Mad Catz Interactive, Inc. 2002 Annual Report About Mad Catz Interactive, Inc

MAD CATZ INTERACTIVE, INC. 2002 ANNUAL REPORT ABOUT MAD CATZ INTERACTIVE, INC. video gaming a truly exciting experience. exciting truly a gaming video make that accessories competitive price and edgy quality, high distributing and developing designing, in way the leading is Catz Mad creativity. and fun of sion the gaming experience, adding a new dimen- enhance they because category important an are cards memory and wheels steering software. Accessories such as controllers, gamers sophisticated and these platforms multiple with provide to emerged has industry vibrant their A gaming. of time leisure more and more spending are ages all of people of number growing A Dear Shareholders

We have entered a Fiscal year 2002 was an extremely satis- This year marked the first time fying year for Mad Catz — a year of record that our strategic resources were focused new era in the video sales and performance. It was a year that solely on our Mad Catz business. As the saw unprecedented opportunities for video game peripherals business became gaming market, with expansion in the gaming industry and one increasingly vibrant with the introduction in which we laid the foundation for our of new platforms during the year, our unprecedented own future growth. decision to focus on the Mad Catz busi- These opportunities fostered an ness, as evidenced by our financial opportunities for environment for Mad Catz to lead the way results, was a correct one. with 65 new product introductions — the We capitalized on the strength of

expansion. MAD CATZ INTERACTIVE, INC. [1] largest introduction in Mad Catz’ history the Mad Catz brand exemplified by the — a solidified and strengthened manage- strategic decision to change our corpo- ment team, enhanced global reach, and rate name to Mad Catz Interactive, Inc. an emphasis on cost controls as key as well as our stock exchange symbol to drivers for improvement of our operating MCZ in September 2001. We also moved efficiencies. our offices in San Diego to a larger facil- With the introduction of several ity to accommodate our expanding oper- new platforms — Microsoft’s Xbox® and ations as well as established a London Nintendo’s GameCube® and Game Boy office giving us a foothold in Europe. Advance® — as well as the significant We devoted resources to deepen- growth of the installed base of Sony’s ing our existing retail relationships and PlayStation 2®, we have entered a new era nurtured new ones. Through a sus- in the video gaming market, with signifi- tained program of category manage- cant opportunities and challenges the ment, Mad Catz continues to place likes of which the industry has never great emphasis on our retailer seen. Mad Catz’ brand-focused, multi- relationships. platform strategy has placed the company in a strong leadership position as we Financial Results enter the most productive phase of the For the fiscal year ended March 31, current industry cycle. 2002, Mad Catz had record net sales

Financial Highlights U.S. Dollars millions Fiscal 2002 Fiscal 2001

Net sales $ 83.3 $ 55.8

Gross profit $ 18.4 $ 12.4

EBITDA $ 6.2 $ 1.7

Net income (loss) $ 1.5 $ (22.9)

Income (loss) per share $ 0.03 $ (0.51)

Xbox 8MB Memory Card MAD CATZ INTERACTIVE, INC. [2] this year. platforms launched across ofthe each the Mad Catz brand cessfully leveraged Mad Catz has suc- Advance, XboxandGameCube.AtMarch inventory necessaryforGameBoy were keptincheckdespiteadditional strongest shapeever. Inventorylevels or alossof$0.51persharelastyear. compared toanetlossof$22.9million, was $1.5million,or$0.03pershare,as million lastyear. Netincomefortheyear lion, ascomparedtoanetlossof$0.6 ended March31,2002was$4.0mil- taxes andgoodwillchargesfortheyear compared tolastyear. Incomebefore to $1.7million,a314.1%increase,as 31, 2002,was$6.2millionascompared pared to10.3%lastyear. of netsalesdecreasedto5.9%ascom- Administrative expensesasapercentage 8.7% ascomparedto8.9%lastyear. percentage ofnetsalesdecreasedto period lastyear. Sellingexpensesasa pared to$10.7millionforthesame operations was$12.2millionascom- tive expenses(“SG&A”)fromcontinuing 2002, selling,generalandadministra- a netlossof$22.9millionlastyear. the yearwas$1.5millionascomparedto $12.4 millionlastyear. Netincomefor 2002 was$18.4millionascomparedto Gross profitfortheyearendedMarch31, year, representinganincreaseof49%. lion ascomparedwith$55.8millionlast from continuingoperationsof$83.3mil- Our balancesheetisinthe EBITDA fortheyearendedMarch For theyearendedMarch31, for Nintendo’s GameCube.65products time, welaunchedafulllineofproducts carry theXboxlicenselogo.Atsame are officiallyendorsedbyMicrosoftand agreement MadCatzbrandedproducts Europe and Japan. Underthislicense sole fromMicrosoftforNorthAmerica, peripherals fortheXbox’videogamecon- licensed andcompatiblethird-party launch ofourfullline-upofficially parable tohigh-endcordlesstelephones. utilizes radiofrequencytechnologycom- Control PadProforPlayStation2,which ucts includingtheinnovativeLynx We introducedanewgenerationofprod- PlayStation 2andGameBoyAdvance. complementing ourexistingline-upfor of productsforXboxandGameCube, the successfullaunchofourfullline-up tive prices. products acrossallplatformsatcompeti- been tointroducethehighestquality introduced thisyear. Ourstrategyhas brand acrosseachoftheplatforms successfully leveragedtheMadCatz tion intheperipheralsmarketandhas Mad Catzhasassumedaleadershipposi- Performance Platforms stronger sales. million ofitslinecreditintheface 31, 2002,MadCatzutilizedonly$4.3 In October, weannouncedthe Our majoremphasisthisyearwas + Products = 1000 1300 1500 1200 1400 900 1100 in U.S.dollarsmillions Market 2001-2005e U.S Accessories post-launch period. than thoseofPlayStation2forthesame and GameCubearesignificantlyhigher PlayStation andadoptionratesforXbox months followingthelaunchof adoption ratesareequaltothose36 months followingPlayStation2’s launch, outpaced thoseofPlayStation.Inthe17 adoption ratesforPlayStation2havefar the endofJanuary2002. was approximately1.4millionunitsat units. TheinstalledbaseofGameCube expanded toapproximately1.7million while theXboxinstalledbasehas Game BoyAdvanceat5.3millionunits, base ofapproximately8.1millionunits, robust, withanexpandingU.S.installed pany, PlayStation2sell-throughremains leading marketinformationtrackingcom- well asnewcustomers. more SKUsinbothexistingaccountsas been highlysuccessfulinpickingup the year. We have the marketduring were introducedto Development Group 2002 andforwardprojectionsfromInternational Source: 2001figuresbasedonNPDTRSTS; 01 Also, accordingtoNPDFunworld, According toNPDFunworld,a 02e 03e 04e 05e Game Boy Fliplight substantially. and weareestimatingsalestogrow momentum tocontinueinfiscal2003 PlayStation 2.We expectthesales for allthenewplatformsaswell by theincreaseinsalesofnewproducts 2001, thatlosswasmorethanoffset America expiredattheendofDecember memory cardforPlayStation2inNorth Computer EntertainmentAmericaforthe While ourlicenseagreementwithSony Sustained Growth Continued and market today. superior danceandactionpadonthe fort andimprovedhandling.Itisthemost durable tactilesurfaceforenhancedcom- high-performance actionpadsanda four-way directionalcontrol,tenlarge dance andactiongames,featuring Dance Beat compatible withTHQInc.’s Britney’s 2, “Beat Pad”controllerforPlaystation PlayStation 2version. radio frequencytechnologyusedinthe Xbox, utilizingthesameinnovativeLynx including thenewwirelesscontrollerfor already inthelaterstageofdevelopment, up ofnewproducts,mostwhichare where theCompanyprevieweditsfallline industry’s mostimportanttradeshow, Electronic EntertainmentExpo(E3),the Also introducedatE3wasthe ™ strong presenceatthe , adigitalcontrollerfor the Companyhada Control Pad for Pro GameCube Once again

MAD CATZ INTERACTIVE, INC. [3] MAD CATZ INTERACTIVE, INC. [4] be fully realized. hard begins work to results ofall ofour the year wherethe 2003 stands to be focus istorealizeareductioninproduct earnings improvement.Ourstrategic operating efficienciesaskeydriversfor greater emphasisoncostcontrolsand through fiscalyear2003,wewillplace introductions. success intheU.S.fromnewconsole share andduplicatingtheCompany’s ness strategyaimedatbuildingmarket and willcontinuetoimplementourbusi- remain focusedontheEuropeanmarket for ourproductsintheU.K.We will to providelogisticdistributionservices agreement withPDQDistributionLimited operations inLondonandsignedan with ourretailers. controls, tobroadenourrelationships and displaymanagementpricing agement strategies,suchasinventory We willcontinuetoutilizecategoryman- expected toenhanceMadCatz’growth. business bothintheU.S.andabroad,is accounts, aswelltheincreaseinnew costs whilemaintainingproductquality for theperipheralsbusiness—onein and servicetoourretailers. which MadCatz’realizeditsobjectives 2002 wasslatedtobeadefiningyear As westatedlastyear, fiscalyear As wegainfurthermomentum In fiscal2002,weestablished The continuedsuccessofcurrent Sincerely, hard workbeginstobefullyrealized. the yearwhereresultsofallour industry asawhole,2003standstobe of transitionforourCompanyandthe ness ofthecompany. If2002wasayear increased institutionalinvestoraware- and componentcostsgenerating for allconsoles,reducingmanufacturing product line-upofinnovativeperipherals of increasingmarketshare,buildingits June 12, 2002 Executive Officer President &Chief Morris Perlis Chairman Pat Brigham GameCube Memory Cards

