<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1998
Registration No. 333-_____
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Take-Two Interactive Software, Inc.
(Name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 575 Broadway 51-0350842
(State or jurisdiction New York, New York 10012 (I.R.S. employer
of incorporation or (212) 941-2988 identification
organization) (Address, including zip code, and telephone number, number)
including area code, of registrant's principal executive offices)
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Ryan A. Brant, Chairman
Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
(212) 941-2988
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Robert J. Mittman, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 885-5000
Telecopier: (212) 885-5001
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. |_| ____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
Calculation of Fee.
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<CAPTION>
===================================================================================================================================
Title of Shares Proposed Maximum Offering Proposed Maximum Aggregate Amount of
to be Registered Amount to be Registered(1) Price Per Share(2) Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 810,000 $6.00 $4,860,000 $1,433.70
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) of the Securities Act of 1933, as amended, the
registration fee has been calculated based upon the average of the bid
and asked prices as reported by NASDAQ for the registrant's Common Stock
on June 22, 1998.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
810,000 Shares
Take-Two Interactive Software, Inc.
Common Stock
This Prospectus relates to an offering by certain persons (the
"Selling Stockholders") of up to 810,000 shares of Common Stock. The Company
will not receive any of the proceeds from the sale of the Common Stock by the
Selling Stockholders. See "Selling Stockholders."
The Common Stock is traded on the NASDAQ SmallCap Market under the
symbol "TTWO." On June 22, 1998, the closing sale price of the Common Stock as
reported by NASDAQ was $6.00.
----------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS"
ON PAGE 6.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 500 West Madison Street, Suite 1400 Chicago, Illinois 60661 and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates and may be accessed
electronically by means of the Commission's site on the Worldwide Web at
http:/www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference:
(a) Annual Report on Form 10-KSB for the fiscal year ended
October 31, 1997;
(b) Quarterly Report on Form 10-QSB for the three month period
ended January 31, 1998;
(c) Current Report on Form 8-K dated March 18, 1998;
(d) Current Report on Form 8-K/A dated March 18, 1998;
(e) Quarterly Report on Form 10-QSB for the three month period
ended April 30, 1998; and
(f) The description of the Company's Common Stock contained in
its Registration Statement on Form 8-A.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference herein and to be a part hereof on the
date of filing of such documents.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference, except for
the exhibits to such documents. Requests should be directed to Anthony R.
Williams, Chief Financial Officer, Take-Two Interactive Software, Inc., 575
Broadway, New York, New York 10012, telephone: (212) 941-2988.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1997, the Company's Quarterly Reports on Form 10-QSB for the
three months ended January 31 and April 30, 1998 and the Company's Current
Reports on Form 8-K incorporated by reference in this Prospectus. Prospective
investors are urged to read this Prospectus in its entirety.
The Company
Take-Two Interactive Software, Inc. (the "Company") designs,
develops, markets and distributes high quality interactive software games.
Since its initial public offering in April 1997, the Company has shifted its
focus from engaging primarily in software development to publishing and
distributing software products. During this period, the Company has achieved
rapid growth by making selective acquisitions of products, businesses and
distribution rights which the Company believes have significantly enhanced its
prospects.
o GameTek Acquisition: In July 1997, the Company acquired all of the
outstanding capital stock of GameTek (UK) Limited, now known as Take-Two
Interactive Software Europe Limited ("TTE"), and Alternative Reality
Technologies, Inc. ("ART") from GameTek FL. TTE distributes computer software
games in Europe and other international markets and ART is a developer of
software games. The Company also acquired certain software games from GameTek
FL, including Dark Colony, The Quivering and The Reap.
o Wheel of Fortune(R) and Jeopardy!(R) Distribution Rights: The
Company entered into two agreements with GameTek, Inc. ("GameTek"), the parent
of GameTek FL, pursuant to which GameTek granted the Company the exclusive
right to distribute Wheel of Fortune - German Edition, Pinball Deluxe, Race
Days and Humans for use on the Nintendo Gameboy portable console in certain
European countries and the exclusive worldwide rights to distribute the Wheel
of Fortune and Jeopardy! games for use on Nintendo 64 console systems.
o Inventory Management Systems Acquisition: In July 1997, the Company
acquired all of the outstanding capital stock of Inventory Management Systems,
Inc. ("IMSI") and Creative Alliance Group, Inc. ("CAG"). IMSI and CAG are
engaged in the wholesale distribution of interactive software games in the
United States.
o Monty Python Series Distribution Rights: In November 1997, the
Company entered into a Master Distribution Agreement with 7th Level Inc. ("7th
Level"), pursuant to which 7th Level granted the Company the exclusive
worldwide right to distribute Monty Python's Complete Waste of Time, Monty
Python and the Quest for the Holy Grail, Monty Python's Desktop Pythonizer and
Monty Python's The Meaning of Life games designed for PC platforms, and a
right of first refusal to distribute And Now for Something Completely
Different, if and when developed by 7th Level. In November 1997, the Company
entered into an agreement with Panasonic Interactive Media ("Panasonic") which
provides for Panasonic to distribute these products in North America.
o Alliance Distributors Acquisition: In December 1997, the Company
acquired all of the issued and outstanding capital stock of L&J Marketing,
Inc. d/b/a Alliance Distributors ("Alliance"), now known as Alliance Inventory
Management, Inc. ("AIM"). AIM is engaged in the wholesale distribution of
computer and video game software and hardware in the United States.
o BMG Acquisition: In March 1998, the Company acquired substantially
all of the assets of BMG Interactive, a division of BMG Entertainment ("BMG"),
including direct distribution, sales and marketing operations in France and
Germany; a product publishing and distribution group in the United
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Kingdom; distribution, publishing and certain sequel rights to twelve upcoming
video game and PC game product releases; and various back catalogue publishing
and distribution rights. Among the publishing and distribution rights acquired
were: (1) The worldwide publishing and distribution rights and copyright to
Grand Theft Auto for personal computer ("PC") and the Sony PlayStation
platforms. (2) The worldwide publishing and distribution rights and copyright
to Space Station: Silicon Valley for the Nintendo 64 gaming system. (3) The
European distribution rights to PC recreational software products including
Berkley Systems' After Dark screen saver series, You Don't Know Jack trivia
series, gaming franchises such as Crystal Dynamic's Gex and Pandemonium series
for the Sony PlayStation, and ASC Games' One for the Sony PlayStation. (4) The
worldwide publishing and distribution rights to a series of sales region
customized World Cup soccer games for the Sony PlayStation. (5) The worldwide
publishing, distribution and sequel rights to the role-playing game Monkey
Hero for the Sony PlayStation and PC platforms. (6) The worldwide publishing,
distribution and sequel rights to the military combat game Special Ops for the
Sony PlayStation and PC platforms.
