SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549

                               FORM 10-KSB


[ ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

                                    OR


[X]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

        For the transition period from July 1, 2000 to March 31, 2001

                           Commission File No. 0-28604

                              TDK MEDIACTIVE, INC.
                              --------------------
                 (Name of Small Business Issuer in its Charter)


            Delaware                                    33-0557833
            --------                                    ----------
  (State or other jurisdiction of                     (I.R.S. Employer
   incorporation or organization)                      Identification No.)


    26115 Mureau Road, Suite B
       Calabasas, California                                91302
    --------------------------                              -----
 (Address of principal executive offices)                (Zip Code)

                                 (818) 878-0505
                                 ---------------
               (Issuer's telephone number including area code)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE

    SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                        Common Stock, par value $.001
                            Redeemable Warrants

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  [ ]     No   [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and such disclosure will not be contained, to
the best of the Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.   [  ]

State Issuer's revenues for its most recent nine months ended March 31, 2001:
$6,156,667

The aggregate market value of the common stock of the Issuer (the "Common
Stock") held by nonaffiliates, based on the market price at June 15, 2001, was
approximately $5,088,000.  As of June 15, 2001, there were 22,876,832 shares
of the Common Stock outstanding and 6,253,824 redeemable warrants were
outstanding.

Transitional Small Business Disclosure Format:       Yes  [ ]      No   [x]


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                     DOCUMENTS INCORPORATED BY REFERENCE


                                None


<PAGE>
<PAGE>
                                  INDEX



                                   PART I                             Page
                                                                      ----


ITEM 1.     DESCRIPTION OF BUSINESS..............................        4
ITEM 2.     PROPERTIES...........................................        9
ITEM 3.     LEGAL PROCEEDINGS....................................        9
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..        9


                                  PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            SHAREHOLDER MATTERS...................................      10
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS...................      11
ITEM 7.     FINANCIAL STATEMENTS..................................      15
ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE...................      15


                                 PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS......................................      16
ITEM 10.    EXECUTIVE COMPENSATION...............................      18
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT...........................................      21
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......      22


                                 PART IV

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K....................      24



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            SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 10-KSB contains statements that are based upon
certain estimates, projections and other forward-looking statements within the
meaning of the Securities Litigation Reform Act of 1995 with respect to TDK
Mediactive, Inc. (the "Company").  Forward-looking statements give our
expectations of forecast of future events.  These statements can be identified
by the fact that they do not relate strictly to historical or current facts.
They use words such as "estimate," "expect," "project," "plan," "believe,"
"anticipate" "intend," and other words and terms of similar meanings in
connection with disclosures of future operating or financial performance.  In
particular, these statements relate to future actions, prospective performance
or results of current and anticipated products, sales, efforts, expenses, the
outcome of contingencies such as legal proceedings, and financial results.

     All of the forward-looking statements contained in this Annual Report on
Form 10-KSB or in other Company publications may turn out to be wrong.  They
can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties.  Many such factors will be important in determining actual or
future results.  Consequently, no forward-looking statement can be guaranteed.
Our actual results may vary materially and there are no guarantees about the
performance of our publicly traded securities.

     We undertake no obligation to correct or update any forward- looking
statements, whether as a result of new information, future events or
otherwise.  Future disclosures on related subjects in our reports to the
Securities and Exchange Commission (the "SEC") may update some of our
disclosures (including Forms 10-QSB and 8-K filed in the future) contained
herein.

     Some of the facts that could cause uncertainties are:

     -     New competitors and intensification of price competition from other
           manufacturers of consumer software products and/or toy companies
           and the studio licensors themselves;

     -     New products that make our products and services obsolete;

     -     Inability to obtain additional capital as needed;

     -     Loss of customers;

     -     Technical problems with our products and services;

     -     Departure of key employees, and inability to attract new employees;

     -     Litigation and administrative proceedings;

     -     Departure or retirement of key executives; and

     -     Contracts tied to key executives and/or change in control.



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<PAGE>                             PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

     We are engaged primarily in developing, publishing, distributing and
marketing of interactive entertainment software primarily based on
well-recognized intellectual content.  This includes the development,
distribution, marketing and publishing of video games for console and handheld
electronic entertainment platforms. We also publish titles for personal
computers (PCs) and shipped our first products for platforms other than PCs in
September 2000. These products included two Sony PlayStation titles and one
Nintendo Game Boy Color title.  We intend to support most interactive software
categories, including children's, action, adventure, driving, fighting,
puzzle, role-playing, simulation, sports and strategy. Our customers include
Wal-Mart, Toys "R" Us, Electronics Boutique, Target, Kmart Stores, Babbages
Etc., Best Buy, Kay Bee Toys, other national and regional retailers, discount
store chains, specialty retailers and distributors.

    We are currently a Delaware corporation; we were formerly incorporated in
California in 1990 under the name Sound Source Interactive, Inc.  On May 16,
1994, Sound Source Interactive, Inc. merged with Basic Science Associates,
Inc., a publicly held Delaware corporation.  The merger was accounted for as a
reverse acquisition because stockholders of Sound Source maintained control of
the surviving entity Basic Science.  Concurrent with the merger, Basic Science
changed its name to Sound Source Interactive, Inc. (a Delaware corporation).
During September and November 2000, we sold 16,667,000 shares of our common
stock to TDK U.S.A. Corporation, which thereby acquired an approximately 74%
controlling interest in our Company, as described under Item 12 below.  TDK
U.S.A. is a wholly owned subsidiary of TDK Corporation, a publicly traded
Japanese corporation.  We then changed our name to "TDK Mediactive, Inc."  Our
principal executive offices are located at 26115 Mureau Road, Calabasas Hills,
California 91302, and our telephone number is (818) 878-0505. Our web site is
at www.tdk-mediactive.com.

     Our objective is to be a leading publisher of high quality consumer
oriented entertainment software for dedicated game console and handheld
formats such as Sony PlayStation(TM), PlayStation2(TM), Microsoft
Xbox(TM),Nintendo GameCube(TM), Game Boy Color(TM) and Game Boy Advance(TM)
systems.  To achieve this objective, we intend to:

     -  focus primarily on developing products with entertainment value which
        are based on popular culture, popular movies, television programming,
        home video franchises, and other intellectual characters or brands;
        develop a broad line of licensed and original products, upgrade
        successful products and develop product line extensions and
        complementary products;
     -  leverage studio relationships to develop cross-marketing promotional
        programs;
     -  promote trade name recognition; and
     -  pursue strategic alliances, joint ventures and acquisitions.

     Many of our products are based on the licensed content of major motion
picture studios and other intellectual property holders including Harvey
Entertainment, Vivendi Universal Studios, DreamWorks, Mattel and others. Our
license agreements for existing products and new products under development
include Shrek(TM), Robotech(TM), Casper(TM), The Land Before Time(TM), No
Rules(TM), and The Berenstain Bears(TM).  We are continuing the discussion and
negotiation of additional licenses to develop new, high quality software 
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products using content from such intellectual properties and creating original
characters and stories on which to base future consumer entertainment software

     The licensing contracts with the licensors/studios are generally five
years in duration.  The licenses are usually exclusive, worldwide and
typically allow for multiple titles to be produced in all applicable localized
languages to suit market needs by territory.  We seek licenses that have
strong brand awareness worldwide and/or franchises that receive or are
expected to receive, licensor support.

     In addition to the CD-ROM format, many of the licenses allow for digital
videodisc (DVD) and dedicated game console formats such as the Sony
PlayStation, PlayStation2, Microsoft Xbox and proprietary disc formats such as
Nintendo GameCube.  In addition, handheld systems such as Nintendo Game Boy
(Color and Advance), PDA (personal digital assistant), Pocket PCs and cellular
phone rights are included in some license agreements.  On July 22, 1998 we
signed a four-year Publishing license agreement with Sony Entertainment
Corporation of America to publish Sony PlayStation titles and on September 30,
1998 signed an additional agreement to become an authorized developer for the
PlayStation dedicated game console system.  Subsequently, we have also been
licensed for the Sony PlayStation2 Computer Entertainment System.  We are also
an authorized developer and publisher for the Microsoft Xbox and Nintendo Game
Boy (Color and Advance) handheld gaming systems and are anticipating adding
other interactive formats such as Nintendo's GameCube and new wireless
technologies such as cellular phone and broad-banned delivered consumer-based
entertainment.

The following sets forth information with respect to our platform licenses:

MICROSOFT XBOX
--------------
-  Signed: 10/17/00
-  Effective Date: 9/28/00
-  Term: Ends 3 years after commercial release of Xbox.

NINTENDO GAME BOY
-----------------
-  Signed: 12/19/00
-  Effective Date: 12/19/00
-  Term: Ends 3 years from Effective Date.

SONY PSX
--------
-  Signed: 7/22/98
-  Effective Date: 6/29/98
-  Term: Ends 4 years from Effective Date.

SONY PS2
--------
-  Signed: 6/14/00
-  Effective Date: 6/7/00
-  Term: Ends on 3/31/03 unless extended for additional one-year terms.

INDUSTRY BACKGROUND

     The home video game software market consists both of cartridge-based and
optical disc-based software for use solely on dedicated hardware systems
manufactured primarily by Microsoft, Sony and Nintendo. Until 1996, most
Software for dedicated platforms was sold in cartridge form. However, optical

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disc-based formats have become increasingly popular because they have
substantially greater data storage capacity and lower manufacturing costs than
cartridges. Nintendo introduced the first modern platform in 1985 using
"8-bit" technology. "8- bit" means that the central processing unit, or
"chip," on which the software operates is capable of processing data in 8-bit
units. Subsequent advances in technology have resulted in continuous increases
in the processing power of the chips that power the platforms. As the
technology of the hardware has advanced, the software designed for the
platforms has similarly advanced, with faster and more complex images, more
lifelike animation and sound effects and more intricate scenarios.  The larger
data storage capacity of optical discs enables them to provide richer content,
multiple languages and longer play.  Portable platforms are less sophisticated
technologically and do not require television monitors. Currently, the
non-portable Platforms being marketed are based primarily on 64-bit and
128-bit technology.

     We also expect to see other optical disc formats introduced over the next
few years.  Their capacity will allow for more information, such as multiple
languages and higher quality graphics to be formatted and stored on a single
disc.  Handheld video game systems such as  those manufactured by Nintendo
utilize an IC chip-based storage medium encased in a durable plastic
cartridge, which is manufactured in Japan. The IC chip based storage capacity
varies per game as dictated by sophistication and design demands of the
software.

     As consumer software has become a mass-market product, we believe it is
increasingly important for consumer software companies to have direct
relationships with retailers to market their products effectively to
consumers. We believe that in order to be successful, consumer software
companies must have international distribution (with products
produced/translated to local languages), a consumer-driven focus, a broad
offering of category-leading products, close relationships with distributors
and retailers, a recognized brand name and a cost-efficient business model.

     In response to these developments, increasing numbers of consumer
software products are being developed to address a broad range of consumer
interests and everyday tasks.  We believe that consumers are more frequently
purchasing software on impulse in the same way that they often buy books,
music CDs and motion picture videos.  With the increasing consumerization of
the software market, prices for consumer software products are now at impulse
price levels ranging from $9.99 to $49.99.  We believe that the distribution
channels for consumer software will continue to expand to include book and
music stores, toy stores, department stores, electronic stores, appliance
stores, video outlets, supermarkets, drug and discount stores, catalogs and
internet e-commerce stores. In addition, technology will soon allow for
broadband distribution of certain software products into households with "fast
internet access" on a pay per view or subscription basis similar to the cable
television industry.

PRODUCTS RELEASED

     The following tables set forth, for each platform, the titles we expect
to release in calendar 2001. We cannot assure you that each of the titles
anticipated for release will be released when scheduled, if ever.


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                       TITLES TO BE RELEASED IN 2001

TITLE                                      PLATFORM               DATE

The Land Before Time "Racing Adventure"      PSX              May(released)
Shrek " Fairy Tale FreakDown"                GBC              May(released)
Wendy "Every Witch Way"                      GBC              August
Lady Sia   Title to be announced             GBA              September
Casper  "Spirit Dimensions"                  PS2              October
No Rules "Get Phat"                          GBA              November
Pryzm "Chapter One: The Dark Unicorn"        PS2              November
Shrek   Title to be announced                XBOX             November

DISTRIBUTION

  North American Sales

     In late February 2001, we entered into sales representation agreements
with nine independent regional sales representatives. Simultaneously, we
terminated an exclusive sales representation agreement with Strategic
Marketing Partners and implemented a transition to a direct sales and
non-exclusive distribution model utilizing regional manufacture's
representatives.

  International Sales

     The majority of our international business is conducted via a
republishing and distribution agreement with TDK Europe to distribute software
titles throughout Europe and other territories.  We signed an expanded
worldwide agreement with TDK Europe on February 28, 2000. Under the terms of
the TDK Europe agreement, we are paid a republishing fee on each product sold.
All costs of localization of the product, product boxes and collateral
materials, as well as all costs of replication, marketing, warehousing and
fulfillment, are borne by TDK Europe. The success of the localization is
dependent upon the international appeal of certain of our products, growth of
the interactive software market internationally, the ability to successfully
localize and market the products and the ability to continue to obtain
licenses with worldwide appeal.

  Sales and Marketing

     By offering a portfolio of products, we believe that we can provide
retailers with an assortment of titles in categories of interest to consumers.
We also support our retailers, where applicable, by setting up special
displays, end caps and kiosks, executing targeted promotions and analyzing
sales trends to help build incremental sales.  We are currently developing a
variety of cross-marketing promotional programs with the movie studio
licensors and other licensees of movie, television, literary works and direct
to video titles.  These promotional programs may include discount coupons for
products in videocassettes, movie trailers in our software products, and
promotional contests with various motion picture studios. We are actively
seeking additional cross-promotion opportunities.  We believe that additional
revenues could be generated through our involvement in cross-promotional
efforts with studio partners, other licensees and direct sale programs,
although there can be no assurance that such will occur.

