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~~September 30, 2016

o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File No. 001-14944

MAD CATZ INTERACTIVE, INC.

(Exact name of Registrant as specified in its charter)

Canada

Not Applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

10680 Treena Street, Suite 500

San Diego, California

92131

(Address of principal executive offices)

(Zip Code)

(858) 790-5008

(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 o☐

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

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

Large accelerated filer o☐ Accelerated filer o☐ Non-accelerated filer o☐ (Do not check if a smaller reporting company) Smaller reporting company x☒

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

There were 73,469,571 shares of the registrant’s common stock issued and outstanding as of ~~July~~October 3031, 2016.

MAD CATZ INTERACTIVE, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2016

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION		3
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets—June 30, 2016 and March 31, 2016	3
	Consolidated Balance Sheets—September 30, 2016 and March 31, 2016	3
	Consolidated Statements of Operations—Three Months Ended June 30, 2016 and 2015	4
	Consolidated Statements of Operations—Three and Six Months Ended September 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Loss— Three Months Ended June 30, 2016 and 2015	5
	Consolidated Statements of Comprehensive Income (Loss)—Three and Six Months Ended September 30, 2016 and 2015	5
	Consolidated Statements of Cash Flows— Three Months Ended June 30, 2016 and 2015	6
	Consolidated Statements of Cash Flows— Six Months Ended September 30, 2016 and 2015	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1415
Item 4.	Controls and Procedures	2123
PART II — OTHER INFORMATION		2224
Item 1.	Legal Proceedings	2224
Item 1A.	Risk Factors	2224
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2324
Item 3.	Defaults Upon Senior Securities	2324
Item 4.	Mine Safety Disclosure	2324
Item 5.	Other Information	2324
Item 6.	Exhibits	2325
SIGNATURES		2426

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

MAD CATZ INTERACTIVE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

	June 30, 2016			March 31, 2016
	September 30, 2016			March 31, 2016
ASSETS
Current assets:
Cash	$	1,~~677~~176		$	2,436
Restricted cash		~~135~~180			680
Accounts receivable, net		36,~~709~~106			9,585
Other receivables		~~895~~528			998
Inventories		1917,~~586~~160			23,005
Income taxes receivable		~~159~~163			159
Prepaid expenses and other current assets		1,~~772~~907			2,969
Total current assets		27,~~933~~220			39,832
Deferred tax assets		98,~~223~~775			9,449
Other assets		~~465~~389			531
Property and equipment, net		2,~~606~~019			2,921
Intangible assets, net		21,~~157~~682			2,270
Total assets	$	4240,~~384~~085		$	55,003
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank loans	$	1110,~~233~~549		$	16,076
Accounts payable		2419,~~956~~145			25,354
Accrued liabilities		67,~~652~~403			8,153
Notes payable		4950			73
Income taxes payable		754			173
Total current liabilities		4237,~~965~~151			49,829
Notes payable, less current portion		~~132~~119			145
Warrant liabilities		~~346~~297			300
Deferred tax liabilities		10			10
Other long-term liabilities		~~640~~587			699
Total liabilities		4438,~~093~~164			50,983
Shareholders’ equity:
Common stock, no par value, unlimited shares authorized; 73,469,571 and 73,469,571 shares issued and outstanding at June 30, 2016 and March 31, 2016, respectively		63,605			63,552
Common stock, no par value, unlimited shares authorized; 73,469,571 and 73,469,571 shares issued and outstanding at September 30, 2016 and March 31, 2016, respectively		63,655			63,552
Accumulated other comprehensive loss		(67,~~684~~184	)		(5,695	)
Accumulated deficit		(5854,~~630~~550	)		(53,837	)
Total shareholders’ (deficit) equity		(1,709	)		4,020
Total shareholders’ equity		1,921			4,020
Total liabilities and shareholders’ (deficit) equity	$	42,384		$	55,003
Total liabilities and shareholders’ equity	$	40,085		$	55,003

See accompanying notes to unaudited consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended June 30,
	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Net sales	$	1014,~~788~~867		$	1238,~~974~~918		$	25,655		$	51,892
Cost of sales		1014,~~892~~339			1029,~~096~~912			25,231			40,008
Gross (loss) profit		(104	)		2,878
Gross profit		528			9,006			424			11,884
Operating expenses:
Sales and marketing		1,~~391~~457			24,~~716~~457			2,848			7,173
General and administrative		2,~~468~~079			2,~~894~~638			4,547			5,532
Research and development		~~657~~560			~~921~~941			1,217			1,862
Restructuring and severance costs		~~(25~~22	)		—			(3	)		—
Amortization of intangible assets		~~113~~109			~~109~~111			222			220
Total operating expenses		4,604			6,640
Net gain on sale of Saitek assets		(8,177	)		—			(8,177	)		—
Operating loss		(4,708	)		(3,762	)
Net operating expenses		(3,950	)		8,147			654			14,787
Other income (expense):
Operating income (loss)		4,478			859			(230	)		(2,903	)
Interest expense, net		(333	)		(257	)
Other income (expense):
Foreign exchange gain, net		534			61
Interest expense, net		(277	)		(364	)		(610	)		(621	)
Change in fair value of warrant liabilities		(46	)		(46	)
Foreign exchange gain (loss), net		286			(154	)		820			(93	)
Other income		21			12
Change in fair value of warrant liabilities		49			(871	)		3			(917	)
Total other income (expense)		176			(230	)
Other income		2			10			23			22
Loss before income taxes		(4,532	)		(3,992	)
Total other income (expense)		60			(1,379	)		236			(1,609	)
Income tax (expense) benefit		(261	)		27
Income (loss) before income taxes		4,538			(520	)		6			(4,512	)
Net loss	$	(4,793	)	$	(3,965	)
Income tax expense		(458	)		(1,091	)		(719	)		(1,064	)
Net loss per share:
Net income (loss)	$	4,080		$	(1,611	)	$	(713	)	$	(5,576	)
Basic	$	(0.07	)	$	(0.05	)
Net income (loss) per share:
Diluted	$	(0.07	)	$	(0.05	)
Basic	$	0.06		$	(0.02	)	$	(0.01	)	$	(0.08	)
Shares used in per share computations:
Diluted	$	0.06		$	(0.02	)	$	(0.01	)	$	(0.08	)
Basic		73,469,571			73,469,571
Shares used in per share computations:
Diluted		73,469,571			73,469,571
Basic		73,469,571			73,469,571			73,469,571			73,469,571
Diluted		73,469,571			73,469,571			73,469,571			73,469,571

See accompanying notes to unaudited consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	Three Months Ended June 30,
	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(4,793	)	$	(3,965	)
Net income (loss)	$	4,080		$	(1,611	)	$	(713	)	$	(5,576	)
Foreign currency translation adjustments		(~~989~~500	)		~~550~~(344	)		(1,489	)		206
Comprehensive loss	$	(5,782	)	$	(3,415	)
Comprehensive income (loss)	$	3,580		$	(1,955	)	$	(2,202	)	$	(5,370	)

See accompanying notes to unaudited consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended June 30,
	Six Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(~~4,793~~713	)	$	(35,~~965~~576	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~625~~1,169			~~486~~1,038
Amortization of deferred financing fees		61120			~~127~~189
(Gain) loss on disposal of assets		(23	)		6
Stock-based compensation		53			138
Net gain on sale of Saitek assets		(8,177	)		—
Change in fair value of warrant liabilities		46			46
Stock-based compensation		103			262
Provision for deferred income taxes		226			(36	)
Change in fair value of warrant liabilities		(3	)		917
Provision for deferred income taxes		674			678
Changes in operating assets and liabilities:
Accounts receivable		53,~~437~~176			1(19,~~797~~790	)
Other receivables		95429			(~~116~~431	)
Inventories		3,~~164~~889			(217,~~129~~625	)
Prepaid expenses and other current assets		~~1,042~~891			73(357	)
Other assets		115			5185
Accounts payable		(~~114~~6,455	)		~~157~~22,280
Accrued liabilities		(1,~~828~~130	)		~~272~~9,602
Deferred rent		(63122	)		26(24	)
Income taxes receivable/payable		(~~106~~188	)		~~651~~1,045
Net cash provided by (used in) operating activities		3,823			(2,416	)
Net cash used in operating activities		(6,345	)		(7,701	)
Cash flows from investing activities:
Purchases of property and equipment		(198	)		(309	)
Purchases of intangible assets		—			(25	)
Net cash used in investing activities		(198	)		(309	)
Purchases of property and equipment		(422	)		(1,245	)
Net proceeds from sale of Saitek assets		10,628			—
Net cash provided by (used in) investing activities		10,206			(1,270	)
Cash flows from financing activities:
Borrowings on bank loans		919,~~388~~288			941,~~431~~955
Repayments on bank loans		(1424,~~232~~815	)		(930,~~435~~248	)
Payment of financing fees		—			(~~250~~720	)
Changes in restricted cash		~~545~~500			—
Borrowings on notes payable		—			95
Repayments on notes payable		(4156	)		(79160	)
Payment of expenses related to issuance of common stock		—			(~~102~~164	)
Net cash used in financing activities		(4,340	)		(340	)
Net cash (used in) provided by financing activities		(5,083	)		10,758
Effects of foreign currency exchange rate changes on cash		(4438	)		6041
Net decrease in cash		(759	)		(3,005	)
Net (decrease) increase in cash		(1,260	)		1,828
Cash, beginning of period		2,436			5,142
Cash, end of period	$	1,~~677~~176		$	26,~~137~~970
Supplemental cash flow information:
Income taxes paid	$	~~149~~240		$	~~179~~276
Interest paid	$	~~360~~634		$	~~265~~588

See accompanying notes to unaudited consolidated financial statements.

MAD CATZ INTERACTIVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

Nature of Operations

Mad Catz Interactive, Inc. (“Mad Catz”) designs, manufactures (primarily through third parties in Asia), markets and distributes innovative interactive entertainment products marketed under its Mad Catz® (gaming), and Tritton® (audio), ~~and Saitek® (simulation)~~ brands. Mad Catz products, which primarily include headsets, mice, keyboards, controllers, specialty controllers, and other accessories, cater to gamers ~~and simulation enthusiast~~ across multiple platforms including in-home gaming consoles, handheld gaming consoles, PC and Mac computers, smart phones, tablets and other smart devices. Mad Catz distributes its products through many leading retailers around the globe. Mad Catz is incorporated in Canada and is operationally headquartered in San Diego, California. Mad Catz also maintains offices in Europe and Asia.

