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 JUNE 30, 2009
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24363
INTERPLAY ENTERTAINMENT CORP.
(Exact name of the registrant as specified in its charter)
DELAWARE 33-0102707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. CRESCENT DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices)
(310) 432-1958
(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 (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [_] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_] Non- accelerated filer [X]
Smaller reporting company [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
ISSUED AND OUTSTANDING AT
CLASS JUNE 30, 2009
----- -------------------------
Common Stock, $0.001 par value 113,595,268
As of June 30, 2009, 113,595,268 shares of Common Stock of the Registrant were
issued and outstanding. This includes 4,658,216 shares of Treasury Stock
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 2009
TABLE OF CONTENTS
--------------
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ........................................ 3
Condensed Consolidated Balance Sheets as of June 30, 2009
(unaudited) and December 31, 2008 ........................... 3
Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 2009 and 2008 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2009 and 2008 (unaudited) ......... 5
Notes to Condensed Consolidated Financial Statements
(unaudited) ................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk .. 15
Item 4T. Controls and Procedures ..................................... 15
PART II. OTHER INFORMATION
Item 1A. Risk Factors ................................................ 16
Item 6. Exhibits .................................................... 16
SIGNATURES ............................................................. 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2009 2008
------------- -------------
(unaudited)
ASSETS
Current Assets:
Cash .......................................................... $ 16,000 $ 0
Trade receivables ............................................. 96,000 87,000
Inventories ................................................... 13,000 1,000
Deposits ...................................................... 5,000 7,000
Prepaid expenses .............................................. 5,000 11,000
Other receivables ............................................. 10,000 9,000
------------- -------------
Total current assets ....................................... 145,000 115,000
Property and Equipment, net ........................................ 41,000 48,000
Other Assets - Intellectual Properties ............................. 126,000 0
------------- -------------
Total assets ....................................................... $ 312,000 $ 163,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Drawings in excess of cash balances ........................... 0 24,000
Convertible note payable ...................................... 0 53,000
Account payable and accrued expenses .......................... 1,404,000 1,209,000
Deferred income ............................................... 804,000 710,000
Note payable to officer and directors ......................... 481,000 469,000
------------- -------------
Total current liabilities ........................... 2,689,000 2,465,000
------------- -------------
Commitments and contingencies
Stockholders' Deficit:
Preferred stock, $0.001 par value 5,000,000 shares authorized;
no shares issued or outstanding,
Common stock, $0.001 par value 300,000,000 shares authorized;
113,595,268 and 108,140,301 shares issued and outstanding in
2009 and 2008 .............................................. 114,000 108,000
Paid-in capital .................................................... 123,266,000 122,309,000
Accumulated deficit ........................................... (125,878,000) (124,842,000)
Accumulated other comprehensive income (loss) ................. 121,000 123,000
Treasury stock of 4,658,216 shares ............................ 0 0
------------- -------------
Total stockholders' deficit ......................... (2,377,000) (2,302,000)
------------- -------------
Total liabilities and stockholders' deficit .............. $ 312,000 $ 163,000
============= =============
See accompanying notes.
3
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2009 2008 2009 2008
------------- ------------- ------------- -------------
(In thousands, except per share amounts)
Revenues .................................... $ 251,000 $ 40,000 $ 345,000 $ 104,000
Cost of goods sold .......................... 109,000 2,000 136,000 2,000
------------- ------------- ------------- -------------
Gross profit ........................... 142,0000 38,000 209,000 102,000
------------- ------------- ------------- -------------
Operating expenses:
Marketing and sales .................... -- -- -- --
General and administrative ............. 874,000 495,000 1,189,000 829,000
Product Development .................... 52,000 86,000 117,000 161,000
------------- ------------- ------------- -------------
Total operating expenses .......... 926,000 581,000 1,306,000 990,000
------------- ------------- ------------- -------------
Operating income (loss) ..................... (784,000) (543,000) (1,097,000) (888,000)
Other income (expense):
Interest expense ....................... (11,000) (8,000) (21,000) (17,000)
Other .................................. 24,000 59,000 82,000 70,000
------------- ------------- ------------- -------------
Total other income (expenses) ..... 13,000 51,000 61,000 53,000
------------- ------------- ------------- -------------
Income (loss) before benefit for income taxes (771,000) (492,000) (1,036,000) (835,000)
Income taxes ................................ -- -- -- --
------------- ------------- ------------- -------------
Net income (loss) ........................... $ (771,000) $ (492,000) $ (1,036,000) $ (835,000)
============= ============= ============= =============
Net income (loss) per common share:
Basic .................................. $ (0.007) $ (0.005) $ (0.01) $ (0.008)
============= ============= ============= =============
Diluted ................................ $ (0.007) $ (0.005) $ (0.01) $ (0.008)
============= ============= ============= =============
Shares used in calculating net income (loss)
per common share:
Basic .................................. 108,937,000 99,197,000 106,466,000 99,197,000
============= ============= ============= =============
Diluted ................................ 108,937,000 99,197,000 106,466,000 99,197,000
============= ============= ============= =============
See accompanying notes.
