Mad Catz Interactive 10Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended December 31, 2011

¨	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		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7480 Mission Valley Road, Suite 101 San Diego, California		92108
(Address of principal executive offices)		(Zip Code)

(619) 683-9830

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	¨		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 63,462,399 shares of the registrant’s common stock issued and outstanding as of February 6, 2012.

MAD CATZ INTERACTIVE, INC.

FORM 10-Q

FOR THE PERIOD ENDED DECEMBER 31, 2010

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of December 31, 2011 and March 31, 2011	3
	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2011 and 2010	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and 2010	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 4.	Controls and Procedures	18
PART II — OTHER INFORMATION		19
Item 1.	Legal Proceedings	19
Item 1a.	Risk Factors	19
Item 6.	Exhibits	20
SIGNATURES		20

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

MAD CATZ INTERACTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(unaudited)


	December 31, 2011			March 31, 2011
Assets
Current assets:
Cash	$	3,420		$	3,734
Accounts receivable, net		26,111			19,846
Other receivables		1,664			329
Inventories		36,174			27,978
Deferred tax assets		81			85
Prepaid expenses and other current assets		3,641			2,343

Total current assets		71,091			54,315
Deferred tax assets		556			590
Other assets		811			639
Property and equipment, net		4,322			3,921
Intangible assets, net		4,846			5,606
Goodwill		10,468			10,463

Total assets	$	92,094		$	75,534

Liabilities and Shareholders’ Equity
Current liabilities:
Bank loan	$	18,917		$	5,408
Accounts payable		31,552			13,700
Accrued liabilities		7,958			11,048
Convertible notes payable		—			14,500
Contingent consideration, current		1,461			1,542
Income taxes payable		733			1,918

Total current liabilities		60,621			48,116
Contingent consideration		2,620			2,897
Warrant liability		554			—
Other long-term liabilities		371			424

Total liabilities		64,166			51,437
Shareholders’ equity:
Common stock, no par value, unlimited shares authorized; 63,462,399, and 57,029,350 shares issued and outstanding at December 31, 2011 and March 31, 2011, respectively		59,252			50,648
Accumulated other comprehensive loss		(2,361	)		(10	)
Accumulated deficit		(28,963	)		(26,541	)

Total shareholders’ equity		27,928			24,097

Total liabilities and shareholders’ equity	$	92,094		$	75,534

See accompanying notes to unaudited condensed consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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


	Three Months Ended December 31,						Nine months Ended December 31,
	2011			2010			2011			2010
Net sales	$	46,195		$	92,957		$	88,416		$	150,276
Cost of sales		34,954			66,556			65,792			107,429

Gross profit		11,241			26,401			22,624			42,847
Operating expenses:
Sales and marketing		4,455			4,935			11,467			10,982
General and administrative		2,832			4,047			9,433			10,565
Research and development		1,285			1,089			4,476			2,780
Acquisition related items		187			102			779			708
Amortization of intangible assets		235			244			721			708

Total operating expenses		8,994			10,417			26,876			25,743

Operating income (loss)		2,247			15,984			(4,252	)		17,104
Interest expense, net		(371	)		(1,046	)		(818	)		(2,284	)
Foreign exchange loss, net		(536	)		(736	)		(338	)		(41	)
Change in fair value of warrant liability		162			—			2,696			—
Other income		7			46			39			223

Income (loss) before income taxes		1,509			14,248			(2,673	)		15,002
Income tax expense (benefit)		(32	)		4,552			(251	)		5,554

Net income (loss)	$	1,541		$	9,696		$	(2,422	)	$	9,448

Basic net income (loss) per share	$	0.02		$	0.18		$	(0.04	)	$	0.17

Diluted net income (loss) per share	$	0.02		$	0.15		$	(0.04	)	$	0.16

Weighted average shares — basic		63,456,085			55,278,606			62,973,993			55,158,786

Weighted average shares — diluted		64,348,742			66,684,037			62,973,993			65,819,064

See accompanying notes to unaudited condensed consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands of U.S. dollars)


	Nine months Ended December 31,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	(2,422	)	$	9,448
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		2,431			2,036
Amortization of deferred financing fees		111			212
Provision for deferred income taxes		38			27
Loss on disposal or sale of assets		22			2
Stock-based compensation		468			458
Change in fair value of contingent consideration		779			—
Change in fair value of warrant liability		(2,696	)		—
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable		(6,642	)		(36,151	)
Other receivables		(1,415	)		(167	)
Inventories		(8,689	)		(12,924	)
Prepaid expenses and other current assets		(480	)		(65	)
Other assets		(191	)		(343	)
Accounts payable		16,222			15,026
Accrued liabilities		(3,275	)		8,373
Income taxes receivable/payable		(1,257	)		2,593

Net cash used in operating activities		(6,996	)		(11,475	)

Cash flows from investing activities:
Purchases of property and equipment		(2,132	)		(1,473	)
Cash paid for acquisition, net of cash received		—			(1,189	)

Net cash used in investing activities		(2,132	)		(2,662	)

Cash flows from financing activities:
Payment of contingent consideration		(1,546	)		—
Payment of financing fees		—			(100	)
Repayments on notes payable		(14,500	)		(470	)
Proceeds from issuance of common stock and warrants, net of issuance costs of $820		11,350			—
Repayments on bank loan		(82,057	)		(99,875	)
Borrowings on bank loan		95,566			121,859
Proceeds from exercise of stock options		35			358

Net cash provided by financing activities		8,848			21,772

Effects of foreign exchange on cash		(34	)		41

Net increase (decrease) in cash		(314	)		7,676
Cash, beginning of period		3,734			2,245

