UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) : Dec 24, 1997
TAKE-TWO INTERACTIVE SOFTWARE, INC.
DELAWARE 0-29230 51-0350842
(State or other juridiction) (Commission (I.R.S. Employer
of incoropration) File Number) 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
Not Applicable
Former name or former address, if changed since last report
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information
omitted from Form 8-K for the event dated December 24, 1997, in reliance
upon instructions 7 (a) (4) and 7 (b) (2) of Form 8-K, are filed herewith.
(a) Financial Statements of the Businesses Acquired.
1. Financial Statements of L & J Marketing, Inc. D/B/A Alliance
Distributors
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1996
Balance Sheet as of September 30, 1997 (unaudited)
Statements of Income and Retained Earnings for the years ended
December 31, 1995 and 1996
Statements of Income and Retained Earnings for the nine months
ended September 30, 1996 and 1997 (unaudited)
Statements of Cash Flows for the years ended December 31, 1995
and 1996
Statements of Cash Flows for the nine months ended September 30,
1996 and 1997 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Financial Statements for Take-Two
Interactive Software, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations for the
year ended October 31, 1997.
Notes to Unaudited Pro Forma Consolidated Financial Statements
for the year ended October 31, 1997.
(c) Exhibits.
Reference is made to the Exhibits previously filed with the Securities and
Exchange Commission as Exhibits to the Company's Report on Form 8-K for the
event dated December 24, 1997.
Independent Auditor's Report
Stockholders
L & J Marketing, Inc.
D/B/A Alliance Distributors
College Point, NY
We have audited the accompanying balance sheets of L & J Marketing, Inc. D/B/A
Alliance Distributors as of December 31, 1996 and 1995 and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of L & J Marketing, Inc. D/B/A
Alliance Distributors as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BERENSON & COMPANY LLP
New York, NY
February 19, 1997
L & J MARKETING, INC.
D/B/A ALLIANCE DISTRIBUTORS
BALANCE SHEETS
As of December 31, 1995 and 1996 and September 30, 1997 (unaudited)
December 31, December 31, September 30,
1995 1996 1997
------------ ------------ -------------
(unaudited)
ASSETS
Current assets:
Cash $ 101,405 $ 24,593 $ 12,291
Accounts receivable, net of allowance for doubtful accounts
of $30,000; $15,000-1995 (note 4) 1,629,774 2,903,584 2,594,948
Inventory (notes 4 and 7) 5,199,708 5,237,481 5,037,292
Prepaid expenses and other current assets 20,796 27,947 29,981
---------- ---------- ----------
Total current assets 6,951,683 8,193,605 7,674,512
Property and equipment, net (note 3) 119,604 105,549 89,938
Security deposits 22,270 22,270 22,270
---------- ---------- ----------
$7,093,557 $8,321,424 $7,786,720
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note and acceptances payable, bank (note 4) $ 800,000 $2,395,615 $3,705,479
Accounts payable (note 7) 4,684,888 4,198,364 2,324,480
Accrued expenses 56,433 74,019 43,860
---------- ---------- ----------
Total current liabilities 5,541,321 6,667,998 6,073,819
---------- ---------- ----------
Commitment and contingency (note 6)
Stockholders' equity:
Common stock, 100 shares issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 282,000 282,000 282,000
Retained earnings 1,269,236 1,370,426 1,429,901
---------- ---------- ----------
1,552,236 1,653,426 1,712,901
---------- ---------- ----------
$7,093,557 $8,321,424 $7,786,720
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
L & J MARKETING, INC.
D/B/A ALLIANCE DISTRIBUTORS
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 and 1997 (unaudited)
December 31, September 30,
-------------------------------- -------------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(unaudited)
Net sales $ 25,117,915 $ 27,552,133 $ 15,588,521 $ 17,179,699
Cost of goods sold (note 7) 22,382,492 24,776,238 13,811,712 15,177,819
------------ ------------ ------------ ------------
Gross profit 2,735,423 2,775,895 1,776,809 2,001,880
------------ ------------ ------------ ------------
Operating expenses:
Selling 961,168 1,346,824 817,420 978,349
General and administrative 1,231,180 1,083,523 746,384 731,761
Interest 138,185 233,558 149,125 203,942
------------ ------------ ------------ ------------
2,330,533 2,663,905 1,712,929 1,914,052
Income before provision for income taxes 404,890 111,990 63,880 87,828
Provision for income taxes 24,000 10,800 3,000 7,300
------------ ------------ ------------ ------------
Net income 380,890 101,190 60,880 80,528
Retained earnings, beginning of period 1,034,346 1,269,236 1,269,236 1,370,426
Less distributions (146,000) -- -- (21,053)
------------ ------------ ------------ ------------
Retained earnings, end of period $ 1,269,236 $ 1,370,426 $ 1,330,116 $ 1,429,901
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
L & J MARKETING, INC.