Mad Catz: A Year in Review

Leading the Way Xbox, and Nintendo’s GameCube and Last year the video game industry Game Boy Advance. Mad Catz simultane- entered a period of explosive growth, pro- ously introduced full product lines to viding unprecedented opportunities for coincide with each console introduction, Mad Catz’ expansion. It was then that we enabling our customers to offer con- outlined several strategic objectives for sumers the best accessories to comple- meeting the challenges posed by this ment their consoles. exciting new environment. These objec- These new consoles are the most tives were to increase Mad Catz’ overall sophisticated ever, and for PlayStation 2 market share; introduce high quality and Xbox represent a convergence of products across a spectrum of price entertainment systems for the home. As MAD CATZ INTERACTIVE, INC. [5] points; and improve operating margins a result, these new platforms have a through cost reductions. broader appeal to a changing demo- In order to achieve these objec- graphic of the playing public. As original tives and assume our current leadership gamers enter their 30s and 40s we now position in the gaming peripherals mar- have a more affluent consumer. As we enter the cycle character- At this years E3 trade show, Mad Catz’ ket, Mad Catz needed to focus its products were extremely well received resources behind the Mad Catz brand, ized by the expanding installed base, we by retailers. put in place the best sales and manage- continue to improve all aspects of our ment teams, introduce the highest quali- operations to capture greater market ty products in a timely and cost-effective share. manner, and foster deeper relation- Mad Catz continues to stress the ships with our existing retailers, as well importance of innovation using design as new ones. and technology to develop superior In the last thirteen months, four products. Products introduced consoles have been introduced to the during the year, such as the market: Sony’s PlayStation 2, Microsoft’s Lynx Wireless Control Pad Pro for PS2, the highest Projected Growth of performing wireless Installed Base in millions of units controller to come 150 to market, utilizing 120 radio frequency 90 (RF) technology,

60 demonstrate

01 0 2 e 03e 0 4 e

PSX N64 PS2 XBOX Gcube

Control Pad Pro for Xbox MAD CATZ INTERACTIVE, INC. [6] “Team Mad Catz Orange” competes for competes Orange” Catz Mad “Team enthusiasts and spectators who are the the are who spectators and enthusiasts same demographic as the users of Mad Mad of users the as demographic same Catz products. Catz new packagingwastohelpourproducts retail store.Theobjectiveofcreatingthe important asthepoint-of-purchasein share oftheirdollar—noplaceisas consumers’ mind-share—aswellthe ly itsproductpackaging.Inthebattlefor through allitscommunications,especial- to conveyaconsistentbrand-look sumers asthedemographicexpands. awareness amongalargergroupofcon- building thebrandistocreategreater and edgyproducts,ourobjectivein gamers asonethatrepresentsfun,active Catz nameresonateswithhard-core areas ofouroperations.WhiletheMad made significantinvestmentsinmany industry aswellforMadCatzandwe Fiscal 2002wasabuildingyearforthe Brand Focus Mad Catz’commitmenttoinnovation. ing lifestyle,sportsandartworkunderline the designskinsoncontrollerfeatur- customize theircontrollerbychanging 2 SkinController, whichallowsplayersto pact controlleraswelltheDualForce modate gamerswhofavoramorecom- standard controllers,createdtoaccom- which aresmallerversionsofMadCatz’ Electronics EntertainmentExpo(E3), and GameCube,shownattherecent controllers forPlayStation2,Xbox to market.Additionally, theMicroCON innovative andhighlystyledproducts Mad Catz’leadershippositioninbringing stand outamidtheretailclutter. The Mad Catzhastakenseveralsteps improved sitesupportsMadCatz’busi- launched anewcorporatewebsite.The few months. introduced intothemarketovernext less phones.Theseproductswillbe technology comparabletohigh-endcord- playing timeutilizingradiofrequency PlayStation 2gamerscanmaximize Lynx ControlPadPro.NowXboxand utilizing thesametechnologyas designed forPlayStation2andXbox, lower costLynx wirelesscontrollerpads duced 23products,includingitsnew of accessoriesforallplatformsandintro- during thecomingyear. incorporated intoourmarketingactivities appeal toallgamers.Thisthemewillbe of productsatvaryingpricepointsthat The boothalsofeaturedthefullbreadth emphasized MadCatz’valueproposition. theme “ControllerstothePeople”,which This yearMadCatz’boothintroducedthe the newlinetobuyersandmedia. current productlineupandintroduces Company showcasesthebreadthofits brand wasondisplayatE3,wherethe to makeaselection. platform makingiteasyfortheconsumer The packagingiscolorcodedforeach and packagingillustratesproductusage. tures andbenefitsareclearlydefined, ors maketheproductseasytofind,fea- chase decisionbecausethevibrantcol- new packaginghelpsfacilitatethepur- During theyear, theCompanyalso Mad Catzdisplayeditsfallline-up Once again,MadCatz’strong Mad Catz Beat Pad

ness marketing efforts by interactively Retail Penetration leading visitors to enhanced product and Mad Catz launched the largest corporate information. Visitors to the site number of peripherals in the now find detailed product information; Company’s history, 65 products current and historical financial informa- across all consoles, were intro- tion; comprehensive investor information; duced this year. The Com- an enhanced press information section pany’s products are widely which includes downloadable product available in the market at photos; as well as a password protected major retailers including spe- secure section for retailers, designers and cialty store chains and mass mer- developers. chant/ discount stores in the U.S., Mad Catz also successfully pur- Canada, U.K., Europe, South America, sued several corporate sponsorship Asia and Australia. opportunities during the year including A key focus for Mad Catz was its sponsorship of ‘Team Mad Catz increased penetration of new products The Mad Catz name Orange,’ a professional mountain biking into the Company’s existing customer team, for the 2002-racing season. The base as well as successfully gaining resonates with demographic of the people who partici- new retail partners. Mad Catz products pate in these events is similar to those are now placed in 9 of the top 10 U.S. hard-core gamers who play video games, therefore sponsor- retailers. ship was a natural fit for us. Team Mad In January we opened our London representing fun, Catz Orange has and will continue to office, helping the Company realize one wear the Mad Catz’ logo on the front and of its goals announced last year, increas- active and edgy back of the team’s jerseys and will con- ing our penetration in the European mar- tinue to compete throughout the year ket. European sales are projected to grow products. at races around the world. Additionally, significantly over the next year with the the Company was a supporting sponsor of recent console introductions. the 10th annual H2O Winter Classic, a The new sales office has estab- weekend of surfing and snowboarding lished a channel for direct sales to the competitions which attracted a target United Kingdom and, in time, other audience of extreme sports fans. Mad European markets. The Company also Catz products were demonstrated at each signed an agreement with PDQ of these events, which received extensive Distribution Limited, the U.K.’s leading media coverage including national broad- video game logistics specialist, providing cast attention. fulfillment and distribution services to some of the leading names in the indus-

Universal MC2 Racing Wheel try. Having PDQ as a logistics partner in instituted an active program of improving the U.K. provides Mad Catz with the nec- operating efficiencies specifically in the essary support for its direct sales efforts areas of design, factory effectiveness, and ensures that the Company is able to quality control, order fulfillment and fulfill retailer’s purchase orders in the shipping. most timely and cost effective manner. In We continue to outsource our a short time we have become a leading product manufacturing to 11 facilities in accessories company in the U.K. with China, which produce reliable, high qual- SKU placements in most U.K. retailers. ity products in the most cost-efficient Mad Catz’ category management manner. Our China-based engineers work program for its customers assists retailers proactively with the factory on processes in targeting consumers more effectively. to ensure that our high quality standards We work closely with them to create are met. customized solutions that manage inven- Looking ahead through 2003 and tory levels, deliver the correct product beyond, Mad Catz has clearly set a strong on time, and create the most attractive foundation to build upon the momentum in-store product displays, and in turn, of the industry and is strongly positioned develop close working relationships with to lead the way as the current industry our retailers. cycle hits full stride. Mad Catz has also devoted Mad Catz creates the industry’s highest resources to supply chain management quality products at competitive prices which and identified areas across our entire appeal to the most sophisticated gamers. manufacturing and marketing process where we can reduce costs and increase efficiencies. Specifically, we have engi- neered costs out of the manufacturing process without impacting product quality, enhanced our packaging to be more attractive and more cost effective, and

Blaster for Xbox GameCube consoles. accessories tosupporttheMicrosoft X-boxandNintendo product. Inthirdquarter2002,Mad Catzlaunchedafulllineof accessories tosupportthenewNintendoGameBoyAdvance stock. lion wasconvertedto4,247,478sharesofCompanycommon Trader andZapYou asdiscontinuedoperations. Games Trader andZapYou businesseshadbeendisposed of. the MadCatzbusiness.ByOctober1,2001,allassetsof and ZapYou (internetdistribution)businessesinordertofocuson tinue theGamesTrader (“GTI”)(previouslyplayedvideogame) forth aplaninthefourthquarteroffiscal2001tosellordiscon- A decisionwasmadebytheMadCatzboardofdirectorstoset Significant developmentsduringfiscal2002 Exchange. traded ontheToronto StockExchangeandtheAmerican Canada, Australia,andNewZealand.TheCompany’s stockis represented internationallywithsalestoEurope,SouthAmerica, retail storesinNorthAmerica.MadCatzproductsarealsowell and PCgamesystems.MadCatzproductsaresoldinover12,000 er ofvideogameaccessoriesforNintendo,Sega,Sony, Microsoft it’s operationalheadquartersinSanDiego,California,isasuppli- Ltd. (“MCE”)videogameaccessorybusinesses.MadCatz,with (“MCI”), MadCatzCanadaInc.(“MCC”),andEurope holding companywithaprimaryfocusontheMadCatzInc. Mad CatzInteractiveInc.(“MadCatz”orthe“Company”)isa Profile Commission. registration statementsfiledwiththeSecuritiesandExchange factors fromtimetointheCompany’s periodicreportsand ments aremarketandgeneraleconomicconditionstherisk materially fromthoseindicatedbysuchforward-lookingstate- the importantfactorsthatcouldcauseactualresultstodiffer ments thatinvolveanumberofrisksanduncertainties.Among dollars unlessotherwisenoted. and relatednotes.AllfinancialinformationisinUnitedStates review, andtheCompany’s ConsolidatedFinancialStatements conjunction withtheMessagetoOurShareholders,operations This management’s discussionandanalysisshouldbereadin Management’s Discussion and Analysis In firstquarter2002,MadCatzlaunchedafulllineof In July2001,subordinateddebtintheamountof$3.4mil- Financial resultsforfiscal2001and2002recognizeGames This discussionandanalysiscontainsforward-lookingstate- EBITDA Interest expense Foreign exchange(gain)loss/otherincome Amortization Income taxexpense Net income(loss)fromdiscontinued Net income(loss)fromcontinuing Loss pershareongoodwillcharges Income (loss)pershareondiscontinued Income (loss)persharebeforegoodwill Net income(loss) Income (loss)pershare Operating expenses Gross profit Net Sales Results ofContinuingOperations In millionsofdollars,exceptpershareamounts Years endedMarch31 Summary StatementofOperations Operations of Results European launchofMicrosoftX-boxandNintendoGameCube. in theUnitedKingdom(MadCatzEuropeLtd.)tosupport ory cardisstillineffectandexpiresNovember2002. be renewed.TheSonyEuropelicenseforthePlaystation2mem- for thePlaystation2memorycardexpiredandisnotexpectedto be comparabletomeasuresused by othercompanies. other companiesand,accordingly, the Company’s EBITDAmaynot The Company’s methodofcalculating EBITDAmaydifferfrom and financingactivitiesasameasureofliquiditycashflows. Company’s performanceortocashflowsfromoperating,investing determined inaccordancewithGAAPasanindicatorofthe DA shouldnotbeconstruedasanalternativetonetincome(loss) income taxes.Investorsshouldbecautioned,however, thatEBIT- able fordistributionpriortodebtservice,capitalexpendituresand measure asitprovidesinvestorswithanindicationofcashavail- in additiontonetincome(loss),EBITDAisausefulsupplemental accepted accountingprinciples(GAAP).Managementbelievesthat (EBITDA) isnotarecognizedmeasureunderCanadiangenerally Diluted income(loss)pershare operations operations operations charges anddiscontinuedoperations In fourthquarter2002,MadCatzopenedabusinessoffice On December31,2001,theSonyNorthAmericanlicense Earnings beforeinterest,tax,depreciationandamortization Fiscal 2002 $0.04 $83.3 (0.02) 0.01 0.03 12.2 18.4 0.03 (0.1) 6.2 1.2 2.0 1.9 0.3 1.2 1.5 Fiscal 2001 $(0.08) 55.8 $ (18.2) (0.40) (22.9) (0.02) (0.51) (0.51) 10.7 12.4 (4.7) 1.7 0.2 1.4 1.7 3.1

