<PAGE>
 
===============================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


                             FORM 10-KSB/A (FIRST)


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

                    FOR THE FISCAL YEAR ENDED JUNE 30, 1997

                          COMMISSION FILE NO. 0-28604


                        SOUND SOURCE INTERACTIVE, INC.

                (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


             Delaware                                           95-4264046
  (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)

                                (805) 878-0505
                          (Issuer's telephone number
                             including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:


                                              Name of each exchange
          Title of each class:                 on which registered:

     Common Stock, par value $.001  
        Redeemable Warrants                    NASDAQ SmallCap Market

                                        
     Check whether the Issuer (1) filed all reports required to be filed by
Section 12 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 [X]     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. [_]

     The Issuer's revenues for its most recent fiscal year were $4,596,806.

     As of August 31, 1997, the aggregate market value of the shares of the
Issuer's voting stock held by nonaffiliates of the Issuer was approximately
$3,571,217, and the number of outstanding shares of the Issuer's common stock,
par value $.001, was 4,409,099.

===============================================================================

 
<PAGE>
 
                                 AMENDMENT NO. 1


     The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1997 as set forth below:


1.        Add Items 9 through 12 of Part III as follows:


ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.


     DIRECTORS AND EXECUTIVE OFFICERS

     The following is a brief summary of the business background and experience
of the directors and executive officers of Sound Source Interactive, Inc., a
Delaware Corporation (the "Company").


     VINCENT J. BITETTI, age 42,  founded Sound Source Interactive, Inc., a
California corporation (the "Subsidiary"), in 1989 and served as the President
of the Subsidiary from its formation.  Since the Company acquired the Subsidiary
in 1994, Mr. Bitetti has served as the Chairman of the Board and Chief Executive
Officer and as a director of both the Company and the Subsidiary.  Prior to
founding the Subsidiary, from 1986 to 1988 Mr. Bitetti was President of
Fantastic Planet Consultants, a sound and musical instrument design consulting
company.  Mr. Bitetti is a published music composer and lyricist.  From 1986 to
1993, Mr. Bitetti was a consultant to manufacturers of keyboard synthesizers in
the music industry.  In addition to his duties as Chairman of the Board and
Chief Executive Officer, as the executive producer for all of the Company's
products Mr. Bitetti conceptualizes, reviews and "green lights" all title
development, and has led the negotiations for all studio license and
promotional/partnership agreements.  Mr. Bitetti developed the concepts for the
Company's Creativity Centers(TM), Interactive MovieBooks(TM), AudioClips(TM) and
VisualClips(TM) products. Mr. Bitetti has been a director of the Company since
1994.


     ULRICH E. GOTTSCHLING, age 39, was appointed as Chief Financial Officer,
Treasurer and director of the Company on October 9, 1995, as Secretary of the
Company on November 17, 1995, and as President and Chief Operating Officer of
the Company on February 1, 1997.  Prior to joining the Company, Mr. Gottschling
was employed from June 1991 through September 1995 as a certified public
accountant with Corbin & Wertz, the Company's former independent auditors.  From
1987 through May 1991, he was employed as a certified public accountant by
Deloitte & Touche LLP.  From 1980 through 1986, Mr. Gottschling held various
management positions with Westin Hotels and Marriott Corporation.  Mr.
Gottschling has been a director of the Company since  October,1995.

     DR. RONALD W. HART, age 55, has held the position of Distinguished
Scientist in Residence for the Food and Drug Administration, U.S. Public Health
Service, since 1992.  From 1980 to 1992, he was the Director of the National
Center for Toxicological Research, Food and Drug Administration, Public Health
Service, Department of Health and Human Services.  Dr. Hart served on the board
of directors of First Commercial Bank Corporation of Little Rock, Arkansas from
1987 to 1993.  He also is a director of Telescan, Inc. and CyberAction, Ltd.
Dr. Hart has been a director of the Company since July, 1996.

     MARK A. JAMES, age 38, is a founding member of the law firm of James,
Driggs & Walch in Las Vegas, Nevada, where he has been a partner since April
1996.  From 1991 until the founding of James, Driggs & Walch, he was a partner
in the Las Vegas firm of Jolley, Urga, Wirth & Woodbury.  In 

                                      -2-
<PAGE>
 
1992, Mr. James was elected to the Nevada State Senate. He was reelected in
1994, and continues to serve as Chairman of the Senate Committee on Judiciary,
and on the Natural Resources and Legislative Affairs and Operations committees.
Mr. James is a director of ASSI, Inc. Mr. James has been a director of the
Company since July, 1996.

