10-Q/APeriod: Q2 FY2001

TAKE TWO INTERACTIVE SOFTWARE INC Quarterly Report (Amendment) for Q2 Ended Jul 31, 2000

Filed April 19, 2002For Securities:TTWO

Summary

Take-Two Interactive Software, Inc. (TTWO) filed an amended 10-Q for the period ending July 31, 2000. This filing reflects a significant restatement of previously issued financial statements for fiscal year 2000 and the first three quarters of fiscal 2001. The restatements primarily relate to the improper recognition of net sales due to product returns and repurchases, as well as a substantial charge related to losses incurred by an affiliate accounted for under the equity method. For the nine months ended July 31, 2000, the company reported a net loss of $2,272,675, a sharp decline from a net income of $7,163,832 in the comparable prior period. This downturn was driven by the aforementioned restatements, increased operating expenses, and significant charges related to acquisitions and equity investments. While net sales showed an increase year-over-year, the company's profitability has been significantly impacted by accounting adjustments and operational costs.

Key Highlights

  • 1Significant restatement of financial statements for FY2000 and Q1-Q3 FY2001 due to improper revenue recognition and affiliate losses.
  • 2Net loss of $2,272,675 for the nine months ended July 31, 2000, compared to a net income of $7,163,832 for the same period in 1999.
  • 3Net sales increased by 39.4% to $256,587,172 for the nine months ended July 31, 2000.
  • 4Cost of sales increased by 22.3%, and selling & marketing expenses more than doubled, indicating rising operational costs.
  • 5Significant increase in intangible assets on the balance sheet due to business acquisitions.
  • 6The company secured a $15 million subordinated loan from Finova Mezzanine Capital Inc. in July 2000, which included a warrant issuance.
  • 7Cash used in operating activities increased substantially to $27,258,179 for the nine months ended July 31, 2000, from $9,616,679 in the prior year.

Frequently Asked Questions

The primary reasons for the restatement are the improper recognition of net sales from independent third-party distributors, where products were later returned or repurchased, and a significant non-cash charge related to the Company's portion of losses incurred by an affiliate accounted for under the equity method. These issues affected prior fiscal periods, including those reported in this filing.

The restatements, particularly the revenue recognition adjustments and the affiliate loss charge, significantly impacted the company's performance. This led to a net loss of $2,272,675 for the nine months ended July 31, 2000, a reversal from the net income of $7,163,832 reported in the prior year's comparable period.

As of July 31, 2000, the company had working capital of $70,070,952. However, the company used a substantial amount of cash in operating activities ($27,258,179 for the nine months ended July 31, 2000), and its cash and cash equivalents stood at $2,631,068. While the company believes its current resources and projected revenues are sufficient, there's an acknowledgment that future financing may be required.

Net sales increased by 39.4% for the nine months ended July 31, 2000, driven by international expansion and distribution growth. However, cost of sales, selling and marketing expenses, and general and administrative expenses also increased significantly, more than doubling in some cases (selling and marketing). This indicates growing operational scale but also rising costs, which, combined with the restatements, contributed to the net loss.