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): August 31, 1998
TAKE-TWO INTERACTIVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-29230 51-0350842
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) 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
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Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information
omitted from Form 8-K for the event dated August 31, 1998, in reliance upon
instruction 7(a) (4) and 7(b) (2) of Form 8-K, are filed herewith.
(a) Financial Statements of the Business Acquired.
1. Financial Statements of Jack of All Games, Inc.
Independent Auditor's Report
Balance Sheets as of December 31, 1997 and 1996
Statements of Income for the years ended December 31, 1997 and 1996
Statements of Retained Earnings for the years ended December 31, 1997
and 1996
Statements of Cash Flows for the years ended December 31, 1997 and
1996
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 Financial Information for the year
ended October 31, 1996
Notes to Unaudited Pro Forma Consolidated Financial Statements for the
year ended October 31, 1996
Unaudited Pro Forma Consolidated Financial Information for the year
ended October 31, 1997
Notes to Unaudited Pro Forma Consolidated Financial Statements for the
year ended October 31, 1997
Unaudited Pro Forma Consolidated Financial Information as of and for
the nine months ended July 31, 1998
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of July 31,
1998
Notes to Unaudited Pro Forma Consolidated Statement of Operations for
the nine months ended July 31, 1998
(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 August 31, 1998.
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Jack of All Games, Inc.
(An S Corporation)
Cincinnati, Ohio
We have audited the accompanying balance sheets of Jack of All Games, Inc. (An S
Corporation) as of December 31, 1997 and 1996, and the related statements of
income, 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 in the first paragraph
present fairly, in all material respects, the financial position of Jack of All
Games, Inc. (An S Corporation) as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Aronowitz, Chaiken & Hardesty, LLP
Cincinnati, Ohio
February 26, 1998
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash .......................................................................... 480,683 2,617
Cash restricted for letter of credit .......................................... 1,089,760 --
Accounts Receivable - Trade (Net of allowance
for doubtful accounts
of $55,000 in 1997 and
$345,850 in 1996) ....................................... 16,187,821 7,882,207
- Officers ................................................ 11,425 55,300
- Joint venture ........................................... -- 497,658
Inventory ..................................................................... 11,587,362 7,063,675
Investment in joint venture ................................................... -- 133,893
Prepaid expenses .............................................................. 660,712 53,311
----------- -----------
TOTAL CURRENT ASSETS ..................................................... 30,017,763 15,688,661
----------- -----------
Property And Equipment:
Furniture, fixtures and equipment ............................................. 536,920 109,779
Vehicles ...................................................................... 4,500 4,500
Leasehold improvements ........................................................ 19,763 5,345
----------- -----------
561,183 119,624
Accumulated depreciation ...................................................... (182,334) (87,801)
----------- -----------
378,849 31,823
----------- -----------
Other Assets:
Deposits ...................................................................... 3,350 3,755
Cash value of life insurance .................................................. 2,856 1,663
----------- -----------
6,206 5,418
----------- -----------
30,402,818 15,725,902
=========== ===========
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITOR'S REPORT
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====================================================================================================================================
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As of December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Current Liabilities:
Current portion of long-term debt ...................................... 97,433 --
Notes payable - Bank ................................................... -- 6,815,046
Accounts payable - Trade ............................................... 11,272,049 7,402,062
Accrued taxes .......................................................... 226,893 21,345
Accrued expenses ....................................................... 919,652 392,734
----------- -----------
TOTAL CURRENT LIABILITIES ......................................... 12,516,027 14,631,187
----------- -----------
Long-Term Debt:
Notes payable - Bank ................................................... 16,013,032 --
Current portion ........................................................ (97,433) --
----------- -----------
15,915,599 --
----------- -----------
TOTAL LIABILITIES ................................................. 28,431,626 14,631,187
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - No par value, 750 shares authorized,
100 shares issued and outstanding .......................................... 1,000 1,000
Retained earnings ............................................................... 1,970,192 1,093,715
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ........................................ 1,971,192 1,094,715
----------- -----------
30,402,818 15,725,902
=========== ===========