     ERNEST T. KLINGER, age 62, has been the Chief Financial Officer and Vice
President Finance and Administration of Arden Group, Inc. since 1983.  He has
held various finance and operating positions at Arden Group, Inc. since 1980.
Mr. Klinger is a director of Chicago Pizza & Brewery, Inc.  Mr. Klinger has been
a director of the Company since July, 1996.


       COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

 
     Section 16(a) of the Securities Exchange Act of 1934, as amended requires
the Company's directors and officers, and persons holding ten percent or more of
a registered class of the Company's equity securities, to file reports regarding
their ownership and regarding their acquisitions and dispositions of the
Company's equity securities with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent beneficial owners are required
by applicable regulations to furnish the Company with copies of any Section
16(a) forms they file.


     Based solely upon a review of the copies of the forms furnished to the
Company and written representations of the Company's directors and executive
officers, the Company believes that all filing requirements applicable to its
officers, directors and ten-percent beneficial owners were complied with during
fiscal 1997.


ITEM 10.  EXECUTIVE COMPENSATION



     SUMMARY COMPENSATION.  The following table sets forth information
concerning compensation of the Company's Chairman of the Board and Chief
Executive Officer and each of the Company's other executive officers who
received compensation from the Company in excess of $100,000 for the fiscal year
ended June 30, 1997 (the "Named Executives").  The persons identified below were
the Company's only executive officers during fiscal year 1997.

                                      -3-
<PAGE>
 
                          SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                  SUMMARY ANNUAL
                                                                  COMPENSATION             LONG-TERM COMPENSATION
                                                              ----------------------   ------------------------------
                                                                                       STOCK OPTIONS    ALL OTHER
     NAME AND PRINCIPAL POSITION                 YEAR         SALARY        BONUS(1)      (SHARES)    COMPENSATION(2)
     ---------------------------                 ----         ------        --------   -------------  ---------------
<S>                                              <C>          <C>           <C>        <C>            <C>
Vincent J. Bitetti, Chairman of the Board         1997        $205,077       $14,029           0           $19,872
 and Chief Executive Officer                      1996         187,500        31,874           0            19,018
                                                  1995         150,000        75,000           0             6,200

Ulrich Gottschling, President, Chief              1997         126,295         8,602           0             9,145
 Operating Officer, Chief Financial               1996          80,134         1,500     200,000             5,909
 Officer, Treasurer and Secretary

Eric Winston, Former President and Chief          1997         140,000             0           0            17,040
 Operating Officer (3)                            1996         168,750        31,874           0            21,141
                                                  1995          75,000        15,000           0             9,600
 
</TABLE>
---------------
(1)  The bonuses accrued for fiscal year 1995 were fully paid in December 1995.

(2)  The amounts in this column consist of the following:  (a) personal use of
     Company car:  Mr. Bitetti -- $9,130 (1997),$9,576 (1996), $4,800 (1995),
     Mr. Winston -- $12,000 (1997), $9,302 (1996), $4,800 (1995), Mr.
     Gottschling -- $4,600 (1997), $2,500 (1996); (b) life insurance premiums:
     Mr. Bitetti  $5,370 (1997), $4,311 (1996), $1,400 (1995), Mr. Winston -- $0
     (1997), $4,750 (1996); and (c) medical insurance premiums:  Mr. Bitetti --
     $5,372 (1997), $5,131 (1996), $0 (1995), Mr. Winston -- $5,040 (1997),
     $7,089 (1996), $4,800 (1995), Mr. Gottschling -- $4,545 (1997), $3,409
     (1996).

(3)  Mr. Winston terminated his employment with the Company effective November
     1, 1996.


     OPTION GRANTS.  The Company did not grant any options to any of the Named
Executives during its fiscal year ended June 30, 1997.

     OPTION EXERCISES AND HOLDINGS.  The following table sets forth information
concerning each exercise of a stock option during the fiscal year ended June 30,
1997 by each of the Named Executives and the number and value of unexercised
options granted by the Company held by each of the Named Executives on June 30,
1997.

              AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND 
                        FISCAL YEAR-ENDED OPTION VALUES

<TABLE>
<CAPTION>

                                                                 NUMBER OF SHARES          VALUE OF UNEXERCISED IN-
                            NUMBER OF                           UNDERLYING UNEXERCISED      THE-MONEY OPTIOPNS AT
                              SHARES                              OPTIONS AT 6/30/97              6/30/97(2)
                             ACQUIRED                          -------------------------   -------------------------
     NAME                    EXERCISE    VALUE REALIZED(1)     EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
     ----                   ---------    -----------------     -------------------------   -------------------------
<S>                          <C>         <C>                   <C>                        <C>

Vincent J. Bitetti               0              $  0                         0/0                       $0/0

Ulrich E. Gottschling            0                 0                   200,000/0                        0/0

Eric Winston (3)            10,000            39,600                   282,838/0                  230,513/0
</TABLE>

                                      -4-
<PAGE>
 
-------------------
(1)  Market value on the date of exercise of shares covered by options
     exercised, less option exercise price.
(2)  Market value of the shares covered by in-the-money options on June 30,
     1997, less the option exercise price.
(3)  Does not include a presently Exercisable option held by Mr. Winston to
     purchase 100,000 shares of Common Stock from Mr. Bitetti at $2.00 per
     share.

COMPENSATION OF DIRECTORS

     The Company pays each director who is not an employee of the Company a
director's fee of $15,000 per year, and reimburses them for out-of-pocket
expenses incurred in connection with their attendance at meetings.  In addition,
the 1995 Stock Option Plan provides for the grant of stock options to
nonemployee directors of the Company without any action on the part of the Board
of Directors or the Compensation Committee, upon the terms and conditions set
forth in the 1995 Stock Option Plan.  Each nonemployee director shall
automatically receive nonqualified stock options to acquire 10,000 shares of
Common Stock upon appointment as a director, and shall receive nonqualified
options to acquire an additional 10,000 shares of Common Stock for each
additional year that the nonemployee director continues to serve on the Board of
Directors.  Each option granted to a nonemployee director shall vest and become
exercisable as to 50 percent of the shares of Common Stock subject to the option
on the first anniversary date of the grant and as to the remaining 50 percent on
the second anniversary date of the grant, and will expire on the earlier of ten
years from the date the option was granted, upon expiration of the 1995 Stock
Option Plan, or three weeks after the optionee ceases to be a director of the
Company.  The exercise price of such options shall be equal to 100 percent of
the fair market value of the Common Stock subject to the option on the date on
which such options are granted.  Each option shall be subject to the other
provisions of the 1995 Stock Option Plan.

EMPLOYMENT AGREEMENTS

     The Company has entered into an employment agreement with Vincent J.
Bitetti, Chairman of the Board and Chief Executive Officer, for a term ending on
September 15, 1998.  Pursuant to that employment agreement, commencing September
15, 1995, Mr. Bitetti was entitled to receive annual base compensation of
$200,000.  The employment agreement was amended to provide that effective July
2, 1996, Mr. Bitetti's base compensation was reduced to $160,000 per annum,
subject to an increase by $40,000 per annum at such time as the Company realized
net sales (gross sales less returns and allowances) of $1,500,000 or more for
any three consecutive calendar months.  During the three months ended December
31, 1996, the Company realized net sales in excess of $1,500,000, and
accordingly, Mr. Bitetti's compensation was reinstated to $200,000 per annum.
Mr. Bitetti's annual base compensation also is subject to escalation annually in
accordance with the Consumer Price Index (the "CPI") effective May 1, 1997 and
1998.  In addition, Mr. Bitetti's employment agreement entitles him to receive
bonuses based on three criteria:  attainment of specified gross revenues,
attainment of specified gross profits, and attainment of specified pre-tax
profitability.  If the Company acquires any new businesses in the future, the
related revenues and profits will not be taken into account in determining
entitlements to these bonuses.

     The employment agreement would have entitled Mr. Bitetti to receive a bonus
in the following amounts if the following gross revenues had been attained for
the fiscal year ending June 30, 1997:

                                      -5-
<PAGE>
 
<TABLE>
<CAPTION>
         GROSS REVENUES               CUMULATIVE CASH BONUS
         --------------               ---------------------
         <S>                          <C>
           $ 12,000,000                     $ 25,000
             16,000,000                       75,000
             24,000,000                      125,000
                                                       
</TABLE>


The gross revenue attainment levels required to receive each bonus level for
each subsequent fiscal year will be increased by 60 percent annually.