     Drawing upon established consumer marketing techniques, our marketing
department creates and executes high-impact merchandising programs with the
goal of maximizing each product's retail exposure.  We believe that
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consumer-driven marketing, high perceived value, competitive price points, and
easily identifiable packaging which emphasizes high-impact design and concise,
non-technical product information, lead to higher visibility and impulse
purchases of our products in retail stores.

     We provide product and technical support to our customers by telephone
and on-line via our web site www.tdk-mediactive.com.  We have also installed a
telephone system and a call-handling center to facilitate our response to
customer inquiries. Customer feedback is shared among other support
representatives and made available to product managers and producers for
development of future products.

  Development

     We seek to develop a broad line of products in sustainable market
categories in which a reasonable market share can be obtained. We believe that
our development model is consistent with industry standards, including high
product quality, reliable delivery schedules, cost containment and controlled
capital investment risk.

     Our in-house producers oversee the development of various products from
conception through completion, and control the content, design, scope and
development schedule. New product ideas are evaluated with each licensor based
upon upcoming theatrical and/or video and book releases, television
programming, market research on the subject matter, the type and demographics
of the target consumer, and the existence and characteristics of competitive
products.  We seek to design new products that incorporate all of the
important functions and features of the leading competitive products.  Once a
product is approved for development, a detailed design specification is
created that includes the product's features and a user interface that is
consistent with our other products.  Whenever practical, the software is
designed to incorporate technology used in existing products in an effort to
shorten the development cycle and improve quality and consistency.  The
overall product, including documentation, is designed to meet a manufacturing
specification that will meet margin requirements at consumer price points.

     Our producers then commence the development of the project through
independent external developers who utilize a team of programmers, sound
engineers, artists, animators, designers, writers and testers.  Internal
development efforts are focused primarily on product design and features,
consistent user interfaces and product quality consistency.  Development costs
associated with externally licensed technology are sometimes partially paid by
royalties based on net sales, which lowers our investment risk.  Our
agreements with independent developers normally grant us an exclusive
worldwide license to use the developers' source code.  We expect to continue
to outsource the majority of product development to qualified sources for the
foreseeable future.

     Products under development are extensively tested by our quality
assurance department, and must be approved by the licensor(s) before being
released for production.  The quality assurance department tests for bugs,
functionality and ease-of-use.  Producers are also responsible for reviewing
customer feedback, competitive products, product performance and market
positioning in order to introduce features that keep abreast of consumer
tastes and trends.

     We currently are the licensee under technology licenses with Microsoft
Corp., Apple Computer, Inc., Nokia, Macromedia, EchoMedia, Sony Entertainment
Corporation of America and Nintendo of America. We utilize technology provided

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by these licensors to develop and operate several of our products.

  Operations

     We control all purchasing, inventory, scheduling, order processing and
accounting functions related to our operations, with all production and
warehousing performed by independent contractors in accordance with our
specifications.  We intend to continue to invest in additional management
information systems and other capital equipment, which we believe to be
necessary to achieve operational efficiencies and support increasing sales
volumes.

     Our designated outside developers prepare master software discs and user
manuals.  Packaging design, duplication, printing of documentation and
packaging, as well as the assembly of purchased components and/or the shipment
of finished products, are performed by third parties in accordance with our
and or technology licensor specifications.  We have multiple sources for most
components, with assembly and shipping currently performed by several
independent fulfillment houses.  To date, we have not experienced any material
difficulties or delays in the production and assembly of our products.

  Competition

     The market for consumer software products is intensely and increasingly
competitive.  Our competitors range from companies with limited resources to
companies with substantially greater financial, technical and marketing
resources than those of ours.  Existing consumer software companies have
broadened their product lines and compete with our products.  In addition, new
competitors, including computer hardware and software manufacturers,
diversified media companies, toy companies and the platform licensors, have
entered the consumer software market, resulting in greater competition for us.

     Only a small percentage of products introduced in the consumer software
market achieve any degree of, or have sustained, market acceptance.  Principal
competitive factors in marketing consumer software include product features,
quality, reliability, trade name and licensed title recognition, ease-of-use,
merchandising, access to distribution channels and retail shelf space,
marketing, price and the availability and quality of support services.  We
believe that we compete effectively in these areas, particularly in the areas
of quality, brand recognition, ease-of-use, merchandising, access to
distribution channels, retail shelf space and price.

     We consider Sony, Nintendo, Microsoft, THQ, BAM!, Activision, Eidos,
Infogrames, Vivendi-Universal, Acclaim, Take-Two, Konomi and Disney to be our
chief competitors.

  Proprietary Rights and Licenses

     We regard our software as proprietary and rely primarily on a combination
of trademark, copyright and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights.

     Our products are based primarily upon the licensed content of major
motion picture studios under exclusive license agreements.  All of such
license agreements to which we currently are a party are for fixed terms,
which will expire over the next five years.  Additionally, we attempt to
obtain in all of our agreements automatic renewals based on achievement of
certain milestones, and/or the right of first refusal and last negotiation for
additional products utilizing the same characters.  We anticipate that in most

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cases the licensor under each agreement will extend our terms, although no
licensor is required to extend any license. Provided that we are in compliance
with all requirements of each license, including most significantly that we
have satisfied the applicable minimum royalty guarantees, the licensor cannot
prematurely cancel a license.

  Employees

     As of June 15, 2001, we had 33 full-time employees, including 7 employees
in sales and marketing, 17 employees in product development and customer
support, and 9 employees in administration and finance. None of our employees
are represented by a labor union or are subject to a collective bargaining
agreement and we believe that our relations with our employees are good.

ITEM 2.  DESCRIPTION OF PROPERTY.

     We currently lease approximately 8,600 square feet of office and
warehousing space in Calabasas, Los Angeles County, California, under a lease
that expires on May 31, 2002.  We currently expect that these facilities will
be sufficient for our needs at least through the term of the lease.

ITEM 3.  LEGAL PROCEEDINGS.

     Although we may be a party to legal proceedings from time to time, such
legal proceedings have been ordinary and incidental to our business and have
not had a material adverse effect on us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Matters submitted to a vote of security holders during the fiscal quarter
ended March 31, 2001 are as follows:

     On February 12, 2001, we held our annual meeting of stockholders where
the stockholders elected the five persons to the Board of Directors.  The
results of the voting for directors were as follows:

                                       Affirmative      Negative      Non-
                                          Votes           Votes     Votes(1)
                                       -----------      --------    --------
     -  Kenichi Aoshima                19,857,355        1,000     3,018,477
     -  Vincent J. Bitetti             19,857,355        1,000     3,018,477
     -  Masatoshi Shikanai             19,857,355        1,000     3,018,477
     -  Shin Tanabe                    19,857,355        1,000     3,018,477
     -  John T. Wholihan               19,857,355        1,000     3,018,477

(1) Includes abstentions.

     In addition, at the annual meeting, the stockholders ratified the
appointment of BDO Seidman, LLP as our independent auditors for the fiscal
year ended March 31, 2001.  The results of the voting for ratification of BDO
Seidman, LLP included 19,851,605 affirmative votes; 73,685 negative votes and
2,951,542 non-votes including abstentions.

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                                 PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Our common stock and redeemable warrants were traded on the NASDAQ Small
Cap Market under the symbols "SSII" and "SSIIW," for the period from July 2,
1996 to September 3, 1999.  On September 3, 1999, our securities were delisted
from the NASDAQ Small Cap Market, and on that date the common stock commenced
trading on the OTC Bulletin Board.  Effective with our name change in December
2000, our trading symbols were changed to "TDKM" and "TDKMW" for the common
stock and redeemable warrants.  The redeemable warrants, however, do not
presently trade on any market other than the "pink sheets". The following
table sets forth the range of the bid prices for the common stock and
redeemable warrants during the periods indicated, and represents interdealer
prices, without retail mark-ups, mark-downs or commissions to the
broker-dealer, and may not represent actual transactions.


                Common Stock                              High     Low
                                                          ----     ---

                1999      Third Calendar Quarter          0.69     0.25
                          Fourth Calendar Quarter         0.59     0.25
                2000      First Calendar Quarter          0.52     0.28
                          Second Calendar Quarter         0.69     0.22
                          Third Calendar Quarter          0.97     0.31
                          Fourth Calendar Quarter         0.56     0.20
                2001      First Calendar Quarter          0.40     0.27
                          Second Calendar Quarter
                           (through June 20, 2001)        1.17     0.21

               Redeemable Warrants                        High     Low
                                                          ----     ---

                1999      Third Calendar Quarter          0.09     0.01
                          Fourth Calendar Quarter         0.02     0.01
                2000      First Calendar Quarter          0.05     0.01
                          Second Calendar Quarter         0.06     0.01
                          Third Calendar Quarter          0.06     0.01
                          Fourth Calendar Quarter         0.02     0.01
                2001      First Calendar Quarter          0.05     0.02
                          Second Calendar Quarter
                           (through June 20, 2001)        0.21     0.01

     As of June 15, 2001, there were approximately 165 holders of record of
the common stock and 64 holders of record of the redeemable warrants.
Nominees who hold stock certificates for an unknown number of beneficial
owners hold most such securities in street name.  We have never paid cash
dividends on our common stock.  We currently intend to retain earnings, if
any, for use in our operations and do not anticipate payment of cash dividends
in the foreseeable future.

     During September and November 2000, we sold equity securities that were
not registered under the Securities Act of 1933, which include 16,667,000
shares of common stock issued to TDK U.S.A. at $0.30 per share or an aggregate
amount of $5,000,100.  Such securities were issued pursuant to the exemption
from the registration requirements of the Securities Act of 1933 afforded by
Section 4(2) thereof.

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     During the three months ended December 31, 2000, we issued equity
securities that were not registered under the Securities Act of 1933, which
include 250,416 shares of common stock issued to directors of the Company in
lieu of accrued directors' fees of $90,000.  Such securities were issued
pursuant to the exemption from the registration requirements of the Securities
Act of 1933 afforded by Section 4(2) thereof.

     During the three months ended March 31, 2001, we issued equity securities
that were not registered under the Securities Act of 1933, which include
29,114 shares of common stock issued to an officer of the Company in lieu of
accrued cash compensation of $10,000.  Such securities were issued pursuant to
the exemption from the registration requirements of the Securities Act of 1933
afforded by Section 4(2) thereof.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

     The following is a discussion of our consolidated financial condition and
results of operations.  As discussed earlier, we have changed our fiscal year
end from June 30 to March 31.  This Form 10-KSB is for the transitional period
from July 1, 2000 to March 31, 2001.  Accordingly, the discussion of
operations compares the nine months ended March 31, 2001 to the nine months
ended March 31, 2000.  References in this document to the "Company" include
TDK Mediactive, Inc. and its wholly owned subsidiaries.  See "Special Note
Regarding Forward-Looking Statements."

     We are engaged primarily in developing, publishing, distributing and
marketing of interactive entertainment software primarily based on
well-recognized intellectual content.  This includes the development,
distribution, marketing and publishing of video games for console and handheld
electronic entertainment platforms. We also publish titles for PCs and shipped
our first products for platforms other than PCs in September 2000.  These
products included two Sony PlsyStation titles and one Nintendo Game Boy Color
title.  We intend to support most interactive software categories, including
children's, action, adventure, driving, fighting, puzzle, role-playing,
simulation, sports and strategy. Our customers include Wal-Mart, Toys "R" Us,
Electronics Boutique, Target, Kmart Stores, Babbages Etc., Best Buy, Kay Bee
Toys, other national and regional retailers, discount store chains, specialty
retailers and distributors.

     In late February 2001, we entered into sales representation agreements
with nine independent sales representatives.  Simultaneously, we terminated an
exclusive sales representation agreement with a national organization, and
implemented a transition to a direct sales and non-exclusive distribution
model utilizing regional representatives.

     REVENUE FLUCTUATIONS AND SEASONALITY. We have experienced, and may
continue to experience, significant quarterly fluctuations in net sales and
operating results due to a variety of factors. The software market is highly
seasonal with sales typically significantly higher during the fourth calendar
quarter (due primarily to the increased demand for interactive games during
the year-end holiday buying season).  Other factors that cause fluctuations
include the timing of our release of new titles, the popularity of both new
titles and titles released in prior periods, changes in the mix of titles with
varying profit margins, the timing of customer orders, the timing of shipments
by our contract manufacturers, fluctuations in the size and rate of growth of
consumer demand for software for various platforms, the timing of the
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introduction of new platforms and the accuracy of retailers' forecasts of
consumer demand.  Our expenses are based, in part, on our expectations of
future revenues and, as a result, operating results would be
disproportionately and adversely affected by a decrease in sales or a failure
by us to meet our sales expectations.

     RECOVERY OF PREPAID ROYALTIES, GUARANTEES AND CAPITALIZED DEVELOPMENT
COSTS. We typically enter into agreements with licensors of properties and
external developers of titles that require advance payments and/or guaranteed
minimum payments.  Minimum guaranteed royalty payments are initially recorded
as an asset (prepaid royalties) and as a liability (accrued royalties) at the
contractual amount upon execution of the contract.  Payments made to external
developers under software development agreements are capitalized.
Amortization of these payments and costs is determined on a title-by-title
basis at either the contractual royalty rate based on actual net product sales
or on the ratio of current units sold to total projected units whichever
amount is greater.  We analyze these capitalized costs quarterly and write-off
such costs when, based on our estimate, future revenues will not be sufficient
to recover such amounts.  If we were required to write-off prepaid royalties
or capitalized software development costs in excess of the amounts reserved,
our results of operations could be materially and adversely affected.