Basis of Accounting

The accompanying unaudited consolidated financial information has been prepared by management, without audit, in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated balance sheet at March 31, 2016 was derived from the audited consolidated financial statements at that date; however, it does not include all disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”).

The Company has incurred recurring losses from operations in each of the years in the three-year period ended March 31, 2016 ~~and in the three-month period ended June 30~~, ~~2016,~~ generated negative cash flows from operations in the year ended March 31, 2016 and has negative working capital as of ~~June~~September 30, 2016. The Company expects to generate income from operations and cash flow in fiscal 2017, excluding sales and related expenses of Rock Band 4 products, by ~~growing net sales of its core product lines, improving gross margin and~~ reducing its operating expenses as a result of the restructuring plan executed in the fourth quarter of fiscal 2016 and through the sale of certain assets associated with the Company’s flight, space, and farm simulation product line. To meet its capital needs, the Company is also considering multiple alternatives, including, but not limited to, equity sales under its “at-the-market” (“ATM”) equity offering program, additional equity financings, debt financings and other funding transactions. There can be no assurance that the Company will be able to achieve its fiscal 2017 financial plan or complete financing transactions on acceptable terms or otherwise. If the Company is unable to become cash-flow positive or to raise additional capital as and when needed, or upon acceptable terms, such failure would have a significant negative impact on ~~our~~its financial condition.

Our primary operating subsidiary, Mad Catz, Inc. (“MCI”), maintains a Loan and Security Agreement (the “Loan Agreement”) with Sterling National Bank (“SNB”) to provide for a $20.0 million revolving line of credit subject to the availability of eligible accounts receivable and inventories, which changes throughout the year. The Loan Agreement expires on June 30, 2018. The Company is required to meet a monthly financial covenant based on a trailing twelve months’ Adjusted earnings before income taxes, depreciation and amortization (“ EBITDA”), as defined. Additionally, Mad Catz Europe Ltd. (“MCE”), a wholly-owned subsidiary of the Company, maintains a Master Facilities Agreement (the “Facilities Agreement”) with Faunus Group International, Inc. (“FGI”) to provide for a $10.0 million secured demand credit facility subject to the availability of eligible accounts receivable and inventories, which changes throughout the year. The Facilities Agreement has a three-year term, although FGI may terminate the facility at any time upon at least three months’ notice.

The Company depends upon the availability of capital under the Loan Agreement and Facilities Agreement to finance operations. The Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future sales and expenses. If the Company is unable to comply with the Adjusted EBITDA covenants contained in the Loan Agreement, as amended from time to time, SNB could declare the outstanding borrowings under the facility immediately due and payable. If the Company needs to obtain additional funds as a result of the termination of the Loan Agreement or Facilities Agreement or the acceleration of amounts due thereunder, there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all. The Company’s failure to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that no alternative financing is available, the Company would be forced to drastically curtail operations, or dispose of assets, or cease operations altogether.

In the opinion of management, the unaudited consolidated financial statements for the interim period presented reflect all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of and for such periods indicated. These unaudited consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016. These consolidated financial statements refer to the Company’s fiscal years ending March 31 as its “fiscal” years. The Company generates a substantial percentage of net sales in the last three months of every calendar year, its fiscal

~~its “fiscal” years. The Company generates a substantial percentage of net sales in the last three months of every calendar year, its fiscal~~ third quarter. Results for the interim periods presented herein are not necessarily indicative of results that may be reported for any other interim period or for the fiscal year ending March 31, 2017. All currency amounts are presented in U.S. dollars.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Mad Catz and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. References to the “Company,” “we,” “us,” “our” and other similar words refer to Mad Catz Interactive, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

Use of Estimates

The unaudited consolidated financial statements have been prepared in conformity with U.S. GAAP. Applying these principles 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 unaudited consolidated financial statements and the reported amounts of sales and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to asset impairments, reserves for accounts receivable and inventories, contingencies and litigation, valuation and recognition of share-based payments, warrant liabilities and income taxes. As future events and their effects cannot be determined with precision, actual results could differ from these estimates.

Sale of Saitek Assets

On September 15, 2016, the Company completed the sale of certain assets associated with the Company’s flight, space, and farm simulation product line (the “Saitek assets”) to certain subsidiaries of Logitech International S.A. (collectively, “Logitech”) (see Note 7).

The Company has followed the guidance in ASC 205-20, “Presentation of Financial Statements-Discontinued Operations,” as updated by Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. The Saitek assets do not represent a component of an entity, and therefore, the sale of the Saitek assets has not been presented as discontinued operations.

Recently Issued Accounting Standards

In ~~March~~August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-0915, ~~Compensation~~Statement –of ~~Stock~~Cash ~~Compensation~~Flows, which ~~amends~~addresses ~~several~~specific aspects of share-based payment accounting. This guidance requires all excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled, with prospective application required. The guidance also changes the classification of such tax benefits or tax deficiencies on the statement of cash ~~flows~~flow ~~from~~items ~~a financing activity to an operating activity,~~ with ~~retrospective or prospective application allowed. Additionally,~~ the ~~guidance~~objective ~~requires the classification~~ of ~~employee~~reducing ~~taxes~~existing ~~paid~~diversity ~~when~~in anpractice ~~employer~~in ~~withholds~~how ~~shares~~certain ~~for~~transactions ~~tax-withholding~~are ~~purposes~~classified asin ~~a financing activity on~~ the statement of cash flows~~, with retrospective application required~~. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, ~~2016~~2017. Early adoption is permitted. The Company isdoes ~~currently~~not ~~evaluating~~expect the ~~impact~~updated ofstandard ~~the~~to ~~new~~have ~~guidance~~a material impact on the consolidated financial statements and related disclosures.

In ~~February~~March 2016, the FASB issued ASU 2016-0209, ~~Leases~~Compensation – Stock Compensation, which amends ~~the~~several ~~existing~~aspects ~~accounting~~of ~~standards~~share-based ~~for~~payment ~~lease~~ accounting. ~~and~~This ~~requiring~~guidance ~~lessees~~requires ~~to recognize lease assets and lease liabilities for~~ all ~~leases~~excess ~~with~~tax ~~lease~~benefits ~~terms of more than 12 months, including those classified as operating leases. Both the asset~~ and ~~liability~~tax ~~will~~deficiencies ~~initially~~to be ~~measured~~recorded atin the ~~present~~income ~~value~~statement ofwhen the ~~future~~awards ~~minimum~~vest ~~lease~~or ~~payments~~are settled, with ~~the~~prospective ~~asset~~application ~~being subject to adjustments such as initial direct costs~~required. ~~Consistent~~The ~~with~~guidance ~~current~~also ~~U.S.~~changes ~~Generally Accepted Accounting Principles (“GAAP”),~~ the ~~presentation~~classification of ~~expenses~~such ~~and~~tax ~~cash~~benefits ~~flows~~or ~~will~~tax ~~depend~~deficiencies ~~primarily~~ on the ~~classification~~statement of ~~the~~cash ~~lease~~flows asfrom ~~either~~ a ~~finance~~financing oractivity to an operating ~~lease.~~activity, ~~The~~with ~~new~~retrospective ~~standard~~or ~~also~~prospective ~~requires~~application ~~additional~~allowed. ~~quantitative~~Additionally, ~~and~~the ~~qualitative~~guidance ~~disclosures~~requires ~~regarding~~ the ~~amount,~~classification ~~timing~~of ~~and~~employee ~~uncertainty~~taxes ofpaid ~~cash~~when ~~flows~~an ~~arising~~employer ~~from~~withholds ~~leases~~shares infor ~~order~~tax-withholding topurposes ~~provide~~as ~~additional~~a ~~information~~financing ~~about~~activity on the ~~nature~~statement of ancash ~~organization’s~~flows, ~~leasing~~with ~~activities~~retrospective application required. This ASU ~~2016-02~~ is effective for annual periods, and interim periods within those annual periods, beginning after December 15, ~~2018~~2016. ~~ASU~~ ~~2016-02~~Early ~~mandates a modified retrospective transition method with early~~ adoption is permitted. The Company is currently evaluating the ~~effect~~impact ~~that~~of ~~ASU~~the ~~2016-02~~new ~~will~~guidance ~~have~~ on ~~its~~the consolidated financial statements and related disclosures.

In ~~July~~February ~~2015~~2016, the FASB issued ASU ~~2015~~ 2016-1102, ~~Simplifying~~Leases, which amends the ~~Measurement~~existing ofaccounting ~~Inventory,~~standards ~~which~~for ~~requires~~lease ~~entities~~accounting and requiring lessees to ~~measure~~recognize ~~most~~lease ~~inventory~~assets ~~“at~~and ~~the~~lease ~~lower~~liabilities offor ~~cost~~all ~~and~~leases ~~net~~with ~~realizable~~lease ~~value~~terms of more than 12 months,” ~~thereby~~including ~~simplifying~~those ~~the~~classified ~~current~~as ~~guidance~~operating ~~under~~leases. ~~which~~Both the asset and ~~entity~~liability ~~must~~will ~~measure~~initially ~~inventory~~be measured at the ~~lower~~present value of ~~cost~~the orfuture ~~market.~~minimum ~~The~~lease ~~ASU~~payments, ~~will~~with ~~not~~the ~~apply~~asset being subject to ~~inventories~~adjustments ~~that~~such ~~are~~as ~~measured~~initial bydirect ~~using~~costs. ~~either~~Consistent ~~the~~with ~~last-in,~~current ~~first-out~~U.S. ~~method~~Generally orAccepted ~~the~~Accounting ~~retail~~Principles ~~inventory~~(“GAAP”), ~~method.~~the ~~For~~presentation ~~public~~of ~~business~~expenses ~~entities,~~and ~~the~~cash ~~ASU~~flows iswill ~~effective~~depend ~~prospectively~~primarily ~~for~~on ~~annual~~the ~~periods~~classification ~~beginning~~of ~~after~~the ~~December~~lease ~~15,~~as ~~2016,~~either ~~and~~a ~~interim~~finance ~~periods~~or ~~therein~~an operating lease. The ~~Company~~new ~~has~~standard ~~elected~~also torequires ~~early~~additional ~~adopt,~~quantitative ~~prospectively,~~and ~~this~~qualitative ~~guidance~~disclosures ~~effective~~regarding ~~April~~the 1amount, ~~2016. The~~timing ~~adoption~~and uncertainty of ~~this~~cash ~~guidance~~flows ~~did~~arising ~~not~~from ~~have~~leases ain ~~material~~order ~~impact~~to onprovide additional information about the ~~Company~~nature of an organization’s ~~consolidated~~leasing ~~financial~~activities. ~~condition~~ASU or2016-02 ~~results~~is ofeffective ~~operations.~~for annual and interim periods beginning after December 15,

