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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ______________________.
Commission file number 0-21637
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 95-4592204
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(Address of Principal Executive Offices)
(818) 615-1500
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock, par value
$0.001, 11,756,781 shares issued and outstanding as of July 23, 1999.
Transitional Small Business Disclosure
Format (check one): Yes ______ No X
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BRILLIANT DIGITAL ENTERTAINMENT, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION..............................................3
Item 1. Financial Statements...............................................3
Condensed Consolidated Balance Sheet as of June 30, 1999...........3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1999 and June 30, l998.........4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and June 30, 1998...................5
Notes to Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................9
PART II OTHER INFORMATION.................................................23
Item 2. Changes in Securities and Use of Proceeds.........................23
Item 6. Exhibits and Reports on Form 8-K..................................23
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------
ASSETS (UNAUDITED)
Current assets:
<S> <C>
Cash and cash equivalents.......................... $ 4,587
Accounts receivable, net........................... 2,131
Accounts receivable -- related party............... 316
Other current assets, net.......................... 288
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Total current assets.................................. 7,322
Property, plant and equipment, net.................... 599
Movie software costs.................................. 415
Other assets.......................................... 398
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Total assets.......................................... $ 8,734
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LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable................................... $ 329
Accrued expenses................................... 1,215
Current portion of notes payable................... 172
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Total current liabilities............................. 1,716
Notes payable, less current portion................... 83
Convertible debenture................................. 250
Other long term liabilities........................... 74
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Total liabilities..................................... 2,123
Commitments and contingencies
Stockholders' equity:
Common Stock....................................... 12
Additional paid-in capital......................... 26,494
Accumulated deficit................................ (19,798)
Cumulative other comprehensive income (loss)....... (97)
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Total stockholders' equity............................ 6,611
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Total liabilities and stockholders' equity............ $ 8,734
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</TABLE>
See accompanying notes.
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BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS 6 MONTHS 6 MONTHS
ENDED ENDED ENDED ENDED
6/30/99 6/30/98 6/30/99 6/30/98
----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUE:
<S> <C> <C> <C> <C>
Total revenues ........................... $ 127 $ 1 $ 334 $ 32
---------- ---------- ---------- ----------
COST OF REVENUES AND EXPENSES:
Cost of revenues............................. 141 80 349 346
Sales & marketing............................ 257 670 479 991
General and administrative................... 937 733 1,536 1,244
Research and development..................... 880 1,314 1,883 1,652
Depreciation................................. 140 112 270 132
---------- ---------- ---------- ----------
Total cost of revenues and expenses.......... 2,355 2,909 4,517 4,365
---------- ---------- ---------- ----------
Income (loss) from operations ............... (2,228) (2,908) (4,183) (4,333)
OTHER INCOME (EXPENSE):
Export market development grant ............. 90 32 127 33
Gain (loss) on foreign exchange ............. (4) 2 (5) (6)
Debenture expense ........................... (55) -- (55) --
Interest income (expense), net .............. (24) 116 4 256
---------- ---------- ---------- ----------
Total other income (expense) ............. 7 150 71 283
---------- ---------- ---------- ----------
Income (loss) before income taxes ........... (2,221) (2,758) (4,112) (4,050)
Provision for income taxes .................. -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) ........................... $ (2,221) $ (2,758) $ (4,112) $ (4,050)
Foreign currency translation adjustment
(net of tax effects) ..................... 3 (58) 26 4
---------- ---------- ---------- ----------
Comprehensive income (loss) ................. $ (2,218) $ (2,816) $ (4,086) $ (4,046)
========== ========== ========== ==========
Basic and diluted net income (loss)
per share ................................... $ (0.20) $ (0.29) $ (0.41) $ (0.43)
========== ========== ========== ==========
Weighted average number of shares
used in computing basic and
diluted net income
(loss) per share ......................... 10,852 9,403 10,131 9,403
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
---------- -----------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss).................................. $ (4,112) $ (4,050)
Adjustments to reconcile net income (loss) to net
cash and cash Equivalents provided by (used in)
operating activities:
Depreciation and amortization.................. 380 282
Amortization of movie software costs........... 258 306
Debenture expense.............................. 55 --
Changes in assets and liabilities:
Accounts receivable.......................... 8 121
Movie software costs......................... -- (821)
Accounts receivable -- related party......... (316) --
Other assets................................. (45) (41)
Accounts payable and accruals................ 105 (337)
Other long-term liabilities.................. (71) --
---------- -----------
Net cash provided by (used in) operating activities (3,738) (4,540)
INVESTING ACTIVITIES
Purchases of equipment............................. (62) (469)
---------- -----------
Net cash used in investing activities.............. (62) (469)
FINANCING ACTIVITIES
Repayment of notes payable......................... (14) --
Proceeds from issuance of shares................... 4,384 --
Issuance of convertible debenture, net of costs ... 951 --
Repayment of debenture............................. (100) --
---------- -----------
Net cash provided by financing activities ......... 5,221 --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,421 (5,009)
Translation adjustments............................ (21) 90
Cash and cash equivalents at beginning of period... 3,187 12,338
---------- -----------
Cash and cash equivalents at end of period......... $ 4,587 $ 7,419
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .................................... $ 9 $ 4
========== ===========
Income taxes................................. $ -- $ 15
========== ===========
</TABLE>
See accompanying notes.
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BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The accompanying unaudited condensed
consolidated financial statements reflect all adjustments that, in the opinion
of management, are considered necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period. The
accompanying financial statements should be read in conjunction with the audited
consolidated financial statements of Brilliant Digital Entertainment, Inc.
included in our Form 10-KSB for the fiscal year ended December 31, 1998.
2. STOCKHOLDERS' EQUITY
Options and warrants representing common shares of 1,732,000 and 2,113,000
were excluded from the average number of shares outstanding in the diluted EPS
calculation for the six months ended June 30, 1998 and 1999, respectively,
because they were anti-dilutive.
On April 27,1999, we issued to Roseworth Group, Ltd. a 4% convertible
debenture in the principal amount of $1,000,000 due on the later of April 27,
2000 or six months following the date the Securities and Exchange Commission
declares effective a registration statement with respect to the resale of the
shares of common stock underlying the debenture. Roseworth Group, Ltd. may
convert the debenture into shares of our common stock at a conversion price for
each share equal to the lower of 95% of its Market Price at the conversion date
or $6.00. On the maturity date of the debenture, the unpaid balance of the
debenture and any accrued and unpaid interest will convert automatically into
shares of common stock at the conversion price on that date. Market Price is
defined as the lowest volume weight adjusted price of our common stock on the
American Stock Exchange (as reported on Bloomberg) during the 10 business days
prior to the business day on which the conversion notice is sent to us. In
connection with the transaction, we paid to Roseworth a fee of $30,000 and
issued to Roseworth 5,883 shares of common stock. We expensed an interest charge
of $62,000 in connection with the issuance of the debenture. On May 13, 1999,
Roseworth converted $250,000 of the debenture into 76,489 shares of common
stock, and on May 24, 1999, Roseworth converted an additional $500,000 of the
debenture into 129,033 shares of common stock. As of June 30, 1999, $250,000 in
principal of the debenture was outstanding.
On March 30, 1999, we entered into agreements for the sale of 2,132,000
shares of our common stock to seven investors, the closings of which were
subject to several contingencies. The contingencies were waived and the sales of
the shares closed in May 1999, raising aggregate proceeds of $4,311,250. Of the
2,132,000 shares of common stock, 1,880,000 shares were issued to five investors
at $2.00 per share and 252,000 shares were issued to two investors at $2.1875
per share. The purchase prices for the shares were negotiated with each of the
investors. On March 29, 1999, the closing sales price of our common stock was
$2.25 per share, and the lowest sales price of our common stock was $2.1875 per
share. The 1,880,000 shares were issued at a discount to the sales prices of the
common stock to reflect the illiquidity risk associated with the shares. All of
the shares constitute restricted stock that cannot be sold in the public market
until the shares are registered or until an exemption from registration is
available. In July 1999, we filed with the Commission a registration statement
covering the resale by the investors of all 2,132,000 of these shares.
During June 1999, six of our employees exercised stock options
granted to them under our 1996 Stock Option Plan and purchased 4,375 shares of
our common stock at a purchase price of $1.50 per share. On May 4, 1999, the
Board of Directors approved the grant of additional stock options to purchase up
to 241,000 shares of common stock at an exercise price equal to the then-current
market price of our common stock.