     DISCOUNTS, ALLOWANCES AND RETURNS; INVENTORY MANAGEMENT. In general,
except for PC titles, our arrangements with our distributors and retailers do
not give them the right to return products (other than damaged or defective
products) to us or to cancel firm orders.  We sometimes grant accommodations
to retailers and, less often, to distributors when demand for specific games
falls below expectations, in order to maintain our relationships with our
customers.  Arrangements made with distributors and retailers for PC titles do
customarily provide for product returns.

     At the time of product shipment, we establish allowances based on
estimates of future returns, customer accommodations and doubtful accounts
with respect to such products.  We base this amount on our historical
experience, retail inventories, the nature of the titles and other factors.
The identification by us of slow-moving or obsolete inventory, whether as a
result of requests from customers for accommodations or otherwise, would
require us to establish reserves against such inventory or to write-down the
value of such inventory to its estimated net realizable value.

     In December 1999, the SEC released Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements."  SAB 101 provides guidance
on the recognition, presentation and disclosure of revenue in the financial
statements field with the SEC.  The Company believes the adoption of SAB 101
has not had a material effect on the financial position, results of operations
or cash flows of the Company for the nine month ended_March 31, 2001.


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<PAGE>
RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO NINE MONTHS ENDED MARCH 31, 2000

     Results of operations for the nine months ended March 31, 2001 and 2000
     are as follows:

                                                     2001            2000
                                                     ----            ----
     Revenues:
       Product sales                             $ 4,312,852     $ 1,717,184
       Republishing fees                           1,843,815         400,000
                                                   ---------       ---------
         Net revenues                              6,156,667       2,117,184
                                                   ---------       ---------
     Costs and expenses
       Cost of sales                               4,081,562       2,216,305
       Product development                           425,235         423,005
       Sales and marketing                         1,044,259         688,969
       General and administrative                  1,690,112       1,157,963
                                                   ---------       ---------
         Total cost and expenses                   7,241,168       4,486,242
                                                   ---------       ---------
     Operating loss                               (1,084,501)     (2,369,058)

     Other income (expense), net                     219,327         (55,258)
                                                   ---------       ---------
     Loss before income taxes                     $ (865,174)   $ (2,424,316)
                                                   =========       =========

     NET REVENUES.  Net revenues increased 191% from $2,117,184 for the nine
months ended March 31, 2000 to $6,156,667 for the nine months ended March 31,
2001.  Sales of our software products increased by 151% from $1,717,184 in
2000 to $4,312,852 in 2001. The increase in sales is attributed to
approximately $800,000 increased sales of our CD-ROM software for PCs plus
approximately $2.0 million of sales of interactive software for video game
platforms (PlayStation and Game Boy Color).  We have established reserves for
product returns that we believe to be adequate based upon historical return
data and our analysis of current customer inventory levels and sell through
rates.

     We also recognized republishing fees in connection with a republishing
and distribution agreement with TDK Europe.  Revenue is recognized when
certain milestones and passage of time have occurred.  We recognized
$1,843,815 of such revenue during the nine months ended March 31, 2001 as
compared to $400,000 during the nine months ended March 31, 2000.  We have
approximately $5.1 million in deferred revenue at March 31, 2001 related to
this agreement. This agreement with TDK Europe extends through February 28,
2005.

     COST OF SALES.  Cost of sales increased from $2,216,305 during the nine
months ended March 31, 2000 to $4,081,562 during the nine months ended March
31, 2001, and decreased as a percentage of net revenues from 105% to 66%
during the same periods.  This decrease as a percentage of net revenues is
primarily attributed to the additional republishing fees that have nominal
cost associated with such revenue.  Cost of sales associated with sales of
video game software decreased as a percentage of sales from 129% during the
nine months ended March 31, 2000 to 95% during the same period in 2001.  The
improvement results primarily from higher volume during the fiscal 2001. 
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     GENERAL AND ADMINISTRATIVE.  General and administrative costs increased
from $1,157,963 during the nine months ended March 31, 2000 to $1,690,112
during the nine months ended March 31, 2001 but decreased as a percentage of
net revenues from 55% to 27%.  The improvement as a percentage of net revenues
is due to the higher volume.  The $532,149 increase is primarily attributable
to (i) increase payroll and related costs ($253,600); (ii) higher professional
fees ($56,600); and (iii) bad debt expense ($146,000).

     PRODUCT DEVELOPMENT.  Product development expenses were approximately the
same during each period.  As a percentage of net revenues, product development
expenses decreased from 20% in the prior period to 7% during the current
period.  The improvement resulted from the significant increase in net
revenues.

     SALES AND MARKETING.  Sales and marketing expenses increased by 52% from
$688,969 during the nine months ended March 31, 2000 to $1,044,259 during the
nine months ended March 31, 2001 and as a percentage of net revenues decreased
from 33% to 17%.  The increase in expenses is primarily due to costs
associated with higher volume and the expansion of our business from CD-ROM
for PCs to video game platforms.  We anticipate that for the foreseeable
future, marketing and sales expenses will increase in the aggregate and as a
percentage of net revenues as we continue to distribute products directly to
customers in North America.

     OTHER INCOME/EXPENSE.  Other income increased from an expense of $55,258
for the nine months ended March 31, 2000 to income of $219,327 for the nine
months ended March 31, 2001.  This increase in other income is largely due to
a settlement entered into during the current period with a major distributor
relating to outstanding claims for sales returns, which we disputed.  We had
accrued $660,972 at June 30, 2000 for such returns.  Subsequent to June 30,
2000, we reached an agreement to settle the outstanding claim in the amount of
$450,000, resulting in a reduction of the recorded liability in the amount of
$210,972.  During the prior period we incurred approximately $60,000 in
interest costs relating to short-term debt.

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000

     NET REVENUES.  Net revenues decreased by 43.3% from $4,624,540 during the
year ended June 30, 1999 to $2,623,520 during the year ended June 30, 2000.
Product sales of software products decreased by 46.3% from $4,556,442 during
the year ended June 30, 1999 to $2,446,412 during the year ended June 30,
2000.  The decrease in sales is attributed to our inability to sufficiently
fund operations through CD-ROM sales revenues in the absence of additional
financing and significant CD-ROM returns during the fiscal year. In addition,
we began to transition to the video game business which was being funded in
part via a series of advances from TDK Recording Media Europe.  Net revenues
during the year ended June 30, 2000 also included revenue of $437,500 from TDK
Recording Media Europe representing a non-refundable contract guarantee
against our international republishing and distribution agreement.  We
recognized revenue only when certain milestones and passage of time have
occurred.  We had $4,800,000 in deferred revenue at June 30, 2000 related to
these agreements.  We established reserve for product returns that we believe
to be adequate based upon historical return data and our analysis of current
customer inventory levels and sell through rates.

     COST OF SALES.  Cost of Sales decreased by 20.1% from $3,175,637 during
the year ended June 30, 1999 to $2,535,776 during the year ended June 30,
2000, and increased as a percentage of net revenues from 68% to 96% during the
same periods.  This decrease in cost of sales is attributable to the above

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noted 43.3% decrease in net revenues. The increase in cost of sales as a
percentage of revenues is primarily due to the transition of distribution
services from a major independent to direct distribution during the year ended
June 30, 2000 and also attributable to the write-off of obsolete inventory
product and prepaid royalties determined not to be recoverable in future
periods in the amounts of $131,032 and $608,818.

     GENERAL AND ADMINISTRATIVE.  General and administrative costs decreased
by 15% from $1,828,381 during the year ended June 30, 1999 to $1,549,877
during the year ended June 30, 2000 and increased as a percentage of net
revenues from 39% to 59%. The decrease of $278,504 is primarily attributable
to (i) the reducing payroll and related costs and (ii) stabilizing overhead
and administrative costs during the transition period.  The increase in
general and administrative costs as a percentage of net revenues is primarily
attributable to the 43% decrease in net revenues described above.

     PRODUCT DEVELOPMENT.  Product development expense decreased by 29% from
$1,356,867 during 1999 to $957,216 during 2000, and increased as a percentage
of net revenues from 29% to 37%.  The decrease in costs of $399,651 is
primarily related the limited new product releases during 2000 as we began to
develop new titles and platforms for introduction during the new fiscal year
of 2001.  The increase as a percentage of net revenues is primarily
attributable to a 43.3% decrease in net revenues. We believe that development
costs will increase as we develop additional children's products and as we
develop increasingly more complex products that contain additional features.

     SALES AND MARKETING.  Sales and marketing expenses decreased by 64% from
$2,177,248 during 1999 to $789,281 during 2000, and also decreased as a
percentage of net revenues from 47% to 30%.  This decrease was primarily due
to decreased costs associated with the cutback of internal sales and marketing
as we transitioned our business from CD-ROM to video game platforms and from
the termination of the distribution agreement described above.

     OTHER INCOME/EXPENSE. Other expense increased by 3.5% from $62,437 during
the year ended June 30, 1999 to $64,861 during the year ended June 30, 2000.
The increase was due primarily to an increase in miscellaneous expense, offset
by a decrease in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

     We incurred net losses of $867,574 and $3,275,890 for the nine months
ended March 31, 2001 and the fiscal year ended June 30, 2000.  We have not
historically generated sufficient cash flows to fund operations, and have had
to rely on debt and equity financings to fund operations.  We had working
capital of $175,819 at March 31, 2001 and negative working capital of
$1,360,022 at June 30, 2000.

     Our cash and cash equivalents increased to $438,555 at March 31, 2001
from $165,227 at June 30, 2000.  Cash utilized in operating activities during
the nine months ended March 31, 2001 amounted to $4,707,913 compared to
$360,583 utilized in operating activities during the year ended June 30, 2000.
The significant increase relates to a significant increase in our operations
and investments in software development costs ($2,533,971) on newly released
and upcoming titles and higher receivable levels ($1,009,970).  Additionally,
during the prior period, we received substantial advances on foreign
republishing fees ($3,540,707).

     Although we have experienced a significant increase in growth during the
last nine months as compared to the prior fiscal year, we continue to search

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for new opportunities to obtain licenses and develop and sell products.  We
are expanding from the PC platform to embrace dedicated game console platforms
such as Sony PlayStation, PlanStation2, Microsoft Xbox and Nintendo Game Boy
and GameCube systems.  We are continually seeking new distributors and
innovative ways to deliver our products to consumers, most of which will
require large up-front cash resources.

    September 8, 2000, we entered into a common stock purchase agreement with
TDK U.S.A. pursuant to which TDK U.S.A. purchased a total of 16,667,000 shares
of our common stock for the purchase price $.30 per share or an aggregate
purchase price of $5,000,100.  We utilized the net proceeds from the sale of
common stock for general working capital purposes.

     On March 29, 2001 we entered into an $8.0 Million loan and security
agreement with TDK U.S.A.  The loan and security agreement provides for a
combination of cash advances and letters of credit relating to the purchase of
product not to exceed an aggregate amount of $8.0 million, and matures March
31, 2002, which will require us to either repay the loan at that time or
renegotiate the terms including an extension of time to repay the debt.  In
connection with the loan and security agreement, we granted TDK U.S.A. a
security interest in substantially all our assets.  The agreement provides for
interest to be paid monthly at the annual rate of the higher of (i) the rate
designated as "London Interbank Offered Rate" for a one month period as
published from time to time in The Wall Street Journal, Money Rates Section
plus two percent (2%) or (ii) the rate designated as the "Prime Rate" as
published from time to time in the Wall Street Journal, Money Rates Section
plus one percent (1%).  As of June 15, 2001, we have borrowed approximately
$4.6 million under the agreement.

     Our current business plan indicates that we will significantly expand our
operations during the next 12 to 36 months.  The expansion requires us to
commence the production of many titles that are planned for launch during
fiscal 2002 and 2003.  Accordingly, in addition to the remaining available
borrowings under the $8.0 million loan agreement, our business plan indicates
that we will need additional financing to fund planned expansion.  At the
present time we have not identified a source or sources for the additional
financing, although we are currently considering various alternatives.  There
is no assurance that we will be successful in obtaining required financing on
a timely basis and at terms acceptable to us.

NEW ACCOUNTING PRONOUNCEMENTS

     In October 2000, we adopted the Financial Accounting Standards Board SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The adoption of SFAS No. 133 has no effect on our
financial statements.

     In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, and Interpretation of APB
Opinion No. 25" (FIN. 44). The Interpretation is intended to clarify certain
problems that have arisen in practice since the issuance of APB No. 25,
"Accounting for Stock Issued to Employees." The effective date of the
interpretation was July 1, 2000. The provisions of the interpretation apply
prospectively, but they will also cover certain events occurring after
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<PAGE>
December 15, 1998 and after January 12, 2000. We believe the adoption of FIN.
44 has not had a material adverse effect on our current or historical
consolidated financial statements, but may affect future accounting regarding
stock option transactions.

ITEM 7.     FINANCIAL STATEMENTS.

     The information required by Item 7 is filed herewith under the
Consolidated Financial Statements of TDK Mediactive, Inc. and Subsidiaries
together with the report of BDO Seidman, LLP dated April 9, 2001 are attached
to this report (see Index to Financial Statements on page F-1).


ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     Not Applicable.



<PAGE>
<PAGE>
                                   PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

DIRECTORS

     Our Board of Directors is comprised of the following six members.  There
are no family relationships among any of our directors or executive officers.

     Shin Tanabe, age 48 was appointed to the Board in November 2000 and
became President on December 18, 2000.  Prior to December Mr. Tanabe was
Executive Director of TDK Europe since April 1999, where he was responsible
for a dedicated business unit for the entertainment software business
established in April 1999.  Mr. Tanabe served as TDK Europe's Sales Executive
Director from June 1995 to March 1999, and TDK Europe's Marketing Director
from June 1991 to May 1995.

