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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended April 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________to__________
Commission File Number 0-29230
TAKE-TWO INTERACTIVE SOFTWARE, INC.
DELAWARE 51-0350842
(State of incorporation or organization (IRS Employer Identification No.)
575 Broadway, New York, NY 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 941-2988
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes_X_ No__
As of June 13, 1997, there were 7,847,455 shares of the registrant's Common
Stock outstanding.
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<PAGE>
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
QUARTER ENDED APRIL 30, 1997
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - As of April 30, 1997 (unaudited)
Consolidated Statements of Operations - For the three months ended
April 30, 1996 and 1997 and the six months ended April 30, 1996 and
1997 (unaudited)
Consolidated Statements of Cash Flows - For the six months ended April
30, 1996 and 1997 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Item 1.
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
Consolidated Balance Sheet
As of April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
ASSETS: April 30,1997
(unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $ 6,151,486
Accounts receivable, net 1,814,431
Inventories 239,104
Prepaid royalties 791,250
------------
Total current assets 8,996,271
Fixed assets, net 743,736
Capitalized software development costs, net 2,502,441
Intangibles, net 2,795,795
Other assets 93,816
------------
Total assets $ 15,132,059
============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of note payable, net of discount $ 100,503
Current portion of notes payable due to related parties,
net of discount 477,824
Line of credit, current portion 123,498
Accounts payable 796,160
Accrued expenses 1,440,280
Due to stockholders 641,164
Due to related party 15,900
Advances-principally distributors 1,050,450
------------
Total current liabilities 4,645,779
Note payable, net of current portion and discount 161,137
Line of credit 123,499
Notes payable due to related parties, net of discount 1,335,013
------------
Total liabilities 6,265,428
------------
Stockholders' equity:
Preferred stock - Class A; $1.00 par value; 317 shares authorized,
issued and outstanding 317
Common stock, par value $.01 per share; 15,000,000 shares authorized;
7,607,455 shares issued and outstanding 76,074
Additional paid-in capital 10,689,166
Deferred compensation (25,875)
Accumulated deficit (1,873,051)
------------
Total stockholders' equity 8,866,631
------------
Total liabilities and stockholders' equity $ 15,132,059
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
Consolidated Statements of Operations
For the three months ended April 30, 1996
and 1997 and the six months ended April 30, 1996 and 1997 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- --------------------------
1996 1997 1996 1997
---------------------------- --------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 3,802,194 $ 2,760,075 $ 4,330,468 $ 7,770,570
Cost of sales 2,046,412 1,424,842 2,339,570 3,576,966
----------- ----------- ----------- -----------
Gross profit 1,755,782 1,335,233 1,990,898 4,193,604
----------- ----------- ----------- -----------
Operating expenses:
Research and development costs 112,107 313,368 372,402 600,939
Selling and marketing 934,576 890,687 1,221,140 2,455,546
General and administrative 416,286 446,838 783,603 966,901
Depreciation and amortization 52,188 149,873 104,375 303,445
----------- ----------- ----------- -----------
Total operating expenses 1,515,157 1,800,766 2,481,520 4,326,831
----------- ----------- ----------- -----------
Income (loss) from operations 240,625 (465,533) (490,622) (133,227)
Interest expense (income) (32) 178,983 (72) 473,137
----------- ----------- ----------- -----------
Income (loss) before foreign withholding taxes 240,657 (644,516) (490,550) (606,364)
Provision for income taxes 14,626 3,000 23,182 17,992
----------- ----------- ----------- -----------
Net income (loss) 226,031 (647,516) (513,732) (624,356)
Preferred dividends (4,383) (104,735) (8,766) (109,118)
----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders' $ 221,648 $ (752,251) $ (522,498) $ (733,474)
=========== =========== =========== ===========
Per share data:
Primary:
Weighted average common shares outstanding 6,771,064 6,810,650 6,771,064 6,790,857
=========== =========== =========== ===========
Net income (loss) per share $ .03 $ (.11) $ (.08) $ (.11)
=========== =========== =========== ===========
Fully diluted:
Weighted average common shares outstanding 6,771,064 6,833,647 6,771,064 6,802,356
=========== =========== =========== ===========
Net income (loss) per share $ .03 $ (.11) $ (.08) $ (.11)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended April 30, 1996 and 1997 (unaudited)
<TABLE>
<CAPTION>
Six Months Ended April 30,
--------------------------
1996 1997
------------ -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (513,732) $ (624,356)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 104,375 303,445