At June 30, 1999, there was 11,756,781 shares of our common stock issued
and outstanding.
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We believe that our existing funds, cash generated from operations and
proceeds from the securities purchase agreement with St. Annes, the convertible
debenture and the private placement will be sufficient to fund our working
capital requirements for at least the next twelve months. See "Risk Factors - If
we are unable to raise additional funds, we may be required to defer completion
of Multipath Movie titles and reduce overhead significantly."
3. COMMITMENTS AND CONTINGENCIES
We lease our office and production facilities and some of our office
equipment. We had commitments under our lease agreements for approximately
$703,000 at June 30, 1999. In addition, at June 30, 1999 we had obligations of
$106,666 under licensing commitments. . We have an obligation under our joint
venture agreement with KISS Digital, LLC to fund 75% of the development of a
Multipath Movie, up to $900,000.
4. SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF CREDIT RISK
In 1997, we recognized as revenue the minimum royalty and recorded in
accounts receivable $1,973,333 due from Packard Bell NEC in connection with a
distribution deal. Management is aware that Packard Bell NEC has significantly
delayed distribution of our titles bundled with Packard Bell NEC's computers. In
addition to the delay, Packard Bell NEC has bundled our software on
significantly fewer computers than required. As a result of these factors
management believes that Packard Bell NEC will not be able to comply with the
terms of its distribution agreement with us, specifically Packard Bell NEC's
commitment to ship our software with up to 6 million computers with at least 2
million of such computers being shipped within 12 months of the commencement of
the shipment, subject to an extension not to exceed 6 months. The shipment
triggers Packard Bell NEC's obligation to pay a minimum royalty of $1,973,333 at
the rate of $1 for each Packard Bell NEC computer shipped with our products. The
full minimum royalty amount is contractually due by no later than the end of the
shipment period, regardless of actual shipments by Packard Bell NEC of personal
computers containing our products. Management believes that it has a contractual
right to payment by Packard Bell NEC of the minimum guaranteed amount no later
than the end of the shipment period.
5. ACQUISITION OF TROJAN TELEVISION LIMITED
On July 1, 1999, we acquired 1,700,000 common shares of Trojan Television
Limited, which represents 85% of the 2,000,000 outstanding common shares of
Trojan. Trojan does business as The Auction Channel. We acquired the common
shares of The Auction Channel by exercising our right to close a share purchase
agreement with the majority shareholders of The Auction Channel. In addition, 19
minority shareholders holding 246,000 common shares of The Auction Channel have
become parties to the share purchase agreement and have agreed to sell their
shares of The Auction Channel to us. Following our acquisition of the 246,000
shares from these minority shareholders, we will own 97.3% of the outstanding
common shares of The Auction Channel.
Nine additional shareholders hold the remaining 54,000 outstanding common
shares of The Auction Channel. The majority shareholders have agreed to use
their reasonable efforts to cause each of these additional shareholders to
become a party to the share purchase agreement and sell their shares to us.
Presently, we are actively seeking to acquire the remaining shares in The
Auction Channel from these shareholders.
We will pay the purchase price for The Auction Channel in shares of our
common stock. The final purchase price will be determined following preparation
of financial statements of The Auction Channel, which we expect will be
completed in August 1999. We estimate that the cash value of the purchase price
will be approximately $6,309,000, which purchase price will be comprised of the
following:
o Approximately 506,000 shares of our common stock that we will issue
in exchange for 100% of the shares of The Auction Channel, which
shares have an estimated value of $3,316,000. The actual number of
shares that we will issue for the shares of The Auction Channel will
be determined following completion of its financial statements.
o A total of 175,000 shares of our common stock and warrants to
purchase up to 400,000 shares of our common stock that we issued
to a third party to settle claims of ownership of The Auction
Channel and to acquire a license to computer software and
hardware technology used by The Auction Channel in its business
affiliate of Articulate UK Limited. All of the warrants are
fully vested. Of the warrants, 200,000 have
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an exercise price of $3.50 per share and expire on December 31,
1999, and 200,000 have an exercise price of $4.00 per share and
expire on June 30, 2000. The common stock has an estimated value of
$1,148,000 and the warrants have an estimated value of $1,270,000.
o A total of $75,000 and 76,000 shares of our common stock that we
paid and we issued to some shareholders of The Auction Channel to
satisfy an outstanding loan and other amounts owed to these
shareholders. The shares of common stock have an estimated value of
$498,560.
For purposes of valuing the shares of common stock issued or to be issued
in connection with our acquisition of The Acution Channel, we used a per share
price of $6.56, which is equal to the simple average of the closing share price
for the day preceding, the day of and the two days following the public
announcement of the acquisition. The acquisition of The Auction Channel will be
recorded using the purchase method of accounting. The amount of goodwill has yet
to be determined.
The Auction Channel is a London-based company that was founded in 1996.
The Auction Channel integrates live satellite, cable TV and Web broadcasts of
auction events conducted by auction houses, allowing for participants to watch
auction events on television and use the Internet or their telephone to bid
simultaneously with people actually present at the auction house. The Auction
Channel has entered into agreements to provide its services with such major
auction houses as Christie's, Phillips, Bonhams and Brooks.
The following summary of unaudited pro forma combined statement of
operations data for the three months ended March 31, 1999 reflects our
acquisition of The Auction Channel as if the acquisition had occurred on January
1, 1998. The June financial statements for The Auction Channel are unavailable
as of the date of this filing.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1999
----------------
(unaudited)
<S> <C>
Revenues............... $ 548,000
Net loss............... $ (2,671,000)
Net loss per share..... $ (0.25)
</TABLE>
6. ACCOUNTS RECEIVABLE - RELATED PARTY TRANSACTIONS
We made loans to The Acution Channel for use as operating capital during
April, May, and June, 1999. The loan amounts to $316,000 as of June 30, 1999.
From July 1, 1999 going forward, our note from The Auction Channel with respect
to these loans will be eliminated upon consolidation. The note is due upon
demand and earns interest at the London Interbank Overnight rate.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the
Consolidated Financial Statements of Brilliant and the notes to the Consolidated
Financial Statements included elsewhere in this Form 10-QSB.
THIS DISCUSSION SUMMARIZES THE SIGNIFICANT FACTORS AFFECTING THE
CONSOLIDATED OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY AND CASH FLOWS
OF BRILLIANT FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998. EXCEPT
FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE BASED
UPON JUDGMENTS CONCERNING VARIOUS FACTORS THAT ARE BEYOND OUR CONTROL. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE FACTORS DESCRIBED BELOW UNDER
THE CAPTION "CAUTIONARY STATEMENTS AND RISK FACTORS."
OVERVIEW
Brilliant is a production and development studio that uses software to
create digital entertainment that is currently being distributed over the
Internet, on CD-ROM and DVD, as television programming and for home video.
Through our subsidiary, The Auction Channel, we also provide services to auction
houses that enable participants to watch auction events on television and bid
using their telephone or the Internet. We are headquartered in the United States
and were incorporated in July 1996. Initially, we were formed through the
combination of two businesses: Brilliant Interactive Ideas, Pty. Ltd. ("BII
Australia"), an entertainment software developer and producer and Sega Australia
New Developments ("SAND"), a "skunk works" research and development operation
for leading edge software tools. BII Australia became our wholly owned
subsidiary in August 1996, and we acquired SAND in September 1996. SAND was
established during the second quarter of 1994 by Sega Ozisoft Pty., Ltd., one of
the largest publishers and distributors of entertainment software products in
Australia and New Zealand, the predecessor of which was co-founded by Mark Dyne
and Kevin Bermeister.
Our annual and quarterly revenue will depend upon the successful
development, distribution, timing and market acceptance of our interactive
products and upon the costs to distribute and promote these products. Our annual
and quarterly revenue also will depend upon the use by auction houses of our
auction-related products and services. The revenues derived from the production
and distribution of our Multipath Movies will depend primarily on the acceptance
by the market of the Multipath Movie concept and the underlying content of the
Multipath Movie, neither of which can be predicted nor necessarily bear a direct
correlation to the production or distribution costs incurred. See "Cautionary
Statements and Risk Factors"- We will not be able to sell our Multipath Movies
if they do not achieve market acceptance." The commercial success of a Multipath
Movie is also expected to depend upon promotion and marketing, production costs,
impact of competition and other factors. Accordingly, our annual and quarterly
revenues are, and will continue to be extremely difficult to forecast.