D/B/A ALLIANCE DISTRIBUTORS
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1996 and 1997 (unaudited)
December 31, September 30,
---------------------------- ----------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(unaudited)
Cash flows from operating activities:
Net income $ 380,890 $ 101,190 $ 60,880 $ 80,528
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation 34,354 33,455 23,750 18,275
Provision for loss on accounts receivable 13,276 18,782 -- 17,282
Gain on disposition of property and equipment (2,000) -- -- --
Changes in assets (increase) decrease:
Accounts receivable 398,110 (1,292,592) (147,293) 291,354
Inventory (551,708) (37,773) (1,002,854) 200,189
Prepaid expenses 22,101 (7,151) (40,578) (2,034)
Changes in liabilities increase (decrease):
Accounts payable (889,853) (486,524) (2,036,303) (1,873,884)
Accrued expenses 25,733 17,586 (8,233) (30,161)
----------- ----------- ----------- -----------
Net cash used by operating activities (569,097) (1,653,027) (3,150,631) (1,298,451)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (49,649) (19,400) (13,007) (2,662)
Proceeds from sale of truck 2,000 -- -- --
----------- ----------- ----------- -----------
Net cash used by investing activities (47,649) (19,400) (13,007) (2,662)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings on note and acceptances payable, bank 800,000 1,595,615 3,095,000 1,309,864
Distributions (146,000) -- -- (21,053)
----------- ----------- ----------- -----------
Net cash provided by financing activities 654,000 1,595,615 3,095,000 1,288,811
----------- ----------- ----------- -----------
Net increase (decrease) in cash 37,254 (76,812) (68,638) (12,302)
Cash, beginning of period 64,151 101,405 101,405 24,593
----------- ----------- ----------- -----------
Cash, end of period $ 101,405 $ 24,593 $ 32,767 $ 12,291
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 133,150 $ 236,057 $ 149,125 $ 203,942
Income taxes -- 40,063 -- --
The accompanying notes are an integral part of the financial statements.
L & J MARKETING, INC.
D/B/A ALLIANCE DISTRIBUTORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. Nature of business:
The Company, located in New York, is a distributor of home entertainment
and consumer electronic products. The Company grants credit primarily to
retailers in the New York metropolitan area.
2. Significant accounting policies:
a. Inventory:
Inventory, consisting of finished goods, is stated at the lower of
cost (first-in, first-out basis) or market.
b. Property and equipment:
Property and equipment are stated at cost and depreciation is computed
by various methods over the estimated useful lives of the assets.
c. Income taxes:
The Company, with the consent of its stockholders, has elected to have
its Federal and State income taxed as an S corporation, which provides
that, in lieu of corporate income taxes, the stockholders are taxed on
their proportionate share of the Company's taxable income. Therefore,
no provision or liability for Federal income taxes is reflected in
these financial statements. New York State and New Jersey impose a
minimum tax on S corporations based upon the maximum personal rate and
the differential it would have paid if it were a C corporation;
accordingly, any material provision for state income taxes is
reflected in the financial statements. Provision for New York City
income taxes is based on statutory rates.
d. Cash:
The Company maintains its cash accounts in two commercial banks
located in New York. The cash balances are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 at each bank.
e. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting year. Actual results could differ
from those estimates.
f. Advertising costs:
Advertising costs are expensed as incurred. Advertising costs for the
years ended December 31, 1996 and 1995 were approximately $92,000 and
$106,000, respectively.