4
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2009 2008
----------- -----------
Cash flows from operating activities:
Net (loss) income ................................................. $(1,036,000) $ (835,000)
Adjustments to reconcile net (loss) income to
cash (used) provided by operating activities:
Depreciation and amortization .................................. 7,000 4,000
Additional paid in capital - option and warrant expense ........ 635,000 158,000
Changes in operating assets and liabilities:
Trade receivables, net ......................................... (9,000) (204,000)
Inventories .................................................... (13,000) 0
Deposits ....................................................... 2,000 (5,000)
Prepaid expenses ............................................... 6,000 4,000
Other current assets, net ...................................... (1,000) (6,000)
Accounts payable and accrued expenses .......................... 197,000 (303,000)
Note Payable Officers and Directors ............................ 12,000 (96,000)
Deferred income ................................................ 94,000 213,000
Accumulated other compensation income .......................... (2,000) (1,000)
----------- -----------
Net cash provided by (used in) operating activities ........ (108,000) (1,071,000)
----------- -----------
Cash flows from investing activities:
Purchasing of property and equipment .............................. 0 (45,000)
----------- -----------
Net cash used in investing activities ...................... 0 (45,000)
----------- -----------
Cash flows from financing activities:
Sale of stock ..................................................... 148,000 0
----------- -----------
Net cash provided by (used in) financing activities ........ 148,000 0
----------- -----------
Net increase (decrease) in cash ...................................... 40,000 (1,116,000)
Cash, beginning of period ............................................ (24,000) 1,138,000
----------- -----------
Cash, end of period .................................................. $ 16,000 $ 22,000
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest ....................................................... $ 0 $ 0
=========== ===========
Non Cash Transactions
Supplemental Disclosure of Non-Cash Financing and Investing:
Issuance of common stock for partial reduction of Note
Payable officer ................................................... $ 0 $ 56,000
=========== ===========
Issuance of common stock for liquidation of Convertible
Note Payable ...................................................... $ 53,000 $ 0
=========== ===========
Acquisition of intellectual property for the exchange of
common stock ...................................................... $ 126,000 $ 0
=========== ===========
See accompanying notes.
5
INTERPLAY ENTERTAINMENT AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Interplay Entertainment Corp. (which we refer to as the "Company" in these
Notes) and its subsidiaries reflect all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary for a
fair presentation of the results for the interim period in accordance with
instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all information and footnotes required by accounting principles
generally accepted in the United States ("GAAP") for complete financial
statements. The results of operations for the current interim period are not
necessarily indicative of results to be expected for the current year or any
other period. The balance sheet at December 31, 2008 has been derived from the
audited consolidated financial statements at that date, but does not include all
information and footnotes required by GAAP for complete financial statements.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008 as filed with the U.S. Securities and Exchange Commission ("SEC").
FACTORS AFFECTING FUTURE PERFORMANCE AND GOING CONCERN STATUS
The Company's independent public accountant included a "going concern"
explanatory paragraph in his audit report on the December 31, 2008 consolidated
financial statements which were prepared assuming that the Company will continue
as a going concern.
The Company continues to seek external sources of funding including, but
not limited to, a private placement or public offering of the Company's capital
stock, the sale of selected assets, the licensing of certain product rights in
selected territories, selected distribution agreements, and/or other strategic
transactions sufficient to provide short-term funding, and potentially achieve
the Company's long-term strategic objectives. Although the Company has had some
success in licensing certain of its products in the past, no assurance can be
given that the Company will do so in the future.
The Company expects that it will need to obtain additional financing or
income. However, no assurance can be given that alternative sources of funding
can be obtained on acceptable terms, or at all. These conditions, combined with
the Company's historical operating losses and its deficits in stockholders'
equity and working capital, raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets and liabilities that might
result from the outcome of this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates made in
preparing the consolidated financial statements include, among others, sales
returns and allowances, allowances for uncollectible receivables, cash flows
used to evaluate the recoverability of prepaid licenses and royalties and
long-lived assets, and certain accrued liabilities related to restructuring
activities and litigation. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Interplay Entertainment Corp. and its wholly-owned subsidiaries, Interplay
Productions Limited (U.K.), Interplay OEM, Inc., Interplay Co., Ltd., (Japan)
the business of which was closed during the 4th quarter 2006 (immaterial to
consolidated results) and Games On-line. All significant inter-company accounts
and transactions have been eliminated.