MAD CATZ INTERACTIVE, INC. [9] MAD CATZ INTERACTIVE, INC. [10] $4.9 millioninfiscal 2002from$5.7millioninfiscal 2001. 8.9% infiscal2001. Total administrative expensesdecreased to as apercentageofsalesdecreased to8.7%infiscal2002from sales representativesincreasedin line withsales.Sellingexpenses expenses includingmarketingco-op andcommissionstooutside lion ascomparedto$5.0million infiscal2001.Variable selling the 49%increaseinsales.Selling expensesincreasedto$7.3mil- the increasedoperatingexpensesaresellingcostsattributableto compared to$10.7millioninfiscal2001.Theprimarydriverfor well asthecorporateoperatingexpenseassociatedwithMadCatz. administrative expensesoftheMCI,MCCandMCEbusinesses,as Operating expensesincludeselling,marketing,engineeringand Operating expenses ucts helpedoffsettheX-boxproductmargins. Gross profitderivedfromthePlaystation2andGameBoyprod- the factoriescombinedwithexpeditingcostsreducedmargins. by theX-boxproductlaunch.Newdevelopmentcostsat fiscal 2001.Grossprofitfor2002wasnegativelyaffected of netsaleswas22.1%forfiscal2002ascomparedto22.3%in compared to$12.4millionlastyear. Grossprofitasapercentage distribution centre. cost ofroyalties,freight-inandfreightoutcoststhe Gross profitisdefinedasnetsaleslessfactoryproductcosts, Gross profit still ineffectandexpiresNovemberof2002. represents 8%oftotalsalesin2002and6%2001,is The SonyEuropelicenseforthePlaystation2memorycard,which North AmericanlicenseforthePlaystation2memorycardexpired. 20% ofsalesinfiscal2001.OnDecember31,2001,theSony 2 memorycardrepresenting30%oftotalsalesascomparedto soles. Thetopsellingproductforfiscal2002wasthePlaystation nificant increaseintheembeddedbaseofSonyPlaystation2con- sales ascomparedto31%infiscal2001,benefitingfromthesig- group forfiscal2002wasPlaystation2representing43%oftotal 45% ofsalesoccurringinthirdquarter. Thetopsellingproduct cal 2001.Theseasonalityofthesalescyclewasasexpectedwith $10.1 millionforfiscal2002ascomparedto$9.5infis- and GameBoyAdvanceproductlines.Internationalsaleswere Playstation 2productsandthelaunchofX-box,GameCube sales, increased58%,drivenbymarketpenetrationof Catz NorthAmericansales,whichaccountedfor88%oftotal compared with$55.8millionforthesameperiodlastyear. Mad Net salesfromcontinuingoperationsincreasedto$83.3millionas Sales Operations Continuing Management’s Discussion and Analysis (continued) Total operatingexpenseswere$12.2 million infiscal2002as Gross profitfromcontinuingoperationswas$18.4millionas pared to45,297,305intheprevious year. of basicsharesoutstandingduring theyearof51,188,889com- share iscalculatedonthebasisof theweightedaveragenumber net losspershareof$0.51in fiscal 2001.Income(loss)per share forMadCatzinfiscal2002 was$0.03ascomparedtoa pared toanetlossof$4.7million infiscal2001.Netincomeper Net incomefromcontinuingoperationswas$1.2millionascom- Net income(loss)andpershare asset relatedtotheparentcompanyMadCatz. expense includeda$1.6millionone-timewrite-offoffuturetax $3.1 millionforfiscal2001.Fiscalyear2001incometax Income taxexpensewas$1.9millionfortheyearascomparedto Income taxexpense the NintendoGameCubeproductlaunches. ciated withtheNintendoGameBoyAdvance,MicrosoftX-boxand in fiscal2002aremouldsusedproductionofaccessoriesasso- pared to$0.7millioninfiscal2001.Primaryassetacquisitions attributed tofixedassetswas$1.0millionforfiscal2002com- 2002 ascomparedto$1.7millionforfiscal2001.Depreciation with thepurchaseofMadCatzInc.was$2.0millioninfiscal Amortization ofcapitalassetsandgoodwillchargesassociated Amortization equity inJulyoffiscal2002. payments infiscal2002.Thesubordinateddebtwasconvertedto subordinated debtwasrepaidresultinginlowermonthlyinterest to thesubordinateddebt.Duringfiscal2001,aportionof Fiscal 2002and2001included6monthsofinterestattributed lion infiscal2002comparedwith$0.4million2001. 2001. Interestapplicabletothesubordinateddebtwas$0.2mil- $1.0 millionforfiscal2002comparedwithin Interest applicabletotheasset-basedoperatinglineofcreditwas fiscal 2002ascomparedto$1.4millionforthepreviousyear. Interest expensefromcontinuingoperationswas$1.2millionin Interest expense increase insalesandthereductionadministrativeexpenses. EBITDA isattributedtothegrossprofitgeneratedby49% as comparedto$1.7millionforthepreviousyear. Theincreasein EBITDA fortheCompany’s continuingoperationswas$6.2million Earnings beforeinterest,taxes,amortizationandotheritems costs wasresponsibleforthefavorablevariance. reduction inprofessionalandlegalfees,salaries,severance in fiscal2002comparedwith$2.2million2001.A Corporate operatingexpenseforMadCatzwas$0.8million Cash providedby(usedin)financing Cash providedby(usedin)discontinued Cash usedininvestingactivities 49% increaseinsales. accounts receivablehaveincreased inlinewiththeapproximate investment wasanincreaseinaccountspayable.Inaddition, X-box andGameCubeproductlines.Theoffsettotheinventory Company investedininventoriesforthenewGameBoyAdvance, generated of$9.6millioninfiscal2001.During2002,the fiscal 2002fromcontinuingoperatingactivitiescomparedtocash Mad Catzcontinuingoperationsgenerated$5.3millionincash Liquidity andcapitalresources Cash providedbycontinuingoperating In millionsofdollars,exceptpershareamounts Years endedMarch31 Summary consolidatedstatementsofcashflow $0.01 ascomparedtoalossof$0.40intheprioryear. Income persharefordiscontinuedoperationsinfiscal2002was Games Trader andZapYou fiscal2001operations. million lossisattributedtooperatinglossesassociatedwiththe and accountsreceivable$2.0million).Thebalanceofthe$18.2 will andintangibles$2.2million,futuretaxasset$3.9 units (inventories$2.7million,capitalassets$2.1good- net realizablevalueasrelatedtothedispositionofbusiness loss alsoincludes$12.9millioninwrite-downsofassetstotheir lion forcoststoexittheGamesTrader andZapYou businesses.The loss fromdiscontinuedoperationsincludeschargesof$1.0mil- tinued operationsforfiscal2001was$18.2million.The ued operationsof$0.3millionfortheyear. Thelossfromdiscon- assets andrevaluationofliabilitieshasledtoagainondiscontin- Trader andZapYou businesses.Thenetresultofthedisposal updated toprovidefortheexpectedfutureliabilitiesofGames ing liabilitiesrelatedtothediscontinuingoperationshavebeen ZapYou businesseshadbeendisposedof.Provisionsforoutstand- Games Trader andZapYou businessunits. mal plantodisposeoftheassetsandbusinessoperationsits In March2001,theCompany’s BoardofDirectorsadoptedafor- Net gain(loss)fromdiscontinuedoperations Net increaseincash activities operations activities By October2001,alloftheassetsGamesTrader and Fiscal 2002 $5.3 $0.5 (4.0) (1.1) 0.3 Fiscal 2001 $9.6 $1.4 (1.2) (8.5) 1.5 tional cashtothecompany. version ofsubordinateddebttoequitywhichdidnotprovideaddi- 2002 increaseinshareholdersequityisprimarilyduetothecon- uct linesaswelltheoverallincreaseinsales.Thefiscalyear support thenewGameBoyAdvance,X-boxandGameCubeprod- in fiscal2002wasduetotheincreasedworkingcapitalneeds pared with$24.7millionthepreviousyear. Theincreaseinassets previous year. Shareholdersequitywas$29.6millionascom- had assetsof$50.2millionascomparedwith$45.7the As ofMarch31,2002,theCompany’s consolidatedbalancesheet Balance sheet this loancovenant. As atMarch31,2002,theCompanywasincompliancewith meet atangiblenetworthcovenanttoaccessthelineofcredit. availability of$3.3million.Inaddition,theCompanymust standing loanwas$4.3millionwithadditionalexcess line ofcreditwas$16.0million.AtMarch31,2002theout- During fiscal2002themaximumamountborrowedagainst receivable andinventory)whichchangesthroughouttheyear. this lineofcreditisbasedoneligiblecollateral(accounts has amaximumavailabilityof$35million,howeveraccessto with anasset-basedlender. Thecurrentoperatingcreditfacility internally generatedcashflowandanoperatingcreditfacility cash generatedof$1.4millioninfiscal2001. and discontinuedoperationswas$0.5millionascomparedto compared withcashusedof$8.5millionthepreviousyear. fiscal 2002duetotherevaluationofoutstandingliabilitiesas million wasfortheacquisitionofcapitalassets. million andcashusedinfiscal2001investingactivitiesof$1.2 repay thebankloan. 2001. Cashusedbyfinancingactivitiesinfiscal2002wasto 2002 ascomparedtocashgeneratedof$1.5millioninfiscal The Company’s workingcapitalneedsareprovidedby The netcashgeneratedforfiscal2002bothcontinuing Discontinued operationsgenerated$0.3millionincash Total cashusedinfiscal2002investingactivitiesof$1.1 Cash usedbyfinancingactivitieswas$4.0millioninfiscal

