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 MARCH 31, 2009
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24363
INTERPLAY ENTERTAINMENT CORP.
(Exact name of the registrant as specified in its charter)
DELAWARE 33-0102707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. CRESCENT DRIVE, BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices)
(310) 432-1958
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is shell company ( as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
CLASS ISSUED AND OUTSTANDING AT MARCH 31, 2009
----- ----------------------------------------
Common Stock, $0.001 par value 113,595,268
As of March 31, 2009, 113,595,268 shares of Common Stock of the Registrant were
issued and outstanding. This includes 4,658,216 shares of Treasury Stock.
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2009
TABLE OF CONTENTS
--------------
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2009
(unaudited) and December 31, 2008 3
Condensed Consolidated Statements of Operations for the Three
Months ended March 31, 2009 and 2008 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2009 and 2008 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4T. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1A. Risk Factors 15
Item 6. Exhibits 15
SIGNATURES 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2009 2008
------------- -------------
(unaudited)
ASSETS
Current Assets:
Cash ......................................................... $ 124,000 $ 0
Trade receivables, net of allowances of $6,000 and
$6,000 respectively ....................................... 63,000 87,000
Inventories .................................................. 1,000 1,000
Intellectual properties ...................................... 126,000 0
Deposits ..................................................... 7,000 7,000
Prepaid expenses ............................................. 5,000 11,000
Other receivables ............................................ 8,000 9,000
------------- -------------
Total current assets ...................................... 334,000 115,000
Property and equipment, net ....................................... 44,000 48,000
------------- -------------
Total assets ........................................ $ 378,000 $ 163,000
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Drawing in excess of cash balances ........................... $ 0 $ 24,000
Convertible note payable ..................................... 0 53,000
Note payable to officer and directors ........................ 475,000 469,000
Account payable .............................................. 1,252,000 1,186,000
Accrued royalties ............................................ 30,000 23,000
Deferred income .............................................. 818,000 710,000
------------- -------------
Total current liabilities ........................... 2,575,000 2,465,000
------------- -------------
Commitments and contingencies
Stockholders' Deficit:
Preferred stock, $0.001 par value 5,000,000 shares authorized;
no shares issued or outstanding,
Common stock, $0.001 par value 300,000,000 shares authorized;
113,595,268 and 108,140,301 shares issued and outstanding
in 2009 and 2008 .......................................... 113,000 108,000
Paid-in capital .............................................. 122,658,000 122,309,000
Accumulated deficit .......................................... (125,106,000) (124,842,000)
Accumulated other comprehensive income (loss) ................ 138,000 123,000
Treasury stock of 4,658,216 shares ........................... 0 0
------------- -------------
Total stockholders' (deficit) ....................... (2,197,000) (2,302,000)
------------- -------------
Total liabilities and stockholders' (deficit) . $ 378,000 $ 163,000
============= =============
See accompanying notes.
3
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2009 2008
------------- -------------
Revenue ...................................................... $ 93,000 $ 57,000
Cost of goods sold ........................................... 26,000 0
------------- -------------
Gross profit ............................................ 67,000 57,000
------------- -------------
Operating expenses:
Marketing and sales ..................................... 0 0
General and administrative .............................. 310,000 343,000
Product Development ..................................... 65,000 67,000
------------- -------------
Total operating expenses ................................ 375,000 410,000
------------- -------------
Operating (loss) income ...................................... (308,000) (353,000)
------------- -------------
Other income (expense):
Interest expense ........................................ (10,000) (9,000)
Other ................................................... 54,000 18,000
------------- -------------
Total other income (expense) ............................ 44,000 9,000
------------- -------------
Income before benefit for income taxes ....................... (264,000) (344,000)
Benefit for income taxes ..................................... -- --
------------- -------------
Net income (loss) available to common stockholders ...... $ (264,000) $ (344,000)
============= =============
Net income (loss) per common share:
Basic ................................................... $ (.002) $ (.004)
============= =============
Diluted ................................................. $ (.002) $ (.004)
============= =============
Shares used in calculating net income (loss) per common share:
Basic ................................................... 108,937,052 99,197,418
============= =============
Diluted ................................................. 108,937,052 99,197,418
============= =============
See accompanying notes.