Provision for bad debts and return allowances 130,668 --
Amortization of deferred compensation -- 8,625
Amortization of loan discounts -- 338,090
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (441,628) (1,060,971)
Decrease (increase) in capitalized software development costs 278,236 (395,331)
Decrease (increase) in prepaid royalties 38,167 (506,250)
Decrease (increase) in other assets 5,227 27,308
Decrease (increase) in inventories (172,345) 40,279
Increase (decrease) in accounts payable 235,593 82,267
Increase (decrease) in accrued expenses 100,367 955,839
Increase (decrease) in advances (273,456) 244,613
Increase (decrease) in due to stockholders 25,183 19,575
----------- -----------
Net cash used in operating activities (483,345) (566,867)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (76,218) (5,833)
Additional royalty payment in connection with the Mission Acquisition -- (245,177)
----------- -----------
Net cash used in investing activities (76,218) (251,010)
----------- -----------
Cash flows from financing activities:
Issuance of stock in connection with a private placement, net of stock
issuance costs of $60,000 192,000 --
Issuance of stock and warrants in connection with initial public offering,
net of stock issuance costs of $1,755,698 -- 6,428,302
Proceeds from line of credit 100,428
Proceeds from exercise of stock options 750 --
Principal payments on note payable -- (50,561)
Principal payments on short term 1996 financing -- (8,000)
Other 1,000 --
----------- -----------
Net cash provided by financing activities 294,178 6,369,741
----------- -----------
Net increase (decrease) in cash for the period (265,385) 5,551,864
Cash and cash equivalents, beginning of the period 493,446 599,622
----------- -----------
Cash and cash equivalents, end of the period $ 228,061 $ 6,151,486
=========== ===========
The Company declared dividends to the holders of the preferred stock which
is included in accrued expenses $ 35,064
===========
The Company accrued an additional amount relating to the purchase of
Mission Studios Corporation $ 814,478
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Information at April 30, 1997 and for the six and three month periods ended
April 30, 1996 and 1997 is unaudited)
1. Organization:
Take-Two Interactive Software, Inc. and its wholly owned subsidiary, Mission
Studios Corporation (the "Company") designs, develops, publishes and markets
interactive software games for use on multimedia personal computer and video
game console platforms. The Company's interactive software games are sold
primarily in the United States, Europe and Asia. The Company delivers game
titles to consumers mainly through distribution and licensing arrangements.
2. Significant Accounting Policies and Transactions:
Basis of Presentation
The interim unaudited consolidated financial statements should be read in
conjunction with the Company's audited financial statements contained in its
Registration Statement on Form SB-2. All intercompany balances and transactions
have been eliminated. The interim unaudited consolidated financial statements
reflect adjustments, consisting only of normal recurring accruals, which are, in
the opinion of the Company's management, necessary for a fair presentation of
the results of operations for the periods presented. Revenues and net income
(loss) for any interim period are not necessarily indicative of the results for
a full year.
Net Income (Loss) per Share
In April 1997, the Company consummated an initial public offering of 1,600,000
shares of common stock and 1,840,000 common stock purchase warrants (including
240,000 warrants exercised pursuant to an over-allotment option). The proceeds
from the offering were $6,428,302, net of discounts and commissions and offering
expenses of $1,755,698. In connection with the initial public offering, the
Board of Directors voted to increase the aggregate number of shares that the
Company is authorized to issue to 20,000,317 shares, consisting of 15,000,000
shares of common stock, par value of $.01 per share, 317 shares of Class A
Preferred Stock and 5,000,000 shares of Preferred Stock which can be issued in
one or more series.
Net income (loss) per share has been computed in accordance with Accounting
Principles Board Opinion No. 15 ("APB No. 15") and is based on the net income
(loss) for the period divided by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period using the
treasury stock method. APB No. 15 requires that the weighted average number of
shares outstanding exclude the number of common shares issuable upon the
exercise of outstanding options and warrants and the conversion of preferred
stock if such inclusion would be anti-dilutive. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, equity securities,
including options and warrants, issued at prices below the public offering price
of $5.00 during the 12-month period prior to the offering have been included in
the calculation as if they were outstanding for all periods presented, including
years that have losses where the impact of the incremental shares is
anti-dilutive.