     Vincent J. Bitetti, age 46, founded the Company in 1989.  Mr. Bitetti has
been a director and the Chief Executive Officer since 1994.   From 1994 until
November 12, 1999, Mr. Bitetti served as the Chairman of the Board.  Effective
November 12, 1999, Mr. Bitetti resigned as Chairman of the Board but remained
as a director.

     Kenichi Aoshima, age 55, was appointed to the Board in November 2000.
Mr. Aoshima has been the President and a director of TDK U.S.A. Corporation
since 1995.

     Frank Intiso, age 53, was appointed to the Board in March 2001.  In 1995
Mr. Intiso was appointed President and Chief Operating Officer of Falcon
Holding Group, Inc. ("Falcon").  Between 1982 and 1996, Mr. Intiso held the
positions of Executive Vice President and Chief Operating Officer of Falcon,
with responsibility for the day-to-day operations of all cable television
systems under the management of Falcon.  During this time period, all areas of
Falcon, including finance, marketing engineering, human resource, regulatory
and governmental affairs reported directly to Mr. Intiso. Prior to joining
Falcon, Mr. Intiso worked for eight years at an international accounting firm,
in their audit, tax, and consulting departments. Intiso has also taught
various business courses at California State University-Northridge  (CSUN).
Mr. Intiso holds a Bachelors of Science Degree from CSUN, a Master Degree in
Business Administration from UCLA, and is a Certified Public Accountant.

     Masatoshi Shikanai, age 51, was appointed to the Board in November 2000.
Since March 2001 Mr. Shikanai served as recording media and systems group
General Manager of TDK Japan.  Previously, Mr. Shikanai served as President of
TDK Europe since April 1999.  He served as TDK Europe's Executive
Vice-President, General Manager of Sales Division from April 1995 to April
1999, and as TDK Europe's Executive Director Corporate Strategies from January
1990 to March 1995.

     John T. Wholihan, age 63, has been a director since April 1998.  Mr.
Wholihan has been Dean of the College of Business Administration at Loyola
Marymount University since 1984.  Previously, he served for five years as an
Associate Dean at Bradley University, where he also served as Director of the
MBA Program and as Director of the Small Business Institute.  During this
period, he also taught in the areas of strategic management and international
business.  He was a Fulbright Scholar in Brazil in 1977. Mr. Wholihan holds a
B.S. from the University of Notre Dame, an MBA from Indiana University and a
Ph.D. from The American University.  He has published numerous articles and
other scholarly works. He is a member of several academic associations and

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honor societies, including the Academy of Management, the Small Business
Institute Directors Association, Beta Gamma Sigma and Alpha Sigma Nu.  He is
currently past president of the Western Association of Collegiate Schools of
Business and also the Association of Jesuit Colleges and Universities
Business Deans. He was the founding President of the International Association
of Jesuit Business Schools. He is a member of the Rotary Club of Los Angeles,
the Financial Executives Institute and the Jonathan Club. He has served on the
board of directors of several small companies and currently is a member of the
Board of Trustees of the TIP Funds, a family of publicly traded mutual funds.
He is the immediate past Chairman of the Board of Notre Dame Academy in Los
Angeles.

EXECUTIVE OFFICERS

     In addition to the individuals described below, executive officers
include Messrs. Tanabe and Bitetti.  All of our executive officers are
appointed by and serve at the discretion of the Board of Directors.

     Martin G. Paravato was appointed Chief Financial Officer on December 18,
2000.  From July 1967 to June 1996 he worked for BDO Seidman, LLP, an
international accounting firm, where he was a partner.  Mr. Paravato served as
Senior Vice President-Finance/Special Projects of Koo Koo Roo, Inc., a
publicly traded quick service food restaurant chain, from August 1996 to June
1998.  From July 1998 Mr. Paravato served as Chief Financial Officer,
Secretary and Treasurer of Skynet Holdings, Inc., an international courier
package delivery company.  From November 1999 until joining the Company, he
served as Chief Financial Officer of Multa Communications Corporation, a
privately held telecommunications company.  Mr. Paravato holds a Bachelor of
Science degree in Accounting from California State University at Northridge
and is a Certified Public Accountant.

     Eugene Code was appointed Vice President of Business Affairs and
Corporate Secretary on January 8, 1999 after having served in various
capacities since 1994.   While with the Company, Mr. Code has managed contract
administration and the international product-republishing program.  He
successfully negotiated our entry into the world market by coordinating
development of over 30 localized products.  He manages our efforts in support
of product localization initiatives to bring our products to market in as many
as 20 languages for distribution in over 60 countries.  Mr. Code joined us in
1994 with over 20 years of international contract management and
administration experience.  Prior to joining us, Mr. Code served in management
positions in the defense industry.

FILINGS UNDER SECTION 16(A)

     Based solely upon a review of the copies of the forms furnished to us and
written representations of our directors and executive officers, we believe
that all filing requirements applicable to our officers, directors and ten
percent beneficial owners were complied with during the nine months ended
March 31, 2001 with the following exception, Mr. Paravato's initial Form 3 was
filed one day late with the Securities and Exchange Commission.

     Pursuant to Section 16(a) of the Exchange Act, we are required to
identify any person who, at any time during fiscal year 2001, was a director
of TDK Mediactive, Inc., an executive officer of TDK Mediactive, Inc. or its
subsidiaries or beneficial owner of more than 10% of our Common Stock or any
other person who was subject to Section 16(a) of the Exchange Act with respect
to we that during fiscal 1999 failed to file on a timely basis with the SEC
any report required by Section 16(a) of the Exchange Act, which are on Form 3

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(an initial report of beneficial ownership of common stock) and on Form 4 and
Form 5 (relating to changes in beneficial ownership of common stock). Based
solely on a review of such Forms 3, 4 and 5, and amendments thereto, furnished
to we by the reporting persons known to it, as required by Exchange Act Rule
16a-3(e), no reporting person that was required during fiscal 2001 to comply
with Section 16(a) of the Exchange Act failed to comply with such requirements
other than Mr. Paravato.

ITEM 10.   EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation of our
Chief Executive Officer and each of our other executive officers and/or other
most highly compensated employees who received salary and bonus compensation
in excess of $100,000 for the fiscal years ended June 30, 1999 and 2000 and
for the nine months ended March 31, 2001 (the "Named Executives").

                        SUMMARY COMPENSATION TABLE
                                      Annual                 Long-Term
                                    Compensation             Compensation
                                 ------------------   ------------------------

Name and                Fiscal                   Stock Options  All Other
Principal Position       Year   Salary   Bonus(1)   Shares     Compensation(2)
-------------------     ------  ------   ------- ------------- ---------------
Vincent J. Bitetti       2001   286,349   45,542     500,000     25,220
Chief Executive Officer  2000   300,692   29,412           0     24,849
                         1999   240,000  132,500           0     23,288

Tanya Baker              2001    97,500   50,600           0      9,741
Vice President of Sales  2000   100,436        0      10,000     11,858
                         1999    61,167        0      15,000      4,682

(1)     The bonus paid in fiscal 1999 was earned in fiscal 1998 and $60,000
        of the bonus was accrued in fiscal 1998.

(2)     The amounts in this column consist of the following: (a) personal use
        of Company car: Mr. Bitetti - $12,000 (2001), $12,000 (2000), $12,000
        (1999); Ms. Baker - $3,600 (2001), $3,200 (2000), $1,400 (1999); (b)
        life insurance premiums: Mr. Bitetti - $ 8,920 (2001), $7,570 (2000),
        $6,358 (1999); (c) medical insurance premiums: Mr. Bitetti - $8,920
        (2001), $5,279 (2000), $4,930 (1999); Ms. Baker - $6,541, (2001),
        $8,658 (2000), $3,282 (1999).

  OPTION GRANTS

     The following table sets forth information regarding grants of options to

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and exercises of options by the Named Executives during the nine months ended
March 31, 2001.

                              OPTION GRANT TABLE
                     Number of   Percentage of
                     Securities  Total Options
                     Underlying  Granted To
                     Options     Employees In     Exercised Base  Expiration
Name                 Granted     Fiscal Year         Price          Date
-----                ----------  -------------    --------------  -----------
Vincent J. Bitetti   500,000 (1)    71.1%            $0.375        11/27/10
Tanya Baker             -             -                  -             -

(1)     These options are nonqualified stock options that vest in four equal
        annual installments of 125,000 shares each commencing November 27,
        2001.  The options will expire ten years from the date of grant,
        subject to earlier termination upon termination of the optionee's
        employment with us.  The exercise price was 100% of the fair market
        value of the common stock on the date of grant.

OPTION EXERCISES AND HOLDINGS

     The following table sets forth information concerning each exercise of a
stock option during the nine months ended March 31, 2001 by each of the Named
Executives and the number and value of unexercised options March 31, 2001.
<TABLE>
<CAPTION>
                                         Number of Shares
                     Number of           Underlying Un-           Value of Unexercised
                      Shares             exercised Options         In-the-Money Options
                        on      Value        at 3/31/01                at 3/31/01 (1)
Name                 Exercise  Realized Exercisable/Unexercisable Exercisable/Unexercisable
----                ---------- -------- ------------------------- -------------------------
<S>                      <C>      <C>       <C>                           <C>
Vincent J. Bitetti       0        $0        50,000 / 500,000              $0 / $0
Tanya Baker              0         0        25,000 / 0                    $0 / $0
</TABLE>

(1)     Market value of the shares covered by in-the-money options on
        March 31, 2001, less the option exercise price.

COMPENSATION OF DIRECTORS

     Each director who is not an employee was entitled to receive a director's
fee of $15,000 per year for the period through December 19, 2000 and was
reimbursed for out-of-pocket expenses incurred in connection with attendance
at meetings.  Thereafter, only independent, non-employee directors are
entitled to receive a director's fee of $5,000 per year, while all directors
are reimbursed for out-of-pocket expenses incurred in connection with
attendance at meetings.  We paid all director fees accrued through June 30,
2000, which totaled $120,000 in the aggregate, in 333,888 shares of common
stock. The purchase price for the common stock issuable in payment of such
director fees was $.3594 per share, which was the fair market value of the
common stock on December 29, 1999, the date on which the 1999 Director Stock
Plan was approved by our stockholders.

     In addition, pursuant to the 1999 Director Stock Plan, each non-employee
independent director receives nonqualified stock options to acquire 10,000
shares of common stock upon appointment as a director, and receives
nonqualified stock options to acquire an additional 10,000 shares of Common
Stock for each additional year that the non-employee director continues to
serve on the Board of Directors. Such options previously were granted pursuant
to our Amended and Restated 1995 Stock Option Plan.  Each option granted to a

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non-employee director vests and becomes exercisable as to 50% of the shares of
common stock subject to the option on the first anniversary date of the grant
and as to the remaining 50% on the second anniversary date of the grant, and
expires on the earlier of ten years from the date the option was granted, the
expiration of the 1995 Stock Option Plan or the 1999 Director Plan, as
applicable, or three weeks after the optionee ceases to be a director. The
exercise price of such options is equal to 100% of the fair market value of
the common stock subject to the option on the date on which such options are
granted. Each option is subject to the other provisions of the 1995 Stock
Option Plan or the 1999 Director Plan, as applicable.

EMPLOYMENT AGREEMENT   VINCENT BITETTI

     On November 27, 2000 we entered into an employment agreement with Vincent
J. Bitetti pursuant to which Mr. Bitetti currently is compensated and serves
as the Company's Chief Executive Officer.   The employment agreement entitles
Mr. Bitetti to receive an annual base salary of $253,000 effective November
27, 2000, subject to annual increases in accordance with the CPI Index
commencing on November 27, 2001.  Pursuant to this employment agreement, Mr.
Bitetti will be entitled to receive a bonus based upon the Board of Director's
evaluation of his performance, including, but not limited to, his performance
in achieving certain targets related to revenue, profit, marketing expenses,
sales volume, number of new-release product titles, product development
schedules and cost control.  In no event, however, shall the aggregate amount
of bonuses payable exceed $150,000 in any full one-year period.

     Pursuant to his employment agreement, Mr. Bitetti was granted options
under the Company's 1995 Stock Option Plan to purchase 500,000 shares of
Common Stock, of which options to purchase 125,000 shares vest each year over
the four-year term of the employment agreement.

     Mr. Bitetti is entitled to receive certain fringe benefits under his
employment agreement, including use of a Company automobile or automobile
allowance, $5,000,000 in life insurance coverage (provided that in no event
could the Company be required to pay a premium for such insurance in excess of
$7,500 per year) and the right to participate in the Company's customary
benefit plans. The employment agreement further provides that following the
voluntary or involuntary termination of his employment by the Company, Mr.
Bitetti would be entitled to two demand registration rights with respect to
the common stock held by or issuable to him.

     Mr. Bitetti was previously compensated in accordance with a restated
employment agreement, dated as of April 24, 1998, which provided annual base
salary of $240,000, subject to annual increases in accordance with the
Consumer Price Index commencing on April 27, 1999.  Accordingly, Mr. Bitetti
received annual base salary at the rate of $252,836 for the period July 1,
2000 through November 27, 2000.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the
ownership of the Common Stock as of June 15, 2001 by (i) each of our current
directors and the Named Executives, (ii) all directors and Named Executives
and other executive officers as a group and (iii) each person who is known to
we to own, of record or beneficially, more than five percent of the Common
Stock. Where the persons listed have the right to acquire additional shares of
Common Stock through the exercise of options or warrants within 60 days, such

<PAGE>
<PAGE>
additional shares are deemed to be outstanding for the purpose of computing
the percentage of outstanding shares owned by such persons, but are not deemed
to be outstanding for the purpose of computing the percentage ownership
interests of any other person. Unless otherwise indicated, each of the
stockholders shown in the table below has sole voting and investment power
with respect to the shares beneficially owned.