4
INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2009 2008
----------- -----------
Cash flows from operating activities:
Net (loss) income ....................................... $ (264,000) $ (344,000)
Adjustments to reconcile net (loss) income to
cash (used) provided by operating activities:
Depreciation and amortization .......................... 4,000 2,000
Additional Paid in Capital - Option Expense ............ 4,000 1,000
Issuance of warrants ................................... 23,000 --
Issuance of common stock ............................... 174,000 --
Additional paid in capital ............................. 5,000 --
Changes in operating assets and liabilities:
Trade receivables from related parties ............... 24,000 (32,000)
Trade receivables, net ............................... -- --
Intellectual properties .............................. (126,000) --
Deposits ............................................. -- (3,000)
Prepaid expenses ..................................... 6,000 (4,000)
Other current assets, net ............................ 1,000 4,000
Accounts Payable ..................................... 66,000 (142,000)
Accrued royalties .................................... 7,000 (200,000)
Convertible note payable ............................. (53,000) --
Note Payable Officers ................................ 6,000 8,000
Deferred revenue ..................................... 108,000 (8,000)
Accumulated other compensation income ................ 15,000 (5,000)
----------- -----------
Net cash provided by (used in) operating activities .. -- (723,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ......................... -- (42,000)
----------- -----------
Net cash used in investing activities ................ -- (42,000)
----------- -----------
Cash flows from financing activities:
Repayment of current debt .................................. -- (53,000)
Sale of common stock ....................................... 148,000 --
----------- -----------
Net cash provided by (used in) financing activities .. 148,000 (53,000)
----------- -----------
148,000 (818,000)
Cash, beginning of period .................................. (24,000) 1,138,000
----------- -----------
Cash, end of period ........................................ $ 124,000 $ 320,000
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest .......................................... $ -- $ --
=========== ===========
Taxes ............................................. $ -- $ --
=========== ===========
Supplemental Disclosure of Non-Cash Financing and Investing:
Acquisition of intellectual property for common stock $ 126,000 $ --
=========== ===========
Conversion of note payable for common stock .......... $ 53,000 $ --
=========== ===========
See accompanying notes.
5
INTERPLAY ENTERTAINMENT AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2009
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Interplay Entertainment Corp. (which we refer to as the "Company" in these
Notes) and its subsidiaries reflect all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary for a
fair presentation of the results for the interim period in accordance with
instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all information and footnotes required by accounting principles
generally accepted in the United States ("GAAP") for complete financial
statements. The results of operations for the current interim period are not
necessarily indicative of results to be expected for the current year or any
other period. The balance sheet at December 31, 2008 has been derived from the
audited consolidated financial statements at that date, but does not include all
information and footnotes required by GAAP for complete financial statements.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008, as filed with the U.S. Securities and Exchange Commission ("SEC").
FACTORS AFFECTING FUTURE PERFORMANCE AND GOING CONCERN STATUS
The Company's independent public accountant included a "going concern"
explanatory paragraph in his audit report on the December 31, 2008 consolidated
financial statements which were prepared assuming that the Company will continue
as a going concern.
The Company continues to seek external sources of funding including, but
not limited to, a private placement or public offering of the Company's capital
stock, the sale of selected assets, the licensing of certain product rights in
selected territories, selected distribution agreements, and/or other strategic
transactions sufficient to provide short-term funding, and potentially achieve
the Company's long-term strategic objectives. Although the Company has had some
success in licensing certain of its products in the past, no assurance can be
given that the Company will do so in the future.
The Company expects that it will need to obtain additional financing or
income. However, no assurance can be given that alternative sources of funding
can be obtained on acceptable terms, or at all. These conditions, combined with
the Company's historical operating losses and its deficits in stockholders'
equity and working capital, raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets and liabilities that might
result from the outcome of this uncertainty.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates made in
preparing the consolidated financial statements include, among others, sales
returns and allowances, allowances for uncollectible receivables, cash flows
used to evaluate the recoverability of prepaid licenses and royalties and
long-lived assets, and certain accrued liabilities related to restructuring
activities and litigation. Actual results could differ from those estimates.