<PAGE>
3. Stock Options
In February 1997, the holder of the Class B Preferred Stock elected to convert
all outstanding shares into 409,791 shares of common stock. As an inducement to
enter into such agreement, the Company issued warrants to purchase 38,747 shares
of Common Stock at an exercise price of $2.41 per share. Approximately, $100,000
has been recorded as an additional dividend for the three and six month period
ended April 30, 1997, and is reflected in the earnings per share computations
for such periods.
Concurrent with the initial public offering, options to purchase an aggregate of
390,000 shares were granted at exercise prices ranging from $5.00 to $5.50 to
various employees and officers of the Company.
4. Agreements
In February 1997, the Company entered into an agreement pursuant to which the
Company granted a distributor the exclusive right to sell PC versions of Black
Dahlia and JetFighter Full Burn by means of retail and OEM distribution in
Europe, Iceland, the countries of the former USSR, the Middle East, Africa and
India. The agreement provides for the Company to receive 70% of net receipts
from retail sales and 50% of net receipts less the cost of sales from OEM
arrangements. The distributor has agreed to pay the Company aggregate advances
of approximately $1,240,000, of which $512,000 has been received to date, which
advances are recoupable against product sales. Under the agreement, the Company
is responsible for providing finished products but may elect to subcontract the
manufacturing and warehousing of its products to the distributor at cost plus a
management fee of 10% of such cost. The agreement requires the Company to
localize its products (subject to the distributor's approval) for use in
Germany, France and any other countries requested to provide all end-user
technical support. The agreement has a term of three years with respect to each
product.
The Company also entered into an agreement with the same distributor in December
1996 for the distribution of the Company's products in the United States and
Canada. The agreement obligates the distributor to provide the Company with
advances in the aggregate amount of $2,950,000, subject to the completion of
specified stages of product development, of which $825,000 has been received to
date.
In September 1996, the Company acquired all of the outstanding capital stock of
Mission in consideration of $860,000 in cash, the issuance of 182,923 shares of
Common Stock (valued at $440,000), two promissory notes in the aggregate
principal amount of $667,750 and an additional payment of 40% of net profit, as
defined, of Jetfighter III. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of Mission are included in the Company's
consolidated financial statements as of the date of acquisition. For the three
and six month period ended April 30, 1997, approximately $354,000 and $814,000,
respectively, was accrued for additional consideration owed to the former
shareholder of Mission Studios Corporation in connection with the acquisition.
5. Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ( "SFAS 121").
SFAS 121 requires that an impairment loss be recognized for long-lived assets
and certain identifiable intangibles when the carrying amounts of these assets
may not be recoverable. The adoption of SFAS 121 in fiscal 1997 did not have a
material impact on the Company's results of operations or financial position.
<PAGE>
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting For Stock-Based Compensation." The statement allows companies to
measure compensation costs in connection with employee stock compensated plans
using a fair value based method or to continue to use an intrinsic-value based
method, which generally does not result in compensation cost. The Company
currently plans to continue using the intrinsic-value based method.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share". The statement establishes standards for computing and
presenting earnings per share ("EPS") and is effective for financial statements
issued for periods ending after December 15, 1997. This statement will eliminate
the presentation of primary EPS and will require the presentation of basic EPS
(the principal difference being that common stock equivalents will not be
considered in the computation of basic EPS). It will also require the
presentation of diluted EPS which will give effect to all dilutive potential
common shares that were outstanding during the period. The Company has not
determined the effect of Statement No. 128 on the Company's EPS.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information About Capital Structure". Under SFAS No. 129, an
entity shall explain, in summary form within the financial statements, the
pertinent rights and privileges of the various securities outstanding. This
standard is effective for financial statement periods ending after December 15,
1997.
6. Legal Proceedings
In January 1997, Navarre Corporation filed a lawsuit in the District Court of
Hennepin County, Minnesota against the Company alleging that the Company
breached a distribution agreement by failing to remit monies for product returns
and marketing charges. The Plaintiff is seeking $317,209 in damages. The Company
has filed an answer denying such allegations and requesting that the court
dismiss the complaint. While the Company believes that it has meritorious
defenses to such action and intends to vigorously defend this lawsuit, there can
be no assurance that such action will be resolved in a manner favorable to the
Company.
7. Subsequent Events
In May 1997, the Company received $1,044,000 from the Underwriter's exercise of
its over-allotment option of 240,000 additional shares of Common Stock, net of
discounts and commissions of $156,000.
In May 1997, the Company leased computer equipment for the development of
software titles. The lease extends to April 30, 2000, under which the Company
pays $5,842 per month.