6
NOTE 2. NOTE PAYABLE
The Company issued on June 27, 2008 to Interactive Game Group a convertible
promissory note in the amount of $52,000 for consideration received in cash. The
unpaid principal balance of this Convertible Note shall bear interest at a per
annum rate equal to the three (3) months Libor interest rate plus one percent
adjusted quarterly and due with a six month term. (Current interest rate of 2.26
%). The note was convertible into 400,000 shares of the Company's common stock
price as of June 30, 2008 ($0.13 per share) which was the market price at the
date of the agreement. The note was fully repaid on March 26, 2009. (See Note 7)
NOTE 3. NOTE PAYABLE TO OFFICER AND DIRECTORS
The Company issued on October 2, 2006 to the following officer and
directors Herve Caen, Eric Caen and Michel Welter conditional demand notes which
have since become demand notes (due to the change in control resulting from
Financial Planning and Development SA's acquisition of approximately 56% of the
Company's outstanding stock) bearing a 5% annual interest rate. The demand notes
were issued for the earned but unpaid directors' fees to Herve Caen for $50,000,
to Eric Caen for $50,000, to Michel Welter for $85,000, and for earned but
unpaid salary to Herve Caen in the amount of $500,000. A total of $481,000 in
principal and interest remains outstanding under the demand notes as of June 30,
2009. Interest accrued on the demand notes as of June 30, 2009 was $12,000.
NOTE 4. ADVANCES FROM DISTRIBUTORS AND LICENSEES WHICH ARE CONSIDERED DEFERRED
INCOME
Non refundable but recoupable advances received by the Company for future
distribution and license rights as of June 30, 2009 amounted to $804,000.
NOTE 5 SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in one principal business segment, which is managed
primarily from the Company's U.S. headquarters.
Net revenues by geographic regions were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ----------------------------------------
2009 2008 2009 2008
------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
North America .. $ 226 90% $ 0 0% $ 285 83% $ 0 0%
International .. 25 10% 40 100% 60 17% 104 100%
OEM, royalty and
licensing ...... 0 0% 0 0% 0 0% 0 0%
------- ------- ------- ------- ------- ------- ------- -------
$ 251 100% $ 40 100% $ 345 100% $ 104 100%
======= ======= ======= ======= ======= ======= ======= =======
7
NOTE 6. EMPLOYEE STOCK OPTIONS
STOCK-BASED COMPENSATION
The Company utilizes SFAS No. 123(R), "SHARE-BASED PAYMENT" ("SFAS 123R"),
which requires the measurement and recognition of compensation cost at fair
value for all share-based payments, including stock options and restricted stock
awards.
At June 30, 2009, the Company has one stock-based employee compensation
plan. Stock options and warrants were granted under the plan during the six
months ended June 30, 2009.
On June 18, 2009, Michel Welter and Eric Caen were granted 150,000 options
each for serving on the Board of Directors through June 2009. Alberto Haddad and
Xavier De Portal received 300,000 options each for joining the Board of
Directors. Such options have an exercise price of $0.065 (market value at the
date of grant) and are exercisable consistent with the Company's stock option
plan. On June 18, 2009 various employees received a total of 1,150,000 stock
incentive options. Such options are exercisable consistent with the Company's
stock option plan
Also on June 18, 2009 the Board of Directors extended the suspension of
cash compensation for Directors fees through September 2009 and issued 3,428,400
warrants to Eric Caen, Alberto Haddad, Xavier de Portal and Michel Welter
respectively as Directors. Michel Welter and Xavier De Portal each were granted
999,950 , Alberto Haddad was granted 857,100 and Eric Caen was granted 571,400.
Such warrants have a term of 10 years an exercise price of $0.065, and are
immediately exercisable. 6,000,000 10 year warrants were issued on June 18, 2009
at an exercise price of $0.065 to Herve Caen, the Chief Executive Officer and
Interim Chief Financial Officer, to reduce his compensation to $250,000 through
June 30, 2010.
Stock-based compensation cost approximated $608,000 and $635,000 as
reflected in net loss for the quarter and six months ended June 30, 2009.