6
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Interplay Entertainment Corp. and its wholly-owned subsidiaries, Interplay
Productions Limited (U.K.), Interplay OEM, Inc., Interplay Co., Ltd., (Japan)
the business of which was closed during the 4th quarter 2006 (immaterial to
consolidated results) and Games On-line. All significant inter-company accounts
and transactions have been eliminated.
NOTE 2. NOTE PAYABLE
The Company issued on June 27, 2008 to Interactive Game Group a convertible
promissory note in the amount of $52,000 for consideration received in cash. The
unpaid principal balance of this Convertible Note shall bear interest at a per
annum rate equal to the three (3) months Libor interest rate plus one percent
adjusted quarterly and due with a six month term. (Current interest rate of 2.26
%). The note is convertible into 400,000 shares of the Company's common stock
price as of June 30, 2008 ($0.13 per share) which was the market price at the
date of the agreement. The note was fully repaid on March 26, 2009. (See Note 7)
NOTE 3. NOTE PAYABLE TO OFFICER AND DIRECTORS
The Company issued on October 2, 2006 to the following officer and
directors Herve Caen, Eric Caen and Michel Welter conditional demand notes which
have since become demand notes (due to the change in control resulting from
Financial Planning and Development SA's acquisition of approximately 56% of the
Company's outstanding stock) bearing a 5% annual interest rate. The demand notes
were issued for the earned but unpaid directors' fees to Herve Caen for $50,000,
to Eric Caen for $50,000, to Michel Welter for $85,000, and for earned but
unpaid salary to Herve Caen in the amount of $500,000. A total of $475,000 in
principal and interest remains outstanding under the demand notes as of March
31, 2009. Interest accrued on the demand notes as of March 31, 2009 was $6,000.
NOTE 4. ADVANCES FROM DISTRIBUTORS AND LICENSEE WHICH ARE CONSIDERED DEFERRED
INCOME
Non refundable but recoupable advances received by the Company for future
distribution and license rights as of March 31, 2009 amounted to $818,000. These
advances expire during the years of 2009 through 2012.
NOTE 5. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in one principal business segment, which is managed
primarily from the Company's U.S. headquarters.
Net revenues by geographic regions were as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2009 2008
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(Dollars in thousands)
North America ...................... $ 47 51% $ 0 0%
Europe ............................. 46 49 57 100
Rest of World ...................... 0 0 0 0
OEM, royalty and licensing ......... 0 0 0 0
------- ------- ------- -------
$ 93 100% $ 57 100%
======= ======= ======= =======
NOTE 6. EMPLOYEE STOCK OPTIONS
STOCK-BASED COMPENSATION
The Company utilizes SFAS No. 123(R), "SHARE-BASED PAYMENT" ("SFAS 123R"),
which requires the measurement and recognition of compensation cost at fair
value for all share-based payments, including stock options and restricted stock
awards.
At March 31, 2009, the Company has one stock-based employee compensation
plan. Stock-based employee compensation cost approximated $4,000 as reflected in
net income for the quarter ended March 31, 2009. No employee stock options were
granted during the quarter ended March 31, 2009.