     The employment agreement would have entitled Mr. Bitetti to receive a bonus
in the following amounts if the following levels of gross profits (defined as
annual sales revenue less all costs of sales as determined by the Company's
independent public accountants) had been attained for the fiscal year ending
June 30, 1997:


<TABLE>
<CAPTION>
           GROSS PROFITS                CUMULATIVE CASH BONUS
           -------------                ---------------------
           <S>                          <C>
            $ 3,200,000                       $ 50,000
              3,600,000                         75,000
              4,000,000                        100,000
</TABLE>


The gross profit levels required to receive each bonus level for each subsequent
fiscal year will be increased by 60 percent annually.

     The employment agreement entitles Mr. Bitetti to the following amounts if
the following levels of pre-tax profitability (defined as annual earnings before
interest, taxes, depreciation and amortization divided by gross revenues) are
attained for any fiscal year during the term of Mr. Bitetti's employment
agreement:


<TABLE>
<CAPTION>
       PROFITABILITY                CUMULATIVE CASH BONUS 
       -------------                ---------------------
       <S>                          <C>
            10%                            $ 50,000
            15%                             100,000
</TABLE>


     None of the three foregoing bonus milestones were attained for fiscal 1997,
and accordingly, no bonus amounts were due to Mr. Bitetti for fiscal 1997.


     Pursuant to his employment agreement, Mr. Bitetti is entitled to certain
other fringe benefits including use of a Company automobile or automobile
allowance, $5,000,000 in life insurance coverage (provided that in no event will
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.
Mr. Bitetti's employment agreement further provides that following the voluntary
or involuntary termination of his employment by the Company, Mr. Bitetti is
entitled to two demand registration rights with respect to the Common Stock held
by or issuable to him.  These registration rights will only become effective
upon the voluntary or involuntary termination of Mr. Bitetti's employment with
the Company.  Mr. Bitetti has agreed not to sell any shares of his Common Stock
during the 18-month period beginning July 2, 1996 (except for 20,000 shares sold
by Mr. Bitetti pursuant to that offering) except with the consent of the
underwriters of the Company's initial public offering.  Mr. Bitetti's employment
agreement further provides that if the Company employs a new Chief Executive
Officer, Mr. Bitetti's salary may not be less than that of such new Chief
Executive Officer, up to a maximum of $300,000.


                                      -6-
<PAGE>
 
     The Company entered into an employment agreement with Ulrich E.
Gottschling, as Chief Financial Officer, Treasurer and Secretary, for a term
ending October 9, 1997.  The employment agreement entitled Mr. Gottschling to
receive annual cash compensation of $110,000. Pursuant to his employment
agreement, on October 9, 1995 Mr. Gottschling also was granted options to
purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share.
On April 30, 1996, Mr. Gottschling agreed to the termination of his existing
100,000 share option in consideration for the Company's agreement to grant to
him a new 200,000 share option pursuant to the Company's 1992 Stock Option Plan.
The Company granted this option to Mr. Gottschling on April 30, 1996.  The
option was exercisable upon the date of its grant as to 100,000 shares at a
purchase price of $3.40 per share, and became exercisable as to an additional
100,000 shares on September 30, 1997 at a purchase price of $4.00 per share.

     Mr. Gottschling's employment agreement further provides that following the
voluntary or involuntary termination of his employment by the Company, Mr.
Gottschling is entitled to a single demand registration right with respect to
the Common Stock held by or issuable to him pursuant to his employment
agreement.  This registration right has been satisfied as a result of the
registration of all Common Stock underlying options issued pursuant to the 1992
Stock Option Plan.

