-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYphjxmbtKd2aXyUxoRnzbgfnqlAJzL784Y4r4AYB0KnuW/25yayQLPKDVaghDJj DciD7PlWkNe9kd0znB50Vg== 0001170918-08-000317.txt : 20080515 0001170918-08-000317.hdr.sgml : 20080515 20080515163510 ACCESSION NUMBER: 0001170918-08-000317 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080515 DATE AS OF CHANGE: 20080515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPLAY ENTERTAINMENT CORP CENTRAL INDEX KEY: 0001057232 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330102707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24363 FILM NUMBER: 08838367 BUSINESS ADDRESS: STREET 1: 100 NORTH CRESCENT DRIVE #324 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3104321958 MAIL ADDRESS: STREET 1: 100 NORTH CRESCENT DRIVE #324 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 10-Q 1 fm10q-033108.txt 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, 2008 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 a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS ISSUED AND OUTSTANDING AT MARCH 31, 2008 ----- ---------------------------------------- Common Stock, $0.001 par value 103,855,634 As of March 31, 2008, 103,855,634 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, 2008 TABLE OF CONTENTS -------------- Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007 3 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2007 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4T. Controls and Procedures 13 PART II. OTHER INFORMATION Item 1A. Risk Factors 14 Item 3. Defaults Upon Senior Securities 14 Item 6. Exhibits 14 SIGNATURES 15 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, ASSETS 2008 2007 ------------- ------------- (unaudited) Current Assets: Cash .............................................. $ 320,000 $ 1,138,000 Trade receivables, net of allowances of $0 and $17,000 respectively .................. 58,000 26,000 Inventories ....................................... 1,000 1,000 Deposits .......................................... 7,000 4,000 Prepaid expenses .................................. 6,000 10,000 Other receivables ................................. 17,000 13,000 ------------- ------------- Total current assets ........................... 409,000 1,192,000 Property and equipment, net ............................ 51,000 9,000 ------------- ------------- Total assets ................................ $ 460,000 $ 1,201,000 ============= ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current Liabilities: Note Payable ...................................... $ 1,045,000 $ 1,045,000 Note payable to officer and directors ............. 684,000 729,000 Account payable ................................... 769,000 911,000 Accrued royalties ................................. 0 200,000 Deferred income ................................... 587,000 595,000 ------------- ------------- Total current liabilities ...................... 3,085,000 3,480,000 ------------- ------------- 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 150,000,000 shares authorized; 103,855,634 shares issued and outstanding .................................... 104,000 104,000 Paid-in capital ................................... 121,975,000 121,976,000 Accumulated deficit .................................... (124,693,000) (124,349,000) Accumulated other comprehensive income (loss) .................................. (11,000) (10,000) Treasury stock of 4,658,216 shares ..................... 0 0 ------------- ------------- Total stockholders' (deficit) .................. (2,625,000) (2,279,000) ------------- ------------- Total liabilities and stockholders' (deficit) $ 460,000 $ 1,201,000 ============= =============
See accompanying notes. 3 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED MARCH 31, ------------------------------ 2008 2007 ------------- ------------- Revenue ....................................... $ 57,000 $ 79,000 Cost of goods sold ............................ 0 4,000 ------------- ------------- Gross profit ............................. 57,000 75,000 ------------- ------------- Operating expenses: Marketing and sales ........................ 0 93,000 General and administrative ................. 343,000 301,000 Product Development ........................ 67,000 0 ------------- ------------- Total operating expenses ................. 410,000 394,000 ------------- ------------- Operating (loss) income ....................... (353,000) (319,000) ------------- ------------- Other income (expense): Interest expense ........................... (9,000) (30,000) Reversal of prior years recorded liabilities 0 435,000 Other ...................................... 18,000 143,000 ------------- ------------- Total other income (expense) ............. 9,000 548,000 Income before benefit for income taxes ........ (344,000) 229,000 Benefit for income taxes ...................... -- -- ------------- ------------- Net income (loss) available to common stockholders .......................... $ (344,000) $ 229,000 ============= ============= Net income (loss) per common share: Basic ................................. $ (.004) $ .002 ============= ============= Diluted ............................... $ (.004) $ .002 ============= ============= Shares used in calculating net income (loss) per common share: Basic ................................. 99,197,418 99,197,418 ============= ============= Diluted ............................... 99,197,418 104,096,268 ============= ============= See accompanying notes. 