7
NOTE 7. SALE OF COMMON STOCK
On March 24, 2009 the Company sold to Microprose, LLC, an affiliate of
Interactive Game Group, 5,454,967 shares of Common Stock of the Company and
issued a warrant to purchase 1,677,483 shares of Common Stock of the Company for
a total consideration of $327,298. Such shares and warrant were issued, and any
underlying shares of Common Stock would be issued, in a private placement exempt
from registration pursuant to section 4(2) of the Securities Act of 1933. Such
warrant has a term of 3 years, an exercise price of $0.06, and is immediately
exercisable. Out of the consideration of $327,298, $148,000 was received in
cash, $126,000 was satisfied by the acquisition of certain intellectual property
rights by the Company, and $53,298 was satisfied by the cancellation of the
convertible promissory note (see Note 2) in the amount of $52,000 and accrued
interest thereon from Interactive Game Group. These warrants were valued using
the Black-Scholes Model. The amount of $ 23,000 was charged to 2009 operations.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
Interplay Entertainment Corp., which we refer to in this Report as "we,"
"us," or "our," is a developer, publisher and licensor of interactive
entertainment software and intellectual properties for both core gamers and the
mass market. The information contained in this Form 10-Q is intended to update
the information contained in our Annual Report on Form 10-K for the year ended
December 31, 2008, as amended, and presumes that readers have access to, and
will have read, the "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other information contained in such
Form 10-K, as amended.
This Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and such forward-looking statements are subject
to the safe harbors created thereby. For this purpose, any statements contained
in this Form 10-Q, except for historical information, may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "should," "estimate" or "continue" or the negative or other variations
thereof or comparable terminology are intended to help identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties, as well as on
certain assumptions. For example, any statements regarding future cash flow,
revenue or expense expectations, including those forward-looking statements in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations", financing activities, future cash flows, cash constraints, sales
or mergers and cost reduction measures are forward-looking statements and there
can be no assurance that we will effect any or all of these objectives in the
future. Specifically, the forward-looking statements in this Item 2 assume that
we will continue as a going concern. Risks and Uncertainties that may affect our
future results are discussed in more detail in the section titled "Risk Factors"
in Item 1A of part II of this Form 10-Q. Assumptions relating to our
forward-looking statements involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, our industry, business
and operations are subject to substantial risks, and the inclusion of such
information should not be regarded as a representation by management that any
particular objective or plans will be achieved. In addition, risks,
uncertainties and assumptions change as events or circumstances change. We
disclaim any obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-Q with the SEC
or otherwise to revise or update any oral or written forward-looking statement
that may be made from time to time by us or on our behalf.
MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including, among others, those related to revenue recognition,
prepaid licenses and royalties and software development costs. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
9
RESULTS OF OPERATIONS
The following table sets forth certain selected consolidated statements of
operations data, segment data and platform data for the periods indicated in
dollars and as a percentage of total net revenues:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
2009 2008
--------------------- ---------------------
% OF NET % OF NET
AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- --------
(Dollars in thousands)
Net revenues ........................... $ 93 100% $ 57 100%
Cost of goods sold ..................... 26 28% 0 0%
-------- -------- -------- --------
Gross profit ...................... 67 72% 57 100%
-------- -------- -------- --------
Operating expenses:
Marketing and sales ............... 0 0% 0 0%
General and administrative ........ 310 333% 343 602%
Product development ............... 65 70% 67 117%
-------- -------- -------- --------
Total operating expenses .......... 375 403% 410 719%
-------- -------- -------- --------
Operating income (loss) ................ (308) (331)% (353) (619)%
Other (expense) income ................. 44 48% 9 15%
-------- -------- -------- --------
Net income (loss) ...................... $ (264) (283)% $ (344) (604)%
======== ======== ======== ========
Net revenues by geographic region:
North America ..................... $ 47 51% $ 0 0%
International ..................... 46 49% 57 100%
OEM, royalty and licensing ............. 0 0% 0 0%
-------- -------- -------- --------
$ 93 100% $ 57 100%
======== ======== ======== ========
Net revenues by platform:
Personal computer ................. $ 57 61% $ 52 91%
Video game console ................ 36 39% 5 9%
OEM, royalty and licensing ........ 0 0% 0 0%
-------- -------- -------- --------
93 100% 57 100%
======== ======== ======== ========
NORTH AMERICAN, INTERNATIONAL AND OEM, ROYALTY AND LICENSING NET REVENUES
Geographically, our net revenues for the three months ended March 31, 2009
and 2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
North America ................... $ 47 $ 0 $ 47 100%
International ................... 46 57 (11) (19)%
OEM, Royalty & Licensing ........ -- -- -- n/a
Net Revenues .................... $ 93 $ 57 $ 36 63%
Net revenues for the three months ended March 31, 2009 were $93,000, an
increase of 63% compared to the same period in 2008. This increase resulted from
a 100% increase in North American net revenues and a 19% decrease in
International net revenue.