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debit Issuance Costs Associated with Line-of-Credit Arrangements. This ASU clarified the guidance in ASC 2015-03 stating that the SEC staff would not object to a company presenting debt issuance costs related to a line-of-credit arrangement on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end. This update is effective for annual reporting periods beginning after December 15, 2015

~~and interim periods within those annual periods~~2018. ASU ~~The~~2016-02 ~~Company~~mandates ~~adopted these standards on~~ a modified retrospective ~~basis~~transition asmethod ofwith ~~April~~early 1,adoption ~~2016~~permitted. The Company ~~will~~is ~~continue~~currently toevaluating ~~defer~~the ~~and~~effect ~~present~~that ~~the~~ASU ~~debt~~2016-02 ~~issuance~~will ~~costs~~have ~~related~~on to its ~~Loan~~consolidated ~~Agreement~~financial ~~and~~statements ~~Facilities Agreement in Other assets~~ and ~~amortize~~related ~~them ratably over the term of the agreement~~disclosures.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which and entity must measure inventory at the lower of cost or market. The ASU will not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. The Company has elected to early adopt, prospectively, this guidance effective April 1, 2016. The adoption of this guidance did not have a material impact on the Company’s consolidated financial condition or results of operations.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern for a one-year period subsequent to the date of the financial statements. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for all entities for the first annual period ending after December 15, 2016 and interim periods thereafter, with early adoption permitted. As the requirements of this literature are disclosure only, adoption of this guidance is not expected to impact the Company’s financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB agreed to defer by one year the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with early adoption as of the original effective date permitted. The Company is currently evaluating the impact of adopting ASU 2014-09.

(2) Fair Value Measurements

The carrying values of the Company’s financial instruments, including cash, restricted cash, accounts receivable, other receivables, accounts payable, accrued liabilities and income taxes receivable/payable approximate their fair values due to the short maturity of these instruments. The carrying value of the bank loans and notes payable approximates their fair value as the interest rate and other terms are that which is currently available to the Company.

For a description of the fair value hierarchy, see Note 2 to the Company’s 2016 consolidated financial statements contained in the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2016.

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

				Basis of Fair Value Measurements
	Balance as of June 30, 2016			Level 1		Level 2		Level 3
	Balance as of September 30, 2016			Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities (Note 5)	$	(~~346~~297	)	$	—	$	—	$	(~~346~~297	)
				Basis of Fair Value Measurements
	Balance as of March 31, 2016			Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities (Note 5)	$	(300	)	$	—	$	—	$	(300	)

				Basis of Fair Value Measurements
	Balance as of March 31, 2016			Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities (Note 5)	$	(300	)	$	—	$	—	$	(300	)

The following table provides a roll forward of the Company’s level three fair value measurements during the three months ended June 30, 2016, which consist of the Company’s warrant liabilities (in thousands):

Warrant liabilities:
Balance at March 31, 2016	$	(300	)
Change in fair value of warrant liabilities		(46	)
Balance at June 30, 2016	$	(346	)

The following table provides a roll forward of the Company’s level three fair value measurements during the six months ended September 30, 2016, which consist of the Company’s warrant liabilities (in thousands):

Warrant liabilities:
Balance at March 31, 2016	$	(300	)
Change in fair value of warrant liabilities		3
Balance at September 30, 2016	$	(297	)

(3) Inventories

Inventories consist of the following (in thousands):

	June 30, 2016		March 31, 2016
	September 30, 2016		March 31, 2016
Raw materials	$	~~814~~807	$	1,119
Finished goods		1812,~~772~~722		21,886
	$	19,586	$	23,005
Inventory sold under extended payment terms		3,631		—
	$	17,160	$	23,005

~~The~~Although the Company ~~recorded~~has asold ~~$4.0~~all ~~million~~of ~~inventory write-down to reduce~~ the remaining inventory of products designed for the Rock ~~Bank~~Band 4 video game, toa ~~its~~portion ~~estimated~~of ~~market~~the ~~value~~inventory ofwas ~~$8.3~~sold ~~million~~to asa ofcustomer ~~March~~under ~~31,~~extended ~~2016.~~payment ~~Additionally,~~terms ~~during~~that ~~the~~did ~~three~~not ~~months~~meet ~~ended~~the ~~June~~criteria ~~30,~~to ~~2016~~be ~~the~~recognized ~~Company~~as ~~recorded~~revenue anin ~~additional~~the ~~$320,000~~current ~~inventory~~period ~~write-down~~under toGAAP ~~reduce~~revenue ~~the~~recognition ~~remaining~~guidance. ~~inventory~~Therefore, $3.6 million of products designed for the Rock Band 4 video game tois ~~its~~included ~~estimated~~in ~~market~~inventory ~~value of $7.1 million~~ as of ~~June~~September 30, 2016.

4) Restricted Cash

Cash accounts that are restricted as to withdrawal or usage are presented as restricted cash. As of ~~June~~September 30, 2016, the Company had $~~135~~180,000 of restricted cash held by a bank in deposit accounts. This amount represents payments from customers into restricted bank accounts on ~~June~~September 30, 2016 that were subsequently automatically swept to repay borrowings under our bank loans.

(5) Securities Purchase Agreements

2015 Securities Purchase Agreement

On March 24, 2015, the Company entered into a Securities Purchase Agreement (the “2015 Securities Purchase Agreement”) with certain accredited investors, pursuant to which the Company sold (a) an aggregate of 8,980,773 shares of its common stock (the “2015 Shares”) and (b) warrants to purchase an aggregate of 4,490,387 shares of common stock of the Company (“2015 Warrants” and, together with the 2015 Shares, the “2015 Securities”). The 2015 Securities were issued at a price equal to $0.41 for aggregate gross proceeds of approximately $3,682,000. The 2015 Warrants ~~become~~became exercisable on September 24, 2015 at a per share exercise price equal to $0.61 and expire on September 24, 2020. The 2015 Warrants are subject to limitation on exercise if the Holder or its affiliates would beneficially own more than 9.99%/4.99% of the total number of the Company’s shares of common stock following such exercise. The 2015 Warrants also provide that in the event of a Company Controlled Fundamental Transaction (as defined in the 2015 Warrants), the Company may, at the election of the 2015 Warrant holder, be required to redeem all or a portion of the 2015 Warrants for cash in an amount equal to the Black-Scholes option pricing model value. As a result of this cash settlement provision, the 2015 Warrants are classified as liabilities and carried at fair value, with changes in fair value included in net income (loss) until such time as the 2015 Warrants are exercised or expire. The fair value of the 2015 Warrants ~~increased~~decreased from $300,000 as of March 31, 2016 to $~~346~~297,000 as of ~~June~~September 30, 2016, which resulted in a $463,000 ~~loss~~gain from the change in fair value of warrant liabilities for the ~~three~~six months ended ~~June~~September 30, 2016. The 2015 Warrants are not traded in an active securities market, and as such, the Company estimates the fair value of the of the warrant liability using the Black-Scholes option pricing model using the following assumptions:

	June 30, 2016			March 31, 2016
	September 30, 2016			March 31, 2016
Expected term	4.250 years			4.5 years
Common stock market price	$	0.2422		$	0.21
Risk-free interest rate		01.9001	%		1.13	%
Expected volatility		7072	%		71	%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the expected term of the 2015 Warrants. The Company believes this method produces an estimate that is representative of the Company’s expectations of future volatility over the expected term of the 2015 Warrants. The Company currently has no reason to believe future volatility over the expected remaining life of the 2015 Warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the 2015 Warrants. The risk-free interest rate is the interest rate for treasury constant maturity instruments published by the Federal Reserve Board that is closest to the expected term of the 2015 Warrants.

Fluctuations in the fair value of the 2015 Warrants are impacted by unobservable inputs, most significantly the Company’s common stock market price. Significant increases (decreases) in this input in isolation would result in a significantly higher (lower) fair value measurement.

2011 Securities Purchase Agreement

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

The Company accounts for the 2011 Warrants with exercise price reset features as liabilities carried at fair value, with changes in fair value included in net income (loss) until such time as the 2011 Warrants are exercised or expire. As a result of the March 2015 offering, described above, and pursuant to the terms of the 2011 Warrants, the exercise price of the 2011 Warrants was adjusted to $2.30 per share.

The fair value of the 2011 Warrants remained consistent at $0 as of March 31, 2016 and ~~June~~September 30, 2016, which resulted in no gain or loss from the change in fair value of warrant liabilities for the ~~three~~six months ended ~~June~~September 30, 2016.

The 2011 Warrants are not traded in an active securities market, and as such, the Company estimated the fair value of the 2011 Warrants using the Black-Scholes option pricing model using the following assumptions:

	June 30, 2016			March 31, 2016
	September 30, 2016			March 31, 2016
Expected term	0.2508 years			0.5 years
Common stock market price	$	0.2422		$	0.21
Risk-free interest rate		0.2620	%		0.39	%
Expected volatility		75104	%		89	%

Expected volatility is based primarily on historical volatility. Historical volatility is computed using daily pricing observations for recent periods that correspond to the expected term of the 2011 Warrants. The Company believes this method produces an estimate that is representative of the Company’s expectations of future volatility over the expected term of these 2011 Warrants. The Company currently has no reason to believe future volatility over the expected remaining life of these 2011 Warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the 2011 Warrants. The risk-free interest rate is the interest rate for treasury constant maturity instruments published by the Federal Reserve Board that is closest to the expected term of the 2011 Warrants.

Fluctuations in the fair value of the 2011 Warrants are impacted by unobservable inputs, most significantly the assumption with regards to future equity issuances and their impact to the down-round protection feature. Significant increases in this input in isolation would result in a significantly higher fair value measurement.

(6) Restructuring and Severance Charges

During the fourth quarter of fiscal 2016, management initiated a restructuring plan in order to lower operating costs, increase efficiencies and better align the Company’s workforce with the needs of the business. In connection with the restructuring plan, the Company incurred total restructuring and related charges of approximately $2,990,000 in fiscal 2016, primarily related to severance and benefits afforded to terminated employees and officers.

The following table summarizes the restructuring and severance costs for the ~~three~~six months ended ~~June~~September 30, 2016 (in thousands):

	Employee-Related			Other			Total
Restructuring Liability as of March 31, 2016	$	1,745		$	162		$	1,907
Costs incurred		4164			39			80103
Amounts paid		(~~650~~1,099	)		(85102	)		(~~735~~1,201	)
Accruals released		(94	)		(1112	)		(~~105~~106	)
Foreign exchange		34			1			45
Restructuring Liability as of June 30, 2016	$	1,045		$	106		$	1,151
Restructuring Liability as of September 30, 2016	$	620		$	88		$	708

Employee-related costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements.