NOTE 7. SALE OF COMMON STOCK
On March 24, 2009 the Company sold to Microprose, LLC, an affiliate of
Interactive Game Group, 5,454,967 shares of Common Stock of the Company and
issued a warrant to purchase 1,677,483 shares of Common Stock of the Company for
a total consideration of $327,298. Such shares and warrant were issued, and any
underlying shares of Common Stock would be issued, in a private placement exempt
from registration pursuant to section 4(2) of the Securities Act of 1933. Such
warrant has a term of 3 years, an exercise price of $0.06, and is immediately
exercisable. Out of the consideration of $327,298, $148,000 was received in
cash, $126,000 was satisfied by the acquisition of certain intellectual property
rights by the Company, and $53,298 was satisfied by the cancellation of the
convertible promissory note (see Note 2) in the amount of $52,000 and accrued
interest thereon from Interactive Game Group. These warrants were valued using
the Black-Scholes Model. The amount of $ 23,000 was charged to 2009 operations.
NOTE 8. SUBSEQUENT EVENT
On July 2, 2009, Herve Caen, Chief Executive Officer and Interim Chief
Financial Officer, exercised 2,100,000 warrants issued in 2006 at an exercise
price of 0.0279. These shares were paid for by reducing the balance due from the
Company to Herve Caen including accrued interest (see Note 2).
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
Interplay Entertainment Corp., which we refer to in this Report as "we,"
"us," or "our," is a developer, publisher and licensor of interactive
entertainment software and intellectual properties for both core gamers and the
mass market. The information contained in this Form 10-Q is intended to update
the information contained in our Annual Report on Form 10-K for the year ended
December 31, 2007, as amended, and presumes that readers have access to, and
will have read, the "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other information contained in such
Form 10-K, as amended.
This Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and such forward-looking statements are subject
to the safe harbors created thereby. For this purpose, any statements contained
in this Form 10-Q, except for historical information, may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "should," "estimate" or "continue" or the negative or other variations
thereof or comparable terminology are intended to help identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties, as well as on
certain assumptions. For example, any statements regarding future cash flow,
revenue or expense expectations, including those forward-looking statements in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations", financing activities, future cash flows, cash constraints, sales
or mergers and cost reduction measures are forward-looking statements and there
can be no assurance that we will effect any or all of these objectives in the
future. Specifically, the forward-looking statements in this Item 2 assume that
we will continue as a going concern. Risks and Uncertainties that may affect our
future results are discussed in more detail in the section titled "Risk Factors"
in Item 1A of Part I of our Form 10-K. Assumptions relating to our
forward-looking statements involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, our industry, business
and operations are subject to substantial risks, and the inclusion of such
information should not be regarded as a representation by management that any
particular objective or plans will be achieved. In addition, risks,
uncertainties and assumptions change as events or circumstances change. We
disclaim any obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-Q with the SEC
or otherwise to revise or update any oral or written forward-looking statement
that may be made from time to time by us or on our behalf.
MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including, among others, those related to revenue recognition,
prepaid licenses and royalties and software development costs. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
RESULTS OF OPERATIONS
The following table sets forth certain selected consolidated statements of
operations data, segment data and platform data for the periods indicated in
dollars and as a percentage of total net revenues:
9
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
------------------------------------------- -------------------------------------------
2009 2008 2009 2008
-------------------- -------------------- -------------------- --------------------
% of Net % of Net % of Net % of Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Revenues ......................... $ 251 100% $ 40 100% $ 345 100% $ 104 100%
Cost of goods sold ............... 109 43% 2 5% 136 39% 2 2%
-------- -------- -------- -------- -------- -------- -------- --------
Gross Profit ................ 142 57% 38 95% 209 61% 102 98%
Operating Expenses :
Marketing and sales ........... 0 0% -- 0% 0 0% -- 0%
Product Development ........... 52 21% 86 215% 117 34% 161 155%
General and administrative .... 874 348% 495 1,238% 1,189 345% 829 797%
