SOUND SOURCE INTERACTIVE INC /DE/, SB-2/A, 1996-05-09

SOUND SOURCE INTERACTIVE INC /DE/
SB-2/A, 1996-05-09
PREPACKAGED SOFTWARE

Previous: PROXYMED INC /FT LAUDERDALE/, 424B3, 1996-05-09

Next: DUAL DRILLING CO /DE/, 10-K/A, 1996-05-09

<PAGE>

As filed with the Securities and Exchange Commission on May 9, 1996
Registration No. 33-80827

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------

PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SOUND SOURCE INTERACTIVE, INC.
(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7372 95-4264046
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

2985 E. Hillcrest Drive, Suite A
Westlake Village, California 91362
(805) 494-9996
(Address and Telephone Number of
Principal Executive Offices)

Vincent J. Bitetti
Chief Executive Officer
2985 E. Hillcrest Drive, Suite A
Westlake Village, California 91362
(805) 494-9996
(Name, Address and Telephone Number
of Agent for Service)
_____________________
Copies to:
<TABLE>
<S> <C>
Sean P. McGuinness, Esq. Catherine DeBono Holmes, Esq.
McDermott, Will & Emery Jeffer, Mangels, Butler & Marmaro LLP
1850 K Street, N.W. 2121 Avenue of the Stars
Suite 500 10th Floor
Washington, D.C. 20006 Los Angeles, California 90067
(202) 887-8000 (310) 203-8080
Fax: (202) 778-8087 Fax: (310) 203-0567
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / x /
__________________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
(Continued on next page)

<PAGE>

(Continued from previous page)

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered Per Security(1) Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
("Common Stock")(2) . . . . . . . . . 2,867,500 (sh) $ 4.00 $11,470,000.00 $3,955.17
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants
(the "Redeemable Warrants")(3) . . . . 7,069,665 (wt) .25 1,767,416.25 609.45
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Redeemable Warrants and
ASSI Warrants(4) . . . . . . . . . . . 9,069,665 (sh) 4.40 39,906,526.00 13,760.87
- -----------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants. . . . . . . . 2 (wt) 50.00 50.00 .02
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Representative's Warrants . 240,000 (sh) 4.80 1,152,000.00 397.24
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants issuable upon
exercise of Representative's Warrants 120,000 (wt) .30 36,000.00 12.41
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Redeemable Warrants issuable
upon exercise of Representative's Warrants 120,000 (sh) 4.80 576,000.00 198.62
- -----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee . . . . . . . . . $18,933.78(5)
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Includes: (i) 2,400,000 shares of Common Stock registered for the account
of the Registrant, (ii) 340,000 shares of Common Stock registered for the
account of the Registrant and 20,000 shares of Common Stock registered for
the account of certain selling stockholders which the Underwriters have the
option to purchase to cover over-allotments, if any, and (iii) 107,500
shares of Common Stock registered for the account of certain Selling
Security Holders.

(3) Includes: (i) 1,200,000 Redeemable Warrants registered for the account of
the Registrant, (ii) 5,689,665 Redeemable Warrants registered for the
account of certain Selling Security Holders, and (iii) 180,000 Redeemable
Warrants registered for the account of the Registrant which the
Underwriters have the option to purchase to cover over-allotments, if any.

(4) Includes: (i) 1,200,000 shares of Common Stock issuable by the Registrant
upon exercise of Redeemable Warrants which Redeemable Warrants are being
registered for the account of the Registrant, (ii) 5,689,665 shares of
Common Stock issuable by the Registrant upon exercise of Redeemable
Warrants which Redeemable Warrants are being registered for the account of
certain Selling Security Holders, (iii) 2,000,000 shares of Common Stock
issuable by the Registrant upon issuance of warrants held by ASSI, Inc.,
and (iv) 180,000 shares of Common Stock issuable by the Registrant upon
exercise of Redeemable Warrants which the Underwriters have the option to
purchase to cover over-allotments, if any.

(5) A registration fee of $23,318.76 was paid with the initial filing of this
Registration Statement. Consequently, no registration fee is being paid
with this filing.

Pursuant to Rule 416, there are also being registered hereby such
additional indeterminate number of shares of such Common Stock as may become
issuable by reason of stock splits, stock dividends and similar adjustments as
set forth in the provisions of the Redeemable Warrants and the Representative's
Warrant.

<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two Prospectuses.

The first Prospectus forming a part of this Registration Statement is to be
used in connection with the underwritten public offering of: 2,760,000 shares
of the Registrant's Common Stock (including 360,000 shares of Common Stock
subject to the Underwriters' over-allotment option); and 1,380,000 of the
Registrant's Redeemable Warrants (including 180,000 Redeemable Warrants subject
to the Underwriters' over-allotment option), and immediately follows the Cross
Reference Sheet.

The second Prospectus forming a part of this Registration Statement is to
be used in connection with the sale from time to time by the Company and certain
nonaffiliated selling security holders of the Company of: 107,500 shares of
Common Stock being sold by the nonaffiliated selling security holders; 5,689,665
Redeemable Warrants being sold by the nonaffiliated selling security holders;
5,689,665 shares of Common Stock underlying the nonaffiliated selling security
holders' Redeemable Warrants issuable by the Company upon exercise of such
Redeemable Warrants; 2,000,000 shares of Common Stock underlying the ASSI
Warrants issuable by the Company upon exercise of such ASSI Warrants; and
1,380,000 shares of Common Stock underlying the Registrant's Redeemable Warrants
issuable by the Company upon exercise of such Redeemable Warrants. The second
Prospectus will consist of (i) the cover page and inside cover page of the
second Prsospectus, (ii) pages 3 through 76 of the first Prospectus (other than
the sections entitled "Resale of Outstanding Securities" and "Underwriting") and
pages F-1 through F-32 of the first prospectus, (iii) pages SS-3 through SS-5
(which will appear in place of the section entitled "Resale of Outstanding
Securities"), (iv) page SS-6 (which will appear in place of the section entitled
"Underwriting") and (v) the back cover page, which is the last page of the
second Prospectus.

<PAGE>

SOUND SOURCE INTERACTIVE, INC.

Cross-Reference Sheet
showing location in each Prospectus of
Information Required by Items of Form SB-2

FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUSES
- ---------------------------------- --------------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus . . . . . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus . . . . . Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information and Risk Factors. . . . . . . . . . . . . . . Prospectus Summary;
Risk Factors; Business
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . . . . Outside Front Cover Page;
Risk Factors; Underwriting
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security-Holders. . . . . . . . . . . . . . . . . . . . . Selling Security Holders
8. Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page;
Risk Factors; Underwriting
9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . Business -- Legal Matters
10. Directors, Executive Officers, Promoters and Control Persons. . . Business; Management --
Executive Officers and Directors
11. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . . . . . . . . . . Principal Stockholders
12. Description of Securities . . . . . . . . . . . . . . . . . . . . Description of Securities
13. Interest of Named Experts and Counsel . . . . . . . . . . . . . . Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . . . . . . Underwriting
15. Organization Within Last Five Years . . . . . . . . . . . . . . . Business
16. Description of Business . . . . . . . . . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis or Plan of Operation . . . . Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property . . . . . . . . . . . . . . . . . . . . . Business
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . Management;
Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . Risk Factors;
Description of Securities;
Underwriting; Management
-- Executive Compensation
21. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . Management
-- Executive Compensation
22. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . Financial Statements

23. Changes in and Disagreements With Accountants
On Accounting and Financial Disclosure . . . . . . . . . . . . . Not Applicable

</TABLE>

<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED MAY 9, 1996

PROSPECTUS

[SOUND SOURCE
INTERACTIVE, INC. LOGO]

2,400,000 SHARES OF COMMON STOCK AND
1,200,000 REDEEMABLE WARRANTS

------------------

Sound Source Interactive, Inc. (the "Company") hereby offers 2,400,000
shares (the "Shares") of common stock, par value $.001 per share (the "Common
Stock"), and 1,200,000 redeemable warrants (the "Redeemable Warrants") (the
Shares and the Redeemable Warrants offered hereby by the Company are sometimes
collectively referred to herein as the "Securities"). The Shares and the
Redeemable Warrants will be separately tradeable immediately upon issuance and
may be purchased separately. It is currently anticipated that the initial public
offering price will be $4.00 per share of Common Stock and $.25 per Redeemable
Warrant. Each Redeemable Warrant entitles the holder thereof to purchase one
share of Common Stock at a purchase price equal to 110 percent of the initial
public offering price per share, subject to adjustment, at any time during the
54-month period commencing one year after the date of this Prospectus, and is
redeemable by the Company at a redemption price of $.25 per Redeemable Warrant,
commencing one year after the date of this Prospectus, provided that the average
closing bid price of the Common Stock equals or exceeds 140 percent of the
initial public offering price 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 of redemption. See "Description Securities -- Redeemable
Warrants."

------------------------

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" COMMENCING
ON PAGES 10 AND 26, RESPECTIVELY.

---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share....................... $4.00 $.400 $3.600
Per Redeemable Warrant.......... .25 .025 .125
Total (3)....................... 9,900,000.00 990,000.000 8,910,000.000
</TABLE>

(1) Does not include additional compensation to the Representatives in the form
of a nonaccountable expense allowance equal to three percent of the gross
offering proceeds. For indemnification arrangements with, and additional
compensation payable to, the Underwriters, see "Underwriting."

(2) Before deducting expenses of this offering payable by the Company, estimated
at approximately $600,000 in the aggregate, including the Representatives'
nonaccountable expense allowance.

(3) For the purpose of covering over-allotments, if any, the Company and certain
affiliated selling stockholders have granted to the Underwriters an option,
exercisable within 45 days from the date of this Prospectus, to purchase up
to 360,000 additional shares of Common Stock and/or up to 180,000 additional
Redeemable Warrants. If such over-allotment option is exercised in full, the
total Price to Public, Underwriting Discounts and Proceeds to Company will
be $11,385,000.00 and $1,138,500.00 and $10,246,500.00, respectively. See
"Underwriting."

The Securities are offered by the Underwriters, when, as and if delivered to
and accepted and subject to their right to withdraw, cancel or modify this
offering and to reject any orders in whole or in part. It is expected that
delivery of the Securities will be made on or about , 1996.

------------------------

THE BOSTON GROUP, L.P. JOSEPH STEVENS & COMPANY, L.P.

The date of this Prospectus is , 1996
<PAGE>

[COVER ART]

Prior to this offering, there has been no public market for the Securities
and there can be no assurance that a market for the Securities will develop or,
if a market develops, that it will be sustained. The Common Stock and
Redeemable Warrants have been approved for quotation on the Nasdaq SmallCap
Market under the symbols SSII and SSIIW for the Common Stock and Redeemable
Warrants, respectively. The initial public offering prices for the Common Stock
and Redeemable Warrants and the exercise price of the Redeemable Warrants have
been determined by negotiation between the Company and The Boston Group, L.P.
and Joseph Stevens & Company, L.P., as representatives (the "Representatives")
of the several Underwriters, and are not necessarily related to the Company's
asset value, net worth or other established criteria of value. See "Risk
Factors" and "Underwriting."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE REDEEMABLE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements, with a report thereof by its
independent certified public accountant, and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.

<PAGE>

[SOUND SOURCE LOGO]

From the silver screen to the computer, our Interactive MovieBooks-TM- combine
the fun of movies with the educational value of a book. Designed for young
children, these CD-ROMs make reading fun with movie clips, pictures, sound
effects, animation and other surprises.

Our "Talking Utilities" give your PC personality. Audio clips of your favorite
heroes and villains-plus authentic sound effects-can be assigned to computer
functions and application events.

From startup to shutdown, and a ton of places in between, AudioClips are the
only way to have fun while you work (and get away with it). Each package is a
collector's item, desktop diversion and functional utility all in one!

Our unique line of Entertainment Utilities features something for every fan of
pop culture: Babylon 5-TM-, Star Wars-Registered Trademark- Trilogy, Saturday
Night Live-Registered Trademark-, The Twilight Zone-TM- and Terminator 2-TM-:
Judgment Day. Combining original animation, stylized stills and authentic
AudioClips, our

CHILDREN'S EDUCATION/ENTERTAINMENT

[GRAPHICS]

AUDIOCLIPS

[GRAPHICS]

<PAGE>

entertainment utilities put the FUN in functional.

In summer of 1996, the company will introduce its first Creativity Centers for
children based on popular franchises and major motion pictures.

The company targets the growing audience of home PC users who value high
quality, fully-featured, fun and easy to use software for themselves and their
children. Sound Source interactive products are available at thousands of retail
outlets, selling for $15.00 to $30.00.