In June 1997, the Company entered into a non-binding letter of intent with
Inventory Management Systems, Inc. and Creative Alliance Group, Inc., companies
engaged in the wholesale distribution of interactive software games. The letter
of intent contemplates that the Company would acquire all of the issued and
outstanding capital stock of such companies in consideration of the issuance of
900,000 shares of common stock. The acquisition is subject to certain
conditions, including the approval of the Company's Board of Directors, and will
be treated as a pooling of interests.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements which are not historical facts contained in this Quarterly
Report are forward looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in any
forward looking statement.
The Company's business operates on a low-margin basis and the Company has
achieved limited profitability for the year ended October 31, 1996. Operating
expenses have increased and will increase significantly in connection with the
Company's proposed product acquisition, development and marketing activities.
Accordingly, the Company's future profitability will depend on corresponding
increases in revenues from operations. Any competitive, technological or other
factor adversely affecting the introduction or sale of interactive software
products could have a material adverse effect on the Company's future operating
results. The Company incurred net losses for the six month and three month
periods ended April 30, 1997. Based on the seasonality of its business, the
timing of product releases and its current level of expenses, the Company
anticipates that it will incur losses for the nine months ended July 31, 1997.
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30, 1997
Net sales decreased by $1,042,119, or 27.4%, from $3,802,194 for the three
months ended April 30, 1996 to $2,760,075 for the three months ended April 30,
1997. The decrease in net sales was primarily attributable to the successful
release of the best-seller Ripper during the three months ended April 30, 1996.
Net sales for the three months ended April 30, 1997 did not include sales from
new releases of premiere products.
Cost of sales decreased by $621,570, or 30.4%, from $2,046,412 for the three
months ended April 30, 1996 to $1,424,842 for the three months ended April 30,
1997. This decrease is primarily attributable to the decline in net sales for
the three months ended April 30, 1997. Cost of sales as a percentage of net
sales remained relatively consistent between the three months ended April 30,
1996 and the three months ended April 30, 1997.
Research and development costs increased by $201,261, or 179.5%, from $112,107
for the three months ended April 30, 1996 to $313,368 for the three months ended
April 30, 1997. This increase is primarily attributable to increased staffing
and related expenses associated with the development of the Company's software
technologies and the Mission acquisition.
Selling and marketing expenses decreased by $43,889, or 4.7%, from $934,576 for
the three months ended April 30, 1996 to $890,687 for the three months ended
April 30, 1997. The decrease was primarily due to sales commissions incurred on
the release of Ripper and Maximum Roadkill during the three months ended April
30, 1996. Sales commissions were not incurred on products released in the three
months ended April 30, 1997.
General and administrative expenses increased by $30,552, or 7.3%, from $416,286
for the three months ended April 30, 1996 to $446,838 for the three months ended
April 30, 1997. This increase is primarily
<PAGE>
attributable to the Company's increase in salary, rent, and professional fees
associated with the Company's expanded operations.
Depreciation and amortization expense increased by $97,685, or 187.2%, from
$52,188 for the three months ended April 30, 1996 to $149,873 for the three
months ended April 30, 1997. Amortization of intangible assets that resulted
from the Mission acquisition accounted for $88,845 of this increase.
Interest expense of $178,983 for the three months ended April 30, 1997 resulted
primarily from a private placement of debt securities. See "Liquidity and
Capital Resources."
Income taxes are attributable to withholdings on certain foreign licensing
agreements. The decrease in foreign withholding taxes of $11,626, or 79.5% from
$14,626 for the three months ended April 30, 1996 to $3,000 for the three months
ended April 30, 1997 was due to a decrease in net sales attributable to such
agreements.
As a result of the foregoing, the Company achieved net income of $226,031 for
the three months ended April 30, 1996, as compared to a net loss of $647,516 for
the three months ended April 30, 1997.
Six Months Ended April 30, 1996 Compared to Six Months Ended April 30, 1997
Net sales increased by $3,440,102, or 79.4%, from $4,330,468 for the six months
ended April 30, 1996 to $7,770,570 for the six months ended April 30, 1997. This
growth in net sales was primarily due to the successful release of Jetfighter
III in November 1996, which sold in excess of 150,000 units worldwide, and
Jetfighter III Campaign Disk and Callahan's Crosstime Saloon released in April
1997.