                                                Shares Beneficially Owned
                                                -------------------------
Name and Address of Beneficial Owner (1)         Shares          Percent
----------------------------------------         ------          -------
DIRECTORS
Vincent J. Bitetti........................    1,284,634 (2)       5.62%
Shin Tanabe...............................            0              0
Masatoshi Shikanai........................            0              0
Kenichi Aoshima...........................            0              0
Frank J. Intiso...........................            0              0
John T. Wholihan..........................       15,000 (3)          0

OTHER EXECUTIVES
Martin G. Paravato........................       65,000 (4)          0
Tanya Baker...............................       54,114 (5)          0
Eugene Code...............................       10,006 (6)          0
All directors and executive officers
   as a group.............................    1,428,754 (7)       6.25%

OTHER BENEFICIAL OWNERS
TDK U.S.A. Corporation....................   16,667,000 (8)      72.86%
TDK Corporation...........................   16,667,000 (8)      72.86%
-----------
*  Less than 1%

(1)  The address of the current directors and the other executives is 26115
     Mureau Road, Suite B, Calabasas, California 91302.  The address of TDK
     U.S.A. Corporation is 901 Franklin Avenue, Garden City, New York 11530.
     The address of TDK Japan is 1-13-1, Nihonbashi, Chuo-ku, Tokyo 103 Japan.

(2)  Includes 50,000 shares of Common Stock issuable to Mr. Bitetti under
     presently exercisable options. Also includes 100,000 shares of Common
     Stock, which Eric H. Winston is entitled to acquire from Mr. Bitetti
     pursuant to a presently exercisable option.

(3)  Includes 15,000 shares of Common Stock issuable upon exercise of
     presently exercisable options.

(4)  Includes 35,000 shares of Common Stock issuable upon exercise of
     presently exercisable options.

(5)  Includes 25,000 shares of Common Stock issuable upon exercise of
     presently exercisable options.

(6)  Includes 10,006 shares of Common Stock issuable upon exercise of
     presently exercisable options.

(7)  Includes 9 persons.

(8)  Based on information set forth in the Schedule 13D filed jointly by TDK
     Corporation and TDK U.S.A. Corporation with the Securities and Exchange
     Commission on September 21, 2000 and information set forth in the
     Schedule 13D/A filed jointly by TDK Corporation and TDK U.S.A.
     Corporation with the Securities and Exchange Commission on December 7,
     2000, such shares are owned of record by TDK U.S.A. Corporation, which is
     a wholly owned subsidiary of TDK Corporation.  Excludes all shares of
     Common Stock beneficially owned by Vincent J. Bitetti, as to which Mr.
     Bitetti has granted TDK U.S.A. Corporation an irrevocable proxy.

<PAGE>
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  TDK TRANSACTIONS

     On September 8, 2000, we entered into a common stock purchase agreement
with TDK U.S.A.  Pursuant to the TDK U.S.A. stock purchase agreement, on
September 11, 2000, TDK U.S.A. acquired 4,750,000 shares of our common stock,
par value $.001 per share, for an aggregate purchase price of $1,425,100, and
on November 27, 2000 TDK U.S.A. acquired an additional 11,917,000 shares of
common stock for an aggregate purchase price of $3,575,000.  Thus, pursuant to
the TDK U.S.A. stock purchase agreement, TDK U.S.A. has purchased a total of
16,667,000 shares of our common stock at a purchase price of $.30 per share
and an aggregate purchase price of $5,000,100.  TDK U.S.A. is a wholly owned
subsidiary of TDK Corporation, a publicly traded Japanese corporation.

     Contemporaneous with the second closing under the TDK U.S.A. stock
purchase agreement, on November 27, 2000 we filed an amendment to our
certificate of incorporation, which changed our name from "Sound Source
Interactive, Inc." to "TDK Mediactive, Inc." and increased the number of our
authorized shares of common stock from 20,000,000 to 50,000,000.  Stockholder
approval for the amendment to our certificate of incorporation was obtained by
written consent of the holders of a majority of our outstanding common stock
pursuant to Section 228 of the Delaware General Corporation Law.  Also
contemporaneous with the second closing under the TDK U.S.A. stock purchase
agreement, on November 27, 2000 Richard Azevedo, Mark A. James and Samuel L.
Poole each resigned as directors, and the resulting vacancies were filled by
the appointment by the remaining directors of nominees designated by TDK USA.
TDK U.S.A. currently owns approximately 73% of our outstanding common stock,
and accordingly has the ability to elect our entire Board.  The proceeds from
the issuance of common stock to TDK U.S.A. have been used for general
corporate purposes.  Simultaneous with the first closing under the TDK U.S.A.
stock purchase agreement, we entered into a registration rights agreement with
TDK U.S.A. pursuant to which we granted to TDK U.S.A. certain registration
rights with respect to the common stock purchased and owned by TDK U.S.A.
pursuant to the TDK U.S.A. stock purchase agreement.

     Furthermore, simultaneous with the first Closing under the TDK U.S.A.
stock purchase agreement, we entered into a lock-up agreement with TDK U.S.A.
and Vincent J. Bitetti, our Chief Executive Officer, whereby Mr. Bitetti
agreed to certain limitations on his rights to sell or otherwise transfer any
common stock that he now owns or may acquire pursuant to options that he now
holds.  The lock-up agreement provides that until November 27, 2001, Mr.
Bitetti may not sell or otherwise transfer any such common stock.  These
restrictions lapse as to 40% of such common stock owned by Mr. Bitetti on
November 27, 2002; as to an additional one-third of such Common Stock held by
Mr. Bitetti on the second anniversary of the Subsequent Closing; as to an
additional one-half of such common stock held by Mr. Bitetti on November 27,
2003; and as to all such remaining Common Stock held by Mr. Bitetti on
November 27, 2004.

     As a result of the consummation of the initial closing under the TDK
U.S.A. stock purchase agreement, the exercise price of our public warrants
decreased from $4.40 to $3.31 and the number of shares of common stock
issuable thereunder increased from one share to 1.329305136 shares (or from
6,253,824 shares to 8,313,240 shares in the aggregate).  As a result of the
consummation of the second closing under the TDK U.S.A. stock purchase
agreement, the exercise price of our public warrants decreased from $3.31 to
 
<PAGE>
<PAGE>
$2.18 and the number of shares of common stock issuable thereunder increased
from 1.329305136 shares to 2.018348614 shares (or from 8,313,240 shares to
12,622,397 shares in the aggregate).

     On March 29, 2001 we entered into an $8.0 million loan and security
agreement with TDK USA.  The TDK U.S.A. loan and security agreement provides
for a combination of cash advances and letters of credit relating to the
purchase of product not to exceed an aggregate amount of $8.0 million and
matures March 31, 2002.  In connection with the agreement, we granted TDK
U.S.A. a security interest in substantially all our assets.  The loan and
security agreement provides for interest to be paid monthly at the annual rate
of the higher of (i) the rate designated as "London Interbank Offered Rate
(LIBOR)" for a one-month period as published from time to time in The Wall
Street Journal, Money Rates Section plus 2% or (ii) the rate designated as the
"Prime Rate" as published from time to time in The Wall Street Journal, Money
Rates Section plus 1%.  As of June 15, 2001, we have borrowed $4.6 million
under the agreement.

     We have various republishing and distribution agreements with TDK Europe.
During the nine months ended March 31, 2001, TDK Europe paid us $1,975,000 and
during the year ended June 30, 2000, TDK Europe paid us $3,952,500 related to
these agreements.  Revenue is recognized either over a specified period of
time or when delivery of certain products has occurred.  During the nine
months ended March 31, 2001, we recognized $1,690,000 revenue and during the
year ended June 30, 2000; we recognized $437,500 revenue related to these
agreements.  At March 31, 2001 we have deferred (unearned) revenue amounting
to $5,102,500 related to these agreements.

VOTING AGREEMENTS

     Pursuant to an underwriting agreement dated July 1, 1996 pertaining to
our initial public offering, we granted the underwriters for such offering,
The Boston Group, L.P. and Joseph Stevens & Co., L.P., each the right to
nominate from time to time one director of we or to have an individual
designated thereby attend all Board meetings as a nonvoting advisor.  In
addition, Vincent J. Bitetti and Eric H. Winston agreed to vote all of their
Common Stock in favor of the two director nominees selected by the
underwriters.  The voting agreement with the underwriters will terminate on
July 8, 2001.

     Prior to the second closing under the TDK U.S.A. stock purchase agreement
described above, we and certain of our principal stockholders were subject to
various voting agreements that determined the composition of our Board of
Directors.  All such agreements terminated upon the second closing under the
TDK U.S.A. stock purchase agreement.  Except for the voting agreements with
The Boston Group, L.P. described in the preceding paragraph, which terminate
July 6, 2001, neither we nor any of our principal stockholders now are subject
to any voting or control agreements.



<PAGE>
<PAGE>
                                 PART IV


ITEM 13.  EXHIBITS LIST AND REPORTS ON FORM 8-K.

     (a)    Exhibits.

Exhibit
   No.        Description of Exhibits
-------       -----------------------
3.1           Second Restated Certificate of Incorporation. [Filed as Exhibit
              3.1 to the Registration Statement on Form SB-2 No. 33-80827
              ("Registration Statement No. 33-80827") and incorporated herein
               by reference.]

3.2           Certificate of Amendment of Certificate of Incorporation. [Filed
              as Exhibit 3.1 to the Form 10-Q dated December 31, 2000 and
              incorporated herein by reference.]

3.3           Second Amended and Restated Bylaws. [Filed as Exhibit 3.2 to the
              Form 10-Q dated December 31, 2000 and incorporated herein by
              reference.]

4.1           Specimen Common Stock Certificate. [Filed as Exhibit 4.1 to
              Registration Statement No. 33-80827 and incorporated herein by
              reference.]

4.2           Form of Warrant Agreement between the Company and Corporate
              Stock Transfer, Inc., as warrant agent, and form of Redeemable
              Warrant. [Filed as Exhibit 4.2 to Registration Statement No.
              33-80827 and incorporated herein by reference.]

4.3           Form of Warrant Agreement between the Company and The Boston
              Group, LP and Joseph Stevens and Company, LP and form of
              Underwriters' Warrant. [Filed as Exhibit 4.3 to Registration
              Statement No. 33-80827 and incorporated herein by reference.]

4.4           Warrant dated April 30, 1996 issued to ASSI, Inc. [Filed as
              Exhibit 4.4 to Registration Statement No. 33-80827 and
              incorporated herein by reference.]

4.5           Form of Underwriting Agreement among the Company, Vincent J.
              Bitetti, Eric H. Winston and The Boston Group, LP and Joseph
              Stevens & Co., LP, as underwriters. [Filed as Exhibit 1 to
              Registration Statement No. 33-80827 and incorporated herein by
              reference.]

10.1          TDK Mediactive, Inc. 1992 Stock Option Plan. Filed as Exhibit
              10.4 to Registration Statement No. 33-80827and incorporated
              herein by reference.]

10.2          TDK Mediactive, Inc. 1995 Stock Option Plan, as amended. [Filed
              as Exhibit A to the Registrant's Proxy Statement on Schedule 14A
              dated June 8, 1998 and incorporated herein by reference.]

10.3          1999 Director Stock Plan. [Filed as Exhibit 10.2 to the
              Registrant's Quarterly Report on Form 10-QSB for the quarter
              ended December 31, 1999 and incorporated herein by reference.]

<PAGE>
<PAGE>
10.4          Warrant Agreement, dated as of September 26, 1995, among the
              Registrant, TDK Mediactive, Inc., a California corporation (the
              "Subsidiary") and Financial West Group, Inc., corporation
              ("FWG"), as warrant agent. [Filed as Exhibit 10.6 to
              Registration Statement No. 33-80827 and incorporated herein by
              reference.]

10.5          Warrant Agreement, dated as of June 30, 1995, between the
              Registrant and FWG, as warrant agent. [Filed as Exhibit 10.7 to
              Registration Statement No. 33-80827 and incorporated herein by
              reference.]

10.6          Indemnification Agreement, dated as of January 1, 1996, between
              the Registrant and Vincent J. Bitetti. [Filed as Exhibit 10.35
              to Registration Statement No. 33-80827 and incorporated herein
              by reference.]

10.7          Office Lease, dated as of March 4, 1997, between Arden Realty
              Limited Partnership and the Registrant. [Filed as Exhibit 10.24
              to the Registrant's Registration Statement on Form SB-2 No.
              333-24271 ("Registration Statement No. 333-24271") and
              incorporated herein by reference.]

10.8          Indemnification Agreement, dated as of April 27, 1998, between
              the Registrant and John Wholihan. [Filed as Exhibit 10.32 to the
              1998 Form 10-KSB and incorporated herein by reference.]

10.9          Distribution and Republishing Agreement, dated as of November 1,
              1998, between the Registrant and TDK Recording Media Europe
              S.A. [Filed as Exhibit 10.21 to the 1999 Form 10-KSB and
              incorporated herein by reference.]

10.10         Addendum to Distribution and Republishing Agreement, dated as of
              March 1, 1999, between the Registrant and TDK Recording Media
              Europe. [Filed as Exhibit 10.22 to the 1999 Form 10-KSB and
              incorporated herein by reference.]

10.11         Exclusive Distribution Agreement, dated February 28, 2000,
              between TDK Recording Media S.A. and the Registrant. [Filed as
              Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-QSB
              for the quarter ended March 31, 2000 and incorporated herein by
              reference.]

10.12         Purchase Agreement, dated September 8, 2000, between TDK U.S.A.
              Corporation and the Registrant. [Filed as Exhibit 10.1 to the
              Registrant's Form 8-K Report dated September 8, 2000 (the
              "September 2000 Form 8-K") and incorporated herein by
              reference.]