North American net revenues for the three months ended March 31, 2009 were
$47,000. The increase in North American net revenues in 2009 was mainly due to a
100% increase in back catalog sales.
OEM, royalty and licensing net revenues for the three months ended March
31, 2009 were $0. There were no OEM Licensing deals during the first quarter of
2009.
10
International net revenues for the three months ended March 31, 2009 were
$46,000. The decrease in International net revenues for the three months ended
March 31, 2009 was mainly due to a 19% decrease in back catalog sales.
PLATFORM NET REVENUES
Our platform net revenues for the three months ended March 31, 2009 and
2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
Personal Computer ............... $ 57 $ 52 $ 5 10%
Video Game Console .............. 36 5 31 620%
OEM, Royalty & Licensing ........ -- -- -- n/a
Net Revenues .................... 93 57 36 63%
PC net revenues for the three months ended March 31, 2009 were $57,000, an
increase of 10% compared to the same period in 2008. The increase in PC net
revenues in 2009 was primarily due to increase of back catalog sales. Video game
console net revenues were $36,000, an increase of 620% for the three months
ended March 31, 2009 compared to the same period in 2008, due to the royalties
earned from electronic distribution of back catalog titles.
COST OF GOODS SOLD; GROSS PROFIT MARGIN
Our net revenues, cost of goods sold and gross margin for the three months
ended March 31, 2009 and 2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
Net Revenues .................... $ 93 $ 57 $ 36 63%
Cost of Goods Sold .............. 26 -- 26 100%
Gross Profit Margin ............. 67 57 10 18%
Cost of goods sold related to PC and video game console net revenues
represents the manufacturing and related costs of interactive entertainment
software products, including costs of media, manuals, duplication, packaging
materials, assembly, freight and royalties paid to developers, licensors and
hardware manufacturers. Cost of goods sold related to royalty-based net revenues
primarily represents third party licensing fees and royalties paid by us.
Typically, cost of goods sold as a percentage of net revenues for video game
console products is higher than cost of goods sold as a percentage of net
revenues for PC based products due to the relatively higher manufacturing and
royalty costs associated with video game console and affiliate label products.
We also include in the cost of goods sold the amortization of prepaid royalty
and license fees paid to third party software developers. We expense prepaid
royalties over a period of six months commencing with the initial shipment of
the title at a rate based upon the number of units shipped. We evaluate the
likelihood of future realization of prepaid royalties and license fees
quarterly, on a product-by-product basis, and charge the cost of goods sold for
any amounts that we deem unlikely to realize through future product sales.
Our cost of goods sold increased 100% to $26,000 in the three months ended
March 31, 2009 compared to the same period in 2008.
Our gross margin decreased to 72% for the 2009 period from 100% in the 2008
period.
MARKETING AND SALES
Our marketing and sales expense for the three months ended March 31, 2009
and 2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
Marketing and Sales ............. n/a n/a n/a n/a
11
Marketing and sales expenses primarily consist of advertising and retail
marketing support, sales commissions, marketing and sales personnel, customer
support services and other related operating expenses. Marketing and sales
expenses for the three months ended March 31, 2009 were $0 a 100% decrease
compared to the 2008 period.
GENERAL AND ADMINISTRATIVE
Our general and administrative expense for the three months ended March 31,
2009 and 2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
General and Administrative ...... $ 310 $ 343 $ (33) 10%
General and administrative expenses primarily consist of administrative
personnel expenses, facilities costs, professional fees, bad debt expenses and
other related operating expenses. General and administrative expenses for the
three months ended March 31, 2009 were $310,000 a 10% decrease as compared to
the same period in 2008. The decrease is mainly due to a $33,000 decrease
general expenses.