3. Property and equipment:
1996 1995
-------- --------
Auto and trucks $ 42,278 $ 42,278
Furniture and fixtures 90,258 87,481
Computer equipment 69,784 57,011
Leasehold improvements 53,652 49,802
-------- --------
255,972 236,572
Less accumulated depreciation 150,423 116,968
-------- --------
$105,549 $119,604
======== ========
4. Note and acceptances payable, bank:
The Company currently has available a $5,000,000 line of credit with a bank
maturing June 30, 1997. Interest on direct borrowings is charged at 1% over
prime. The Company has pledged, as collateral, all Company assets, as
defined, in addition to personal guarantees of the stockholders.
The line of credit agreement includes covenants which require the Company
to maintain, among other things, certain working capital and net worth
relationships. The Company is in compliance with all of the loan covenants
as of December 31, 1996.
5. Pension plan:
The Company has a profit-sharing plan which covers all employees who meet
the eligibility requirements based on age and years of service.
Contributions to the plan are made at the discretion of the Company's
principals. For the years ended December 31, 1996 and 1995, pension expense
was $0 and $34,810, respectively.
6. Commitment and contingency:
a. The Company is obligated to make minimum rental payments under
operating leases for showroom, office and warehouse space as follows:
Years ending December 31, 1997 $ 96,000
1998 96,000
1999 96,000
2000 96,000
2001 56,000
The leases provide for payment of real estate taxes and other
operating expenses. Rent and occupancy expense for the years ended
December 31, 1996 and 1995 was approximately $96,000 and $102,000,
respectively.
b. The Company is contingently liable for a letter of credit for
approximately $228,000 expiring April 30, 1997.
7. Major supplier:
For the year ended December 31, 1996, the Company purchased approximately
24% of its merchandise from one supplier. Included in accounts payable at
December 31, 1996 was approximately $1,439,000 due to this supplier.
The Company purchased approximately 12% of its merchandise from a different
supplier during 1995 and the amount due on these purchases was
approximately $282,000 at December 31, 1995.
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma consolidated statement of operations, for the
year ended October 31, 1997, including the note thereto, give effect to the
acquisitions of GameTek (UK) Limited ("GameTek"), Alternative Reality
Technologies, Inc. ("ART"), Inventory Management Systems Inc. ("IMSI"), Creative
Alliance Group, Inc. ("CAG"), and L & J Marketing, Inc. D/B/A Alliance
Distributors ("Alliance"), by Take-Two Interactive Software, Inc. and
subsidiaries (the "Company") as if the acquisitions had occurred as of November
1, 1996.
On July 31, 1997, the Company acquired all the outstanding stock of IMSI and
CAG. IMSI and CAG are engaged in the wholesale distribution of interactive
software games. To effect the acquisition, all of the outstanding shares of
common stock of each of IMSI and CAG were exchanged for 900,000 shares of
restricted common stock of the Company. The acquisition has been accounted for
as a pooling of interests in accordance with APB No. 16 and accordingly, the
Company's financial statements for the year ended October 31, 1997, have been
restated to include the results of operations of IMSI and CAG.
All other acquisitions were accounted for under purchase accounting. As a
result, the assets and liabilities of the acquired businesses are adjusted from
their historical amount to their estimated fair value. Purchase accounting
adjustments have been preliminarily estimated by the Company's management based
upon available information and are believed by management to be reasonable.
There can be no assurance, however, that the final purchase accounting
adjustments that will ultimately be determined by the Company's management will
not differ from these estimates.
The unaudited pro forma consolidated statement of operations for the year ended
October 31, 1997 has been prepared based on the audited historical consolidated
statement of operations of the Company for the year ended October 31, 1997 which
includes Take-Two, Mission, IMSI, CAG and GameTek/ART from July 29, 1997, the
date of its acquisition; the unaudited historical statement of operations of
GameTek for the period from November 1, 1996 to July 28, 1997; the historical
statement of operations for ART, prior to its acquisition, is immaterial and has
not been included in the unaudited pro forma consolidated statement of
operations; and the unaudited historical statement of operations of Alliance for
the period from October 1, 1996 to September 30, 1997.
The unaudited pro forma consolidated financial information presented for
informational purposes only, is not necessarily indicative of the actual results
of operations of the Company that would have been reported if the acquisitions
of GameTek, IMSI, CAG, and Alliance had occurred as of November 1, 1996, nor
does such information purport to indicate results of future operations or
financial condition. In the opinion of management, all adjustments necessary to
present fairly such pro forma financial information have been made to the
financial statements, and are reflected in the accompanying notes. The unaudited
pro forma consolidated financial information should be read in conjunction with
the Company's Annual Report on Form 10-KSB and with the financial statements
included in this filing.