ENTERTAINMENT UTILITIES AND SCREEN SAVERS

[GRAPHICS]

<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

Sound Source Interactive, Inc. (the "Company") is engaged primarily in
developing, publishing and marketing educational, interactive computer software
for children. MOVIEBOOKS-TM-, which combine text, photos, sound clips and
actual film footage of well recognized family films and cartoon series, are the
Company's major software products. MOVIEBOOKS-TM- are developed and published
by the Company on compact disk-read only memory ("CD-ROM") for multimedia
personal computers ("Multimedia PCs") as entertaining, interactive reading tools
for young children. The Company also produces a variety of entertainment
computer software utilities which incorporate screen savers, sound clips known
as AUDIOCLIPS-REGISTERED TRADEMARK- and other content based on entertainment
properties. The new entertainment utilities are marketed as limited edition
serialized collector editions. The Company is currently developing another line
of products which it refers to as creativity centers. This product line
combines learning activities such as painting, drawing, matching, puzzles and
mazes within a framework of three distinct skill levels.

The Company's products are based on licensed content of major motion
pictures and television shows under agreement with major entertainment studios
including Viacom Consumer Products (as agent for Paramount Pictures Corp.),
Lucasfilm Ltd., Warner Bros. Consumer Products, CBS Entertainment, MCA/Universal
Merchandising, Inc., Carolco Pictures, Inc., DC Comics, MGM/UA Merchandising,
Inc. and others. The Company's license agreements for existing products include
BABE-TM-, LASSIE-TM-, THE LITTLE RASCALS-TM-, BLACK BEAUTY-TM-, THE ADVENTURES
OF BATMAN AND ROBIN-TM-, TERMINATOR 2: JUDGMENT DAY-TM-, the STAR WARS-TM-
trilogy, FREE WILLY 2-TM-, THE SECRET GARDEN-TM-, STAR TREK-TM-, SATURDAY NIGHT
LIVE-TM-, THE TWILIGHT ZONE-TM-, TOTAL RECALL-TM- and other popular titles. The
Company also holds licenses for new products currently being developed for
release in 1996 on ALL DOGS GO TO HEAVEN II-TM-, THE LAND BEFORE TIME-TM-,
DRAGON HEART-TM- and I LOVE LUCY-TM-. The Company is continuing the negotiation
of additional licenses for its MOVIEBOOKS-TM-, AUDIOCLIPS-REGISTERED TRADEMARK-,
entertainment utilities, creativity centers and screen savers. Management
believes the Company is capable of continuing to obtain new licenses for major
motion pictures and television shows and developing new, high quality software
products using content from these entertainment properties.

The powerful capabilities and declining price of Multimedia PCs have
enabled it to draw acceptance as an all purpose, functional educational and
entertainment product for home and school use. Industry sources state that the
installed base of Multimedia PCs exceeds 9,000,000 units. The technological
capabilities of the Multimedia PC itself have allowed the Company to produce
interactive software that is "user friendly" while maintaining what management
believes are high standards in design, sound quality, three-dimensional sound
effects and quality duplication of motion picture footage. Management believes
that the Company is well positioned to participate in this market not only
through expansion of its existing software products but through development
opportunities in other media formats, such as interactive television, virtual
reality and the Internet.

-3-
<PAGE>

Electronics Boutique, Babbages, Software, Etc., Kmart, Barnes & Noble, Sam
Goody, Sam's Club, QVC, Musicland, Circuit City, Blockbuster Video and others.

The Company's strategy is to focus primarily on developing nonviolent,
family-oriented products with educational and entertainment value, which are
based on popular movies, television series and comic book characters and are
easy to use and install. The Company plans to develop a broad line of products,
to upgrade successful products and to develop product line extensions and
complementary products. Among other products the Company intends to develop
games based on licensed content. The Company intends to keep development costs
as low as possible by utilizing existing technologies and externally developed
programming, which will enable the Company to maintain prices which appeal to
the mass market.

The Company's objective is to be a leading publisher of high quality, value
priced, family oriented software. To achieve this objective, the Company
intends to (i) focus primarily on developing nonviolent products with
educational and entertainment value which are based on popular movies,
television series and comic book characters and are easy to use and install,
(ii) develop a broad line of products, upgrade successful products and develop
product line extensions and complementary products, (iii) leverage studio
relationships to develop cross-marketing promotional programs, (iv) promote
tradename recognition, (v) utilize existing technologies and externally
developed programming which the Company believes will enable it to maintain
prices which appeal to the mass market, (vi) leverage its licensed content to
develop products intended for the game market, (vii) pursue strategic alliances
and acquisitions.

The Company is located at 2985 East Hillcrest Drive, Suite A, Westlake
Village, California 91362. Its telephone number is (805) 494-9996. Its
facsimile number is (805) 379-3446.

-4-
<PAGE>

THE OFFERING

Securities Offered
by the Company. . . . . . . . . . . 2,400,000 shares of Common Stock
and 1,200,000 Redeemable Warrants.
Each Redeemable Warrant entitles
the holder thereof to purchase one
share of Common Stock. The Common
Stock and Redeemable Warrants will
be purchased and traded separately
commencing on the date of this
Prospectus. See "Description of
Securities."

Terms of the
Redeemable Warrants . . . . . . . . Each Redeemable Warrant will
entitle the holder to purchase one
share of Common Stock at a price of
110 percent of the initial public
offering price per share, subject
to adjustment, during the 54-month
period commencing one year after
the date of this Prospectus. In
the event that the Redeemable
Warrants are called for redemption,
they will be exercisable for 30
days preceding the applicable
redemption date.
Redemption of the
Redeemable Warrants . . . . . . . . Commencing one year after the date
this Prospectus, the Redeemable
Warrants will be subject to
redemption at $.25 per Redeemable
Warrant if the average closing bid
price of the Common Stock equals or
exceeds 140 percent of the initial
public offering price 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 of
redemption. See "Description of
Securities -- Redeemable Warrants."
Shares of Common Stock
Outstanding:

Prior to the offering . . . . . . . 1,808,291 shares.
After the offering . . . . . . . . 4,208,291 shares, or 4,558,291
shares if the Underwriters' over-
allotment option is exercised. Of
the 360,000 shares subject to the
Underwriters' over-allotment
option, 340,000 are being offered
by the Company and 20,000 are being
offered by two affiliated
stockholders. Of the 20,000 shares
being offered by two affiliated
stockholders, 10,000 shares are
currently issued and outstanding
and 10,000 are subject to a
presently exercisable stock option.
See "Principal and Selling
Stockholders." Up to 10,110,183
additional shares may be issued in
the future under the Redeemable
Warrants offered hereby and options
and warrants that are outstanding
or agreed to be issued.

-5-
<PAGE>

Use of Proceeds. . . . . . . . . . . . . The Company intends to use the net
proceeds of this offering to repay
notes issued to investors in the
Company's 1995 Private Placement
(as defined below) in the aggregate
principal amount of $4,987,500
(plus accrued interest estimated at
$242,500 as of March 31, 1996), to
obtain additional licenses, to pay
sales and marketing costs, to make
capital expenditures and for
working capital. See "Use of
Proceeds" and "Certain Transactions
-- 1995 Private Placement."

Nasdaq Symbols:

Common Stock. . . . . . . . . . . . SSII

Redeemable Warrants . . . . . . . . SSIIW

Risk Factors . . . . . . . . . . . . . . An investment in the Common Stock
and Redeemable Warrants involves a
high degree of risk and immediate
substantial dilution. See "Risk
Factors" and "Dilution."

Consulting Arrangement . . . . . . . . . On April 30, 1996, the Company
entered into a consulting agreement
with ASSI, Inc., which also is a
creditor of the Company. Pursuant
to that agreement, ASSI, Inc. has
agreed to provide certain financial
and personnel consulting services
to the Company, in consideration
for which the Company has issued to
ASSI, Inc. warrants (the "ASSI
Warrants") to purchase 2,000,000
shares of Common Stock at an
exercise price of $4.40 per share,
which will become exercisable
September 1, 1996. See "Certain
Transactions -- Agreements With
ASSI, Inc."

-6-
<PAGE>

Resale of Outstanding Securities;
Issuance of Common Stock
Underlying Redeemable Warrants . . . . . A separate Prospectus is being
filed with the Registration
Statement of which this Prospectus
is a part which relates to the
registration by the Company, at its
expense, for the account of certain
security holders (the "Selling
Security Holders") and for the
account of the Company, of (i)
107,500 shares of Common Stock and
5,689,665 warrants (unless
otherwise indicated, such warrants
and the Redeemable Warrants offered
hereby by the Company are
collectively referred to as
"Redeemable Warrants") previously
issued by the Company to the
Selling Security Holders, (ii)
7,069,665 shares of Common Stock
issuable by the Company upon the
exercise of the Redeemable
Warrants, and (iii) 2,000,000
shares of Common Stock issuable by
the Company upon the exercise of
the ASSI Warrants. The 107,500
shares of Common Stock, 5,689,665
Redeemable Warrants and 9,069,665
shares of Common Stock issuable
upon the exercise of the Redeemable
Warrants and ASSI Warrants being so
offered for sale by the Selling
Security Holders are sometimes
collectively referred to as the
"Selling Security Holders'
Securities." The Selling Security
Holders' Securities are not being
underwritten in this offering and
the Company will not receive any
proceeds from the sale of the
Selling Security Holders'
Securities. The Common Stock and
Redeemable Warrants being
registered for the account of the
Selling Security Holders may be
sold by the Selling Security
Holders or their transferees
commencing on the third business
day from the date of this
Prospectus. See "Risk Factors --
Sale of Certain Outstanding
Securities," "Certain Transactions"
and "Resale of Outstanding
Securities."

-7-
<PAGE>

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------ --------------------------
Statement of Operations Data 1994 1995 1994 1995
- --------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Retail software sales. . . . . . . . . . . . 1,313,890 1,255,230 1,006,849 1,077,547
OEM sales . . . . . . . . . . . . . . . . . 5,500 479,675 389,979 21,466
Development agreement
revenues . . . . . . . . . . . . . . . 112,520 343,250 127,250 0
Royalties . . . . . . . . . . . . . . . . . 253,961 76,771 76,253 21,678
Net sales from continuing
operations. . . . . . . . . . . . . . . 1,685,871 2,154,926 1,600,331 1,120,691
Gross profit . . . . . . . . . . . . . . . . 505,068 1,082,235 643,963 438,181
Noncash compensation expense
recorded in connection with
Common Stock and Common Stock
options issued for services . . . . . . 2,992,862 733,165 193,332 0
Other expenses . . . . . . . . . . . . . . . 1,374,052 1,940,124 886,272 2,448,553
Loss from continuing operations. . . . . . . (3,861,846) (1,591,054) (435,641) (2,010,372)
Loss from discontinued operations. . . . . . (115,887) (143,106) (13,376) 0
Net loss . . . . . . . . . . . . . . . . . (3,977,733) (1,734,160) (449,017) (2,010,372)
Loss per common share from
continuing operations . . . . . . . . . (2.38) (0.85) (0.23) (1.08)
Loss per common share from
discontinued operations . . . . . . . . (0.07) (0.08) (0.01) 0
Net loss per common share. . . . . . . . . . (2.45) (0.93) (0.24) (1.08)
Weighted average number of
common shares outstanding(1). . . . . . 1,626,107 1,862,908 1,869,998 1,868,145
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1995
-----------------------------
Balance Sheet Data Actual As Adjusted(1)
- ------------------------------------------- ------------ --------------
<S> <C> <C>
Working Capital. . . . . . . . . . . . . . . (2,913,040) 4,666,092
Total assets . . . . . . . . . . . . . . . . 4,165,858 6,533,154
Current liabilities. . . . . . . . . . . . . 6,873,471 1,661,635
Long term debt . . . . . . . . . . . . . . . 25,601 25,601
Stockholder equity (deficit) . . . . . . . . (2,733,214) 4,845,918

</TABLE>

- ---------------------------------
(1) Unless otherwise indicated, all share and per share information in this
Prospectus gives effect to a 9.25-for-1 stock split effected in May 1994
and a 1-for-5.976 reverse stock split effected in September 1995. Unless
otherwise indicated, such share and per share information does not give
effect to: (i) the exercise of the Underwriters' over-allotment option to
purchase up to 360,000 shares of Common Stock and 180,000 Redeemable
Warrants; (ii) the issuance of 1,200,000 shares of Common Stock underlying
the Redeemable Warrants being offered by the Company; (iii) the issuance of
5,689,665 shares of Common Stock underlying the Redeemable Warrants and
2,000,000 shares of Common Stock underlying the ASSI Warrants being offered
by the Selling Security Holders; (iv) the issuance of 180,000 shares of
Common Stock underlying the Redeemable Warrants included in the
Underwriters' over-allotment option; (v) the

-8-
<PAGE>

exercise of a warrant granted to the Representative (the "Representative's
Warrant") to purchase up to 240,000 shares of Common Stock and/or 120,000
Redeemable Warrants; (vi) the issuance upon exercise of the
Representative's Warrant of 240,000 shares of Common Stock, 120,000
Redeemable Warrants or 120,000 shares of Common Stock issuable upon
exercise of such Redeemable Warrants; (vii) the issuance of 384,070 shares
of Common Stock underlying options granted pursuant to the Company's 1992
Stock Option Plan; (viii) 500,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1995 Stock Option Plan, as to which the
Company has granted no options and has agreed to grant 13,610 options; or
(ix) the issuance of 292,838 shares of Common Stock underlying options held
by the Company's President.

