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 SEPTEMBER 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.)
12301 WILSHIRE BLVD. LOS ANGELES, CALIFORNIA 90025
(Address of principal executive offices)
(310) 979-7070
(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 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.
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Smaller reporting company [_]
Indicate by check mark whether the registrant is 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.
CLASS ISSUED AND OUTSTANDING AT SEPTEMBER 30, 2009
----- --------------------------------------------
Common Stock, $0.001 par value 115,695,268
As of September 30, 2009, 115,695,298 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
SEPTEMBER 30, 2009
--------------
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2009 (unaudited) and December 31, 2008 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 2009 and 2008
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 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 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4T. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 3. Default Upon Senior Securities 20
Item 6. Exhibits 21
SIGNATURES 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash .................................................... $ 49,000 $ --
Trade receivables ....................................... 115,000 87,000
Inventories ............................................. 55,000 1,000
Deposits ................................................ 5,000 7,000
Prepaid expenses ........................................ 5,000 11,000
Other receivables ....................................... 10,000 9,000
------------- -------------
Total current assets .................................. 239,000 115,000
Property and equipment, net ............................. 40,000 48,000
Other Assets - Intellectual properties .................. 126,000 --
------------- -------------
Total Assets .............................................. $ 405,000 $ 163,000
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Drawings in excess of cash balance ...................... $ -- $ 24,000
Convertible note payable ................................ -- 53,000
Accounts payable and accrued expenses ................... 1,423,000 1,209,000
Deferred income ......................................... 810,000 710,000
Note payable to officer and directors ................... 483,000 469,000
------------- -------------
Total current liabilities ............................. 2,716,000 2,465,000
------------- -------------
Commitments and contingencies
Stockholders' Deficit:
Preferred stock, $0.001 par value 5,000,000 shares
authorized; no shares issued and outstanding,
Common stock, $0.001 par value 300,000,000 shares
authorized; 115,695,268 and 105,855,634 shares issued $ 116,000 $ 108,000
Paid-in capital ....................................... 123,347,000 122,309,000
Accumulated deficit ................................... (125,894,000) (124,842,000)
Accumulated other comprehensive (loss) ................ 120,000 123,000
------------- -------------
Treasury stock of 4,658,216 shares
Total stockholders' deficit ........................ (2,311,000) (2,302,000)
------------- -------------
Total liabilities and stockholders' deficit ............... $ 405,000 $ 163,000
============= =============
3
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2009 2008 2009 2008
------------- ------------- ------------- -------------
Revenues ............................. $ 510,000 $ 1,083,000 $ 854,000 $ 1,187,000
Cost of goods sold ................... 119,000 -- 209,000 3,000
------------- ------------- ------------- -------------
Gross profit ...................... 391,000 1,083,000 645,000 1,184,000
Operating expenses:
Marketing and sales ............... 14,000 -- 57,000 --
General and administrative ........ 292,000 313,000 1,480,000 982,000
Product Development ............... 78,000 90,000 195,000 253,000
------------- ------------- ------------- -------------
Total operating expenses ....... 384,000 403,000 1,732,000 1,235,000
------------- ------------- ------------- -------------
Operating income (loss) .............. 7,000 680,000 (1,087,000) (51,000)
Other income (expense):
Interest expense .................. (9,000) (7,000) (30,000) (24,000)
Other ............................. (13,000) (49,000) 65,000 (137,000)
------------- ------------- ------------- -------------
Income before benefit for income taxes (15,000) 624,000 (1,052,000) (212,000)
Income taxes ......................... -- -- -- --
------------- ------------- ------------- -------------
Net income ........................... $ (15,000) $ 624,000 $ (1,052,000) $ (212,000)
============= ============= ============= =============
Net income (loss) per common share:
Basic ............................. $ (0.00) $ 0.01 $ (0.01) $ (0.00)
============= ============= ============= =============
Diluted ........................... $ (0.00) $ 0.01 $ (0.01) $ (0.00)
============= ============= ============= =============
Shares used in calculating net income
(loss) per common share:
Basic ............................. 112,415,000 101,198,000 109,259,000 101,198,000
============= ============= ============= =============
Diluted ........................... 112,415,000 101,264,000 109,259,000 101,198,000
============= ============= ============= =============
See accompanying notes.