o Gathering of Developers Distribution Rights: In May 1998, the
Company entered into a distribution agreement with Gathering of Developers I,
Ltd. ("Gathering") pursuant to which Gathering granted the Company (i) the
exclusive right to distribute and market Railroad Tycoon 2, Flight, Max Payne,
FAKK 2, Unreal Based Game X, Rat Patrol, Stunts, Nocturne, Jazz Jackrabbit II
and an unnamed title designed to operate on PC platforms in the United States
and Canada during the later of a four-year period or three years following the
release of any such product; (ii) a non-exclusive right to distribute the
products on-line; and (iii) certain rights of first refusal to distribute the
products designed for use on console platforms in North America, Europe,
Israel, Australia and Africa.
o Directsoft Acquisition: In June 1998, the Company acquired all of
the assets of Directsoft Australia Pty. Limited, an Australian-based
distributor of software games.
In March 1998, the Company consummated a private placement pursuant
to which it issued 158,333 shares of Common Stock and received proceeds of
approximately $950,000.
In May 1998, the Company consummated a private placement pursuant to
which it issued 770,000 shares of Common Stock and received proceeds (net of
placement fees) of $5,082,000.
The Company's principal executive offices are located at 575
Broadway, New York, New York 10012, and its telephone number is (212)
941-2988. Unless the context otherwise requires, all references herein to the
"Company" include the operations of the Company's subsidiaries, Mission
Studios, Inc. ("Mission"), TTE, ART, IMSI, CAG and AIM.
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The Offering
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Securities offered .......................................810,000 shares
Common Stock outstanding..................................10,954,412 shares (1)
Use of Proceeds...........................................The Company will not receive any of the proceeds
from the sale of the Common Stock by the Selling
Stockholders. See "Use of Proceeds."
Risk Factors..............................................The shares offered hereby are speculative and
involve a high degree of risk and should not be
purchased by investors who cannot afford the loss of
their entire investment. See "Risk Factors."
NASDAQ SmallCap Market Symbol.............................TTWO
</TABLE>
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(1) As of June 22, 1998. Does not include (i) 1,840,000 shares issuable upon
exercise of warrants issued in connection with the Company's initial public
offering in April 1997; (ii) 320,000 shares issuable upon exercise of warrants
issued to the underwriter of the Company's initial public offering and the
warrants included therein; (iii) 639,676 shares issuable upon the exercise of
options issued under the Company's 1994 Employee Stock Option Plan; (iv)
1,313,500 shares (net of forfeitures) issuable upon the exercise of options
issued under the Company's 1997 Employee Stock Option Plan; (v) 217,108 shares
issuable upon the exercise of non-plan options; (vi) 657,163 shares issuable
upon the exercise of warrants; and (vii) 1,850,000 shares issuable upon the
conversion of Series A Preferred Stock).
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<PAGE>
RISK FACTORS
The shares offered hereby are speculative and involve a high degree
of risk. Prospective investors should carefully consider the following risk
factors before making an investment decision.
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: The statements contained herein which are not historical facts
are forward looking statements that involve risks and uncertainties, including
but not limited to, risks associated with the Company's future growth and
operating results, the ability of the Company to successfully integrate the
businesses and personnel of newly acquired entities into its operations, the
shift in business focus from software development to distribution, changes in
consumer preferences and demographics, technological change, competitive
factors, unfavorable general economic conditions, the availability of adequate
financing and other factors described below. Actual results may vary
significantly from such forward looking statements.
Liquidity; Qualified Report of Independent Accountants; Need for
Additional Financing. The Company has been dependent on the issuance of debt
and equity securities and borrowings to implement its expansion plans and to
finance its short-term working capital requirements. The Company's independent
accountants have included an explanatory paragraph in their report for the
year ended October 31, 1997 stating that the Company's working capital
deficiency, recurring negative cash flow from operations and the potential
need for additional financing to fund the Company's operations raise
substantial doubt about the Company's ability to continue as a going concern.
The Company will be required to seek additional financing in the foreseeable
future to fund continuing expansion activities, including those relating to
product development, manufacturing, marketing and distribution, or curtail its
expansion activities. There can be no assurance that additional financing will
be available to the Company on commercially reasonable terms, or at all.
Failure to obtain additional financing will have a material adverse effect on
the Company.
Historical Losses; Future Operating Results; Early Stage of
Development. The Company incurred a loss of $4,499,591 for the fiscal year
ended October 31, 1997. At April 30, 1998, the Company had an accumulated
deficit of $3,910,872. Operating expenses have increased and will increase
significantly in connection with product acquisition, manufacturing and
distribution activities. Any competitive, financial, technical or other factor
adversely affecting the acquisition, development or sale of software products
could have a material adverse effect on operating results. There can be no
assurance that future operations will be profitable. The Company released its
first software title in September 1994 and is subject to risks typically
encountered in the establishment of a new business enterprise, as well as
risks associated with an evolving business model and the management of both
internal and acquisition based growth.
Short Product Lifecycles; Dependence on Limited Product Line. The
markets for interactive software games are characterized by short product
lifecycles and frequent introduction of new products, most of which do not
achieve sustained market acceptance or do not generate a sufficient level of
sales to offset the costs associated with product acquisition or development.
Significant sales of new products generally occur within the first three
months following their release. The Company's success will depend upon the
acquisition and/or development of new, commercially successful products and on
its ability to replace revenues from products at the later stages of their
lifecycles. A substantial portion of the Company's revenues are derived from a
limited number of products. For the year ended October 31, 1996, Advanced
Dungeons & Dragons: Iron & Blood, Ripper and Battlecruiser 3000 A.D. accounted
for approximately 32.0%, 28.7% and 14.2%, respectively of the Company's
revenues. For the year ended October 31, 1997, the JetFighter series and Dark
Colony accounted for approximately 41.6% and 11.0%, respectively, of the
Company's revenues. For the six months ended April 30, 1998, Wheel of Fortune
and Gex: Enter the Gecko accounted for approximately 19.5% and 10.1%,
respectively, of the Company's revenues. There can be no assurance that any
new product
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<PAGE>
will be commercially viable. Failure to continue to acquire, develop and
distribute new, commercially successful products would have a material adverse
effect on the Company.