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Amount
----------- -----------
Sales .................................................................... 75,318,654 40,522,770
Cost Of Sales ............................................................ 68,287,074 36,973,578
----------- -----------
Gross Profit ............................................................. 7,031,580 3,549,192
----------- -----------
Expenses:
Operating (Schedule 1) .......................................... 3,378,696 1,489,646
Occupancy (Schedule 2) .......................................... 199,647 102,909
Administration (Schedule 3) ..................................... 1,276,852 896,077
----------- -----------
TOTAL EXPENSES ............................................. 4,855,195 2,488,632
----------- -----------
2,176,385 1,060,560
----------- -----------
Other Income (Expense):
Equity income of joint venture .................................. -- 133,893
Interest and other income ....................................... 96,900 745
Interest expense ................................................ (925,808) (202,539)
----------- -----------
TOTAL OTHER INCOME
(EXPENSE) .............................................. (828,908) (67,901)
----------- -----------
Net Income For The Year .................................................. 1,347,477 992,659
=========== ===========
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITOR'S REPORT
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====================================================================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
STATEMENTS OF RETAINED EARNINGS
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - January 1 ................................................ 1,093,715 923,822
Net Income For The Year ............................................ 1,347,477 992,659
Dividends Paid ..................................................... (471,000) (822,766)
---------- ----------
Balance - December 31 .............................................. 1,970,192 1,093,715
========== ==========
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITOR'S REPORT
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income for the year ............................................................. 1,347,477 992,659
---------- ----------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation ................................................................... 97,607 36,809
Provision for bad debts ........................................................ 49,486 264,734
Loss on disposal of equipment .................................................. 772 --
Increase in cash value of life insurance ....................................... (1,193) (1,015)
(Increase) Decrease in assets:
Accounts receivable - Trade ................................................ (9,569,902) (4,625,178)
- Officers ................................ 43,875 (54,961)
- Joint venture ........................... 497,658 (300,060)
Inventory .................................................................. (4,523,687) (4,828,598)
Prepaid expenses ........................................................... 607,401 (34,347)
Deposits ................................................................... 405 (500)
Increase (Decrease) in liabilities:
Accounts payable - Trade ................................................... 3,869,987 3,902,963
Accrued expenses ........................................................... 526,918 261,320
Accrued taxes .............................................................. 205,548 303
---------- ----------
TOTAL ADJUSTMENTS ...................................................... (8,195,125) (5,378,530)
---------- ----------
NET CASH USED IN OPERATING
ACTIVITIES ........................................................ (6,847,648) (4,385,871)
---------- ----------
SEE ACCOMPANYING NOTES AND INDEPENDENT AUDITOR'S REPORT
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====================================================================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Cash restricted for letter of credit .................................. (1,089,760) --
Investment in joint venture ........................................... 133,893 (133,893)
Purchase of property and equipment .................................... (446,905) (21,441)
Proceeds from the sale of equipment ................................... 1,500 --
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES .......................................... (1,401,272) (155,334)
----------- -----------
Cash Flows From Financing Activities:
Payments on short-term debt ........................................... (6,815,046) --
Proceeds from issuance of long-term debt .............................. 16,035,575 5,203,974
Payments on long-term debt ............................................ (22,543) --
Dividends paid ........................................................ (471,000) (822,766)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ................................ 8,726,986 4,381,208
----------- -----------
Net Increase (Decrease) In Cash ................................................ 478,066 (159,997)
Cash Balance - January 1 ....................................................... 2,617 162,614
----------- -----------
Cash Balance - December 31 ..................................................... 480,683 2,617
=========== ===========
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 1: Company Information
Jack of All Games, Inc. (the "Company") is a distributor of video game
hardware and software, and specialty toy items, to customers
throughout the United States.
Note 2: Summary Of Significant Accounting Policies
Basis of Accounting - The financial statements are presented using the
accrual basis of accounting.