OUR ACQUISITION OF THE AUCTION CHANNEL
On July 1, 1999, we acquired Trojan Television Limited. Trojan Television
Limited is a London-based company doing business as The Auction Channel. Founded
in 1996, The Auction Channel integrates live satellite, cable TV and Web
broadcasts of auction events conducted by auction houses, allowing for
participants to watch events on television and use the Internet or their
telephone to bid simultaneously with people actually present at the auction
house. The Auction Channel has entered into agreements to provide its services
to major auction houses like Christie's, Phillips, Bonhams and Brooks.
CD ROM RETAIL CHANNELS AND DIRECT-TO-RETAIL
We are continuing to establish a retail distribution program in which
Multipath Movies are marketed through traditional software publishers and
distributors nationwide. Progress is being made in the retail channel through
our relationship with GT Interactive, who is representing selected titles sold
in jewel case CD-ROM formats. Certain titles are now available in stores such as
Wal-Mart, Target and other mass merchant retailers. In addition to distribution
through GT Interactive, we have entered into a distribution agreement with The
Learning Company to sell 4 boxed titles, including Superman and Gravity Angels,
into computer retail stores and to expand distribution based upon the success of
the initial title launch. There are, however, numerous obstacles and
uncertainties involved in developing a retail distribution channel. In the past,
we have experienced significant delays in our introduction of titles in the
retail channel. For instance, delays in duplication, packaging and distribution
caused our first movies to begin arriving at retailers at the end of December
1997, after the holiday selling season. Similarly, we experienced distribution
delays in
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the fourth quarter of 1998 that caused our products to reach retail shelves only
at the end of December. We cannot guarantee that similar delays will not occur
in the future. However, since December 1998, we have received additional orders
for XENA and ACE VENTURA.
DVD MARKET
We intend to release Multipath Movie titles to the DVD market for
distribution commencing in the second half of 1999. We believe that distributing
our titles on DVD will increase the awareness of Multipath Movies in the retail
market. We entered into an agreement with SlingShot, a special purpose DVD
publisher and distributor, in March 1999. We granted to SlingShot exclusive
worldwide rights to distribute 20 of our Multipath Movies in DVD format. Under
the agreement, SlingShot has made an up-front, non-refundable cash advance and
provided a minimum guarantee in exchange for its exclusive retail DVD
distribution rights. OEM and bundled sales of DVD products will be managed
jointly by SlingShot and us. SlingShot will also use a DVD version of our
Digital Projector to drive traffic to our web site. We have begun delivery of
titles to SlingShot for conversion to the DVD format and have developed a
release plan to ensure timely delivery of DVD titles into the retail channel.
DVD titles are expected to be available in retail outlets in the second half of
1999.
INTERNET AND ONLINE SERVICES
We continue to seek distribution of our Multipath Movies through bundling
arrangements which allow the user to purchase and unlock titles through our
website. In addition to our existing relationships, we have signed an agreement
to distribute certain title previews through Midas Interactive Entertainment BV,
a Netherlands-based publisher and distributor of PC CD-ROM software. In
addition, we have entered into online content and distribution arrangements to
promote and sell Multipath Movies. These include arrangements with @Home
Networks, @Home Benelux, DVD Express, Mediadome, Gamestorm and Fox Kids. We
currently are pursuing relationships with other on-line partners but cannot be
certain that they will be concluded. We will continue our efforts to deliver
content to the on-line markets, and we are pursuing opportunities to syndicate
and license our content to these markets. We have made significant progress in
reducing the file sizes of our content and expect this to be a major advantage
in our ability to exploit the on-line marketplace.
B3D - MAX
In addition to consumer product sales and marketing, we are pursuing a
strategy designed to encourage active use of our tools and technology by a broad
market of animators who are currently using 3D Studio Max, an animation and 3D
design software package developed and marketed by Kinetix, a division of
Autodesk. Our B3D - Max tool is a plug-in to 3D Studio Max. It enables animators
to output their animation to be played back in real time on the Internet using
our Digital Projector playback system. B3D - Max is distributed by Digimation
Inc., an authorized distributor of 3D Studio Max plug-ins, and by us directly to
the market. The marketing program is designed to encourage content creation and
distribution on the Internet using B3D - Max to further encourage use of the
Digital Projector, and through this, to establish broader demand for our other
tools and technology that we intend to continue into release to the market.
Animation content generated using B3D - Max can be of any type. The tool is not
limited to the production of entertainment content. It can be applied to the
production of artistic renderings, education, architecture, engineering,
e-commerce and other solutions that require animation. A limited 30-day trial
version of the tool has been released on various Internet sites for use by
animators worldwide. The complete license version is available at a suggested
retail price of $495.00 per user. Other versions of the tool, to be released at
a later date, will be sold or will be the subject of joint venture arrangements.
NON-INTERACTIVE FORMAT FOR TELEVISION, CABLE AND VIDEO
We have progressed with our plans to release some of our Multipath Movies
in non-interactive format as television broadcast/cable programming and home
video features. In January 1999, we entered into an agreement with Kaleidoscope
Media Group for the distribution of GRAVITY ANGELS, a two hour 3D animated
science fiction thriller, to the television broadcast/cable and home video
markets. In April 1999, we attended Mipcom in Cannes (France) where several TV
Broadcasters expressed interest in the rights for their individual territories.
The final rendered property is due for completion in May, at which time we
expect agreements currently under negotiation to be concluded. However, we do
not guarantee that such agreements will be concluded or that the terms of such
agreements, if concluded, will be favorable to us.
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PACKARD BELL
In 1997, we recognized revenue and recorded in accounts receivable $2.0
million due from Packard Bell NEC in connection with a distribution deal.
Management is aware that Packard Bell NEC has significantly delayed distribution
our titles bundled with Packard Bell NEC's computers. In addition to the delay,
Packard Bell NEC has bundled our software on significantly fewer computers than
required. As a result of these factors management believes that Packard Bell NEC
will not be able to comply with the terms of its distribution agreement with us,
specifically Packard Bell NEC's commitment to ship our software with up to 6
million computers with at least 2 million of such computers being shipped within
12 months of the commencement of the shipment, subject to an extension not to
exceed 6 months. The shipment triggers Packard Bell NEC's obligation to pay a
minimum royalty of $1,973,333 at the rate of $1 for each Packard Bell NEC
computer shipped with our products. The full minimum royalty amount is
contractually due by no later than the end of the shipment period, regardless of
actual shipments by Packard Bell NEC of personal computers containing our
products. Management believes that it has a contractual right to payment by
Packard Bell NEC of the minimum guaranteed amount no later than the end of the
shipment period.
PRODUCTION
During the first and second quarter of 1999, we have begun reducing the
number of employees working in our production studio and research and
development facilities. Staff numbers are based upon production demands at any
point in time.
RESULTS OF OPERATIONS
REVENUES. Revenues from the sale of Multipath Movies through retail
outlets are recognized when the product is shipped. Product returns or price
protection concessions that exceed our reserves could materially adversely
affect our business and operating results and could increase the magnitude of
quarterly fluctuations in our operating and financial results. See "Cautionary
Statements and Risk Factors -- Product returns that exceed our anticipated
reserves could result in worse than expected operating results."
We enter into distribution contracts under which we are entitled to fixed
minimum guaranteed payments. The minimum guaranteed payments are recognized as
revenue when the CD-ROM master is delivered to the distributor and the terms of
the sale are considered fixed. Revenues from the sale of electronic tickets to
view Multipath Movies over the Internet are recognized when the tickets are
sold.
Historically, we have derived our revenues from royalties, development
fees and software sales. We license our traditional CD-ROM products to
publishers and distributors in exchange for non-refundable advances and
royalties based on product sales. Royalties based on product sales are due only
to the extent they exceed any associated non-refundable royalty advance.
Royalties related to non-refundable advances are recognized when the CD-ROM
master is delivered to the licensees. Royalty revenues in excess of
non-refundable advances are recognized upon notification by the distributor that
a royalty has been earned by us. Development fees are paid by customers in
exchange for our development of software packages in accordance with customer
specifications. The software development agreements generally specify certain
"milestones" which must be achieved throughout the development process. As these
milestones are achieved, we recognize the portion of the development fee
allocated to each milestone. Software sales revenues are recognized upon
shipment of product.