Risks Associated with Rapid Expansion and Acquisitions. The Company
has expanded its operations through internal growth and acquisitions, which
has placed and is expected to continue to place a significant strain on its
management, administrative, operational, financial and other resources. The
Company has released additional products on new platforms, expanded its
publishing and distribution operations, increased its development and product
manufacturing expenditures, expanded its work force and expanded its presence
in international markets. To successfully manage growth, the Company will be
required to continue to implement and improve its operating systems, hire,
train and manage an increasing number of management and other personnel,
monitor its operations and control costs. The Company has limited experience
in effectuating rapid expansion and in managing operations which are
geographically dispersed, and there can be no assurance that the Company will
be able to successfully expand its operations or manage growth. Since April
1997, the Company has made acquisitions of products and distribution
businesses and intends to continue to pursue opportunities by making
acquisitions of products or businesses which the Company believes will enhance
its prospects. There can be no assurance that the Company will be able to
successfully integrate into its operations any personnel, product or business
or that the Company will not incur significant charges relating to any
acquisition. Any inability to successfully integrate acquired personnel,
products or businesses into its operations could have a material adverse
effect on the Company.
The Company may determine to seek additional debt or equity financing
to fund the cost of continuing expansion. In the event the Company finances an
acquisition with equity securities, any issuance would result in dilution to
the interests of the Company's stockholders. Additionally, if the Company
incurs indebtedness or issues debt securities in connection with an
acquisition, the Company will be subject to the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness.
Shift in Business Focus; Dependence on Third-Party Developers and
Licensors; Distribution Risks. Since April 1997, the Company has shifted its
focus from engaging primarily in software development to publishing and
distributing software products. The Company recently acquired certain
publishing and distribution rights to software products from BMG and
Gathering. Publishing and distribution activities require significant up-front
capital commitments to acquire, manufacture and market software products.
There can be no assurance that the Company will have adequate financial and
other resources to satisfy its commitments or successfully manufacture and
market new products. The Company has entered into various agreements with
third parties to acquire the rights to distribute products and properties
incorporated into its products. These agreements generally require the Company
to make advance payments and pay royalties and satisfy other conditions. There
can be no assurance that sales of any products will be sufficient to recover
the amount of such advances. Failure by the Company to satisfy its obligations
under agreements may result in modification of the terms or termination of the
relevant agreement which would adversely affect the Company. The Company's
success depends upon its ability to acquire or license products or properties
on terms deemed commercially feasible. There is intense competition for
products and properties among numerous companies, and there can be no
assurance that the Company will be able to continue to license quality
products and properties on favorable terms, or at all.
In addition, the Company's recently acquired wholesale distribution
operations will require the Company to maintain operating margins; continue to
secure an adequate supply of currently popular software products on a timely
and competitive basis; continually turn its inventories and maintain effective
inventory and cost controls. The Company's distribution subsidiaries are
dependent on third-party software manufacturers, developers, distributors and
dealers to provide adequate inventories of popular software games on a timely
basis and on favorable pricing terms. The Company's subsidiaries do not
maintain agreements with any suppliers. AIM has historically been dependent on
a limited number of suppliers for a significant
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portion of product purchases. Failure or delay by suppliers in providing
competitive products to the Company on favorable terms would adversely affect
the Company's ability to deliver products on a timely and competitive basis.
The distribution channels through which consumer software products
are sold have been characterized by rapid change, including consolidations and
financial difficulties of certain distributors and retailers and the emergence
of new channels for distribution of consumer software products such as mass
merchandisers and other retail outlets and the Internet. In addition, there
are an increasing number of companies and new market entrants competing for
access to these channels. Retailers of the Company's products typically have
limited shelf space and promotional resources, and competition is intense
among an increasing number of newly introduced entertainment software titles
for adequate levels of shelf space and promotional support. Competitors with
extensive product lines and popular titles frequently have greater bargaining
power with distributors and retailers and, accordingly, the Company may not be
able to achieve the levels of support and shelf space that such competitors
receive.
Significant Outstanding Indebtedness; Security Interest. The Company
has incurred substantial indebtedness in order to finance its expanded
operations. Of the Company's total outstanding indebtedness of $5,912,830 at
April 30, 1998, $4,421,821 is outstanding under a line of credit with
NationsBank, N.A. (the "Bank"). Borrowings under the line of credit are
collateralized by a lien on accounts receivable and inventory of IMSI and AIM
and are guaranteed by the Company. The loan agreement limits or prohibits IMSI
and AIM, subject to certain exceptions, from declaring or paying cash
dividends, merging or consolidating with another corporation, selling assets
(other than in the ordinary course of business), creating liens and incurring
additional indebtedness. The line of credit has a borrowing limit of
$7,000,000 and expires on May 31, 1999. In the event of a default by the
Company in its obligations to the Bank, such lender could elect to declare the
Company's indebtedness to be due and payable and foreclose on the Company's
assets, which would have a material adverse effect on the Company. In
addition, at April 30, 1998, $453,352 is outstanding under a line of credit
with Barclay's Bank which is repayable on demand.
Industry Factors; Changing Consumer Preferences. The Company's
business is speculative and is subject to all of the risks generally
associated with the entertainment software industry, which is an evolving
business with a relatively limited operating history. Accordingly, the
ultimate level of demand and market acceptance for the Company's newly
introduced products is subject to a high degree of uncertainty. Software
acquisition costs, as well as promotion and marketing expenses, royalties and
third-party participations payable to software developers, creative personnel,
actors, musicians and others, which reduce potential revenues derived from
software sales, have increased significantly in recent years. The Company's
future operating results will depend on numerous factors beyond its control,
including the popularity, price and timing of new entertainment software
products being released and distributed, international, national, regional and
local economic conditions (particularly economic conditions adversely
affecting discretionary consumer spending), changes in consumer demographics,
the availability of other forms of entertainment, critical reviews and public
tastes and preferences, all of which change rapidly and cannot be predicted.
