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Take-Two Narrows Loss as Investor Revolt Looms

Video game maker Take-Two Interactive Software, publisher of the "Grand Theft Auto" video games, said Monday its first-quarter loss narrowed from last year, but business continues to be pinched as gamers transition to next-generation gaming platforms.

Shares of the company shed value after the financial results were released.

Take-Two, which is facing an attempt by a shareholder group to replace its board, said the loss for the quarter was $21.5 million, or 30 cents a share, compared with a loss of $29.1 million, or 41 cents a share, for the first quarter 2006.

Revenue rose to $277.3 million from $265 million in the year ago period.

Analysts expected an average loss of 33 cents a share on $269.7 million in revenue. Sales of Sony PlayStation 2 games accounted for 36% of first-quarter revenue, while sales of games for PlayStation 3, the newest game console from Sony, accounted for just 6% of sales.

During the quarter, the company recorded a $6.4 million charge for expenses and fees related to a stock option grants investigation.

Take-Two is one of at least 203 companies that have launched internal probes or are under federal scrutiny for possibly backdating stock option grants. For its part, Take-Two had to restate financial results to account for stock option grants that had been incorrectly booked and expensed. The company recorded $42.1 million in additional stock-based compensation expenses in restated results for the periods 1997 through April 2005.

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In February, the company's founder, Ryan Brant, pled guilty to falsifying records in a stock options backdating scandal. Brant agreed to pay a total of $7.2 million, $6.2 million to the Securities and Exchange Commission and $1 million to the city of New York. He is not expected to serve jail time in the matter.

The options issue, plus other accounting problems and poor financial results, led a group of investors that combined hold 46% of the company's shares to threaten last week to replace Take-Two's board. The investor group, consisting of OppenheimerFunds, DE Shaw Valence Portfolios, SAC Capital Management and Tudor Investment, plans to nominate and vote for a slate of six director candidates at Take-Two's annual shareholder meeting on March 23, according to a regulatory filing earlier this month.

Meanwhile, the company was embroiled in controversy after the game industry's ratings board assigned an adults-only designation on "Grand Theft Auto: San Andreas" for hidden sex scenes.

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