4
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2009 2008
----------- -----------
Cash flows from operating activities:
Net (loss) ....................................... $(1,052,000) $ (212,000)
Adjustments to reconcile net (loss)
income to cash (used) provided by
operating activities:
Depreciation and amortization .............. 11,000 6,000
Additional paid in capital - option
expense ................................. 657,000 273,000
Changes in operating assets and
liabilities:
Trade receivables, net .................. (28,000) 24,000
Inventories ............................. (54,000) 0
Deposits ................................ 2,000 (3,000)
Prepaid expenses ........................ 6,000 (10,000)
Other current assets, net ............... (1,000) (4,000)
Accounts payable and accrued expenses ... 215,000 (93,000)
Note payable officer and directors ...... 75,000 (210,000)
Note payable obligation exchanged
for intellectual property ............ 0 (1,050,000)
Deferred income ......................... 100,000 201,000
Accumulated other compensation income ... (3,000) (7,000)
----------- -----------
Net cash provided by (used in)
operating activities ................. (72,000) (1,085,000)
----------- -----------
Cash flow from investing activities:
Purchase of property and equipment ............ (3,000) (48,000)
----------- -----------
Net cash used in investing activities ... (3,000) (48,000)
----------- -----------
Cash flows from financing activities:
Sale of stock ................................. 148,000 0
----------- -----------
Net cash provided by (used in)
financing activities ................. 148,000 0
----------- -----------
Increase (decrease) in cash ...................... 73,000 (1,133,000)
Cash, beginning of period ........................ $ (24,000) $ 1,138,000
----------- -----------
Cash, end of period .............................. $ 49,000 $ 5,000
=========== ===========
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 .......... $ 61,000 $ 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 CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2008
(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.
6
LITIGATION
On September 8, 2009 Bethesda Softworks LLC filed a Complaint for
Declaratory Judgement, Preliminary Injunction and Other Relief against Interplay
Entertainment Corp. in the United States District Court for the District of
Maryland. On October 16, 2009, Interplay Entertainment Corp. ("Interplay")
answered the lawsuit and asserted Counter-Claims against Bethesda, including for
Breach of Contract, Declaratory Judgment, and other relief.
Bethesda seeks to cancel the April 4, 2007 trademark license agreement
that conditionally allows Interplay to use the FALLOUT (R) brand in conjunction
with its currently-in-production massively multiplayer online game. Bethesda
claims that Interplay failed to commence full scale development and to satisfy a
funding requirement within a specied time frame. Bethesda also seeks to
terminate Interplay's rights with respect to the previously released FALLOUT
(R), FALLOUT (R) 2, and FALLOUT(R) Tactics games. Interplay disputes these
claims. Although the potential damages are currently unknown, if Bethesda
ultimately prevails and cancels the trademark license agreement, Interplay could
lose its license to use the FALLOUT(R) brand with respect to its massively
multiplayer online game and/or its license to distribute the back catalog
FALLOUT(R) titles and may owe monetary damages.
Interplay's counter-suit alleges that Bethesda interfered with
Interplay's business, including distribution of the previously released FALLOUT
(R), FALLOUT(R) 2, and FALLOUT(R) Tactics games, by attempting to terminate
Interplay's distribution rights, among other acts. Interplay asks the Court to
decide whether Bethesda's attempt to terminate Interplay's rights under the
Asset Purchase Agreement results in nullification of the entire contract such
that the Parties should be returned to the status quo under their former
Exclusive Licensing Agreement. If the Exclusive Licensing Agreement is restored,
Bethesda may owe royalties based upon sales of its FALLOUT (R) 3 title.
Interplay also seeks a declaration from the Court that it has not infringed upon
the FALLOUT(R) mark and that it has satisfied the terms of theTrademark
Licensing Agreement related to Interplay's production of a massively-multiplayer
online game. A hearing on Bethesda's Motion for Preliminary Injunction is
currently set for December 11, 2009.
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.
7
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.
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 bore 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. 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 $483,000 in
principal and interest remains outstanding under the demand notes and other
loans received from officers and directors as of September 30, 2009. Interest
accrued on the demand notes as of September 30, 2009 was $20,000.
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 September 30, 2009 amounted to
$810,000.
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.
8
Net revenues by geographic regions were as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- --------------------------------------------
2009 2008 2009 2008
-------------------- -------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
North America .......... $ 406 80% $ 1 3% $ 680 80% $ 1 1%
International .......... 104 20% 32 97% 174 20% 136 99%
-------- -------- -------- -------- -------- -------- -------- --------
$ 510 100% $ 33 100% $ 854 100% $ 137 100%
======== ======== ======== ======== ======== ======== ======== ========
NOTE 6. COMMON STOCK AND EMPLOYEE STOCK OPTIONS
STOCK-BASED COMPENSATION
The Company measures and recognizes compensation cost at fair value for
all share-based payments, including stock options and restricted stock awards.