(2) As adjusted to reflect the issuance of 2,400,000 shares of Common Stock at
an assumed initial public offering price of $4.00 per share and 1,200,000
Redeemable Warrants at an assumed initial public offering price of $.25 per
Redeemable Warrant, net of the expenses of the offering (estimated at
$990,000 for the Underwriter's discount and $600,000 for expenses,
including the Representatives' three percent nonaccountable expense
allowance) and repayment of all of the Company's funded indebtedness
(estimated at $5,105,676 at December 31, 1995) with a portion of such
proceeds. The as adjusted amounts do not reflect the issuance of up to
340,000 shares of Common Stock and 180,000 Redeemable Warrants by the
Company to cover over-allotments, if any, the exercise of the
Representative's Warrant to purchase up to 240,000 shares of Common Stock
and/or 120,000 Redeemable Warrants, or the exercise of any other
outstanding (or agreed to be issued) options or warrants to purchase up to
an additional 10,120,183 shares of Common Stock.

-9-
<PAGE>

RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THE PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT.

PRODUCT DISTRIBUTION

The Company was not satisfied with the distribution of its products through
Acclaim, and determined to terminate the Acclaim distribution agreement in March
1996. The Company and Acclaim have terminated the distribution agreement as of
April 30, 1996. On or before June 30, 1996, Acclaim will render a final
accounting to the Company together with payment of the balance of any amounts
due to the Company under the distribution agreement. Acclaim has notified its
accounts that it will not accept returns of any of the Company's software
products after June 30, 1996. The Company, however, will remain liable for all
such returns regardless of when received by Acclaim.

The Company believes it has the ability to distribute its products through
nonexclusive software distributors and by means of direct sales to major
computer and software retailers. The Company further believes that it could
generate sales sufficient to allow it to operate profitability without a major
exclusive distribution relationship similar to its past relationship with
Acclaim. Nevertheless, the Company believes that it is possible to generate
higher sales to mass marketers through an exclusive affiliate distributor, and
that the attendant risk of collection of accounts can be mitigated. Therefore,
the Company is currently in the process of negotiating distribution agreements
with potential new exclusive distributors. There can be no assurance, however,
that the Company will be successful in entering into any such distribution
agreements, or that the terms of any such distribution agreement will be
favorable to the Company. If the Company fails to enter into satisfactory
distribution agreements, there also can be no assurance as to its ability to
market its products directly. Moreover, even if the Company does enter into one
or more such distribution agreements, there can be no assurance that any new
distributor will successfully market the Company's products. The Company may
experience a loss of sales momentum as a result of the termination of the
Acclaim distribution agreement, even if the Company enters into agreements with
new distributors. See "Business -- Product Distribution."

PRODUCT RETURNS; COLLECTION OF ACCOUNTS RECEIVABLE; CREDIT RISK

Under the Acclaim distribution agreement, Acclaim was required to make
payments to the Company for all products shipped to retailers within 120 days of
their shipment, net of commissions earned by Acclaim. Thereafter, all risks
associated with collection of accounts receivable with respect to all products
sold by the Company through Acclaim were solely the responsibility of Acclaim.
In the event of any product returns by retailers, the Company was responsible
for return of payments made for the products to the retailers, whereas the risk
of product returns remained with the Company. On product sales made directly by
the Company, which included all sales by means of direct mail,

-10-
<PAGE>

"infomercials," television home shopping and "bundling" agreements with original
equipment manufacturers, all risks of both collections and product returns were
retained by the Company.

After the termination of the Acclaim distribution agreement, and until such
time as the Company enters into a new exclusive distribution agreement (which
cannot be assured), the Company will bear all the risks of collection of
accounts receivable and acceptance of product returns on all of its sales.

The Company expects to remain responsible for product returns from retail
outlets for all products sold by it following the termination of the Acclaim
Distribution Agreement. The Company has maintained and will continue to
maintain a reserve for product returns equal to a percentage of all sales booked
based upon historical and current sell through information. It is difficult for
the Company to ascertain current demand for its existing products and
anticipated demand for newly introduced products. Accordingly, the Company will
be exposed to the risk of product returns from retailers and distributors.
There can be no assurance that actual returns and uncollectible receivables will
not exceed the Company's reserves. Any significant increase in product returns
or uncollected accounts receivable beyond reserves could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Sales and Marketing."

PAST OPERATING LOSSES; GOING CONCERN QUALIFICATION

The Company sustained net losses of $3,977,733 and $1,734,160 for the
fiscal years ended June 30, 1994 and 1995, respectively, and a net loss of
$2,010,372 for the six months ended December 31, 1995. The Company's losses
include noncash charges attributable to Common Stock and options for the
purchase of Common Stock issued for services rendered of $2,992,862 and $733,165
for the fiscal years ended June 30, 1994 and 1995, respectively. See generally
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company will continue to sustain losses unless it can further
increase product sales.

In their report respecting the Company's results of operations for its
fiscal year ended June 30, 1995, the Company's auditors state that the Company's
recurring losses from operations, its excess of current liabilities over current
assets and its stockholders' deficit raise substantial doubt about its ability
to continue as a going concern. See "Independent Auditors' Report."

LIMITED HISTORY OF BUSINESS OPERATIONS

The Company has limited operating history. The Company conducted
substantially no business prior to its acquisition of the Subsidiary (as
hereinafter defined) in 1994. The Subsidiary itself commenced operations
originally as a nonincorporated entity in 1988. The Subsidiary's revenues
originally were derived from the sale of sound patches for music synthesizers.
Since 1993, revenues and income have been predominately derived from
entertainment utilities software for Macintosh and IBM-compatible computers
incorporating content licensed from major motion picture studios.

NEW BUSINESS RISKS FOR THE LICENSED SOFTWARE PRODUCTS

The business of creating and marketing licensed software derived from
motion pictures is a new and evolving industry, which will be subject to a
number of risks, including trends in personal computer sales, changes in
available technology and changes in the competition for licenses to develop
software derived from motion pictures. Changes in these factors could have a
material adverse effect on the Company's revenues and potential profitability.
In 1994, the Company entered the multimedia interactive educational software
market. As a result, the Company believes that period-to-period

-11-
<PAGE>

comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indication of its future performance.

COMPETITION

The market for the Company's consumer software products is intensely and
increasingly competitive. Existing consumer software companies may broaden
their product lines to compete with the Company's products, and potential new
competitors, including computer hardware or software manufacturers, diversified
media companies and book publishing companies, may enter or increase their focus
on the consumer software market, resulting in even greater competition for the
Company. Many of the companies with which the Company currently competes or may
compete in the future have greater financial, technical, marketing, sales and
customer support resources, as well as greater name recognition and better
access to consumers, than the Company. The competition for retail shelf space
is also likely to increase due to the continued proliferation of consumer
software products and companies. In addition, to the extent that competitors
achieve performance, price or other selling advantages, the Company could be
materially adversely affected. There can be no assurance that the Company will
have the resources required to respond effectively to market or technological
changes or to compete successfully in the future. In addition, increasing
competition in the consumer software market may cause prices to fall, which may
materially adversely affect the Company's business, operating results and
financial condition.

The Company has entered into license agreements with Viacom Consumer
Products (as agent for Paramount Pictures Corp.), Lucasfilm Ltd., Warner Bros.
Consumer Products, CBS Entertainment, MCA/Universal Merchandising, Inc., Carolco
Pictures Inc., DC Comics, MGM/UA Merchandising, Inc. and others. Several of
these major motion picture studios now have captive software divisions. As
these types of software products become better known in the marketplace, these
profit centers may begin to vie for their studio's products. Management
believes that Disney, Lucasfilm and Paramount/Viacom are currently the most
active studios in publishing their own product to create software packages.
Fox, Universal Pictures, Sony Pictures and Warner Bros. each have announced the
formation of their own interactive computer software divisions to publish
software products using their own licensed content, which could have a material
adverse effect on the Company's ability to renew existing licenses or obtain new
licenses for additional movie titles. The establishment of these divisions may
limit the Company's ability to obtain licenses from the studios involved, which
in turn could reduce the Company's potential product offerings. To date, the
Company has had ample product licensing opportunities, and management believes
that even if some sources are lost due to the establishment of interactive
software divisions by some motion picture studios, there will continue to be
multiple sources of licensing for the Company's new products. There can be no
assurance, however, that the Company will have sufficient product licensing
opportunities in the future. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL; SUBSTANTIAL MANAGEMENT COMPENSATION

The Company's success depends to a significant extent on the performance
and continued service of its senior management and certain key employees. In
particular, the loss of the services of Vincent J. Bitetti, Chairman of the
Board and Chief Executive Officer, could have a material adverse effect on the
Company. Mr. Bitetti has agreed to work full-time for the Company and has
signed an employment agreement for the period ending September 15, 1998.
Competition for highly skilled employees with technical, management, marketing,
sales, creative product development and other specialized training is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel. In addition, there can be no assurance that
employees will not leave the Company or compete against the Company. The
Company's failure to attract additional qualified employees or to retain the
services of key personnel could have a material adverse effect on

-12-
<PAGE>

the Company's business, operating results and financial condition. The Company
is the beneficiary of a $1,000,000 life insurance policy on Vincent J. Bitetti,
Chairman of the Board and Chief Executive Officer, a $2,000,000 life insurance
policy on Eric H. Winston, President and Chief Operating Officer, and a $500,000
life insurance policy on Ulrich Gottschling, Chief Financial Officer, but does
not currently maintain life insurance on any of its other employees. See
"Management -- Directors and Executive Officers" and "-- Employment Agreements."
Following this offering, the Company intends to obtain an additional $4,000,000
of life insurance coverage on Vincent J. Bitetti.

The Company's Chairman of the Board and Chief Executive Officer currently
receives annual base compensation of $200,000, and its President and Chief
Operating Officer currently receives annual base compensation of $175,000. Such
base compensation, however, will be reduced by 20 percent on the date of this
Prospectus until such time as the Company generates net sales of $1,500,000 or
more for any three consecutive month period. In addition, each is entitled
to receive cash bonuses based upon the Company's performance. For fiscal
1995, each received a salary of $150,000 and a bonus of $75,000. The
Company's President and Chief Operating Officer also has received options to
purchase a total of 392,838 shares of Common Stock at nominal cost since
April 1994 (including options to purchase 292,838 shares granted by the
Company and options to purchase 100,000 shares granted by the Chairman of the
Board and Chief Executive Officer). See "Management -- Executive
Compensation." Such compensation may be considered excessive in view of the
Company's size and history of operating losses.

After the closing of this offering, the Company intends to hire a new Chief
Executive Officer upon terms to be negotiated. When the new Chief Executive
Officer is hired, Mr. Bitetti will resign as Chief Executive Officer and will
continue to serve as Chairman of the Board and retain his current salary,
bonuses and benefits, provided that his salary will be adjusted to an amount not
less than that of the new Chief Executive Officer, up to a maximum of $300,000.

NO OUTSIDE DIRECTORS

The Company currently has no independent directors. Consequently, the
Company's management is in a position to control the operations of the Company
and is not subject to independent review. Following this offering, the Company
intends to increase the size of its Board of Directors from three to five, to
include one director nominated by ASSI, Inc. and two other independent
directors. The Company has agreed to grant to each of The Boston Group, L.P.,
Joseph Stevens & Company, L.P. and ASSI, Inc., the right to nominate from time
to time one director of the Company or to have an individual designated thereby
attend all meetings of the Board of Directors of the Company as a nonvoting
advisor. Upon such expansion, it is anticipated that the Board will include
three independent directors. See "Management -- Directors and Executive
Officers," "Underwriting" and "Certain Transactions -- Agreements with ASSI,
Inc."

LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION

The Company's Certificate of Incorporation provides that a director of the
Company, to the maximum extent now or hereafter permitted by Section 102(b)(7)
of the Delaware General Corporation Law (the "Delaware GCL"), will have no
personal liability to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. The Company's Bylaws generally require
the Company to indemnify and advance expenses to its directors, officers,
employees and other agents to the fullest extent permitted by Delaware law. The
Company also has entered into indemnification agreements with each of its
directors whereby the Company will indemnify each such person against certain
claims arising out of certain past, present or future acts, omissions or
breaches of duty

-13-
<PAGE>

committed by an indemnitee while serving as a Company director. See "Management
- -- Limitation of Liability and Indemnification of Directors."

CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS

The consumer software industry is undergoing rapid changes, including
evolving industry standards, frequent new product introductions and changes in
consumer requirements and preferences. The introduction of new technologies,
including operating systems and media formats, could render the Company's
existing products obsolete or unmarketable. In 1993, for example, there was a
significant shift in consumer demand from DOS-based software to Microsoft-
Registered Trademark--Windows-Registered Trademark--based software. More
recently, consumer demand has been shifting from disk-based software to software
on CD-ROM. In addition, the recent introduction of the new Windows '95-
Registered Trademark- operating system may affect consumer preferences and the
demand for new consumer software in ways which cannot be foreseen. In the
future, there could be radical changes in software delivery systems, replacing
CD-ROM with on-line or other methods of distribution.