PRODUCT DEVELOPMENT
Our product development expenses for the three months ended March 31, 2009
and 2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
Product Development ............. $ 65 $ 67 $ (2) (3)%
Product development expenses were $65,000, a 3% decrease as compared to the
same period in 2008.
OTHER EXPENSE (INCOME), NET
Our other expense (income) for the three months ended March 31, 2009 and
2008 breakdown as follows: (in thousands)
2009 2008 CHANGE % CHANGE
-------- -------- -------- --------
Other Expense (Income) .......... $ (44) $ (9) $ 55 611%
Other Expense (Income) consists primarily of interest expense on debt in
the amount of $10,000, foreign currency exchange transactions loss of $4,000,
other nonrecurring income of ($30,000) and additional miscellaneous adjustments
of ($28,000).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, we had a working capital deficit of approximately
$2,241,000, and our cash balance was approximately $124,000.
During 2007 we sold "Fallout" to a third party and entered into, subject to
satisfaction of various conditions, the license back which could allow us to
create, develop and exploit a "Fallout" MMOG.
We have entered into a binding letter of intent with Masthead Studios to
fund the development of a Massively Multiplayer Online Game (MMOG), code named
"Project: V13." The game has been in design and development at Interplay since
November 2007. Masthead and Interplay teams are working together under the
direction and control of Interplay to complete development of the project. As a
part of the agreement, the game utilizes Masthead's proprietary tools and MMOG
technology developed for Masthead's "Earthrise" project.
We are exploring ways to leverage our portfolio of gaming properties
through sequels and various development and publishing arrangements. We are
planning, if we can obtain financing, to develop sequels to some of our most
successful games, including Earthworm Jim, Dark Alliance, Descent and MDK. We
have reinitiated our in-house game development studio, and have hired game
developers.
12
We have entered into a Game Production Agreement with Interactive Game
Group which provides for the financing of the development of games under certain
conditions.
We continue to seek external sources of funding, including but not limited
to, incurring debt, the selling of assets or securities, licensing of certain
product rights in selected territories, selected distribution agreements, and/or
other strategic transactions sufficient to provide short-term funding, and
achieve our long-term strategic objectives.
If we do not receive sufficient financing or income we may (i) liquidate
assets, (ii) sell the company (iii) seek protection from our creditors including
the filing of voluntary bankruptcy or being the subject of involuntary
bankruptcy, and/or (iv) continue operations, but incur material harm to our
business, operations or financial conditions. These conditions, combined with
our historical operating losses and our deficits in stockholders' equity and
working capital, raise substantial doubt about our ability to continue as a
going concern.
Our primary capital needs have historically been working capital
requirements necessary to fund our operations. Our activities generated cash of
$148,000 during the three months ended March 31, 2009.
We entered into various licensing agreements during the three months ended
March 31, 2009 under which we licensed others to exploit games that we have
intellectual property rights to. We expect to enter into similar license
arrangements to generate cash for the Company's operations during the remainder
of the fiscal year.
We sold common stock of the Company to a private investor during the three
months ended March 31, 2009.
No assurance can be given that funding can be obtained by us on acceptable
terms, or at all. These conditions, combined with our deficits in stockholders'
equity and working capital, raise substantial doubt about our ability to
continue as a going concern.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements under which we have
obligations under a guaranteed contract that has any of the characteristics
identified in paragraph 3 of FASB Interpretation No. 45 "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". We do not have any retained or contingent interest in
assets transferred to an unconsolidated entity or similar arrangement that
serves as credit, liquidity or market risk support to such entity for such
assets. We also do not have any obligation, including a contingent obligation,
under a contract that would be accounted for as a derivative instrument. We have
no obligations, including a contingent obligation arising out of a variable
interest (as referenced in FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, as amended) in an unconsolidated entity that is held by, and
material to, us, where such entity provides financing, liquidity, market risk or
credit risk support to, or engages in leasing, hedging or research and
development services with us.
