<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
XXX Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended December 31, 1999
-----------------
Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0-28604
-------
SOUND SOURCE INTERACTIVE, INC.
- -----------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 95-426046
-------- ---------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
26115 MUREAU ROAD, SUITE B, CALABASAS, CALIFORNIA 91302-3126
- -------------------------------------------------------------
(Address of Principal Executive Offices)
(818) 878-0505
- --------------
(Issuer's Telephone Number, Including Area Code)
- -----------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be file 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 the past 90 days.
Yes __XXX__ No ___________
The number of shares outstanding of the issuer's common stock as of
February 18, 2000 was 5,887,370
---------
Transitional Small Business Disclosure Format (check one):
Yes _________ No ___XXX____
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
FOR THE THREE MONTH PERIODS ENDED
DECEMBER 31, 1999 AND 1998
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet - December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three month periods ended December 31, 1999 and 1998, 4
Six month periods ended December 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
Six month periods ended December 31, 1999 and 1998 6
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Outlook 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults upon Senior Securities 13
ITEM 4. Annual Meeting - Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14
Signature Page 14
Financial Data Schedule
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,546
Accounts receivable - net 410,822
Inventory - net 406,105
Prepaid royalties 1,385,106
Prepaid expenses and other 411,626
------------
Total current assets 2,625,205
------------
Property and equipment - net 193,210
Other Assets 13,229
------------
TOTAL ASSETS $ 2,831,644
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,371,964
Accrued royalties 1,511,989
Capital lease obligations 4,025
Deferred revenue 19,307
Short term borrowings 306,100
------------
Total current liabilities 4,213,385
------------
Long Term Liabilities
Capital Lease - long term 5,998
Deferred revenue - long term 2,140,000
Stockholders' (Deficit) Equity:
Common stock - $.001 par value, 20,000,000
shares authorized, 5,887,370 shares issued
and outstanding 5,888
Warrants 559,928
Additional paid-in capital 14,314,186
Accumulated deficit (18,407,741)
------------
Total stockholders' equity (3,527,739)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,831,644
============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 353,454 $1,692,483
Cost of sales 523,623 734,262
----------- ----------
Gross profit (170,169) 958,221
----------- ----------
Operating costs and expenses:
Marketing and sales 352,653 660,740
Other general and administrative 402,305 601,159
Research and development 249,788 416,183
----------- ----------
Total operating costs and expenses 1,004,746 1,678,082
Operating (loss) income (1,174,915) (719,861)
Other income (expense) (37,874) (38,242)
----------- ----------
(Loss) income before provision for income taxes (1,212,789) (758,103)
Provision for income taxes 0 2,400
----------- ----------
Net (loss) income $(1,212,789) $ (760,503)
=========== ==========
Basic (loss) income per share $ (0.21) $ (0.13)
=========== ==========
Diluted (loss) income per share $ (0.21) $ (0.13)
=========== ==========
Weighted average number of common
shares outstanding - Basic 5,887,370 5,859,780
=========== ==========
Weighted average number of common
shares outstanding - Diluted 5,887,370 5,859,780
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 1,647,767 $ 2,989,815
Cost of sales 1,261,120 1,296,380
----------- -----------
Gross profit 386,647 1,693,435
----------- -----------
Operating costs and expenses:
Marketing and sales 632,286 1,427,701
Other general and administrative 796,390 947,095
Research and development 579,393 836,311
----------- -----------
Total operating costs and expenses 2,008,069 3,211,107
Operating (loss) income (1,621,422) (1,517,672)
Other income (expense) (53,017) (35,012)
----------- -----------
(Loss) income before provision for income taxes (1,674,439) (1,552,684)
Provision for income taxes 800 3,200
----------- -----------
Net (loss) income $(1,675,239) $(1,555,884)
=========== ===========
Basic (loss) income per share $ (0.29) $ (0.27)
=========== ===========
Diluted (loss) income per share $ (0.29) $ (0.27)
=========== ===========
Weighted average number of common
shares outstanding - Basic 5,886,388 5,766,342
=========== ===========
Weighted average number of common
shares outstanding - Diluted 5,886,388 5,766,342
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,675,239) $(1,555,884)
Adjustments to reconcile net (loss) income to net cash
used by operating activities:
Depreciation and amortization 66,871 88,817
Allowance for sales returns 0 410,478
Allowance for bad debt reserves 0 0
Changes in operating assets and liabilities:
Accounts receivable 164,699 965,904
Inventories (76,737) (168,395)
Prepaid royalties (141,216) (112,266)
Prepaid expenses and other (145,807) 13,514
Accounts payable and accrued expenses 386,983 (928,619)
Accrued royalties (238,612) 292,169
Deferred revenues 845,391 26,892
----------- -----------
Net cash used by operating activities (813,667) (967,390)
----------- -----------
Cash flows from investing activities-
Purchases of property and equipment (14,807) (10,502)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 11,328 5,123
Payments on capital lease obligations (2,051) (1,663)
Net borrowings under Line of Credit (26,400) 484,462
----------- -----------
Net cash provided by (used in) financing activities (17,123) 487,922
Net change in cash and cash equivalents (845,597) (489,970)
Cash and cash equivalents, beginning of period 857,143 693,741
----------- -----------
Cash and cash equivalents, end of period $ 11,546 $ 203,771
=========== ===========
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $ 32,911 $ 28,441
=========== ===========
Income taxes $ 800 $ 3,200
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. The unaudited condensed consolidated financial
statements include the accounts of Sound Source Interactive, Inc. and its
wholly-owned subsidiaries (collectively referred to as the Company). The
operating results for interim periods are unaudited and are not necessarily an
indication of the results to be expected for the full fiscal year. In the
opinion of management, the results of operations as reported for the interim
period reflect all adjustments which are necessary for a fair presentation of
operating results.