Other costs consist primarily of costs to exit auto leases and other costs directly related to employee terminations in certain European locations.

(7) ~~Basic~~Sale ~~and~~of ~~Diluted~~Saitek ~~Net~~Assets ~~Loss per Share~~

~~Basic~~On ~~net~~September ~~loss~~15, ~~per~~2016, ~~share~~the isCompany ~~calculated~~completed bythe ~~dividing~~sale of the ~~net~~Saitek ~~loss~~assets to Logitech. Logitech acquired all of the specific trademarks, equipment and tooling, inventory, technical data and records, and other related documents necessary for the ~~period~~designing, manufacturing, marketing and distributing of interactive flight, space, and farm simulation controllers previously marketed and sold by the ~~weighted~~Company ~~average~~primarily ~~number~~under ofthe ~~common~~“Saitek” ~~shares~~brand. ~~outstanding~~Additionally, ~~during~~at their option, eight Mad Catz research and development employees resigned from the ~~period~~Company and accepted employment offers with Logitech. ~~Diluted~~The Company received $11.0 million in cash at closing and $2.0 million was deposited in escrow with Bank of America, National Association, to fund any post-closing adjustments or claims. The Company recognized a net ~~loss~~gain ~~per~~of ~~share~~$8.2 ~~includes~~million on the ~~impact~~sale of ~~potentially~~the ~~dilutive~~Saitek ~~securities~~assets, ~~unless~~which ~~inclusion~~is reflected in “Net gain on sale of ~~such~~Saitek ~~securities~~assets” ~~would~~in beits ~~anti-dilutive~~unaudited consolidated statements of operations for the three and six months ended September 30, 2016. Title to all assets acquired by Logitech transferred upon closing. The net gain recognized does not include the two $1.0 million deposits made into the tooling and general escrow accounts by Logitech. The $1.0 million deposited in the tooling escrow account is eligible to be released on April 30, 2017 pending the completion of specific contractual deliverables, including transfer, setup, and testing of

Outstanding options to purchase an aggregate of 5,612,247 and 7,921,173 shares of the Company’s common stock for the three months ended June 30, 2016 and 2015, respectively, and outstanding warrants to purchase an aggregate of 7,031,305 shares of the Company’s common stock for each of the three months ended June 30, 2016 and 2015, were excluded from the diluted net loss per share calculations because of their anti-dilutive effect during these periods.

(8) Geographic and Product Line Data and Concentrations

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

	Three Months Ended June 30,
	2016		2015
Americas	$	5,326	$	4,974
Europe, the Middle East and Africa ("EMEA")		3,985		5,643
Asia Pacific ("APAC")		1,477		2,357
	$	10,788	$	12,974

Revenue is attributed to geographic regions based on the location of the customer. During the three months ended June 30, 2016 one customer accounted for 22% and one other customer accounted for 12% of the Company’s gross sales. During the three months ended June 30, 2015 one customer accounted for 17% and one other customer accounted for 12% of the Company’s gross sales. At June 30, 2016, one customers represented 19% of accounts receivable and another customer represented 13% of accounts receivable. At March 31, 2016, one customer represented 26% of accounts receivable and another customer represented 12% of accounts receivable. During the three months ended 2016 and 2015, no other customers accounted for greater than 10% of gross sales. At June 30, 2016 and March 31, 2016, no other customers accounted for greater than 10% of accounts receivable.

The Company’s sales by platform as a percentage of gross sales were as follows:

	Three Months Ended June 30,
	2016			2015
Consoles (a)		60	%		45	%
PC and Mac		36	%		45	%
Smart devices		4	%		10	%
		100	%		100	%

~~(a)~~tooling. ~~Includes~~Any ~~products~~amounts ~~developed~~recognized ~~for~~from ~~Xbox~~this ~~One,~~escrow ~~PlayStation~~account 4,will ~~Xbox~~be ~~360~~decreased by any Logitech claims and ~~PlayStation~~external 3costs incurred to complete the tooling transfers. The Company believes that the fair value of the remaining obligation is less than the $1.0 million in escrow and is deferring the full amount as it is contingent upon completion of the specified deliverables in accordance with the transaction documents. The $1.0 million deposited in the general escrow account is eligible to be released on September 15, 2017. Any amounts from this account may be decreased by claims made by Logitech. The Company is not currently aware of any outstanding claims against the general escrow account.

~~The~~Pursuant to the terms of the purchase agreement for the transaction, the Company’s ~~sales~~and byLogitech ~~product~~also ~~category~~entered into several ancillary agreements as part of the transaction, including an Escrow Agreement governing the terms of the $2.0 million in escrow and a ~~percentage~~Transition Services Agreement governing the delivery of ~~gross~~certain ~~sales~~services ~~were~~and asdeliverables ~~follows:~~by the Company after completion of the transaction.

	Three Months Ended June 30,
	2016			2015
Specialty controllers		44	%		32	%
Audio		35	%		38	%
Mice and keyboards		17	%		17	%
Controllers		3	%		8	%
Accessories		1	%		4	%
Games and other		—	%		1	%
		100	%		100	%

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

~~The~~Basic ~~Company’s~~net ~~sales~~income (loss) per share is calculated by ~~brand~~dividing asthe anet ~~percentage~~income (loss) for the period by the weighted average number of ~~gross~~common ~~sales~~shares ~~were~~outstanding asduring ~~follows:~~the period. Diluted net income (loss) per share includes the impact of potentially dilutive securities unless inclusion of such securities would be anti-dilutive.

	Three Months Ended June 30,
	2016			2015
Mad Catz		50	%		34	%
Tritton		32	%		34	%
Saitek		17	%		24	%
All others		1	%		8	%
		100	%		100	%

Outstanding options to purchase an aggregate of 4,752,069 and 5,179,807 shares of the Company’s common stock for the three and six months ended September 30, 2016, respectively, and 7,939,958 and 7,930,617 shares of the Company’s common stock for the three and six months ended September 30, 2015, respectively, were excluded from the diluted net income (loss) per share calculations because of their anti-dilutive effect during these periods. Outstanding warrants to purchase an aggregate of 7,031,305 shares of the Company’s common stock for each of the three and six months ended September 30, 2016 and 2015, were excluded from the diluted net income (loss) per share calculations because of their anti-dilutive effect during these periods.

(9) Geographic and Product Line Data and Concentrations

Revenue is attributed to geographic regions based on the location of the customer. The Company’s net sales are attributed to the following geographic regions (in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,
	2016		2015		2016		2015
Americas	$	9,934	$	27,027	$	15,260	$	32,002
Europe, the Middle East and Africa ("EMEA")		3,678		9,656		7,663		15,298
Asia Pacific ("APAC")		1,255		2,235		2,732		4,592
	$	14,867	$	38,918	$	25,655	$	51,892

The Company’s sales by customer as a percentage of gross sales for all customers that accounted for greater than 10% of gross sales is as follows:

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Customer 1		24	%		9	%		16	%		7	%
Customer 2		12	%		15	%		17	%		16	%
Customer 3		12	%		—	%		7	%		—	%
Customer 4		11	%		23	%		12	%		20	%

The Company’s accounts receivable as a percentage of total accounts receivable for all customers that accounted for greater than 10% of accounts receivable is as follows:

	September 30, 2016			March 31, 2016
Customer 1		23	%		3	%
Customer 2		22	%		—	%
Customer 3		12	%		26	%
Customer 4		7	%		12	%

During the three and six months ended September 30, 2016 and 2015, no other customers accounted for greater than 10% of gross sales. At September 30, 2016 and March 31, 2016, no other customers accounted for greater than 10% of accounts receivable.

The Company’s sales by platform as a percentage of gross sales were as follows (a):

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Consoles		44	%		18	%		44	%		24	%
Rock Band 4		30	%		62	%		24	%		46	%
Saitek		14	%		9	%		16	%		14	%
PC and Mac		10	%		8	%		13	%		11	%
Smart devices		2	%		3	%		3	%		5	%
		100	%		100	%		100	%		100	%

The Company’s sales by product category as a percentage of gross sales were as follows (a):

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Audio		40	%		17	%		38	%		22	%
Rock Band 4		30	%		62	%		24	%		46	%
Saitek		14	%		9	%		16	%		13	%
Mice and keyboards		9	%		7	%		12	%		10	%
Specialty controllers		5	%		2	%		7	%		3	%
Controllers		1	%		1	%		2	%		3	%
Accessories		1	%		1	%		1	%		2	%
Games and other		—	%		1	%		—	%		1	%
		100	%		100	%		100	%		100	%

The Company’s sales by brand as a percentage of gross sales were as follows (a):

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Tritton		39	%		15	%		36	%		20	%
Rock Band 4		30	%		62	%		24	%		46	%
Mad Catz		17	%		13	%		24	%		18	%
Saitek		14	%		9	%		16	%		13	%
All others		—	%		1	%		—	%		3	%
		100	%		100	%		100	%		100	%

(a)

Sales of products related to the Rock Band 4 video game and simulation products sold as part of the sale of Saitek assets are listed separately in each of the tables to provide comparable information for our ongoing product lines.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references in this section to the “Company”, “we”, “us” or “our” refer, collectively, to Mad Catz Interactive, Inc. and all of its subsidiaries, and all references in this section to “Mad Catz” refer to Mad Catz Interactive, Inc.

This section contains forward-looking statements and forward looking information (collectively “forward-looking statements”) as defined in applicable securities legislation involving risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including those set out under “Forward-looking Statements” herein and in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016 and in Part II Other Information — Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

OVERVIEW

Our Business

We design, manufacture (primarily through third parties in Asia), market and distribute innovative interactive entertainment products marketed under our Mad Catz® (gaming), and Tritton® (audio), ~~and Saitek® (simulation)~~ brands. Our products, which primarily include headsets, mice, keyboards, controllers, specialty controllers, and other accessories, cater to gamers ~~and simulation enthusiasts~~ across multiple platforms including in-home gaming consoles, handheld gaming consoles, PC and Mac computers, smart phones, tablets and other smart devices. We distribute our products through many leading retailers around the globe. Mad Catz is incorporated in Canada and is operationally headquartered in San Diego, California. We also maintain offices in Europe and Asia.