CONTRACTUAL OBLIGATIONS
The following table summarizes certain of our contractual obligations under
non-cancelable contracts and other commitments at March 31, 2009, and the effect
such obligations are expected to have on our liquidity and cash flow in future
periods. (in thousands)
--------------------------------------------------------------------------------
LESS THAN 1 - 3 3 - 5 MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
--------------------------------------------------------------------------------
Lease Commitments (1) 13 5 8 -- --
--------------------------------------------------------------------------------
Total 13 5 8 -- --
--------------------------------------------------------------------------------
(1) We had a lease commitment at the Beverly Hills office through April 2008.
The Company is presently in negotiations to extend that lease but no commitments
have been made. We also have a lease commitment in Irvine for our new
development offices through March 31, 2009. We also have a lease commitment at
the French representation office through February 28, 2011 with an option for an
additional 3 years.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any derivative financial instruments as of March 31, 2009.
However, we are exposed to certain market risks arising from transactions in the
normal course of business, principally the risk associated with foreign currency
fluctuations. We do not hedge our interest rate risk, or our risk associated
with foreign currency fluctuations.
INTEREST RATE RISK
Currently, we do not have a line of credit, but we anticipate we may
establish a line of credit in the future.
FOREIGN CURRENCY RISK
Our earnings are affected by fluctuations in the value of our foreign
subsidiary's functional currency, and by fluctuations in the value of the
functional currency of our foreign receivables.
We recognized a loss of $4,000 and $10,000 during the three months ended
March 31, 2009 and 2008 respectively, primarily in connection with foreign
exchange fluctuations in the timing of payments received on accounts receivable
which have been from Interplay Productions Ltd.
ITEM 4T. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and interim Chief Financial Officer of the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon
this evaluation, our Chief Executive Officer and interim Chief Financial Officer
concluded that our disclosure controls and procedures were effective, at the
reasonable assurance level, in ensuring that information required to be
disclosed is recorded, processed, summarized and reported within the time period
specified in the SEC's rules and forms and in timely alerting him to material
information required to be included in this report.
There were no changes made in our internal controls over financial
reporting that occurred during the quarter ended March 31, 2009 that have
materially affected or are reasonably likely to materially affect these
controls.
Our management, including the Chief Executive Officer and Interim Chief
Financial Officer, does not expect that our disclosure controls and procedures
or our internal control over financial reporting will necessarily prevent all
fraud and material errors. An internal control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations on all internal
control systems, our internal control system can provide only reasonable
assurance of achieving its objectives and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, and/or by management override of the control. The design of any system
of internal control is also based in part upon certain assumptions about the
likelihood of future events, and there can be no can provide only reasonable,
not absolute assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become
inadequate because of changes in circumstances, and/or the degree of compliance
with the policies and procedures may deteriorate.
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PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item
1A to Part 1 of our form 10-K for the fiscal year ended December 31, 2008.
ITEM 6. EXHIBITS
(a) Exhibits - The following exhibits, other than exhibit 32.1 which is
being furnished herewith, are filed as part of this report:
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
3.5 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company, as filed with Delaware Secretary of
State on January 21, 2004; (refilled to reflect original
execution date).
10.07 Form of warrant agreement for directors and employees of the
Company; (Incorporated herein by reference to exhibit 4.1 of the
Company's S-8 filed on May 2, 2008).
31.1 Certificate of Herve Caen, Chief Executive Officer of Interplay
Entertainment Corp. pursuant to Rule 13a-14(a) of the Securities
and Exchange Act of 1934, as amended.
31.2 Certificate of Herve Caen, Interim Chief Financial Officer of
Interplay Entertainment Corp. pursuant to Rule 13a-14(a) of the
Securities and Exchange Act of 1934, as amended.
32.1 Certificate of Herve Caen, Chief Executive Officer and Interim
Chief Financial Officer of Interplay Entertainment Corp. pursuant
to Rule 13a-14(b) of the Securities and Exchange Act of 1934, as
amended.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERPLAY ENTERTAINMENT CORP.
Date: May 20, 2009 By: /s/ HERVE CAEN
---------------------------------
Herve Caen,
Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive and
Financial and Accounting Officer)
16