Cash, end of period	$	3,420		$	9,921

Supplemental cash flow information:
Income taxes paid	$	915		$	2,959

Interest paid	$	663		$	970

Supplemental disclosure of non-cash investing and financing activities:
Fair value of warrants issued		3,250			—
Acquisitions:
Fair value of assets acquired in acquisition, net of cash received		—			3,306
Goodwill		—			2,928
Intangible assets		—			3,700
Liabilities assumed in acquisition		—			(4,155	)
Notes payable assumed in acquisition		—			(803	)
Contingent consideration liability, net of $413 working capital adjustment		—			(3,787	)

Net cash paid for acquisition	$	—		$	1,189

See accompanying notes to unaudited condensed consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The condensed consolidated balance sheets and related condensed consolidated statements of operations and cash flows contained in this Quarterly Report on Form 10-Q, which are unaudited, include the accounts of Mad Catz Interactive, Inc. (the “Company”) and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such condensed consolidated financial statements have been included. These entries consisted only of normal recurring items. The results of operations for the interim period are not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year. The Company generates a substantial percentage of net sales in the last three months of every calendar year, its fiscal third quarter.

The condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with United States generally accepted accounting principles. Please refer to the Company’s audited consolidated financial statements and related notes for the fiscal year ended March 31, 2011 contained in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (the “SEC”).

The preparation of financial statements in conformity with United States generally accepted accounting principles 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 revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to asset impairments, reserves for accounts receivable and inventories, contingencies and litigation, valuation and recognition of share-based payments, contingent consideration, warrant liability and income taxes. Illiquid credit markets, volatile equity markets, foreign currency fluctuations, and declines in customer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Actual results could differ from those estimates.

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. This assertion is dependent on our ability to successfully amend and extend the current line of credit with Wells Fargo or negotiate a line of credit with another financial institution. The inability to renew our line of credit facility on terms satisfactory to us or obtain waivers to the extent we are not in compliance with future covenant requirements could have a significant adverse effect on our liquidity position. Also, 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.

(2) Recently Issued Accounting Standards

The Company has adopted the following new accounting standards:

Improving Disclosures about Fair Value Measurements: In January 2010, the Financial Accounting Standards Board (“FASB”) issued an update which provides guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as previously required. This update also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This update did not have a material impact on the Company’s financial statements.

Effect of Denominating the Exercise Price of a Share-Base Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades: In March 2010, the FASB issued an update to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify an award with such a feature as a liability if it otherwise qualifies as equity. Affected entities are required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This update did not have a material impact on the Company’s financial statements.

The following new accounting standards have been issued, but not adopted by the Company as of December 31, 2011:

Amendment to Fair Value Measurement: In May 2011, the FASB revised the fair value measurement and disclosure requirements to align the requirements under accounting principles generally accepted in the United States of America (“GAAP”) and International Financial Reporting Standards (“IFRS”). The guidance clarifies the FASB’s intent regarding the application of existing fair value measurements and requires enhanced disclosures, most significantly related to unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The guidance is effective prospectively during interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.

Presentation of Comprehensive Income: In June 2011, the FASB issued ASU No. 2011-05, requiring entities to report components of other comprehensive income in either a single continuous statement or in two separate but consecutive statements of net income. The guidance is effective during interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial statements.

Testing Goodwill for Impairment: In September 2011, the FASB issued ASU No. 2011-08, that allows companies to assess qualitative factors to determine whether they need to perform the two-step quantitative goodwill impairment test. Under the option, an entity no longer would be required to calculate the fair value of a reporting unit unless it determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011 although early adoption is permitted. The Company did not elect to adopt the new guidance early, and when adopted, this guidance is not expected to have a significant impact on the Company’s financial statements.

(3) Fair Value Measurement

The following tables provide a summary of the recognized assets and liabilities carried at fair value on a recurring basis as of December 31, 2011 and March 31, 2011 (in thousands):


	Balance as of December 31, 2011			Basis of Fair Value Measurements
	Balance as of December 31, 2011			Level 1		Level 2		Level 3
Liabilities:
Contingent consideration, net of working capital (Note 4)	$	(4,081	)	$	—	$	—	$	(4,081	)
Warrant liability (Note 6)	$	(554	)	$	—	$	—	$	(554	)

	$	(4,635	)	$	—	$	—	$	(4,635	)


	Balance as of March 31, 2011			Basis of Fair Value Measurements
	Balance as of March 31, 2011			Level 1		Level 2		Level 3
Liabilities:
Contingent consideration, net of working capital (Note 4)	$	(4,439	)	$	—	$	—	$	(4,439	)

The following tables provide a roll forward of the Company’s level three fair value measurements during the nine months ended December 31, 2011, which consist of the Company’s contingent consideration liability and warrant liability (in thousands):


Contingent consideration, net of working capital:
Balance at March 31, 2011	$	4,439
Contingent consideration payment		(1,546	)
Changes in working capital adjustment		409
Change in fair value of contingent consideration		779

Balance at December 31, 2011	$	4,081


Warrant liability:
Balance at March 31, 2011	$	—
Securities purchase agreement – warrant liability		3,250
Change in fair value of warrant liability		(2,696	)

Balance at December 31, 2011	$	554

(4) Contingent Consideration

On May 28, 2010, the Company acquired all of the outstanding stock of Tritton Technologies Inc. (“Tritton”). Tritton designs, develops, manufactures (through third parties in Asia), markets and sells videogame and PC accessories, most notably gaming audio headsets. The Company acquired all of Tritton’s net tangible and intangible assets, including trade names, customer relationships and product lines. Cash paid for the acquisition was approximately $1.4 million, subject to a working capital adjustment currently estimated to be $8,000. As a result of the acquisition, Tritton became a wholly-owned subsidiary of the Company and accordingly, the results of operations of Tritton are included in the Company’s consolidated financial statements from the acquisition date. The Company financed the acquisition through borrowings under the Company’s working capital facility. The acquisition expanded the Company’s product offerings in the high growth gaming audio market and further leveraged the Company’s assets, infrastructure and capabilities.