4 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, -------------------------- 2008 2007 ----------- ----------- Cash flows from operating activities: Net (loss) income .......................................... $ (344,000) $ 229,000 Adjustments to reconcile net (loss) income to cash (used) provided by operating activities: Depreciation and amortization ........................... 2,000 1,000 Additional Paid in Capital - Option Expense ............. 1,000 4,000 Reversal of prior year recorded liabilities ............. -- (435,000) Abandonment of property and equipment .................. -- -- Changes in operating assets and liabilities: Trade receivables from related parties ............... (32,000) 93,000 Trade receivables, net ............................... -- -- Inventories .......................................... -- -- Deposits ............................................. (3,000) -- Prepaid licenses and royalties ....................... -- -- Prepaid expenses ..................................... (4,000) (6,000) Other current assets, net ............................ 4,000 6,000 Accounts Payable ..................................... (142,000) 157,000 Accrued royalties .................................... (200,000) -- Note Payable Officers ................................ 8,000 8,000 Deferred revenue ..................................... (8,000) (45,000) Accumulated other compensation income ................ (5,000) (56,000) ----------- ----------- Net cash provided by (used in) operating activities (723,000) (44,000) ----------- ----------- 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) -- ----------- ----------- Net cash provided by (used in) financing activities (53,000) -- ----------- ----------- Effect of exchange rate changes on cash ....................... -- -- ----------- ----------- Net increase (decrease) in cash ......................... (818,000) (44,000) Cash, beginning of period ..................................... 1,138,000 50,000 ----------- ----------- Cash, end of period ........................................... $ 320,000 $ 6,000 =========== =========== Supplemental cash flow information: Cash paid for: Interest ................................................. $ -- $ -- =========== =========== Taxes .................................................... $ -- $ -- =========== ===========
See accompanying notes. 5 INTERPLAY ENTERTAINMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2008 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Interplay Entertainment Corp. (which we refer to as the "Company" in these Notes) and its subsidiaries reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the results for the interim period in accordance with instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. The balance sheet at December 31, 2007 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, 2007 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, 2007 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 GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include, among others, sales returns and allowances, cash flows used to evaluate the recoverability of prepaid licenses and royalties, channel exposure and long-lived assets, and certain accrued liabilities related to litigation and the probability of what creditors can collect on previously recorded accruals and payables. 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., 6 (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 to Atari Interactive, Inc. ("Atari") a Promissory Note bearing no interest, due December 31, 2006, in the principal amount of $2.0 million in connection with Atari entering into tri-party agreements with the Company and its then main distributors, Vivendi and Avalon. On March 28, 2007 both parties agreed to extend the maturity of the promissory note until March 31, 2008 and the note is now delinquent. The Company is in dispute with Atari and believes it may have various claims that may offset some or all of the balance owed to Atari. The note was issued in payment of all outstanding accrued royalties due Atari under the Dungeons & Dragons license agreement which license was terminated by Atari on April 23, 2004. At March 31, 2008, the balance owed to Atari, is $1.045 million as a result of payments made by Vivendi and Avalon on the Company's behalf to Atari. 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 $684,000 in principal and interest remains outstanding under the demand notes as of March 31, 2008. Interest accrued on the demand notes as of March 31, 2008 was $44,000. As of March 31, 2008 the demand note to Eric Caen for $50,000 was paid in full. NOTE 4. ADVANCES FROM DISTRIBUTORS AND LICENSEES WHICH ARE CONSIDERED DEFERRED INCOME Advances for future distribution and licensee rights as of March 31, 2008 amounted to $587,000. NOTE 5. SEGMENT AND GEOGRAPHICAL INFORMATION The Company operates in one principal business segment, which is managed primarily from the Company's U.S. headquarters. Net revenues by geographic regions were as follows: THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2008 2007 ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT ------- ------- ------- ------- (Dollars in thousands) North America ............ $ 0 0% $ 2 3% Europe ................... 57 100 77 97 Rest of World ............ 0 0 0 0 OEM, royalty and licensing 0 0 0 0 ------- ------- ------- ------- $ 57 100% $ 79 100% ======= ======= ======= ======= 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, 2008, the Company has one stock-based employee compensation plan. Stock-based employee compensation cost approximated $1,000 as reflected in net income for the quarter ended March 31, 2008. No employee stock options were granted during the quarter ended March 31, 2008. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT Interplay Entertainment Corp., which we refer to in this Report as "we," "us," or "our," is a developer, publisher and licensor of interactive entertainment software and intellectual properties for both core gamers and the mass market. The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2007, as amended, and presumes that readers have access to, and will have read, the "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information contained in such Form 10-K, as amended. This Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and such forward-looking statements are subject to the safe harbors created thereby. For this purpose, any statements contained in this Form 10-Q, except for historical information, may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to help identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties, as well as on certain assumptions. For example, any statements regarding future cash flow, revenue or expense expectations, including those forward-looking statements in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", financing activities, future cash flows, cash constraints, sales or mergers and cost reduction measures are forward-looking statements and there can be no assurance that we will effect any or all of these objectives in the future. Specifically, the forward-looking statements in this Item 2 assume that we will continue as a going concern. Risks and Uncertainties that may affect our future results are discussed in more detail in the section titled "Risk Factors" in Item 1A of Part I of our Form 10-K. Assumptions relating to our forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, our industry, business and operations are subject to substantial risks, and the inclusion of such information should not be regarded as a representation by management that any particular objective or plans will be achieved. In addition, risks, uncertainties and assumptions change as events or circumstances change. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-Q with the SEC or otherwise to revise or update any oral or written forward-looking statement that may be made from time to time by us or on our behalf. MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including, among others, those related to revenue recognition, prepaid licenses and royalties and software development costs. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 8 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, ----------------------------------------------- 2008 2007 --------------------- --------------------- % OF NET % OF NET AMOUNT REVENUES AMOUNT REVENUES -------- -------- -------- -------- (Dollars in thousands) Net revenues ........................... $ 57 100% $ 79 100% Cost of goods sold ..................... 0 0% 4 5% -------- -------- -------- -------- Gross profit ...................... 57 100% 75 95% -------- -------- -------- -------- Operating expenses: Marketing and sales ............... 0 0% 93 117% General and administrative ........ 343 602% 301 381% Product development ............... 67 117% 0 0% -------- -------- -------- -------- Total operating expenses .......... 410 719% 394 498% -------- -------- -------- -------- Operating income (loss) ................ (353) (619)% (319) (403)% Other (expense) income ................. 9 15% 548 693% -------- -------- -------- -------- Net income (loss) ...................... $ (344) (604)% $ 229 290% ======== ======== ======== ======== Net revenues by geographic region: North America ..................... $ 0 0% $ 2 3% International ..................... 57 100% 77 97% OEM, royalty and licensing ........ 0 0% 0 0% -------- -------- -------- -------- 57 100% 79 100% ======== ======== ======== ======== Net revenues by platform: Personal computer ................. $ 52 91% $ 71 90% Video game console ................ 5 9% 8 10% OEM, royalty and licensing ........ 0 0% 0 0% -------- -------- -------- -------- 57 100% 79 100% ======== ======== ======== ========
9 NORTH AMERICAN, INTERNATIONAL AND OEM, ROYALTY AND LICENSING NET REVENUES Geographically, our net revenues for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- North America ................... $ 0 $ 2 $ (2) (100)% International ................... 57 77 (20) (26)% OEM, Royalty & Licensing ........ 0 0 (0) n/a Net Revenues .................... $ 57 $ 79 $ (20) (25)% Net revenues for the three months ended March 31, 2008 were $57,000, a decrease of 25% compared to the same period in 2007. This decrease resulted from a 100% decrease in North American net revenues, a 100% decrease in OEM, royalty and licensing net revenues, and a 26% decrease in International net revenues. North American net revenues for the three months ended March 31, 2008 were $0. The decrease in North American net revenues in 2008 was mainly due to a 100% decrease in back catalog sales. OEM, royalty and licensing net revenues for the three months ended March 31, 2008 were $0. There were no OEM Licensing deals during the first quarter of 2008. International net revenues for the three months ended March 31, 2008 were $57,000. The decrease in International net revenues for the three months ended March 31, 2008 was mainly due to a 26% decrease in back catalog sales. PLATFORM NET REVENUES Our platform net revenues for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- Personal Computer ............... $ 52 $ 71 $ 19 (26)% Video Game Console .............. 