Inventory - Inventories are stated at the lower of cost or market,
using a moving average cost method.
Federal Income Tax - The corporation and its stockholders have elected
to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Subchapter S provides, in general, that an electing
corporation will pay no federal income tax, and that the federal
taxable income and deductions of the corporation will be reported and
taxed on the federal income tax returns of the stockholders.
Accordingly, these financial statements include no provision for
federal income tax.
Management 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 period.
Actual results could differ from those estimates.
Property and Equipment - Property and equipment are recorded at cost
and are depreciated on a straight line and accelerated basis over
their estimated useful lives.
Cash Flows - For the purposes of reporting cash flows, cash includes
cash on hand and short-term highly liquid investments readily
convertible to a known amount of cash within an original maturity of
three months or less.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 3: Concentration Of Credit Risk
The Company had $2,373,394 and $513,740 held in financial institutions
in excess of federally insured limits at December 31, 1997 and 1996,
respectively, based on the bank balances before outstanding checks.
Purchases of inventory from three vendors accounted for 52% of total
purchases for the year ended December 31, 1997, and two vendors
accounted for 40% of total purchases for the year ended December 31,
1996. Sales to two customers accounted for 26% of total revenue for the
year ended December 31, 1997.
Note 4: Depreciation And Amortization
Major classes of property and equipment, estimated useful lives and
accumulated depreciation are as follows:
Estimated
Useful Lives Accumulated Depreciation
------------ ------------------------
1997 1996
--------- -------
Furniture, fixtures and equipment 5 years 165,832 82,409
Displays and signs 5 years 13,045 --
Vehicles 5 years 3,204 2,341
Leasehold improvements 2-4 years 253 3,051
-------- --------
182,334 87,801
-------- --------
Depreciation expense was $97,607 and $36,809 for the years ended
December 31, 1997 and 1996, respectively.
Note 5: Short-Term Debt
At December 31, 1996, the Company had a line of credit with Provident
Bank, with the ability to borrow to the maximum of the line which was
$8,400,000. At December 31, 1996, the outstanding balance was
$4,612,020. Interest was at 1.25% above the bank's prime rate. The line
of credit was secured by a first lien on substantially all the assets
of the Company, and the guarantees of one of the stockholders. The line
of credit available to the Company was reduced by a letter of credit
issued by Provident Bank with an outstanding balance of $576,932 at
December 31, 1996.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5: Short-Term Debt (Continued)
The line of credit came due in 1997 and was replaced with a long-term
line of credit.
At December 31, 1996, the Company had a bank overdraft of $603,026 due
to outstanding checks. This overdraft was added to the line of credit
balance.
At December 31, 1996, the Company had a promissory note with Provident
Bank due January 13, 1997. The outstanding balance was $1,600,000 as of
December 31, 1996. Interest was due at maturity at 1.25% above the
bank's prime rate. The loan was secured by a first lien on
substantially all the assets of the Company, and the guarantees of two
of the stockholders.
Note 6: Long-Term Debt
1997 1996
---------- ----------
Revolving credit line - Bank, maximum line of $17,500,000, Company
must meet a formula established by the bank to meet the maximum,
interest rate is 1.25% above the bank's prime rate, or 9.75% at
December 31, 1997, secured by a first lien on substantially all the
assets of the Company and guarantees of two of the stockholders,
interest payments due monthly, principal due on or before
June 1, 1999 ...................................................... 13,835,575 --
Note payable - Bank, interest rate is 10.0% per annum, secured by a
first lien on substantially all the assets of the Company and the
guarantees of two of the stockholders, monthly payments of $9,230
from October 1, 1997 until maturity, final payment due
September 1, 1999 ................................................. 177,457 --
---------- ----------
Balance forward ................................................... 14,013,032 --
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 6: Long-Term Debt (Continued)
1997 1996
---------- ----------
Balance forward.................................................... 14,013,032 --
Note payable - Bank, interest rate is 16.50% per annum, secured by
a first lien on substantially all the assets of the Company and the
guarantees of two of the stockholders, interest payments due
monthly, principal due June 1, 1999................................ 2,000,000 --
---------- ----------
Total long-term debt............................................... 16,013,032 --
========== ==========
Maturity of long-term debt for the five years ending December 31, 2002
is as follows:
1998 97,433
1999 15,915,599
2000 --
2001 --
2002 --
As security for the line of credit, the Company is required to maintain
a compensating balance of $20,000 in one of its bank accounts. The
amount of unused line of credit was $3,664,425 at December 31, 1997.