At September 30, 2009, the Company has one stock-based employee
compensation plan. Stock options and warrants were granted under the plan during
the nine months ended September 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 $22,000 and $657,000 as
reflected in net loss for the quarter and nine months ended September 30, 2009.
9
On July 2, 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 3).
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.
10
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, 2008, 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.
11
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:
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------- --------------------------------------------
2009 2008 2009 2008
-------------------- -------------------- -------------------- --------------------
% OF NET % OF NET % OF NET % OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
NET REVENUES ........... $ 510 100% $ 1,083 100% $ 854 100% $ 1,187 100%
COST OF GOODS SOLD ..... 119 23% -- 0% 209 24% 3 0%
-------- -------- -------- -------- -------- -------- -------- --------
GROSS PROFIT ...... 391 77% 1,083 100% 645 76% 1,184 100%
OPERATING EXPENSES:
MARKETING AND SALES . 14 3% -- 0% 57 7% -- 0%
GENERAL AND
ADMINISTRATIVE .... 292 57% 313 29% 1,480 173% 982 83%
PRODUCT DEVELOPMENT . 78 15% 90 8% 195 23% 253 21%
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL OPERATING
EXPENSES ........ 384 75% 403 37% 1,732 203% 1,235 104%
-------- -------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS) 7 2% 680 63% (1,087) -127% (51) -4%
OTHER INCOME (EXPENSES):
OTHER INCOME ...... (22) -4% (56) -5% 35 4% (161) -14%
INCOME TAXES ...... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME ........ $ (15) -2% $ 624 58% $ (1,052) -123% $ (212) -18%
======== ======== ======== ======== ======== ======== ======== ========
NET REVENUE BY
GEOGRAPHIC REGION:
NORTH AMERICA .......... 406 80% 1 3% 681 80% 1 1%
INTERNATIONAL .......... 104 20% 32 97% 174 20% 136 99%
-------- -------- -------- -------- -------- -------- -------- --------
$ 510 100% $ 33 100% $ 855 100% $ 137 100%
======== ======== ======== ======== ======== ======== ======== ========
NET REVENUE BY PLATFORM:
PERSONAL COMPUTERS ..... 495 97% 33 100% 781 91% 131 96%
VIDEO GAME CONSOLE ..... 15 3% 0 0% 73 9% 6 4%
-------- -------- -------- -------- -------- -------- -------- --------
$ 510 100% $ 33 100% $ 854 100% $ 137 100%
======== ======== ======== ======== ======== ======== ======== ========
12
NET REVENUES
NORTH AMERICAN AND INTERNATIONAL NET REVENUES
Geographically, our net revenues for the three months and nine months ended
September 30, 2009 and 2008 break down as follows: (in thousands)
Three Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
North America ..................... $ 406 $ 1 $ 405
International ..................... 104 32 72 225%
Net Revenues ...................... $ 510 $ 33 $ 477 1,445%
Nine Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
North America ..................... $ 680 $ 1 $ 679
International ..................... 174 136 38 28%
Net Revenues ...................... $ 854 $ 137 $ 717 524%
For the three months ended September 30, 2009, net revenue was $510,000, driven
by retail distribution and electronic distribution of back catalog games. Net
revenue for the three months ended September 30, 2009 increased 1,445% compared
to the three months ended September 30, 2008. Net revenue for North America was
$406,000 and net revenue for International sales was $104,000. North American
sales increased by $405,000 and International sales increased by $72,000
compared to the three months ended September 30, 2008.
For the nine months ended September 30, 2009, net revenue was $854,000, driven
by retail distribution and electronic distribution of back catalog games. Net
revenue for the nine months ended September 30, 2009 increased 524% compared to
the nine months ended September 30, 2008. Net revenue for North America was
$680,000 and net revenue for International sales was $174,000. North American
sales increased by $679,000 and International sales increased by $38,000
compared to the nine months ended September 30, 2008.
13
PLATFORM NET REVENUES
Our platform net revenues for the three months and nine months ended September
30, 2009 and 2008 break down as follows: (in thousands)
Three Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Personal Computer ................. $ 495 $ 33 $ 462 1,400%
Video Game Console ................ 15 0 15 100%
Net Revenues ...................... $ 510 $ 33 $ 477 1,445%
Nine Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Personal Computer ................. $ 781 $ 131 $ 650 496%
Video Game Console ................ 73 6 67 111%
Net Revenues ...................... $ 854 $ 137 $ 717 523%
PC net revenues for the three months ended September 30, 2009 were $510,000, an
increase of 1,445% compared to the same period in 2008. The increase in PC net
revenues in 2009 was primarily due to an increase in retail and electronic
distribution of back catalog games. Video game console net revenues were
$15,000, an increase of 100% for the three months ended September 30, 2009
compared to the same period in 2008, due to the royalties earned from electronic
distribution of back catalog games.
