United States Securities and Exchange Commission Washington, D.C
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 31, 2000 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. (Exact name of registrant as specified in its charter) 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) 334-6633 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 September 8, 2000, there were 31,002,552 shares of the registrant's Common Stock outstanding. TAKE-TWO INTERACTIVE SOFTWARE, INC. QUARTER ENDED JULY 31, 2000 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets - As of July 31, 2000 and October 31, 1999 (unaudited) 1 Consolidated Condensed Statements of Operations - For the three months ended July 31, 2000 and 1999 and the nine months ended July 31, 2000 and 1999 (unaudited) 2 Consolidated Condensed Statements of Cash Flows - For the nine months ended July 31, 2000 and 1999 (unaudited) 3 Consolidated Condensed Statements of Stockholders' Equity - For the year ended October 31, 1999 and the nine months ended July 31, 2000 (unaudited) 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 2. Changes in Securities 17 Item 6. Exhibits and Reports on Form 8-K 17 Item 1. TAKE-TWO INTERACTIVE SOFTWARE, INC. Consolidated Condensed Balance Sheets As of July 31, 2000 and October 31, 1999 (unaudited) ASSETS: July 31, 2000 October 31, 1999 ------------- ---------------- Current assets: Cash and cash equivalents $ 2,631,068 $ 10,374,562 Accounts receivable, net of allowances of $3,921,494 and $6,816,682, respectively 85,173,092 108,802,903 Inventories 41,214,022 41,299,838 Prepaid royalties 20,844,252 20,118,160 Prepaid expenses and other current assets 9,183,915 6,374,031 Marketable securities 3,559,399 -- Deferred tax asset 2,357,249 2,004,689 ------------- ------------- Total current assets 164,962,997 188,974,183 Fixed assets, net 6,230,260 4,120,317 Prepaid royalties 860,000 1,510,530 Capitalized software development costs, net 9,796,522 2,226,670 Investment in affiliates -- 3,954,668 Intangibles, net of accumulated amortization of $9,248,842 and $3,251,358 respectively 116,442,511 30,856,983 Other assets, net 1,076,557 1,073,026 ------------- ------------- Total assets $ 299,368,847 $ 232,716,377 ============= ============= LIABILITIES and STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 38,730,790 $ 71,229,744 Accrued expenses 17,680,878 20,161,810 Lines of credit 46,478,365 56,047,846 Current portion of capital lease obligation 82,998 65,204 Notes payable, net of discount -- 30,611 ------------- ------------- Total current liabilities 102,973,031 147,535,215 Note payable, net of current portion -- 58,363 Loan payable, net of unamortized discount 12,121,820 -- Capital lease obligation, net of current portion 329,323 19,882 Other liabilities 1,889,953 -- ------------- ------------- Total liabilities 117,314,127 147,613,460 ------------- ------------- Commitments and contingencies Stockholders' equity: Common stock, par value $.01 per share; 50,000,000 shares authorized; 30,958,055 and 23,085,455 shares issued and outstanding 309,581 230,855 Additional paid-in capital 157,147,567 67,345,381 Deferred compensation (14,135) (47,925) Retained earnings 31,096,526 18,401,625 Accumulated other comprehensive loss (6,484,819) (827,019) ------------- ------------- Total stockholders' equity 182,054,720 85,102,917 ------------- ------------- Total liabilities and stockholders' equity $ 299,368,847 $ 232,716,377 ============= ============= The accompanying notes are an integral part of the consolidated condensed financial statements Certain amounts have been reclassified for comparative purposes TAKE-TWO INTERACTIVE SOFTWARE, INC. Consolidated Condensed Statements of Operations For the three months ended July 31, 2000 and 1999 and the nine months ended July 31, 2000 and 1999 (unaudited) Three months ended July 31, Nine months ended July 31, --------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ------------- ------------ Net sales $71,472,587 $63,562,470 $ 264,398,385 $184,008,455 Cost of sales 40,100,344 43,931,101 168,155,154 133,553,958 ----------- ----------- ------------- ------------ Gross profit 31,372,243 19,631,369 96,243,231 50,454,497 ----------- ----------- ------------- ------------ Operating expenses: Selling and marketing 9,055,486 