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ... 926 369% 581 1,453% 1,306 379% 990 952%
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) .......... (784) -312% (543) -1,358% $ (1,097) -318% (888) -854%
Other income (expenses):
Other income (expenses) ....... 13 5% 51 128% 61 18% 53 51%
Income taxes .................. -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ............. $ (771) -307% $ (492) -1,230% $ (1,036) -300% $ (835) -803%
======== ======== ======== ======== ======== ======== ======== ========
Net revenues by geographic region:
- ---------------------------------
North America .................... 226 90% -- 0% 285 83% -- 0%
International .................... 25 10% 40 100% 60 17% 104 100%
OEM, royalty and licensing ....... 0 0% -- 0% 0 0% -- 0%
-------- -------- -------- -------- -------- -------- -------- --------
$ 251 100% $ 40 100% $ 345 100% $ 104 100%
======== ======== ======== ======== ======== ======== ======== ========
Net revenue by platform:
- -----------------------
Personal computers ............... $ 225 90% 39 98% 285 83% 98 94%
Video game console ............... $ 26 10% 1 2% 60 17% 6 6%
OEM, royalty and licensing ....... 0 0% 0 0% 0 0% -- 0%
-------- -------- -------- -------- -------- -------- -------- --------
$ 251 100% $ 40 100% $ 345 100% $ 104 100%
======== ======== ======== ======== ======== ======== ======== ========
10
NORTH AMERICAN, INTERNATIONAL AND OEM, ROYALTY AND LICENSING NET REVENUES
Geographically, our net revenues, for the three and six months ended June
30, 2009 and 2008 break down as follows: (in thousands)
Three Months Ended June 30 2009 2008 Change % Change
- ------------------------------ -------- -------- -------- --------
North America ................ $ 226 $ 0 $ 226 100%
International ................ 25 40 (15) (38%)
OEM, Royalty & Licensing ..... 0 0 0 0%
-------- -------- -------- --------
Net Revenues ................. $ 251 $ 40 $ 211 527%
======== ======== ======== ========
Six Months Ended June 30 2009 2008 Change % Change
- ------------------------------ -------- -------- -------- --------
North America ................ $ 285 $ 0 $ 285 100%
International ................ 60 104 (44) (42%)
OEM, Royalty & Licensing ..... 0 0 0 0%
-------- -------- -------- --------
Net Revenues ................. $ 345 $ 104 $ 241 231%
======== ======== ======== ========
Net revenues for the three months ended June 30, 2009 were $251,000, an
increase of 527% compared to the same period in 2008. This increase resulted
from a 100% increase in North American net revenues, and a 38% decrease in
International net revenues.
Net revenues for the six months ended June 30, 2009 were $345,000, an
increase of 231% compared to the same period in 2008 due to the increase in back
catalog sales. This increase resulted from a 100% increase in North American net
revenues, and a 42% decrease in International net revenues.
North American net revenues for the three months ended June 30, 2009 were
$226,000. The increase in North American net revenues in 2009 was mainly due to
a 100% increase in back catalog sales.
North American net revenues for the six months ended June 30, 2009 were
$285,000. The increase in North American net revenues in 2009 was mainly due to
a 100% increase in back catalog sales.
International net revenues for the three months ended June 30, 2009 were
$25,000. The decrease in International net revenues for the three months ended
June 30, 2009 was mainly due to a 38% decrease in back catalog sales.
International net revenues for the six months ended June 30, 2009 were
$60,000. The decrease in International net revenue for the six months ended June
30, 2009 was mainly due to a 42% decrease in back catalog sales.
PLATFORM NET REVENUES
Our platform net revenues, for the three and six months ended June 30, 2009
and 2008 break down as follows: (in thousands)
Three Months Ended June 30 2009 2008 Change % Change
- -------------------------------- -------- -------- -------- --------
Personal Computer .............. $ 225 $ 39 $ 186 476%
Video Game Console ............. 26 1 25 2,500%
OEM, Royalty & Licensing ....... 0 0 0 N/A
-------- -------- -------- --------
Net Revenues ................... $ 251 $ 40 $ 211 527%
======== ======== ======== ========
Six Months Ended June 30 2009 2008 Change % Change
- ------------------------------- -------- -------- -------- --------
Personal Computer ............. $ 285 $ 98 $ 187 190%
Video Game Console ............ 60 6 54 90%
OEM, Royalty & Licensing ...... 0 0 0 (100%)
-------- -------- -------- --------
Net Revenues .................. $ 345 $ 104 $ 241 231%
======== ======== ======== ========
11
PC net revenues for the three months ended June 30, 2009 were $225,000, an
increase of 476% compared to the same period in 2008. The increase in PC net
revenues in 2009 was primarily due to increase of back catalog sales. Video game
console net revenues were $26,000, an increase of 2,500% for the three months
ended June 30, 2009 compared to the same period in 2008, due to the royalties
earned from electronic distribution of back catalog titles.