Revenues increased from $32,000 for the six months ended June 30, 1998 to
$334,000 for the six months ended June 30, 1999. This represents an increase of
$302,000. Revenues for the six months ended June 30, 1999 consist of $80,000
earned under a Multipath Movie technology and content development agreement,
Multipath Movie retail sales of $233,000 and $21,000 from services related to
the capture of physical motion used in the creation of animated content.
Revenues for six months ended June 30, 1998 were primarily the result of $32,000
in Multipath Movie retail sales.
COST OF REVENUES. Cost of revenues consists primarily of the amortization
and write-down of capitalized movie software costs for previously released
titles, royalties to third parties and the direct costs and manufacturing
overhead required to reproduce and package software products. Cost of revenues
increased from $346,000 for the six months ended June 30, 1998 to $349,000 for
the six months ended June 30, 1999. The costs of revenues for the first six
months of 1998 were primarily a result of the amortization of $161,000 and a
write-down of $145,000 of capitalized movie software costs for previously
released titles. Costs of revenues for the first six months of 1999 include
direct costs, royalties, and manufacturing overhead of $91,000 and amortization
of capitalized movie software costs of $258,000. To the extent capitalized
Multipath Movie software costs are attributable to titles that we have begun to
ship, these costs are
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subject to amortization. To the extent the software costs are estimated to
exceed the total anticipated revenues, charges are made to operations to reduce
these costs to net realizable value. We will monitor the level of commercial
success of our Multipath Movies and, depending upon results, may write down
additional capitalized movie software costs in subsequent periods in accordance
with Statement of Financial Accounting Standards No. 86 ("SFAS No. 86"). See
"Accounting Treatment for Development Costs and Research Expenditures."
SALES AND MARKETING. Sales and marketing expenses include primarily costs
for salaries, advertising, promotions, brochures, travel and trade shows. Sales
and marketing expenses decreased from $991,000 for the six months ended June 30,
1998 to $479,000 for the six months ended June 30, 1999. The decrease is
primarily attributable to a change in our promotional efforts. Sales and
marketing expenses are expected to increase in future periods due to the
expansion of our sales force and increased marketing efforts. We implemented an
online marketing program in connection with the release of Multipath Movies in
the fourth quarter of 1998 and continued the program into 1999. The marketing
expense for the six months ended June 30, 1999 is primarily attributable to the
online marketing program.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
primarily salaries and benefits of management and administrative personnel,
rent, insurance costs and professional fees. General and administrative expenses
increased from $1,244,000 for the six months ended June 30, 1998 to $1,536,000
for the six months ended June 30, 1999. This represents an increase of $292,000
that is primarily attributable to increased professional fees of $145,000,
increased recruiting costs of $50,000, increased public relations costs of
$40,000 and increased consulting costs of $73,000.
RESEARCH AND DEVELOPMENT. Research and development expenses include
salaries and benefits of personnel conducting research and development of
software products. Research and development costs also include costs associated
with creating our traditional CD-ROM software tools and the software tools used
to develop Multipath Movies. Research and development expenses increased from
$1,652,000 for the six months ended June 30, 1998 to $1,883,000 for the six
months ended June 30, 1999. In accordance with SFAS No. 86, the results of
operations for the six months ended June 30, 1999 include Multipath Movie
software development costs and research and development expenses. Technological
feasibility of our original Digital Projector software tool was reached during
the third quarter of 1997. Since the date of achieving technological
feasibility, the costs of developing Multipath Movies intended to be viewed on
the original projector have been capitalized. Multipath Movies developed by us
after the first quarter of 1998 are intended to be viewed on our new Internet
Digital Projector, which we released in the fourth quarter of 1998. To the
extent capitalized Multipath Movie software costs are attributable to titles
that we have begun to ship, these costs are subject to amortization. We have
written off amounts incurred subsequent to the first quarter of 1998 in the
development and production of Multipath Movies designed to be viewed on the new
Digital Projector. As the technology on which our product is designed to operate
is continuously changing, a reserve against capitalized costs is necessary until
shortly before the release of the title. Therefore, no additional movie
development costs are anticipated to be capitalized in the future.
We are focusing our development of Multipath Movies for the PC. We have
deferred development of Multipath Movies for other platforms, including game
consoles, until warranted by market conditions. This focus allows us to devote
more of our resources to development of Multipath Movie technology and
development of additional titles. We believe that our decision will have no
adverse impact on revenues in the near or medium term.
DEPRECIATION. Depreciation expense relates to depreciation of fixed assets
such as computer equipment and cabling, furniture and fixtures and leasehold
improvements. These fixed assets are depreciated over their estimated useful
lives (up to five years) using the straight-line method. Depreciation expense
increased from $132,000 for the six months ended June 30, 1998 to $270,000 for
the six months ended June 30, 1999. The increase is attributable to the increase
in depreciable assets resulting from the growth of our operations, primarily
from production and general overhead activities. Additionally, in the first
quarter 1998, a large portion of BII Australia's depreciation was considered
production overhead, which was capitalized into movie software costs.
OTHER INCOME AND EXPENSE. Other income includes interest income and
expenses, gains and losses on foreign exchange transactions and export
development grants paid to BII Australia by the Australian Trade Commission for
BII Australia's participation in certain export activities. Trade grant revenue
earned was $127,000 for the six months ended June 30, 1999. Net interest income
decreased from $256,000 for the six months ended June 30, 1998 to $4,000 for the
six months ended June 30, 1999. This decrease is due to the lower cash balances
during 1999 and to interest expense incurred in association with the 4%
convertible debenture we issued to Roseworth Group, Ltd. in April 1999.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, our principal source of liquidity was
approximately $4,587,000 in cash, which we primarily raised through debt and
equity financing.
On April 27,1999, we issued to Roseworth Group, Ltd. a 4% convertible
debenture in the principal amount of $1,000,000 due on the later of April 27,
2000 or six months following the date the Securities and Exchange Commission
declares effective a registration statement with respect to the resale of the
shares of common stock underlying the debenture. In connection with the loan, we
paid to Roseworth a fee of $30,000 and issued to Roseworth 5,883 shares of our
common stock. On May 13, 1999, Roseworth converted $250,000 of the debenture
into 76,489 shares of common stock at $3.26 per share. On May 24, 1999,
Roseworth converted $500,000 of the debenture into 129,033 shares of common
stock at $3.87 per share. At June 30, 1999, $250,000 in principal under the
debenture remained outstanding.
In May 1999, we closed a private placement of 2,132,000 shares of our
common stock, which were issued to seven investors. The private placement raised
aggregate proceeds of $4,311,250. Of the 2,132,000 shares of common stock,
1,880,000 shares were issued to five investors at $2.00 per share and 252,000
shares were issued to two investors at $2.1875 per share.
In March 1999, we entered into a securities purchase agreement with St.
Annes Investment, Ltd. The agreement gives us the right at our election to sell
to the investor up to a total of $6 million of our common stock at a discount to
its "Market Price" from time to time during the three-year term of the
agreement. Each sale of shares under the agreement is subject to certain minimum
and maximum dollar amounts and certain other conditions, including that the
"Market Price" of our common stock at the time we give a sale notice is at least
$1 per share and that a registration statement under the Securities Act of 1933,
as amended, covering St. Annes' resale of the shares is in effect at the closing
of the sale. "Market Price" is defined as the lowest daily volume weight
adjusted price of our common stock (as reported on Bloomberg) for any trading
day during the 10-trading day period ending on the day before the day that we
give a sale notice to St. Annes. The purchase price that we will receive for our
shares in each sale will be 88% of the Market Price of our common stock if the
Market Price is more than $4 per share, and 86% of the Market Price if the
Market Price is $4 per share or less. We have agreed to pay to Trinity Capital
Advisors, Inc. an amount equal to 3% of the purchase price, and to issue to
Trinity Capital Advisors shares of common stock having an aggregate value equal
to 2% of the purchase price of the shares of common stock to be issued and sold
to St. Annes under the securities purchase agreement.
Net cash used in operating activities during the six months ended June 30,
1999 was primarily attributable to a net loss of $4,112,000. Net cash used in
investing activities in the six months ended June 30, 1999 was due primarily to
the purchase of computer equipment. Cash used in financing activities for the
three months ended June 30, 1999 was for the repayment of notes for the
financing of office furniture and computer equipment. In April 1999, we redeemed
a convertible debenture we issued in December 1998 for $100,000 plus accrued
interest, and we redeemed a related warrant for $5,000, and entered into an
alternative financing arrangement with St. Annes Investment, Ltd. as described
above.