The line of credit available to the Company was reduced by a letter of
credit issued by Provident Bank with an outstanding balance of
$1,634,640 at December 31, 1997.
Note 7: Restrictive Covenants
The bank debt is subject to certain financial covenants which must be
met by the Company. The Company is in compliance with the restrictive
covenants for 1997, and has obtained written waivers for noncompliance
issues for 1996.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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================================================================================
JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 8: Commitments
The Company currently leases an office and warehouse facility with a
base rent of $18,667 per month. The lease includes additional rent
estimated at $1,869 per month for operating expenses. The security
deposit is a $75,000 irrevocable letter of credit to be reduced by
$15,000 every 12 months of the lease term. The lease term ends in 2002.
The Company also leases six vehicles, office equipment and two
forklifts.
Rent expense amounted to $176,223 and $96,349 for the years ended
December 31, 1997 and 1996, respectively.
Future lease commitments are as follows:
1998 287,752
1999 269,289
2000 242,124
2001 231,178
2002 149,336
From time to time, the Company is asked to issue stand-by letters of
credit and import letters of credit. The Company had an outstanding
letter of credit for $1,089,760 at December 31, 1997, which was secured
by the Company's savings bank account. The outstanding balance at
December 31, 1997 was paid off in February, 1998.
The Company also had outstanding letters of credit for $1,634,640 and
$576,932 at December 31, 1997 and 1996, respectively, which reduced the
amount available from the line of credit.
Note 9: Related Party Transactions
Accrued commissions and other expenses of $87,084 are due to a
stockholder's father as of December 31, 1997. Accrued commissions of
$12,500 was due to a stockholder's brother as of December 31, 1996.
Accounts receivable of $497,658 was due from a joint venture in which
the Company had a 55% interest as of December 31, 1996. The receivable
was paid in full in January, 1997.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 10: Officers' Life Insurance
The Company owns life insurance policies on the officers with a face
value of $5,100,000 and $2,100,000 at December 31, 1997 and 1996,
respectively.
Note 11: Profit Sharing Plan
The Company has a profit sharing plan with a 401(k) provision covering
all employees, with certain restrictions for age and length of service.
Each year the Company may contribute to the plan (1) a discretionary
amount determined each year by the Company, and (2) the total amount of
elective deferrals (employees' portion). Employees are considered
vested on a graduated percentage and are 100 percent vested after six
years of service. Employee contributions are 100% nonforfeitable.
Company contributions to the plan amounted to $59,184 and $47,525 for
the years ended December 31, 1997 and 1996, respectively.
Note 12: Supplemental Disclosure Of Cash Flow Information
Cash paid during the year for:
1997 1996
------- -------
Interest................................... 837,155 164,028
Income taxes............................... 10,233 5,674
Note 13: Advertising Costs
For significant expenditures relating to advertising, the Company
capitalizes advertising costs and amortizes them over a 12-month
period. For recurring advertising expenditures, the Company expenses
advertising costs as incurred. The Company had capitalized advertising
costs of $44,655 and $0 at December 31, 1997 and 1996, respectively.
Advertising expense was $290,011 and $70,582 for the years ended
December 31, 1997 and 1996, respectively.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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JACK OF ALL GAMES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 14: Investment In Joint Venture
At December 31, 1996, the Company had a 55% interest in a joint venture
with another distributor for the sale of specialty toy merchandise.