There can be no assurance that the current demand for the Company's
Windows-Registered Trademark- and CD-ROM products will continue or that the mix
of the Company's future product offerings will keep pace with technological
changes or satisfy evolving consumer preferences. The success of the Company
will be dependent upon its ability to develop, introduce and market products
which respond to such changes in a timely fashion. The Company intends to
maintain its products in accordance with industry standards. The development
cycle for products utilizing new operating systems or formats may be
significantly longer than the Company's current development cycle for products
on existing operating systems and formats and may require the Company to invest
resources in products that may not become profitable. Although the Company's
software is Windows '95-Registered Trademark- compatible, there can be no
assurance that the Company will be successful in developing and marketing
products for certain advanced and emerging operating systems and formats that
may arise in the future. Failure to develop and introduce new products and
product enhancements in a timely fashion could result in significant product
returns and inventory obsolescence and could impair the Company's business,
operating results and financial condition. See "Business -- Products" and "--
Development."

UNCERTAINTY OF MARKET ACCEPTANCE; SHORT PRODUCT LIFE CYCLES

Consumer preferences for software products are difficult to predict, and
few consumer software products achieve sustained market acceptance. The Company
believes that the highest sales of each of its products will occur during the
six- to nine-month periods following their introduction, and that thereafter
sales will diminish and pricing will be reduced. Therefore, the Company's
success is dependent upon the market acceptance of its existing products and the
continued development and introduction of new products which achieve market
acceptance. There can be no assurance that the Company's existing products will
continue to realize market acceptance, or that new products introduced by the
Company will achieve any significant degree of market acceptance or sustain any
such acceptance for any significant period of time. Failure of the Company's
new and existing products to achieve and sustain market acceptance will have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Products" and "-- Development."

FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

-14-
<PAGE>

products, ability to add new distribution channels, product returns, changes in
pricing policies by the Company and its competitors, the accuracy of retailers'
forecasts of consumer demand, the timing of the receipt of orders from major
customers, and account cancellations or delays in shipment. In response to
competitive pressures for new product introductions, the Company may take
certain pricing or marketing actions that could materially and adversely affect
the Company's business, operating results and financial condition. The
Company's expense levels are based, in part, on its expectations as to future
sales. Therefore, operating results could be disproportionately affected by a
reduction in sales or a failure to meet the Company's sales expectations. The
Company may be required to pay in advance or to guarantee royalties, which may
be substantial, to obtain licenses of intellectual properties from third parties
before such properties have been introduced or achieved market acceptance.
Defective products may result in higher customer support costs and product
returns.

Additionally, the consumer software business traditionally has been
seasonal. Typically, net sales are highest during the fourth calendar quarter
and decline sequentially in the first and second calendar quarters. The
seasonal pattern is due primarily to the increased demand for consumer software
during the year-end holiday buying season. The Company expects its net sales
and operating results to continue to reflect seasonality. There can be no
assurance that the Company will achieve consistent profitability on a quarterly
or annual basis. Nevertheless, management believes that in the future its
results may be less subject to seasonal fluctuations because its products will
be marketed in conjunction with the releases of major motion pictures and home
videos, which occur throughout the year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations."

DEPENDENCE ON RETAILERS

The Company's retail customers include computer stores, office supply
stores, warehouse clubs, consumer electronics stores, bookstores, video stores
and alternative channels. The Company's customers are not contractually
required to make future purchases of the Company's products and therefore could
discontinue carrying the Company's products in favor of a competitor's product
or for any other reason. Retailers compete in a volatile industry that is
subject to rapid change, consolidation, financial difficulty and increasing
competition from new distribution channels. Due to increased competition for
limited shelf space, retailers are increasingly in a better position to
negotiate favorable terms of sales, including price discounts and product return
policies. Retailers often require software publishers to pay fees in exchange
for preferred shelf space. Retailers may give higher priority to products other
than the Company's, thus reducing their efforts to sell the Company's products.
There can be no assurance that the Company will be able to increase or sustain
its current amount of retail shelf space or promotional resources, and as a
result, the Company's operating results could be materially adversely affected.
In addition, other types of retail outlets and methods of product distribution
may become important in the future, such as on-line services. It is critical to
the success of the Company that as these changes occur, the Company gains access
to those channels of distribution. See "Business -- Sales and Marketing."

DEPENDENCE ON OUTSIDE SUPPLIERS

The Company contracts with third party suppliers to provide programming and
manufacturing of its products, which the Company believes allows it to control
effectively its costs of production. The Company relies upon the ability of
such suppliers to provide products which are free of defects. To the extent
that any supplier produced defective product which was not discovered until the
product was shipped, it could result in liability of the Company for returned
merchandise and a loss of its reputation for high quality products. Although
the Company would attempt to recoup any expenses

-15-
<PAGE>

caused to it for defective products, there can be no assurance that it would be
fully compensated for any losses that resulted.

RISK OF INABILITY TO MANAGE RAPID GROWTH

The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
financial, management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial and management information systems, and to attract, train, motivate,
manage and retain key employees. The Company may make additional investments in
capital equipment to expand into new product lines. No assurances can be given
that these new systems will be implemented successfully, and the failure to do
so could have a material adverse effect on the Company's business, operating
results and financial condition. If the Company's management becomes unable to
manage growth effectively, the Company's business, operating results and
financial condition could be materially adversely affected. See "Business --
Operations" and "Management -- Directors and Executive Officers."

RISKS ASSOCIATED WITH ACQUISITIONS

As part of its strategy to enhance revenue growth and market presence, the
Company continually evaluates acquisitions of entertainment software companies
and selected titles within existing or new product categories. In considering
an acquisition, the Company may compete with other potential acquirors, many of
which may have greater financial and operational resources. Further, the
evaluation, negotiation and integration of such acquisitions may divert
significant time and resources of the Company, particularly management. There
can be no assurance that suitable acquisition candidates will be identified,
that any acquisitions can be consummated, or that any acquired businesses or
products can be successfully integrated into the Company's operations. In
addition, there can be no assurance that future acquisitions will not have a
material adverse effect upon the Company's business, operating results and
financial condition, particularly in the fiscal quarters immediately following
the consummation of such transactions due to unexpected expenses which may be
associated with integrating such acquisitions. See "Business -- Strategy --
Acquisitions."

LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company regards its software as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, employee and third
party nondisclosure agreements and other methods to protect its proprietary
rights. All of the Company's new products are CD-ROM based, and hence are
difficult to copy. However, unauthorized copying occurs within the software
industry, and if a significant amount of unauthorized copying of the Company's
products were to occur, the Company's business, operating results and financial
condition could be materially adversely affected. Also, as the number of
software products in the industry increases and the functionality of these
products further overlaps, software developers and publishers may increasingly
become subject to infringement claims. There can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future products.

The Company's licenses and other intellectual property may not be
transferred to third parties without the consent of the licensors. Under the
terms of certain such licenses, transfer of ownership of stated percentages of
the Common Stock could constitute a prohibited transfer of the licenses. The
licensors under such licenses have agreed that neither the sale by the Company
of the Common Stock pursuant to this offering nor the issuance by the Company of
the Common Stock underlying the Redeemable Warrants and the Representative's
Warrant will cause a termination of such licenses. Certain other licenses
provide that a change in "management" will be deemed an unauthorized

-16-
<PAGE>

assignment of the license. It is not clear under what circumstances the Company
might be deemed to have a change in management which could result in the
termination of licenses containing this provision.

Any future change in ownership or control of the Company could result in
the termination of the licenses referred to above. The potential terminability
of such licenses could have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may materially adversely
affect the market price of the Common Stock.

Although the Company has not been the subject of any actual, pending or
threatened intellectual property litigation, there has been substantial
litigation regarding copyright, trademark and other intellectual property rights
involving computer software companies. In the future, litigation may be
necessary to enforce the Company's proprietary rights, to protect copyrights,
trademarks and trade secrets and other intellectual property rights owned by the
Company or its licensors, to defend the Company against claimed infringements of
the rights of others and to determine the scope and validity of the proprietary
rights of the Company and others. Any such litigation, with or without merit,
could be costly and result in a diversion of management's attention, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from selling its products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.

LIMITED TIME PERIOD OF LICENSES

The Company's products are based upon licensed content of major motion
pictures and television shows under license and/or development agreements with
major entertainment studios. See "Business -- General" and "-- Licensed
Property." All of such license and development agreements to which the Company
currently is a party are for fixed terms which will expire over the next one to
five years. Although no licensor is required to extend any license, the Company
anticipates that the licensor under each agreement will extend its terms,
provided that the Company is in compliance with all requirements of each
license, including most significantly that the Company has satisfied the
applicable minimum royalty guarantees. In the event that any licensor fails to
renew its license agreement, then the subject license will terminate and the
Company will no longer be entitled to sell the licensed product. The loss of
one or more of the licenses could have a material adverse effect on the
Company's revenues and operating results. There can be no assurance that the
Company will satisfy its performance obligations under any license or
development agreement or that even if such requirements are satisfied, all
material licenses will be renewed. See "Business -- Proprietary Rights and
Licenses."

DEPENDENCE ON NET PROCEEDS OF THIS OFFERING; POSSIBLE NEED FOR ADDITIONAL
FINANCING

The Company is dependent on the net proceeds of this offering or other
financing to repay the aggregate principal amount of $4,987,500 in Private Notes
issued to investors in the Company's 1995 Private Placement, plus accrued
interest estimated at $242,500 as of March 31, 1996. As of the date of this
Prospectus, the Company has been dependent on the net proceeds of approximately
$4,023,000 from its 1995 Private Placement, the net proceeds of approximately
$278,000 from its 1995 Bridge Financing (which was repaid out of the net
proceeds of the Company's 1995 Private Placement), $263,300 of proceeds from the
Private Warrants and the net proceeds of approximately $1,371,000 from its 1994
Private Placement, to fund its working capital requirements. The Company
believes that the proceeds of this offering, together with its cash on hand, and
anticipated net cash

-17-
<PAGE>

flow from operations, will be sufficient to fund the Company's contemplated cash
requirements for at least the next 12 months. However, there can be no
assurance that additional unanticipated expenses will not arise which would
require additional financing. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

BROAD DISCRETION IN USE OF PROCEEDS

The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and the estimated expenses of
this offering of $600,000 (including the Representatives' three percent
nonaccountable expense allowance), are estimated to be approximately $8,313,000
(assuming the Underwriters' over-allotment option is not exercised), assuming a
public offering price of $4.00 per share and $.25 per Redeemable Warrant. The
Company estimates that of such net proceeds, $2,183,000 will be allocated to
working capital. If the Underwriters exercise their over-allotment in full, the
Company will realize additional net proceeds of approximately $1,183,200, all of
which will be allocated to working capital. The Company will have broad
discretion in the use of funds allocated to working capital. See "Use of
Proceeds."

RISK OF LIMITATION OF USE OF NET OPERATING LOSS CARRYFORWARDS

As of June 30, 1995, the Company had net operating loss carryforwards of
approximately $2,513,000 for federal income tax purposes, which may be utilized
from 1996 to 2011 (subject to certain limitations). It is possible that the
consummation of this offering, including the issuance of the Securities offered
hereby and the Representative's Warrant, will result in an "ownership change" as
defined in Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations promulgated thereunder, or that the
issuance of warrants to investors in the Company's 1995 Bridge Financing and
1995 Private Placement and the reverse stock split effected by the Company in
September 1995 may have resulted in an ownership change under the Code and said
Treasury Regulations. As a result, the Company's use of its net operating loss
carryforwards to offset taxable income in any post-change period may be subject
to certain specified annual limitations. If there is any ownership change,
there can be no assurance as to the specific amount of net operating loss
carryforwards available in any post-change year since the calculation is based
upon a fact-dependent formula.

CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS

Upon the consummation of this offering, the current officers and directors
of the Company including the current controlling stockholder, will, in the
aggregate, beneficially own approximately 42.0 percent of the Common Stock (16.2
percent assuming exercise in full of the Redeemable Warrants and all other
outstanding warrants and options, but excluding issuance of any Common Stock and
Redeemable Warrants pursuant to the over-allotment option). As a result, it is
anticipated that these individuals will be in a position to influence
materially, if not control, the outcome of all matters requiring stockholder
approval, including the election of directors. See "Management," "Principal
Stockholders," "Description of Securities -- Common Stock" and "Underwriting."
Such influence and control is likely to continue for the foreseeable future.

The Company is, and upon consummation of this offering will be, a QUASI-
California corporation subject to certain provisions of the California General
Corporation Law (the "California GCL"). See "Description of Securities --
Application of California GCL." Among other consequences of the Company's
status as a QUASI-California corporation, at the request of any stockholder, the
election of the Company's directors will be determined by cumulative voting
procedures. Consequently, following this offering the Company's stockholders
other than its current officers and directors will have sufficient votes, if
cumulative voting is exercised, to elect two of its three directors (or three of
its five

-18-
<PAGE>

directors, upon expansion of the Board following this offering as planned)
assuming no exercise of the Redeemable Warrants and two of its three (or four of
its five, as applicable) directors assuming exercise of the Redeemable Warrants
in full.