Note B - Accounts Receivable
- ----------------------------
As of December 31, 1999, $360,134.71 of the accounts receivable balance is due
from Macmillan Digital Publishing (MDP). Pursuant to the sales and distribution
agreement between the Company and MDP, MDP has provided sales, distribution,
warehousing and order fulfillment services for all of the Company's products
throughout North America since February 1999. The distribution agreement between
the Company and MDP has been terminated and expires on May 1, 2000.
Note C - Cash and Cash Equivalents
- ----------------------------------
The Company considers all highly liquid investments with original maturities of
90 days or less to be cash equivalents.
Note D - Determination of Earnings Per Share Computation
- --------------------------------------------------------
In fiscal 1998 the Company adopted the Financial Accounting Standards Board's
SFAS No. 128 "Earnings per Share" ("EPS"). During the three-month periods ended
December 31, 1999 and 1998, the Company incurred a loss from operations.
Accordingly, all potentially dilutive incremental shares are antidilutive and
are therefore excluded from the computations of EPS.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended December 31, 1999 Compared to the Three Months Ended December
31, 1998
Net Sales. Net sales decreased by 79.1 percent from $1,692,483 for the three
months ended December 31, 1998 to $353,454 for the three months ended December
31, 1999. This decrease is primarily attributable to: (i) Substantial sales
returns of our unsuccessful titles released earlier in the year (i.e., Babe: Pig
in the City(TM) and The King and I(TM)); (ii) disappointing sales of recent
title releases within the quarter ended December 31, 1999 (i.e., Berenstein
Bears product titles and Star Trek: Trivia Challenge), which translated to lower
than expected software revenue for the Company; (iii) the internal restructuring
of the Company's exclusive North American distributor MDP; and (iv) the
Company's decision to shift the majority of future product development and sales
to console based video games (ie: Sony and Nintendo) to facilitate our new
business plan. In addition, net sales for the three months ended December 31,
1999 did not include significant foreign revenues, whereas $860,000 in foreign
revenues was recognized in the comparable three month period ended December 31,
1998.
Cost of Sales. Cost of sales decreased by 28.7 per cent from $734,262 for the
three months ended December 31, 1998 to $523,623 for the three months ended
December 31, 1998. However, cost of sales as a percentage of sales increased
from 43.4 percent to 148.1 percent during these respective periods. The increase
in cost of sales as a percentage of revenues is primarily due to substantial
price protection allowances given to wholesalers to persuade retailers to keep
our products and titles on their shelves. Despite these allowances, the Company
continued to experience large sales returns of older product that further eroded
gross margin figures.
Marketing and Sales. Marketing and sales expenses decreased by 46.6 percent
from $660,740 for the three months ended December 31, 1998 to $352,653 for the
three months ended December 31, 1999. However, as a result of the Company's
substantial decrease in total revenue, marketing and sales expenses as a
percentage of sales, increased from 39.0 percent to 99.8 percent, respectively.
The dollar decrease in marketing and sales expenses is primarily due to the
Company's reduction of in-house sales personnel and the transition following the
signing of the master distribution agreement providing MDP a more active role in
the selling and distribution of the Company's licensed products. This
distribution agreement between the Company and MDP, which was entered into on
February 5, 1999, has been terminated effective May 1, 2000. The Company is in
the process of implementing a new sales and distribution model which will
facilitate the sales and marketing of its video game products as well as a
limited number of PC based titles. MDP could not provide these expanded sales
and marketing functions for the Company as it has no experience in the video
game console software marketplace.
Research and Development. Research and development costs decreased 40.0 percent
from $416,183 during the three months ended December 31, 1998 to $249,788 for
the three months ended December 31, 1998. However, research and development
costs increased as a percentage of sales from 24.6 percent to 70.7 percent,
respectively. The decrease in costs is primarily attributable to (i) the
abandonment and elimination of payroll within research and development related
to the production of non-family oriented product titles and (ii) the reduction
of new product development costs as compared to that of the prior comparable
period.
8
<PAGE>
General and Administrative. General and Administrative expenses decreased by
33.1 per cent from $601,159 during the three months ended December 31, 1998 to
$402,305 for the three months ended December 31, 1999. However, as a result of
the Company's substantial decrease in total revenue, general and administrative
expenses increased as a percentage of sales from 35.6 percent to 113.8 percent,
respectively. The dollar amount decrease in general and administrative expenses
for the period ended December 31, 1999 as compared to December 31, 1998 is
primarily related to the reduction in payroll cost between the respective
periods and to the distribution of bonuses incurred only within the period ended
December 31, 1998.