Seasonality and Fluctuation of Sales

We generate a substantial percentage of our net sales in the last three months of every calendar year, our fiscal third quarter. Our quarterly results of operations can be expected to fluctuate significantly in the future, as a result of many factors, including: seasonal influences on our sales; unpredictable consumer preferences and spending trends; the introduction of new videogame platforms or titles; the need to increase inventories in advance of our primary selling season; and timing of introductions of new products.

Foreign Currency

During the ~~first~~second quarter of fiscal 2017, approximately 5133% of total net sales were transacted outside of the Americas. The majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause foreign currency exchange gains and losses, which we have experienced in the past and continue to experience. Due to the volatility of foreign currency exchange rates, among other factors, we cannot predict the effect of foreign currency exchange rate fluctuations upon future operating results. There can be no assurances that we will not experience foreign currency exchange losses in the future. To date, we have not hedged against foreign currency exposure and we cannot predict the effect foreign currency fluctuations will have on us in the future.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies and estimates remain consistent with those reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

RESULTS OF OPERATIONS

Net Sales

For the three and six months ended ~~June~~September 30, 2016, net sales decreased 1762% and 51%, respectively, as compared to the three and six months ended ~~June~~September 30, 2015. We experienced decreases in net sales in ~~EMEA~~all ~~and~~regions ~~APAC,~~driven ~~partially~~primarily ~~offset~~ by andecreased ~~increase~~sales inof ~~net~~products ~~sales~~related into the ~~Americas.~~Rock ~~The~~Band ~~decrease~~4 video game, which launched in ~~net~~September ~~sales~~2015. ~~was~~Additionally, ~~driven~~during ~~primarily~~the bythree and six months ended September 30, 2016, we experienced increases in permanent and temporary price concessions due to promotional pricing programs with retailers to drive sell-through of products related to the Rock Band 4 video game. These decreases were partially offset by an increase in sales of products designed for consoles, particularly audio ~~and fight sticks~~. We have started launching a new line of audio products designed for consoles for this ~~calendar~~holiday ~~year~~season, which we believe will continue to drive growth in audio sales. Declines in sales of our products designed for the PC and Mac, which represented 3610% and 4513% of our sales during the three and six months ended ~~June~~September 30, 2016 ~~and 2015~~, respectively, ~~are~~compared ~~due primarily~~ to an8% ~~increase~~and in11% ~~aggressive~~during ~~pricing~~the ~~competition~~same periods in ~~mice~~prior ~~and keyboards~~year, ~~particularly~~are indue ~~EMEA,~~primarily ~~and~~to an ~~aging product line. We have started launching a refresh or our gaming mice, which we believe will drive growth in this category. We~~

also experienced a decrease in sales of products developed for smart devices, which represented 4% and 10% of our sales during the three months ended June 30, 2016 and 2015, respectively, driven primarily by controllers sold in APAC under a private label program in the prior year that did not recur in fiscal 2017 first quarter.

From a geographical perspective, our net sales for the three months ended June 30, 2016 and 2015 were as follows (in thousands):

	Three Months Ended June 30,
	2016					2015
	Net Sales		% of Total			Net Sales		% of Total			$ Change			% Change
Americas	$	5,326		49	%	$	4,974		38	%	$	352			7	%
EMEA		3,985		37	%		5,643		44	%		(1,658	)		(29	)%
APAC		1,477		14	%		2,357		18	%		(880	)		(37	)%
	$	10,788		100	%	$	12,974		100	%	$	(2,186	)		(17	)%

Our sales by platform as a percentage of gross sales were as follows:

	Three Months Ended June 30,
	2016			2015
Consoles (a)		60	%		45	%
PC and Mac		36	%		45	%
Smart devices		4	%		10	%
		100	%		100	%

(a) Includes products developed for Xbox One, PlayStation 4, Xbox 360 and PlayStation 3.

Our sales by product category as a percentage of gross sales were as follows:

	Three Months Ended June 30,
	2016			2015
Specialty controllers		44	%		32	%
Audio		35	%		38	%
Mice and keyboards		17	%		17	%
Controllers		3	%		8	%
Accessories		1	%		4	%
Games and other		—	%		1	%
		100	%		100	%

Our sales by brand as a percentage of gross sales were as follows:

	Three Months Ended June 30,
	2016			2015
Mad Catz		50	%		34	%
Tritton		32	%		34	%
Saitek		17	%		24	%
Other		1	%		8	%
		100	%		100	%

Gross (Loss) profit

Gross (loss) profit is defined as net sales less cost of sales. Cost of sales consists of product costs, cost of licenses and royalties, write-downs of inventory, cost of freight-in and freight-out and distribution center costs, including depreciation and other overhead costs.

~~The~~increase ~~following~~in ~~table~~aggressive ~~presents~~pricing ~~net~~competition ~~sales~~in mice and keyboards, ~~cost~~particularly in EMEA, and an aging product line. We have started launching a refresh of our gaming mice, which we believe will drive growth in this category. We also experienced a decrease in sales of products developed for smart devices, which represented 2% and ~~gross~~3% ~~(loss)~~of ~~profit~~our ~~for~~sales during the three and six months ended ~~June~~ September 30, 2016, respectively, down from 3% and ~~2015~~5% (during the same periods in ~~thousands):~~prior year, driven primarily by controllers sold in APAC under a private label program in the prior year that did not recur in the current year.

	Three Months Ended June 30,
	2016						2015
	Amount			% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Net sales	$	10,788			100	%	$	12,974		100	%	$	(2,186	)		(17	)%
Cost of sales		10,892			101	%		10,096		78	%		796			8	%
Gross (Loss) profit	$	(104	)		(1	)%	$	2,878		22	%	$	(2,982	)		(104	)%

From a geographical perspective, our net sales for the three and six months ended September 30, 2016 and 2015 were as follows (in thousands):

Gross profit for the three months ended June 30, 2016 decreased 104% due to the decrease in net sales, while gross profit margin decreased to (1)%. The decrease in gross profit and gross margin over the prior year period was due primarily to an increase in permanent price concessions, which are recorded as a reduction in net sales, royalties and licenses and write-downs of inventory and other assets. The increase in permanent price concessions was due to additional promotional pricing programs with retailers, primarily in EMEA, to drive sell-through of products related to the Rock Band 4 video game. The increase in royalties and licenses was due to sales of Rock Band 4 products and Street Fighter V fight sticks during the quarter. The write downs of inventory and other assets was due to reduction in the net realizable value adjustments of certain assets related to Rock Band 4 totaling $1.3 million. We expect gross margin for the full year fiscal 2017 to increase compared to fiscal 2016. Excluding sales of Rock Band 4 products, we expect gross margin to be between 27% and 30% in fiscal 2017.

	Three Months Ended September 30,
	2016					2015
	Net Sales		% of Total			Net Sales		% of Total			$ Change			% Change
Americas	$	9,934		67	%	$	27,027		69	%	$	(17,093	)		(63	)%
EMEA		3,678		25	%		9,656		25	%		(5,978	)		(62	)%
APAC		1,255		8	%		2,235		6	%		(980	)		(44	)%
	$	14,867		100	%	$	38,918		100	%	$	(24,051	)		(62	)%

	Six Months Ended September 30,
	2016					2015
	Net Sales		% of Total			Net Sales		% of Total			$ Change			% Change
Americas	$	15,260		59	%	$	32,002		62	%	$	(16,742	)		(52	)%
EMEA		7,663		30	%		15,298		29	%		(7,635	)		(50	)%
APAC		2,732		11	%		4,592		9	%		(1,860	)		(41	)%
	$	25,655		100	%	$	51,892		100	%	$	(26,237	)		(51	)%

~~Operating~~Our ~~Expenses~~sales by platform as a percentage of gross sales were as follows (a):

Operating expenses for the three months ended June 30, 2016 and 2015 were as follows (in thousands):

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Consoles		44	%		18	%		44	%		24	%
Rock Band 4		30	%		62	%		24	%		46	%
Saitek		14	%		9	%		16	%		14	%
PC and Mac		10	%		8	%		13	%		11	%
Smart devices		2	%		3	%		3	%		5	%
		100	%		100	%		100	%		100	%

	Three Months Ended June 30,
	2016						2015
	Amount			% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Sales and marketing	$	1,391			13	%	$	2,716		21	%	$	(1,325	)		(49	)%
General and administrative		2,468			23	%		2,894		22	%		(426	)		(15	)%
Research and development		657			6	%		921		7	%		(264	)		(29	)%
Restructuring and severance costs		(25	)		—	%		—		—	%		(25	)		(100	)%
Amortization of intangibles		113			1	%		109		1	%		4			4	%
	$	4,604			43	%	$	6,640		51	%	$	(2,036	)		(31	)%

Our sales by product category as a percentage of gross sales were as follows (a):

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of payroll, commissions and travel costs for our worldwide sales and marketing staff, advertising expense and costs of operating our websites. The decrease in sales and marketing expense was primarily due to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016. We expect sales and marketing expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease compared to fiscal 2016 levels.

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Audio		40	%		17	%		38	%		22	%
Rock Band 4		30	%		62	%		24	%		46	%
Saitek		14	%		9	%		16	%		13	%
Mice and keyboards		9	%		7	%		12	%		10	%
Specialty controllers		5	%		2	%		7	%		3	%
Controllers		1	%		1	%		2	%		3	%
Accessories		1	%		1	%		1	%		2	%
Games and other		—	%		1	%		—	%		1	%
		100	%		100	%		100	%		100	%

General and Administrative Expenses. General and administrative expenses include salaries and benefits for our executive and administrative personnel, facilities costs and professional services, such as legal and accounting. The decrease in general and administrative expenses was primarily related to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016. We expect general and administrative expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease from fiscal 2016 levels.

Research and Development Expenses. Research and development expenses include the costs of developing and enhancing new and existing products. The decrease in research and development expenses was primarily related to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016. We expect research and development expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease compared to fiscal 2016 levels.

Restructuring and Severance Costs. In fiscal 2017, we released $105,000 in restructuring and severance costs recognized in the year ended March 31, 2016, resulting from lower employer paid taxes on severance payments. These releases were partially offset by $80,000 of additional restructuring and severance costs incurred as a result of additional severance costs for impacted employees and terminating a warehouse agreement.