PC net revenues for the nine months ended September 30, 2009 were $854,000, an
increase of 523% compared to the same period in 2008. The increase in PC net
revenues in the nine months ended September 30, 2009 was primarily due to an
increase in retail and electronic distribution of back catalog games. Video Game
console net revenues were $73,000 an increase of 111% for the nine months ended
September 30, 2009 compared to the same period in 2008, mainly due to the
royalties earned from electronic distribution of back catalog games.
COST OF GOODS SOLD; GROSS PROFIT MARGIN
Our net revenues cost of goods sold and gross margin for the three months and
nine months ended September 30, 2009 and 2008 breakdown as follows: (in
thousands)
Three Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Net Revenues ...................... $ 510 $ 33 $ 477 1,445%
Cost of Goods Sold ................ 119 0 119
Gross Profit Margin ............... $ 391 $ 33 $ 358 108%
Nine Months Ended September 30 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Net Revenues ...................... $ 854 $ 137 $ 717 523%
Cost of Goods Sold ................ 209 3 206 687%
Gross Profit Margin ............... $ 645 $ 134 $ 511 381%
Three Months Ended September 30 2009 2008 Change
- ----------------------------------- -------- -------- --------
Net Revenues ...................... 100% 100%
Cost of Goods Sold ................ 23% 0%
Gross Profit Margin ............... 77% 100% 23%
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Nine Months Ended September 30 2009 2008 Change
- ----------------------------------- -------- -------- --------
Net Revenues ...................... 100% 100%
Cost of Goods Sold ................ 24 0%
Gross Profit Margin ............... 76% 100% 24%
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 100% to $119,000 in the three months ended
September 30, 2009 compared to the same period in 2008. The increase in cost of
goods sold was primarily due to an increase in back catalog sales.
Our cost of goods sold increased 687% to $209,000 in the nine months ended
September 30, 2009 compared to the same period in 2008. The increase in cost of
goods sold was primarily due to an increase in back catalog sales.
Our gross margin decreased to 77% for the three months ended September 30, 2009.
from 100% in the comparable period in 2008.
Our gross margin decreased to 76% for the nine months ended September 30, 2009
from 100% in the comparable period in 2008.
MARKETING AND SALES
Our marketing and sales expense for the three months and nine months ended
September 30, 2009 and 2008 break down as follows: (in thousands)
Marketing and Sales 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Three Months Ended September 30 ... $ 14 $ 0 $ 14 100%
Nine Months Ended September 30 .... $ 57 $ 0 $ 57 100%
Marketing and sales expenses primarily consist of advertising and retail
marketing support, sales commissions, marketing and sales personnel, customer
support services and other related operating expenses.
Marketing and sales expenses for the three months ended September 30, 2009 was
$14,000 a 100% increase as compared to the same period durimg 2008.
Marketing and sales expenses for the nine months ended September 30, 2009 were
$57,000 a 100% increase as compared to the same period during 2008.
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PRODUCT DEVELOPMENT
Our Product Development expense for the three months and nine months ended
September 30, 2009 and 2008 break down as follows: (in thousands)
Product Development 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Three Months Ended September 30 ... $ 78 $ 90 $ (12) (13%)
Nine Months Ended September 30 .... $ 195 $ 253 $ (58) (23%)
Product development expenses were $78,000, a 13% decrease as compared to the
same period in 2008.
Our product development decreased 23% to $195,000 for the nine months ended
September 30, 2009 period compared to the same period in 2008.
GENERAL AND ADMINISTRATIVE
Our general and administrative expense for the three months and nine months
ended September 30, 2009 and 2008 break down as follows: (in thousands)
General and Administrative 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Three Months Ended September 30 ... $ 292 $ 313 $ 21 (7%)
Nine Months Ended September 30 .... $ 1,480 $ 982 $ 498 51%
General and administrative expenses primarily consist of administrative
personnel expenses, facilities costs, professional fees, bad debt expenses and
other related operating expenses. General and administrative expenses for the
three months ended September 30, 2009 were $292,000, a 7% decrease as compared
to the same period in 2008. The decrease is mainly due to the decrease in
general expenses. General and administrative expenses for the nine months ended
September 30, 2009 were $1,480,000 a 51% increase as compared to the same period
in 2008. The significant component of the increase results from stock option
compensation of $657,000.