We have an obligation under our agreement with Morgan Creek to fund
entirely the development of two Multipath Movies, the first of which, ACE
VENTURA, was developed and shipped in the fourth quarter of 1998. We have an
obligation under our joint venture agreement with Crawfords to jointly fund two
Multipath Movies. No projects have been identified for development by the
parties and we are doubtful that we will ever develop a project with Crawford
under our agreement. We have an obligation under our joint venture agreement
with KISS Digital, LLC to fund 75% of the development of a Multipath Movie up to
$900,000. This project currently is in development. We also are required as of
June 30, 1999 to make minimum payments of $107,000 under various licensing
agreements. At June 30, 1999, we had rental commitments for our offices and
production facilities of $703,000 and a promissory note for the financing of
fixed assets in the amount of $111,000 payable over the next 5 years.
We believe that our existing funds, cash generated from operations and
proceeds from the securities purchase agreement with St. Annes, the convertible
debenture and the private placement will be sufficient to fund our working
capital requirements for at least the next twelve months. See "Cautionary
Statements and Risk Factors - If we are unable to raise additional funds our
business will be adversely affected."
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YEAR 2000
We are continuing our project to address the potential impact of the Year
2000 problem on the processing of date-sensitive information by our information
technology systems and the information technology systems used by our
significant customers and vendors. The Year 2000 problem is the result of
computer programs being written using two digits to define the applicable year.
As a result, certain computer programs may recognize a date using "0" as the
year 1900 rather than 2000, which could cause miscalculations or system
failures. The objectives of our Year 2000 project are to determine and assess
the risks of the Year 2000 problem and to plan and institute mitigating actions
to minimize those risks to an acceptable level.
We are dependent upon both internally developed and vendor supplied
information systems. Our core operations systems are largely standard package
systems for business management and inventory control, which have been developed
by vendors whose products are widely used in the industry. We have already
contacted our key information technology vendors and suppliers as to their Year
2000 compliance to determine what changes, if any, must be made to the vendor
supplied systems used by us in our operations.
We also are in the process of evaluating our internally developed
information technology systems to determine their Year 2000 compliance. Our Vice
President of Technology is coordinating this process. We do not presently
anticipate any material Year 2000 issues or significant expenses from the
conversion of our own information systems, databases or programs. However, if
our current estimates of the resources required to address and resolve Year 2000
issues prove to be understated, the additional costs and resources required to
address the Year 2000 problem could result in a material financial risk.
We have communicated with our significant customers and vendors to
understand their Year 2000 issues and how they may affect us and to determine
what steps these customers and vendors have taken to prepare and manage their
Year 2000 issues as they relate to us. These customers and vendors include the
host of our web site and significant distributors of our products. At this time,
we have tested our product on the website and have not experienced any Year 2000
problems. We are researching the measures our customers and vendors have taken
to address the Year 2000 problem and how any Year 2000 problems experienced by
our customers and vendors will impact us. The failure by any of these third
parties to adequately address the Year 2000 problem could result in disruptions
in the supply or sale of our products, either of which would have a material
adverse effect on our business, financial condition and results of operations.
We plan to devote the necessary resources to resolve all significant Year 2000
issues in a timely manner.
Readers are cautioned that this Year 2000 disclosure contains
forward-looking statements. Readers should understand that the dates on which we
believe the Year 2000 project will be completed are based upon management's best
estimates. These estimates were derived utilizing numerous assumptions of future
events, including the availability of certain resources, third party
modification plans and other factors. There can be no guarantee, however, that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of our Year 2000 compliance
project. A delay in specific factors that might cause differences between the
estimates and actual results include, but are not limited to:
o the availability and cost of personnel trained in these areas;
o the ability of locating and correcting all relevant computer
code;
o timely responses to and corrections by third parties and
suppliers; and
o the ability to implement interfaces between any new systems
and systems not being replaced.
Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third
parties and the inter-connection of national and international businesses, we
cannot ensure that we will be able to timely and cost effectively resolve
problems associated with the Year 2000 issue, which may effect our operations
and business, or expose us to third party liability.
CAUTIONARY STATEMENTS AND RISK FACTORS
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ materially
from those projected or forecast appear in the statements below. In addition to
other information contained in this document, readers should carefully consider
the following cautionary statements and risks factors:
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WE WILL NOT BE ABLE TO SELL OUR MULTIPATH MOVIES IF THEY DO NOT ACHIEVE
MARKET ACCEPTANCE.
Our ability to sell Multipath Movies will depend largely upon the market's
acceptance of our Multipath Movies. Each Multipath Movie will be an individual
artistic work, and its commercial success primarily will be determined by
consumer reaction, which is unpredictable. To generate sales, we must develop
stories and characters that capture the attention and imagination of consumers
and license recognized characters and properties from third parties for use in
our Multipath Movies. We cannot be certain that we will be able to do so. Other
factors that influence our ability to generate revenues from our Multipath
Movies include:
o consumer reluctance to initiate time consuming downloads of data
necessary to view our products;
o our marketing strategies
o the quality of our products and competing products;
o critical reviews; and
o the availability of alternative forms of entertainment and leisure
time activities.
The market's acceptance of our Multipath Movies has taken longer than we
initially anticipated. This is due, in part, to the disappointing performance by
Packard Bell NEC of its obligations under our agreement to bundle our titles
with Packard Bell NEC computers, and delays in the retail distribution of our
products. As a result of these factors, our Multipath Movies were not available
to consumers as early and as broadly as we initially anticipated. This has
resulted in fewer sales of our Multipath Movies and lower revenues than
expected.
WE HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE
TO DELAYS IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS.
Due to the numerous obstacles and uncertainties involved in developing and
distributing software to the market, we cannot be certain that we will be able
to meet our planned release dates for our new Multipath Movies. If we cannot
begin to ship an important new product during the scheduled quarter, our
revenues would likely be reduced in that quarter. In the past, we have
experienced significant delays in our introduction of certain new products. For
instance, delays in duplication, packaging and distribution caused our first
Multipath Movies, Cyberswine, Popeye and the Quest for the Woolly Mammoth, Night
of the Werewolf and the Halloween Party to begin arriving at retailers at the
end of December 1997, after the holiday selling season. Similarly, we
experienced distribution delays in the fourth quarter of 1998 that caused our
products to reach retail shelves only at the end of December. Our dependence
upon certain strategic partners has also caused delays in the release of our
products. All of these factors have resulted in fewer sales of our products and
lower revenues and earnings than we anticipated. It is likely in the future that
delays will continue to occur and that some new products will not be released in
accordance with our internal development schedule or the expectations of public
market analysts and investors.
WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT SALES OF OUR PRODUCTS OVER THE
INTERNET UNLESS THERE IS A REDUCTION IN THE TIME IT TAKES TO DOWNLOAD LARGE
AMOUNTS OF DATA OVER THE INTERNET.
We distribute some of our Multipath Movies through our Internet site and
through a site on the CompuServe on-line service. In 1999, we also intend to
distribute some of our products through the @Home Network and Kesmai
Corporation's popular Internet online games service, GameStorm. We believe that
reductions in the time to download Multipath Movie content over the Internet may
be a requirement to any increase in online sales of our products. This reduction
in download time depends in part upon advances in compression technology. We
have experienced delays in the development of compression technologies. We
believe that large, time-consuming downloads have deterred potential users of
our products and have reduced the effectiveness of our marketing campaigns with
Microsoft and Disney. The development of these technologies continues to be a
significant component of our business strategy and a primary focus of our
research and development efforts.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR BUSINESS
MODEL AND LIKELIHOOD OF SUCCESS.
We have a limited operating history upon which to evaluate our future
prospects. We were founded in September 1993 and shipped our initial traditional
CD-ROM product in November 1994. In 1996, we substantially reduced this aspect
of our business to begin producing and distributing Multipath Movies. We
acquired the software tools necessary to produce Multipath Movies in August 1996
and introduced our first Multipath Movie in December 1997. You must consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as
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entertainment software. These risks include, but are not limited to, the
inability to respond promptly to changes in a rapidly evolving and unpredictable
business environment and the inability to manage growth.
IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS, WE MAY BE REQUIRED TO DEFER
COMPLETION OF MULTIPATH MOVIE TITLES AND REDUCE OVERHEAD SIGNIFICANTLY.