     Effective February 1, 1997, Mr. Gottschling was appointed as President and
Chief Operating Officer in addition to his then existing positions as Chief
Financial Officer, Treasurer and Secretary.  Simultaneously, the Company and Mr.
Gottschling entered into amended employment agreement, for a two-year term
expiring January 31, 1999.  Pursuant to the amended employment agreement, Mr.
Gottschling is entitled to receive annual base compensation of $150,000.  Mr.
Gottschling's annual base compensation also is subject to escalation annually in
accordance with the CPI.  In addition, Mr. Gottschling's employment agreement
entitles him to receive bonuses based on the same three criteria as Mr.
Bitetti's aforementioned agreement, with one exception: Mr. Gottschling's bonus
amounts are at 80% of those of Mr. Bitetti.  None of the bonus milestones were
attained for fiscal 1997, and accordingly, no bonus amounts were due to Mr.
Gottschling.

     Pursuant to his amended employment agreement, Mr. Gottschling is entitled
to certain other fringe benefits including use of a Company automobile or
automobile allowance and the right to participate in the Company's customary
benefit plans.  Mr. Gottschling's employment agreement further provides that
following the voluntary or involuntary termination of his employment by the
Company, Mr. Gottschling is entitled to two demand registration rights with
respect to the Common Stock held by or issuable to him.  These registration
rights will only become effective upon the voluntary or involuntary termination
of Mr. Gottschling's employment with the Company.  Mr. Gottschling has agreed
not to sell any shares of his Common Stock during the 18-month period beginning
July 2, 1996, except with the consent of the underwriters of the Company's
initial public offering.

     The Company entered into an employment agreement with Eric H. Winston, the
Company's former President and Chief Operating Officer, for a term ending on
September 15, 1998.  Pursuant to that employment agreement, commencing September
15, 1995, Mr. Winston was entitled to receive annual base compensation of
$175,000.  The employment agreement was amended to provide that effective July
2, 1996, Mr. Winston's base compensation was reduced to $140,000 per annum,
subject to an increase of $35,000 per annum at such time as the Company realizes
net sales of $1,500,000 or more for any three consecutive calendar months.  This
employment agreement makes Mr. Winston's salary also subject to escalation
annually in accordance with the CPI.  Mr. Winston's employment agreement
entitles him to receive annual bonuses based on the same three criteria, and

                                      -7-
<PAGE>
 
payable in accordance with the same provisions, described above with respect to
Mr. Bitetti's employment agreement.  Mr. Winston is also entitled to the same
fringe benefits as Mr. Bitetti.

     On October 25, 1996, the Company entered into a Separation and Release
Agreement with Mr. Winston.  Such agreement became effective on November 1,
1996.  Upon the effectiveness of that agreement, Mr. Winston ceased to be an
officer, employee and director of the Company, but remains entitled to receive
salary compensation at the rate of $140,000 per annum, an automobile allowance
at the rate of $12,000 per annum and certain other benefits as provided in the
agreement through September 15, 1998.

     Pursuant to a prior employment agreement, the Company has granted Mr.
Winston options to purchase 292,838 shares of Common Stock at an exercise price
of $0.06 per share. Mr. Winston's employment agreement further provides that
following the voluntary or involuntary termination of his employment by the
Company, Mr. Winston is entitled to two demand registration rights with respect
to the Common Stock held by or issuable to him.  The registration rights became
effective upon the termination of Mr. Winston's employment with the Company.
Mr. Bitetti has separately granted Mr. Winston a presently exercisable option to
acquire 100,000 shares of Common Stock at a purchase price of $2.00 per share.
Mr. Winston has agreed not to sell more than 10,000 shares of his Common Stock
during the 18-month period beginning July 2, 1996 except with the consent of the
underwriters of the Company's initial public offering.

     Pursuant to his employment agreement, Mr. Winston has granted Mr. Bitetti a
right of first refusal as to all Common Stock that Mr. Winston may from time to
time acquire.  Such first refusal right provides that before Mr. Winston offers
to sell any such Common Stock to any third party, he must first offer to sell
such shares to Mr. Bitetti on no less favorable terms than proposed to be
offered to the third party.  If Mr. Bitetti rejects such offer, Mr. Winston is
free to sell to the third party on terms no less favorable than offered to Mr.
Bitetti.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the ownership
of the Common Stock of the Company by (i) each person who is known to the
Company to own, of record or beneficially, more than five percent of the Common
Stock, (ii) each of the Company's directors and director nominees and (iii) all
directors and executive officers as a group.  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 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.