10.13         Registration Rights Agreement, dated as of September 8, 2000,
              between TDK U.S.A. Corporation and the Registrant. [Filed as
              Exhibit 10.3 to the September 2000 Form 8-K and incorporated
              herein by reference.]

10.14         Lock-Up Agreement, dated September 8, 2000, between Vincent J.
              Bitetti and the Registrant. [Filed as Exhibit 10.2 to the
              September 2000 Form 8-K and incorporated herein by reference.]
    
<PAGE>
<PAGE>
10.15         Employment Agreement of Vincent J. Bitetti dated as of November
              27, 2000. [Filed as Exhibit 10.1 to the Form 10-Q dated December
              31, 2000 and incorporated herein by reference.]

10.16         Indemnification Agreement, dated as of March 27, 2001, between
              the Registrant and Frank J. Intiso.[Filed herewith.]

10.17         Loan Agreement, dated as of March 29, 2001, by and between the
              Registrant and TDK U.S.A. Corporation [Filed as Exhibit 10.1 to
              the Form 8-K Report dated April 10, 2001 and incorporated herein
              by reference.]

21.1          Subsidiaries of the Registrant. [Filed herewith.]

23.1          Consent of BDO Seidman, LLP. [Filed herewith.]

              (b)     Reports on Form 8-K

                      Current report on Form 8-K dated April 10, 2001,
                      reporting under item 5.



<PAGE>
<PAGE>
                                SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the issuer has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.


Date:  June 27, 2001                          TDK MEDIACTIVE, INC.


                                             By:  /s/ Vincent J. Bitetti
                                                --------------------------
                                                      Vincent J. Bitetti,
                                                      Chief Executive Officer

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the issuer in the capacities and on the
dates indicated.

    Signature                     Title                            Date
    ---------                     -----                            ----

/s/ Shin Tanabe           President and Director
---------------------     (principal executive officer)          June 27, 2001
Shin Tanabe

/s/ Vincent J. Bitetti    Chief Executive Officer and Director   June 27, 2001
-----------------------
Vincent J. Bittetti

/s/ Martin G. Paravato    Chief Financial Officer
-----------------------   (principal accounting officer)         June 27, 2001
Martin G. Paravato

/s/ Kenichi Aoshima        Director                              June 27, 2001
-----------------------
Kenichi Aoshima

/s/ Masatoshi Shikanai     Director                              June 27, 2001
------------------------
Masatoshi Shikanai

/s/ Frank J. Intiso        Director                              June 27, 2001
------------------------
Frank J. Intiso

/s/ John T. Wholihan       Director                              June 27, 2001
------------------------
John T. Wholihan

<PAGE>
<PAGE>
                TDK MEDIACTIVE, INC. AND SUBSIDIARIES


                          TABLE OF CONTENTS




                                                                        Page
                                                                        ----
Report of Independent Certified Public Accountants                      F-2

CONSOLIDATED FINANCIAL STATEMENTS:

     Balance Sheets at March 31, 2001 and June 30, 2000                 F-3

     Statements of Operations for the nine months ended
       March 31, 2001 and the year ended June 30, 2000                  F-4

     Statements of Stockholders' Deficit for the nine months
       ended March 31, 2001 and the year ended June 30, 2000            F-5

     Statements of Cash Flows for the nine months ended
       March 31, 2001 and the year ended June 30, 2000                  F-6

     Notes to Consolidated Financial Statements                         F-7















                                    F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
TDK Mediactive, Inc.
Los Angeles, California

We have audited the accompanying consolidated balance sheets of TDK
Mediactive, Inc. and Subsidiaries (formerly known as Sound Source Interactive,
Inc.) as of March 31, 2001 and June 30, 2000, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the nine
months ended March 31, 2001 and the year ended June 30, 2000.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of TDK Mediactive, Inc. and
Subsidiaries at March 31, 2001 and June 30, 2000, and the results of their
operations and their cash flows for the nine months ended March 31, 2001 and
the year ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.



BDO SEIDMAN, LLP


Los Angeles, California
April 9, 2001






                                    F-2
<PAGE>
<PAGE>
                     TDK MEDIACTIVE, INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
                                                    March 31,        June 30,
                                                      2001             2000
                                                    ---------        --------
ASSETS (Note 6)
CURRENT ASSETS:
     Cash and cash equivalents                  $     438,555   $     165,227
     Accounts receivable, less allowances of
       $138,220 and $1,271 for possible losses,
       and $105,400 and $0 for returns and
       allowances                                   1,285,218         275,248
     Inventories, net (Note 4)                        467,050         209,716
     Prepaid royalties                                952,269         611,275
     Prepaid expenses and other                        39,154          80,869
     Software development costs (Note 2)            3,850,773       1,316,802
     Total current assets                           7,033,019       2,659,137
                                                    ---------      ----------

PROPERTY AND EQUIPMENT, net (Note 5)                  326,252         144,520

OTHER ASSETS                                           87,923          13,733
                                                    ---------      ----------

TOTAL                                             $ 7,447,194     $ 2,817,390
                                                    =========      ==========


LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Accounts payable and accrued expenses        $ 1,218,757     $ 1,785,296
     Accrued royalties                              1,668,225       1,295,715
     Loan payable to related entities (Note 6)        410,147               -
     Capital lease obligation, current portion          7,571           4,025
     Deferred revenue, current portion              3,552,500         937,123
                                                    ---------       ---------
     Total current liabilities                      6,857,200       4,022,159

DEFERRED REVENUE, long-term portion (Note 6)        1,550,000       3,917,500
CAPITAL LEASE OBLIGATIONS (Notes 7)                    28,526           4,024
                                                    ---------       ---------
     Total liabilities                              8,435,726       7,943,683
                                                    ---------       ---------
COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' DEFICIT (Notes 8 and 9):
     Common stock, $.001 par value; 50,000,000
      shares authorized; 22,876,832 and 5,911,796
      shares issued and outstanding                    22,877           5,912
     Warrants                                         559,928         559,928
     Additional paid-in capital                    19,304,629      14,316,259
     Accumulated deficit                          (20,875,966)    (20,008,392)
                                                   ----------      ----------
     Total stockholders' deficit                     (988,532)     (5,126,293)
                                                   ----------      ----------
TOTAL                                            $  7,447,194    $  2,817,390
                                                  ===========      ==========

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>
<PAGE>
                      TDK MEDIACTIVE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------

                                                  Nine months        Year
                                                     ended           ended
                                                 March 31,2001   June 20, 2000
                                                 -------------  --------------
REVENUES:
     Product sales                               $ 4,312,852     $ 2,148,130
     Republishing fees                             1,843,815         475,390
                                                  ----------      ----------
     Net revenues                                  6,156,667       2,623,520
                                                  ----------      ----------
COSTS AND EXPENSES
     Cost of sales                                 4,081,562       2,943,554
     Product development                             425,235         549,437
     Sales and marketing                           1,044,259         789,281
     General and administrative                    1,690,112       1,549,877
                                                   ---------       ---------
          Total costs and expenses                 7,241,168       5,832,149
                                                   ---------       ---------

OPERATING LOSS                                    (1,084,501)     (3,208,629)
                                                   ---------       ---------

OTHER INCOME (EXPENSE):
     Interest income                                  18,249           2,903
     Interest expense                                 (7,787)        (59,944)
     Other income (expense), net                     208,865          (7,820)
                                                    --------       ---------
     Total other income (expense)                    219,327         (64,861)
                                                    --------       ---------
Loss before provision for income taxes              (865,174)     (3,273,490)

PROVISION FOR INCOME TAXES (Note 10)                   2,400           2,400
                                                    --------       ---------
NET LOSS                                           $(867,574)    $(3,275,890)
                                                    ========       =========

BASIC AND DILUTED NET LOSS PER SHARE               $   (0.06)    $     (0.55)
                                                    ========      ==========


See accompanying notes to consolidated financial statements.


                                    F-4
<PAGE>
<PAGE>
                     TDK MEDIACTIVE, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                            Additional
                                Common Stock                 Paid-in   Accumulated
                            Shares     Amount   Warrants     Capital     Deficit        Total
                            ------     ------   --------    ----------  ---------       -----
<S>                       <C>          <C>      <C>        <C>         <C>           <C>
BALANCE, July 1, 1999     5,869,402    $5,869   $559,928   $14,302,877 $(16,732,502) $(1,863,828)

 Common stock options
  exercised                  42,394        43          -        13,382            -       13,425

 Net loss for period              -         -          -             -   (3,275,890)  (3,275,890)

BALANCE, June 30, 2000    5,911,796     5,912    559,928    14,316,259  (20,008,392)  (5,126,293)

 Common stock options
  exercised                  18,506        18          -           828            -          846

 Private placement -
  sale of stock (Note 8) 16,667,000    16,667          -     4,887,822            -    4,904,489

 Common stock issued
  for services (Note 8)     279,530       280          -        99,720            -      100,000

 Net loss for the period          -         -          -             -     (867,574)    (867,574)

BALANCE, March 31, 2001  22,876,832   $22,877   $559,928   $19,304,629 $(20,875,966) $  (988,532)
</TABLE>

See accompanying notes to consolidated financial statements.





                                        F-5
<PAGE>
<PAGE>
                     TDK MEDIACTIVE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
                                                  Nine months    Year ended
                                                   March 31,      June 30,
                                                      2001          2000
                                                  -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                      $  (867,574)  $ (3,275,890)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                    96,220        125,547
     Stock issued for services rendered              100,000              -
     Changes in operating assets and liabilities:
     Accounts receivable                          (1,009,970)       300,273
     Inventories                                    (257,334)       119,652
     Prepaid royalties                              (340,994)       632,614
     Software development costs                   (2,533,971)             -
     Prepaid expenses and other                       41,715     (1,135,384)
     Accounts payable and accrued expenses          (556,392)      (213,216)
     Accrued royalties                               372,510       (454,886)
     Deferred revenue                                247,877      3,540,707
                                                   ---------      ---------
     Net cash used in operations                  (4,707,913)      (360,583)
                                                   ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment             (277,952)       (16,744)
     Other assets                                    (43,090)         3,029
                                                   ---------      ---------
     Net cash used in investing activities          (321,042)       (13,715)
                                                   ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuances of common stock   4,904,489              -
     Proceeds from exercises of stock options            846         13,425
     Payments on capital lease obligations            (3,052)             -
     Proceeds from (repayment of)
      short-term borrowing                           400,000       (331,043)
                                                   ---------       --------
     Net cash provided by (used in)
      financing activities                         5,302,283       (317,618)
                                                   ---------       --------
Net change in cash and cash equivalents              273,328       (691,916)

CASH AND CASH EQUIVALENTS, beginning of period       165,227        857,143
                                                   ---------       --------

CASH AND CASH EQUIVALENTS, end of period          $  438,555     $  165,227
                                                   =========       ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

     Cash paid for interest                       $    7,787     $   74,982
                                                   =========       ========
     Cash paid for income taxes                   $    2,400     $    2,400
                                                   =========       ========
     Supplemental disclosure of noncash investing
      and financing activities:
        Capital lease obligations entered into for
        purchase of equipment                      $  31,100      $   8,050
                                                    ========       ========

See accompanying notes to consolidated financial statements.
                                      F-6
<PAGE>
<PAGE>

                TDK MEDIACTIVE, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   DESCRIPTION OF BUSINESS

     Introduction   TDK Mediactive, Inc., a Delaware corporation, (f/k/a Sound
     Source Interactive, Inc.) was incorporated in March 1990.  During the
     current fiscal period the Company and TDK U.S.A. Corporation, a New York
     corporation ("TDK U.S.A".) and a wholly owned subsidiary of TDK
     Corporation, a Japan publicly traded corporation ("TDK Japan"), entered
     into a common stock purchase agreement (the "Purchase Agreement"),
     pursuant to which TDK U.S.A. agreed to purchase, and the Company agreed
     to sell, a total of 16,667,000 shares of our common stock, for the
     purchase price $.30 per share.

     Upon the execution of the Purchase Agreement in September 2000, TDK
     U.S.A. purchased 4,750,000 shares of our common stock for an aggregate of
     $1,425,000 and in November 2000 TDK U.S.A. purchased an additional
     11,917,000 shares of our common stock for an aggregate purchase price of
     $3,575,100.  The Purchase Agreement required, (i) that we change the name
     of the Company to "TDK Mediactive, Inc."; (ii) that we increase the
     number of shares of common stock that we are authorized to issue from
     20,000,000 to 50,000,000 and (iii) the resignation of certain board
     members and fill the resulting vacancies with the appointment of nominees
     designated by TDK USA.  All of the required conditions have been
     satisfied.  As a result of this transaction, TDK U.S.A. became our
     largest stockholder owning approximately 74% of the outstanding common
     stock.

     Business   We are engaged primarily in developing, publishing,
     distributing and marketing of interactive entertainment software
     primarily based on well-recognized intellectual content.  This includes
     the development, distribution, marketing and publishing of video games
     for console and handheld electronic entertainment platforms.  We also
     publish titles for PCs and shipped our first products for platforms other
     than PCs in the first fiscal quarter of 2001. These products included two
     Sony PlayStation titles and one Nintendo Game Boy Color title.  We intend
     to support most interactive software categories, including children's,
     action, adventure, driving, fighting, puzzle, role-playing, simulation,
     sports and strategy. Our customers include Wal-Mart, Toys "R" Us,
     Electronics Boutique, Target, Kmart Stores, Babbages Etc., Best Buy, Kay
     Bee Toys, other national and regional retailers, discount store chains,
     specialty retailers and distributors.  References in this document to the
     "Company" includes TDK Mediactive, Inc. and its wholly owned
     subsidiaries.