MAD CATZ INTERACTIVE, INC. [11] MAD CATZ INTERACTIVE, INC. [12] e noe(os 19 18 . (20.0) 0.9 $(0.42) $0.02 (1.8) (4.7) $(0.04) (1.9) (0.11) 1.3 $(0.05) 4thQuarter 0.03 (0.6) 3rdQuarter (0.01) 2ndQuarter (0.7) (0.02) 1stQuarter Net Income/(loss)pershare Net Income/(loss) Net Income/(loss)fromcontinuingoperationspershare Net Income/(loss)fromcontinuingoperations Net Sales In millionsofdollars,exceptpershareamounts Fiscal 2001 Net Income/(loss)pershare Net Income/(loss) Net Income/(loss)fromcontinuingoperationspershare Net Income/(loss)fromcontinuingoperations Net Sales In millionsofdollars,exceptpershareamounts Fiscal 2002 year 2001resultshavebeenrestatedtotakeintoaccountdiscontinuedoperationsaccounting. The followingisasummaryofunauditedquarterlyfinancialinformationforthetwoyearsendedMarch31,2002and2001.Fiscal Quarterly FinancialInformation chase ofadditionalproducts.Competitors’ promotionalorother end userstoreturndefectiveproducts forcreditstowardthepur- Consistent withindustrypractice,the Companyallowsretailersand Risks AssociatedwithProductReturns: PriceProtection be availableontermsacceptabletotheCompany. ments. Suchroyaltyorlicensingagreements,ifrequired,maynot require theCompanytoenterintoroyaltyorlicensingagree- may resultincostlylitigation,causeproductshipmentdelaysor operations. Irrespectiveoftheirvalidityorsuccess,suchclaims adversely affectthebusiness,financialcondition,orresultsof against theCompany, orthatanysuchclaimswillnotmaterially ance thatinfringementorinvalidityclaimswillnotbeasserted the proprietaryrightsofanythirdparties,therecanbenoassur- Although theCompanydoesnotbelievethatitsproductsinfringe Infringement ofThirdParties’Rights ing end-usersrequirementsandachievemarketacceptance. that keeppacewithtechnologicaldevelopments,respondtoevolv- its currentinventoryofproductsandtointroducenew Company’s futuresuccesswilldependuponitsabilitytoenhance existing inventoryofproductsobsoleteandunmarketable.The gence ofnewindustrystandardscouldrendertheCompany’s duction ofproductsembodyingnewtechnologiesandtheemer- quent newproductintroductionsandenhancements.Theintro- rapid technologicaladvances,evolvingindustrystandardsandfre- The marketsfortheCompany’s productsarecharacterizedby Technology management risk and Risk Management’s Discussion and Analysis (continued) have amaterialadverseeffecton the Company’s revenues. Company orit’s competitorsand generaleconomicconditionsmay the Companyorit’s competitors,changesinpricingpolicies bythe The introductionofnewproductsandproductenhancementsby The Companyhassignificantrevenuesfromahandfulofproducts. Product Concentration a materialadverseeffectontheCompany’s businessandprospects. or asignificantdeclineinthesalestothesecustomerscouldhave ucts totwocustomers(2001–43%customers).Thelossof, During fiscal2002,theCompanysoldatotalof48%itsprod- Customer Concentration to faceincreasingpricecompetition. to continuallyintroducenewandenhancedproductsislikely operating results.ThisisparticularlytruesincetheCompanyseeks and asaresultwillnothavematerialadverseeffectonfuture tection obligationswillnotexceedsuchallowancesinthefuture be noassurancethatsuchproductreturn,exchangeandpricepro- ed intheestablishmentofallowancesthatareadequate,therecan protection obligations,andbelievesitsexistingpolicieshaveresult- provides allowancesforanticipatedreturns,exchangesandprice that theCompanyintroducesnewversions.Although product returnscouldincreaseabovehistoricallevelstotheextent tories atanytime.Further, theCompanyexpectsthatrateof activities couldcausepriceprotectionofexistingcustomerinven- s ure n ure r ure 4thQuarter 3rdQuarter 2ndQuarter 1st Quarter (.1 .1$.3$0.00 $0.03 $0.01 $(0.01) 40$1. 3. $15.8 $37.8 $15.7 14.0 $ . 04$30$ 7.1 $ $33.0 $10.4 5.3 $ 00)00 .3(0.01) 0.03 0.01 (0.01) 03 . . 0.1 (0.2) 1.4 1.4 0.3 0.3 (0.3) (0.3) sification criteriainSection1581. necessary reclassificationsinordertoconformwiththenewclas- acquired inpurchasebusinesscombinations,andtomakeany evaluate itsexistingintangibleassetsandgoodwillthatwere the adoptionofSection3062. to previouslyrecognizedgoodwillandintangibleassets,prior ability basis,usingthesameimpairmenttestsasthoseapplied tinue tobeamortizedandtestedforimpairmentonarecover- in businesscombinationscompletedbeforeJuly1,2001con- ed, arenotamortized.Goodwillandintangibleassetsacquired pleted afterJune30,2001,butbeforeSection3062isadopt- useful lifeacquiredinapurchasebusinesscombinationcom- Goodwill andintangibleassetsdeterminedtohaveanindefinite July 1,2001,andSection3062iseffectiveApril2002. impairment byassessingtherecoverabilityofcarryingvalue. ed usefullivestotheirestimatedresidualvalues,andreviewedfor estimable usefullivesbeamortizedovertheirrespectiveestimat- 3062. Section3062alsorequiresthatintangibleassetswith respective fairvalueinaccordancewiththeprovisionsofSection impairment atleastannuallybycomparingcarryingvaluetothe nite usefullivesnolongerbeamortized,butinsteadtestedfor 3062 willrequirethatgoodwillandintangibleassetswithindefi- to berecognizedandreportedseparatelyfromgoodwill.Section intangible assetsacquiredinabusinesscombinationmustmeet all businesscombinations.Section1581specifiescriteriathat 1581 requiresthatthepurchasemethodofaccountingbeusedfor “Goodwill andOtherIntangibleAssets”(“Section3062”).Section Combinations” (“Section1581”)andHandbookSection3062, (“CICA”) issuedHandbookSection1581,“Business In August2001,theCanadianInstituteofCharteredAccountants Recently IssuedAccountingStandards restriction riskinAsia. affected atanytimebythepoliticalinstabilityandpotentialtrade The CompanyusesAsiancontractmanufacturers.Thesemaybe Offshore ManufacturingRisk remain competitive. may beforcedtolowerthepricesforit’s productsatanytimeto The Companyoperatesinahighlycompetitiveenvironmentand Ongoing MarginPressure Upon adoptionofSection3062,theCompanyisrequiredto The CompanyadoptedtheprovisionsofSection1581as amortization offoreigncurrencytranslation differencesresulting 13”). TherevisiontoSection1650 willeliminatethedeferraland issued AccountingGuideline13,“HedgingRelationships”(“AcG 1650, “ForeignCurrencyTranslation” (“Section 1650”)and charged toopeningretainedearningsasatApril1,2002. cumulative effectofachangeinaccountingprinciplesandwillbe be requiredtorecognizeanytransitionalimpairmentlossesasa cial statementsatthedateofthisreport,includingwhetheritwill mate theimpactofadoptingsectionsonCompany’s finan- Sections 1581and3062,itisnotpracticabletoreasonablyesti- Because oftheextensiveeffortneededtocomplywithadopting million foreachoftheyearsendedMarch31,2002and2001. Section 3062.Amortizationexpenserelatedtogoodwillwas$1.0 lion, allofwhichwillbesubjecttothetransitionprovisions expects tohaveunamortizedgoodwillintheamountof$16.4mil- ment toopeningretainedearningsatApril1,2002. tional impairmentlosswillberecognizedasapriorperiodadjust- the impliedfairvalueofreportingunitgoodwill.Anytransi- with Section1581.Theresidualfairvalueafterthisallocationis in amannersimilartopurchasepriceallocation,accordance (recognized andunrecognized)liabilitiesofthereportingunit allocating thefairvalueofreportingunittoallassets of adoption.Theimpliedfairvaluegoodwillisdeterminedby ing unitgoodwill,bothofwhichwouldbemeasuredasthedate the reportingunitgoodwillwithcarryingamountofreport- second step,theCompanymustcompareimpliedfairvalueof possible, butnolaterthantheendofyearadoption.In ment test.Thesecondstepisrequiredtobecompletedassoon Company mustperformthesecondstepoftransitionalimpair- exists thatthereportingunitgoodwillmaybeimpairedand ing unitexceedsthefairvalueofreportingunit,anindication of thereportingunit.To theextentcarryingamountofareport- value ofeachreportingunitandcompareittothecarryingamount have uptosixmonthsfromApril1,2002determinethefair those reportingunitsasofApril1,2002.TheCompanywillthen bilities, includingtheexistinggoodwillandintangibleassets,to rying valueofeachreportingunitbyassigningtheassetsandlia- Company mustidentifyitsreportingunitsanddeterminethecar- will isimpairedasofthedateadoption.To accomplishthis,the perform anassessmentofwhetherthereisindicationthatgood- impairment evaluation,Section3062requirestheCompanyto In November2001,theCICAamendedHandbookSection As ofthedateadoptionSection3062,Company In connectionwithSection3062’s transitionalgoodwill