Six Months Ended December 31, 1999 Compared to the Six Months Ended December 31,
1998
Net Sales. Net sales decreased by 44.9 percent from $2,989,815 for the six
months ended December 31, 1998 to $1,647,767 for the six months ended December
31, 1998. This decrease is primarily attributable to: (i) disappointing sales of
recent title releases within the quarter ended December 31, 1999
(i.e.,Berenstein Bears product titles and Star Trek: Trivia Challenge), which
translated to lower than expected software revenue for the Company; (ii) The
internal restructuring of the Company's exclusive North American distributor
MDP; and (iii) the Company's decision to shift the majority of future product
development and sales to console based video games (i.e.,: Sony and Nintendo) to
facilitate our new business plan. In addition, net sales for the six months
ended December 31, 1999 did not include significant foreign revenues, whereas
$860,000 was recognized in the comparable six month period ended December 31,
1998.
Cost of Sales. Cost of sales decreased by 2.7 percent from $1,296,380 for the
six months ended December 31, 1998 to $1,261,120 for the six months ended
December 31, 1999. However, cost of sales as a percentage of sales increased
from 43.3 percent to 76.5 percent during these respective periods. The increase
in cost of sales as a percentage of revenues is primarily due to (i) lowering of
wholesale prices of product titles and (ii) substantial price protection
allowances given to wholesalers to persuade retailers to keep our products
and titles on their product shelves. Despite these allowances, the Company
experienced large sales returns of older products for the six month period that
further eroded gross margin figures.
Marketing and Sales. Marketing and sales expenses decreased by 55.7 percent
from $1,427,701 for the six months ended December 31, 1998 to $632,286 for the
six months ended December 31, 1999, and increased as a percentage of sales from
47.8 percent to 38.4 percent, respectively. The decrease in marketing and
sales expenses is primarily due to the Company's reduction of in-house sales
personnel and the transition following the signing of the master distribution
agreement providing MDP a more active role in the selling and distribution of
the Company's licensed products. This distribution agreement between the Company
and MDP, which was entered into on February 5, 1999 has been terminated
effective May 1, 2000. The Company is in the process of implementing a new sales
and distribution model which will facilitate the sales and marketing of its
video game products as well as a limited number of PC based titles. MDP could
not provide these expanded sales and marketing functions for the Company as it
has no experience in the video game console software marketplace.
Research and Development. Research and development costs decreased 30.7 percent
from $836,311 during the six months ended December 31, 1998 to $579,393 for the
six months ended December 31, 1999 and however increased as a percentage of
sales from 28.0 percent to 35.17 percent, respectively. The decrease in dollar
costs is primarily attributable to (i) the abandonment and elimination of
payroll within research and development related to the production of non-family
oriented product titles and (ii) to the reduction new product development costs
as compared to that of the prior comparable period.
9
<PAGE>
General and Administrative. General and administrative expenses decreased 15.9
percent from $947,095 during the six months ended December 31, 1998 to $796,390
for the six months ended December 31, 1999. However, as a result of the
Company's substantial decrease in total revenue, general and administrative
expenses increased as a percentage of sales from 31.7 percent to 48.3 percent,
respectively. The dollar amount decrease in general and administrative expenses
for the period ended December 31, 1999 as compared to December 31, 1998 is
primarily related to (i) the reduction in payroll cost between the respective
periods and (ii) the distribution of bonuses incurred only within the period
ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had negative working capital of $1,588,180
in comparison with negative working capital of $823,364 at June 30, 1999, a
decrease of $764,816. Cash and cash equivalents decreased by $845,597 directly
as a result of the Company's loss incurred during the six month period ended
December 31, 1999 and payment of current accounts payables and obligations.
Accounts receivable decreased $164,699 due to decreased sales of products to the
Company's former North American distributor, its international distributors and
due to recording of appropriate allowances for sales returns. However, $837,500
of cash advances had been received within the six month period ended December
31, 1999, per the provisions of the Company's international republishing and
distribution agreement with TDK. These TDK advances, recorded as deferred
revenues, are utilized primarily to fund product development and are not
recognized as revenue until such time as the products are delivered to TDK in
Gold Master format.
During September 1997, the Company entered into a factoring agreement with
Silicon Valley Financial Services, a division of Silicon Valley Bank. The
factoring agreement provides the Company with borrowing availability of up to
85% of the Company's qualified gross domestic accounts receivable, not to exceed
$1,500,000 in the aggregate, at a rate of 1.75% per month of the average gross
daily factoring account balance. The credit is secured by all the assets of the
Company and can be terminated by either party upon 30 days notice. As of
December 31, 1999, the Company had outstanding borrowings under the agreement
aggregating $306,100 plus $12,935 of accrued interest with a remaining
availability under the agreement of $1,193,900.
During the six months ended December 31, 1999, current liabilities increased 3.0
percent by $121,813 from $4,091,572 at June 30, 1999 to $4,213,385 at December
31, 1999.
The Company has experienced a significant decrease in sales during the last six
month period, as compared to the same period of time in the prior fiscal year.
This decrease is principally related to the following factors: (i) the Company's
decision to exit the non-family oriented software category and discontinue all
teen-and-above games and screen saver utilities; (ii) substantial sales returns
of our unsuccessful titles released earlier in the year (i.e., Babe: Pig in the
City(TM) and The King and I(TM));, (ii) disappointing sales of recent title
releases within the quarter ended December 31, 1999 (i.e., Berenstein Bears
product titles and Star Trek: Trivia Challenge), which translated to lower than
expected software revenue for the Company; (iii) the internal restructuring of
our exclusive North American distributor MDP and (iv) The Company's decision to
shift the majority of future product development and sales to console based
video games (i.e., Sony and Nintendo) to facilitate our new business plan.