~~Amortization~~Our ofsales ~~Intangibles~~by ~~Expenses.~~brand ~~Amortization~~as ofa ~~intangibles~~percentage ~~expenses consist~~ of ~~the~~gross ~~amortization~~sales ofwere ~~the~~as ~~acquired~~follows ~~intangible~~(a): ~~assets from prior acquisitions. We expect amortization of intangibles for the full year fiscal 2017, on an absolute dollar basis, to remain consistent with fiscal 2016 levels.~~

	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Tritton		39	%		15	%		36	%		20	%
Rock Band 4		30	%		62	%		24	%		46	%
Mad Catz		17	%		13	%		24	%		18	%
Saitek		14	%		9	%		16	%		13	%
All others		—	%		1	%		—	%		3	%
		100	%		100	%		100	%		100	%

(a)

Gross profit

Gross profit is defined as net sales less cost of sales. Cost of sales consists of product costs, cost of licenses and royalties, write-downs of inventory, cost of freight-in and freight-out and distribution center costs, including depreciation and other overhead costs.

The following table presents net sales, cost of sales and gross profit for the three and six months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,
	2016					2015
	Amount		% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Net sales	$	14,867		100	%	$	38,918		100	%	$	(24,051	)		(62	)%
Cost of sales		14,339		96	%		29,912		77	%		(15,573	)		(52	)%
Gross profit	$	528		4	%	$	9,006		23	%	$	(8,478	)		(94	)%

	Six Months Ended September 30,
	2016					2015
	Amount		% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Net sales	$	25,655		100	%	$	51,892		100	%	$	(26,237	)		(51	)%
Cost of sales		25,231		98	%		40,008		77	%		(14,777	)		(37	)%
Gross profit	$	424		2	%	$	11,884		23	%	$	(11,460	)		(96	)%

Gross profit for the three and six months ended September 30, 2016 decreased 94% and 96%, respectively, due to the decrease in net sales, as well as the decrease in gross profit margin to 4% and 2% in the three and six months ended September 30, 2016 compared to 23% in each of the three and six months ended September 30, 2015. The decrease in gross profit and gross margin over the prior year periods was due primarily to an increase in permanent and temporary price concessions, which are recorded as a reduction in net sales. The increase in permanent and temporary price concessions was due to additional promotional pricing programs with retailers, primarily in EMEA and the Americas, to drive sell-through of products related to the Rock Band 4 video game. Additionally, product mix and additional freight expense during the three months ended September 30, 2016 placed downward pressure on gross margin. We expect gross margin for the full year fiscal 2017 to decrease compared to fiscal 2016. We expect normalized gross margin for our ongoing Tritton and Mad Catz products to be between 20% and 24%, based on seasonality. The decrease over previous expectations is due to the loss of Saitek product sales, which historically generated higher gross margins than our other products, and a lower sales base to cover fixed distribution costs.

Operating Expenses

Operating expenses for the three and six months ended September 30, 2016 and 2015 were as follows (in thousands):

	Three Months Ended September 30,
	2016						2015
	Amount			% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Sales and marketing	$	1,457			10	%	$	4,457		12	%	$	(3,000	)		(67	)%
General and administrative		2,079			14	%		2,638		7	%		(559	)		(21	)%
Research and development		560			4	%		941		2	%		(381	)		(40	)%
Restructuring and severance costs		22			—	%		—		—	%		22			100	%
Amortization of intangibles		109			1	%		111		—	%		(2	)		(2	)%
Net gain on sale of Saitek assets		(8,177	)		(55	)%		—		—	%		(8,177	)		(100	)%
	$	(3,950	)		(26	)%	$	8,147		21	%	$	(12,097	)		(148	)%

	Six Months Ended September 30,
	2016						2015
	Amount			% of Net Sales			Amount		% of Net Sales			$ Change			% Change
Sales and marketing	$	2,848			11	%	$	7,173		14	%	$	(4,325	)		(60	)%
General and administrative		4,547			18	%		5,532		11	%		(985	)		(18	)%
Research and development		1,217			5	%		1,862		4	%		(645	)		(35	)%
Restructuring and severance costs		(3	)		—	%		—		—	%		(3	)		(100	)%
Amortization of intangibles		222			1	%		220		—	%		2			1	%
Net gain on sale of Saitek assets		(8,177	)		(32	)%		—		—	%		(8,177	)		(100	)%
	$	654			3	%	$	14,787		29	%	$	(14,133	)		(96	)%

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of payroll, commissions and travel costs for our worldwide sales and marketing staff, advertising expense and costs of operating our websites. The decrease in sales and marketing expense during the three and six months ended September 30, 2016 compared to prior year periods was primarily due to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016, as well as lower cooperative advertising expense related to Rock Band 4 products. We expect sales and marketing expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease compared to fiscal 2016 levels.

General and Administrative Expenses. General and administrative expenses include salaries and benefits for our executive and administrative personnel, facilities costs and professional services, such as legal and accounting. The decrease in general and administrative expenses during the three and six months ended September 30, 2016 compared to prior year periods was primarily related to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016. We expect general and administrative expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease from fiscal 2016 levels.

Research and Development Expenses. Research and development expenses include the costs of developing and enhancing new and existing products. The decrease in research and development expenses during the three and six months ended September 30, 2016 compared to prior year periods was primarily related to expense savings realized as a result of the restructuring activities implemented during the fourth quarter of fiscal 2016. We expect research and development expenses for the full year fiscal 2017, on an absolute dollar basis, to decrease compared to fiscal 2016 levels.

Restructuring and Severance Costs. In fiscal 2017, we released $106,000 in restructuring and severance costs recognized in the year ended March 31, 2016, resulting from lower employer paid taxes on severance payments. These releases were partially offset by $103,000 of additional restructuring and severance costs incurred as a result of additional severance costs for impacted employees and terminating a warehouse agreement.

Amortization of Intangibles Expenses. Amortization of intangibles expenses consist of the amortization of the acquired intangible assets from prior acquisitions. We expect amortization of intangibles for the full year fiscal 2017, on an absolute dollar basis, to decrease compared to fiscal 2016 levels, due to the sale of the Saitek assets in the second quarter of fiscal 2017.

Other Income (Expense)

Other income (expense) consists primarily of interest expense on our outstanding debt, foreign currency exchange gains or losses, change in fair value of the warrants issued in connection with the Securities Purchase Agreements entered into by the Company in 2011 and 2015, and other items that may be specific to a reporting period. The foreign currency exchange gains or losses are associated with fluctuations in the value of the functional currencies of our foreign subsidiaries, which include the Pound Sterling, the Euro, the Canadian dollar, the Hong Kong dollar, the Japanese yen, and the Chinese Yuan Renminbi (“CNY”), against the U.S. Dollar. Other income (expense) increased to $~~176~~60,000 and $236,000 for the three and six months ended ~~June~~September 30, 2016, respectively, from $(~~230~~1,379,000) and $(1,609,000) for the three and six months ended ~~June~~September 30, 2015, respectively. The change is primarily due to an increase in the change in fair value of warrant liabilities to a gain of $49,000 and $3,000 for the three and six months ended September 30, 2016, respectively, from a loss of $(871,000) and $(917,000) for the three and six months ended September 30, 2015, respectively. Additionally, the change is due to an increase in foreign exchange gain to $~~534~~286,000 and $820,000 for the three and six months ended ~~June~~September 30, 2016, respectively, from foreign exchange loss of $61(154,000) and $(93,000) in the same ~~period~~periods last year due primarily to changes in the exchange rates between the Pound Sterling and the U.S. Dollar. ~~This~~Additionally, ~~increase~~there ~~in other income~~ was ~~partially~~a ~~offset~~decrease ~~by an increase~~ in interest expense, net, to $(~~333~~277,000) and $(610,000) and for the three and six months ended ~~June~~September 30, 2016, respectively, from $(~~257~~364,000) and $(621,000) in the same ~~period~~periods last year due to ~~higher~~lower debt balances during the three and six months ended ~~June~~September 30, 2016 compared to the same ~~period~~periods last year.

Income Tax (Expense) ~~Benefit~~

The income tax expense of $~~(261~~458,000 and $1,091,000, reflect effective tax rates of 10% and (210)% for the three months ended September 30, 2016 and ~~income~~2015, respectively. Income tax ~~benefit~~expense of $27719,000 and $1,064,000, reflect effective tax rates of ~~(6)~~11,983% and 1(24)% for the ~~three~~six months ended ~~June~~September 30, 2016 and 2015, respectively. Our effective tax rate is a blended rate for the different jurisdictions in which we operate. Our effective tax rate fluctuates depending on the taxable income in each jurisdiction and the statutory income tax rates in those jurisdictions, in which we do business. The income tax expense in the three and six months ended ~~June~~September 30, 2016 is the result of income tax recorded on the profitability of entities for which we no longer have valuation allowances against their deferred tax assets but not off setting income tax benefit for losses generated in our Hong Kong entity due to full valuation allowances against its deferred tax assets. We will continue to evaluate our ability to realize our deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize our deferred tax assets. In addition, the income tax expense in the ~~three~~six months ended ~~June~~September 30, 2016 includes tax expense related to cancellations of stock options and the reversal of deferred tax assets related to the sale of the Saitek assets.

~~Mad~~We ~~Catz~~do ~~does~~ not record deferred income taxes on the approximate $2124.05 million of undistributed earnings of ~~its~~our non-Canadian subsidiaries based upon ~~the~~our ~~Company’s~~ intention to permanently reinvest undistributed earnings. ~~Mad~~We ~~Catz~~ may be subject to income and withholding taxes if earnings of the non-Canadian subsidiaries were distributed. Considering the tax loss carry forwards in Canada and the related valuation allowance, the deferred tax liability on ~~the~~our ~~Company’s~~ undistributed earnings would be no more than $01.71 million at ~~June~~September 30, 2016.

LIQUIDITY AND CAPITAL RESOURCES

The table below provides a summary of cash provided by (used in) operating, investing and financing activities during the ~~three~~six months ended ~~June~~September 30, 2016 and 2015 (in thousands):

	Three Months Ended June 30,
	Six Months Ended September 30,
	2016			2015			Change
Net cash provided by (used in) operating activities	$	3,823		$	(2,416	)	$	6,239
Net cash used in operating activities	$	(6,345	)	$	(7,701	)	$	1,356
Net cash used in investing activities		(198	)		(309	)		111
Net cash provided by (used in) investing activities		10,206			(1,270	)		11,476
Net cash used in financing activities		(4,340	)		(340	)		(4,000	)
Net cash (used in) provided by financing activities		(5,083	)		10,758			(15,841	)
Effect of foreign currency exchange rate changes on cash		(4438	)		6041			(~~104~~79	)
Net decrease in cash	$	(759	)	$	(3,005	)	$	2,246
Net (decrease) increase in cash	$	(1,260	)	$	1,828		$	(3,088	)

Our cash balance was $1.72 million and $2.4 million at ~~June~~September 30, 2016 and March 31, 2016, respectively. Additionally, our restricted cash balance was $~~135~~180,000 and $680,000 ~~million~~ at ~~June~~September 30, 2016 and March 31, 2016, respectively. Our primary sources of liquidity include borrowings under our Loan Agreement and Facilities Agreement (as discussed below under Financing Activities), cash on hand, ~~and~~ cash flows generated from operations and net proceeds from the sale of the Saitek assets. We may also supplement our cash flows from operations with proceeds from our at-the-market equity offering program (“ATM program”), although we have not done so to date. Due to the seasonality of our business (as discussed below under Operating Activities) cash provided by (used in) operating activities will fluctuate throughout our fiscal year.