5 8 (3) (38)% OEM, Royalty & Licensing ........ 0 0 0 n/a Net Revenues .................... 57 79 (22) (28)% PC net revenues for the three months ended March 31, 2008 were $52,000, a decrease of 26% compared to the same period in 2007. The decrease in PC net revenues in 2008 was primarily due to lower back catalog sales. Video game console net revenues were $5,000, a decrease of 38% for the three months ended March 31, 2008 compared to the same period in 2007, due to lower back catalog sales. COST OF GOODS SOLD; GROSS PROFIT MARGIN Our net revenues, cost of goods sold and gross margin for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- Net Revenues .................... $ 57 $ 79 $ (22) (28)% Cost of Goods Sold .............. 0 4 (4) (100)% Gross Profit Margin ............. 57 75 (18) (24)% Cost of goods sold related to PC and video game console net revenues represents the manufacturing and related costs of interactive entertainment software products, including costs of media, manuals, duplication, packaging materials, assembly, freight and royalties paid to developers, licensors and hardware manufacturers. Cost of goods sold related to royalty-based net revenues primarily represents third party licensing fees and royalties paid by us. Typically, cost of goods sold as a percentage of net revenues for video game console products is higher than cost of goods sold as a percentage of net revenues for PC based products due to the relatively higher manufacturing and royalty costs associated with video game console and affiliate label products. We also include in the cost of goods sold the amortization of prepaid royalty and license fees paid to third party software developers. We expense prepaid 10 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 decreased 100% to $0 in the three months ended March 31, 2008 compared to the same period in 2007. Our gross margin increased to 100% for the 2008 period from 94% in the 2007 period. MARKETING AND SALES Our marketing and sales expense for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- Marketing and Sales ............. $ 0 $ 93 $ (93) (100)% Marketing and sales expenses primarily consist of advertising and retail marketing support, sales commissions, marketing and sales personnel, customer support services and other related operating expenses. Marketing and sales expenses for the three months ended March 31, 2008 were $0 a 100% decrease compared to the 2007 period. GENERAL AND ADMINISTRATIVE Our general and administrative expense for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- General and Administrative ...... $ 343 $ 301 $ 42 14% 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, 2008 were $343,000 a 14% increase decrease as compared to the same period in 2007. The increase is mainly due to a $43,000 increase in personnel costs and general expenses. PRODUCT DEVELOPMENT Our product development expenses for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- Product Development ............. $ 67 $ 0 $ 67 100% Product development expenses were $67,000, a 100% increase as compared to the same period in 2007. This increase was mainly due to the hiring of a software development team in the first quarter of 2008. OTHER EXPENSE (INCOME), NET Our other expense (income) for the three months ended March 31, 2008 and 2007 breakdown as follows: (in thousands) 2008 2007 CHANGE % CHANGE -------- -------- -------- -------- Other Expense (Income) .......... $ (9) $ (548) $ (539) (98)% Other income consists primarily of recognition of expired contract in the amount of $7,000, rental income in the amount of $6,000 interest income in the amount of $5,000, foreign currency exchange transaction gains in the amount of $10,000, interest expense on debt in the amount of $9,000 and miscellaneous expenses in the amount of $10,000. Other income for the three months ended March 31, 2008 was $9,000, a 98% decrease as compared to the same period in 2007. 11 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2008, we had a working capital deficit of approximately $2.7 million, and our cash balance was approximately $320,000. There is a balance owing to Atari of approximately $1 million, and we may be unable to satisfy this debt which became due on March 31, 2008. We are in dispute with Atari and believe we may have various claims that may offset some or all of this balance. In any event, we cannot continue to fund our current operations without obtaining additional financing or income. We have sold "Fallout" to a third party and have obtained the License Back to allow us to create, develop and exploit a "Fallout" MMOG. We are planning to exploit the License Back of "Fallout" MMOG and are reviewing the avenues for securing financing of at least $30 million to fund its production. The Company is now focused on a two-pronged growth strategy. While the Company is working to secure funding for the development of a MMOG based on the popular "Fallout" franchise, the Company is at the same time exploring ways to leverage its portfolio of gaming properties through sequels and various development and publishing arrangements. The Company is planning, if the Company can obtain financing, to develop sequels to some of the most successful games, including Earthworm Jim, Dark Alliance, Descent and MDK. The Company has reinitiated its in-house game development studio, and has hired game developers. Initial funding for these steps will mainly derive from the remaining proceeds from the sale of "Fallout" and license arrangements that the Company enters into. The Company continues 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. Historically, we have funded our operations primarily from the sale of, or royalties generated by licensing of, our intellectual property rights and distribution fee advances of our products. Our operating activities used cash of $818,000 during the three months ended March 31, 2008. We expect in the remainder of 2008 to enter into license arrangements and to seek funding for the development of games. 