The Company's ability to plan for product development and promotional
activities will be significantly affected by its ability to anticipate and
respond to relatively rapid changes in consumer tastes and preferences. A
decline in the popularity of software games or in the software industry
generally or in particular market segments could adversely affect the
Company's business and prospects.
Dependence on Third-Party Distributors. Sales to a limited number of
distributors have historically accounted for a substantial portion of the
Company's revenues. For the year ended October 31, 1996, sales of the
Company's products to Acclaim Entertainment, Inc. ("Acclaim") and GameTek UK
(now TTE) accounted for approximately 58.9% and 13.3%, respectively, of the
Company's revenues. For the year ended October 31, 1997 and the six months
ended April 30, 1998, sales of the Company's products to Interplay
Productions, Inc. ("Interplay") accounted for approximately 40.4% and 5.0%,
respectively, of the Company's
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<PAGE>
revenues. In November 1997, the Company entered into an agreement with
Interplay pursuant to which the Company granted to Interplay the exclusive
right to distribute certain products. The agreement obligates Interplay to
make scheduled advances. The Company's success will be dependent in part upon
the marketing efforts of its distributors and upon sales of the Company's
products to their principal accounts. The Company may also be dependent on
advances made by distributors to fund product development and upon the ability
of management to establish satisfactory relationships with additional
distributors. Although the Company has increasingly relied on internal
distribution capabilities, the loss of principal distributors, a significant
reduction in advances or sales attributable to such distributors or a decline
in the economic prospects of any such distributor could have a material
adverse effect on the Company.
Product Returns. The Company's products are subject to return if not
sold to consumers. The Company accepts product returns for stock balancing,
price protection, or defective products and upon termination of a distribution
agreement. At the time of product sales, the Company establishes a reserve for
future returns based primarily on its return policies and historical return
rates and recognizes revenues net of product returns. The Company has
historically experienced a product return rate of 10% of gross revenues.
Product returns which significantly exceed the Company's reserves would
materially adversely affect the Company's operating results.
Fluctuations in Operating Results; 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,
manufacturing and research and development expenditures and pricing. Orders
are generally shipped upon receipt and backlog is not material to the Company.
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 on the timing of product releases, as a result of
increased demand for products during the year-end holiday season.
Unanticipated events, including delays in planned product introductions past
the time of peak sales or significant decreases in sales during such period,
could result in material losses which would not be easily reversed before the
following year. There can be no assurance that the foregoing factors will not
have an adverse effect on the Company's future operating results.
Intense Competition. The Company faces intense competition for a
finite amount of consumer discretionary spending from numerous other
businesses in the consumer software industry, including certain of the
Company's distributors, ranging from small companies with limited resources to
large companies with substantially greater financial, technical, distribution,
marketing and other resources than those of the Company. The Company considers
its primary competitors in the entertainment software market to be Activision,
Inc., Electronic Arts, Inc., GT Interactive, Inc., Maxis, Inc. and Sony
Entertainment Corporation of America, Inc., among others. These and other
companies with significantly greater financial resources than the Company may
be able to carry larger inventories, adopt more aggressive pricing policies,
make higher offers to licensors and developers for commercially desirable
properties and implement more extensive advertising campaigns, both generally
and in response to efforts by additional competitors seeking to enter into new
markets and market new products. In addition, new competitors, including large
software companies, media companies and film studios, are increasing their
focus on the interactive entertainment software market. Competition for the
Company's products is influenced by the timing of competitive product releases
and the similarity of such products to those of the Company, which may result
in significant price competition, reduced operating margins, loss of shelf
space or a reduction in sell-through of the Company's products at retail
stores. The Company's products also compete with numerous other products and
services which provide similar entertainment value, such as motion pictures,
television and audio and video cassettes featuring similar themes, on-line
computer programs and various other forms of entertainment which may be less
expensive or provide other advantages to consumers. There can be no assurance
that the Company will be able to continue to compete successfully,
particularly as it seeks to enter into new markets and market new products.
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Rapid Technological Change; Product and Platform Obsolescence. The
consumer software market and the personal computer and video game industries
in general are characterized by rapidly changing technology, resulting in
product and platform obsolescence and significant price erosion over the life
of a product. The Company's success is dependent upon its ability to
anticipate technological changes and to continually identify, acquire, develop
and successfully market new products and remain competitive in terms of price
and performance. Historically, the Company's products have been produced for,
and most of its development efforts have been directed toward, multimedia PCs.
The Company has increasingly emphasized the acquisition of software products
designed to operate on new platforms, such as the Nintendo 64 and Sony
PlayStation video consoles. A leveling off or a decline in the sales rate of
multimedia PCs or Nintendo or Sony gaming consoles could have a material
adverse effect on the Company's results of operations. To the extent the
Company continues to acquire products designed to operate on new platforms,
the Company will be subject to the risks that any new platform may not achieve
initial or continued market acceptance. There can be no assurance that the
Company will be able to adapt its products or technologies to emerging
hardware platforms or successfully acquire or develop software titles for such
platforms or that product or platform obsolescence will not result in
increased inventories of unsold products.
Dependence on Third-Party Manufacturers. The Company relies on third
parties to manufacture and ship finished goods. The Company has not entered
into agreements with any manufacturer and purchases finished products pursuant
to purchase orders placed from time to time in the ordinary course of
business. The Company will be dependent on the ability of Nintendo, Sony and
other manufacturers to provide adequate supplies of high quality disks and
video game cartridges on a timely basis and on favorable terms. There can be
no assurance that manufacturers will have sufficient production capacity to
satisfy the Company's product and scheduling requirements during any period of
sustained demand or that the Company will not be subject to the risk of price
fluctuations and periodic delays. Failure or delay by manufacturers in
supplying finished products to the Company on favorable terms could result in
material interruptions in its operations and adversely affect the Company's
operating results.