1719

Equity Offerings

On November 4, 2015, the Company established an ATM program which allows us to sell from time to time up to an aggregate of $25.0 million of our common stock. During the twelve months ended March 31, 2016 and the ~~three~~six months ended ~~June~~September 30, 2016, we issued no shares of common stock under the program.

Operating Activities

Our cash flows from operating activities have typically included the collection of customer receivables generated by the sale of our products, offset by payments to vendors for materials and manufacture of our products. Net cash ~~provided~~used byin operating activities for the ~~three~~six months ended ~~June~~September 30, 2016 primarily reflects a decrease in accounts ~~receivable~~payable ~~of $5.4 million~~ and aaccrued ~~decrease~~liabilities ~~in inventory~~ of $37.2 6 million. ~~These~~and ~~increases were partially offset by~~ the net loss for the period before non-cash items (i.e. net gain on sale of Saitek assets, depreciation, amortization, stock-based compensation and provision for deferred income taxes). These decreases were partially offset by a decrease in accounts receivable of $3.2 million and a decrease in inventory of $3.9 million. Net cash used in operating activities for the ~~three~~six months ended ~~June~~September 30, 2015 primarily reflects the net loss for the period before non-cash items (i.e. depreciation, amortization, stock-based compensation and provision for deferred income taxes), a $19.8 million increase in accounts receivable resulting from the increase in net sales and an increase in inventory of $217.1 6 million as we started to build inventory, due to forecasted demand. These decreases in operating cash flow were offset partially by a $131.89 million ~~decrease~~increase in accounts ~~receivable~~payable ~~resulting primarily from the decrease in net sales~~ and aaccrued ~~combined~~liabilities ~~increase~~related into ~~accrued~~inventory ~~liabilities~~purchases, ~~accounts~~accrued ~~payable~~royalties and ~~income taxes receivable/payable of $1.1 million due primarily to~~ timing of payments. We are focused on effectively managing our overall liquidity position by continuously monitoring expenses and inventory levels and managing our accounts receivable collection efforts.

Due to the seasonality of our business, we typically experience a large build-up in inventories beginning during our second fiscal quarter ending September 30, with corresponding increases in accounts payable and our bank loan balance. These increases are in anticipation of the holiday selling season, which occurs during our third fiscal quarter ending December 31. However, due to the sale of products related to the Rock Band 4 video game and supply constraints, inventory decreased during our second fiscal quarter ended September 31, 2016. Additionally, accounts payable also decreased during this second fiscal quarter due to utilizing net proceeds from the sale of Saitek assets to reduce outstanding overdue balances with our vendors. A large percentage of our annual sales are generated during our third fiscal quarter and, typically, our inventories decrease and accounts receivable increase as a result of the annual holiday selling. However, due to sales of products related to the Rock Band 4 video game being less than originally forecasted during the holiday selling season, inventory levels increased during the third fiscal quarter ending December 31, 2015. During our fourth fiscal quarter ending March 31, the sales cycle completes with decreases in accounts receivable, inventory, accounts payable and bank loan and net increase in cash. We forecast the expected demand for the holiday selling season months in advance to ensure adequate quantities of inventory. Our sales personnel forecast holiday sales based on information received from our major customers as to expected product purchases for the holiday season, and we also utilize mathematical modeling techniques to forecast demand based on recent point-of-sale activity. If demand does not meet expectations, the result will be excess inventories, and/or reduced sales and the overall effect could result in a reduction to cash flows from operating activities following payment of accounts payable.

Investing Activities

Net cash ~~used~~provided inby investing activities for the six months ended September 30, ~~which~~2016 ~~consisted~~of $10.2 million includes net proceeds from the sale of the Saitek assets of $10.6 million partially offset by capital expenditures to support our operations and were made up primarily of production molds, and to a lesser extent, computers and machinery and equipment,. ~~was~~Net ~~$198,000~~cash ~~and~~used ~~$309,000~~in ~~during~~investing activities for the ~~three~~six months ended ~~June~~ September 30, ~~2016~~2015 of $1.3 million mostly consisted of capital expenditures to support our operations and ~~June 30~~were made up primarily of production molds, ~~2015~~and to a lesser extent, ~~respectively.~~computers and machinery and equipment.

Financing Activities

Net cash used in financing activities during the ~~three~~six months ended ~~June~~September 30, 2016 of $45.31 million was primarily the result of net repayments under our Loan Agreement and Facilities Agreement. Net cash ~~used~~provided inby financing activities during the ~~three~~six months ended ~~June~~September 30, 2015 of $~~340,000~~10.8 million was the result of net borrowings under our line of credit offset partially by repayments on a note payable. The changes in restricted cash of $~~545~~500,000 represent the change in the payments from customers into a restricted bank account from March 31, 2016 to ~~June~~September 30, 2016 that were automatically swept to repay borrowings under our bank loans.

MCI maintains a Loan and Security Agreement (the “Loan Agreement”) with Sterling National Bank (“SNB”) to provide for a $20.0 million revolving line of credit subject to the availability of eligible accounts receivable and inventories, which changes throughout the year. The Loan Agreement expires on June 30, 2018. Pursuant to the Loan Agreement, SNB will advance MCI up to 85% of the value of eligible accounts receivables, depending on dilution rates. Also, MCI may borrow against eligible inventory, subject to an inventory sublimit amount and certain other conditions. The inventory sublimit amount will be the lesser of 85% of net orderly liquidation value of eligible inventory, 60% of the lower of cost or net realizable value of eligible inventory, or 2.3333 times (which can be modified from time to time with approval from SNB) eligible accounts receivable under the Loan Agreement. Borrowings under the Loan Agreement accrue interest on the daily outstanding balance at 4.5% plus 30-day LIBOR rate per annum, with a LIBOR floor of 1.0%. MCI is also required to pay a commitment fee equal to 1.0% of the facility upon entry into the Loan Agreement, an unused line fee equal to 0.25% per annum of the unused portion of the facility and a collateral monitoring fee of $1,500 per month. We are required to meet a monthly financial covenant based on a trailing twelve months’ Adjusted EBITDA, as defined.

1820

(which can be modified from time to time with approval from SNB) eligible accounts receivable under the Loan Agreement. Borrowings under the Loan Agreement accrue interest on the daily outstanding balance at 4.5% plus 30-day LIBOR rate per annum, with a LIBOR floor of 1.0%. MCI is also required to pay a commitment fee equal to 1.0% of the facility upon entry into the Loan Agreement, an unused line fee equal to 0.25% per annum of the unused portion of the facility and a collateral monitoring fee of $1,500 per month. We are required to meet a monthly financial covenant based on a trailing twelve months’ Adjusted EBITDA, as defined. Our trailing twelve months’ Adjusted EBITDA as of August 31, 2016 was lower than the required threshold and, accordingly, we were not in compliance with this covenant as of August 31, 2016. On October 31, 2016, we received a waiver of the covenant default from SNB. As of ~~June~~September 30, 2016, we were in compliance with the covenants. For periods subsequent to ~~June~~September 30, 2016, we believe we will be able to meet the covenants. However, there can be no assurance that we will be able to meet the covenants subsequent to ~~June~~September 30, 2016 or that we would be able to obtain waivers from SNB to the extent we are not in compliance with the covenants. Additionally, MCE maintains a Master Facilities Agreement (the “Facilities Agreement”) with Faunus Group International, Inc. (“FGI”) to provide for a $10.0 million secured demand credit facility subject to the availability of eligible accounts receivable and inventories, which changes throughout the year. The Facilities Agreement has a three-year term, although FGI may terminate the facility at any time upon at least three months’ notice. Pursuant to the Facilities Agreement, FGI will advance MCE up to 85% of the value of eligible accounts receivable, depending on dilution rates. Also, MCE may borrow against eligible inventory, subject to an inventory sublimit amount and certain other conditions.

We believe that our available cash balances, anticipated cash flows from operations, availability under our ATM program and available credit facilities will be sufficient to satisfy our operating needs for at least the next twelve months, and in the longer term. We depend upon the availability of capital under our Loan Agreement and Facilities Agreement to finance our operations. Compliance with the fiscal 2017 Adjusted EBITDA covenants contained in the Loan Agreement are closely tied to our fiscal 2017 financial plan. We also operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future sales and expenses. If we are unable to comply with the Adjusted EBITDA covenants contained in the Loan Agreement, as amended from time to time, SNB could declare the outstanding borrowings under the facility immediately due and payable. If we need to obtain additional funds as a result of the termination of the Loan Agreement or Facilities Agreement or the acceleration of amounts due thereunder, there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all. Our failure to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that no alternative financing is available, we would be forced to drastically curtail operations, or dispose of assets, or cease operations altogether.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes to our contractual obligations from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.

As of ~~June~~September 30, 2016 and March 31, 2016, we did not have any relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

1921

ADJUSTED EBITDA (Loss)

Adjusted EBITDA (loss), a non-GAAP (“Generally Accepted Accounting Principles”) financial measure, represents net loss before interest, taxes, depreciation and amortization, stock-based compensation, the gain/loss on the change in the fair value of the related warrant liabilities, and goodwill impairment, if any. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it being presented as an alternative to operating or net loss as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. As defined, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe, however, that in addition to the performance measures found in our financial statements, Adjusted EBITDA is a useful financial performance measurement for assessing our operating performance. We use Adjusted EBITDA as a measurement of operating performance in comparing our performance on a consistent basis over prior periods, as it removes from operating results the impact of our capital structure, including the interest expense resulting from our outstanding debt, and our asset base, including depreciation and amortization of our capital and intangible assets. In addition, Adjusted EBITDA is an important measure for our lender. We calculate Adjusted EBITDA as follows (in thousands):

	Three Months Ended June 30,
	Three Months Ended September 30,						Six Months Ended September 30,
	2016			2015			2016			2015
Net loss	$	(4,793	)	$	(3,965	)
Net income (loss)	$	4,080		$	(1,611	)	$	(713	)	$	(5,576	)
Adjustments:
Depreciation and amortization		~~625~~544			~~486~~552			1,169			1,038
Stock-based compensation		5350			~~138~~124			103			262
Change in fair value of warrant liabilities		46(49	)		46871			(3	)		917
Interest expense, net		333			257
Interest expense		277			364			610			621
Income tax expense (benefit)		261			(27	)
Income tax expense		458			1,091			719			1,064
Adjusted EBITDA (loss)	$	(35,~~475~~360	)	$	(31,~~065~~391	)	$	1,885		$	(1,674	)

FORWARD-LOOKING STATEMENTS

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

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

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

2022

obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements, except as may be required by applicable law.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. As required by Securities and Exchange Commission Rules 13a-15(b) we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (who is also the Chief Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~June~~September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during the process.