The contingent consideration arrangement requires the Company to pay the former shareholders of Tritton additional consideration based on a percentage of future sales of Tritton products over a five year period, subject to maximum annual amounts, up to an aggregate of $8.7 million. The fair value of the contingent consideration arrangement has been determined primarily by using the income approach and using a discount rate of approximately 18 percent. The amount paid for contingent consideration is expected to be reduced by the amount of any working capital adjustment. In May 2011, the Company paid $1,546,000 under this arrangement. The remaining payments will be made in May of each year through 2015. As of December 31, 2011, the liability for contingent consideration is shown net of the estimated working capital adjustment and holdback of $8,000.

(5) Inventories

Inventories consist of the following (in thousands):


	December 31, 2011		March 31, 2011
Raw materials	$	2,991	$	749
Semi finished goods		239		195
Finished goods		32,944		27,034

Inventories	$	36,174	$	27,978

(6) Securities Purchase Agreement

In April 2011 the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors, pursuant to which the Company sold (a) an aggregate of 6,352,293 shares of its common stock (the “Shares”) and (b) warrants to purchase an aggregate of 2,540,918 shares of common stock of the Company (“Warrants” and, together with the Shares, the “Securities”). On May 3, 2011 the Company filed a Registration Statement registering up to 8,893,211 common shares of the Company comprised of: (i) 6,352,293 common shares and (ii) 2,540,918 common shares issuable upon exercise of 2,540,918 warrants. The Securities were issued at a price equal to $1.92 per share for aggregate gross proceeds of approximately $12,196,000. The Warrants became exercisable on October 21, 2011 at a per share exercise price equal to $2.56. The Warrants contain provisions that adjust the exercise price in the event the Company pays stock dividends, effects stock splits or issues additional shares of common stock at a price per share less than the exercise price of the Warrants. The Warrants will remain exercisable until October 21, 2016.

The Company accounts for the Warrants with exercise price reset features in accordance with the applicable FASB guidance. Under this guidance, warrants with these reset features are accounted for as liabilities and carried at fair value, with changes in fair value included in net earnings (loss) until such time as the Warrants are exercised or expire.

The fair value of the Warrants decreased from $3,250,000 as of the initial valuation date to $554,000 as of December 31, 2011, which resulted in a $2,696,000 gain from the change in fair value of warrants for the nine months ended December 31, 2011.

These Warrants are not traded in an active securities market, and as such, the Company estimates the fair value of the Warrants using the Black-Scholes option pricing model using the following assumptions:


	As of December 31, 2011
Expected term		4.75 years
Common stock market price	$	0.51
Risk-free interest rate		0.83	%
Expected volatility		94.37	%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the expected term of the Warrants. The Company believes this method produces an estimate that is representative of the Company’s expectations of future volatility over the expected term of these Warrants. The Company currently has no reason to believe future volatility over the expected remaining life of these Warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the Warrants. The risk-free interest rate is the interest rate for treasury constant maturity instruments published by the Federal Reserve Board that is closest to the expected term of the Warrants.

(7) Comprehensive Income

Comprehensive income for the three and nine months ended December 31, 2011 and 2010 consists of the following components (in thousands):


	Three Months Ended December 31,						Nine months Ended December 31,
	2011			2010			2011			2010
Net income (loss)	$	1,541		$	9,696		$	(2,422	)	$	9,448
Foreign currency translation adjustment		(1,372	)		(484	)		(2,351	)		(40	)

Comprehensive income (loss)	$	169		$	9,212		$	(4,773	)	$	9,408

The foreign currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

(8) Basic and Diluted Net Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share includes the impact of potentially dilutive common stock-based equity instruments (in thousands, except share data).


	Three Months Ended December 31,				Nine months Ended December 31,
	2011		2010		2011			2010
Numerator:
Net income (loss)	$	1,541	$	9,696	$	(2,422	)	$	9,448
Effect of convertible notes payable		—		310		—			917

Numerator for diluted net earnings per share	$	1,541		10,006	$	(2,422	)		10,365

Denominator:
Weighted average shares used to compute basis EPS		63,456,085		55,278,606		62,973,993			55,158,786
Effect of convertible debt		—		10,217,744		—			10,217,744
Effect of dilutive share share-based awards		892,657		1,187,687		—			442,534

Denominator for diluted net earnings per share		64,348,742		66,684,037		62,973,993			65,819,064

Basic earnings (loss) per share	$	0.02	$	0.18	$	(0.04	)	$	0.17
Diluted earnings (loss) per share	$	0.02	$	0.15	$	(0.04	)	$	0.16

Outstanding options to purchase an aggregate of 5,408,165 and 6,335,314 shares of the Company’s common stock for the three and nine months ended December 31, 2011, respectively, and 7,094,455 and 7,423,783 shares of the Company’s common stock for the three and nine months ended December 31, 2010, respectively, were excluded from diluted net income per share calculations because inclusion of such options would have an anti-dilutive effect during these periods. Outstanding warrants to purchase an aggregate of 2,540,918 and 2,236,008 of the Company’s common stock for the three and nine months ended December 31, 2011, respectively, were excluded from the diluted net income per share calculations because of their anti-dilutive effect during the period. Weighted average shares of 631,642 related to $14,500,000 of convertible notes payable that the Company issued as part of consideration relating to the Saitek acquisition for the nine month period ended December 31, 2011 were excluded from the calculation because of their anti-dilutive effect during the period.