Outstanding Accounts Receivable; Collection and Credit Risks. The
Company's accounts receivable, less allowance for doubtful accounts and
product returns, at April 30, 1998, were $13,631,527. Approximately 48.3% of
the Company's net accounts receivable were attributable to the BMG
acquisition. Affiliates of BMG provide certain administrative services to the
Company, including billing and collection. Delays in collection or
uncollectibility of accounts receivable could have a material adverse effect
on the Company's liquidity and working capital position. The Company is
subject to credit risks, particularly in the event that any of its receivables
represent sales to a limited number of distributors or are concentrated in
foreign markets. Failure to properly assess such risks could require the
Company to continually increase its allowance for doubtful accounts.
Lengthy Production Cycle; Product Development Risks. The development
of new software products is lengthy, expensive and uncertain and product
development typically requires 18 months to complete from the time a new
concept is approved. Certain of the Company's proposed products are in early
stages of development and the Company will be required to commit considerable
time, effort and resources to complete development of its proposed products.
The introduction of new products is subject to the inherent risks of
development delays. The Company has in the past and may in the future
experience delays in introducing its products. Unanticipated delays, expenses,
technical problems or difficulties could cause the Company to miss an
important selling season with a corresponding negative impact on revenues and
net income or result in abandonment or material changes in product
commercialization. There can be no assurance that the Company will be able to
successfully develop any new products on a timely basis or that technical or
other problems will not occur which would result in increased costs or
material delays. The Company's success may also be dependent upon its ability
to adapt its products to operate on and to be compatible with the products of
original equipment manufacturers ("OEMs") and to function on various hardware
platforms. There can be no assurance that the Company will be able to adapt
its products to operate on and be compatible with the
-10-
<PAGE>
products of OEMs or to function on any particular platform on a timely basis,
or at all. In addition, software and other technology as complex as that
incorporated into the Company's products may contain defects or errors which
become apparent subsequent to commercial introduction. Remedying such errors
may delay the Company's plans, cause it to incur additional costs and
adversely affect its reputation.
International Trade Risks. Product sales in international markets,
primarily in the United Kingdom and other countries in Europe and the Pacific
Rim, have accounted for a significant portion of the Company's revenues. For
the years ended October 31, 1996 and 1997, and the six months ended April 30,
1998, sales of products in international markets accounted for approximately
24.2%, 16.6% and 30.4%, respectively, of the Company's revenues. The Company
is subject to risks inherent in foreign trade, including credit risks,
fluctuations in foreign currency exchange rates, shipping delays and
international political, regulatory and economic developments, all of which
could have a significant impact on the Company. Product sales by TTE in France
and Germany are made in local currencies. The Company does not engage in
foreign currency hedging transactions.
Limited Protection of Proprietary Rights. The Company regards certain
of its software and production techniques as proprietary and attempts to
protect such software and techniques under copyright, trademark and trade
secret laws as well as through contractual restrictions on disclosure, copying
and distribution. The Company does not hold any patents or registered
copyrights. Software products are susceptible to unauthorized copying. It may
be possible for unauthorized third parties to copy or to reverse engineer the
Company's products to obtain and use programming or production techniques that
the Company regards as proprietary. In addition, there can be no assurance
that the Company's competitors will not independently develop technologies
that are substantially equivalent or superior to the Company's technologies.
As the number of interactive software products in the market increases and the
functionality of these products further overlaps, the Company believes that
interactive software will increasingly become the subject of claims that such
software infringes the copyrights or patents of others. Although the Company
believes that its products and technologies do not and will not infringe or
violate proprietary rights of others, it is possible that infringement of
proprietary rights of others may occur. The Company has received
correspondence from the holder of a patent relating to the animation of living
beings in computer graphics alleging that the Company's products infringe such
patent. The Company is aware that the holder of such patent has claimed that
other companies involved in the entertainment software industry have also
infringed such patent. There can be no assurance that the holder of such
patent will not institute an action against the Company. Any such claims, with
or without merit, can be time consuming and difficult to defend and, if
successful, could have a material adverse effect on the Company.
Regulatory Factors; Possible Consumer Opposition to Violence. The
home video game industry requires software publishers to provide consumers
with information relating to graphic violence or sexually explicit material
contained in software products. Certain countries have also recently
established similar rating systems as prerequisites for software sales in such
countries. The Company seeks to comply with such rating systems and displays
the ratings received for its products. The Company's software titles have
generally received a rating of "T" (age 13 and over), although certain of its
products received a rating of "M" (age 18 and over). While the Company has
developed different versions of such products for rating purposes, product
ratings could limit the potential markets for the Company's products. Consumer
advocacy groups have in the past opposed sales of entertainment products
containing graphic violence and sexually explicit material by pressing for
legislation in these areas and by engaging in public demonstrations and media
campaigns. There can be no assurance that such groups will not target the
Company's products, which could possibly require the Company to significantly
change or discontinue a particular product. In addition, certain retailers,
such as Kmart, Sears and Target Stores, have declined to sell software
products containing graphic violence or sexually explicit material which could
also limit the potential markets for the Company's products.
-11-
<PAGE>
Dependence Upon Key Personnel. The success of the Company is largely
dependent on the personal efforts of Ryan A. Brant, its founder and Chief
Executive Officer, and other key personnel. Although the Company has entered
into an employment agreement with Mr. Brant, the loss of his services could
have a material adverse effect on the Company's business and prospects. The
Company has obtained "key man" life insurance on the life of Mr. Brant in the
amount of $2,000,000. The success of the Company is also dependent upon its
ability to hire and retain additional qualified operating, marketing,
technical and financial personnel. Competition for qualified personnel in the
computer software industry is intense and there can be no assurance that the
Company will be able to hire or retain necessary personnel.
No Dividends. The Company has never paid any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
Authorized Preferred Stock. The Company's Certificate of
Incorporation authorizes the Company's Board of Directors to issue "blank
check" Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares, without further
stockholder approval. The rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of holders of any
Preferred Stock that may be issued in the future. The ability to issue
Preferred Stock without stockholder approval could have the effect of making
it more difficult for a third party to acquire a majority of the voting stock
of the Company thereby delaying, deferring or preventing a change in control
of the Company. In March 1998, the Company issued 1,850,000 shares of Series A
Convertible Preferred Stock to BMG.