2123

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

OnIn ~~November 21,~~March ~~2014~~2016, ~~Samsung~~Performance ~~Electronics~~Design ~~Co.,~~Products ~~Ltd. and Samsung Austin Semiconductor,~~ LLC (~~collectively,~~ “~~Samsung~~PDP”), filed a complaint against ~~the~~MCI ~~Company (and numerous third parties, including Nvidia Corporation)~~ for patent infringement in the United States ~~International~~District ~~Trade~~Court ~~Commission~~for the Southern District of California. The complaint is styled InPerformance ~~the~~Design ~~Matter~~Products ofLLC ~~Certain~~v. ~~Graphics~~Mad ~~Processing Chips~~Catz, ~~Systems on a Chip~~Inc., ~~and~~Civil ~~Products~~Action ~~Containing the Same, Investigation~~ No. ~~377~~ 16-TAcv-~~941~~0629-GPC-RBB and it alleges that ~~the~~MCI ~~defendants~~has ~~have~~ infringed and ~~continue~~continues to infringe U.S. Patent ~~Nos~~No. ~~6,147,385,~~ 6D624,~~173,349,~~078 ~~7,056,776,~~(the ~~and~~“’078 ~~7,804,734~~Patent”) by making, using, offering for sale, selling, and/or importing ~~into~~in the United States ~~certain graphics processing units, systems on a chip, and products containing~~ the ~~same~~Street ~~that,~~Fighter ~~allegedly,~~V ~~are~~FightPad PRO covered by one of more claims of the ~~above-cited~~’078 ~~patents~~Patent. ~~Specifically,~~ The ascomplaint towas ~~the~~formally ~~Company,~~served ~~Samsung~~on ~~alleges~~MCI ~~that~~in ~~the~~March ~~Company’s M~~2016.~~O.J.O.~~ In ~~micro-console~~May ~~for~~2016, ~~Android~~MCI ~~product,~~move ~~which~~to ~~utilizes~~dismiss the ~~Nvidia~~complaint ~~Tegra~~for 4failure ~~T40S~~to ~~systems~~state on a ~~chip,~~claim ~~directly~~against ~~infringes one of more claims of at least one of the patents at issue~~MCI. On In ~~December 30,~~June ~~2014~~2016, the ~~United~~Court ~~States~~granted ~~International~~MCI’s ~~Trade~~motion ~~Commission~~to ~~(the~~dismiss, ~~“Commission”)~~dismissed ~~instituted an investigation into~~ the ~~matter~~complaint towith ~~determine~~prejudice, ~~whether~~and ~~there~~entered isjudgment ain ~~violation~~MCI’s offavor. ~~the~~On ~~Tariff~~July ~~Act~~29, ~~of 1930~~2016, asPDP ~~amended,~~filed byits ~~reason~~notice of appeal to the ~~alleged~~Federal ~~infringement~~Circuit Court of ~~the~~Appeals ~~above-cited~~(“Federal ~~patents~~Circuit”). On InOctober ~~June~~11, 2016, the parties ~~reached~~notified athe ~~settlement~~Federal ~~agreement~~Circuit ~~and,~~that ~~based~~they onhad ~~that~~reached ~~settlement~~an agreement ~~and~~to adismiss ~~joint~~the ~~motion~~appeal. That ofsame ~~the parties~~day, the ~~Commission~~Federal ~~terminated~~Circuit ~~its~~dismissed ~~investigation.~~PDP’s appeal. The outcome of these proceedings did not have any material adverse effect on the Company.

In ~~March~~addition ~~2016,~~to ~~Performance~~the ~~Design~~foregoing ~~Products LLC (“PDP”)~~matter, ~~filed~~from atime ~~complaint~~to ~~against~~time, ~~MCI for patent infringement in~~ the ~~United~~Company ~~States~~may ~~District~~become ~~Court~~involved ~~for~~in ~~the~~various ~~Southern~~lawsuits ~~District~~and oflegal ~~California. The~~proceedings ~~complaint~~that isarise ~~styled~~in ~~Performance~~the ~~Design~~ordinary ~~Products~~course ~~LLC~~of vbusiness. ~~Mad~~We ~~Catz,~~will ~~Inc.~~also, ~~Civil~~from ~~Action~~time ~~No.~~to ~~16-cv-0629-GPC-RBB~~time, ~~and~~when itappropriate ~~alleges~~in ~~that~~management’s ~~MCI~~estimation, ~~has~~record ~~infringed~~reserves ~~and~~in ~~continues~~our tofinancial ~~infringe~~statements ~~U.S.~~for ~~Patent~~pending Nolitigation. ~~D624,078~~Litigation ~~(the~~is ~~“’078~~expensive ~~Patent”)~~and byis ~~making,~~subject ~~using,~~to ~~offering~~inherent ~~for sale~~uncertainties, ~~selling,~~ and~~/or~~ ~~importing~~an inadverse ~~the~~result ~~United~~in ~~States~~any ~~the~~such ~~Street~~matters ~~Fighter~~could Vadversely ~~FightPad~~impact ~~PRO~~our ~~covered~~operating byresults ~~one~~or offinancial ~~more claims of the ’078 Patent~~condition. ~~The~~ ~~complaint was formally served on MCI in March 2016. In May 2016~~Additionally, ~~MCI~~any ~~move~~litigation to ~~dismiss~~which ~~the~~we ~~complaint~~may ~~for~~become ~~failure~~subject tocould ~~state~~also arequire ~~claim~~significant ~~against~~involvement ~~MCI. In~~of ~~June~~our ~~2016,~~senior ~~the~~management ~~Court~~and ~~granted~~may ~~MCI~~divert management’s ~~motion~~attention tofrom ~~dismiss,~~our ~~dismissed~~business ~~the complaint with prejudice,~~ and ~~entered judgment in MCI’s favor~~operations. OnAlthough ~~July 29~~claims, ~~2016~~suits, ~~PDP~~investigations ~~filed~~and ~~its~~proceedings ~~notice~~are ofinherently ~~appeal~~uncertain ~~to the Federal Circuit Court of Appeals. The Company believes that the allegations lack merit~~ and ~~intends~~their toresults ~~vigorously~~cannot ~~defend~~be ~~all~~predicted ~~claims~~with ~~asserted.~~certainty, Itwe isbelieve ~~impossible~~that ~~at this time to assess whether~~ the ~~outcome~~resolution of ~~these~~any ~~proceedings~~current pending matters will not have a material adverse effect on ~~the Company. We have not recorded any accrual for a contingent liability associated with these legal proceedings based on~~ our ~~belief that a liability~~business, ~~while~~financial ~~possible~~condition, isresults ~~not probable and any range~~ of ~~potential~~operations ~~future~~or ~~charge cannot be reasonably estimated at this time~~liquidity.

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

Item 1A.

Risk Factors

There have been no material changes to the risk factors as previously disclosed in Part I — Item 1A. — Risk Factors our Annual Report on Form 10-K for the fiscal year ended March 31, 2016~~, except for the update to the risk factor set forth below~~.

We face substantial inventory risk, particularly with respect to inventory related to the Rock Band 4 video game.

We value inventories at the lower of cost or net realizable value. If the estimated market value is determined to be less than the recorded cost of the inventory, a provision is made to reduce the carrying amount of the inventory item to the lower market value determination. Determination of the market value may be complex, and therefore, requires management to make assumptions and to apply a high degree of judgment. In order for management to make the appropriate determination of market value, the following items are commonly considered: inventory turnover statistics, inventory quantities on hand in our facilities and customer inventories, unfilled customer order quantities, forecasted consumer demand, current retail prices, competitive pricing, seasonality factors, consumer trends and performance of similar products or accessories. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded write-downs.

For example, we built substantial inventory of our Rock Band 4 products in advance of the Rock Band 4 product launch in October 2015 and in anticipation of seasonal and holiday demands. On May 4, 2016, our agreement with Harmonix Music Systems, Inc. (“Harmonix”) to co-publish and manufacture hardware for the Rock Band 4 video game was terminated. Due to lower than expected demand for Rock Band 4 and the termination of the underlying contract with Harmonix, which precludes us from selling

products designed for the Rock Band 4 video game after September 6, 2016, we recorded a $4.0 million inventory write-down to reduce the remaining inventory of products designed for the Rock Bank video game to its estimated market value of $8.3 million as of March 31, 2016. Additionally, during the three months ended June 30, 2016 we recorded an additional $320,000 inventory write-down to reduce the remaining inventory of products designed for the Rock Band video game to its estimated market value of $7.1 million as of June 30, 2016.

If our estimates regarding market value are inaccurate, including our estimates regarding our Rock Band 4 inventory, or changes in consumer demand affect specific products in an unforeseen manner, we may be exposed to additional write-downs of our inventory that could be material.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

10.1	Asset Purchase Agreement, dated as of September 15, 2016, by and among Mad Catz Interactive Inc., 1328158 Ontario Inc. dba Mad Catz Canada, Mad Catz, Inc., Mad Catz Interactive Asia Ltd., Mad Catz Technological Development (Shenzhen) Co., Ltd., and Mad Catz Europe Limited, on the one hand, and Logitech Europe S.A., Logitech Inc., Logitech Technology (Suzhou) Co. Ltd., Logitech Asia Pacific Limited, and Logitech UK Limited, on the other hand.
31.1	Certification of Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Registrant’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.
32.2	Certification of Registrant’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

2325

SIGNATURES

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

		MAD CATZ INTERACTIVE, INC.
August 4, 2016		/s/ Karen McGinnis
November 3, 2016		/s/ Karen McGinnis
		Karen McGinnis
		President and Chief Executive Officer
August 4, 2016		/s/ David McKeon
November 3, 2016		/s/ David McKeon
		David McKeon
		Chief Financial Officer

2426

Filing Compare · MAD CATZ INTERACTIVE INC