Historical Pro Forma
-------------------------------------------- -------------------------------
Company(1) GameTek(2) Alliance(3) Adjustments As adjusted
------------ ------------ ------------ ------------ ------------
Net sales $ 19,014,083 $ 3,081,054 $ 29,143,311 $ (95,110)(4) $ 51,143,338
Cost of sales 12,459,189 3,727,094 26,142,345 (95,110)(4) 42,233,518
------------ ------------ ------------ ------------ ------------
Gross profit 6,554,894 (646,040) 3,000,966 -- 8,909,820
Operating expenses:
Research and development 1,248,258 -- -- 1,248,258
Selling and marketing 4,203,984 736,377 1,507,753 84,431(7) 6,532,545
General and administrative 3,385,481 2,539,249 1,040,920 6,965,650
Depreciation and amortization 844,221 58,627 27,980 283,024(5) 1,414,664
200,812(6)
------------ ------------ ------------ ------------ ------------
Total operating expenses 9,681,944 3,334,253 2,576,653 568,267 16,161,117
Income (loss) from operations (3,127,050) (3,980,293) 424,313 (568,267) (7,251,297)
Interest and other expenses 1,016,612 43,772 288,375 30,000(8) 1,378,759
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (4,143,662) (4,024,065) 135,938 (598,267) (8,630,056)
Provision for income taxes (benefit) 18,421 (247,610) 15,100 (214,089)
------------ ------------ ------------ ------------ ------------
Net income (loss) (4,162,083) (3,776,455) 120,838 (598,267) (8,415,967)
Preferred dividends (135,416) -- -- (135,416)
Distributions paid to S
corporation
shareholders prior to
acquisition (202,092) -- -- (202,092)
------------ ------------ ------------ ------------ ------------
Net income (loss)
attributable to
common stockholders' $ (4,499,591) $ (3,776,455) $ 120,838 $ (598,267) $ (8,753,475)
============ ============ ============ ============ ============
Net loss per share
$ (0.96)
Weighted average shares (9) 9,141,029
outstanding
Notes to Unaudited Pro Forma Consolidated Financial Statements
for the year ended October 31, 1997
(1) Reflects the Company's audited historical financial statements for the year
ended October 31, 1997, which includes the operations of Take-Two, Mission,
IMSI, CAG, and GameTek / ART from July 29, 1997, the date of its
acquisition.
(2) Reflects GameTek's unaudited historical financial statements for the period
from November 1, 1996 to July 28, 1997.
(3) Reflects Alliance's unaudited historical financial statements for the
period from October 1, 1996 to September 30, 1997.
(4) Reflects the elimination of inter-company transactions between IMSI and
Alliance.
(5) Reflects the adjustment of $283,024, which represents the amortization of
the intangible assets acquired in connection with the GameTek acquisition.
The acquired intangible asset is being amortized over the estimated useful
life of 10 years.
(6) Reflects the adjustment of $200,812, which represents the amortization of
intangible assets acquired in connection with the Alliance acquisition. The
acquired intangible asset is being amortized over the estimated useful life
of 10 years.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
Working capital $ 1,010,007
Equipment 97,580
Intangibles 2,008,119
Deferred compensation 253,294
-----------
$ 3,369,000
===========
(7) Reflects the adjustment of $84,431, which represents the amortization of
deferred compensation as a result of the issuance of non-qualified options
to Alliance employees at an exercise price of $2.00 per share. The options
vest over a period of three years. The difference between the exercise
price and the fair value of the options at the measurement date is being
amortized over the vesting period.
(8) Reflects additional interest expense incurred in connection with the
$500,000 promissory note, bearing interest at 8.0% per annum, issued in
connection with the GameTek acquisition.
(9) Reflects the Company's historical weighted average shares outstanding, plus
900,000 shares issued in connection with the acquisition of IMSI and CAG,
plus 406,553 shares issued in connection with the acquisition of GameTek,
plus 500,000 shares issued in connection with the acquisition of Alliance.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 2, 1998
Take-Two Interactive Software, Inc.
By:/s/ Ryan A. Brant
---------------------------
Ryan A. Brant
Chief Executive Officer