The Company has agreed to allow each of The Boston Group, L.P., Joseph
Stevens & Company, L.P. and ASSI, Inc. to nominate one director following this
offering. In addition, Vincent J. Bitetti, the Chairman of the Board and Chief
Executive Officer, and Eric H. Winston, the President and Chief Operating
Officer, have entered into voting agreements with each of The Boston Group,
L.P., Joseph Stevens & Company, L.P. and ASSI, Inc. Pursuant to these
agreements, Messrs. Bitetti and Winston have agreed to vote their Common Stock
for the three director nominees of The Boston Group, L.P., Joseph Stevens &
Company, L.P. and ASSI, Inc. In addition, ASSI, Inc. has agreed to vote its
shares of Common Stock for two directors nominated by Mr. Bitetti for as long as
he holds 20 percent or more of the issued and outstanding Common Stock, and for
one director nominated by Mr. Bitetti for as long as he holds at least ten
perent but less than 20 percent of the issued and outstanding Common Stock. The
voting agreements with ASSI, Inc. will terminate when Messrs. Bitetti and
Winston together cease to own at least ten percent of the issued and outstanding
Common Stock. See "Management -- Directors and Executive Officers."

IMMEDIATE SUBSTANTIAL DILUTION

This offering involves an immediate and substantial dilution to investors
in this offering of $2.91 per share of Common Stock (73 percent) between the pro
forma net tangible book value per share after this offering and the initial
public offering price of the shares of Common Stock. See "Dilution."

RECENTLY FORMED REPRESENTATIVES

Both of the Representatives are recently formed, and neither has extensive
experience as an underwriter of securities. The Boston Group, L.P., which was
formed in March 1995, has acted as the managing underwriter for three public
offerings and has not acted as a member of an underwriting syndicate. Joseph
Stevens & Company, L.P., which was formed in May 1994, has acted as the managing
underwriter for four public offerings and as a member of an underwriting
syndicate on approximately seven occasions.

The Representatives are relatively small firms. No assurance can be given
that either will be able to participate as a market maker in the Securities, or
that any other broker-dealer will do so. See "Underwriting."

REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET

It is anticipated that a significant amount of the shares of Common Stock
and substantially all of the Redeemable Warrants being offered hereby will be
sold to customers of the Representatives. Although the Representatives have
advised the Company that they intend to make a market in the Securities
following this offering, they will have no legal obligation to do so. The
Representatives, if they become market makers, could be a dominating influence
in the market, if one develops. The prices and the liquidity of the Common
Stock and the Redeemable Warrants may be significantly affected by the degree,
if any, of the Representatives' participation in the market. No assurance can
be given that any market making activities of the Representatives, if commenced,
will be continued. See "Underwriting."

-19-
<PAGE>

CURRENT PROSPECTUS AND STATE REGISTRATION TO EXERCISE WARRANTS

The Redeemable Warrants are not exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Redeemable Warrants and such shares have
been registered, qualified or deemed to be exempt under the securities or "blue
sky" laws of the jurisdiction of residence of the exercising holder of the
Redeemable Warrants. In addition, in the event that any holder of the
Redeemable Warrants attempts to exercise any Redeemable Warrants at any time
after nine months from the date of this Prospectus, the Company may be required
to file a post-effective amendment and deliver a current prospectus before the
Redeemable Warrants may be exercised. Although the Company has undertaken to
use its best efforts to have all the shares of Common Stock issuable upon
exercise of the Redeemable Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Redeemable Warrants, there is no assurance that it will be
able to do so. The value of the Redeemable Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Redeemable Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the Redeemable Warrants then reside.

The Redeemable Warrants will be separately tradeable immediately upon
issuance and may be purchased separately from the Common Stock. Although the
Securities will not knowingly be sold to purchasers in jurisdictions in which
the Securities are not registered or otherwise qualified for sale, investors may
purchase the Redeemable Warrants in the secondary market or may move to
jurisdictions in which the shares underlying the Redeemable Warrants are not
registered or qualified during the period that the Redeemable Warrants are
exercisable. In such event, the Company would be unable to issue shares to
those persons desiring to exercise their Redeemable Warrants unless and until
the shares could be qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such qualification exists in such jurisdictions,
and holders of the Redeemable Warrants would have no choice but to attempt to
sell the Redeemable Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised. See "Description of Securities -- Redeemable
Warrants."

ADVERSE EFFECT TO HOLDERS OF POSSIBLE REDEMPTION OF REDEEMABLE WARRANTS

The Redeemable Warrants are subject to redemption by the Company, at any
time, commencing one year after the date of this Prospectus, at a price of $.25
per Redeemable Warrant if the average closing bid price for the Common Stock
equals or exceeds 140 percent of the initial public offering price 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 of redemption. If the
Redeemable Warrants are redeemed prior to their exercise, the holders thereof
would lose their right to exercise Redeemable Warrants except during such period
of notice of redemption and the benefit of the difference between the market
price of the underlying Common Stock as of such date and the exercise price of
such Redeemable Warrants, as well as any possible future price appreciation in
the Common Stock. Upon the receipt of a notice of redemption of the Redeemable
Warrants, the holders thereof would be required to: (i) exercise the Redeemable
Warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so; (ii) sell the Redeemable Warrants at the market price, if any,
when they might otherwise wish to hold the Redeemable Warrants; or (iii) accept
the redemption price, which is likely to be substantially less than the market
value of the Redeemable Warrants at the time of redemption. See "Description of
Securities -- Redeemable Warrants" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

A total of 4,208,291 shares of Common Stock will be issued and
outstanding upon the consummation of this offering, assuming no exercise of the
Underwriters' over-allotment option

-20-
<PAGE>

and assuming that the Representative's Warrants and all other options and
warrants then to be outstanding are not exercised. Of such shares, the
2,400,000 shares offered by the Company and the 107,500 shares offered by the
Selling Security Holders will be freely tradeable without further registration
under the Securities Act, except for any such shares of Common Stock purchased
by an "affiliate" of the Company. Of the remaining 1,700,791 outstanding
shares, 183,723 shares are freely tradeable and the remainder are "restricted
shares" as defined in Rule 144 under the Securities Act and may not be sold
without registration under the Securities Act unless pursuant to an applicable
exemption therefrom. See generally "Shares Eligible for Future Sale."

SALE OF CERTAIN SECURITIES

A separate Prospectus is being filed with the Registration Statement of
which this Prospectus is a part which relates to the registration for the
account of the Selling Security Holders of 107,500 shares of Common Stock and
5,689,665 Redeemable Warrants and to the registration for the account of the
Company of 9,069,665 shares of Common Stock issuable upon exercise of the
Redeemable Warrants and ASSI Warrants. The Selling Security Holders' Securities
may be sold by the Selling Security Holders or their transferees commencing on
the date of this Prospectus. Sales by the Selling Security Holders or their
transferees of the Selling Security Holders' Securities may depress the price of
the Common Stock or the Redeemable Warrants in any market therefor that may
develop. See "Certain Transactions" and "Resale of Outstanding Securities."

In addition, the Company has issued warrants for 2,000,000 shares of Common
Stock to ASSI, Inc., a consultant to and creditor of the Company. The Common
Stock underlying the ASSI Warrants is being registered pursuant to the
Registration Statement of which this Prospectus is a part. Sales of the Common
Stock underlying the ASSI Warrants may depress the market for the Common Stock.
See "Certain Transactions -- Agreements With ASSI, Inc."

NO PRIOR MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF TRADING PRICES FOR SECURITIES

Prior to this offering, there has been no public market for the Common
Stock or the Redeemable Warrants, and there can be no assurance that a public
market for the Securities will develop or, if developed, that it will be
sustained after the offering. The initial public offering prices of the Common
Stock and Redeemable Warrants and the terms of the Redeemable Warrants were
determined arbitrarily by, among other things, negotiations between the Company
and the Representative and bear no relationship to the Company's assets, net
worth, results of operations or other established criteria of value. See
"Underwriting." Pursuant to a separate Prospectus filed as a part of the
Registration Statement of which this Prospectus is a part, 107,500 shares of
Common Stock and 5,689,665 Redeemable Warrants previously issued by the Company
are being registered for the account of the Selling Security Holders. See
"Certain Transactions -- 1995 Bridge Financing" and "-- 1995 Private Placement"
and "Selling Security Holders." Such Common Stock and Redeemable Warrants are
expected to become freely tradeable on or about the third business day after the
date of this Prospectus. In addition, the 9,069,665 shares of Common Stock
issuable upon exercise of the 5,689,665 Redeemable Warrants being registered for
the account of the Selling Security Holders, the 2,000,000 ASSI Warrants and the
1,380,000 Redeemable Warrants being issued by the Company pursuant to this
offering (assuming exercise of the Underwriters' over-allotment option) all will
become freely tradeable on the date of their issuance pursuant to the exercise
of such Redeemable Warrants and ASSI Warrants. Sales of the Common Stock and
Redeemable Warrants being registered for the account of the Selling Security
Holders will likely have an adverse effect on the market price of the shares of
Common Stock and the Redeemable Warrants being issued by the Company pursuant to
this offering, and such adverse effect may be material. In addition, the Common
Stock underlying the Redeemable Warrants being issued by the Company pursuant to
this offering and being separately

-21-
<PAGE>

registered for the account of the Selling Security Holders and the ASSI Warrants
also are expected to become freely tradeable on the issuance thereof pursuant to
conversion of the related Redeemable Warrants or ASSI Warrants, as applicable.
Sales of such Common Stock also will likely have an adverse effect on the market
price of the Common Stock and such adverse effect may be material.

The trading prices of the Securities could be subject to wide fluctuations
in respect to the Company's operating results announcements by the Company or
others of developments affecting the Company or its competitors or customers and
other events or factors. In addition, the stock market has experienced extreme
price and volume fluctuations in recent years, particularly in the securities of
small development companies. The fluctuations have had a substantial effect on
the market prices of many companies, often unrelated to the operating
performances of the specific companies, and similar events in the future may
materially adversely affect the market prices of the Securities. See
"Description of Securities" and "Selling Security Holders."

ADVERSE EFFECT ON COMMON STOCK FROM EXERCISE OF WARRANTS AND OPTIONS

The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of Common Stock. A total of 4,208,291 shares of Common Stock
will be outstanding after the completion of this offering, assuming exercise of
the Underwriters' over-allotment option and assuming that the Representative's
Warrant and all other stock options and warrants then to be outstanding are not
exercised. A total of 8,889,665 shares of Common Stock are reserved for
issuance pursuant to the Redeemable Warrants being issued by the Company
pursuant to this offering and being registered for the account of the Selling
Security Holders (and assuming no exercise of the Underwriters' over-allotment
option) and the ASSI Warrants. An additional 1,536,908 shares of Common Stock
are reserved for issuance pursuant to the Representative's Warrant (360,000
shares, including Common Stock issuable pursuant to the Redeemable Warrants
issuable pursuant to the Representative's Warrant), options previously granted
by the Company to the President and Chief Operating Officer (292,838 shares) and
under the 1992 Stock Option Plan (384,000 shares) and options that may be
granted under the 1995 Stock Option Plan (500,000). Thus, an additional
5,365,136 shares of Common Stock remain available for issuance at the discretion
of the Board of Directors. The potential issuance of such authorized and
unissued Common Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may materially adversely
affect the market price of, and the voting and other rights of the holders of
the Common Stock. Although the Company has no present intention to issue any
such shares of its authorized and unissued Common Stock there can be no
assurance the Company will not do so in the future. See "Description of
Securities -- Common Stock."

NO PREEMPTIVE RIGHTS; POSSIBLE DILUTIVE EVENT

The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock, or securities
convertible into or exercisable to purchase shares of Common Stock, following
this offering, persons acquiring Common Stock in this offering would have no
right to purchase additional shares, and as a result, their percentage equity
interest in the Company would be diluted. See "Description of Securities --
Common Stock."

-22-
<PAGE>

NO DIVIDENDS

As of the date of this Prospectus, the Company has not paid any cash
dividends on its Common Stock and does not intend to declare any such dividends
in the foreseeable future. The Company's ability to pay dividends is subject to
limitations imposed by Delaware law and, as a QUASI-California corporation, to
the more restrictive provisions of California law. The sole source of funds
available to the Company for the payment of dividends is dividends or loans
advanced to it by the Subsidiary which is itself a California corporation and
therefore subject to the dividend payment provisions of the California GCL.

Under Delaware law, dividends may be paid out of a corporation's capital
surplus, or if there is no surplus, out of the corporation's net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year.
California law generally prohibits a corporation from paying dividends unless
the retained earnings of the corporation immediately prior to the distribution
exceed the amount of the distribution. Alternatively, a corporation may pay
dividends if (i) the assets of the corporation exceed 1-1/4 times its
liabilities; and (ii) the current assets of the corporation equal or exceed its
current liabilities, but if the average pre-tax earnings of the corporation
before interest expense for the two years preceding the distribution was less
than the average interest expense of the corporation for those years, the
current assets of the corporation must exceed 1-1/4 times its current
liabilities. Under the foregoing requirements, the Company will not be able to
pay dividends for the foreseeable future. See "Dividend Policy" and
"Description of Securities."