Possible Adverse Effect of Outstanding Warrants and Options. There
are a substantial number of shares reserved for issuance upon the exercise of
options and warrants. To the extent that any outstanding warrants or options
are exercised, dilution of the interests of the holders of the Company's
Common Stock will occur and any sales in the public market of the shares
underlying such warrants and options may adversely affect prevailing market
prices for the Common Stock and the Warrants. Moreover, the terms upon which
the Company will be able to obtain additional equity may be adversely affected
since the holders of the outstanding warrants and options can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain capital on terms more favorable to the Company than those provided by
such securities.
Shares Eligible for Future Sale; Registration Rights. A substantial
number of shares of Common Stock outstanding are and will be eligible for sale
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the Company has granted the holders of a
substantial number of shares certain registration rights, has included
1,026,553 shares (including 590,000 shares issuable upon exercise of warrants)
in an effective registration statement under the Securities Act and has agreed
to include 810,000 shares offered hereby in the registration statement of
which this Prospectus forms a part. The Company has also granted BMG certain
registration rights with respect to 1,850,000 shares of common stock issuable
upon the conversion of the Series A Preferred Stock and may grant additional
registration rights in the future. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or even the availability of such
shares for sale will have on the market prices prevailing from time to time.
The possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect the prevailing market price for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
Anti-Takeover Provisions. The Company is subject to the State of
Delaware's "business combination" statute, which prohibits a publicly-traded
Delaware corporation from engaging in various business combination
transactions with any 15% stockholder for a period of three years after the
date of the transaction in which the person became an "interested
stockholder," unless certain approvals are obtained or other events occur. The
statute could prohibit or delay mergers or other attempted takeovers or
changes in control with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.
-12-
<PAGE>
Litigation. 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. There can be no assurance that such action will be resolved in a
manner favorable to the Company.
Possible Volatility of Market Price of Common Stock. The market price
of the Common Stock following this offering may be highly volatile. Factors
such as the Company's operating results, announcements by the Company or its
competitors and new products and services affecting the computer software
industry may have a significant impact on the market price of the Company's
securities. In addition, in recent years, the stock market has experienced a
high level of price and volume volatility and the market price for the stock
of many companies have experienced a high level of price and volume volatility
and the market price for the stock of many companies have experienced wide
price fluctuations which have not necessarily been related to the operating
performance of such companies.
Possible Delisting of Common Stock from Nasdaq SmallCap Market; Risks
Relating to Low-Priced Stocks. The Common Stock is quoted on the Nasdaq
SmallCap Market. For the Common Stock to remain eligible for continued
quotation on the Nasdaq SmallCap Market, the Company must maintain net
tangible assets in the minimum amount of $2,000,000, a market value of the
public float in the minimum amount of $1,000,000, two market makers and a
minimum bid price of $1.00 per share. Failure to meet these maintenance
criteria may result in the delisting of the Common Stock from the Nasdaq
SmallCap Market, and trading, if any, in the Common Stock would thereafter be
conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor would find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock. In
addition, if the Common Stock were to become delisted from quotation on the
Nasdaq SmallCap Market and the trading price of the Common Stock were to fall
below $5.00 per share on the date the Common Stock was delisted, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less
than $5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and
impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock,
which could adversely effect the market price and severely limit liquidity of
the Common Stock and the ability of purchasers in this offering to sell Common
Stock in the secondary market.
-13-
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
SELLING STOCKHOLDERS
The Company has agreed to register the shares owned by the Selling
Stockholders under the Securities Act and to pay all expenses in connection
therewith. Except as set forth below, none of the Selling Stockholders has
ever held any position or office with the Company or had any other material
relationship with the Company. The following table sets forth certain
information with respect to the Selling Stockholders:
<TABLE>
<CAPTION>
Beneficial Ownership
Shares of Common Stock Shares to be Sold Shares Owned After Percentage of Shares
Selling Stockholder Prior to Sale on the Offering(1) the Offering(1) Owned After the Offering
- -------------------------------- ------------------------------------------ ------------------- --------------------------
<S> <C> <C> <C> <C>
Antilles Partners, L.P. 125,000 125,000 -- --
FiniBanco 20,000 20,000 -- --
Deutsche Bank-de Barry N.V. 50,000 50,000 -- --
Dexia Belgiu 50,000 50,000 -- --
Banca Commerciale Lugano 25,000 25,000 -- --
Ariel Fund Ltd. 50,000 50,000 -- --
DFB (Australia) Pty. Ltd. 10,000 10,000 -- --
Bawag Invest 80,000 80,000 -- --
Crescent International 25,000 25,000 -- --
Credit Suisse (Guernsey) Ltd. 15,000 15,000 -- --
Fenchtwanger & Partner 20,000 20,000 -- --
RBB Bank AG Vienna 10,000 10,000 -- --
Roberto R. Roy O. 25,000 25,000 -- --
Davido Dayan 10,000 10,000 -- --
Vereinsbank International 30,000 30,000 -- --
Stillman Ltd. Partnership 30,000 30,000 -- --
Brittany Donino 4,000 4,000 -- --
Batl Trading 10,000 10,000 -- --
Alyson Donino 6,000 6,000 -- --
Wimbledon Class T 75,000 75,000 -- --
Doug Lipton 25,000 25,000 -- --
Landesbank Schleiwiz Holstein 25,000 25,000 -- --
Sanjeev Pamnani 50,000 50,000 -- --
Bryamber Pty Limited 40,000 40,000 -- --
</TABLE>
- --------------
(1) Assumes the sale of all of the shares.
-14-
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares may be made from time to time by the Selling
Stockholders. Such sales may be made on the NASDAQ SmallCap Market in another
over-the-counter market, on a national securities exchange (any of which may
involve crosses and block transactions), in privately negotiated transactions
or otherwise or in a combination of such transactions at prices and at terms
then prevailing or at prices related to the then current market price, or at
privately negotiated prices. In addition, any shares covered by this
Prospectus which qualify for sale pursuant to Section 4(1) of the Securities
Act or Rule 144 promulgated thereunder may be sold under such provisions
rather than pursuant to this Prospectus. Without limiting the generality of
the foregoing, the shares may be sold in one or more of the following types of
transactions: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in
accordance with the rules of such exchange; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (e)
face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in the
resale.
In connection with distributions of the shares or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with Selling Stockholders. The Selling Stockholders may also sell
shares short and deliver the shares to close out such short positions. The
Selling Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the shares
registered hereunder, which the broker-dealer may resell pursuant to this
Prospectus. The Selling Stockholders may also pledge the shares registered
hereunder to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged shares pursuant to this Prospectus.