PC net revenues for the six months ended June 30, 2009 were $285,000, an
increase of 190% compared to the same period in 2008. The increase in PC net
revenues in the six months ended June 30, 2009 was primarily due to increase of
back catalog sales. Video Game console net revenues were $60,000, an increase of
90% for the six months ended June 30, 2009 compared to the same period in 2008,
mainly due to the royalties earned from electronic distribution of back catalog
titles.
COST OF GOODS SOLD GROSS PROFIT MARGIN
Our net revenues, cost of goods sold and gross margin for the three and six
months ended June 30, 2009 and 2008 breakdown as follows: (in thousands)
Three Months Ended June 30 2009 2008 Change % Change
- ---------------------------- -------- -------- -------- --------
Net Revenues ............... $ 251 $ 40 $ 211 527%
Cost of Goods Sold ......... 109 2 107 5,350%
Gross Profit Margin ........ $ 142 $ 38 $ 1,044 271%
Six Months Ended June 30 2009 2008 Change % Change
- ---------------------------- -------- -------- -------- --------
Net Revenues ............... $ 345 $ 104 $ 241 231%
Cost of Goods Sold ......... 136 2 134 6,700%
Gross Profit Margin ........ $ 209 $ 102 $ 107 104%
Three Months Ended June 30 2009 2008 Change
- ----------------------------------- -------- -------- --------
Net Revenues ...................... 100% 100% 0%
Cost of Goods Sold ................ 43% 5% 38%
Gross Profit Margin ............... 57% 95% (38%)
Six Months Ended June 30 2009 2008 Change
- ----------------------------------- -------- -------- --------
Net Revenues ...................... 100% 100% 0%
Cost of Goods Sold ................ 39% 2% 37%
Gross Profit Margin ............... 61% 98% (37)%
Cost of goods sold related to PC and video game console net revenues
represents the manufacturing and related costs of interactive entertainment
software products, including costs of media, manuals, duplication, packaging
materials, assembly, freight and royalties paid to developers, licensors and
hardware manufacturers. Cost of goods sold related to royalty-based net revenues
primarily represents third party licensing fees and royalties paid by us.
Typically, cost of goods sold as a percentage of net revenues for video game
console products is higher than cost of goods sold as a percentage of net
revenues for PC based products due to the relatively higher manufacturing and
royalty costs associated with video game console and affiliate label products.
We also include in the cost of goods sold the amortization of prepaid royalty
and license fees paid to third party software developers. We expense prepaid
royalties over a period of six months commencing with the initial shipment of
the title at a rate based upon the number of units shipped. We evaluate the
likelihood of future realization of prepaid royalties and license fees
quarterly, on a product-by-product basis, and charge the cost of goods sold for
any amounts that we deem unlikely to realize through future product sales.
Our cost of goods sold increased 5,350% at $109,000 in the three months
ended June 30, 2009 compared to the same period in 2008. The increase in cost of
goods sold was primarily due to increase in back catalog sales.
Our cost of goods sold increased 6,700% to $136,000 in the six months ended
June 30, 2009 compared to the same period in 2008. The increase in cost of goods
sold was primarily due to increase in back catalog sales.
Our gross margin decreased to 57% for the three months ended June 30, 2009
from 95% in the comparable period in 2008.
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Our gross margin decreased to 61% for the six months ended June 30, 2009
period from 98% in the comparable 2008 period.
MARKETING AND SALES
Our marketing and sales expense for the three months ended June 30, 2009
and 2008 breakdown as follows: (in thousands)
Marketing and Sales 2009 2008 Change % Change
- ---------------------------------- -------- -------- -------- --------
Three Months Ended June 30 ....... $ 0 $ 0 $ (0) N/A
Six Months Ended June 30 ......... $ 0 $ 0 $ (0) N/A
Marketing and sales expenses primarily consist of advertising and retail
marketing support, marketing and sales personnel, customer support services and
other related operating expenses. Marketing and sales expenses for the three
months ended June 30, 2009 were $0. Marketing and sales expenses for the six
months ended June 30, 2009 were $0.
PRODUCT DEVELOPMENT
Our Product Development expense for the three months ended June 30, 2009
and 2008 breakdown as follows: (in thousands)
Product Development 2009 2008 Change % Change
- --------------------------------- -------- -------- -------- --------
Three Months Ended June 30 ...... $ 52 $ 86 $ (34) (40%)
Six Months Ended June 30 ........ $ 117 $ 161 $ (44) (27%)
Product development expenses were $52,000, a 40% decrease as compared to
the same period in 2008.
Our product development decreased 27% to $117,000 for the six months ended
June 30, 2008 period compared to the same period in 2008.