QUALIFICATION REQUIREMENTS FOR NASDAQ SECURITIES; RISK OF LOW PRICED SECURITIES

Certain qualification requirements are established for the initial and
continued listing of securities on Nasdaq. The Common Stock and the Redeemable
Warrants will be eligible for initial listing on the Nasdaq SmallCap Market
under these rules upon consummation of this offering. Under the rules for
initial listing, a company must, among other things, have at least $4,000,000 in
total assets, at least $2,000,000 in total capital and surplus, and a minimum
bid price of $3.00 per share. For continued listing, a company must, among
other things, maintain at least $2,000,000 in total assets, at least $1,000,000
in total capital and surplus, and a minimum bid price of $1.00 per share. The
Company has qualified for initial listing on the Nasdaq SmallCap Market and
expects to maintain its listing on Nasdaq; however, if the Company experiences
losses from operations or material adverse trading conditions, it may be unable
to maintain the standards for continued listing and the Securities could be
subject to delisting from Nasdaq. It is anticipated that if the Securities are
delisted from Nasdaq, trading, if any, in the Securities would be conducted in
the over-the-counter market on the NASD OTC Electronic Bulletin Board
established for securities that do not meet the Nasdaq listing requirements or
quoted in what are commonly referred to as the "pink sheets." In such event, an
investor may find it more difficult to dispose of, or to obtain accurate price
quotations and volume information concerning, the Securities.

In addition, if the Securities are delisted from Nasdaq, they might be
subject to the low priced security or so-called "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally defined as investors with a net worth in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with a spouse). For any
transaction involving a penny stock, unless exempt, the rules require, among
other things, the delivery, prior to the transaction, of a disclosure schedule
required by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over

-23-
<PAGE>

the market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.

Although the Company believes that the Securities will not be defined as a
penny stock due to their anticipated continued listing on Nasdaq, in the event
the Securities subsequently become characterized as a penny stock, the market
liquidity for the Securities could be severely affected. In such an event, the
regulations relating to penny stocks could limit the ability of broker-dealers
to sell the Securities and, thus, the ability of purchasers in this offering to
sell their Securities in the secondary market.

-24-

<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts of $990,000 and $600,000 for
expenses, including the Representatives' three percent nonaccountable expense
allowance, are estimated to be approximately $8,310,000 ($9,496,200 if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $4.00 per share and $.25 per Redeemable Warrant. The
Company anticipates that the estimated net proceeds of this offering
initially will be allocated substantially as follows:

APPROXIMATE
PERCENTAGE OF
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------- ------------- -------------
Repayment of Notes(1). . . . . . . . . . $5,230,000 62.9%
Marketing Expenses(2). . . . . . . . . . 400,000 4.8
Licenses and Royalties(3). . . . . . . . 450,000 5.4
Capital Expenditures(4) . . . . . . . . 50,000 .6
Working capital(5) . . . . . . . . . . . 2,180,000 26.3
--------- ----
Total. . . . . . . . . . . . . . . . . . $8,310,000 100.0%

- ------------------------

(1) Represents repayment of all of the Company's outstanding Private Notes in
the aggregate principal amount of $4,987,500, plus accrued interest of
approximately $242,500 as of March 31, 1996. The Private Notes were issued
in connection with the Company's 1995 Private Placement (as defined below),
bear interest at the rate of ten percent per annum and are due on the
earlier of (i) September 1, 1996 or (ii) the completion of any initial
public offering by the Company. See "Certain Transactions -- 1995 Private
Placement."

(2) Represents amounts expected to be expended in connection with product
marketing activities, including print and co-operative advertising,
promotions and contests, coupon inserts and in-store displays.

(3) Represents amounts expected to be paid to licensors in connection with the
obtaining of new licenses, and to licensors under the terms of existing
licenses.

(4) Represents amounts expected to be expended for purchases of equipment for
use in the Company's business.

(5) Working capital will be used, among other things, to fund operating
expenses, including rent and salaries.

If the Underwriters exercise their over-allotment option in full, the
Company will realize additional net proceeds of approximately $1,183,200 which
will be added to the Company's working capital. In addition, all net proceeds
received by the Company upon the exercise, if any, of the Redeemable Warrants
and the Representative's Warrant will be added to working capital.

The Company anticipates that the net proceeds of this offering, together
with its cash on hand and anticipated net cash flow from operations, will be
sufficient to fund the Company's contemplated cash requirements for at least the
next 12 months. See "Risk Factors -- Dependence on Net Proceeds of this
Offering; Possible Need for Additional Financing." While the initial allocation
of the net proceeds of this offering, as set forth above, represents the
Company's best estimates of its future financing needs, the amounts actually
expended for each purpose may vary significantly from the specific allocation of
the net proceeds set forth above, depending on numerous factors. The Company,

-25-
<PAGE>

therefore, reserves the right to reallocate the net proceeds of this offering
among the various categories set forth above as it, in its sole discretion,
deems necessary or advisable.

In the event that the Company requires additional financing prior to the
completion of this offering, the Company reserves the right to borrow up to
$500,000. It is anticipated that any such loan will be made at an interest rate
not to exceed ten percent per annum. Any such loan would be repaid out of the
proceeds of this offering. The Company, however, may allow the lender to
convert the outstanding balance of the loan into warrants having terms
substantially the same as those of the Redeemable Warrants.

Part of the Company's strategy is to expand through acquisitions. After
this offering, the Company intends to seek to make such acquisitions, but it is
not currently a party to any discussion, agreement, arrangement or understanding
in connection with any such acquisition. See "Business -- Business Strategy --
Acquisitions and Affiliate Label Arrangements."

Pending application, the net proceeds of this offering will be invested
principally in U.S. government securities, short-term certificates of deposit,
money market funds or other similar short-term interest-bearing investments.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its Common Stock
since its inception. It is the current policy of the Company that it will
retain its earnings, if any, for expansion of its operations and other corporate
purposes, and that it will not pay any dividends in respect of the Common Stock
in the foreseeable future. The payment of dividends, if any, is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, if any, its capital requirements and financial condition and such
other factors as the Board of Directors may consider.

The Company's ability to pay dividends is subject to the applicable
provisions of the General Corporation Law of Delaware, which is the Company's
jurisdiction of incorporation. As a QUASI-California corporation, the Company
also is subject to the relatively more restrictive provisions of the California
GCL. The sole source of funds available to the Company for the payment of
dividends is dividends and loans advanced to it by the Subsidiary, which is
itself a California corporation and therefore subject to the dividend payment
provisions of the California GCL.

Under Delaware law, dividends may be paid out of a corporation's capital
surplus, or if there is no surplus, out of the corporation's net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year.
California law generally prohibits a corporation from paying dividends unless
the retained earnings of the corporation immediately prior to the distribution
exceed the amount of the distribution. Alternatively, a corporation may pay
dividends if the assets of the corporation exceed 1-1/4 times its liabilities;
and (ii) the current assets of the corporation equal or exceed its current
liabilities, but if the average pre-tax earnings of the corporation before
interest expense for the two years preceding the distribution was less than the
average interest expense of the corporation for those years, the current assets
of the corporation must exceed 1-1/4 times its current liabilities. Under the
foregoing requirements, the Company will not be able to pay dividends until it
achieves positive retained earnings, which management does not anticipate will
occur for the foreseeable future. See "Risk Factors - No Dividends."

-26-
<PAGE>

DILUTION

At December 31, 1995, the Company had 1,808,291 shares of Common Stock
outstanding and at such date the net tangible book value of the Company was
$(2,733,214) or approximately ($1.51) per share of Common Stock. "Net tangible
book value per share" represents the total tangible assets of the Company, less
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the receipt of the net proceeds (estimated to be
approximately $8,049,000 after deducting the Underwriters' discount of
$990,000 and $600,000 for expenses, including the Representatives' three
percent nonaccountable expense allowance), from the sale of the 2,400,000
shares of Common Stock offered by the Company at an assumed public offering
price of $4.00 per share (without giving any effect to the net proceeds from
the sale of the Redeemable Warrants), the pro forma net tangible book value
of the Company at December 31, 1995 would have been $4,584,918, or
approximately $1.09 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.60 per share of Common Stock to
existing stockholders and an immediate dilution to new investors of
approximately $2.91 per share of Common Stock. Dilution per share represents
the difference between the offering price per share of Common Stock and the
net tangible book value per share after giving effect to this offering.

The following table illustrates the per share dilution to be incurred by
the purchasers of Common Stock of this offering from the assumed initial public
offering price of $4.00 per share:

DESCRIPTION AMOUNT AMOUNT
- ------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Assumed initial public offering price per share of Common Stock(1) . . $4.00

Net tangible book value per share of Common stock before
offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.51)

Increase in net tangible book value per share of Common Stock
attributable to the sale of the Common Stock offered by the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.60
----

Pro forma net tangible book value per share of Common Stock
after offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.09
----
Dilution per share of Common Stock to public investors(2)(3) . . . . . 2.91
----
----

</TABLE>

- --------------------------
(1) Before deducting underwriting discounts and other expenses of this
offering.

(2) If the net proceeds of $261,000 from the sale of the Redeemable Warrants
offered by the Company (after deducting the Underwriters' discount and the
Representative's nonaccountable expense allowance, but attributing no
other costs of this offering to the Redeemable Warrants) had been
attributed to the net tangible book value of the shares of Common Stock
after this offering, it would increase the pro forma net tangible book
value after this offering by $.06 per share of Common Stock and decrease
the dilution to new public investors by approximately $.06 per share of
Common Stock.

(3) In the event that the Underwriters exercise their over-allotment option to
purchase 340,000 shares of Common Stock from the Company, the pro forma
net tangible book value of the Company after this offering (after
deducting the underwriters' discount and the Representative's
nonaccountable expense allowance but no other costs of this offering)
would be approximately $6,029,118 (including the net proceeds of $261,000
from the sale of the Redeemable Warrants) or $1.33 per share of Common
Stock, which would result in immediate dilution in net tangible book value
to the public investors of approximately $2.67 per share of Common Stock.
In the event of the further exercise of all 484,037

-27-
<PAGE>

presently exercisable Common Stock purchase options at the average
exercise price of $.75 per share, and the sale and exercise in full of the
Representative's Warrant including the sale and exercise in full of the
Redeemable Warrants and the ASSI Warrants, and after giving effect to all
of the aforementioned transactions, the pro forma net tangible book value
of the Company would be approximately $49,666,063 or $3.43 per share,
which would result in immediate dilution in net tangible book value to the
public investors of approximately $.57 per share of Common Stock.

The following table illustrates the per share dilution to be incurred by
the purchasers of Common Stock in this offering upon exercise of the Redeemable
Warrants and ASSI Warrants from the assumed exercise price of $4.00 per share:

DESCRIPTION AMOUNT AMOUNT
- ----------------------------------------------------------------------- ---------- --------
<S> <C> <C>
Assumed initial public offering price per share of Common Stock(1) . . $4.00
Pro forma net tangible book value per share of Common stock
before exercise of Redeemable Warrants and ASSI Warrants. . . . . $1.33

Increase in net tangible book value per share of Common Stock
attributable to the sale of the Common Stock upon exercise of all
Redeemable Warrants and ASSI Warrants . . . . . . . . . . . . . 2.10
----

Pro forma net tangible book value per share of Common Stock
after exercise of all Redeemable Warrants and ASSI Warrants . . . . . 3.43
----
Dilution per share of Common Stock to investors exercising Redeemable
Warrants and ASSI Warrants . . . . . . . . . . . . . . . . . . . . . . .57
----
----
</TABLE>
- ----------------------------------

(1) Before deducting warrant exercise fee payable to the Representative upon
exercise of the Redeemable Warrants and ASSI Warrants. See "Underwriting."

The following table sets forth, as of December 31, 1995, the number and
percentage of shares of Common Stock purchased by, and the amount and percentage
of consideration paid by, the existing stockholders, by public investors in this
offering and the average price per share of Common Stock.

SHARES PURCHASED TOTAL CONSIDERATION
----------------------------- -----------------------------------------------
AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Current stockholders(1) 1,808,291 43.0% $6,128,007 39.0% $3.39
Public investors(2). . . . . . 2,400,000 57.0 9,600,000 61.0% 4.00
--------- ----- --------- -----
Total. . . . . . . . . . . 4,208,291 100.0% $15,728,007 100.0%

</TABLE>

(1) Includes: (i) $263,300 paid by the investors in the Company's 1995 Private
Placement and 1995 Bridge Financing for warrants to purchase 5,268,747
shares of Common Stock issued by the Company in such private placements;
and (ii) the nominal consideration of $50 paid by Financial West Group,
Inc. for the

-28-
<PAGE>

warrants to purchase up to 420,918 shares of Common Stock issued to it in
connection with such private placements as part of the total consideration
paid by existing stockholders. See "Certain Transactions."

(2) Does not include the $600,000 to be paid by public investors for the
1,200,000 Redeemable Warrants being offered by the Company. To the extent
that any of the Redeemable Warrants are exercised, there will be no further
dilution to the public investors.