                                      -8-
<PAGE>
 
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER                                      SHARES BENEFICIALLY OWNED
-------------------                                -------------------------------------
                                                       SHARES                 PERCENT(1)
                                                     ----------               ----------
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
<S>                                                   <C>                     <C>
Vincent J. Bitetti(1)                                 1,234,634                   28.0%
26115 Mureau Road, Suite B,                                                        
Calabasas, California  91302

Ulrich E. Gottschling (2)                               200,000                    4.3%
26115 Mureau Road, Suite B,                                                          
Calabasas, California 91302

Ronald W. Hart(3)                                        10,000                      *
2200 Andover Square, #804                                                             
Little Rock, Arkansas 72227

Mark A. James(3)                                          5,000                      *
3404 Costa Verde Drive                                                                 
Las Vegas, Nevada  89102

Ernest T. Klinger(3)                                      5,000                      *
30165 Avenida Esplendida                                                            
Rancho Palos Verdes, California  90275

All directors, director nominees                      1,454,634                   31.4%
and executive officers as a                                                       
group (five persons)(2)

OTHER BENEFICIAL OWNERS
-----------------------
 
Louis A. Habash(4)                                    4,856,657                   52.6%
5075 Spyglass Hill Drive                                                          
Las Vegas, NV  89122

Eric H. Winston(5)                                      382,838                    8.2%
5567 Springhill Court                                                      
Westlake Village, CA 91362
</TABLE>

---------------- 
* Less than 1%

                                      -9-
<PAGE>
 
(1) Includes 100,000 shares of Common Stock which Mr. Winston is entitled to
    acquire from Mr. Bitetti pursuant to a presently exercisable option.  Does
    not include up to 282,838 shares that may be acquired by Mr. Winston from
    the Company pursuant to the options described in (5) below, as to all of
    which Mr. Bitetti has a right of first refusal.

(2) Includes 200,000 shares of Common Stock issuable to Mr. Gottschling under
    presently exercisable options.

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

(4) Includes 40,000 shares of Common Stock and 4,816,657 shares of Common Stock
    issuable upon exercise of presently exercisable redeemable warrants.  All
    such Common Stock and redeemable warrants are owned of record by ASSI, Inc.,
    of which Mr. Habash is the sole beneficial owner.

(5) Includes 282,838 shares of Common Stock issuable under stock options granted
    by the Company to Mr. Winston, which are presently exercisable.  Also
    includes 100,000 shares of Common Stock which Mr. Winston is entitled to
    acquire from Mr. Bitetti pursuant to a presently exercisable option.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


VOTING AGREEMENTS


     The Company has granted ASSI, Inc. and the underwriters for its initial
public offering, The Boston Group, L.P. and Joseph Stevens & Company, L.P., each
the right to nominate from time to time one director of the Company or to have
an individual designated thereby attend all Board meetings as a nonvoting
advisor.  In fiscal 1997, neither The Boston Group, L.P. nor Joseph Stevens &
Company, L.P. exercised its rights to nominate a director.  Mark A. James is the
director nominee of ASSI, Inc.


     Vincent J. Bitetti and Eric H. Winston have entered into voting agreements
with each of ASSI, Inc., The Boston Group, L.P. and Joseph Stevens & Co., L.P.
Pursuant to these agreements, Messrs. Bitetti and Winston have agreed to vote
all of their Common Stock for the director nominees of ASSI, Inc., The Boston
Group, L.P. and Joseph Stevens & Co., L.P.  In addition, ASSI, Inc. has agreed
to vote all of its shares of Common Stock for two directors nominated by Mr.
Bitetti as long as he holds at least 20 percent of the outstanding Common Stock,
and for one director nominated by Mr. Bitetti for as long as he holds at least
ten percent but less than 20 percent of the outstanding Common Stock.  Vincent
J. Bitetti has designated himself and Ulrich E. Gottschling as his nominees for
such purpose.  The voting agreements with ASSI, Inc. will terminate when Messrs.
Bitetti and Winston together cease to owe at least ten percent of the
outstanding Common Stock.


CERTAIN RELATIONSHIPS AND TRANSACTIONS

     In April 1995, Vincent J. Bitetti, for nominal consideration, granted Eric
H. Winston, the Company's former President and Chief Operating Officer, an
option to purchase 100,000 shares of the Common Stock owned by Mr. Bitetti at an
exercise price of $2.00 per share, such price determined to be the fair market
value by management.