MAD CATZ INTERACTIVE, INC. [13] MAD CATZ INTERACTIVE, INC. [14] is recordedassharecapital. Consideration paidbyemployeesontheexerciseofstockoptions is recordedonthegrantofstockoptionstoemployees. Company tocontinueitsexistingpolicythatnocompensationcost of equityinstruments.However, thenewstandardpermits stock appreciationrightsthatcallforsettlementbytheissuance of stock,thatcallforsettlementincashorotherassets,are to non-employees,andemployeeawardsthataredirect tions. Section3870mustbeappliedto:allstock-basedpayments ing thatisrequiredforcertain,butnotall,stock-basedtransac- on thepriceofcommonstockorotherequityinstruments. other equityinstrumentsaregrantedorliabilitiesincurredbased transactions inwhichsharesofcommonstock,stockoptions,or services providedbyemployeesandnon-employees.Itappliesto and otherstock-basedpaymentsmadeinexchangeforgoods tion, measurement,anddisclosureofstock-basedcompensation was issued.Section3870establishesstandardsfortherecogni- Compensation andOtherStock-basedPayments(“Section3870”) effect asofApril1,2002. ences willbechargeddirectlytoincome.Section1650in denominated inforeigncurrencies.Allsuchtranslationdiffer- from thetranslationoflong-termmonetaryassetsandliabilities Management’s Discussion and Analysis (continued) Section 3870setsoutafairvaluebasedmethodofaccount- In December2001,HandbookSection3870,Stock–based dition orresultsofoperations. dards willhaveamaterialimpactontheCompany’s financialcon- The Companydoesnotbelievethattheadoptionofthesestan- recommendations areappliedretroactively, withoutrestatement. call forsettlementinequityinstruments.Forsuchgrants,thenew settlement incashorotherassetsstockappreciationrightsthat 2002, exceptgrantsoutstandingatApril1,2002thatcallfor the issuanceofequityinstruments,grantedonorafterApril1, assets, orarestockappreciationrightsthatcallforsettlementby are directawardsofstock,callforsettlementincashorother based paymentstonon-employees,andemployeeawardsthat employee stockoptions. value basedaccountingmethodhadbeenusedtoaccountfor forma earningsandpropershareasifthefair for optionsgrantedtoemployees,includingdisclosureofpro Section 3870willbeappliedprospectivelytoallstock- Section 3870,however, doesrequireadditionaldisclosures Chief Financial Officer Andy Schmidt President and Chief Executive Officer Morris Perlis have fullandfreeaccesstotheAuditCommittee. standards onbehalfoftheshareholders.Theexternalauditors external auditors,inaccordancewithgenerallyacceptedauditing dated financialstatementshavebeenauditedbyKPMGLLP, the Committee andapprovedbytheBoardofDirectors.Theconsoli- idated financialstatementswerereviewedbytheAudit each partyisproperlydischargingitsresponsibilities.Theconsol- ing mattersandfinancialreportingissuestosatisfyitselfthat cuss internalcontrolsoverthefinancialreportingprocess,audit- review thecompany’s reportedfinancialperformanceandtodis- periodically withmanagement,aswelltheexternalauditors,to majority ofindependentDirectors.TheAuditCommitteemeets Committee isappointedbytheBoardandcomprisedofa bility principallythroughitsAuditCommittee.The dated financialstatements.TheBoardcarriesoutthisresponsi- ultimately responsibleforreviewingandapprovingtheconsoli- agement fulfillsitsresponsibilitiesforfinancialreporting,butis ed. TheBoardofDirectorsisresponsibleforensuringthatman- assets areappropriatelyaccountedforandadequatelysafeguard- mation isreliable,relevantandaccurate,thattheCompany’s designed toprovidereasonableassurancethatthefinancialinfor- tains asystemofinternalaccountingandadministrativecontrols that intheconsolidatedfinancialstatements.TheCompanymain- elsewhere intheannualreportandensureditisconsistentwith Management haspreparedthefinancialinformationpresented cial statementsarepresentedfairly, inallmaterialrespects. amounts onareasonablebasisinordertoensurethatthefinan- best estimatesandjudgments.Managementhasdeterminedsuch financial statementsincludesomeamountsthatarebasedon with accountingprinciplesgenerallyacceptedinCanada.The statements havebeenpreparedbymanagementinaccordance the responsibilityofmanagement.Theconsolidatedfinancial Interactive Inc.andalltheinformationinthisannualreportare The accompanyingconsolidatedfinancialstatementsofMadCatz management’s Responsibilitymanagement’s for Financial Reporting

MAD CATZ INTERACTIVE, INC. [15] MAD CATZ INTERACTIVE, INC. [16] May 29, 2002 San Diego, California solidated financialstatements. 2002 and2001totheextentsummarizedinnote14con- ended March31,2002andshareholders'equityasat results ofoperationsforeachtheyearsintwo-yearperiod ples generallyacceptedintheUnitedStateswouldhaveaffected accepted intheUnitedStates.Applicationofaccountingprinci- certain significantrespectsfromaccountingprinciplesgenerally dance withCanadiangenerallyacceptedaccountingprinciples. operations anditscashflowsfortheyearsthenendedinaccor- Company asatMarch31,2002and2001theresultsofits ent fairly, inallmaterialrespects,thefinancialpositionof the overallfinancialstatementpresentation. nificant estimatesmadebymanagement,aswellevaluating also includesassessingtheaccountingprinciplesusedandsig- amounts anddisclosuresinthefinancialstatements.Anaudit audit includesexamining,onatestbasis,evidencesupportingthe the financialstatementsarefreeofmaterialmisstatement.An plan andperformanaudittoobtainreasonableassurancewhether accepted auditingstandards.Thosestandardsrequirethatwe erally acceptedauditingstandardsandUnitedStatesgenerally statements basedonouraudits. Our responsibilityistoexpressanopiniononthesefinancial statements aretheresponsibilityofCompany'smanagement. deficit andcashflowsfortheyearsthenended.Thesefinancial and 2001theconsolidatedstatementsofoperations Interactive, Inc.(formerlyGTRGroupInc.)asatMarch31,2002 We haveauditedtheconsolidatedbalancesheetsofMadCatz Auditors’ Report to the Shareholders Canadian generallyacceptedaccountingprinciplesvaryin In ouropinion,theseconsolidatedfinancialstatementspres- We conductedourauditsinaccordancewithCanadiangen- Shareholders' equity: Future taxliabilities(note9) Commitments andcontingencies(note12) Current liabilities: Liabilities andShareholders'Equity Goodwill (note5) Capital assets(note4) Deferred financingfees ietrDirector CaryMcWhinnie Director Don Lenz On behalfoftheBoard: See accompanyingnotestoconsolidatedfinancialstatements. Current assets: Assets Expressed inU.S.dollarsMarch31, Consolidated Balance Sheets Deficit Cumulative translationadjustment Capital stock(note8) Subordinated debt(note7) Accounts payableandaccruedliabilities Bank loans(note6) Income taxesreceivable Future taxassets(note9) Prepaid expensesanddeposits Inventories (note3) Accounts receivable Cash 50,195,368 $ 4,335,084 $ 50,195,368 $ 1,902,966 $ (16,328,694) 45,554,910 20,441,128 29,617,354 16,106,044 16,362,175 31,071,627 15,918,898 10,276,547 1,919,749 2,070,835 391,138 136,886 841,817 267,495 634,886 2002 — 45,668,270 $ 8,670,796 $ 45,668,270 $ 1,455,480 $ (17,815,465) 41,823,042 20,572,202 24,688,886 17,529,191 25,080,571 13,493,306 3,338,719 8,562,687 1,733,516 1,324,992 2,484,398 6,810,779 681,309 407,182 178,235 658,373 2001

MAD CATZ INTERACTIVE, INC. [17] MAD CATZ INTERACTIVE, INC. [18] Diluted netincome(loss)pershare(note11) Net income(loss)pershare(note11) Loss pershareongoodwillcharges Income (loss)pershareondiscontinuedoperations Income (loss)persharebeforegoodwillcharges Deficit, endofyear Retained (deficit)earnings,beginningofyear Net income(loss) See accompanyingnotestoconsolidatedfinancialstatements. Income (loss)fromdiscontinuedoperations(note2) Income (loss)fromcontinuingoperations Goodwill charges Income (loss)beforegoodwillchargesand Income taxes(note9) Income (loss)beforeincometaxesandgoodwillcharges Expenses (income): Gross profit Cost ofsales Net sales Expressed inU.S.dollarsYears endedMarch31, Consolidated Statements ofOperations and Deficit and discontinuedoperations Amortization Interest onsubordinateddebt Interest onbanktermloan discontinued operations Foreign exchange(gain)loss Interest Administrative Selling 0.03 0.03 $ $ 0.04 $ (16,328,694) $ 83,337,134 $ (17,815,465) 18,409,239 64,927,895 14,392,354 1,486,771 1,009,936 1,184,676 2,161,341 1,855,544 4,016,885 4,934,693 7,276,113 246,781 302,095 976,665 985,342 (60,511) (0.02) 0.01 2002 — (0.51) (0.51) $ $ (0.08) $ (17,815,465) $ 55,781,630 $ (22,908,206) (18,256,392) 12,414,543 43,367,087 13,046,331 (4,651,814) (3,701,119) 5,092,741 1,064,195 3,069,331 5,722,279 4,955,479 (631,788) 390,771 717,889 950,695 191,667 4,051 (0.40) (0.02) 2001 Supplemental cashflowinformation: Cash, endofyear Cash, beginningofyear Increase incash Effects ofexchangeratechangesoncash Investing activities: See accompanyingnotestoconsolidatedfinancial statements. Operating activities: Cash providedby(usedin): Expressed inU.S.dollarsYears endedMarch31, Financing activities: Consolidated Statements of Cash Flows Interest paid Income taxespaid Purchase ofcapitalassets Share issuecosts Proceeds fromissueofsharecapital Mad Catzobligation Repayment ofsubordinateddebt Subordinated debt Bank termloan Bank loans Adjusted for(income)lossfromdiscontinuedoperations Net income(loss) Bank indebtedness Shareholder advances Deferred financingfees Cash providedby(usedin)discontinuedoperations Cash providedbycontinuingoperations Change innon-cashoperatingworkingcapital: Items notinvolvingcash: Decrease inincometaxesreceivable Increase (decrease)inaccountspayableandaccruedliabilities (Increase) decreaseininventories (Increase) decreaseinprepaidexpensesanddeposits (Increase) decreaseinaccountsreceivable Future incometaxes Amortization Foreign exchange Deferred financingfees Write-off ofinvestment 1,800,000 $ 1,902,966 $ 1,486,771 $ (1,103,614) (3,981,918) (4,349,018) (2,411,279) (3,462,953) 1,455,480 5,275,958 7,377,328 1,986,601 (302,095) 665,862 447,486 367,100 302,095 143,267 603,465 (45,035) (96,663) (60,511) 12,027 2002 — — — — — — — — — 1,059,017 $ 1,455,480 $ $(22,908,206) 18,256,392 (1,180,773) (3,656,281) (1,614,276) (3,930,551) (2,803,757) (1,976,502) (8,527,219) 1,219,017 1,455,480 1,524,456 4,057,244 4,757,977 4,123,809 9,586,892 1,668,584 1,390,409 4,377,256 7,862,764 (155,541) 258,724 395,371 706,633 184,271 198,451 (85,095) 52,124 3,672 2001 —