(9) Geographic Data and Concentrations

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


	Three months ended December 31,				Nine months ended December 31,
	2011		2010		2011		2010
Net sales:
United States	$	20,650	$	52,908	$	40,760	$	87,311
Europe		22,781		35,141		41,849		55,720
Canada		1,196		3,530		2,715		4,332
Other countries		1,568		1,378		3,092		2,913

	$	46,195	$	92,957	$	88,416	$	150,276

Revenue is attributed to geographic regions based on the location of the customer. During the three and nine months ended December 31, 2011, one customer individually accounted for approximately 22% and 21% of the Company’s gross sales, respectively, and one other customer individually accounted for 12% of the Company’s gross sales, in each period. During the three and nine months ended December 31, 2010, one customer individually accounted for approximately 24% and 27% of the Company’s gross sales, respectively. At December 31, 2011, one customer represented 32% of accounts receivable and another customer represented 16% of accounts receivable. At December 31, 2010, one customer represented 30% of accounts receivable. At December 31, 2011 and 2010, there were no other customers which accounted for greater than 10% of accounts receivable or gross sales.

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, 2011 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 Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Overview

Our Business

We design, manufacture (primarily through third parties in Asia), market and distribute accessories for all major videogame platforms, the PC and Mac and, to a far lesser extent, the iPod and other audio devices. Our accessories are marketed primarily under the Mad Catz, Tritton, Saitek, Cyborg, Joytech, GameShark, Eclipse and AirDrives brands; we also produce for selected customers a limited range of products which are marketed on a “private label” basis. Our products include videogame, PC and audio accessories, such as control pads, steering wheels, joysticks, memory cards, video cables, flight sticks, dance pads, microphones, car adapters, carry cases, mice, keyboards and headsets. We also develop flight simulation software through our internal ThunderHawk Studios^TM and operate flight simulation centers under our Saitek brand. We also market videogame enhancement products and publish videogames.

Seasonality and Fluctuation of Sales

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 result of many factors, including: seasonal influences on our sales; unpredictable consumer preferences and spending trends; the introduction of new videogame platforms or titles; the need to increase inventories in advance of our primary selling season; and timing of introductions of new products.

Potential Fluctuations in Foreign Currency

During the three and nine month periods ended December 31, 2011, approximately 55% and 54% of total net sales were transacted outside of the United States, respectively. 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 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. To date we have not hedged against foreign currency exposure.

Critical Accounting Policies

Our critical accounting principles and estimates remain consistent with those reported in our Annual Report on Form 10-K for the year ended March 31, 2011, as filed with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

Net Sales

From a geographical perspective, our net sales for the three and nine months ended December 31, 2011 and 2010 were as follows (in thousands):


	Three months ended December 31,										$ Change			% Change
	2011		% of total			2010		% of total			$ Change			% Change
United States	$	20,650		45	%	$	52,908		57	%	$	(32,258	)		(61	)%
Europe		22,781		49	%		35,141		38	%		(12,360	)		(35	)%
Canada		1,196		3	%		3,530		4	%		(2,334	)		(66	)%
Other countries		1,568		3	%		1,378		1	%		190			14	%

Consolidated net sales	$	46,195		100	%	$	92,957		100	%	$	(46,762	)		(50	)%


	Nine months ended December 31,										$ Change			% Change
	2011		% of total			2010		% of total			$ Change			% Change
United States	$	40,760		46	%	$	87,311		58	%	$	(46,551	)		(53	)%
Europe		41,849		47	%		55,720		37	%		(13,871	)		(25	)%
Canada		2,715		3	%		4,332		3	%		(1,617	)		(37	)%
Other countries		3,092		4	%		2,913		2	%		179			6	%

Consolidated net sales	$	88,416		100	%	$	150,276		100	%	$	(61,860	)		(41	)%

For the three months ended December 31, 2011, consolidated net sales decreased 50% as compared to the three month period ended December 31, 2010. In the United States, the decrease in net sales is primarily attributable to our failure to launch key products for the fiscal 2012 holiday season to offset prior year sales of our accessories compatible with theRock Band 3 game which launched in October 2010 and which were not repeated in the fiscal 2012 period. In Europe the decrease is primarily attributable to our failure to launch key products for the fiscal 2012 holiday season to offset prior year sales of third party products on a distribution basis, which was terminated in fiscal 2011, and sales of our accessories compatible with theRock Band 3 game, which were not repeated in the fiscal 2012 period. In Canada the decrease in net sales is primarily attributable to our failure to launch key products for the fiscal 2012 holiday season to offset prior year sales of our accessories compatible with theRock Band 3 game, which were not repeated in the fiscal 2012 period.

For the nine months ended December 31, 2011, consolidated net sales decreased 41% as compared to the nine months ended December 31, 2010. The preponderance of the decrease in net sales related to the reasons described above.

Our sales by product group as a percentage of gross sales for the three and nine months ended December 31, 2011 and 2010 were as follows:


	Three months ended December 31,						Nine months ended December 31,
	2011			2010			2011			2010
Xbox 360		35	%		31	%		33	%		33	%
PC		26	%		12	%		27	%		14	%
PlayStation 3		5	%		19	%		6	%		18	%
Wii		3	%		19	%		3	%		16	%
Handheld Consoles(a)		2	%		2	%		2	%		2	%
All others		29	%		17	%		29	%		17	%

Total		100	%		100	%		100	%		100	%

(a)	Handheld consoles include Sony PSP and Vita and Nintendo DS, DS Lite, DSi and DS XL and 3DS.