We believe that our existing funds, cash generated from operations and
proceeds from our future sales of common stock under the securities purchase
agreement we entered into in March 1999 will be sufficient to fund our working
capital requirements for at least the next twelve months. Following fiscal 1999,
we may need to raise additional funds through debt or equity financing or by
other means. We cannot be certain that additional financing will be available at
the time we need additional funds or that, if available, it can be obtained on
terms that we deem favorable. If necessary funds are not available, we may be
required to defer completion of Multipath Movie titles and reduce overhead
significantly, which could have a material adverse effect on our business.
Additionally, our stockholders may be diluted if we raise additional funds
through the sale of our stock.
OUR SOFTWARE DISTRIBUTORS AND PUBLISHERS, OEM PROVIDERS AND CONTENT
LICENSORS MAY DELAY THE RELEASE OF OUR PRODUCTS.
We have entered into strategic relationships with software distributors
and publishers and OEM providers, as well as licensing arrangements with
numerous companies that own the stories or characters used in many of our
Multipath Movies. Our business strategy is based largely on our strategic and
licensing relationships and our ability to continue to enter into similar
relationships in the future. These relationships may affect our ability to
release our products, which would adversely affect our revenues, for a number of
reasons, such as:
o A strategic partner or content licensor may, in the exercise of
its product approval rights, arbitrarily reject our products, require expensive
and time consuming changes to the products or otherwise delay their
introduction; and
o An OEM provider could change the shipping schedule of the equipment with
which our products are bundled and thereby affect their distribution.
One delay has already occurred. Packard Bell NEC, which agreed to
distribute some of our Multipath Movie titles bundled with Packard Bell
computers, has significantly delayed the introduction of some titles beyond the
initially anticipated launch dates. Additionally, we believe that because
Packard Bell NEC is distributing our titles with only its middle- to high-end
machines, Packard Bell NEC will not comply with its commitment to ship our
products with 6 million computers during the term of our agreement. We have
formally notified Packard Bell NEC of their failure to comply with the terms of
our agreement. We cannot be certain that we will resolve these issues with
Packard Bell NEC, that Packard Bell NEC will achieve its committed shipment
level or that adequate remedies will be available to us to compensate for
Packard Bell NEC's failure to perform under our agreement. Our problems with
Packard Bell NEC have resulted in fewer sales of our products and lower revenues
and earnings than we expected.
WE MAY NOT BE ABLE TO OBTAIN THE SERVICES OF INDEPENDENT SOFTWARE
DEVELOPERS THAT ARE NECESSARY FOR THE PRODUCTION AND DISTRIBUTION OF OUR
PRODUCTS ON A TIMELY BASIS.
In addition to internally developing software, we use entertainment
software created by independent software developers. We have less control over
the scheduling and the quality of the software generated by independent
contractors than over that developed by our own employees. Our ability to obtain
software generated by others will depend in part on our continued ability to
maintain relationships with skilled independent software developers, and to
enter into and renew product development agreements with these developers. There
can be no assurance that we will be able to maintain these relationships or
enter into and renew these agreements.
WE MAY NOT BE ABLE TO ACQUIRE LICENSED CONTENT THAT WE DESIRE TO USE IN
OUR MULTIPATH MOVIES.
We use content developed by third parties in our Multipath Movies. To have
access to appealing content for use in our Multipath Movies, we will need to
continue to develop new relationships and maintain existing relationships with
content providers. Many content providers are reluctant to grant broad licenses
for their properties covering multiple formats, like the Internet and
television, to companies without a proven track record in the particular
industry. When rights are available, there is often significant competition for
licenses. We may not be able to acquire licensed content at prices or upon terms
or conditions that we consider acceptable.
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IF OUR INTERNET PROVIDER EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL
NOT BE ABLE TO SELL MULTIPATH MOVIES THROUGH OUR INTERNET SITE.
We presently use a single vendor to deliver Multipath Movies through our
Internet site. Any significant interruption in service provided by this vendor
could interrupt sales and delivery of Multipath Movies and adversely affect our
ability to conduct this portion of our business and maintain customer
satisfaction.
WE MAY NOT BE ABLE TO OBTAIN CD-ROM AND DVD MANUFACTURING AND PACKAGING
SERVICES ON A TIMELY BASIS.
We use third party vendors to press CD-ROM and DVD disks, assemble
purchased product components, print product packaging and user manuals and
package finished products in connection with the retail distribution of our
Multipath Movies. We do not have contractual agreements with any of our third
party vendors, which may result in our inability to secure adequate services in
a timely manner. If we cannot obtain adequate manufacturing services, we will
not be able to timely produce and deliver our CD-ROM and DVD products to
distributors, retail stores and consumers.
TO INCREASE RETAIL SALES, WE MUST DEVELOP A RETAIL SALES CHANNEL,
EFFECTIVELY COMPETE FOR RETAIL SHELF SPACE AND NEGOTIATE FAVORABLE TERMS WITH
RETAILERS.
We anticipate that a significant amount of sales of Multipath Movies will
need to be made through distributors to traditional retailers. We have no prior
experience in developing or managing a retail sales channel or selling products
in retail stores. We are currently expending significant resources to develop a
retail sales channel, which expenditures must be made before we realize any
significant retail sales. The competition for shelf space in retail stores is
intense. We expect that our products will constitute a small percentage of a
retailer's sales volume, and we cannot be certain that retailers will provide
our products with adequate levels of shelf space and promotional support. Due to
the increased competition for limited retail shelf space and promotional
resources, retailers and distributors increasingly are in a better position to
negotiate favorable terms of sale, including terms relating to price discounts,
product return rights and cooperative market development funds. Increased
competition could result in loss of shelf space for our products at retail
stores, as well as significant price competition, any of which could adversely
affect our sales volume and the price we receive for our products.
WE MAY ENCOUNTER PROBLEMS IN CONNECTION WITH OUR ACQUISITION OF THE
AUCTION CHANNEL.
In July 1999, we acquired Trojan Television Limited, a London-based
company doing business as The Auction Channel. The Auction Channel integrates
live satellite, cable TV and Web broadcasts of auction events conducted by
auction houses, allowing for participants to watch auction events on television
and use the Internet or their telephone to bid simultaneously with people
actually present at the auction house. We will operate The Auction Channel as a
European subsidiary.
We have very little experience in acquiring businesses, and will likely
encounter difficulties in integrating The Auction Channel's operations with our
existing operations. Some of the difficulties we expect to encounter include,
among others, those related to:
o integrating Brilliant's and The Auction Channel's management staffs; o
retaining The Auction Channel's key management and technical personnel; and o
coordinating the operation of geographically separated organizations with
distinct cultures.
The integration of The Auction Channel's and Brilliant's operations
following the acquisition will require the dedication of management resources,
which may temporarily distract attention from the day-to-day business of the two
companies. The inability of management to integrate successfully the operations
of the companies could have an adverse effect on our consolidated operating
results. In addition, even if the operations of the two companies are ultimately
successfully integrated, it is anticipated that the integration will be
accomplished over time and, in the interim, the combination may have an adverse
effect on our business and operations.
THE AUCTION CHANNEL MAY NEVER ACHIEVE PROFITABILITY.
The Auction Channel has a limited operating history upon which to evaluate
its future prospects. The Auction Channel was founded in 1996 and commenced
operations in July 1996. The Auction Channel had net losses of approximately
$310,000 in fiscal 1997, $521,000 in fiscal 1998 and $1,289,000 for the nine
months ended March 31, 1999, and an accumulated deficit of $2,119,000 as of
March 31, 1999 relating to net losses from the period from July 1,
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1996 through fiscal 1997 and 1998 and the nine months ended March 31, 1999. We
expect that The Auction Channel will continue to sustain losses at least for the
next twelve months. There can be no assurance that The Auction Channel will
achieve profitability or successfully implement its business strategy.
OUR AMORTIZATION EXPENSES WILL INCREASE AS A RESULT OF OUR ACQUISITION OF
THE AUCTION CHANNEL.
Our acquisition of The Auction Channel has been accounted for as a
purchase. Based on the purchase price paid, The Auction Channel acquisition is
expected to result in significant goodwill recorded on our balance sheet. As a
result, we expect that our amortization expense will significantly increase over
historical levels. This increase in amortization expense will have an adverse
effect on our results of operations during the remainder of 1999 and in
subsequent periods.
IF THE AUCTION CHANNEL LOSES ITS LICENSE TO THE COMPUTER SOFTWARE AND
HARDWARE TECHNOLOGIES IT USES IN ITS BUSINESS, THE AUCTION CHANNEL MAY NOT BE
ABLE TO CONTINUE TO SELL ITS PRODUCTS AND SERVICES.