MAD CATZ INTERACTIVE, INC. [19] MAD CATZ INTERACTIVE, INC. [20] ols33% 10% 20% 33% 33% 33% 20% -33% Moulds Leasehold improvements Furniture andfixtures Computer systemdevelopment Computer software Computer hardware Manufacturing andofficeequipment assets onastraight-linebasisatthefollowingannualrates: Amortization isprovidedovertheestimatedusefullivesof Capital assetsarestatedatcostlessaccumulatedamortization. (d) Capitalassets: the first-infirst-outmethod. value withcostbeingdeterminedonanaveragebasisusing Finished goodsarevaluedatthelowerofcostandnetrealizable the lowerofcostandreplacementcost. Raw materials,packagingmaterialsandaccessoriesarevaluedat (c) Inventories: vision forsalesreturnsandcreditmemosissued. when titlepassestothecustomer, aftermakingappropriatepro- Revenue fromproductsalesisrecognizeduponshipmentand (b) Revenuerecognition: transactions andbalanceshavebeeneliminatedonconsolidation. Unlimited Inc.andMadCatzLtd.Allsignificantintercompany ("MCI"), MadCatz(Asia)Ltd.,EuropeFX U.S. Inc.,SingaporeHoldingsSpoxtPteLtd.,MadCatz,Inc. Inc. ("MadCatzCanada"),XencetMassachusettsInc., Company anditswhollyownedsubsidiaries,1328158Ontario The consolidatedfinancialstatementsincludetheaccountsof (a) Principlesofconsolidation: as follows: Company, whichhavebeenconsistentlyapplied,aresummarized States. Theprincipalaccountingpoliciesfollowedbythe with accountingprinciplesgenerallyacceptedintheUnited except asdescribedinnote14,conformallmaterialrespects with generallyacceptedaccountingprinciplesinCanadaand, The consolidatedfinancialstatementsarepreparedinaccordance POLICIES ACCOUNTING SIGNIFICANT 1 NOTE April 7,1997. Ontario BusinessCorporationsActandcommencedoperationson "Company") wasincorporatedonFebruary3,1997underthe Mad CatzInteractive,Inc.(formerlyGTRGroupInc.)(the Notes to Consolidated Financial Statements provided. that afuturetaxassetwillberealized,valuationallowanceis enactment date.To theextentthatitisnot"more likelythannot" income intheyearthatincludesenactmentorsubstantive assets andliabilitiesofachangeintaxratesisrecognized expected toberecoveredorsettled.Theeffectonfuturetax income intheyearswhichthosetemporarydifferencesare or substantivelyenactedtaxratesexpectedtoapplytaxable carryforwards. ing valueandtaxbasisofassetsliabilitiesforloss attributable todifferencesbetweenthefinancialstatementcarry- assets andliabilitiesarerecognizedforfuturetaxconsequences the liabilitymethodofaccountingforincometaxes,futuretax Income taxesareaccountedforusingtheliabilitymethod.Under (h) Incometaxes: credited tosharecapital. ees ontheexerciseofstockoptionsorpurchaseis granting ofstockoptions.Anyconsiderationpaidbytheemploy- described innote8.Nocompensationexpenseisrecordedon The Companyhasanemployeestock-basedoptionplan,whichis (g) Employeestockoptionplan: of thedebt. financing andareamortizedonastraight-linebasisovertheterm Deferred financingfeesincludecostsrelatedtoobtainingdebt (f) Deferredfinancingfees: charge toincome. year ofanimpairmentinvalue,thegoodwillwillbereducedbya taking intoaccounttheriskassociatedwithinvestment.In by reviewingtheundiscountedcashflowsofrelatedbusiness, The Companyassessesthecontinuingvalueofgoodwilleachyear straight-line basisover20years. fair valueofidentifiablenetassetsacquired,isamortizedona Goodwill, representingtheexcessofpurchasepriceover (e) Goodwill: be reducedbyachargetoincome. carrying amount.Intheyearofawrite-down,capitalassetswill ensuring thenetrecoverableamountofitsassetsexceeds The Companyassessesthevalueofitscapitalassetsannuallyby Future taxassetsandliabilitiesaremeasuredusingenacted (i) Foreign currency translation: (l) Net income (loss) per share: The Company has adopted the United States dollar as its report- Effective April 1, 2001, the Company changed its method of cal- ing currency for its financial statements, commencing April 1, culating net income (loss) per share, on a retroactive basis, in 2001. Comparative figures previously reported in Canadian dol- accordance with Section 3500 of The Canadian Institute of lars have been translated at the exchange rate in effect April 1, Chartered Accountants' ("CICA") Handbook. Under the new rec- 2001. ommendations, the treasury stock method is used to calculate The United States dollar is the functional currency of the diluted net income (loss) per share, consistent with United States Company's United States operations. The Canadian dollar is the accounting principles. The treasury stock method assumes any functional currency of the Company's Canadian operations, which option proceeds would be used to purchase common shares at the are translated to United States dollars using the current rate average market price during the period. This change has no method. The British pound is the functional currency of the impact on the reported net income (loss) per share for the prior

Company's United Kingdom operations, which are translated to year presented. MAD CATZ INTERACTIVE, INC. [21] United States dollars using the current rate method. Foreign currency transactions and account balances have NOTE 2 DISCONTINUED OPERATIONS been translated where applicable into United States dollars as fol- In March 2001, the Company's Board of Directors adopted a for- lows: monetary assets and monetary liabilities are translated into mal plan to dispose of the assets and business operations of its United States dollars at the rate of exchange in effect at the bal- GTI (previously played video game business) and ZapYou.com ance sheet date; revenue and expenses are translated into United (internet distribution) business units. These units are accounted States dollars at the average rates of exchange prevailing during for as discontinued operations and, accordingly, amounts in the the year. Exchange gains and losses resulting from the translation financial statements and related notes for all periods shown have of these amounts are included in the consolidated statements of been restated to reflect discontinued operations accounting. As at operations and deficit. March 31, 2002, all of the assets of GTI and ZapYou.com have The assets and liabilities of the Company and of Mad Catz been disposed of. The Company will maintain a provision for Canada, which have the Canadian dollar as the functional curren- accounts payable and accrued liabilities until such time that all cy, and of Mad Catz Europe Ltd., which has the British Pound as recognized obligations of the previous GTI and ZapYou.com busi- its functional currency are considered financially and opera- nesses are settled. tionally independent, and are translated into United States dollars During 2002, the Company recorded a net gain of at the rate of exchange in effect at year end. The revenue and $302,095 (2001 - net loss of $18,256,392), net of income expenses of these self-sustaining operations are translated at the taxes of nil (2001 - net of income tax recovery of $3,976,468) in average rate of exchange in effect during the year. The foreign respect of GTI and ZapYou.com business units. Net revenue appli- currency translation adjustment is deferred and included as a cable to GTI and ZapYou.com during the years presented was nil separate component of shareholders' equity. (2001 - $15,996,042). The 2002 gain from discontinued operations is a result of revaluing the fiscal 2001 provisions to pro- (j) Use of estimates: vide for the expected future liabilities associated with the GTI and The preparation of financial statements in conformity with gener- ZapYou.com businesses. The 2001 loss from discontinued opera- ally accepted accounting principles requires management to tions includes accrued charges of $1,018,754 for estimated make estimates and assumptions that affect the reported costs to exit the GTI and ZapYou.com business units. The loss amounts of assets and liabilities and the disclosure of contingent also includes the following writedowns of assets to their net real- assets and liabilities at the date of the financial statements and izable value related to the dispositions of the business units: the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. Inventories $ 2,657,944 Capital assets 2,093,929 Goodwill 2,215,866 (k) Credit risk: Future tax asset 3,947,411 The Company extends credit on an uncollateralized basis to cer- Accounts receivable 2,011,766 tain of its customers and monitors this on a continuing basis. $12,926,916 MAD CATZ INTERACTIVE, INC. [22] resent computerchipsonly. game cartridgesandcomputerchips.In2002,rawmaterialsrep- Raw materialsin2001representunprocessedandunpackaged Packaging materialsandaccessories Finished goods Raw materials INVENTORIES 3 NOTE interest expenseinrespectofthediscontinuedoperations. liabilities amounts. year's financialstatementsandarereflectedintheaboveaccrued business units.Theseexpenseshavebeenaccruedinthecurrent incurred relatingtothedispositionofitsGTIandZapYou.com expenses, salariesandseveranceexpensesof$424,305tobe The Companyanticipatesadditionalexpensesrelatingtolegal Accounts payableandaccruedliabilities Bank loan are includedintheconsolidatedbalancesheetsasfollows: The liabilitiesoftheGTIandZapYou.com businessunits,which Capital assets Accounts receivable Inventories Cash solidated balancesheetsincludethefollowing: The assetsoftheGTIandZapYou.com businessunitsinthecon- Notes to Consolidated Financial Statements (continued) During 2002,GTIpaid$25,369(2001-$689,488)in $15,918,898 4,516,360 $ 11,163,351 424,305 $ $— $520,836 $520,836 239,187 424,305 2002 2002 2002 — — — $13,493,306 4,007,946 $ $4,556,204 $1,928,913 $4,647,767 802,360 $ 9,071,391 1,634,818 2,140,805 2,627,291 413,969 69,784 2001 2001 2001 ols233891,375,276 2,303,829 Moulds Leasehold Furniture and Computer Manufacturing ASSETS CAPITAL 4 NOTE anteed bytheCompany. receivable andinvestment properties.Thelineof creditisguar- first priorityinterestinMCI'sinventories, equipment,accounts repaid inUnitedStatesdollars.The lineofcreditissecuredbya prime rateplus0.75%perannum, expiresin2003andmustbe credit accruesinterestonthedaily outstandingbalanceatU.S. up to$35,000,000underarevolving lineofcredit.The Congress FinancialCorporation(Central)("Congress")toborrow On September25,2000,MCIsignedaloanagreementwith LOANS BANK 6 NOTE (note 2). discontinued operationsinrespectoftheoriginalpurchaseGTI $2,425,268 During 2001,$2,215,866ofgoodwillwaswrittenoffaspart $18,787,443 Goodwill GOODWILL 5 NOTE costs, leaseholdimprovementsandrackskiosks. puter hardwareandsoftware,computersystemdevelopment Capital assetswrittendownincludedfurnitureandfixtures,com- $69,784 inrespectofGTIandZapYou.com, respectively(note2). written downtotheirestimatednetrecoverableamountof During 2001,$994,070and$1,099,859ofcapitalassetswere Computer system Computer in respectofliquidatingGTIinventories(note2). itrs178851,112 137,911 147,898 415,830 improvements fixtures adae8985453,816 869,895 75,220 $ hardware 156,108 $ equipment and office eeomn ,0 711 105,319 3,200 222,354 development software During 2001,inventoriesof$2,657,944werewrittendown 41914$2,199,365 $4,119,114 otaotzto au value value amortization Cost otaotzto au value value amortization Cost cuuae e okNetbook Netbook Accumulated cuuae e okNetbook Netbook Accumulated $16,362,175 $1,919,749 80,888 $ 277,919 416,079 117,035 928,553 96,786 2,489 2002 2002 $17,529,191 $1,733,516 158,945 $ 1,034,904 198,413 192,389 108,845 11,473 28,547 2001 2001 Unlimited commonshares Unlimited ClassBpreferredshares Unlimited ClassApreferredshares (a) Authorized: STOCK CAPITAL 8 NOTE September 18,2002. share oftheCompanyataprice$0.91.Thewarrantsexpireon stock. Eachwarrantentitlestheholdertoacquireonecommon issue 200,000warrantstopurchasetheCompany'scommon issued. June 12to18,2001.Atotalof4,247,478shareswere which wasthefivedayaveragesharepriceforperiodfrom est due.TheloanwasconvertedatasharepriceofCdn.$1.218 date was$3,361,770,whichincluded$23,051ofunpaidinter- vert theoutstandingloantoequity. Thebalanceoftheloanatthat annum. AsatJuly17,2001,anagreementwasreachedtocon- accrued interestonthedailyoutstandingbalanceat14%per with ashareholderanddirectortoborrow$5,000,000.Theloan On September18,2000,theCompanysignedaloanagreement DEBT SUBORDINATED 7 NOTE covenant. March 31,2002,theCompanywasincompliancewiththis meet amonthlyconsolidatedtangiblenetworthcovenant.Asat above. the sameconditionsandtermsaslinesofcreditdescribed credit fromCongresstobeusedforacquisitionpurposesunder full, andthelineofcreditwasclosed. fiscal year2002,theGTIportionofbankloanwasrepaidin ties. ThelineofcreditisguaranteedbytheCompanyandMCI.In tories, equipment,accountsreceivableandinvestmentproper- line ofcreditissecuredbyafirstpriorityinterestinGTI'sinven- Canadian primerateplus0.75%.Thelineexpiresin2003. 0.75% perannumandontheCanadiandollarbalanceat standing UnitedStatesdollarbalanceatU.S.primerateplus line ofcredit.Thecreditaccruesinterestonthedailyout- Congress toborrowupCdn.$15,000,000underarevolving Additional conditionsoftheloanrequiredCompanyto The Congressloanagreementsalsorequiretheborrowersto The Companyhasalsobeengranted$10,000,000lineof On September25,2000,GTIsignedaloanagreementwith Granted uodntddb nt )427483,361,770 (96,733) 4,247,478 — (85,095) 41,823,042 Balance, March31,2002 48,203,035 — subordinated debt(note7) Shares issuedonconversionof 3,266,731 Exercise ofoptionsunder 4,071,801 Balance, March31,2001 $34,488,704 Share issuecosts,netoftaxeffect 2,059,739 Warrants purchased 40,613,506 5,303,791 Shares issuedforMadCatzpurchase Shares issuedonexerciseofwarrants Exercise ofoptionsunder Balance, March31,2000 Outstanding, Expired/cancelled Exercised Outstanding, options havebeengrantedandareoutstanding: of thePlanfollowingdirector, officerandemployeestock diately andotheroptionsvestoveraperiodofthreeyears.Aspart period ofamaximumfiveyears.Directorsoptionsvestimme- granted topurchasecommonsharesandareexercisableovera Under theCompany'sshareoptionplan(the"Plan"),optionsare (d) Stockoptionplan: common shareoftheCompanyatpricespecified. Each sharepurchasewarrantentitlestheholdertoacquireone 200,000 ing: At March31,2002,thefollowingsharepurchasewarrantsareoutstand- (c) Sharepurchasewarrants: (b) Issued: omnsae fsae Amount ofshares Common shares tc pinpa 5,3 370,098 459,035 177,634 225,999 stock optionplan stock optionplan end ofyear beginning ofyear ,0,6 1.16 3,501,467 0.68 $1.51 1,928,833 2,443,410 4171 1.27 0.84 (411,741) (459,035) pin rc pin price Options price Options egtdWeighted Weighted xrieexercise exercise vrg average average 2002 52,909,548 Number 09 September2002 $0.91 ,4,1 1.51 2,443,410 $2.00 1,900,659 rc Expiring Price 2850 1.94 0.79 (208,500) (225,999) 7,5 1.15 977,250 $45,554,910 2001