6,925,874 34,243,171 16,415,343 General and administrative 9,105,921 6,779,560 25,725,552 17,416,941 Research and development costs 1,656,737 986,845 4,646,045 2,210,994 Depreciation and amortization 3,821,587 730,146 7,398,041 1,743,567 One time charge related to abandoned offering 1,103,170 -- 1,103,170 -- ----------- ----------- ------------- ------------ Total operating expenses 24,742,901 15,422,425 73,115,979 37,786,845 ----------- ----------- ------------- ------------ Income from operations 6,629,342 4,208,944 23,127,252 12,667,652 Interest expense, net 1,635,618 453,825 4,516,708 2,053,295 ----------- ----------- ------------- ------------ Income before equity in income/(loss) of affiliate and provision for income taxes 4,993,724 3,755,119 18,610,544 10,614,357 Equity in income/(loss) of affiliate -- 110,973 (762,683) 110,973 ----------- ----------- ------------- ------------ Income before provision for income taxes 4,993,724 3,866,092 17,847,861 10,725,330 Provision for income taxes 1,544,753 1,158,268 6,258,022 3,561,498 ----------- ----------- ------------- ------------ Net income $ 3,448,971 $ 2,707,824 $ 11,589,839 $ 7,163,832 =========== =========== ============= ============ Per share data: Basic: Weighted average common shares outstanding 29,061,499 22,440,547 25,981,014 19,939,990 =========== =========== ============= ============ Net income per share $ 0.12 $ 0.12 $ 0.45 $ 0.36 =========== =========== ============= ============ Diluted: Weighted average common shares outstanding 29,879,265 23,292,541 26,992,485 21,205,200 =========== =========== ============= ============ Net income per share $ 0.12 $ 0.12 $ 0.43 $ 0.34 =========== =========== ============= ============ The accompanying notes are an integral part of the consolidated condensed financial statements. Certain amounts have been reclassified for comparative purposes TAKE-TWO INTERACTIVE SOFTWARE, INC. Consolidated Condensed Statements of Cash Flows For the nine months ended July 31, 2000 and 1999 (unaudited) Nine months ended July 31, ---------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 11,589,839 $ 7,163,832 Adjustment to reconcile net income to net cash used in operating activities: Depreciation and amortization 7,398,041 1,743,567 Loss on disposal of fixed asset 247,630 57,504 Net gain from eUniverse transactions (2,801,449) -- Equity in loss (earnings) of affiliate 762,683 (110,972) Change in deferred tax asset (352,560) 941,000 Provision for allowances (1,734,921) 760,914 Forfeiture of compensatory stock options in connection with AIM acquisition -- (146,418) Other amortization 283,889 365,790 Issuance of compensatory stock -- 641,909 Changes in operating assets and liabilities, net of effects of acquisitions: Decrease (increase) in accounts receivable 30,008,597 (8,806,651) Decrease (increase) in inventories, net 88,302 (5,358,443) Increase in prepaid royalties (16,127,467) (5,921,749) Increase in prepaid expenses and other current assets (2,166,456) (742,318) (Increase) decrease in capitalized software development costs (7,569,852) 159,686 (Increase) decrease in other assets, net (976,557) 33,259 Decrease in accounts payable (39,767,284) (4,190,634) (Decrease) increase in accrued expenses (8,081,269) 3,039,522 ------------ ------------ Net cash used in operating activities (29,198,834) (10,370,202) ------------ ------------ Cash flows from investing activities: Net purchases of fixed assets (2,405,920) (1,869,971) Cash paid for investments (1,432,500) (4,000,000) Acquisition, net cash (paid) acquired (4,261,640) 5,182 Cash paid for prior acquisitions (1,531,385) -- ------------ ------------ Net cash used in investing activities (9,631,445) (5,864,789) ------------ ------------ Cash flows from financing activities: Net proceeds from secondary public offering -- 21,852,559 Proceeds from private placement, net 19,689,684 -- Net repayment under the line of credit (9,658,455) (7,637,956) Proceeds from loan payable 15,000,000 -- Repayment of notes payable -- (449,572) Proceeds from exercise of stock options 5,913,253 2,187,321 Proceeds from exercise of warrants 6,460 223,926 Proceeds from issuance of stock of subsidiary 1,500,000 -- Repayment of capital lease obligation (56,363) (70,932) Tax benefit from exercise of stock options 1,940,655 753,523 ------------