Cost of sales increased by $1,237,396, or 52.9%, from $2,339,570 for the six
months ended April 30, 1996 to $3,576,966 for the six months ended April 30,
1997. The dollar increase was primarily a result of royalties incurred due to
the release of Jetfighter III. Cost of sales as a percentage of net sales
decreased to 46.0% for the six months ended April 30, 1997 from 54.0% for the
six months ended April 30, 1996. The decrease was primarily due to the reduction
in the unit cost of manufacturing and developing Jetfighter III as compared to
the unit cost of manufacturing Ripper which was released in the six months ended
April 30, 1996.
Research and development costs increased by $228,537, or 61.4%, from $372,402
for the six months ended April 30, 1996 to $600,939 for the six months ended
April 30, 1997. This increase is primarily attributable to increased staffing
and related expenses associated with the development of the Company's software
technologies. Approximately $137,000 of this increase is directly related to
research and development costs associated with Mission Studios.
Selling and marketing expenses increased by $1,234,406, or 101.1%, from
$1,221,140 for the six months ended April 30, 1996 to $2,455,546 for the six
months ended April 30, 1997. The dollar increase was primarily a result of
distribution fees and marketing costs incurred in the six months ended April 30,
1997 in connection with the Company's distribution agreement for Jetfighter III.
General and administrative expenses increased by $183,298, or 23.4%, from
$783,603 for the six months ended April 30, 1996 to $966,901 for the six months
ended April 30, 1997. This increase is primarily the result of $150,000 paid to
an Officer of the Company in consideration of his covenant not to compete.
General and administrative expenses as a percentage of net sales decreased to
12.4% for the six months ended April 30, 1997 from 18.1% for the six months
ended April 30, 1996 due to the increase in net sales.
<PAGE>
Depreciation and amortization expense increased by $199,070, or 190.7%, from
$104,375 for the six months ended April 30, 1996 to $303,445 for the six months
ended April 30, 1997. Amortization of intangible assets that resulted from the
Mission acquisition accounted for $181,775 of this increase.
Interest expense of $473,137 for the three months ended April 30, 1997 resulted
primarily from the a private placement of debt securities. See "Liquidity and
Capital Resources."
Income taxes are attributable to withholdings on certain foreign licensing
agreements. The decrease in foreign withholding taxes of $5,190, or 22.4% from
$23,182 for the six months ended April 30, 1996 to $17,992 for the six months
ended April 30, 1997 was due to a decrease in net sales attributable to such
agreements.
As a result of the foregoing, the Company incurred a net loss of $624,356 for
the six months ended April 30, 1997, as compared to a net loss of $513,732 for
the six months ended April 30, 1996.
Liquidity and Capital Resources
The Company's primary capital requirements have been and will continue to be to
fund the acquisition, development and commercialization of its proposed software
products. The Company has historically financed its operations through advances
made by distributors, the issuance of debt and equity securities and bank
borrowings. At April 30, 1997, the Company had working capital of $4,350,492.
Net cash used in operating activities for the six months ended April 30, 1997
was $566,867 as compared to $483,345 for the six months ended April 30, 1996.
The increase in cash used was primarily attributable to an increase in accounts
receivable, capitalized software development costs and prepaid royalties offset
by an increase in accrued expenses and distributor advances. Net cash provided
by financing activities for the six months ended April 30, 1997 was $6,369,741
as compared to net cash provided by financing activities of $294,178 for the six
months ended April 30, 1996. The increase in cash provided was primarily due to
the receipt of the proceeds of the initial public offering. At April 30, 1997,
the Company had cash and cash equivalents of $6,151,486.
In April 1997, the Company completed an initial public offering of 1,600,000
shares of common stock and 1,840,000 common stock purchase warrants (including
240,000 warrants exercised pursuant to the over-allotment option). The Company
received $6,428,302 from the offering, net of discounts, commissions and
expenses of the offering of $1,755,698. In addition, in May 1997, the Company
received $1,044,000 from the Underwriter's exercise of its over-allotment option
of 240,000 additional shares of Common Stock, net of costs of $156,000.
In September 1996, the Company consummated a private placement pursuant to which
it issued (i) $2,088,539 principal amount of promissory notes and (ii) five-year
warrants to purchase 417,234 shares of Common Stock at an exercise price of $.01
per share. Subsequent to April 30, 1997, the Company repaid $376,356 of the
principal amount of the notes together with interest at the annual rate of 2%
above prime and intends to repay $146,964 principal amount of the notes in June
1997. The remaining outstanding principal balance of the notes ($1,565,180)
bears interest at the rate of 14% per annum and is payable on May 14, 1998. For
the six months ended April 30, 1997, the Company incurred a non-recurring charge
of $332,457 relating to the warrants issued in such financing.