Brokers or dealers may receive compensation in the form of commissions,
discounts or concessions from Selling Stockholders in amounts to be negotiated
in connection with the sale. Such brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
such sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act. Compensation
to be received by broker-dealers retained by the Selling Stockholders in
excess of usual and customary commissions, will, to the extent required, be
set forth in a supplement to this Prospectus. Any dealer or broker
participating in any distribution of the shares may be required to deliver a
copy of this Prospectus, including a supplement to any person who purchases
any of the shares from or through such dealer or broker.
The Company has advised the Selling Stockholders that during such time
as they may be engaged in a distribution of the shares included herein they
are required to comply with Regulation M promulgated under the Exchange Act.
With certain exceptions, Regulation M precludes any Selling Stockholder, any
affiliated purchasers and any broker-dealer or other person who participates
in such distribution from bidding for or purchasing, or attempting to induce
any person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Common Stock.
-15-
<PAGE>
It is possible that a significant number of shares may be sold hereunder
and, accordingly, such sales or the possibility thereof may have a depressive
effect on the market price of the Company's Common Stock.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, finds, amounts paid in settlement and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its
stockholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the DGCL as current in effect, this provision
limits a director's liability except where such director (i) breaches his duty
of loyalty to the Company or its stockholders, (ii) fails to act in good faith
or engaged in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock purchase or redemption as
provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Company or its stockholders from
seeking equitable remedies, such an injunctive relief or recision. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against
actions taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted
under such law, as it may from time to time be in effect. In addition, the
Bylaws require the Company to indemnify, to the fullest extent permitted by
law, any director, officer, employee or agent of the Company for acts which
such person reasonably believes are not in violation of the Company's
corporate purposes as set forth in the Certificate of Incorporation. At
present, the DGCL provides that, in order to be entitled to indemnification,
an individual must have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the Company's best interests.
Insofar as indemnification against liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Tenzer Greenblatt LLP, New York, New York.
-16-
<PAGE>
EXPERTS
The consolidated balance sheet as of October 31, 1997 and the
consolidated statements of income, retained earnings and cash flows for each
of the two years in the period ended October 31, 1997 incorporated by
reference in this Prospectus have been incorporated herein in reliance on the
report, which includes an explanatory paragraph relating to the Company's
ability to continue as a going concern, of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement with respect to the securities offered
by this Prospectus. This Prospectus omits certain information contained in the
Registration Statement as permitted by the Rules and Regulations of the
Commission. For further information, reference is made to the Registration
Statement and to the Exhibits filed therewith, which may be examined without
charge at the Commission's principal office in Washington, D.C. or its
regional office in New York City, and copies of all or any part thereof may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not complete and where such
contract or other document is an exhibit to the Registration Statement, each
such statement is deemed to be qualified in all respects by the provisions of
the exhibit.
-17-
<PAGE>
==============================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy and
security other than the shares offered by this Prospectus, or an offer to sell
or a solicitation of an offer to buy any security by any person in any
jurisdiction in which such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.
-----------------
TABLE OF CONTENTS
Page
Available Information...................................... 2
Information Incorporated by Reference..................... 2
Prospectus Summary......................................... 3
Risk Factors............................................... 6
Use of Proceeds............................................ 14
Selling Stockholders....................................... 14
Plan of Distribution....................................... 15
Indemnification............................................ 16
Legal Matters.............................................. 16
Experts.................................................... 17
Additional Information..................................... 17
==============================================================================
==============================================================================
810,000 Shares of
Common Stock
-------------------------
TAKE-TWO INTERACTIVE SOFTWARE,
INC.
-------------------------
PROSPECTUS
-------------------------
_________, 1998
==============================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the issuance and distribution of
the securities being registered (estimated except in the case of the
registration8fee)0arehasefollows:
Amount
------
Registration Fee $1,433.70
Printing 1,000.00
Legal and Accounting Fees and Expenses 20,000.00
Transfer Agents and Registrars Fees 1,000.00
Miscellaneous 1,566.30
----------
TOTAL $25,000.00
==========
The above fees will be paid by the Company.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, finds, amounts paid in settlement and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its
stockholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the DGCL as current in effect, this provision
limits a director's liability except where such director (i) breaches his duty
of loyalty to the Company or its stockholders, (ii) fails to act in good faith
or engaged in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock purchase or redemption as
provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Company or its stockholders from
seeking equitable remedies, such an injunctive relief or recision. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against
actions taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the
effect that (subject to certain exceptions) the Company shall, to the maximum
extent permitted from time to time under the law of the State of Delaware,
indemnify, and upon request shall advance expenses to, any director or officer
to the extent that such indemnification and advancement of expenses is
permitted under such law, as it may from time to time be in effect. In
addition, the Bylaws require the Company to indemnify, to the fullest extent
permitted by law, any director, officer, employee or agent of the Company for
acts which such person reasonably believes are
II-1
<PAGE>
not in violation of the Company's corporate purposes as set forth in the
Certificate of Incorporation. At present, the DGCL provides that, in order to
be entitled to indemnification, an individual must have acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
Company's best interests.
Item 16. Exhibits
(a) Exhibits
Exhibit No.
5 Opinion of Tenzer Greenblatt LLP regarding legality of securities
being registered.
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Revisa & Co. KG
23.4 Consent of Price Waterhouse
23.5 Consent of Arthur Andersen
23.6 Consent of Deloitte Touche Tohmatsu
23.7 Consent of Berensen & Company LLP
23.8 Consent of Tenzer Greenblatt LLP (included in Exhibit 5).
24 Power of Attorney (included in the signature page).
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed the
initial bona fide offering thereof.
(3) To remove by means of a post-effective amendment any of
the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(4) For the purpose of determining any liability under the
Securities Act, each filing of an annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d)) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer, or controlling person of the small
business issuer in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in connection
with the securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on the 24th day of June, 1998.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By: /s/Ryan A. Brant
--------------------
Ryan A. Brant
Chief Executive Officer
Each person whose signature appears below authorizes each of Ryan A.