MAD CATZ INTERACTIVE, INC. [23] MAD CATZ INTERACTIVE, INC. [24] Future incometaxexpense ag fNme otata xrieNme exercise price Number exercisable exercise price contractual Number lifeinyears outstanding exercise price Range of Write-off ofincometaxreceivable Other Amortization ofgoodwill Temporary differencesnot Write-off oflossespreviously Income taxedinforeignjurisdictions Income taxexpenseusingthe rate ofapproximately39%(2001-42%)isreconciledasfollows: before incometaxesbytheCompany'sapplicablestatutorytax provision andtheamountcomputedbymultiplyingincome (b) 2.39 Current incometaxexpense 1.62 1.01 520,000 684,000 2.39 (a) 571,510 1.63 TAXES INCOME $0.53 2.3 9 0.98 NOTE 2.6 663,176 4.2 $0.55 520,000 701,000 4.0 $2.06 -2.47 971,300 $1.27 -1.90 $0.85 -1.22 1,309,167 $0.45 -0.60 standing asatMarch31,2002: The followingsummarizesinformationaboutstockoptionsout- Notes to Consolidated Financial Statements (continued) tax-benefited tax benefited Company's statutorytaxrates The differencebetweentheamountofreportedincometax The incometaxprovisionconsistsofthefollowing: ,0,6 . 11 ,3,8 $1.35 2,438,686 $1.16 3.5 3,501,467 eann vrg average average remaining Weighted pin usadn Optionsexercisable Options outstanding vrg egtdWeighted Weighted average $1,855,544 $1,855,544 $1,174,133 $1,712,277 143,267 377,188 333,706 (87,913) 58,430 2002 2002 — — $3,069,331 (827,688) $ $3,069,331 $2,133,362 1,543,890 1,651,058 419,529 400,433 (77,342) (40,549) 935,969 2001 2001 Future inventorydeduction Future taxliabilities-non-current: Net futuretaxassets-non-current Less valuationallowance Goodwill Tax losscarryforward Deferred financingfees Capital assets Unclaimed scientificresearchexpenditures Future taxassets-non-current: Net futuretaxassets-current Less valuationallowance Accounts receivable Inventories State taxespaid/deductibleinfuture Future taxassets-current: 2002 isasfollows: icant portionsofthefuturetaxassetsandliabilitiesatMarch31, (c) 095,645,000 7,218,000 638,000 4,500 1,873,000 3,750,000 2,082,000 $ 2009 2008 2,233,000 2007 3,691,000 2006 1,600,000 500,000 2005 654,000 2004 2003 646,000 $ follows: to reducefutureyears'taxableincome.Theselossesexpireas tax lossesof$21,210,500,whichmaybecarriedforward gains. $1,975,000, whichareavailableindefinitelytooffsetcapital The Companyalsohasnetcapitaltaxlossesofapproximately 2009 2008 2007 2006 2005 2004 years' taxableincome.Theselossesexpireasfollows: $9,324,000, whichmaybecarriedforwardtoreducefuture (d) The taxeffectoftemporarydifferencesthatgiverisetosignif- The Companyhasnon-capitalincometaxlossesof The Company'sCanadiansubsidiaryhasnon-capitalincome 21,210,500 $ 9,324,000 $ 136,886 $ $— 149,898 $ 2,070,835 $ 138,117 $ 11,452,916 11,452,916 9,710,372 2,320,898 1,419,535 712,847 661,311 218,488 250,063 763,246 Weighted averageshares-diluted Warrants Employee stockoptions Effect ofdilutivesecurities: Weighted averagecommon Denominator: Net income(loss)available Net income(loss) Numerator: (loss) pershare: The followingtablesetsforththecomputationofdilutedincome (b) Diluted: 45,297,305). year calculatedonanannualbasisbeing51,188,889(2001- age numberofcommonsharesissuedandoutstandingduringthe Basic netincome(loss)persharearebasedontheweightedaver- (a) Basic: SHARE PER (LOSS) INCOME NET 11 NOTE those whicharecurrentlyavailabletotheCompany. dinated debtapproximatetheirfairvaluesastheinterestratesare term nature.Thecarryingvaluesofthebankloanandsubor- accrued liabilitiesapproximatetheirfairvaluesduetoshort- including cash,accountsreceivableandpayable The carryingvaluesoftheCompany'sfinancialinstruments, INSTRUMENTS FINANCIAL 10 NOTE authority. subject tochallengeand/orchangebytheapplicableforeigntax that itstaxpositionwithrespecttothesejurisdictionsis from taxationinthesejurisdictions.TheCompanyunderstands basis thatitsoperationsincertainjurisdictionsareexempted (f) this time. subsidiary andtheoutcomeofthisreviewisnotdeterminableat No reassessmentshavebeenreceivedbytheCompany'sforeign prior taxationyearsarebeingreviewedbyforeigntaxauthorities. come oftheauditsisnotdeterminableatthistime. taxation years.Noreassessmentshavebeenreceivedandtheout- (e) shares outstanding to commonshareholders The Companyoperatesoneofitsforeignsubsidiariesonthe The Companyisundergoingtaxauditsofthe1996to1998 One oftheCompany'sforeignsubsidiaries'taxfilingsfor 1,486,771 $ 1,486,771 $ 51,956,695 51,188,889 716,348 51,458 2002 $(22,908,206) $(22,908,206) 45,297,305 45,297,305 2001 — — International 07170,547 836,716 834,878 779,279 877,554 $ 2007 2006 2005 2004 2003 Year endingMarch31: es forthenextfiveyears: (a) CONTINGENCIES AND COMMITMENTS 12 NOTE ed in2001astheyareconsideredanti-dilutive. sidered anti-dilutive.Stockoptionsandwarrantswerenotinclud- In 2002,1,222,100optionswerenotincludedastheycon- United States Canada Net sales: lowing countries: The Company'ssalesandcapitalassetsareattributedtothefol- DATA SEGMENTED 13 NOTE tions oftheCompany. rial adverseimpactonthefinancialpositionorresultsofopera- which, intheopinionofmanagement,isexpectedtohaveamate- There areanumberoflegalactionsagainsttheCompany, none of (c) Other: $1,000,000. these agreementsforfiscalyear2003isapproximately determined amountperunit.Theminimumroyaltypayableunder based ondifferentpercentagesofcertaintypessalesorapre- endorsements. Theseagreementshaveroyaltyandlicensingfees royalty agreementsforuseoflicensedtrademarksandcelebrity and utilitytechnologywithitsproducts.TheCompanyalsohas The Companyhaslicensingagreementstoutilizeexistingdesign (b) The followingarethepaymentsrequiredunderoperatingleas- Royalty andlicenseagreements: 83,337,134 $ 1,450,556 $ 10,142,791 71,743,787 2002 $55,781,630 1,697,398 $ 3,498,974 $ 44,553,329 9,530,903 2001