The Company continues to search for new opportunities to obtain family oriented
software licenses to develop and sell video game products. Additionally, the
Company is seeking new and innovative ways to deliver its products to consumers,
some of which may require large up-front cash resources. If the Company enters
into agreements in such business opportunities in the future, the Company will
require additional financing to fund its growth.
10
<PAGE>
YEAR 2000 DISCLOSURE
The Company was successful in actively addressing the potential impact of the
Year 2000 (Y2K) problems by establishing a pro-active approach to ensure that
the Company's critical systems operated before, during and after the century
date rollover.
The Company had taken steps to increase the awareness of its employees and
associated persons with respect to the Y2K problems and what actions would be
taken to address such problems. The company formed an internal Y2K team, which
included senior management and experienced programmers, which met on a regular
basis to carry out the monitor the Company's Y2K project. The cost of the
Company's Y2K project totaled less than $10,000. The Company expects this cost
to be a one-time event which will not be reflected in future periods.
The Company identified all of its mission-critical systems and completed an
inventory of all hardware, software, networks, and other various processing
platforms, and also customer and vendor interdependencies. The Company completed
an assessment of the systems inventoried to determine their susceptibility to
Y2K issues. This assessment included inquiries to service providers, vendors,
and manufacturers of all systems inventoried to determine and document if such
systems are Y2K compliant. All of the Company's mission critical service
providers, vendors and manufactures responded that they were Y2K ready. The
Company also completed the testing of its mission-critical systems and made the
necessary upgrades to ensure that all mission-critical systems and software were
Y2K compliant.
The Company designed its contingency plan to mitigate the risks to its
operations or its core business resulting from any failure to successfully
complete its Y2K project. The Company updated its contingency plan to include
alternatives that could have been used in case there had been any business
interruptions.
OUTLOOK
The statements contained in this report on Form 10-QSB that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include, but are not limited to: statements regarding the Company's sales and
future revenues, statements regarding future research and development costs and
products, and statements regarding the future flexibility of the Company's cash
reserves. All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are the factors detailed below. Please consult the
risk factors listed from time to time in the Company's reports on Form 10-QSB
and 10-KSB and Annual Reports to Stockholders.
The Company does not provide forecasts of potential future financial
performance. While management of the Company is cautiously optimistic about the
Company's long-term prospects, the following issues and uncertainties among
others, should be considered in evaluating its growth outlook.
11
<PAGE>
Consumer Preferences. Consumers ultimately determine the success of consumer
software products. Not every product will obtain consumer acceptance and have
sell through rates sufficient to recover manufacturing, development and
marketing costs associated with the product. If consumer acceptance is not
achieved, the Company may be required to abandon capitalized development costs
and guaranteed royalty payments and may be required to destroy excess inventory.
The Company records a reserve for product returns based upon its prior
experience in the consumer software market and on current market conditions,
including sell-through information obtained from retailers. There can be no
assurance that future actual returns will not exceed the reserved amounts at
December 31, 1999.
Competition. The market for the Company's consumer software products is
intensely and increasing competitive. Existing consumer software companies have
broadened their product lines to compete with the Company's products, and
potential new competitors have entered and increased their focus on the consumer
software market, resulting in even greater competition for the Company. Many of
the companies with which the Company currently competes have greater financial,
technical, marketing and sales resources, as well as greater name recognition
and better access to consumers, than the Company. There can be no assurance that
the Company will have the resources required to respond effectively to market or
technological changes or to compete successfully in the future. In addition,
increasing competition in the consumer software market may cause prices to
continue to fall, which may materially adversely affect the Company's business,
operating results and financial condition.
Dependence on Retailers. The Company's retail customers include computer
stores, office supply stores, warehouse clubs, consumer electronic stores,
bookstores, video stores and alternative channels. The Company's customers are
not contractually required to make future purchases of the Company's products
and therefore discontinue carrying the Company's products in favor of
competitors' products or for any other reason. Due to increased competition for
limited shelf space, retailers are increasingly in a better position to
negotiate favorable purchase terms, including price discounts, co-operative
marketing costs and product return policies. There can be no assurance that the
Company will be able to increase or sustain its current amount of retail shelf
space or promotional resources.
Licensed Properties. There is a risk factor inherent in any venture involving
licensed properties. Not every licensed product is guaranteed success; only the
software consumer can ultimately determine the outcome. Additionally, there is
no guarantee that the Company can obtain future licenses of either the quality
or the quantity necessary for the Company to reach its goals.
Fluctuations in Operating Results; Seasonality. The Company has experienced,
and may continue to experience, fluctuations in operating results due to a
variety of factors, including the size and rate of growth of the consumer
software market, market acceptance of the Company's products, the release of new
products, consumer purchasing trends related to seasonality, and the timing of
the receipt of orders from major customers. The Company's expense levels are
based, in part, on its expectations as to future sales. Therefore, operating
results could be disproportionately affected by a reduction in sales or a
failure to meet the Company's sales expectations.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its officers and directors have been, and in the future may be,
involved in suits and actions incidental to the Company's business.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted upon at the Annual Meeting of Stockholders held
on December 29, 1999 and received the votes set forth below:
1. All of the following persons nominated were elected to serve as directors
and received the number of votes set forth opposite their respective names
below:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C> <C>
Richard Azevedo 5,465,780 6,232 73,853
Vincent J. Bitetti 5,483,282 6,698 55,885
Mark A. James 5,465,812 6,200 73,853
Samuel L. Poole 5,465,812 6,200 73,853
John T. Wholihan 5,465,812 6,200 73,853
</TABLE>
2. A proposal to approve the Sound Source Interactive, Inc. 1999 Director Stock
Plan, and the payment of all nonemployee fees for the period ending June 30,
2000 in shares of the Company's common stock, received 5,375,513 votes FOR,
161,152 votes AGAINST with 9,200 abstentions.