Sales of products designed for use with the PlayStation 3 platform, decreased primarily related to the decrease in sales of our accessories compatible with theRock Band 3 game, as well as the decrease in sales of Call of Duty licensed headsets as a result of our decision to manufacture the Gears of War licensed headset for Xbox 360 in fiscal year 2012 instead of the Call of Duty headset. Sales of products designed for use with the Wii platform continued to decline in anticipation of the release of a successor platform next year. Sales of PC products increased primarily due to sales of the Cyborg line of products. The increase in All others is primarily related to sales of universal audio products.

Our sales by product category as a percentage of gross sales for the three and nine months ended December 31, 2011 and 2010 were as follows:


	Three months ended December 31,						Nine months ended December 31,
	2011			2010			2011			2010
Audio		39	%		24	%		38	%		26	%
Specialty controllers		24	%		29	%		24	%		27	%
PC input devices		13	%		6	%		14	%		6	%
Controllers		9	%		16	%		11	%		16	%
Accessories		9	%		9	%		10	%		11	%
Games		5	%		16	%		3	%		14	%
All others		1	%		—	%		—	%		—	%

Total		100	%		100	%		100	%		100	%

The increase in audio products primarily related to increased distribution of Tritton products. The decrease in games as a percentage of total gross sales primarily related to lower sales of bundled products of theRock Band 3 game. The decrease in controllers was primarily related to products compatible with the Wii and PlayStation 3. Sales of PC input device products increased primarily due to higher sales of the Cyborg line of products

Our sales by brand as a percentage of gross sales for the three and nine months ended December 31, 2011 and 2010 were as follows:


	Three months ended December 31,						Nine months ended December 3,
	2011			2010			2011			2010
Mad Catz		38	%		66	%		39	%		64	%
Tritton		34	%		13	%		32	%		11	%
Cyborg		15	%		6	%		15	%		6	%
Saitek		10	%		4	%		10	%		6	%
Eclipse		3	%		3	%		3	%		3	%
All others		0	%		8	%		1	%		10	%

Total		100	%		100	%		100	%		100	%

The decrease in Mad Catz-branded products primarily related to lower sales ofRock Band 3products. The increase in Tritton-branded products as a percentage of total gross sales primarily related to increased distribution. The increase in Cyborg-branded products primarily related to increased product offerings. The decrease in all other branded products primarily related to the termination of a distribution agreement under which the company sold third party products.

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 the three and nine months ended December 31, 2011 and 2010 (in thousands):


	Three months ended December 31,										$ Change			% Change
	2011		% of Net Sales			2010		% of Net Sales			$ Change			% Change
Net sales	$	46,195		100	%	$	92,957		100	%	$	(46,762	)		(50	)%
Cost of sales		34,954		76	%		66,556		72	%		(31,602	)		(47	)%

Gross profit	$	11,241		24	%	$	26,401		28	%	$	(15,160	)		(57	)%


	Nine months ended December 31,										$ Change			% Change
	2011		% of Net Sales			2010		% of Net Sales			$ Change			% Change
Net sales	$	88,416		100	%	$	150,276		100	%	$	(61,860	)		(41	)%
Cost of sales		65,792		74	%		107,429		71	%		(41,637	)		(39	)%

Gross profit	$	22,624		26	%	$	42,847		29	%	$	(20,223	)		(47	)%

Gross profit for the three months ended December 31, 2011 decreased 57%, while gross profit as a percentage of net sales, or gross profit margin, decreased from 28% to 24%. Gross profit for the nine months ended December 31, 2011 decreased 47%, while gross profit as a percentage of net sales decreased from 29% to 26%. The changes in gross profit margin for the three and nine months ended December 31, 2011 were primarily due to inventory charges taken related to accessories compatible with theRock Band 3 game. We expect the gross profit margins to remain in the current range, although the gross profit margins may fluctuate due to factors such as changes in product mix and exchange rate fluctuations.

Operating Expenses

Operating expenses for the three and nine months ended December 31, 2011 and 2010 were as follows (in thousands):


	Three months ended December 31,
	2011		% of Sales			2010		% of Net Sales			$ Change			% Change
Sales and marketing	$	4,455		9	%	$	4,935		5	%	$	(480	)		(10	)%
General and administrative		2,832		6	%		4,047		4	%		(1,215	)		(30	)%
Research and development		1,285		3	%		1,089		1	%		196			18	%
Acquisition related items		187		—	%		102		—	%		85			83	%
Amortization		235		1	%		244		1	%		(9	)		(4	)%

Total operating expenses	$	8,994		19	%	$	10,417		11	%	$	(1,423	)		(14	)%


	Nine months ended December 31,
	2011		% of Net Sales			2010		% of Net Sales			$ Change			% Change
Sales and marketing	$	11,467		13	%	$	10,982		7	%	$	485			4	%
General and administrative		9,433		10	%		10,565		7	%		(1,132	)		(11	)%
Research and development		4,476		5	%		2,780		1	%		1,696			61	%
Acquisition related items		779		1	%		708		1	%		71			10	%
Amortization		721		1	%		708		1	%		13			2	%

Total operating expenses	$	26,876		30	%	$	25,743		17	%	$	1,133			4	%

Sales and Marketing. Sales and marketing expenses consist primarily of payroll, commissions, participation at trade shows and travel costs for our worldwide sales and marketing staff, advertising expense and costs of operating our websites. The decrease in sales and marketing expenses for the three months ended December 31, 2011 is due to the decrease in variable sales and marketing expenses in correlation to the decrease in sales, partially offset by an increase due to increased headcount and higher marketing spending related to increased event marketing in fiscal 2012 compared to fiscal 2011. The increase in sales and marketing expenses for the nine months ended December 31, 2011 is primarily due to increased headcount and higher marketing spending related to increased event marketing in fiscal 2012 compared to fiscal 2011. Going forward, we expect fixed costs to grow approximately at the rate of inflation, with some increase in discretionary marketing spending in connection with the launch of new products. Altogether, we expect the fixed component of these expenses to remain at current levels. The variable components of these expenses will trend with sales.