GENERAL AND ADMINISTRATIVE
Our general and administrative expense for the three and six months ended
June 30, 2009 and 2008 breakdown as follows: (in thousands)
General and Administrative 2009 2008 Change % Change
- --------------------------------- -------- -------- -------- --------
Three Months Ended June 30 ...... $ 874 $ 495 $ 379 76%
Six Months Ended June 30 ........ $ 1,189 $ 829 $ 360 43%
General and administrative expenses primarily consist of administrative
personnel expenses, facilities costs, professional fees, stock option
compensation, bad debt expenses and other related operating expenses. General
and administrative expenses for the three months ended June 30, 2009 were
$874,000, a 76% increase as compared to the same period in 2008. The increase
results from stock option and warrant compensation of $608,000. General and
administrative expenses for the six months ended June 30, 2009 were $1,189,000 a
43% increase as compared to the same period in 2008. The significant component
of the increase results from stock option compensation of $635,000.
OTHER EXPENSE (INCOME), NET
Our other expense (income) for the three months ended June 30, 2009 and
2008 breakdown as follows: (in thousands)
Other (Income) Expenses 2009 2008 Change % Change
- ------------------------------- -------- -------- -------- --------
Three Months Ended June 30 .... $ (13) $ (51) $ (38) (75%)
Six Months Ended June 30 ..... $ (61) $ (53) $ 8 15%
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Other expenses for the three months ended June 30, 2009 consists primarily,
interest expense on debt in the amount of $11,000, foreign currency exchange
transactions loss of $2,000 and other nonrecurring income of ($26,000), Other
expenses for the six months ended June 30, 2009 was $61,000 consists primarily,
interest expense on debt in the amount of $21,000, foreign currency exchange
transactions losses of $6,000 and other nonrecurring income of the licensing
settlements in the amount of ($35,000) prior year reversals of accruals
($49,000) and rental income of ($4,000).
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2009, we had a working capital deficit of approximately
$2,544,000, and our cash balance was approximately $16,000.
We have entered into a binding letter of intent with Masthead Studios to
fund the development of a Massively Multiplayer Online Game (MMOG), code named
"Project: V13." The game has been in design and development at Interplay since
November 2007. Masthead and Interplay teams are working together under the
direction and control of Interplay to complete development of the project. As a
part of the agreement, the game utilizes Masthead's proprietary tools and MMOG
technology developed for Masthead's MMO "Earthrise" project
We sold "Fallout" to a third party and entered into, subject to
satisfaction of various conditions, the license back which could allow us to
create, develop and exploit a "Fallout" MMOG. We also retained perpetual
exclusive worldwide merchandising right to the existing Fallout games at the
time (Fallout, Fallout 2, Fallout Tactics and Fallout Brotherhood of steel).
We have reinitiated our in-house game development studio, and have hired
game developers.
We are exploiting, or planning to exploit, our portfolio of gaming
properties through sequels and various development and publishing arrangements
in the following ways:
o Sequels for video game consoles and personal computers o Downloadable
existing and new content for video game consoles
o Electronic distribution of existing content for personal computers
o Electronic distribution of new content for mobile devices
We have entered into a Game Production Agreement with Interactive Game
Group which provides for the financing of the development of games under certain
conditions.
We continue to seek external sources of funding, including but not limited
to, incurring debt, the selling of assets or securities, licensing of certain
product rights in selected territories, selected distribution agreements, and/or
other strategic transactions sufficient to provide short-term funding, and
achieve our long-term strategic objectives.
If we do not receive sufficient financing or income we may (i) liquidate
assets, (ii) sell the company (iii) seek protection from our creditors including
the filing of voluntary bankruptcy or being the subject of involuntary
bankruptcy, and/or (iv) continue operations, but incur material harm to our
business, operations or financial conditions. These conditions, combined with
our historical operating losses and our deficits in stockholders' equity and
working capital, raise substantial doubt about our ability to continue as a
going concern.
Our primary capital needs have historically been working capital
requirements necessary to fund our operations. Our operating activities
generated cash of $40,000 during the six months ended June 30, 2009.
We entered into various licensing agreements during the three months ended
June 30, 2009 under which we licensed others to exploit games that we have
intellectual property rights to. We expect to enter into similar license
arrangements to generate cash for the Company's operations during the remainder
of the fiscal year.