MAD CATZ INTERACTIVE, INC. [25] MAD CATZ INTERACTIVE, INC. [26] Basic anddiluted Net income(loss)persharein Comprehensive income(loss) Cumulative translationadjustment Net income(loss)inaccordance Income (loss)fromdiscontinued Change inreportingcurrency(d) Income (loss)fromdiscontinued Income (loss)fromcontinuing Change inreportingcurrency(d) Compensation expense(a) International Income (loss)fromcontinuing are generallyacceptedintheUnitedStatesisasfollows: net income(loss)determinedunderaccountingprincipleswhich dance withgenerallyacceptedaccountingprinciplesinCanadato applied intheUnitedStatesdiffersfromthatCanada. ("GAAP") asappliedinCanada.Incertainrespects,GAAP accordance withgenerallyacceptedaccountingprinciples These consolidatedfinancialstatementshavebeenpreparedin ACCOUNTING STATES UNITED AND CANADIAN 14 NOTE Goodwill forbothyearspresentedisattributedtoCanada. United States Canada Capital assets: products totwocustomers(2001-43%customers). customer. Duringtheyear, theCompanysoldatotalof48%its Revenue isattributedtocountriesbasedonthelocationof Notes to Consolidated Financial Statements (continued) accounting principles: accordance withUnitedStates accounting principles in accordancewithUnitedStates principles with UnitedStatesaccounting United Statesaccountingprinciples operations inaccordancewith operations, asreported United Statesaccountingprinciples operations inaccordancewith operations, asreported Reconciliation ofnetincome(loss)determinedinaccor- POLICY DIFFERENCES POLICY 0.01 $ 679,372 $ 969,501 $ 302,095 $ 302,095 $ 667,406 $ $1,919,749 $1,184,676 1,175 $ 1,016,251 (290,129) (517,270) 902,323 2002 2002 — — (0.53) $ $(23,166,372) $(24,013,121) $(19,137,007) $(18,256,392) (4,876,114) $ (4,651,814) $ $1,733,516 69,783 $ 1,106,463 (880,615) (224,300) 846,749 557,270 2001 2001 — the exchangerateondateof change inreportingcurrency. of conveniencewherebyallcomparative amountsaretranslatedat those priorperiods.CanadianGAAPpermitstheuseoftranslation information ispresentedbasedonexchangeratesineffect used toretroactivelyrestateallpriorperiodsforwhichfinancial reporting currencyoccurs,thenewshouldbe Under UnitedStatesaccountingprinciples,whenachangein (d) Changeinreportingcurrency: the amountofoperatingincomebeforethisitem. this item.CanadianGAAPpermitsthedisclosureofasubtotal closure ofasubtotaltheamountoperatingincomebefore determination ofoperatingincomeanddoesnotpermitthedis- United StatesGAAPrequiresthatamortizationbeincludedinthe (c) Operatingincomebeforeamortization: 2002 and2001. There isnoimpactofapplyingsubstantivelyenactedtaxratesin tax assetsandliabilitiesareonlymeasuredforenactedrates. rate changes,whereasunderUnitedStatesGAAP, futureincome assets andliabilitiesareremeasuredforsubstantivelyenacted United StatesGAAP. UnderCanadianGAAP, futureincometax enacted ratechangesthatwouldnothavebeenrecordedunder adjustments whereappropriateandtheimpactofsubstantively Included inthecaption"Incometaxes"istaxeffectofvarious (b) Incometaxes: noted stockoptionrepricing. there wouldbenocompensationexpenserecordedfortheabove options iscalculatedtobe$517,270.UnderCanadianGAAP compensation expenserelatedtotherepricingofabovenoted pensation expense.BasedontheMarch31,2002shareprice, ing, theseoptionswouldbeconsideredvariableresultingincom- Cdn. $0.90.UnderUnitedStatesGAAP, subsequenttotherepric- Cdn. $0.84and100,000optionsat$2.00wererepricedto prices rangingfromCdn.$0.94to$2.00wererepriced Opinion 25.Duringtheyear, 859,501optionswithexercise pensation usingtheintrinsicvaluemethodasspecifiedbyAPB For UnitedStatesGAAPpurposes,theCompanymeasurescom- (a) Stock-basedcompensation: ments oftheCompanyaredescribedasfollows: States GAAPandtheirimpactontheconsolidatedfinancialstate- The areasofmaterialdifferencebetweenCanadianandUnited No. 144onApril1,2002aprospectivebasis. from ongoingoperations.TheCompanyisrequiredtoadoptSFAS distinguishable componentsofanentitythatwillbeeliminated broadens thedefinitionofdiscontinuedoperationstoincludeall asset exceedsthefairvalueofasset.SFAS No.144also recognized bytheamountwhichcarryingof exceeds itsestimatedfuturecashflows,animpairmentchargeis be generatedbytheasset.Ifcarryingamountofanasset carrying amountofanassettofuturenetcashflowsexpected assets tobeheldandusedismeasuredbyacomparisonofthe ing amountofanassetmaynotberecoverable.Recoverability ever eventsorchangesincircumstancesindicatethatthecarry- requires thatlong-livedassetsbereviewedforimpairmentwhen- the impairmentordisposaloflong-livedassets.SFAS No.144 SFAS No.144addressesfinancialaccountingandreportingfor Accounting fortheImpairmentorDisposalofLong-LivedAssets. Company hasnointangibleassets. ferences arisingfromtheadditionofthesestandards.The accordingly, therewillbenoUnitedStates-CanadianGAAPdif- after itsadoption.TheCICAhasadoptedsimilarstandardsand, accordance withSFAS No.121and,subsequently, SFAS No.144 their estimatedresidualvalues,andreviewedforimpairmentin lives beamortizedovertheirrespectiveestimatedusefulto 142 alsorequiresthatintangibleassetswithestimableuseful in accordancewiththeprovisionsofSFAS No.142.SFAS No. amortized, butinsteadbetestedforimpairmentatleastannually and intangibleassetswithindefiniteusefullivesnolongerbe separately fromgoodwill.SFAS No.142willrequirethatgoodwill a businesscombinationmustmeettoberecognizedandreported SFAS No.141specifiescriteriathatintangibleassetsacquiredin method ofaccountingbeusedforallbusinesscombinations. tive April1,2002.SFAS No.141requiresthatthepurchase 141 waseffectiveasofJuly1,2001andSFAS No.142iseffec- SFAS No.142,GoodwillandOtherIntangibleAssets.SFAS No. ("FASB") issuedSFAS No.141,BusinessCombinations,and In June2001,theFinancialAccountingStandardsBoard (e) ImpactofrecentUnitedStatesaccountingpronouncements: In August2001,theFASB issuedSFAS No.144,

MAD CATZ INTERACTIVE, INC. [27] MAD CATZ INTERACTIVE, INC. [28] Directors &Officersand Corporate Information Chief FinancialOfficer Andy Schmidt Executive Vice President Darren Richardson Executive Officer President andChief Morris Perlis Mad Catz Interactive, Inc. Officers Worldwide Foote, ConeandBelding President &CEO, Brendan Ryan Interactive, Inc. President &CEOMadCatz Morris Perlis Businessman Cary McWhinnie Brompton SecuritiesLtd. Managing Director Don Lenz Hartay EnterprisesInc. Interactive, Inc./President Chairman, MadCatz Patrick Brigham Board ofDirectors Counsel Development andCorporate Vice PresidentCorporate Whitney Peterson Vice PresidentSales Warren Cook Senior Vice President Tom Roberts Chief FinancialOfficer Andy Schmidt Operating Officer President andChief Darren Richardson Mad Catz Inc. Management appropriate, to: ings shouldbedirected,as tificates, andduplicatemail- ings, sharetransfers,lostcer- address, registeredsharehold- Inquiries regardingchangeof Transfer AgentandRegistrar related materialcontact: and/or anyotherinvestor Report, InterimReports For acopyoftheAnnual Shareholder Information Ontario M5J2T7 181 BayStreet,Toronto, Suite 2500 BCE Place,POBox747, Patent andTrade MarkAgents Barristers &Solicitors– Lang Michener Legal Counsel Ticket Symbol:MCZ American Stock Exchange Ticker Symbol:MCZ The Toronto StockExchange Stock Exchange Listing Toronto, CanadaM5J2Y1 11th Floor 100 UniversityAvenue Company ofCanada Computershare Trust friedman.com madcatz@adam- F: 212-981-8174 P: 212-981-2529 New York, NY10017 5th Floor 11 East44thStreet, Adam FriedmanAssociates Fax: 619-683-9839 Phone: 619-683-9830 92108 USA San Diego,California Suite 101 7480 MissionValley Road Fax: 416-368-7779 Phone: 416-368-4449 Canada Toronto, Ontario Suite 400 141 AdelaideStreet Corporate Offices San Diego,CA92101 Suite 1500 750 BStreet KPMG LLP Auditors Toronto, OntarioM5J2T7 181 BayStreet Barristers &Solicitors, 10:30 a.m.atLangMichener Wednesday, August7at Shareholders willbeheldon Our AnnualMeetingof Annual Meeting www.madcatz.com Website Design: The Graphic Expression, Inc., NYC; www.tgenyc.com MAD CATZ INTERACTIVE, INC.