General and Administrative. General and administrative expenses include salaries and benefits for our executive and administrative personnel, facilities costs and professional services, such as legal and accounting. The decrease in general and administrative expenses for the three and nine months ended December 31, 2011 is primarily related to a decrease in accrued bonus expense due to lower operating results in fiscal 2012 as compared to fiscal 2011. Going forward, we expect these expenses to remain at their current levels for the foreseeable future.

Research and Development. Research and development expenses include the costs of developing and enhancing new and existing products. The increase in research and development expenses relates to a greater focus on research and development activities, related to our audio products and software development. We expect research and development expenses to remain at their current levels for the foreseeable future.

Amortization. Amortization expenses consist of the amortization of the acquired intangible assets from Saitek, Joytech and Tritton. These acquisitions occurred in the third and second quarters of fiscal 2008 and first quarter of fiscal 2011, respectively. The slight decrease in amortization expense during the three months ended December 31, 2011 is related to the expiration of the life of certain intangibles, partially offset by additional amortization related to the Tritton acquisition. The slight increase in amortization during the nine months ended December 31, 2011 was due to the amortization related to intangibles acquired in the Tritton acquisition, partially offset by a decrease related to intangibles acquired in the Joytech and Saitek acquisitions that became fully amortized.

Interest Expense, net, Foreign Exchange Loss, Change in Fair Value of Warrant Liability and Other Income

Interest expense, net, foreign exchange loss, change in fair value of warrant liability and other income for the three and nine months ended December 31, 2011 and 2010 were as follows (in thousands):


	Three months ended December 31,
	2011			% of Net Sales			2010			% of Net Sales			$ Change			% Change
Interest expense, net	$	(371	)		1	%	$	(1,046	)		1	%	$	675			65	%
Foreign exchange loss	$	(536	)		1	%	$	(736	)		1	%	$	200			27	%
Change in fair value of warrant liability	$	162			—	%	$	—			—	%	$	162			100	%
Other income	$	7			—	%	$	46			—	%	$	(39	)		(85	)%


	Nine months ended December 31,
	2011			% of Net Sales			2010			% of Net Sales			$ Change			% Change
Interest expense, net	$	(818	)		1	%	$	(2,284	)		2	%	$	1,466			64	%
Foreign exchange loss	$	(338	)		—	%	$	(41	)		—	%	$	(297	)		(724	)%
Change in fair value of warrant liability	$	2,696			3	%	$	—			—	%	$	2,696			100	%
Other income	$	39			—	%	$	223			—	%	$	(184	)		(83	)%

The decrease in interest expense during the three and nine month periods ended December 31, 2011 is primarily related to lower debt balances as the result of the repayment of the convertible note.

The foreign exchange losses in all periods presented are due primarily to the rise in value of the Great British Pound and the Euro relative to the U.S. dollar and Hong Kong dollar during those periods.

The change in fair value of warrant liability recorded in the three and nine month periods ended December 31, 2011 represents the change in fair value of the Warrants issued in connection with the Securities Purchase Agreement. Specifically, the decrease in the Company’s stock price at December 31, 2011 reduced the value of the warrant liability and resulted in income during the three and nine month periods.

Other income during the three and nine month periods ended December 31, 2011 primarily consists of advertising income from our GameShark.com website. Other income in the nine months ended December 31, 2010 included an insurance recovery that did not recur in the fiscal 2012 period.

Income Tax Expense (Benefit)

Income tax expense (benefit) for the three and nine months ended December 31, 2011 and 2010 was as follows (in thousands):


	Three months ended December 31,
	2011			Effective Tax Rate			2010		Effective Tax Rate			$ Change			% Change
Income tax expense (benefit)	$	(32	)		2	%	$	4,552		32	%	$	(4,584	)		101	%


	Nine months ended December 31,
	2011			Effective Tax Rate			2010		Effective Tax Rate			$ Change		% Change
Income tax expense (benefit)	$	(251	)		9	%	$	5,554		37	%	$	5,805		105	%

The Company’s effective tax rate is a blended rate for different jurisdictions in which the Company operates. The effective tax rate fluctuates depending on the taxable income in each jurisdiction and the statutory income tax rates in those jurisdictions in which we do business, including our U.S. operating company, and our Canadian parent company for which we continue to provide full valuation allowances against their losses. The Company will continue to evaluate the realizability of its net deferred tax asset on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the realizability of deferred tax assets and expects to release the valuation allowance when it has sufficient positive evidence, including but not limited to cumulative earnings in successive recent periods, to overcome such negative evidence. The change in the effective tax rate in the third quarter of fiscal 2012 versus the third quarter of fiscal 2011 was primarily due to the book income in certain jurisdictions in the third quarter of fiscal 2011 as compared to losses in those jurisdictions in the third quarter of fiscal 2012. Additionally, there were updates to our intercompany pricing policies in the third quarter of fiscal 2012 which changed the mix of income among jurisdictions and resulted in a discrete tax benefit of $1.5 million.