Many of the underlying computer software and hardware technologies used by
The Auction Channel are licensed from Articulate UK Limited. The Auction Channel
has, with respect to these technologies, a worldwide, irrevocable license, with
rights to exploit and improve, to any and all software, patents, technology,
object code, documentation and know how developed or owned or licensable by
Articulate UK. If The Auction Channel loses its rights to the computer software
and hardware technologies it licenses from Articulate UK as a result of a
dispute with Articulate UK or otherwise, The Auction Channel will not be able to
continue to sell its products and services. If this occurs, The Auction
Channel's revenues will be substantially reduced.
PRODUCT RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN WORSE
THAN EXPECTED OPERATING RESULTS.
At the time we ship our products to retailers, we will establish reserves,
including reserves that estimate the potential for future product returns.
Product returns or price protection concessions that exceed our reserves could
increase the magnitude of quarterly fluctuations in our operating and financial
results. Furthermore, if we incorrectly assess the creditworthiness of customers
who receive our products on credit, we could be required to significantly
increase the reserves previously established. We cannot be certain that any
future write-offs will not occur or that amounts written off will not have a
material adverse effect on our business and depress the market price of our
common stock. Actual returns to date have been within management's estimates.
FLUCTUATIONS IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS IN
REVENUE.
We operate in an industry that is subject to significant fluctuations in
operating results from quarter to quarter, which may lead to unexpected
reductions in revenues and stock price volatility. Factors that may influence
our quarterly operating results include:
o shipping schedules for PC hardware with which Multipath Movies are
bundled;
o the introduction or enhancement of software products by us and our
competitors;
o our ability to produce and distribute retail packaged versions of
Multipath Movies in advance of peak retail selling seasons;
o the introduction or availability of new computer hardware to be used
with our products; and
o the timing of orders from major customers.
Additionally, a majority of the unit sales for a product typically occurs
in the quarter in which the product is introduced. As a result, our revenues may
increase significantly in a quarter in which a major product introduction occurs
and may decline in following quarters.
SEASONAL BUYING PATTERNS MAY RESULT IN PERIODS OF LOW SALES VOLUME.
The entertainment software business is highly seasonal. Typically, net
revenues are highest during the fourth calendar quarter, decline in the first
calendar quarter and are lowest in the second and third calendar quarters. This
seasonal pattern is due primarily to the increased demand for entertainment
software products during the year-end holiday buying season. As a result, a
disproportionate share of our net revenues historically have been generated in
the fourth quarter of our fiscal year. We expect our revenues and operating
results will continue to reflect these seasonal factors.
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<PAGE>
OUR AMORTIZATION EXPENSE MAY INCREASE IF SOME OF OUR MULTIPATH MOVIES DO
NOT SELL AS WELL AS WE ANTICIPATED.
Our accounting policy follows Statement of Financial Accounting Standards
No. 86, which statement provides for the capitalization of software development
costs once technological feasibility is established. The capitalized costs are
amortized beginning on the date the product is made available for sale either on
a straight-line basis over the product's estimated revenue or on a ratio of
current revenues to total projected product revenues, whichever results in the
greater amortization amount.
In accordance with SFAS No. 86, we capitalized certain development costs
related to the production of Multipath Movies during the third and fourth
quarters of 1997 and the first quarter of 1998. The majority of the capitalized
costs relate to Multipath Movie which we are currently attempting to market in
non-interactive format as television broadcast/cable programming and home video
features. We cannot guarantee that our efforts will be successful. If our
efforts are not successful, our amortization costs will increase, which will
have an adverse affect on our results of operations.
WE MUST IMPROVE OUR SOFTWARE TOOLS TO PRODUCE NEW, MORE ENHANCED MULTIPATH
MOVIES.
The software tools that enable us to create Multipath Movies have been
developed over the past three years. Additional refinement of these tools may be
necessary to continue to enhance the Multipath Movie format. If we cannot
develop improvements to these software tools, our Multipath Movies may not
obtain or maintain market acceptance and our revenues will be adversely
affected.
ERRORS OR DEFECTS IN OUR SOFTWARE TOOLS AND PRODUCTS MAY CAUSE A LOSS OF
MARKET ACCEPTANCE.
Our products are complex and may contain undetected errors or defects when
first introduced or as new versions are released. In the past, we have
discovered software errors in some of our new products and enhancements after
their introduction into the market. Because our products are complex, we
anticipate that software errors and defects will be present in new products or
releases in the future. While to date these errors have not been material,
future errors and defects could result in adverse product reviews and a loss of,
or delay in, market acceptance of our products.
TO COMPETE EFFECTIVELY, WE MUST MAKE SUBSTANTIAL INVESTMENTS IN RESEARCH
AND DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL DEVELOPMENTS AND
CHANGING SOFTWARE OPERATING ENVIRONMENTS THAT ARE TYPICAL IN OUR INDUSTRY.
The entertainment software market and the PC industry are subject to
rapid technological developments and frequent changes in software operating
environments. To compete successfully, we must continually improve and enhance
our existing products and technologies and develop new products and technologies
that incorporate technological advances. We must make these improvements while
remaining competitive in terms of performance and price. Our sales will depend
substantially upon our ability to anticipate the emergence of, and to adapt our
products to, popular software operating environments. This will require us to
make substantial investments in research and development. We cannot be certain
that we will have the financial and technical resources available to make these
substantial expenditures.
IF A NEW OPERATING ENVIRONMENT FOR WHICH WE DEVELOP PRODUCTS DOES NOT
ACHIEVE MARKET ACCEPTANCE, OUR PRODUCTS MAY NOT SELL WELL IN THE MARKET.
We intend to design future products for use with new software operating
environments. To coordinate the release of our products with the release of a
new operating environment, we will need to make substantial investments in
research and development at least one to two years in advance of the widespread
release of the operating environment in the market. If a new operating
environment for which we develop products does not achieve market acceptance, we
may incur substantial research and development expenses in developing products
that do not sell well in the market. Our failure to anticipate the emergence of
widely accepted operating environments and to timely develop products for use on
these new environments would result in lower sales volume and have a material
adverse effect on our business.
OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM COPYING BY
OTHERS.
Our future success and ability to compete depends in part upon our
proprietary technology. We rely on trademark, trade secret and copyright laws to
protect our technology, and require all employees and third-party developers to
sign nondisclosure agreements. We cannot be certain, however, that these
precautions will provide meaningful protection from competition or that
competitors will not be able to develop similar or superior technology
independently. We do not copy-protect our software, so it may be possible for
unauthorized third parties to copy our
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<PAGE>
products or to reverse engineer or otherwise obtain and use information that we
regard as proprietary. Our customers may take inadequate precautions to protect
our proprietary information. If we must pursue litigation in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others, we may not
prevail and will likely make substantial expenditures and divert valuable
resources. In addition, many foreign countries' laws may not protect us from
improper use of our proprietary technologies overseas. We may not have adequate
remedies if our proprietary rights are breached or our trade secrets are
disclosed.
IF OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT MAY
BE BROUGHT AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND
JUDGMENTS AND REDESIGN OR DISCONTINUE SELLING OUR PRODUCTS.
We believe that our products, including our software tools, do not
infringe any valid existing proprietary rights of third parties. The software
tools used to create Multipath Movies were developed by SAND when it was a
division of Sega Ozisoft. In connection with our acquisition of the software
tools, Sega Ozisoft represented to us that, to its best knowledge, the SAND
technology and software acquired by us does not infringe the proprietary rights
of others. We rely entirely on these representations of Sega Ozisoft. While we
have received no communication from third parties alleging infringement of any
of their proprietary rights, we cannot be certain that any infringement claims
will not be made in the future. Any infringement claims, whether or not
meritorious, could result in costly litigation or require us to enter into
royalty or licensing agreements. If we are found to have infringed the
proprietary rights of others, we could be required to pay damages, redesign the
products or discontinue their sale. Any of these outcomes, individually or
collectively, could have a material adverse effect on our business and financial
condition.
WE MAY BE REQUIRED TO ISSUE SHARES OF COMMON STOCK TO PACKARD BELL NEC
UPON ITS EXERCISE OF WARRANTS WE REDEEMED IN JULY 1999.
