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US Swing-Trading KW 03 2004
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We are in a bit of a quandary about the valuation of Mad Catz Interactive as we await information about the level of success of the 2003 holiday season from the video game accessories maker. While the failure of a competitor in 2002 allowed for increased access to retail accounts for Mad Catz, the market is now again becoming more competitive as Logitech (LOGI-NASDAQ) and HIP Interactive (HP-TSX) have both increased their share of the marketplace with strong product catalogues. Logitech and Mad Catz both compete at the higher end of the accessories market, but the lower priced HIPGear products have made excellent inroads for a newer product line, and are already being sold at CompUSA, Zellers, Blockbuster, Wal-Mart Canada, and Toys-R-Us. 
Financially, the fiscal third quarter, which ends December 31st, is the Company’s most important and typically the most profitable of the year. We are expecting EPS of US10¢ per share for Q3-04. However, to achieve this projected level of profitability the Company needs to maintain a good gross margin level; something which they have not been able to do in the last two holiday seasons. The recently acquired GameShark brand will be key to maintaining a high level of profitability as it is a new division to the Company and can generate very high margins. The Company also has an operating line of credit for up to US$35 million and we have estimated that they will likely use the majority, if not all, of that credit room in order to fund their sales and inventory build up. The operating line stood at $17 million at the end of September and $23.7 million in December 2002. 