The foregoing computations assume the exercise of no stock options after
December 31, 1995. As of December 31, 1995, 292,838 shares of Common Stock were
subject to presently exercisable options granted to the Company's President and
Chief Operating Officer at an exercise price of $.06 per share. As of
December 31, 1995, additional options to purchase a total of 184,070 shares of
Common Stock were issued pursuant to the 1992 Stock Option Plan; options to
purchase a total of 200,000 additional shares of Common Stock were subsequently
issued pursuant to the 1992 Stock Option Plan. All of such options are non-
qualified stock options having an exercise price of $.06 per share. Of the
384,070 options that have been granted pursuant to the 1992 Stock Option Plan,
191,199 are presently exercisable, 45,840 will become exercisable in fiscal 1997
and the balance will become exercisable in fiscal 1998. No further options may
be granted pursuant to the Company's 1992 Stock Option Plan. An additional
500,000 shares of Common Stock are available for issuance under the Company's
1995 Stock Option Plan, of which the Company has agreed to issue 13,610 options
to its nonexecutive employees. See "Management -- Executive Compensation," "--
1995 Stock Option Plan" and "-- 1992 Stock Option Plan." The Representative's
Warrant entitles the Representative to purchase 240,000 shares of Common Stock
and/or 120,000 Redeemable Warrants at 120 percent of the offering price of the
Common Stock or Redeemable Warrants, as applicable, in this offering, and will
become exercisable one year after the date of this Prospectus. See
"Underwriting."

-29-

<PAGE>

CAPITALIZATION

The following table sets forth, as of December 31, 1995, the short-term
debt and capitalization of the Company on an actual basis and as adjusted to
reflect the issuance and sale of the 2,400,000 shares of Common Stock and the
1,200,000 Redeemable Warrants offered by the Company and the initial application
of the estimated net proceeds therefrom. The table should be read in
conjunction with the financial statements and the notes to the financial
statements which are contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------
ACTUAL AS ADJUSTED(1)
-------------- ---------------
<S> <C> <C>
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,987,500 $ 0

Stockholders' equity (deficit)

Common Stock, $.001 par value; 20,000,000
shares authorized; 1,808,291 shares issued
and outstanding (actual); 4,208,291 shares
issued and outstanding (as adjusted) . . . . . . . . 1,808 4,208

Warrants . . . . . . . . . . . . . . . . . . . . . . . 263,350 524,350

Additional paid-in capital . . . . . . . . . . . . . . . . . . . 5,124,576 13,171,176

Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (8,122,948) (8,853,816)

Total stockholders' equity (deficiency). . . . . . . . . . . . . (2,733,214) 4,845,918

Total capitalization . . . . . . . . . . . . . . . . . 2,254,286 4,845,918
</TABLE>

(1) As adjusted to reflect the issuance of 2,400,000 shares of Common Stock at
an assumed initial public offering price of $4.00 per share and 1,200,000
Redeemable Warrants at an assumed initial public offering price of $.25 per
Redeemable Warrant, net of anticipated expenses of the offering (estimated
at $990,000 for the Underwriters' discount and $600,000 for expenses,
including the Representatives' three percent nonaccountable expense
allowance) and repayment of all of the Company's funded indebtedness
(estimated at $5,105,676 at December 31, 1995) with a portion of such
proceeds. The as adjusted amounts do not reflect the issuance of up to
340,000 shares of Common Stock and 180,000 Redeemable Warrants by the
Company to cover over-allotments, if any, or the exercise of the
Representative's Warrant to purchase up to 240,000 shares of Common Stock
and/or 120,000 Redeemable Warrants, or the exercise of any other
outstanding (or agreed to be issued) options or warrants to purchase up to
an additional 10,120,183 shares of Common Stock.

-30-
<PAGE>

SELECTED FINANCIAL DATA

The following table of summary financial information is derived from and
should be read in conjunction with the Company's financial statements and the
footnotes thereto included elsewhere in this Prospectus. The financial data for
the fiscal years ended June 30, 1994 and 1995 has been derived from audited
financial statements prepared by Corbin & Wertz, certified public accountants,
who are the Company's independent auditors. The Company's losses for fiscal
1994 and 1995 include noncash charges of $2,992,862 and $733,165, respectively,
associated with the granting of certain compensatory stock options. The
financial data for the six-month periods ended December 31, 1994 and 1995 are
derived from unaudited financial statements of the Company. The unaudited
financial statements include all adjustments consisting of normal recurring
accruals which the Company considers necessary for a fair presentation of the
financial position and the results of operations. Operating results for the
six-month period are not necessarily indicative of the results that may be
expected for the entire year ending June 30, 1996. See "Risk Factors --
Fluctuations in Operating Results; Seasonality" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations."

<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------ -------------------------
Statement of Operations Data 1994 1995 1994 1995
- ---------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Retail software sales. . . . . . . . . . 1,313,890 1,255,230 1,006,849 1,077,547
OEM sales. . . . . . . . . . . . . . . . 5,500 479,675 389,979 21,466
Development agreement
revenues. . . . . . . . . . . . . . 112,520 343,250 127,250 0
Royalties. . . . . . . . . . . . . . . . 253,961 76,771 76,253 21,678
Net sales from continuing
operations. . . . . . . . . . . . . 1,685,871 2,154,926 1,600,331 1,120,691
Gross profit . . . . . . . . . . . . . . 505,068 1,082,235 643,963 438,181
Noncash compensation expense
recorded in connection with
Common Stock and Common Stock
options issued for services . . . 2,992,862 733,165 193,332 0
Other expenses . . . . . . . . . . . . . 1,374,052 1,940,124 886,272 2,448,553
Loss from continuing operations. . . . . (3,861,846) (1,591,054) (435,641) (2,010,372)
Loss from discontinued operations. . . . (115,887) (143,106) (13,376) 0
Net loss . . . . . . . . . . . . . . . . (3,977,733) (1,734,160) (449,017) (2,010,372)
Loss per common share from
continuing operations . . . . . . . (2.38) (0.85) (0.23) (1.08)
Loss per common share from
discontinued operations . . . . . (0.07) (0.08) (0.01) 0
Net loss per common share. . . . . . . . (2.45) (0.93) (0.24) (1.08)
Weighted average number of
common shares outstanding(1). . . . 1,626,107 1,862,908 1,869,998 1,868,145
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1995
----------------------------
Balance Sheet Data Actual As Adjusted(1)
- ---------------------------------------- ------------ --------------
<S> <C> <C>
Working Capital. . . . . . . . . . . . . (2,913,040) 4,666,092
Total assets . . . . . . . . . . . . . . 4,165,858 6,533,154
Current liabilities. . . . . . . . . . . 6,873,471 1,661,635
Long term debt . . . . . . . . . . . . . 25,601 25,601
Stockholder equity (deficit) . . . . . . (2,733,214) 4,845,918
</TABLE>

-31-
<PAGE>

- ----------------
(1) Unless otherwise indicated, all share and per share information in this
Prospectus gives effect to a 9.25-for-1 stock split effected in May 1994
and a 1-for-5.976 reverse stock split effected in September 1995. Unless
otherwise indicated, such share and per share information does not give
effect to: (i) the exercise of the Underwriters' over-allotment option to
purchase up to 360,000 shares of Common Stock and 180,000 Redeemable
Warrants; (ii) the issuance of 1,200,000 shares of Common Stock underlying
the Redeemable Warrants being offered by the Company; (iii) the issuance of
5,689,665 shares of Common Stock underlying the Redeemable Warrants and
2,000,000 shares of Common Stock underlying the ASSI Warrants being offered
by the Selling Security Holders; (iv) the issuance of 180,000 shares of
Common Stock underlying the Redeemable Warrants included in the
Underwriters' over-allotment option; (v) the exercise of a warrant granted
to the Representative (the "Representative's Warrant") to purchase up to
240,000 shares of Common Stock and/or 120,000 Redeemable Warrants; (vi) the
issuance upon exercise of the Representative's Warrant of 240,000 shares of
Common Stock, 120,000 Redeemable Warrants or 120,000 shares of Common Stock
issuable upon exercise of such Redeemable Warrants; (vii) the issuance of
384,070 shares of Common Stock underlying options granted pursuant to the
Company's 1992 Stock Option Plan; (viii) 500,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1995 Stock Option Plan, as
to which the Company has granted no options and has agreed to grant 13,610
options; or (ix) the issuance of 292,838 shares of Common Stock underlying
options held by the Company's President.

(2) As adjusted to reflect the issuance of 2,400,000 shares of Common Stock at
an assumed initial public offering price of $4.00 per share and 1,200,000
Redeemable Warrants at an assumed initial public offering price of $.25 per
Redeemable Warrant, net of the expenses of the offering (estimated at
$990,000 for the Underwriters' discount and $600,000 for expenses,
including the Representatives' three percent nonaccountable expense
allowance) and repayment of all of the Company's funded indebtedness
(estimated at $5,105,676 at December 31, 1995) with a portion of such
proceeds. The as adjusted amounts do not reflect the issuance of up to
340,000 shares of Common Stock and 180,000 Redeemable Warrants by the
Company to cover over-allotments, if any, or the exercise of the
Representative's Warrant to purchase up to 240,000 shares of Common Stock
and/or 120,000 Redeemable Warrants, or the exercise of any other
outstanding (or agreed to be issued) options or warrants to purchase up to
an additional 10,120,183 shares of CommonStock.

-32-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company derives substantially all of its revenues from sales of its
retail consumer software and original equipment manufacturer ("OEM") versions of
its retail consumer software. The Company designs, develops, markets and
supports a broad line of consumer software products. The Company focuses
primarily on nonviolent, family-oriented products with educational and
entertainment value, which are easy to use and install, using popular movies,
television series and comic book characters. See generally "Business."

In June 1995, the Company entered into a Sales and Distribution Agreement
with Acclaim Distribution, Inc., a subsidiary of Acclaim Entertainment, Inc.
(collectively, "Acclaim," as previously defined), a distributor of entertainment
software and related products. The Company had no sales to or through Acclaim
during its fiscal year ended June 30, 1995. During the six-month period ended
December 31, 1995, of the Company's net sales of $1,120,691, a total of $819,619
(73 percent) were generated by Acclaim. Under the terms of this agreement,
Acclaim was the exclusive distributor of the Company's products on a worldwide
basis, subject to certain limited exceptions. The Company was not satisfied
with the distribution of its products through Acclaim, and determined to
terminate the Acclaim distribution agreement in March 1996.

The Company and Acclaim have terminated the distribution agreement as of
April 30, 1996. On or before June 30, 1996, Acclaim will render a final
accounting to the Company together with payment of the balance of any amounts
due to the Company under the distribution agreement. Acclaim has notified its
accounts that it will not accept returns of any of the Company's software
products after June 30, 1996. The Company, however, will remain liable for all
such returns regardless of when received by Acclaim.

Net sales consist of gross sales net of allowances for returns, credit
losses and other adjustments. The Company adjusts its allowance for returns as
it deems appropriate. The Company could be forced to accept substantial product
returns or other concessions to maintain its relationships with retailers and
distributors and its access to distributor channels. The Company is also
exposed to the risk of returns of defective, shelf-worn and damaged products
from retailers and distributors.

Costs of sales consist primarily of product cost, freight charges,
royalties to outside programmers and content providers, and an inventory
provision for damaged and obsolete products. Product costs consist of the costs
to purchase the underlying materials and print both boxes and manuals, media
costs (disks and CD-ROMs) and fulfillment (assembly and shipping).

From the Company's inception through October 24, 1995, the Company sold
synthesizer sound libraries. In July 1995, the Company's Board of Directors
approved a formal plan to license the proprietary assets related to such
revenues in exchange for royalties. The Results of Operations discussion and
analysis which follows includes only the continuing operations of the Company,
which is primarily comprised of software sales. The Company sustained losses
from these discontinued synthesizer operations of $143,106 in fiscal 1995 and
$115,887 in fiscal 1994.

-33-
<PAGE>

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 1994 COMPARED TO SIX MONTHS ENDED DECEMBER
31, 1995

NET SALES. Net sales from continuing operations decreased by 30 percent
from $1,600,331 for the six months ended December 31, 1994 to $1,120,691 for the
six months ended December 31, 1995. In 1995, the Company determined to
concentrate its focus on development of its educational interactive CD-ROM
software and to reduce its development work for third parties. Consequently,
total retail sales of the Company's software products increased from $1,006,849
during the six months ended December 31, 1994 to $1,197,718 during the six
months ended December 31, 1995, but the Company had no development revenues in
the period, compared with $127,250 for the prior period. Revenues from OEM
sales declined from $389,979 to $21,466, reflecting a one-time agreement with
Acer in 1994 that did not produce significant revenues in 1995. In addition,
the Company's royalty fees declined from $76,253 to $21,678 during the
corresponding periods. The higher royalty revenues for the six months ended
December 31, 1994 resulted primarily from introductions of products
incorporating content sublicensed by the Company that were not repeated in the
six months ended December 31, 1995. This decline in royalty revenues also
reflected the Company's current strategy of focusing on developing all product
licenses itself rather than sublicensing them to third parties.