Brant and Anthony R. Williams or either of them as his true and lawful
attorney-in-fact with full power of substitution to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to
file any and all amendments to this Registration Statement, including any and
all post-effective amendments thereto.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following person in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Ryan A. Brant Chief Executive Officer and Director June 24, 1998
- ------------------------- (Principal Executive Officer)
Ryan A. Brant
/s/Anthony R. Williams Chief Financial Officer and Director June 24, 1998
- ------------------------- (Principal Accounting Officer)
Anthony R. Williams
/s/Oliver R. Grace, Jr. Director June 24, 1998
- -------------------------
Oliver R. Grace, Jr.
/s/Neil S. Hirsch Director June 24, 1998
- -------------------------
Neil S. Hirsch
/s/David P. Clark Director June 24, 1998
- -------------------------
David P. Clark
/s/Kelly Sumner Director June 24, 1998
- -------------------------
Kelly Sumner
/s/Robert Flug Director June 24, 1998
- -------------------------
Robert Flug
</TABLE>
II-4
<PAGE>
EXHIBIT 5
June 24, 1998
Take-Two Interactive Software, Inc.
575 Broadway
New York, New York 10012
Gentlemen:
You have requested our opinion with respect to the offer and sale by
certain Selling Stockholders of up to an aggregate of 810,000 shares of Common
Stock (the "Shares") of Take-Two Interactive Software, Inc. (the "Company")
pursuant to a Registration Statement (the "Registration Statement") on Form
S-3, under the Securities Act of 1933, as amended (the "Act").
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of such documents and corporate and public records as we
deem necessary as a basis for the opinion hereinafter expressed. With respect
to such examination, we have assumed the genuineness of all signatures
appearing on all documents presented to us as originals, and the conformity to
the originals of all documents presented to us as conformed or reproduced
copies. Where factual matters relevant to such opinion were not independently
established, we have relied upon certificates of appropriate state and local
officials, and upon certificates of executive officers and responsible
employees and agents of the Company.
Based upon the foregoing, it is our opinion that the Shares have been
duly authorized, validly issued and fully paid and nonassessable.
We hereby consent to use of this opinion as Exhibit 5 to the Registration
Statement, and to the use of our name as counsel in connection with the
Registration Statement and in the Prospectus forming a part thereof. In giving
this consent, we do not thereby concede that we come within the categories of
persons whose consent is required by the Act or the General Rules and
Regulations promulgated thereunder.
Very truly yours,
TENZER GREENBLATT LLP
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting a
part of the Registration Statement on Form S-3 of Take-Two Interactive
Software, Inc. of our report, which includes an explanatory paragraph relating
to the Company's ability to continue as a going concern, dated January 21,
1998, relating to our audit of the consolidated balance sheet of Take-Two
Interactive Software, Inc. as of October 31, 1997, and the related
consolidated statements of operations stockholders' equity, and cash flows for
each of the two years in the period ended October 31, 1997. We also consent to
the reference to our firm under the caption "Experts" in the Prospectus.
Coopers & Lybrand L.L.P.
New York, New York
June 24, 1998
II-6
<PAGE>
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Bertelsmann AG
We consent to the incorporation by reference in the registration statement on
Form S-3 of Take-Two Interactive Software, Inc. of our report dated May 19,
1998, relating to our audits of the combined balance sheet of BMG Interactive
Group as of June 30, 1997, and the related combined statements of operations,
divisional deficit, and cash flows for each of the years in the two year period
ended June 30, 1997, which report is included in Form 8-K/A dated on June 1,
1998. Our report dated May 19, 1998 states that we did not audit the financial
statements of the BMG Interactive Group's operations in the United Kingdom,
France, Italy and Japan, which statements reflect assets constituting 43% of
combined assets as of June 30, 1997, and revenues constituting 60% and 77% of
combined revenues in 1997 and 1996, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for the operations of the United
Kingdom, France, Italy and Japan, is based solely on the reports of the other
auditors. Our report also states that BMG Interactive Group has been operated
as an integral part of BMG Entertainment, a division of Bertelsmann AG, and has
no separate legal existence. The basis of preparation of the BMG Interactive
Group financial statements is described in the note 2 to those combined
financial statements.
KPMG Peat Marwick LLP
New York, New York
June 26, 1998
II-7
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of Take-Two Interactive Software, Inc. of our report dated April 17,
l998, relating to our audit of the balance sheet of BMG Interactive Italy as
of June 30, 1997, and related statements of operations, divisional deficit,
and cash flows for each of the two yars in the period ended June 30, 1997,
which is included in Form 8-K/A filed on June 1, 1998.
REVISA & CO. KG
Dr. Mansjorg Verdorfor
Bozen
April 17, 1998
II-8
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the prospectus constituting part
of this registration statement on Form S-3 of our report dated May 19, 1998,
relating to our audit of the combined balance sheets and the related combined
statements of operations, divisional deficit and cash flows of BMG Interactive
(UK Business) as of June 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the two years in the period ended June 30, 1997,
which is included in Form 8-K/A filed on June 1, 1998.
Price Waterhouse
London, United Kingdom
June 26, 1998
II-9
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of Take-Two Interactive Software, Inc. of our report dated April 17,
1998, relating to our audit of the balance sheet of BMG Interactive Japan, a
division of BMG Japan, Inc. as of June 30, 1997, and related statemments of
operations, divisional deficit, and cash flows for each of the two years in
the period ended June 30, 1997, which is included in Form 8-K/A filed on June
1, 1998.
Arthur Andersen
Tokyo, Japan
June 24, 1998
II-10
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of Take-Two Interactive Software, Inc. of our report dated April 17,
1998, relating to our audit of the balance sheet of BMG Interactive (France)
as of June 30, 1997, and related statements of operations, divisional deficit,
and cash flows for each of the two years in the period ended June 30, 1997,
which is included in Form 8-K/A filed on June 1, 1998.
Neuilly, June 24, 1999
Deloitte Touch Tohmatsu
Albert Aidan
II-11
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of Take-Two Interactive Software, Inc. of our report dated February 19,
1997, relating to our audit of the balance sheet of L & J Marketing, Inc. D/B/A
Alliance Distributors as of December 31, 1996 and 1995, and related statements
of income and retained earnings, and cash flows for the years then ended, which
is included in Form 8-K/A filed on March 2, 1998.
Berenson & Company LLP
New York, New York
June 24, 1998
II-12