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. 12 CONTRACTUAL OBLIGATIONS The following table summarizes certain of our contractual obligations under non-cancelable contracts and other commitments at March 31, 2008, 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) .. 20 5 15 -- -- Total ............... 20 5 15 -- -- (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 at the French representation office through February 28, 2011 with an option for an additional 3 years. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not have any derivative financial instruments as of March 31, 2008. However, we are exposed to certain market risks arising from transactions in the normal course of business, principally the risk associated with foreign currency fluctuations. We do not hedge our interest rate risk, or our risk associated with foreign currency fluctuations. INTEREST RATE RISK Currently, we do not have a line of credit, but we anticipate we may establish a line of credit in the future. 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 gains of $10,000 and $40,000 during the three months ended March 31, 2008 and 2007 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, 2008 that have materially affected or are reasonably likely to materially affect these controls. Our management, including the Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be 13 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. PART II - OTHER INFORMATION ITEM 1A. RISK FACTORS There have been no material changes to the risk factors disclosed in Item 1A to Part I of our Form 10-K for the fiscal year ended December 31, 2007. 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; (refiled 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. 14 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 15, 2008 By: /S/ HERVE CAEN ------------------------------------- Herve Caen, Chief Executive Officer and Interim Chief Financial Officer (Principal Executive and Financial and Accounting Officer) 15 EX-3.(I) 2 ex3-5a.txt EX-3.5 EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF INTERPLAY ENTERTAINMENT CORP. The undersigned, Herve Caen, the Chief Executive Officer of Interplay Entertainment Corp. (the "CORPORATION"), a corporation organized and existing by virtue of the General Corporation Law (the "GCL") of the State of Delaware, does hereby certify pursuant to Section 103 of the GCL as to the following: 1. The name of the Corporation is Interplay Entertainment Corp. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 27, 1998. 2. The first full sentence of Article 4 of the Amended and Restated Certificate of Incorporation of the Corporation, as amended, is hereby amended and restated to read in its entirety as follows: "ARTICLE 4" The total number of shares of all classes of stock which this Corporation shall have authority to issue is 155,000,000, of which (i) 150,000,000 shares shall be designated "COMMON STOCK" and shall have a par value of $0.001 per share; and (ii) 5,000,000 shares shall be designated "PREFERRED STOCK" and shall have a par value of $0.001 per share." 1 3. The foregoing amendment of the Amended and Restated Certificate of Incorporation of the Corporation, as amended, has been duly adopted by the Corporation's Board of Directors and Stockholders in accordance with the provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment of Amended and Restated Certificate of Incorporation as of the 15th day of January 2004. /s/ Herve Caen ----------------------- Herve Caen Chief Executive Officer EX-31 3 ex31-1q.txt EX-31.1 EXHIBIT 31.1 Certification of CEO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-14(e) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Herve Caen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Interplay Entertainment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2008 /S/ HERVE CAEN ---------------------------- Herve Caen Chief Executive Officer EX-31 4 ex31-2q.txt EX-31.2 EXHIBIT 31.2 Certification of Interim CFO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Herve Caen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Interplay Entertainment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2008 /S/ HERVE CAEN ------------------------------- Herve Caen Interim Chief Financial Officer EX-32 5 ex32-1q.txt EX-32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b) AS ADOPTED PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Interplay Entertainment Corp., a Delaware corporation (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended March 31, 2008 as filed with the U.S. Securities and Exchange Commission (the "10-Q Report") that, to the best of the undersigned's knowledge: (1) the 10-Q Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2008 /S/ HERVE CAEN ------------------------------- Herve Caen Chief Executive Officer and Interim Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----