ITEM 5. OTHER INFORMATION
The Company is and has been experiencing decreasing sales in the CD ROM
marketplace. The Company is transitioning to a new business plan which includes
products for the video game console business. TDK Recording Media Europe has
provided the Company with significant capital to produce products for this
transition. The Company is seeking to further enhance its relationship with TDK
and at the same time seek investment capital in the form of equity sale of
securities, merger or sale of the Company and/or its assets. There can be no
assurance that the Company will succeed in achieving its business plan.
The Company has entered into a Succession Agreement with Vincent J. Bitetti
dated as of November 12, 1999, whereby Mr. Bitetti submitted his resignation as
Chairman of the Board of the Company effective as of November 12, 1999, and
agreed to resign as Chief Executive Officer of the Company on the earlier of (i)
December 31, 2000 and (ii) the date of the appointment of a new Chief Executive
Officer. The Succession Agreement further provides that upon his resignation as
Chief Executive Officer prior to December 31, 2000, Mr. Bitetti will be
appointed as Chairman of the Company to serve until December 31, 2000. The
Succession Agreement terminated the Bitetti Employment Agreement, the term of
which otherwise would have expired on December 31, 2000. Pursuant to the
Succession Agreement, Mr. Bitetti will remain entitled to receive substantially
the same compensation and benefits to which he would have been entitled under
his prior employment agreement until December 31, 2000.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.2 Sound Source Interactive, Inc. 1999 Director Stock
Plan, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K On December 2, 1999, the Company filed a Form 8-K
report to acknowledge the resignation of its former
independent auditors, Deloitte & Touche, L.L.P.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUND SOURCE INTERACTIVE, INC.
By: /s/Vincent J. Bitetti Date February 18, 2000
---------------------- -----------------
Vincent J. Bitetti
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/Jeffrey Court Date: February 18, 2000
---------------- -----------------
Jeffrey Court
Vice President, Finance
Acting Chief Financial Officer
14
<PAGE>
EXHIBIT 10.2
APPENDIX A
SOUND SOURCE INTERACTIVE, INC. 1999 DIRECTOR STOCK PLAN
ARTICLE 1 -- PURPOSE OF THE PLAN
The purpose of the Sound Source Interactive, Inc. 1999 Director Stock Plan
is to promote the long-term growth of Sound Source Interactive, Inc.
(hereinafter sometimes referred to as the "Corporation") by increasing the
proprietary interest of Directors in the Corporation and to attract and retain
highly qualified and capable Directors.
ARTICLE II -- DEFINITIONS
Unless the context clearly indicates otherwise, the following terms shall
have the following meanings:
2.1 "Accrued Retainer" means the amount of unpaid annual cash retainer fee
payable by the Corporation to any Director or former Director for services as
a director of the Corporation, which is accrued as of the Effective Date.
2.2 "Annual Retainer" means the annual cash retainer fee payable by the
Corporation to a Director for services as a director of the Corporation, as
such amount may be changed from time to time.
2.3 "Award" means an award granted to a Director under the Plan in the form
of Options or Shares, or any combination thereof.
2.4 "Board" means the Board of Directors of Sound Source Interactive, Inc.
2.5 "Corporation" means Sound Source Interactive, Inc.
2.6 "Director" means a director of the Corporation (and for purposes of
Section 9.1(a) only, a former director of the Corporation).
2.7 "Effective Date" has the meaning set forth in Article XII.
2.8 "Fair Market Value" means, with respect to the value of the Shares on
any date: (i) if the principal market for the Common Stock is a national
securities exchange or if the Shares are quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the closing sales
price of the Shares on such day as reported by such exchange or NASDAQ, or on
a consolidated tape reflecting transactions on such exchange or NASDAQ; or
(ii) if the principal market for the Shares are not a national securities
exchange and the Shares are not quoted on NASDAQ, the mean between the highest
bid and lowest asked prices for the Shares on such day as reported by the
National Quotation Bureau, Inc.; provided that if clauses (i) and (ii) of this
paragraph are all inapplicable, or if no trades have been made or no quotes
are available for such day, the Fair Market Value of the Shares shall be
determined by the Board of Directors or the Committee, as the case may be,
which determination shall be conclusive as to the Fair Market Value of the
Shares.
2.9 "Option" means an option to purchase Shares award under Article VIII or
IX which does not meet the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended, or any successor law.
2.10 "Option Grant Date" means the date upon which an Option is granted to a
Director.
2.11 "Optionee" means a Director of the Corporation to whom an Option has
been granted or, in the event of such Director's death prior to the expiration
of an Option, such Director's executor, administrator, beneficiary or similar
person, or, in the event of a transfer permitted by Article VII hereof, such
permitted transferee.
1
<PAGE>
2.12 "Plan" means the Sound Source Interactive, Inc. 1999 Director Stock
Plan, as amended and restated from time to time.
2.13 "Shares" means shares of the common stock, par value $.001 per share,
of the Corporation.