     License Agreements   We have a license agreement with Sony pursuant to
     which we have the non-exclusive right to utilize the Sony name and its
     proprietary information and technology in order to develop and market
     software for use with the 32-bit Sony PlayStation in the United States
     and Canada, which expires in June 2002. We also have a license agreement
     with Sony for use with the 128-bit Sony PlayStation 2 in the United
     States and Canada that expires in March 2003.

     We have a license agreement with Nintendo pursuant to which we have the
     non-exclusive right to utilize the Nintendo name and its proprietary
     information and technology in order to develop and market software for
     use with the Game Boy portable game console in North America and Latin
     America which expires in December 2003.

<PAGE>
<PAGE>
     We have a license agreement with Microsoft Corporation pursuant to which
     we have the non-exclusive right to utilize the Microsoft name and its
     proprietary information and technology in order to develop and market
     software for use with the Xbox game console in North America and other
     territories on a title by title basis, which commenced on September 28,
     2000 and expires three years after the release of the Xbox gaming
     console. The Xbox is scheduled for a Fall 2001 release with a final date
     to be determined.

     Our business is dependent on the license agreements with Sony and
     Nintendo. We expect future business to also be dependent on the yet to be
     released Microsoft Xbox console. Substantially all of our products are
     manufactured by the platform licensors who charge us a fixed amount for
     each CD-ROM, DVD or cartridge manufactured. This charge includes a
     manufacturing, printing and packaging fee as well as a royalty for the
     use of their respective names, proprietary information and technology.

     Many of our products are based on the licensed content of major motion
     picture studios and other intellectual property holders including Harvey
     Entertainment, Vivendi Universal Studios, DreamWorks, Mattel and others.
     Our license agreements for existing products and new products under
     development include Shrek(TM), Robotech(TM), Casper(TM), The Land Before
     Time(TM), No Rules(TM), and The Berenstain Bears(TM).  We are continuing
     the discussion and negotiation of additional licenses to develop new,
     high quality software products using content from such intellectual
     properties and creating original characters and stories on which to base
     future consumer entertainment software

     The licensing contracts with the licensors/studios are generally three to
     five years in duration.  The licenses are usually exclusive, worldwide
     and typically allow for multiple titles to be produced in all applicable
     localized languages to suit market needs by territory.  We seek licenses
     that have strong brand awareness worldwide and franchises that receive
     licensor support.  The licenses usually allow products to be developed
     for multiple formats, including CD-ROMs, DVDs and dedicated game console
     formats such as the Sony PlayStation, PlayStation2, Microsoft Xbox and
     proprietary disc formats such as Nintendo GameCube .

     Liquidity   The Company incurred net losses of $867,574 for the nine
     months ended March 31, 2001 and $3,275,890 for the fiscal year ended June
     30, 2000.  The Company has not historically generated sufficient cash
     flows to fund operations, and has had to rely on debt and equity
     financings to fund operations.  The Company had working capital of
     $175,819 at March 31, 2001 compared to negative working capital of
     $1,363,022 at June 30, 2000.

     On March 29, 2001 we entered into an $8.0 Million Loan and Security
     Agreement with TDK U.S.A. providing for a combination of cash advances
     and letters of credit relating to the purchase of product not to exceed
     an aggregate amount of $8.0 million and matures March 31, 2002 (Note 6).

     Although our revenues have increased during the nine months ended March
     31, 2001 compared to the year ended June 30, 2000 we continued to
     experience significant losses.  We will continue to search for new
     opportunities to obtain licenses and develop and sell products.
     Additionally we will continue the transition from the PC platform to
     dedicated game console platforms in seeking new and innovative ways to
     deliver its products to consumers, most of which will require large
     up-front cash resources.  If we enter into agreements relating to such
     business opportunities in the future, we will require additional
     financing to fund our growth.

<PAGE>
<PAGE>
     Management has strengthened distribution channels and product offerings
     to include Sony PlayStation, PlayStation2 and Nintendo Game Boy to enable
     us to compete in the video game market place and raise the level of sales
     to sufficiently fund operations.  During the nine months ended March 31,
     2001, cash flow activity from operations show that we invested more than
     $2.5 million in prepaid software development costs on newly released and
     upcoming titles.  In 1999 we signed an agreement with TDK Recording Media
     Europe S.A. ("TDK Europe"), a wholly owned subsidiary of TDK Japan and a
     related entity TDK Europe is a global electronic components manufacturer
     with an operating business unit specializing in the publishing and
     distribution of entertainment based video game and computer software.
     TDK Europe has provided approximately $7.2 million in accordance with
     this agreement.  In February 2000 we signed a new five-year agreement
     with TDK Europe for future development and distribution of our products.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation   The consolidated financial statements
     include the accounts of TDK Mediactive, Inc. and its wholly owned
     subsidiaries.  All material intercompany balances and transactions have
     been eliminated in consolidation.

     Use of Estimates   The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenues and
     expenses during the periods reported. Actual results could differ from
     those estimates.

     Reclassifications   Certain reclassifications have been made with regard
     to prior year amounts in order to conform to current year presentation.

     Concentration of Credit Risk   Financial instruments, which potentially
     subject us to concentration of credit risk, consist principally of cash
     and cash equivalents and accounts receivable.   At times we maintain cash
     balances at certain financial institutions in excess of federally insured
     deposits.  The Company performs periodic credit evaluations of its
     customers and maintains an allowance for potential credit losses.  We
     estimate credit losses based on an evaluation of historical experience
     and current industry trends.  Although we expect to collect amounts due,
     actual collections may differ from the estimated amounts.

     Major Customers   Sales to two major customers accounted for 47% of
     consolidated revenues during the nine months year ended March 31, 2001
     and 57% during the year ended June 30, 2000.  One of the customers, TDK
     Europe, a related entity, accounted for 30% and 17% of such revenues.

     Major Vendors   Purchases from a major vendor accounted for approximately
     14% of consolidated purchases for the nine month ended March 31, 2001.
     Purchases from two vendors accounted for approximately 65% and 16% of
     consolidated purchases for the year ended June 30, 2000.

     Inventories   Inventories, which consist primarily of software video
     games and related packaging materials, are stated at the lower of cost or
     market, with cost determined on a first-in, first-out (FIFO) basis.

     Property and Equipment   Property and equipment are stated at cost less
     accumulated depreciation and amortization. Property and equipment are
     depreciated using the straight-line method over the estimated useful
     lives of the related assets. Leasehold improvements are amortized over
     the shorter of the lease term or the estimated life of the improvement.
   
<PAGE>
<PAGE>

     Long-Lived Assets   We periodically review the carrying value of
     long-lived assets, and if undiscounted future cash flows are believed to
     be insufficient to recover the remaining carrying value of a long-lived
     asset, the carrying value is written down to its estimated fair value in
     the period the impairment is identified.

     Royalties and Software Development Costs   We have entered into various
     license agreements that require payment of up-front minimum guarantees
     against future royalties.  Such license agreements generally require that
     we pay a percentage of sales of the products but no less than a specified
     minimum guaranteed royalty.  We record the minimum guaranteed royalty as
     a liability and along with a related prepaid asset at the time the
     agreement is consummated.  The liability is extinguished as payments are
     made to the license holders and the asset is expensed at the contractual
     royalty rate based on actual sales of the related product.  Additional
     royalty liabilities, in excess of minimum guaranteed amounts, are
     recorded when such amounts are earned by the licensor.

     In accordance with Statement of Financial Accounting Standards ("SFAS")
     No. 86, "Accounting for the Cost of Capitalized Software to Be Sold,
     Leased or Otherwise Marketed," we examine our software development costs
     after technological feasibility has been established to determine if
     capitalization is required. Once technological feasibility is established
     all software production costs will be capitalized and reported at the
     lower of unamortized cost or net realizable value until the product is
     available for general release to consumers.  Capitalized software will be
     amortized based on the remaining estimated life of the product.

     Prepaid royalties are expensed at the contractual royalty rate based on
     actual net product sales or on the ratio of current units sold to total
     projected units whichever amount is greater.  Prepaid software
     development costs are expensed on the ratio of current units sold to
     total projected units.  When, in management's estimate, future revenues
     will not be sufficient to recover previously capitalized advances or
     software development costs, we expense these items as project abandonment
     losses.  Such abandonment losses are solely attributable to changes in
     market conditions or product quality considerations.

     Fair Value of Financial Instruments   The carrying value of financial
     instruments, consisting primarily of accounts receivable, accounts
     payable, accrued expenses and loans payable, approximates fair value due
     to the maturity of these financial instruments and our borrowing costs.

     Income Taxes   Deferred income taxes are provided for temporary
     differences between the financial statement and income tax bases of our
     assets and liabilities, based on enacted tax rates. A valuation allowance
     is provided when it is more likely than not that some portion or all of
     the deferred income tax assets will not be realized.

     Revenue Recognition   Direct-to-the-customer sales are recognized when
     merchandise is shipped to customers and are recorded net of discounts,
     allowances, and estimated merchandise returns.  While we have no
     obligation to perform future services subsequent to shipment, we provide
     telephone customer support as an accommodation to purchasers of products
     for a limited time.  Costs associated with this effort are charged to
     cost of sales as incurred in the consolidated statements of operations.
     Revenue from third-party distributors is recognized as reported by such
     distributors, net of estimated returns.  Reserves for returns are based
     on management's evaluation of historical experience and current industry
     trends.

<PAGE>
<PAGE>
     In December 1999, the Securities and Exchange Commission released Staff
     Accounting Bulletin No. 101, "Revenue Recognition in Financial
     Statements" ("SAB 101") providing guidance on the recognition,
     presentation and disclosure of revenue in the financial statements.  We
     implemented SAB 101 at the beginning of the current fiscal period and we
     believe that such adoption did not have a material affect on our
     financial results.

     Segment Reporting   As required by Statement of Financial Accounting
     Standards ("SFAS") No. 131,"Disclosures about Segments of an Enterprise
     and Related Information" we have reviewed our business activities and
     determined that we do not have more than one operating segment as defined
     by this statement. This determination was based on the management
     approach that focuses on the way management organizes the Company's
     business activities for making operating decisions and assessing
     performance. We operate in one industry segment which includes the
     creation, development, production, publishing and worldwide distribution
     of interactive educational and entertainment software properties for
     personal computers.

     Earnings per Common Share ("EPS")   Weighted-average common shares used
     in the computation of basic and diluted EPS were 14,963,369 for the nine
     months ended March 31, 2001 and 5,907,754 for the year ended June 30,
     2000.  Potential dilutive securities were not included in the EPS
     calculation since their effect would be antidilutive.  Potential dilutive
     securities consisted of outstanding stock options and stock purchase
     warrants stock warrants.

     New Accounting Pronouncements   In October 2000, we adopted the Financial
     Accounting Standards Board SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities." This statement establishes
     accounting and reporting standards requiring that every derivative
     instrument, including certain derivative instruments embedded in other
     contracts, be recorded in the balance sheet as either an asset or
     liability measured at its fair value. The statement also requires that
     changes in the derivative's fair value be recognized in earnings unless
     specific hedge accounting criteria are met. The adoption of SFAS No. 133
     has no effect on our financial statements.

     In March 2000, the FASB issued Interpretation No. 44, "Accounting for
     Certain Transactions Involving Stock Compensation, and Interpretation of
     APB Opinion No. 25" (FIN. 44). The Interpretation is intended to clarify
     certain problems that have arisen in practice since the issuance of APB
     No. 25, "Accounting for Stock Issued to Employees." The effective date of
     the interpretation was July 1, 2000. The provisions of the interpretation
     apply prospectively, but they will also cover certain events occurring
     after December 15, 1998 and after January 12, 2000.  We believe the
     adoption of FIN. 44 did not have a material adverse effect on our current
     or historical consolidated financial statements, but may affect future
     accounting regarding stock option transactions.

3.   CHANGE IN FISCAL YEAR

     In December 2000 as a result of the acquisition by TDK U.S.A. of
     approximately 74% of the outstanding shares of our common stock, the
     Board of Directors approved a change in the Company's fiscal year-end
     from June 30 to March 31.  This change resulted in a nine-month period
     for the current fiscal period ended March 31, 2001.


<PAGE>
<PAGE>
     Following is a comparison of the results of operations for the nine
     months ended March 31, 2001 to the nine-month period ended March 31,
     2000:

                                              Nine Months Ended March 31,
                                              ---------------------------
                                                    2001        2000
                                                    ----        ----
                                                             (unaudited)

     Net revenues                              $ 6,156,667   $ 2,117,184
     Cost and expenses                           7,241,168     4,486,242
                                                ----------     ---------
     Operating loss                             (1,084,501)   (2,369,058)
     Other income (expense)                        219,327       (55,258)
                                                ----------     ---------
       Loss before provision for income taxes     (865,574)   (2,424,316)
     Provision for income taxes                      2,400         5,620
                                                ----------     ---------
     Net loss                                  $  (867,574)  $(2,429,936)
                                                ==========     =========

     Basic and diluted net loss per share      $     (0.06)  $     (0.41)
                                                ==========     =========

4.   INVENTORIES

     Inventories consisted of the following:


                                                  March 31,    June 30,
                                                    2001         2000
                                                  --------     -------
     Finished goods                               $328,342     $113,681
     Raw materials (components)                    138,708       96,035
                                                  --------     --------
                                                  $467,050     $209,716
                                                  ========     ========

5.   PROPERTIES AND EQUIPMENT

     Property and equipment consisted of the following:


                                        Useful     March 31,     June 30,
                                        Lives        2001          2000
                                        ------     --------      --------
     Leasehold improvements            5 years   $    7,781     $   7,781
     Computer equipment              1.5 years      890,481       643,628
     Office furniture and equipment    5 years      120,591        89,491
                                                   --------      --------
                                                  1,018,853       740,900
     Accumulated depreciation and
       amortization                                (692,601)     (596,380)
                                                  ---------      --------
                                                 $  326,252     $ 144,520
                                                  =========      ========

     Depreciation expense amounted to $96,220 for the nine months ended March
     31, 2001 and $125,547 for the year ended June 30, 2000 and was included
     within general and administrative expenses.