Pertinent financial information for the joint venture as of December
31, 1996 was as follows:
Balance Sheet:
Assets:
Cash.......................................... 503,884
Accounts receivable........................... 312,485
Inventory..................................... 40,775
---------
TOTAL ASSETS............................. 857,144
=========
Liabilities:
Accounts payable.............................. 613,702
Members' capital.................................. 243,442
---------
TOTAL LIABILITIES AND
MEMBERS' CAPITAL..................... 857,144
=========
Net income for the year .............................. 243,442
Company's interest.................................... 55%
---------
Company's share of net income for the year............ 133,893
=========
The joint venture was dissolved in January, 1997 and the members'
capital was distributed.
SEE ACCOMPANYING INDEPENDENT AUDITOR'S REPORT
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Unaudited Pro Forma Consolidated Financial Information for the year ended
October 31, 1996
The following unaudited pro forma consolidated statement of operations for the
year ended October 31, 1996, including the notes thereto, give effect to the
acquisition of Jack of All Games, Inc. ("JAG") by Take-Two Interactive Software,
Inc. and subsidiaries (the "Company") as if the acquisition had occurred as of
November 1, 1995.
On August 31, 1998, the Company acquired all the outstanding stock of JAG. JAG
is engaged in the wholesale distribution of interactive software games. To
effect the acquisition, all of the outstanding shares of common stock of JAG
were exchanged for 2,750,000 shares of restricted common stock of the Company.
In addition, the Company granted options to purchase 650,000 shares of common
stock to JAG's employees. 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, 1996, have been restated to include
the results of operations of JAG.
The unaudited pro forma consolidated statement of operations for the year ended
October 31, 1996 has been prepared based on the audited historical consolidated
statement of operations of the Company for the year ended October 31, 1996 and
the audited historical statement of operations of JAG for the year ended
December 31, 1996.
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 acquisition of
JAG had occurred as of November 1, 1995, 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) JAG(2) Adjustments As adjusted
------------ ------------ ------------ ------------
Net sales $ 12,529,128 $ 40,522,770 $ (134,700)(3) $ 52,917,198
Cost of sales 6,236,703 36,973,578 (134,700)(3) 43,075,581
------------ ------------ ------------ ------------
Gross profit 6,292,425 3,549,192 -- 9,841,617
Operating expenses:
Research and development 718,089 -- -- 718,089
Selling and marketing 2,718,078 1,237,744 -- 3,955,822
General and administrative 1,775,951 1,214,079 -- 2,990,030
Depreciation and amortization 269,523 36,809 -- 306,332
------------ ------------ ------------ ------------
Total operating expenses 5,481,641 2,488,632 -- 7,970,273
Income from operations 810,784 1,060,560 -- 1,871,344
Interest and other expenses, net 232,095 67,901 -- 299,996
------------ ------------ ------------ ------------
Income before income taxes 578,689 992,659 -- 1,571,348
Provision for income taxes 29,049 -- -- 29,049
------------ ------------ ------------ ------------
Net income 549,640 992,659 -- 1,542,299
Preferred dividends (17,532) -- -- (17,532)
Distributions paid to S corporation
shareholders prior to acquisition (183,034) (822,766) -- (1,005,800)
------------ ------------ ------------ ------------
Net income attributable
to common stockholders' $ 349,074 $ 169,893 $ -- $ 518,967
============ ============ ============ ============
Net income per share-Basic $ 0.06
Weighted average shares
outstanding-Basic (4) 9,247,664
Net income per share-Diluted $ 0.05
Weighted average shares
outstanding-Diluted (5) 10,421,064
Notes to Unaudited Pro Forma Consolidated Financial Statements for the
year ended October 31, 1996
(1) Reflects the Company's audited historical financial statements for the year
ended October 31, 1996.
(2) Reflects JAG's audited historical financial statements for the year ended
December 31, 1996. Certain operating expenses were reclassed to be
consistent with the Company's financial statement presentation. In
addition, the distribution paid to S corporation shareholders prior to
acquisition includes corporate tax payments. These tax payments were not
reclassed because the Company had no federal tax provisions for the period.
