While most video-game makers are enjoying strong holiday sales, the maker of the blockbuster Grand Theft Auto game franchise, Take-Two Interactive ( TTWO), is on the sidelines, struggling to stay afloat.

Take-Two's fate hinges on its much anticipated upcoming game, Grand Theft Auto IV, which had been slated for release in October but now is scheduled to come out early next year. The company said it needs more development time to finish the game.

Grand Theft Auto IV is expected to take the action-adventure theme of the series to the next level and has gathered tremendous buzz among gaming enthusiasts.

But the delay in the mega game's release has hurt Take-Two financially as it burns through cash and attempts to cut costs by restructuring its operations.

Take-Two had $61.62 million in cash at the end of July, down from $138.15 million at the end of January.

Last month in a filing with the U.S. Securities and Exchange Commission, the company disclosed it had increased its five-year revolving credit facility to $140 million from $100 million and secured it using the company's assets in both the U.S. and Europe.

With its current burn rate, it could be drawing upon its credit facility in the first quarter by January or February, analysts say. That would make the timely release of Grand Theft Auto IV critical to the company's survival.

"Precarious is a pretty accurate word to describe their finances," says Arvind Bhatia, an analyst with Sterne, Agee & Leach. Bhatia has a sell rating on the stock and a price target of $12. Sterne Agee makes a market in Take-Two shares.

The company's situation took a turn for the worse in August when it said it will push back the release of Grand Theft Auto IV from October this year to second quarter fiscal 2008, ending April 30.

That forced Take-Two to reduce its revenue guidance for the financial year to a range of $950 million to $1 billion with a net loss in the range of $2.10 a share to $2.20 a share, including all charges. It had earlier forecast revenue in the range of $1.2 billion to $1.25 billion and break even on earnings, including all charges.

Rosy Forecast

Despite the added financial pressures, analysts say Take-Two can pull through if it can carry out its launch of Grand Theft Auto IV on schedule.

The forecast is rosy for Grand Theft Auto IV. Take-Two could sell 7.5 million to 8.5 million copies in the fiscal year 2008 ending Oct. 31 and 10.5 million to 11.5 million in the first full year, estimates Michael Pachter, an analyst with Wedbush Morgan, which does not own shares of the company or have an investment banking relationship with it.

"That game will dominate Take-Two's story all year," says Brian Sozzi, an analyst with Wall Street Strategies, an independent research firm. "It's going to be huge because it is one of the strongest franchises in the industry, going beyond Guitar Hero and almost on par with Halo."

"Take-Two will probably be fine on the cash side, although I think cash will be tight, and they may have to manage liquidity," says Pachter, the analyst with Wedbush Morgan.

Pachter, who has a sell rating on the stock, says Take-Two doesn't face bankruptcy but the stock is not worth its current price. "The market has valued the contribution from Grand Theft Auto higher than I do," he says.

Shaky Ground

While Grand Theft Auto IV, is expected to give the ailing company a shot of adrenaline, it does show Take-Two's vulnerability as a company reliant on one blockbuster for its revenue.

Because of the delay of the next Grand Theft Auto game, the company's earnings have drifted from $1.37 a share in fiscal 2003 down to 91 cents a share in 2004 and 50 cents a share in 2005. It ended fiscal 2006 with a loss of $2.60. At the end of fiscal 2007, Take-Two is expected to post a loss of $2.06, according to analysts polled by Thomson Financial.

"If you look at the trend in their earnings per share, you can see earnings decline steadily," says Bhatia. "They are likely to make money because of Grand Theft Auto IV but not a lot beyond that."

Bhatia estimates Take-Two will see its earnings jump in 2008 but could slip after the Grand Theft Auto IV buzz fades. Analysts polled by Thomson Financial expects earnings of 93 cents a share in fiscal 2008 and $1.30 a share in fiscal 2009.

Cost-Cutting Measures

Take-Two has tried to stay afloat through cost-cutting efforts. In its last quarterly results filing, Take-Two disclosed that it has "restructured its international operations to consolidate." The company has also realigned label and studio administrative functions and its third-party PC distribution in North American sales operations, among other things.

The move, it said, is expected to reduce fixed overhead costs by about $25 million on an annualized basis by the end of fiscal 2008, while it takes about $25 million of business reorganization and related charges for that period.

"Management has been trying hard to take the costs out of their business," says Sozzi. "They have laid off people in the sports business and consolidated many divisions."

Take-Two's challenges has had some investors shying from the stock, which is down about 5.5% this year and down 13% over the past two years. Shares of Take-Two were up 30 cents, or 2.1%, to $17.03 Wednesday.

More Attractive With Age

But with Grand Theft Auto IV inching closer to the finish line, the stock could go higher, says a portfolio manager who did not want to be named.

"The concern that Grand Theft Auto IV is delayed is just short term," says the portfolio manager, who does not currently hold shares of Take-Two. "The game will release to an even larger installed base of consoles next year, which means cash flows only got pushed out from this year to the next."

Analysts upgrades are slowly flowing in, too. Take-Two was upgraded Wednesday to a buy from hold by an analyst at Kaufman Bros. on hopes that it will make an attractive buyout target as consolidation hits the games sector.

Meanwhile, it's clear the market is betting Take-Two's future is as uncertain as its finances. That's evident in the level of short interest as a percentage of all shares outstanding, which stands at a whopping 31.6% for Take-Two.

By contrast, the level of short interest is 3% for Activision ( ATVI), 3.7% for Electronic Arts ( ERTS), 15.7% for smaller rival THQ ( THQI) and 22.7% for Midway ( MWY).

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