     The Company conducted a private offering (the "Private Placement") during
September and October 1995, pursuant to which it sold 52.5 units (the "Units")
at a price of $100,000 per Unit.  Each Unit consisted of $95,000 principal
amount of the Company's 10% Secured Promissory Notes due 1996 (the "Notes") and
warrants to purchase 100,000 shares of Common Stock (the "Private 

                                     -10-
<PAGE>
 
Warrants"). ASSI, Inc. purchased a total of 11 Units pursuant to such Private
Placement, comprising $1,045,000 in principal amount of Notes and Private
Warrants to purchase 1,100,000 shares of Common Stock. Upon the completion of
the Company's initial public offering on July 8, 1996, all of the Notes were
repaid in full. The Company paid ASSI, Inc. $1,122,588 in satisfaction of the
Notes held by it. In addition, the Private Warrants were converted to redeemable
warrants, as more fully described below.

     Contemporaneously with the Private Placement, Vincent J. Bitetti, the
Company's Chairman of the Board and Chief Executive Officer, privately sold
107,500 shares of Common Stock for total cash consideration of $537,500.  ASSI,
Inc. purchased 40,000 of such shares for total cash consideration of $200,000.

     The Company entered into a Consulting Agreement with ASSI, Inc. dated April
30, 1996.  Pursuant to that agreement, ASSI, Inc. agreed to provide certain
consulting services to the Company, including advising the Company regarding
executive recruiting.  In consideration of the services to be provided by ASSI,
Inc. pursuant to the Consulting Agreement, on April 30, 1996, the Company issued
to ASSI, Inc. warrants to purchase 2,000,000 shares of Common Stock at an
exercise price of $4.40 per share.  Pursuant to the Consulting Agreement, the
Company also agreed to certain changes to the terms of the Private Warrants held
by ASSI, Inc. as described below.

     On May 30, 1996, the Company entered into a Note Purchase Agreement with
ASSI, Inc. pursuant to which ASSI, Inc. loaned the Company $500,000 (the "ASSI
Convertible Loan").  The ASSI Convertible Loan bore interest at the rate of
eight percent per annum.  The principal of and all accrued interest on the ASSI
Convertible Loan was due in full on the earlier of September 1, 1996 or the
closing date of the Company's initial public offering, which occurred on July 8,
1996.  Upon the closing of the Company's initial public offering, ASSI, Inc.
exercised its option to convert all of the ASSI Convertible Loan into warrants
to purchase Common Stock at a conversion price of $.25 per warrant.  Warrants to
purchase a total of 2,016,657 shares of Common Stock were issued upon the
conversion of the ASSI Convertible Loan.

     Upon the completion of the Company's initial public offering on July 8,
1996, the terms of all of the warrants held by ASSI, Inc. became substantially
the same as those of the redeemable warrants issued by the Company in the
initial public offering except that (i) they became exercisable October 1, 1996,
(ii) they are not mandatorily redeemable by the Company and (iii) they are
subject to separate registration rights, including one demand registration right
and unlimited piggy-back registration rights for as long as they are held by
ASSI, Inc. or one of its affiliates.  Upon a transfer of the ASSI warrants to
any nonaffiliate of ASSI, Inc., the terms of such transferred ASSI warrants will
become identical to those of the Company's redeemable warrants.  The demand
registration rights will expire on August 31, 2001.  Until and unless exercised,
the holders of the ASSI warrants will have no voting, dividend or other rights
as stockholders of the Company.


     Mark A. James, a director of the Company, is also a member of the law firm
of James, Driggs & Welch, which performed legal services on behalf of the
Company in fiscal 1997.

                                     -11-
<PAGE>
 
                                 SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Registrant has caused this Amendment No. 1 to
be signed on its behalf by the undersigned thereunto duly authorized.

Date:  October 27, 1997         SOUND SOURCE INTERACTIVE, INC.



                                By /s/ Vincent J. Bitetti
                                   ------------------------------------
                                   Vincent J. Bitetti, Chairman of the 
                                   Board and Chief Executive Officer

 



Date:  October 27, 1997         By /s/ Ulrich E. Gottschling
                                   ------------------------------------
                                   Ulrich E. Gottschling, Chief Financial
                                   Officer Treasurer and Secretary 
                                   (principal financial and accounting officer)

                                     -12-