(3) Reflects the elimination of inter-company transactions between the Company
and JAG.
(4) Reflects the Company's historical weighted average shares outstanding -
basic, plus 2,750,000 shares of common stock issued in connection with the
acquisition of JAG.
(5) Reflects the Company's historical weighted average shares outstanding -
diluted, plus 2,750,000 shares of common stock issued in connection with
the acquisition of JAG. The calculation does not include the 650,000 stock
options issued in connection with the transaction because their inclusion
would be anti-dilutive.
Unaudited Pro Forma Consolidated Financial Information for the year ended
October 31, 1997
The following unaudited pro forma consolidated statement of operations for the
year ended October 31, 1997, including the notes thereto, give effect to the
acquisition of JAG by the Company as if the acquisition had occurred as of
November 1, 1995.
On August 31, 1998, the Company acquired all the outstanding stock of JAG. JAG
is engaged in the wholesale distribution of interactive software games. To
effect the acquisition, all of the outstanding shares of common stock of JAG
were exchanged for 2,750,000 shares of restricted common stock of the Company.
In addition, the Company granted options to purchase 650,000 shares of common
stock to JAG's employees. 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 JAG.
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 and
the audited historical statement of operations of JAG for the year ended
December 31, 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 acquisition of
JAG had occurred as of November 1, 1995, 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) JAG(2) Adjustments As adjusted
------------ ------------ ------------ ------------
Net sales $ 19,014,083 $ 75,318,654 $ (655,775)(3) $ 93,676,962
Cost of sales 12,459,189 68,287,074 (655,775)(3) 80,090,488
------------ ------------ ------------ ------------
Gross profit 6,554,894 7,031,580 -- 13,586,474
Operating expenses:
Research and development 1,248,258 -- -- 1,248,258
Selling and marketing 4,203,984 2,614,997 -- 6,818,981
General and administrative 3,385,481 2,142,591 -- 5,528,072
Depreciation and amortization 844,221 97,607 -- 941,828
------------ ------------ ------------ ------------
Total operating expenses 9,681,944 4,855,195 -- 14,537,139
Income (loss) from (3,127,050) 2,176,385 -- (950,665)
Interest and other expenses, net 1,016,612 828,908 -- 1,845,520
------------ ------------ ------------ ------------
Income (loss) before
income taxes (4,143,662) 1,347,477 -- (2,796,185)
Provision for income taxes 18,421 -- -- 18,421
------------ ------------ ------------ ------------
Net income (loss) (4,162,083) 1,347,477 -- (2,814,606)
Preferred dividends (135,416) -- -- (135,416)
Distributions paid to S corporation
shareholders prior to acquisition (202,092) (471,000) -- (673,092)
------------ ------------ ------------ ------------
Net income (loss)
attributable to
common stockholders' $ (4,499,591) $ 876,477 $ -- $ (3,623,114)
============ ============ ============ ============
Net loss per share-Basic $ (0.34)
Weighted average shares (4) 10,664,006
outstanding-Basic
Net loss per share-Diluted $ (0.34)
Weighted average shares
outstanding-Diluted (5) 10,664,006
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.
(2) Reflects JAG's audited historical financial statements for the year ended
December 31, 1997. Certain operating expenses were reclassed to be
consistent with the Company's financial statement presentation. In
addition, the distribution paid to S corporation shareholders prior to
acquisition includes corporate tax payments. These tax payments were not
reclassed because the Company had no federal tax provisions for the period.
(3) Reflects the elimination of inter-company transactions between the Company
and JAG.
(4) Reflects the Company's historical weighted average shares outstanding -
basic, plus 2,750,000 shares of common stock issued in connection with the
acquisition of JAG.
(5) Reflects the Company's historical weighted average shares outstanding -
diluted, plus 2,750,000 shares of common stock issued in connection with
the acquisition of JAG. The calculation does not include the effect of the
650,000 stock options issued in connection with the transaction because
their inclusion would be anti-dilutive.