OTHER EXPENSE (INCOME), NET
Our other expense (income) for the three months and nine months ended September
30, 2009 and 2008 break down as follows: (in thousands)
Other (Income) Expenses 2009 2008 Change % Change
- ----------------------------------- -------- -------- -------- --------
Three Months Ended September 30 ... $ 22 $ 56 $ (34) (61%)
Nine Months Ended September 30 ... $ (35) $ 161 $ (196) 1,217%
Other expenses for the three months ended September 30, 2009 consist primarily
of interest expense on debt in the amount of $9,000, foreign currency exchange
transactions losses of $3,000, bad debt expense of $10,000. Other expenses for
the nine months ended September 30,2009 consist primarily of interest expense on
debt in the amount of $30,000, foreign currency exchange transaction losses of
$11,000, bad debt expense of $13,000 and other nonrecurring income licensing
settlements of ($35,000), prior period reversals of accruals of ($50,000) and
rental income of ($4,000).
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009, we had a working capital deficit of approximately
$2,477,000, and our cash balance was approximately $49,000.
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). (See Note 1 of Condensed
Consolidated Financial Statements.)
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
$73,000 during the nine months ended September 30, 2009.
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We entered into various licensing agreements during the nine months ended
September 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 paragraph 3 of FASB Interpretation No. 45 "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". We do not 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 (as referenced in FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, as amended) 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 September 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 OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- -------------------------------------------------------------------------------------------
Lease Commitments (1) 320 3 317 -- --
- -------------------------------------------------------------------------------------------
Total 320 3 317 -- --
- -------------------------------------------------------------------------------------------
(1) The Company as of November 1, 2009 has relocated to new offices in Los
Angeles and has a lease commitment through October 2012. 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 September 30, 2008.
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.
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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 $10,000 and a gain of $2,000 during the nine months
ended September 30, 2009 and 2008 respectively, primarily in connection with
foreign exchange fluctuations in the timing of payments received on accounts
receivable which have been from Interplay Productions Ltd.
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 September 30, 2008 that have materially
affected or are reasonably likely to materially affect these controls.
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.
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PART II - OTHER INFORMATION
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, 2007.
ITEM 1. LEGAL PROCEEDINGS
On September 8, 2009 Bethesda Softworks LLC filed a Complaint for Declaratory
Judgement, Preliminary Injunction and Other Relief against Interplay
Entertainment Corp. in the United States District Court for the District of
Maryland. On October 16, 2009, Interplay Entertainment Corp. ("Interplay")
answered the lawsuit and asserted Counter-Claims against Bethesda, including for
Breach of Contract, Declaratory Judgment, and other relief.
Bethesda seeks to cancel the April 4, 2007 trademark license agreement that
conditionally allows Interplay to use the FALLOUT (R) brand in conjunction with
its currently-in-production massively multiplayer online game. Bethesda claims
that Interplay failed to commence full scale development and to satisfy a
funding requirement within a specied time frame. Bethesda also seeks to
terminate Interplay's rights with respect to the previously released FALLOUT
(R), FALLOUT (R) 2, and FALLOUT(R) Tactics games. Interplay disputes these
claims. Although the potential damages are currently unknown, if Bethesda
ultimately prevails and cancels the trademark license agreement, Interplay could
lose its license to use the FALLOUT(R) brand with respect to its massively
multiplayer online game and/or its license to distribute the back catalog
FALLOUT(R) titles and may owe monetary damages.
Interplay's counter-suit alleges that Bethesda interfered with Interplay's
business, including distribution of the previously released FALLOUT (R),
FALLOUT(R) 2, and FALLOUT(R) Tactics games, by attempting to terminate
Interplay's distribution rights, among other acts. Interplay asks the Court to
decide whether Bethesda's attempt to terminate Interplay's rights under the
Asset Purchase Agreement results in nullification of the entire contract such
that the Parties should be returned to the status quo under their former
Exclusive Licensing Agreement. If the Exclusive Licensing Agreement is restored,
Bethesda may owe royalties based upon sales of its FALLOUT (R) 3 title.
Interplay also seeks a declaration from the Court that it has not infringed upon
the FALLOUT(R) mark and that it has satisfied the terms of theTrademark
Licensing Agreement related to Interplay's production of a massively-multiplayer
online game. A hearing on Bethesda's Motion for Preliminary Injunction is
currently set for December 11, 2009.
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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
Exchange 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: November 20, 2009 By: /S/ HERVE CAEN
--------------------------------
Herve Caen,
Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive and
Financial and Accounting Officer)
22