2.14 "Stock Award Date" means the date on which Shares are awarded to a
Director.
2.15 "Stock Option Agreement" means a written agreement between a Director
and the Corporation evidencing an Option.
ARTICLE III -- ADMINISTRATION OF THE PLAN
3.1 ADMINISTRATOR OF THE PLAN. The Plan shall be administered by the
Compensation Committee of the Board (the "Committee").
3.2 AUTHORITY OF COMMITTEE. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and
administer the Plan, and (ii) designate persons other than members of the
Committee to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be
made in accordance with the Committee's best business judgment as to the best
interests of the Corporation and its stockholders and in accordance with the
purposes of the Plan. The Committee may delegate administrative duties under
the Plan to one or more agents as it shall deem necessary or advisable.
3.3 DETERMINATIONS OF COMMITTEE. A majority of the Committee shall
constitute a quorum at any meeting of the Committee, and all determinations of
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or a meeting of the
Committee by a written consent signed by all members of the Committee.
3.4 EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee or the
Board shall be personally liable for any action or determination made in good
faith with respect to the Plan or any Award or to any settlement of any
dispute between a Director and the Corporation. Any decision or action taken
by the Committee or the Board with respect to an Award or the administration
or interpretation of the Plan shall be conclusive and binding upon all
persons.
ARTICLE IV -- AWARDS UNDER THE PLAN
Awards in the form of Options shall be granted to Directors in accordance
with Article VIII. Deferred Contingent Shares may be granted to Directors in
accordance with Article IX. Each option granted under the Plan shall be
evidenced by a Stock Option Agreement.
ARTICLE V -- ELIGILIBITY
Directors (and, with respect to Deferred Contingent Shares issuable in
satisfaction of Accrued Retainers, former Directors) of the Corporation shall
be eligible to participate in the Plan in accordance with Articles VIII and
IX.
ARTICLE VI -- SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Article XII, the aggregate number of
Shares which may be issued upon the award of Shares and the exercise of
Options shall not exceed 1,000,000 Shares. To the extent that Shares subject
to an outstanding Option are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such Option or by
reason of the delivery of Shares (either actually or by attestation) to pay
all or a portion of the exercise price of such Option, then such Shares shall
again be available under the Plan.
2
<PAGE>
ARTICLE VII -- NONTRANSFERABILITY OF OPTIONS
All Options granted under the Plan shall not be transferable by a Director
during his or her lifetime and may not be assigned, exchanged, pledged,
transferred or otherwise encumbered or disposed of except by court order, will
or by the laws of descent and distribution. Notwithstanding the foregoing, in
the event Options may be transferable without failing to comply with Rule 16b-
3 under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"),
then each Option shall be transferable to the extent set forth in the related
Stock Option Agreement, as determined by the Committee (provided that all
Options granted under Article VIII with the same Option Grant Date shall have
identical provisions relating to the transferability of such Options). In the
event that any Option is thereafter transferred as permitted by the preceding
sentence, the permitted transferee thereof shall be deemed the Optionee
hereunder. Options shall be exercisable during the Optionee's lifetime only by
the Optionee or by the Optionee's guardian, legal representative or similar
person.
ARTICLE VIII -- OPTIONS
Each Director shall be granted Options, subject to the following terms and
conditions:
8.1 TIME OF GRANT. On the first business day of July of each year (or, if
later, on the date on which a person is first elected or begins to serve as a
Director), each person who is a Director shall be granted an Option to
purchase 10,000 Shares (which number shall be pro-rated if such Director is
first elected or begins to serve as a Director on a date other than the date
of an annual meeting of stockholders).
8.2 PURCHASE PRICE. The purchase price per Share under each Option granted
pursuant to this Article shall be 100% of the Fair Market Value per Share on
the Option Grant Date.
8.3 EXERCISE OF OPTIONS. Each Option granted pursuant to this Article shall
become exercisable as to 50% of the Shares subject to the Option on the first
anniversary of the Optoin Grant Date and as to the remaining 50% of the Shares
subject to the Option on the second anniversary of the Option Grant Date. In
no event shall the period of time over which the Option may be exercised
exceed ten years from the Option Grant Date. An Option, or portion thereof,
may be exercised in whole or in part only with respect to whole Shares.
Shares shall be issued to the Optionee pursuant to the exercise of an Option
only upon receipt by the Corporation from the Optionee of payment in full
either in cash or by surrendering (or attesting to the ownership of) Shares
together with proof acceptable to the Committee that such Shares have been
owned by the Optionee for at least six (6) months prior to the date of
exercise of the Option, or a combination of cash and Shares, in an amount or
having a combined value equal to the aggregate purchase price for the Shares
subject to the Option or portion thereof being exercised. The Shares issued to
an Optionee for the portion of any Option exercised by attesting to the
ownership of shares shall not exceed the number of Shares issuable as a result
of such exercise (determined as though payment in full therefore were being
made in cash) less the number of Shares for which attestation of ownership is
submitted. The value of owned Shares submitted (directly or by attestation) in
full or partial payment for the Shares purchased upon exercise of an Option
shall be equal to the aggregate Fair Market Value of such owned Shares on the
date of the exercise of such Option.
ARTICLE IX -- ELECTION TO RECEIVE CONTINGENT DEFERRED SHARES
9.1 PROCEDURE FOR ACCRUED RETAINER. On the Effective Date, Shares shall be
identified pursuant to this Article as being for the contingent benefit of
each Director for the full amount of the Accrued Retainer payable to such
Director.