Unaudited Pro Forma Consolidated Financial Information as of and for the nine
months ended July 31, 1998
The following unaudited pro forma consolidated balance sheet as of July 31, 1998
and the related consolidated statement of operations for the nine months then
ended, including the notes thereto, give effect to the acquisition of JAG by the
Company as if the acquisition had occurred as of November 1, 1995.
On August 31, 1998, the Company acquired all the outstanding stock of JAG. JAG
is engaged in the wholesale distribution of interactive software games. To
effect the acquisition, all of the outstanding shares of common stock of JAG
were exchanged for 2,750,000 shares of restricted common stock of the Company.
In addition, the Company granted options to purchase 650,000 shares of common
stock to JAG's employees. 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 nine months ended July 31, 1998, have been restated to
include the results of operations of JAG.
The unaudited pro forma consolidated balance sheet as of July 31, 1998 and the
related consolidated statement of operations for the nine months then ended has
been prepared based on the unaudited historical consolidated financial
statements of the Company as reported in the Company's Form 10Q-SB for the
quarter ended July 31, 1998 and the unaudited financial statements of JAG for
the period from November 1, 1997 to July 31, 1998. As a result, JAG's unaudited
net sales of $23,893,108 and net income attributable to common stockholders' of
$431,527 for the period November 1, 1997 through December 31, 1997 have been
included in both the unaudited pro forma consolidated financial statements for
the year ended October 31, 1997 and for the nine months ended July 31, 1998.
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 acquisition of
JAG had occurred as of November 1, 1995, 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) JAG(2) Adjustments As adjusted
------------ ------------ ------------ ------------
Current assets:
Cash & cash equivalents $ 194,444 $ 609 $ -- $ 197,053
Accounts receivable, net 12,773,174 11,523,544 -- 24,296,718
Inventories 5,342,430 15,969,235 -- 21,311,665
Prepaid royalties 12,203,022 -- -- 12,203,022
Distribution advance 5,000,000 -- -- 5,000,000
Prepaid expenses and other current assets 2,632,684 586,508 -- 3,219,192
------------ ------------ ------------ ------------
Total current assets 38,147,754 28,079,896 66,227,650
Fixed assets, net 1,553,629 420,398 -- 1,974,027
Prepaid royalties 257,500 -- -- 257,500
Capitalized software development costs, net 2,013,695 -- -- 2,013,695
Intangibles, net 7,799,078 -- -- 7,799,078
Other assets, net 30,555 3,356 -- 33,911
------------ ------------ ------------ ------------
Total assets $ 49,802,211 $ 28,503,650 $ -- $ 78,305,861
============ ============ ============ ============
Current liabilities:
Current portion of notes payable due to
related parties, net $ 207,606 $ -- $ -- $ 207,606
Current portion of capital lease
obligation 76,489 -- -- 76,489
Lines of credit, current portion 5,921,321 16,199,054 -- 22,120,375
Accounts payable 5,546,777 7,251,629 -- 12,798,406
Accrued expenses 5,392,940 878,318 -- 6,271,258
Due to related parties 37,597 -- -- 37,597
Advances-principally distributors 311,999 -- -- 311,999
------------ ------------ ------------ ------------
Total current liabilities 17,494,729 24,329,001 -- 41,823,730
Line of credit 123,499 2,018,736 -- 2,142,235
Notes payable due to related parties, net of discount 20,188 -- -- 20,188
Capital lease obligation, net of current portion 113,540 -- -- 113,540
Other liabilities 24,999 -- -- 24,999
------------ ------------ ------------ ------------
Total liabilities 17,776,955 26,347,737 -- 44,124,692
------------ ------------ ------------ ------------
Stockholders' equity:
Preferred stock, Series A; par value
$.01 per share; 1,850,000 shares
authorized and outstanding 18,500 -- -- 18,500
Common stock, par value $.01 per share;
50,000,000 shares Authorized;
14,380,392 shares issued and outstanding
For JAG, no par value; $10 stated value;
750 shares authorized; 100 shares issued
and outstanding 116,304 1,000 26,500 (3) 143,804
Additional paid-in-capital 35,533,841 -- (26,500)(3) 35,507,341
Deferred compensation (254,407) -- -- (254,407)
Accumulated deficit (3,815,314) 2,154,913 -- (1,660,401)
Foreign currency translation adjustment 426,332 -- -- 426,332
------------ ------------ ------------ ------------
Total stockholders' equity 32,025,256 2,155,913 -- 34,181,169
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity $ 49,802,211 $ 28,503,650 $ -- $ 78,305,861
============ ============ ============ ============
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of
July 31, 1998
(1) Reflects the Company's unaudited historical balance sheet as of July 31,
1998.