The Company's accounts receivable, less allowance for doubtful accounts and
product returns, at April 30, 1997, were $1,814,431. Of the Company's accounts
receivable at April 30, 1997, approximately $199,500 is due from Acclaim
Entertainment, Inc., a distributor, and remains outstanding at June 15,
<PAGE>
1997. The Company believes that it will collect this balance, although there can
be no assurance that it will be able to do so. Delays in collection or
uncollectibility of accounts receivable could have a material adverse effect on
the Company's liquidity and working capital position.
As of the date hereof, the Company has no material commitments for capital
expenditures.
Fluctuations in Operating Results and Seasonality
The Company's operating results vary significantly from period to period as a
result of purchasing patterns of potential customers, the timing of new product
introductions by the Company and its competitors, product returns, marketing and
research and development expenditures and pricing. Sales of the Company's
products are seasonal, with peak product shipments typically occurring in the
fourth calendar quarter (the Company's first fiscal quarter), depending upon the
timing of product releases, as a result of increased demand for products during
the year-end holiday season.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In January 1997, Navarre Corporation filed a lawsuit in the District Court of
Hennepin County, Minnesota against the Company alleging that the Company
breached a distribution agreement by failing to remit monies for product returns
and marketing charges. The Plaintiff is seeking $317,209 in damages. The Company
has filed an answer denying such allegations and requesting that the court
dismiss the complaint. While the Company believes that it has meritorious
defenses to such action and intends to vigorously defend this lawsuit, there can
be no assurance that such action will be resolved in a manner favorable to the
Company.
Item 2. Changes in Securities
In February 1997, the Company issued options to purchase 38,746 shares of Common
Stock at an exercise price of $2.41 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement of Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
April 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Take-Two Interactive Software, Inc. has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Take-Two Interactive Software, Inc.
By: /s/ Ryan A Brant Dated: June 16, 1997
--------------------------------
Ryan A. Brant
Chief Executive Officer
Exhibit 11
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARY
Statement of Computation of Earnings Per Share
For the three months ended April 30, 1996 and 1997 and
the six months ended April 30, 1996 and 1997 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- --------------------------
1996 1997 1996 1997
----------- ------------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Primary:
Net income (loss) $ 221,648 $ (752,251) $ (522,498) $ (733,474)
=========== =========== =========== ===========
Common stock outstanding 5,597,664 6,282,358 5,597,664 5,940,011
Common stock equivalents 1,173,400 528,292 1,173,400 850,846
----------- ----------- ----------- -----------
Total 6,771,064 6,810,650 6,771,064 6,790,857
=========== =========== =========== ===========
Net income (loss) per share
$ .03 $ (.11) $ (.08) $ (.11)
=========== =========== =========== ===========
Fully diluted:
Net income (loss) $ 221,648 $ (752,251) $ (522,498) $ (733,474)
=========== =========== =========== ===========
Common stock outstanding 5,597,664 6,282,358 5,597,664 5,940,011
Common stock equivalents 1,173,400 551,289 1,173,400 862,345
----------- ----------- ----------- -----------
Total 6,771,064 6,833,647 6,771,064 6,802,356
=========== =========== =========== ===========
Net income (loss) per share $ .03 $ (.11) $ (.08) $ (.11)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FINANCIAL STATEMENT INCLUDED IN THIS QUARTERLY REPORT ON
FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<CASH> 6,151,486
<SECURITIES> 0
<RECEIVABLES> 1,814,431
<ALLOWANCES> 0
<INVENTORY> 239,104
<CURRENT-ASSETS> 8,996,271
<PP&E> 1,237,849
<DEPRECIATION> 494,113
<TOTAL-ASSETS> 15,132,059
<CURRENT-LIABILITIES> 4,645,779
<BONDS> 0
0
317
<COMMON> 76,074
<OTHER-SE> 8,709,240
<TOTAL-LIABILITY-AND-EQUITY> 15,132,059
<SALES> 7,770,570
<TOTAL-REVENUES> 7,770,570
<CGS> 3,576,966
<TOTAL-COSTS> (4,326,831)
<OTHER-EXPENSES> 904,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473,137
<INCOME-PRETAX> (606,364)
<INCOME-TAX> 17,992
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (624,356)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