For fiscal 2012, we project an 18% effective tax rate without the inclusion of discrete items and excluding those jurisdictions in which a full valuation allowance is provided. Our current projected tax rate for fiscal 2012 could change significantly if actual results differ from our current outlook-based projections.

Liquidity and Capital Resources

Sources of Liquidity


	As of and for the nine months ended December 31,
(in thousands)	2011			2010			Change
Cash	$	3,420		$	9,921		$	(6,501	)

Percentage of total assets		4	%		8	%
Cash used in operating activities	$	(6,996	)	$	(11,475	)	$	4,479
Cash used in investing activities		(2,132	)		(2,662	)		530
Cash provided by financing activities		8,848			21,772			(12,924	)
Effects of foreign exchange on cash		(34	)		41			(75	)

Net increase (decrease) in cash	$	(314	)	$	7,676			(7,990	)

At December 31, 2011, available cash was approximately $3.4 million compared to cash of approximately $3.7 million at March 31, 2011 and $9.9 million at December 31, 2010. Our primary sources of liquidity include 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 during the year.

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 nine months ended December 31, 2011, cash used in operating activities was $7.0 million compared to cash used of $11.5 million for the nine months ended December 31, 2010. Cash used in operations for the nine months ended December 31, 2011 and 2010 primarily resulted from an increase of inventories due to the build-up in preparation for the peak annual sales season, partially offset by the correlating increase in accounts payable. The decrease in cash usage during the fiscal year 2012 compared to the 2011 period is mainly due to a later scheduled peak season forecast which required more inventory build-up during the third fiscal quarter. We are focused on effectively managing our overall liquidity position by continuously monitoring expenses, inventory levels and managing our accounts receivable collection efforts.

Due to the seasonality of our business, we typically experience a large build-up in inventories beginning during our second fiscal

quarter ending September 30, with corresponding increases in accounts payable and our bank loan balance. These increases are in anticipation of the holiday selling season, which occurs during our third fiscal quarter ending December 31. During the third quarter our inventories typically decrease and accounts receivable typically increase as a result of the annual holiday selling. However, certain purchase orders for our Tritton headsets for Xbox 360 were placed on factories with the expectation that the product would be in market in time for the fiscal 2012 holiday selling season. Based on the fact that the products were not received in time for the holiday season, inventory levels were higher than normal at December 31, 2011. We continue to receive placements for these products and do not anticipate a problem with the inventory selling through over the course of the upcoming year. A large percentage of our annual revenue is generated during our third quarter. During our fourth quarter ending March 31, the sales cycle completes with decreases in accounts receivable, inventory, accounts payable and bank loan and net increase in cash. We forecast the expected demand for the holiday selling season months in advance to ensure adequate quantities of inventory. Our sales personnel forecast holiday sales based on information that we receive from our major customers as to expected product purchases for the holiday season, and we also utilize mathematical modeling techniques to forecast demand based on recent point-of-sale activity. If demand does not meet expectations, the result will be excess inventories, reduced sales and the overall effect could result in a reduction to cash flows from operating activities following payment of accounts payable.

Cash Flows from Investing Activities

Cash used in investing activities was $2.1 million during the nine months ended December 31, 2011 and $2.7 million during the nine months ended December 31, 2010. In the nine months ended December 31, 2011, net cash used in investing activities consisted of capital expenditures to support our operations and were made up primarily of production molds, and to a lesser extent, computers and machinery and equipment. In the nine months ended December 31, 2010, $1.2 million of the cash used in investing activities related to the purchase of Tritton and the remainder consisted of capital expenditures to support our operations and were made up primarily of purchases of production molds, and to a lesser extent, computers and machinery and equipment.

Cash Flows from Financing Activities

Cash provided by financing activities during the nine months ended December 31, 2011 of $8.8 million was a result of net borrowings under our line of credit and net proceeds received for the issuance of common stock, partially offset by repayment of the convertible notes. For the nine months ended December 31, 2010, cash provided by financing activities of $21.8 million was a result of increased borrowings under our line of credit.

We maintain a Credit Facility with Wells Fargo Capital Finance, LLC (“Wells Fargo”), to borrow up to $30 million under a revolving line of credit subject to the availability of eligible collateral (accounts receivable and inventories), which changes throughout the year. The line of credit accrues interest on the daily outstanding balance at the U.S. prime rate plus 2.0% per annum. This facility expires on October 31, 2012. The Company is currently in negotiations to amend and extend the line of credit. At December 31, 2011, the interest rate was 5.25%. We are also required to pay a monthly service fee of $2,000 and an unused line fee equal to 0.50% of the unused portion of the loan. Borrowings under the Credit Facility are secured by a first priority interest in the inventories, equipment, accounts receivable and investment properties of Mad Catz, Inc. and by a pledge of all of the capital stock of the Company’s subsidiaries and is guaranteed by the Company. We are required to meet a quarterly covenant of the Company’s fixed charge coverage ratio of not less than 1.5:1.0 for the trailing 4 fiscal quarters. Our fixed charge coverage ratio was -0.06:1.0 and accordingly we were not in compliance with this covenant as of December 31, 2011, however we have obtained a waiver of this noncompliance from Wells Fargo, and such waiver extends to the quarter ended March 31, 2012. For quarters subsequent to March 31, 2012, we believe we will be able to meet this covenant requirement through the expiration of the Credit Facility. However, there can be no assurance that we will be able to meet this covenant subsequent to March 31, 2012. There also can be no assurance that we would be able to obtain waivers from Wells Fargo to the extent we are not in compliance with this covenant after March 31, 2012.