<PAGE>
<PAGE>
6.   RELATED ENTITY TRANSACTIONS

     On March 29, 2001 we entered into an $8.0 Million Loan and Security
     Agreement with TDK U.S.A.  The agreement provides for a combination of
     cash advances and letters of credit relating to the purchase of product
     not to exceed an aggregate amount of $8.0 million and matures March 31,
     2002.  In connection with the agreement, we granted TDK U.S.A. a security
     interest in substantially all our assets.  The agreement provides for
     interest to be paid monthly at the annual rate of the higher of (i) the
     rate designated as "London Interbank Offered Rate (LIBOR)" for a one
     month period as published from time to time in the Wall Street Journal,
     Money Rates Section plus two percent (2%) or (ii) the rate designated as
     the "Prime Rate" as published from time to time in the Wall Street
     Journal, Money Rates Section plus one percent (1%).  As of March 31,
     2001, we have borrowed $400,000 under the agreement.

     We have various republishing and distribution agreements with TDK Europe.
     During the nine months ended March 31, 2001, TDK Europe paid us
     $1,975,000 and during the year ended June 30, 2000, TDK Europe paid us
     $3,952,500 related to these agreements.  Revenue is recognized either
     over a specified period of time or when delivery of certain products has
     occurred.  During the nine months ended March 31, 2001, we recognized
     $1,690,000 revenue and during the year ended June 30, 2000; we recognized
     $437,500 revenue related to these agreements.  At March 31, 2001 we have
     deferred (unearned) revenue amounting to $5,102,500 related to these
     agreements.

7.   COMMITMENTS AND CONTINGENCIES

     Employment Contracts   We have employment agreements with two corporate
     officers that expire on various dates through November 2004.  The
     agreement with one officer provides for, (i) annual adjustments based on
     the Consumer Price Index; (ii) annual performance bonuses; (iii) options
     to purchase 500,000 shares of common stock that vest over a four year
     period and (iv) other normal employee benefits.  Future minimum base
     salaries, by year and in the aggregate, consist of the following as of
     March 31, 2001:


              Years Ending
               March 31,                   Amount
              ------------                 ------
                 2001                     $373,000
                 2002                      253,000
                 2003                      253,000
                 2004                      147,583

     Legal Proceedings   While we are a party to legal proceedings from time
     to time, such legal proceedings have been ordinary and incidental to our
     business and have not had a material adverse effect on us.

     Operating Leases   We lease facilities and certain equipment under
     noncancelable operating leases that expire at various dates through May
     2006.

     The facility lease expense is being recognized on a straight-line basis
     over the term of the related leases. The excess of the expense recognized
     over the amount paid is included in accounts payable and accrued expenses

<PAGE>
<PAGE>
     in the consolidated balance sheets.  Future minimum lease payments as of
     March 31, 2001 are as follows:


        Year Ending          Capital      Operating     Deferred
          March 31,          Leases         Leases        Rent
        -----------          -------      ---------     --------
           2002              $11,280       $151,680      $4,668
           2003                9,717         19,042         777
           2004                8,712          4,656          -
           2005                8,712            -            -
           2006                7,986            -            -
                              ------       ---------     -------
        Total                 46,407       $175,378      $5,445
                                           =========     =======
        Less amount repre-
         senting interest    (10,310)
                              ------
        Obligations under
         capital leases       36,097

        Obligations due
         within one year       7,571
                              ------
        Long-term capital
         lease obligations   $28,526
                              ======

     Rent expense under operating lease agreements totaled $147,024 for the
     nine months ended March 31, 2001 and $150,573 for the year ended June 30,
     2000, which are included in general and administrative expenses in the
     consolidated statements of operations.

     Development Contracts   We currently have a number of agreements with
     software developers for the development of video games.  Under such
     agreements we pay a fixed fee, plus in many cases, a percentage of sales
     of the product developed.  As of March 31, 2001, minimum remaining
     commitments under such agreements amounted to approximately $4.6 million.

8.   COMMON STOCK

     Private Placement   On November 27, 2000, we completed the sale of
     16,667,000 shares of common stock to TDK U.S.A. for the purchase price
     $.30 per share.  We realized net proceeds of $4,904,489 (after deducting
     costs of $95,611).  The net proceeds were utilized for working capital
     purposes.  In connection with the sale we granted TDK U.S.A. certain
     registration rights with respect to the common stock purchased.

     Common Stock for Services   During the nine months ended March 31, 2001
     we exchanged 279,530 shares of common stock for obligations resulting
     from services rendered to us.  Of these shares, 250,416 shares were
     issued to former directors who agreed to accept our shares in exchange
     for accrued directors fees and 29,114 shares were issued to an employee
     in exchange for accrued compensation.

     Warrants   In July 1996 in connection with an initial public offering
     ("IPO") of our common stock, we issued 1,371,775 redeemable warrants at
     $.25 per warrant.  Each redeemable warrant entitled the holder to
     purchase one share of common stock at $4.40 per share, subject to
     adjustment as defined.  The warrants expire December 31, 2001.  In the
     event that the redeemable warrants are called for redemption, they will
     be exercisable for 30 days preceding the applicable redemption date.  The
     redeemable warrants are subject to redemption at $.25 per redeemable
<PAGE>
<PAGE>
     warrant if the average closing bid price of the common stock equals or
     exceeds $5.60 per share for any 20 trading days within a period of 30
     consecutive trading days ending on the fifth trading day prior to the
     date of the notice or redemption.

     In connection with the IPO, we granted the underwriter a warrant for $50,
     which entitles the underwriter to purchase 240,000 shares of common stock
     at $5.80 per share.  In addition we issued 2,016,657 redeemable warrants
     in connection with the conversion of a short term note payable to a
     related party of $500,000, plus accrued interest of $4,164.

     The exercise price and number of common stock shares deliverable related
     to the warrants issued in connection with the IPO are subject to
     adjustment.  The events that would trigger an adjustment are as follows:
     sale of common stock for a consideration per share less than the purchase
     price, the issuance of stock dividends to holders of common stock, a
     stock split or a reverse stock split.  As a result of the sale of stock
     to TDK U.S.A. described above, the exercise price of our public warrants
     decreased from $4.40 to $2.18 and the number of shares of common stock
     issuable thereunder increased from one share to 2.018 shares (or from
     6,253,824 shares to 12,622,397 shares in the aggregate).

9.   STOCK OPTIONS AND WARRANTS

     The 1992 Stock Option Plan   The Company adopted the 1992 Stock Option
     Plan  ("1992 Plan") authorizing the issuance of up to 2,000,000 shares of
     common stock to employees, officers and directors of the Company.  Shares
     that are subject to an award but are not used because the terms and
     conditions of the award are not met, or any shares that are used by
     participants to pay all or part of the purchase price of any option, may
     again be used for awards under the 1992 Plan. However, shares with
     respect to which a stock appreciation right has been exercised may not
     again be made subject to an award. On September 22, 1995, the Board of
     Directors resolved that no additional grants shall be issued under the
     1992 Plan.

     The 1995 Stock Option Plan   Pursuant to the Company's restated 1995
     Stock Option Plan ("1995 Plan") we may grant up to 1,000,000 options for
     shares of the Company's common stock.  Options under the 1995 Plan may be
     granted in the form of incentive stock options or nonqualified stock
     options. The 1995 Plan terminates October 31, 2005 and is administered by
     a committee appointed by the Board of Directors of the Company.

     Incentive stock options under the 1995 Plan are limited to persons who
     are employees of the Company and may not be granted at a price less than
     100% of the fair value of the stock as of the date of grant (110% as to
     any 10% stockholder at the time of grant).  The term of each option may
     not exceed 10 years from the date of grant (five years for 10%
     stockholders). The committee on a case-by-case basis determines vesting
     of the options, and the options are not exercisable unless the holder is
     currently employed with the Company.

     The 1999 Director Stock Plan   Pursuant to the 1999 Director Plan ("1999
     Plan"), each non- employee director receives nonqualified stock options
     to acquire 10,000 shares of Common Stock upon appointment as a director,
     and receives nonqualified stock options to acquire an additional 10,000
     shares of Common Stock for each additional year that the non-employee
     director continues to serve on the Board of Directors. Such options
     previously were granted pursuant to the 1995 Plan. Each option granted to
     a non-employee director vests and becomes exercisable as to 50% of the
     shares of Common Stock subject to the option on the first anniversary
     date of the grant and as to the remaining 50% on the second anniversary

<PAGE>
<PAGE>
     date of the grant, and expires on the earlier of ten years from the date
     the option was granted, the expiration of the 1995 Plan or the 1999
     Director Plan, as applicable, or three weeks after the optionee ceases to
     be a director of the Company. The exercise price of such options is equal
     to 100% of the fair market value of the Common Stock subject to the
     option on the date on which such options are granted. Each option is
     subject to the other provisions of the 1995 Plan or the 1999 Plan, as
     applicable.

     The following table summarizes option transactions during the periods
     presented under both of the aforementioned plans:

                                                        Weighted-
                                                        Average
                                             Number      Price
                                           of Shares    per Share
                                           ---------   ----------
     Balance, July 1, 1999                  665,219      $1.66
        Granted                              90,000      $0.30
        Exercised                           (42,394)     $0.07
        Canceled                           (451,457)     $1.64
                                           --------

     Balance, June 30, 2000                 261,368      $1.48
        Granted                             703,000      $0.35
        Exercised                           (18,505)     $0.10
        Canceled                           (100,595)     $0.83
                                            -------
     Balance, March 31, 2001                845,268      $0.65
                                            =======

     The following summarizes pricing and term information for options
     outstanding as of March 31, 2001:
<TABLE>
<CAPTION>

                              Options Outstanding             Options Exercisable
                              -------------------             -------------------
                    Number     Weighted-     Weighted-     Number     Weighted-
     Range of     Outstanding   Average      Average     Exercisable   Average
     Exercise     at March 31, Remaining     Exercise     at March 31, Exercise
      Prices          2001       Life         Price          2001       Price
     --------     -----------  ---------    ----------   ------------- ----------
 <S>               <C>          <C>          <C>           <C>           <C>
 $0.06 - $0.38     721,337      5.6          $0.35         106,003       $0.31
 $0.63 - $1.19      53,931      5.3          $0.68          53,931       $0.68
 $2.09 - $2.50      35,000      7.1          $2.38          35,000       $2.38
 $4.56 - $5.00      35,000      7.1          $4.88          35,000       $4.88
                   -------                                 -------
                   845,268      4.5          $0.65         229,934       $1.37
                   =======                                 =======
</TABLE>

     The Company has adopted the disclosure-only provisions of SFAS 123,
     "Accounting for Stock-Based Compensation."  Had the Company adopted SFAS
     No. 123, pro forma net loss would have been $1,039,816 for the nine
     months ended March 31, 2001 and $3,594,653 for the year ended June 30,
     2000, and pro forma basic net loss per share would have been $(0.18) for
     the nine months ended March 31, 2001 and $(0.61) for the year ended June
     30, 2000. The fair value of each option granted was estimated using the
     Black-Scholes option-pricing model with the following weighted-average
     assumptions: dividend yield of zero, volatility of 30%, a risk-free
     interest rate of 5.64%, and expected option lives of four years.

<PAGE>
<PAGE>
     As of March 31, 2001 we had 6,253,824 stock warrants issued in the IPO at
     an exercise price of $2.18 and 240,000 stock warrants issued to the
     underwriters at an exercise price of $2.87.

9.   INCOME TAXES

     The provision for income taxes for the nine months ended March 31, 2001
     and for the year ended June 30, 2000 comprises minimum state taxes only.

     A reconciliation of the provision for income taxes with the expected
     income tax benefit computed by applying the federal statutory income tax
     rate to loss before provision for income taxes is as follows:

                                               Nine Months     Year Ended
                                              Ended March 31,    June 30,
                                                   2001            2000
                                              ---------------  -----------
     Income tax benefit computed at federal
       statutory tax rate                       $(294,975)     $(1,112,986)
     State and local taxes                          2,400            2,400
     Expenses not deductible for
       income tax purposes                          7,310            2,810
     Limitation of net operating
       loss carry-forward per IRC 382             540,778        1,083,082
     Other                                                               -
     Change in the valuation allowance           (253,113)          27,094
                                                 --------        ----------
                                                $   2,400      $     2,400
                                                 ========        ==========

     The components of the net deferred income tax asset recorded in the
     accompanying consolidated balance sheets are as follows:

                                               Nine Months     Year Ended
                                              Ended March 31,    June 30,
                                                   2001            2000
                                              ---------------  -----------

     Reserves and accrued liabilities           $  275,542      $  267,987
     Deferred Revenue                            2,185,911       2,090,430
     Net operating loss carryforwards            2,041,144       2,397,293
     Valuation allowance                        (4,502,597)     (4,755,710)
                                                -----------      ---------
                                                $         -     $        -
                                                ===========      =========

     At March 31, 2001 we had federal and state net operating loss
     carry-forwards of approximately $5,600,000 and $1,500,000, available to
     offset future taxable federal and state income. The federal and state
     carry-forwards expire in varying amounts through 2020 and 2005.

     Due to the change in ownership provisions of the Tax Reform Act of 1986,
     net operating loss carry-forwards for federal income tax reporting
     purposes are subject to annual limitations. The change of ownership that
     occurred during the nine months ended March 31, 2001, as a result of the
     investment by TDK USA, caused the limitation of the Company's net
     operating loss carry-forwards.  Approximately $6,500,000 of the net
     operating loss carry-forward is subject to limitation.