No assurance can be given that funding can be obtained by us on acceptable
terms, or at all.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements under which we have
obligations under a guaranteed contract that has any of the characteristics
identified in GAAP. "Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others". We do not
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have any retained or contingent interest in assets transferred to an
unconsolidated entity or similar arrangement that serves as credit, liquidity or
market risk support to such entity for such assets. We also do not have any
obligation, including a contingent obligation, under a contract that would be
accounted for as a derivative instrument. We have no obligations, including a
contingent obligation arising out of a variable interest in an unconsolidated
entity that is held by, and material to, us, where such entity provides
financing, liquidity, market risk or credit risk support to, or engages in
leasing, hedging or research and development services with us.
CONTRACTUAL OBLIGATIONS
The following table summarizes certain of our contractual obligations under
non-cancelable contracts and other commitments at June 30, 2009, and the effect
such obligations are expected to have on our liquidity and cash flow in future
periods. (in thousands)
Less than 1 - 3 3 - 5 More than
CONTRACTUAL OBLIGATION Total 1 Year Years Years 5 Years
- ------------------------------------------------------------------------------------
Lease Commitments (1) .. 11 3 8 -- --
--------- --------- --------- --------- ---------
Total ................. 11 3 8 -- --
========= ========= ========= ========= =========
(1) We had a lease commitment at the Beverly Hills office through April 2008.
The Company is presently in negotiations to extend that lease but no
commitments have been made. We also have a lease commitment in Irvine for
our new development offices through March 31, 2009. The Company is
presently in negotiations to extend that lease but no commitments have been
made. We also have a lease commitment at the French representation office
through February 28, 2011 with an option for an additional 3 years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any derivative financial instruments as of June 30, 2009.
However, we are exposed to certain market risks arising from transactions in the
normal course of business, principally the risk associated with foreign currency
fluctuations. We do not hedge our interest rate risk, or our risk associated
with foreign currency fluctuations.
INTEREST RATE RISK
Currently, we do not have a line of credit, but we anticipate we may
establish a line of credit in the future.
FOREIGN CURRENCY RISK
Our earnings are affected by fluctuations in the value of our foreign
subsidiary's functional currency, and by fluctuations in the value of the
functional currency of our foreign receivables.
We recognized losses of $6,000 and a gain of $4,000 during the six months
ended June 30, 2009 and 2008 respectively, primarily in connection with foreign
exchange fluctuations in the timing of payments received on accounts receivable.
ITEM 4T. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and interim Chief Financial Officer of the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon
this evaluation, our Chief Executive Officer and interim Chief Financial Officer
concluded that our disclosure controls and procedures were effective, at the
reasonable assurance level, in ensuring that information required to be
disclosed is recorded, processed, summarized and reported within the time period
specified in the SEC's rules and forms and in timely alerting him to material
information required to be included in this report.
There were no changes made in our internal controls over financial
reporting that occurred during the quarter ended June 30, 2009 that have
materially affected or are reasonably likely to materially affect these
controls.
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Our management, including the Chief Executive Officer and Interim Chief
Financial Officer, does not expect that our disclosure controls and procedures
or our internal control over financial reporting will necessarily prevent all
fraud and material errors. An internal control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations on all internal
control systems, our internal control system can provide only reasonable
assurance of achieving its objectives and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, and/or by management.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item
1A to Part 1 of our form 10-K for the fiscal year ended December 31, 2008.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the stockholders of the Company was held on June 30,
2009.
The following resolution was passed:
(1) Election of each director listed below:
For Withheld
---------- ----------
Herve Caen 69,069,652 910,381
Eric Caen 69,197,834 782,199
Michel Welter 68,990,592 989,441
Xavier De Portal 69,176,056 803,977
Alberto Haddad 68,949,632 1,030,401
ITEM 6. EXHIBITS
(a) Exhibits - The following exhibits, other than exhibit 32.1 which is
being furnished herewith, are filed as part of this report:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
31.1 Certificate of Herve Caen, Chief Executive Officer of Interplay
Entertainment Corp. pursuant to Rule 13a-14(a) of the Securities and
Act of 1934, as amended.
31.2 Certificate of Herve Caen, Interim Chief Financial Officer of
Interplay Entertainment Corp. pursuant to Rule 13a-14(a) of the
Securities and Exchange Act of 1934, as amended.
32.1 Certificate of Herve Caen, Chief Executive Officer and Interim Chief
Financial Officer of Interplay Entertainment Corp. pursuant to Rule
13a-14(b) of the Securities and Exchange Act of 1934, as amended.
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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.
INTERPLAY ENTERTAINMENT CORP.
Date: August 18, 2009 By: /S/ HERVE CAEN
----------------------------------
Herve Caen,
Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive and
Financial and Accounting Officer)
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