At March 31, 2011 we had $14.5 million of convertible notes outstanding payable to the seller of Saitek (“Saitek Notes”) that were scheduled to mature on March 31, 2019. The Saitek Notes bore interest at 7.5% through March 31, 2014 and 9.0% thereafter. The Saitek Notes and all accrued interest were repaid in full in May 2011.

In connection with the Company’s acquisition of Tritton, the Company is obligated to make certain payments to former Tritton shareholders of up to $8.7 million based on the achievement of certain specific performance measures. In May 2011, the Company made the first payment for $1.5 million. The aggregate fair value of the remaining payments was $4.1 million as of December 31, 2011, and is reflected in the Company’s consolidated balance sheet. The remaining payments will be made in May of each year through 2015.

Contractual Obligations and Commitments

On May 5, 2011, the Company repaid all principal and interest related to the $14.5 million Saitek Notes.

There have been no other material changes to our contractual obligations from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

As of December 31, 2011 and March 31, 2011, 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.

EBITDA, and Adjusted EBITDA

EBITDA, a non-GAAP financial measure, represents net income (loss) before interest, taxes, depreciation and amortization. To address the Warrants issued in the first quarter of fiscal 2012 and the resulting gain/loss on the change in the related warrant liability, we have excluded this non-operating, non-cash charge and defined the result as “Adjusted EBITDA”. We believe this to be a more meaningful measurement of performance than the previously calculated EBITDA. Adjusted 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, Adjusted 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, Adjusted EBITDA is a useful financial performance measurement for assessing our Company’s operating performance. Our management uses Adjusted 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. In addition, Adjusted EBITDA is an important measure for our lender. We calculate Adjusted EBITDA as follows (in thousands):


	Three months ended December 31,					Nine months ended December 31,
	2011			2010		2011			2010
Net income (loss)	$	1,541		$	9,696	$	(2,422	)	$	9,448
Adjustments:
Interest expense, net		371			1,046		818			2,284
Income tax expense (benefit)		(32	)		4,552		(251	)		5,554
Depreciation and amortization		798			690		2,431			2,036

EBITDA		2,678			15,984		576			19,322
Change in fair value of warrant liability		(162	)		—		(2,696	)		—

Adjusted EBITDA (loss)	$	2,516		$	15,984	$	(2,120	)	$	19,322

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q are not historical fact and constitute “forward-looking statements” within the meaning of Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and constitute “forward-looking information” as defined in applicable Canadian securities legislation (collectively “forward-looking statements”). These forward-looking statements may address, among other things, our strategy for growth, business development, market and competitive position, financial results, expected revenue, expense levels in the future and the sufficiency of our existing assets to fund future operations and capital spending needs. These statements relate to our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future, and may be identified by the use of words or phrases such as “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among others. Specifically this document contains forward-looking statements regarding, among other things, the continuance of seasonal fluctuations in the Company’s sales, inventories, receivables, payables and cash; the effect of currency exchange rate fluctuations; the sufficiency of funds available to meet operational needs; and our expectations for fiscal 2012 in respect of our gross profit margin, operating expenses and effective tax rates.

The forward-looking statements contained herein reflect management’s current beliefs and expectations and are based on information currently available to management, as well as its analysis made in light of its experience, perception of trends, current conditions, expected developments and other factors and assumptions believed to be reasonable and relevant in the circumstances. These assumptions include, but are not limited to: continuing demand by consumers for videogames and accessories, continued financial viability of our largest customers, continued access to capital to finance our working capital requirements and the continuance of open trade with China, where the preponderance of our products are manufactured.

Forward-looking statements are not guarantees of performance and are subject to important factors and events that could cause our actual business, prospects and results of operations to differ materially from the historical information contained in this Form 10-Q, and from those that may be expressed or implied by the forward-looking statements. Readers are cautioned that actual results could differ materially from the anticipated results or other expectations expressed in these forward-looking statements for the reasons detailed in Part I — Item 1A. — Risk Factors of our most recent Annual Report on Form 10-K, and in Part II Other Information — Item 1A. We believe that many of the risks detailed in our other SEC filings are part of doing business in the industry in which we operate, and will likely be present in all periods reported. The fact that certain risks are endemic to the industry does not lessen their significance. The forward-looking statements contained in this report are made as of the date of this report and we assume no obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements, except as may be required by applicable law.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

For the third quarter of fiscal 2012, our management with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2011. 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 is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during the process.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

We may at times be involved in litigation in the ordinary course of business. We will also, from time to time, when appropriate in management’s estimation, record reserves in our financial statements for pending litigation. Litigation is expensive and is subject to inherent uncertainties, and an adverse result in any such matters could adversely impact our operating results or financial condition. Additionally, any litigation to which we may become subject could also require significant involvement of our senior management and may divert management’s attention from our business and operations. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of any current pending matters will not have a material adverse effect on our business, financial condition, results of operations or liquidity taken as a whole.

Item 1A. Risk Factors

There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Item 6.Exhibits



3.1		By-Law Number 4 of Mad Catz Interactive, Inc. (Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 9, 2011 and incorporated herein by reference.)

31.1		Certification of Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		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.

101		The following materials from Mad Catz Interactive, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act, except to the extent that the Company specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						MAD CATZ INTERACTIVE, INC.

February 8, 2012						/s/ Darren Richardson
						Darren Richardson
						President and Chief Executive Officer

February 8, 2012						/s/ Allyson Evans
						Allyson Evans
						Chief Financial Officer

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Mad Catz Interactive (MCZAF) Inactive 10-Q2012 Q3 Quarterly report

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