In July 1999, we redeemed from Packard Bell NEC warrants to purchase
600,000 shares of our common stock. The warrants were exercisable at $5 per
share and would have expired on September 14, 1999. Packard Bell NEC is claiming
that we did not properly redeem the warrants, and considers the warrants to be
outstanding. If Packard Bell NEC attempts to exercise the warrants on or before
September 14, 1999, we may be required to issue up to 600,000 shares of common
stock to Packard Bell NEC at a purchase price of $5.00 per share if Packard Bell
NEC prevails in our dispute over redemption of the warrants. The information in
this prospectus, including the number of shares that we may issue upon exercise
of outstanding options and warrants, is presented as if we properly redeemed all
of the Packard Bell NEC warrants and they are no longer outstanding.
OUR STOCK PRICE AND TRADING VOLUME FLUCTUATE WIDELY.
Our common stock is traded on the American Stock Exchange. The market
price and trading volume of our common stock have been subject to substantial
volatility, and are likely to continue to be subject to significant fluctuations
due to many factors, including:
o variations in quarterly operating results; o the gain or loss of
significant contracts;
o changes in management;
o announcements of technological innovations or new products by us or
our competitors;
o recommendations by securities industry analysts;
o dilution to existing stockholders resulting from the issuance of
additional shares of common stock; and
o short sales and hedging of our common stock.
Additionally, the stock market has experienced extreme price and trading
volume fluctuations that have affected the market price of securities of many
technology companies. These fluctuations have, at times, been unrelated to the
operating performances of the specific companies whose stock is affected. In the
past, our common stock has not experienced significant trading volume on a
consistent basis and has not been actively followed by stock market analysts.
The average trading volume in our common stock may not increase or sustain its
current levels. We cannot be certain that an adequate trading market will exist
to sell large positions in our common stock.
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<PAGE>
BECAUSE OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR COMMON
STOCK, THEY MAY BE ABLE TO INFLUENCE STOCKHOLDER VOTES AND DISCOURAGE OTHERS
FROM ATTEMPTING TO ACQUIRE US.
As of July 22, 1999, our officers and directors owned, in total,
approximately 17.8% of the outstanding shares of our common stock. As a result,
our officers and directors are able to exert influence over the outcome of all
matters submitted to a vote of the holders of our common stock, including the
election of our Board of Directors. The voting power of these officers and
directors could also discourage others from seeking to acquire control of us
through the purchase of our common stock, which might depress the price of our
common stock.
WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE
PRICE OF OUR COMMON STOCK.
In March 1998, we adopted a stockholder's rights plan. We adopted the
rights plan to make it more difficult for a third party to make an unsolicited
takeover attempt of us. Under the rights plan we distributed one preferred share
purchase right for each outstanding share of our common stock outstanding on
April 2, 1998. Upon the occurrence of certain triggering events related to an
unsolicited takeover attempt of us, each purchase right not owned by the party
or parties making the unsolicited takeover attempt will entitle its holder to
purchase shares of our Series A Preferred Stock at a value below the then market
value of the Series A Preferred Stock. Our board of directors can issue up to an
additional 700,000 shares of preferred stock and determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by our stockholders. Our board of
directors could issue the preferred stock with voting, liquidation, dividend and
other rights superior to the rights of our common stock. The rights of holders
of our common stock will be subject to, and may be adversely affected by, the
rights of holders of the share purchase rights and of any preferred stock that
may be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of our outstanding voting stock. Further, certain provisions of our
certificate of incorporation and bylaws and of Delaware law could delay or make
more difficult a merger, tender offer or proxy contest involving us.
OUR SALE OF SHARES AT A PRICE BELOW THE MARKET PRICE OF OUR COMMON STOCK
WILL HAVE A DILUTIVE IMPACT ON OUR STOCKHOLDERS.
We have entered into a securities purchase agreement with an investor that
allows us to sell to the investor up to $6,000,000 worth of shares of our common
stock at a discount to the then-prevailing market price of our common stock. The
table below sets forth percentages of our common stock the investor would own if
we elected to sell the entire $6,000,000 worth of stock under the purchase
agreement. The percentages are based on our closing share price of $6.375 on
June 25, 1999, and on assumed prices of $4.78 and $3.71, which prices represent
a 25% and 42% decline, respectively, in our June 25, 1999 closing share price.
The percentages are also based on the number of shares of common stock
outstanding on June 25, 1999. We cannot issue to the investor more than 19.99%
of our common stock that was outstanding at the time we entered into the
securities purchase agreement, which equals 13.8% of our common stock
outstanding on June 25, 1999, unless the issuance of shares in excess of this
amount does not require stockholder approval or unless we obtain stockholder
approval.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE ASSUMED OF
DISCOUNT TO MARKET OUTSTANDING
MARKET PRICE PRICE COMMON STOCK
------------- ------------ -------------
<S> <C> <C> <C>
0% $ 6.38 8.3%
25% $ 4.78 10.8%
42% $ 3.71 13.8%
</TABLE>
Additionally, we have issued to a selling stockholder a debenture which
may be converted into common stock at a discount to the then-prevailing market
price of our common stock. Accordingly, the issuance of shares under the
securities purchase agreement and the debenture will have a dilutive impact on
our stockholders. As a result, our net income or loss per share could be
materially decreased in future periods, and the market price of our common stock
could be materially and adversely affected. These discounted sales could have an
immediate adverse effect on the market price of the common stock. We also have
agreed to issue to our financial advisor a fee in shares of common stock having
an aggregate market price equal to 2% of the purchase price of the shares of
common stock to be issued and sold under the securities purchase agreement. The
issuance or resale of these shares would have a further dilutive effect on our
common stock and could adversely affect its price. Downward pressure on the
market price of our common stock could encourage short sales of common stock by
the investor, to the extent permitted by the securities purchase agreement, or
others. A short sale is a sale of stock that is not owned by the seller. The
seller borrows the stock for delivery at the time of the short sale, and buys
back the stock when it is necessary to return the borrowed shares. If the price
of the
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<PAGE>
common stock declines between the time the seller sells the stock and the time
the seller subsequently repurchases the common stock, then the seller sold the
shares for a higher price then he purchased the shares and may realize a profit.
Material amounts of short selling could place further downward pressure on the
market price of the common stock.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 27, 1999, the Registrant issued to Roseworth Group, Ltd. a 4%
convertible debenture in the principal amount of $1,000,000 due on the later of
April 27, 2000 or six months following the date the Commission declares
effective a registration statement with respect to the resale of the shares of
common stock underlying the debenture. On May 13, 1999, Roseworth converted
$250,000 of the principal amount of the debenture into 76,489 shares of our
common stock, and on May 24, 1999 Roseworth converted an additional $500,000 of
the principal amount of the debenture into 129,033 shares of our common stock.
The Registrant issued the debenture and the shares of common stock issued upon
conversion of the debenture in reliance on Section 4(2) of the Securities Act as
a transaction not involving any public offering. In connection with the issuance
of the debenture, Registrant paid to Roseworth a fee of $30,000 and issued to
Roseworth 5,883 shares of common stock. The Registrant issued these shares of
common stock in reliance on Section 4(2) of the Securities Act as a transaction
not involving any public offering.
In May 1999, the Registrant sold an aggregate of 2,132,000 shares of
common stock to seven investors for aggregate proceeds of $4,311,250. The
Registrant issued the debenture and the shares of common stock issued upon
conversion of the debenture in reliance on Section 4(2) of the Securities Act as
a transaction not involving any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
Date: August 12, 1999 /S/ MICHAEL OZEN
-----------------------------------------
By: Michael Ozen
Its: Chief Financial Officer (Principal
Financial and Accounting Officer) and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-QSB OF BRILLIANT DIGITAL
ENTERTAINMENT, INC. TO WHICH THIS EXHIBIT IS A PART AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER
SHARE DATA).
</LEGEND>
<CURRENCY> U.S. Currency
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,587
<SECURITIES> 0
<RECEIVABLES> 2,587
<ALLOWANCES> 140
<INVENTORY> 0
<CURRENT-ASSETS> 7,322
<PP&E> 1,820
<DEPRECIATION> 1,221
<TOTAL-ASSETS> 8,734
<CURRENT-LIABILITIES> 1,716
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 6,611
<TOTAL-LIABILITY-AND-EQUITY> 8,734
<SALES> 334
<TOTAL-REVENUES> 334
<CGS> 349
<TOTAL-COSTS> 4,517
<OTHER-EXPENSES> (71)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,112)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,112)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