9.2 ELECTION PROCEDURE FOR ANNUAL RETAINER.
(a) On the Effective Date, Shares shall be irrevocably identified
pursuant to this Article as being for the contingent benefit of each
Director for the full amount of the Annual Retainer payable to such
Director for the period commencing on the Effective Date and ending on June
30, 2000.
3
<PAGE>
(b) On the first business day of July of each year commencing with 2000,
Shares shall be identified pursuant to this Article as being for the
contingent benefit of each Director who, at least six (6) months prior
thereto, files with the Committee or its designee a written election to
receive Shares in lieu of all or a portion of such Director's Annual
Retainer. In the event a Director does not file a written election in
accordance with the preceding sentence by reason of becoming a Director
after the date which is six (6) months prior to the first business day of
July in any year, Shares shall be identified as being for the contingent
benefit of such Director as of the first day (the "Effective Election
Date") which is six (6) months after the date such Director files with the
Committee or its designee a written election to receive Shares in lieu of
all or a portion of such Director's Annual Retainer; provided, however,
that such an election may apply only to the portion of such Director's
Annual Retainer determined by multiplying such Director's Annual Retainer
by a fraction, the numerator of which is the number of days from and
including the Effective Election Date to and including the last day of the
period for which such Annual Retainer would otherwise be payable, and the
denominator of which is 365 or 366, as the case may be. An election
pursuant to the first sentence of this Section 9.2(b) may be revoked or
changed only on or prior to the date which is six (6) months prior to the
first business day of the following July. An election pursuant to the
second sentence of this Section 9.2(b) shall be irrevocable.
9.3 TERM OF DEFERRAL. Receipt of Shares identified as being for the
contingent benefit of a Director pursuant to Sections 9.1 or 9.2 shall be
deferred until such Director's retirement, resignation, disability, death or
termination (other than termination resulting in forfeiture as described in
Section 9.9), or in the event of emergency or necessity, as hereinafter
provided.
9.4 ACCOUNTING. The Committee shall cause records to be kept in the name of
each Director participating pursuant to Sections 9.1 or 9.2 which shall
reflect the number of contingent Shares deferred by that Director.
9.5 CONTINGENCY. Until and except to the extent that deferred Shares
hereunder are distributed to or vested in the Directors or beneficiaries from
time to time in accordance with orders of the Committee, the interest of each
Director and beneficiary therein is contingent only and is subject to
forfeiture as provided in Section 9.9. Title to and beneficial ownership of
the Shares, which the Corporation will identify as subject to its contingent
obligation hereunder, shall at all times remain in the Corporation; and no
Director or beneficiary shall under any circumstances acquire any property
interest in any specific assets of the Corporation.
9.6 METHOD OF PAYMENT.
(a) In order to meet its contingent Share obligation hereunder, the
Corporation shall each year set aside shares in an amount equal to the
total amounts deferred for such year under this Article IX.
(b) In the event of vesting, or upon the retirement, resignation,
disability, death or termination (other than termination resulting in
forfeiture as described in Section 9.9) of a Director, the number of
contingent deferred Shares payable to such Director of his beneficiary
shall be determined as of that date. If the Committee, in the exercise of
its discretion provided in Section 9.7, determines to make installment
distributions of such amount, the Corporation shall continue to set aside
Shares in an amount equal of the unpaid balance of such obligation to pay
Shares.
9.7 METHOD OF DISTRIBUTION. The Committee shall from time to time determine
the time and manner of making distributions of contingent deferred Shares in
case of the retirement, resignation, disability, or death of a Director or in
the event of an emergency or necessity affecting the personal or family
affairs of any Director of beneficiary of a deceased Director by such methods
as it shall find appropriate for providing incentive to Directors for their
continued service on behalf of the Corporation. Commencement of distribution
in each case may be deferred by the Committee, but (subject to Section 9.9)
not beyond one year after the retirement, disability or death of the Director
or, in the case of a Director who shall have resigned, not beyond one year
after such Director reaches the age of 65 or incurs a disability or dies. In
the case of a Director's death before distribution is completed, the balance
may be distributed in a lump sum or on an installment basis as the Committee
may determine.
4
<PAGE>
9.8 DESIGNATION OF BENEFICIARIES. Each Director shall have the right to
designate beneficiaries who are to succeed to such Director's contingent right
to receive future payments hereunder in the event of death. In case of the
failure of a Director to make a designation or the death of a designated
beneficiary without the Director having designated a successor, distribution
shall be made to the Director's estate. No designation of beneficiaries shall
be valid unless it is in writing, signed by the Director, dated, and filed
with the Committee. Beneficiaries may be changed without the consent of any
prior beneficiaries.
9.9 POSSIBLE FORFEITURE OF SHARES.
(a) The contingent right of a Director or beneficiary to receive deferred
Shares hereunder shall be forfeited upon the occurrence of any one or more
of the following events:
(1) If the Director is discharged for cause by the Corporation or a
subsidiary thereof; or
(2) If the Director shall enter into a business or employment which
the Committee determines to be (i) detrimentally competitive with the
business of the Corporation or a subsidiary, and (ii) substantially
injurious to the corporation's financial interests;
(b) The Committee may at any time and from time to time order all or any
part of the value of the contingent right of a Director or beneficiary to
receive future Shares to be vested and no longer subject to forfeiture, and
may order payment of the amounts so vested on dates specified in such
orders, if it finds such action appropriate in the circumstances.