(2) Reflects JAG's unaudited historical balance sheet as of July 31, 1998.
(3) Reflects the adjusting entry for the 2,750,000 shares issued in connection
with the acquisition of JAG.
Historical Pro Forma
----------------------------- ---------------------------------
Company (1) JAG(2) Adjustments As adjusted
------------- ------------- ------------- -------------
Net sales $ 66,897,030 $ 62,714,770 $ (1,760,747)(3) $ 127,851,053
Cost of sales 44,013,992 55,667,060 (1,760,747)(3) 97,920,305
------------- ------------- ------------- -------------
Gross profit 22,883,038 7,047,710 -- 29,930,748
Operating expenses:
Research and development 1,351,737 -- -- 1,351,737
Selling and marketing 9,091,789 2,707,440 -- 11,799,229
General and administrative 7,037,313 1,892,014 -- 8,929,327
Depreciation and amortization 1,090,045 100,268 -- 1,190,313
------------- ------------- ------------- -------------
Total operating expenses 18,570,884 4,699,722 -- 23,270,606
Income from operations 4,312,154 2,347,988 -- 6,660,142
Loss on termination of capital
lease 225,395 -- -- 225,395
Interest and other expenses, net 1,946,861 1,160,743 -- 3,107,604
------------- ------------- ------------- -------------
Income before income taxes 2,139,898 1,187,245 -- 3,327,143
Provision for income taxes 104,503 -- -- 104,503
------------- ------------- ------------- -------------
Net income 2,035,395 1,187,245 -- 3,222,640
Distributions paid to S corporation
Shareholders prior to acquisition -- (571,000) -- (571,000)
------------- ------------- ------------- -------------
Net Income before
extraordinary gain on
early extinguishment of debt 2,035,395 616,245 -- 2,651,640
Extraordinary gain on early
extinguishment of Debt 62,647 -- -- 62,647
------------- ------------- ------------- -------------
Net income attributable
to common Stockholders' $ 2,098,042 $ 616,245 $ -- $ 2,714,287
============= ============= ============= =============
Net income per share - Basic $ 0.21
Weighted average shares
outstanding-Basic (4) 12,800.083
Net income per share - Diluted $ 0.17
Weighted average shares
outstanding-Diluted (5) 15,545,733
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the
nine months ended July 31, 1998
(1) Reflects the Company's unaudited historical Statement of Operations for the
nine months ended July 31, 1998.
(2) Reflects JAG's unaudited historical Statement of Operations for the period
November 1, 1997 to July 31, 1998. Certain operating expenses were
reclassed to be consistent with the Company's financial statement
presentation. In addition, the distribution paid to S corporation
shareholders prior to acquisition includes corporate tax payments. These
tax payments were not reclassed because the Company had no federal tax
provisions for the period.
(3) Reflects the elimination of inter-company transactions between the Company
and JAG.
(4) Reflects the Company's historical weighted average shares outstanding -
basic, plus 2,750,000 shares of common stock issued in connection with the
acquisition of JAG.
(5) Reflects the Company's historical weighted average shares outstanding -
diluted, plus 2,750,000 shares of common stock and the dilutive effect of
the 650,000 stock options issued in connection with the acquisition of JAG.
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: November 13, 1998
Take-Two Interactive Software, Inc.
By: /s/ Ryan A. Brant
