23,226
    
    
    
    100
    %
    
    $
    (848
    )
    
    
    (4
    )%
   Three months endedJune 30,2009
    
    2008Xbox 360
    
    
    32
    %
    
    
    11
    %PC
    
    
    24
    %
    
    
    35
    %PlayStation 3
    
    
    19
    %
    
    
    11
    %Wii
    
    
    8
    %
    
    
    18
    %Handheld Consoles(a)
    
    
    7
    %
    
    
    11
    %PlayStation 2
    
    
    2
    %
    
    
    4
    %GameCube
    
    
    2
    %
    
    
    3
    %All others
    
    
    6
    %
    
    
    7
    %Total
    
    
    100
    %
    
    
    100
    %
 
 (a)
    
    Handheld consoles include Sony PSP and Nintendo Game Boy Advance, Game
Boy Advance SP, DS, DS Lite, DSi and Micro. Street Fighter IV   Street Fighter IV
 10




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##### Table of Contents



Three months endedJune 30,2009
    
    2008Specialty Controllers
    
    
    36
    %
    
    
    17
    %Accessories
    
    
    23
    %
    
    
    42
    %Controllers
    
    
    21
    %
    
    
    15
    %Audio
    
    
    10
    %
    
    
    9
    %PC Input Devices
    
    
    8
    %
    
    
    14
    %Games
    
    
    2
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
 Street Fighter IV Street Fighter IV Street Fighter IV 
 Gross Profit
   June 30,
    
    % of Net
    
    June 30,
    
    % of Net
    
    $
    
    %2009
    
    Sales
    
    2008
    
    Sales
    
    Change
    
    ChangeNet sales
    
    $
    22,378
    
    
    
    100
    %
    
    $
    23,226
    
    
    
    100
    %
    
    $
    (848
    )
    
    
    (4
    )%Cost of sales
    
    
    16,018
    
    
    
    72
    %
    
    
    15,032
    
    
    
    65
    %
    
    
    986
    
    
    
    7
    %Gross profit
    
    $
    6,360
    
    
    
    28
    %
    
    $
    8,194
    
    
    
    35
    %
    
    $
    (1,834
    )
    
    
    (22
    )%
  Operating Expenses
  June 30,
    
    % of
    
    June 30,
    
    % of
    
    $
    
    %2009
    
    Net Sales
    
    2008
    
    Net Sales
    
    Change
    
    ChangeSales and marketing
    
    $
    2,443
    
    
    
    11
    %
    
    $
    3,130
    
    
    
    13
    %
    
    $
    (687
    )
    
    
    (22
    )%General and administrative
    
    
    3,051
    
    
    
    144
    %
    
    
    4,872
    
    
    
    21
    %
    
    
    (1,821
    )
    
    
    (37
    )%Research and development
    
    
    309
    
    
    
    1
    %
    
    
    464
    
    
    
    2
    %
    
    
    (155
    )
    
    
    (33
    )%Amortization
    
    
    582
    
    
    
    3
    %
    
    
    612
    
    
    
    3
    %
    
    
    (30
    )
    
    
    (5
    )%Total operating expenses
    
    $
    6,385
    
    
    
    29
    %
    
    $
    9,078
    
    
    
    39
    %
    
    $
    (2,693
    )
    
    
    (30
    )%
 Sales and Marketing Expenses.
 General and Administrative.
 Research and Development.
 11




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##### Table of Contents



Amortization.
 Interest Expense, net, Foreign Exchange Loss and Other Income
  June 30,
    
    June 30,
    
    $
    
    %2009
    
    2008
    
    Change
    
    ChangeInterest expense, net
    
    $
    (468
    )
    
    $
    (467
    )
    
    $
    (1
    )
    
    
    0
    %Foreign exchange loss
    
    $
    (312
    )
    
    $
    (72
    )
    
    $
    (240
    )
    
    
    (333
    )%Other income
    
    $
    31
    
    
    $
    137
    
    
    $
    (106
    )
    
    
    (77
    )%
    Income Tax Expense (Benefit)
  June 30,
    
    Effective
    
    June 30,
    
    Effective
    
    $
    
    %2009
    
    Tax Rate
    
    2008
    
    Tax Rate
    
    Change
    
    Change$
    222
    
    
    
    (28.6
    )%
    
    $
    (509
    )
    
    
    39.6
    %
    
    $
    731
    
    
    
    144
    %
  Liquidity and Capital Resources
 Sources of Liquidity
 As of and for theThree months ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    ChangeCash
    
    $
    2,391
    
    
    $
    1,950
    
    
    $
    441Percentage of total assets
    
    
    4.3
    %
    
    
    2.1
    %Cash provided by (used in) operating activities
    
    $
    1,423
    
    
    $
    (4,466
    )
    
    $
    5,889Cash used in investing activities
    
    
    (635
    )
    
    
    (275
    )
    
    
    (360
    )Cash provided by (used in) financing activities
    
    
    (1,559
    )
    
    
    1,462
    
    
    
    (3,021
    )Effect of foreign exchange on cash
    
    
    272
    
    
    
    (1
    )
    
    
    (273
    )Net decrease in cash
    
    $
    (499
    )
    
    $
    (3,280
    )
    
    $
    2,780
  Cash Flows from Operating Activities
  12




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##### Table of Contents



Cash Flows from Investing Activities
  Cash Flows from Financing Activities
    Contractual Obligations and Commitments
   EBITDA
  13




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##### Table of Contents



Three months endedJune 30,2009
    
    
    2008(in thousands)Net loss
    
    $
    (996
    )
    
    $
    (777
    )Adjustments:Interest expense, net
    
    
    468
    
    
    
    467Income tax expense (benefit)
    
    
    222
    
    
    
    (509
    )Depreciation and amortization
    
    
    1,036
    
    
    
    1,102EBITDA
    
    $
    730
    
    
    $
    283
 Recent Accounting Pronouncements
  Forward-Looking Statements
    14




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Michele Graham v. Mad Catz,
Inc.
 
 Item 1A. Risk Factors
  15




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    Xbox 360 Accessory License Agreement, dated March 23, 2009, between Mad Catz, Inc. and Microsoft Corporation
(Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions
have been filed separately with the Securities and Exchange Commission.)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.
 
   MAD CATZ INTERACTIVE, INC.August 12, 2009
    /s/ Darren RichardsonDarren RichardsonPresident and Chief Executive OfficerAugust 12, 2009
    /s/ Stewart A. HalpernStewart A. HalpernChief Financial Officer 16