9.10 NUMBER OF SHARES. The number of Shares identified pursuant to this
Article shall be the number of whole Shares equal to (i) the portion of the
Accrued Retainer or the Annual Retainer which pursuant to Sections 9.1 or 9.2
is payable in Shares, divided by (ii) the Fair Market Value per Share on the
date stock is identified as contingent deferred stock of the Director (which
will occur either on July 1st of the year of election or on the Effective
Date, whichever is applicable). Any fraction of a Share shall be disregarded
and the remaining amount of such Accrued Retainer or Annual Retainer, as
applicable, shall be paid to the Director in cash and shall not be deferred
pursuant to this Article.
9.11 CHARACTERIZATION OF THE RELATIONSHIPS BY THIS ARTICLE. Nothing
contained herein shall be deemed to create a trust of any kind or create any
fiduciary relationship. Shares identified hereunder shall continue for all
purposes to be treasury stock held by the Corporation, and no person other
than the Corporation shall, by virtue of the provisions of this Article IX,
have any interest in such Shares. To the extent that any person acquires a
right to receive Shares from the Corporation under this Article IX, such right
shall be no greater than the right of any unsecured general creditor of the
Corporation.
ARTICLE X -- AMENDMENT AND TERMINATION
The Board may amend the Plan from time to time or terminate the Plan at any
time; provided, however, that no action authorized by this Article shall
adversely change the terms and conditions of an outstanding Option without the
Optionee's consent and, subject to Article XII, the number of Shares subject
to an Option granted under Article VIII, the purchase price therefor, the date
of grant of any such Option and the termination provisions relating to such
Option, shall not be amended more than once every six (6) months, other than
to comply with changes in the Internal Revenue Code of 1986, as amended, or
any successor law, or the Employee Retirement Income Security Act of 1986, as
amended, or any successor law, or the rules and regulations thereunder.
ARTICLE XI -- ADJUSTMENT PROVISIONS
11.1 If the Corporation shall at any time change the number of issued Shares
without new consideration to the Corporation (such as by stock dividend, stock
split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other changes in corporate structure affecting the Shares) or
make a distribution of cash or property which has a substantial impact on the
value of issued Shares, the total number of Shares reserved for issuance under
the Plan shall be appropriately adjusted and the number of Shares covered by
each outstanding Option and the purchase price per Share under each
outstanding Option and the number of Shares underlying Options to be issued
annually pursuant to Section 8.1 shall be adjusted so that the aggregate
consideration payable to the Corporation and the value of each such Option
shall not be changed.
5
<PAGE>
11.2 Notwithstanding any other provision of the Plan, and without affecting
the number of Shares reserved or available hereunder, the Committee shall
authorize the issuance, continuance or assumption of outstanding Options or
provide for other equitable adjustments after changes in the Shares resulting
from any merger, consolidation, sale of assets, acquisition of property or
stock, recapitalization, reorganization or similar occurrence in which the
Corporation is the continuing or surviving corporation, upon such terms and
conditions as it may deem necessary to preserve Optionees' rights under the
Plan.
11.3 In the case of any sale of assets, merger, consolidation or combination
of the Corporation with or into another corporation other than a transaction
in which the Corporation is the continuing or surviving corporation and which
does not result in the outstanding Shares being converted into or exchanged
for different securities, cash or other property, or any combination thereof
(an "Acquisition"), any Optionee who holds an outstanding Option shall have
the right (subject to the provisions of the Plan and any limitation applicable
to the Option) thereafter and during the terms of the Option, to receive upon
exercise thereof the Acquisition Consideration (as defined below) receivable
upon the Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Option or portion thereof, as the case may be,
immediately prior to the Acquisition. The term "Acquisition Consideration"
shall mean the kind and amount of shares of the surviving or new corporation,
cash, securities, evidence of indebtedness, other property or any combination
thereof receivable in respect of one Share of the Corporation upon
consummation of an Acquisition.
ARTICLE XII -- EFFECTIVE DATE
The Plan shall be submitted to the stockholders of the Corporation for
approval at the next annual meeting of stockholders and, if approved by a
majority of all the votes cast at such annual meeting of stockholders, shall
become effective as of the date of such approval (the "Effective Date"). If
stockholder approval is not obtained at such annual meeting of stockholders,
the Plan shall be nullified.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUND SOURCE
INTERACTIVE, INC AND SUBSIDIARY FOR THE PERIOD JULY 1, 1999 THROUGH DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,546
<SECURITIES> 0
<RECEIVABLES> 426,694
<ALLOWANCES> (15,872)
<INVENTORY> 406,105
<CURRENT-ASSETS> 2,625,205
<PP&E> 730,913
<DEPRECIATION> (537,703)
<TOTAL-ASSETS> 2,831,644
<CURRENT-LIABILITIES> 4,213,385
<BONDS> 0
0
0
<COMMON> 5,888
<OTHER-SE> (3,533,627)
<TOTAL-LIABILITY-AND-EQUITY> 2,831,644
<SALES> 353,454
<TOTAL-REVENUES> 353,454
<CGS> 523,623
<TOTAL-COSTS> 1,004,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,874
<INCOME-PRETAX> (1,212,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,212,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,212,789)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