During the six months ended December 31, 1995, of the Company's net sales
of $1,120,691, a total of $819,619 (73 percent) were generated by Acclaim. None
of the Company's net sales of $1,006,840 during the six months ended December
31, 1994 were generated by Acclaim. As noted above, because of its
disappointment with the level of sales generated by Acclaim, the Company has
terminated its distribution agreement with Acclaim effective April 30, 1996.

COST OF SALES. Cost of sales decreased by 29 percent from $956,368 for the
six months ended December 31, 1994 to $682,510 for the six months ended December
31, 1995, representing 60 percent and 61 percent of net sales, respectively.
This decrease is primarily attributable to diminished inventory and reduced
production costs resulting from the Company's switch from floppy disk to CD-ROM
media for the majority of its products.

MARKETING AND SALES. Marketing and sales expenses increased by 96 percent
from $291,805 for the six months ended December 31, 1994 to $572,778 for the six
months ended December 31, 1995, and increased as a percentage of net sales from
18 percent to 51 percent, respectively. These increases were primarily due to
increased marketing activities to promote the Company's products and brand name
among retail purchasers, and increased personnel costs. The Company intends to
continue to launch new and innovative marketing promotions and to hire
additional personnel.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by 75 percent from $688,974 for the six months ended December 31, 1994 to
$1,208,838 for the six months ended December 31, 1995, and increased as a
percentage of net sales from 43 percent to 108 percent, respectively. The
increase is primarily attributable to costs incurred by the Company during the
six months ended December 31, 1995 related to the 1995 Bridge Financing and a
$422,310 bad debt reserve relating to the Company's receivable from Acclaim,
offset by decreased executive salaries and noncash compensation incurred in
connection with the issuance of Common Stock and Common Stock options. A total
of $193,332 of the general and administrative expenses for the six months ended
December 31, 1994 relates to a noncash charge to earnings in connection with the
vesting of stock options granted to employees, determined as the difference
between the fair market value on the date of grant and the exercise price. No
such charge was incurred during the six months ended December 31, 1995.

-34-
<PAGE>

DEVELOPMENT. Development expenses increased by 247 percent from $76,725
six months ended December 31, 1994 to $266,153 for the six months ended December
31, 1995, and increased as a percentage of net sales from 5 percent to 24
percent, respectively. These increases were primarily attributable to costs
relating to product upgrade and new product development activities. The Company
believes that development expenses will increase in dollar amount and as a
percentage of net sales in the future as the Company expands its development
activities.

TAX PROVISION. The current period income tax provision is comprised of
minimum state franchise taxes of $1,200. There is no provision for Federal
income taxes as the Company has a loss in the six month periods ended December
31, 1994 and 1995, respectively.

OTHER. Other income (expense) increased from $20,900 for the six months
ended December 31, 1994 to $399,584 for the six months ended December 31, 1995,
and increased as a percentage of net sales from one percent to 36 percent,
respectively. This increase is primarily comprised of amortization of deferred
loan costs of $262,732, and interest expense of $118,176, during the six months
ended December 31, 1995, all of which costs related to the Company's 1995
Private Placement.

FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995

NET SALES. Net sales from continuing operations increased by 28 percent
from $1,685,871 for fiscal 1994 to $2,154,296 for fiscal 1995. Retail software
sales decreased by 5 percent from $1,313,890 for 1994 to $1,255,230 for 1995 due
principally to discounting and pricing declines for the Company's software
products. Development revenues increased by 205 percent from $112,520 for 1994
to $343,250 for 1995, primarily as a result of an agreement to develop
MOVIEBOOKS-TM- under a contract with a motion picture studio. OEM sales
increased by 13.3 percent from $5,500 for 1994 to $479,675 for 1995. This
increase in OEM sales resulted principally from sales pursuant to a software
bundling agreement with a PC manufacturer. Royalty fees decreased by 69 percent
from $253,961 for 1994 to $76,771 for 1995. The decline in royalty revenues
reflected the Company's strategy of focusing on developing all product licenses
itself rather than sublicensing them to third parties.

The Company established a reserve for returns that it believes to be
adequate based upon historical return data and its analysis of current customer
inventory levels and sell through rates.

COST OF SALES. Costs of sales decreased by 9.1 percent from $1,180,803 for
fiscal 1994 to $1,072,691 for fiscal 1995, and decreased as a percentage of net
sales from 70.0 percent to 50 percent, respectively. This percentage decrease
was principally attributable to the substantially lower costs associated with
the sale of the single "golden master" for certain of the Company's products
sold to a PC manufacturer to install under an OEM bundling agreement in the
first six months of fiscal 1995, partially offset by a change in the product mix
to higher priced items and a decrease in OEM costs.

MARKETING AND SALES. Marketing and sales expenses increased by 45.2
percent from $356,381 for fiscal 1994 to $516,886 for fiscal 1995, and increased
as a percentage of net sales from 21.1 percent to 24 percent, respectively.
These increases were primarily due to increased marketing activities to promote
the Company's product and brand name, and an increase in personnel. The Company
intends to continue to launch new and innovative marketing promotions and to
hire additional personnel.

GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by 53 percent from $3,821,728 for fiscal 1994 to $1,783,023 for fiscal 1995, and
decreased as a percentage of net sales

-35-
<PAGE>

from 227 percent to 83 percent, respectively. The decrease was primarily due to
a decrease in noncash compensation in connection with Common Stock issued for
services provided, partially offset by increased staffing and associated
overhead expenses necessary to manage and support the Company's growth. A total
of $2,992,862 of the 1994 general and administrative expenses and $733,165 of
the 1995 general and administrative expenses relates to noncash charges to
earnings in connection with the vesting of stock options granted to employees,
determined as the difference between the fair market value on the date of grant
and the exercise price.

DEVELOPMENT. Development expenses increased by 223.1 percent from $116,559
for fiscal 1994 to $378,471 for fiscal 1995, and increased as a percentage of
net sales from 7 percent to 18 percent, respectively. These increases were
primarily attributable to costs relating to product upgrade and new product
development activities. The Company developed its first four MOVIEBOOKS-TM- in
fiscal 1995, and to date has developed four MOVIEBOOKS-TM- in fiscal 1996. The
Company believes that development expenses will increase in dollar amount and as
a percentage of net sales in the future as the Company expands its development
activities.

TAX PROVISION. The income tax provision for 1994 and 1995 is comprised of
minimum State of California Franchise Taxes of $1,600. There is no provision
for Federal income taxes as the Company has a current year loss and has a
$2,513,000 net operating loss carryforward. Depending upon future changes in
ownership of the Company, the use of this carryforward may be limited in the
future.

QUARTERLY RESULTS OF OPERATIONS

The Company has experienced, and may continue to experience, fluctuations
in operating results due to a variety of factors, including the size and rate of
growth of the consumer software market, market acceptance of the Company's
products and those of its competitors, development and promotional expenses
relating to the introduction of new products or new versions of existing
products, product returns, changes in pricing policies by the Company and its
competitors, the accuracy of retailers' forecasts of consumer demand, the timing
of the receipt of orders from major customers, and account cancellations or
delays in shipment. The Company's expense levels are based, in part, on its
expectations as to future sales and, as a result, operating results could be
disproportionately affected by a reduction in sales or a failure to meet the
Company's sales expectations.

SEASONALITY

The consumer software business traditionally has been seasonal. Typically,
net sales are the highest during the fourth calendar quarter and decline
sequentially in the first and second calendar quarters. The seasonal pattern is
due primarily to the increased demand for consumer software during the year-end
holiday buying season. The Company expects its net sales and operating results
to continue to reflect seasonality. Nevertheless, management believes that in
the future its results may be less subject to seasonal fluctuations because its
products will be marketed in connection with the releases of major motion
pictures and home videos, which occur throughout the year. See "Risk Factors --
Fluctuations in Operating Results; Seasonality."

LIQUIDITY AND CAPITAL RESOURCES

Since its formation, the Company has financed its operations and capital
expenditures primarily with cash provided by operating activities, securities
issuances and financing arrangements. As of December 31, 1995, the Company had
negative working capital of $2,490,730 and cash equivalents of $1,492,507. To
date, the Company has not invested in derivative securities or any other
financial

-36-
<PAGE>

instruments that involve a high degree of complexity or risk, and management
does not intend to invest in these types of securities or financial instruments
in the future.

The Company invested approximately $46,000 during fiscal year 1995 and
currently anticipates investing approximately $100,000 during fiscal 1996 for
capital equipment to expand into new product lines and to address potential
capacity constraints created by the Company's growing unit sales volumes. From
time to time, the Company evaluates acquisitions of products, businesses and
technologies that are complementary to the Company's business. Presently,
however, the Company does not have any understandings, commitments or agreements
with respect to any such acquisitions.

The Company is dependent on the net proceeds of this offering or other
financing to repay the aggregate principal amount of $4,987,500 in Private Notes
issued to investors in the Company's 1995 Private Placement, plus accrued
interest. The Company believes that the net proceeds from the offering,
together with its cash on hand, and anticipated net cash flow from operations,
will be sufficient to fund the Company's contemplated cash requirements for at
least the next 12 months. The Company currently plans to develop four to five
MOVIEBOOKS-TM- and at least one activity center per year, which management
estimates will cost approximately $150,000 per title, plus a licensing fee of
approximately $25,000 to $150,000 per title. If the Company can generate sales
of at least 40,000 units per title, management believes the Company will be able
to finance its business operations from net sales revenue. If the Company is
unable to generate the necessary volume of sales on its existing products
through March 31, 1997, the Company will be required to seek additional
financing to continue the development of new products for the next fiscal year.
There can be no assurance that the Company will achieve the necessary sales to
fund its future operations or that, if additional financing is necessary, such
financing will be available. See "Risk Factors -- Dependence on Net Proceeds of
this Offering; Possible Need for Additional Financing."

Management expects that in the future, cash in excess of current
requirements will be invested in investment-grade, interest-bearing securities.

NEW ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a method of accounting
for stock compensation plans based on fair value of grants made under such plans
on the date of grant using certain option-pricing models. SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance with
APB opinion 25 "Accounting for Stock Issued to Employees," which provides for an
intrinsic valuation model that recognizes only the difference between the fair
market value of a company's stock and the price paid to acquire the stock under
the stock compensation plan. However, SFAS No. 123 encourages the adoption of
the fair value accounting method. Companies electing not to follow the new fair
value based method are required to provide expanded footnote disclosures,
including pro forma net income and earnings per share, determined as if the
company had applied the new method. SFAS No. 123 is required to be adopted
prospectively beginning January 1, 1996. The Company plans to use the intrinsic
valuation model and provide footnote disclosure with respect to the fair value
of options for fiscal years beginning after January 1, 1996.

-37-

<PAGE>

BUSINESS

GENERAL

The Company is engaged primarily in developing, publishing and
marketing educational, interactive computer software products for children.
MOVIEBOOKS-TM-, which combine text, photos, soundclips and actual film footage
of well recognized family films and cartoon series, are the Company's major
software products. MOVIEBOOKS-TM- are developed and published by the Company
on CD-ROM for Multimedia PCs as entertaining, interactive reading tools for
young children. The Company also produces a variety of entertainment
computer software utilities such as screen savers and sound clips known as
AUDIOCLIPS-Registered Trademark-. The Company is currently developing another
line of products which it refers to as creativity centers. This product line
combines learning activities such as painting, drawing, matching, puzzles and
mazes within a framework of three distinct skill levels.

The Company's products are based on licensed content of major motion
pictures and television shows under agreement with major entertainment studios
including Viacom Consumer Products (as agent for Paramount Pictures Corp.),
Lucasfilm Ltd., Warner Bros. Consumer Products, CBS Entertainment, MCA/Universal
Merchandising, Inc., Carolco Pictures, Inc., DC Comics, MGM/UA Merchandising,
Inc. and others. The Company's license agreements include for existing products
BABE-TM-, LASSIE-TM-, THE LITTLE RASCALS-TM-, BLACK BEAUTY-TM-, THE ADVENTURES
OF BATMAN AND ROBIN-TM-, TERMINATOR 2: JUDGMENT DAY-TM-, the STAR WARS-TM-
trilogy, FREE WILLY 2-TM-, THE SECRET GARDEN-TM-, STAR TREK-TM-, SATURDAY NIGHT
LIVE-TM-, THE TWILIGHT ZONE-TM-, TOTAL RECALL-TM-, and other popular titles.
The Company also holds licenses for new products being developed for release in
1996 on ALL DOGS GO TO HEAVEN II-TM-, THE LAND BEFORE TIME-TM-,DRAGON HEART-TM-,
and I LOVE LUCY-TM-. The Company is continuing the negotiation of additional
licenses for all of its product line offerings. Management believes the Company
is capable of continuing to obtain new licenses for major motion pictures and
television shows and developing new, high quality software products using
content from these entertainment properties.

The Company believes that as of March 31, 1996, its products were in
distribution to approximately 6,000 retail outlets. Retailers currently selling
the Company's products include Target, Tower Records, Sears, Wal-Mart,
Price/Costco, CompUSA, Best Buy, BJ's, Computer City, Egghead, Electronics
Boutique, Babbages, Software, Etc., Kmart, Barnes & Noble, Sam Goody, Sam's
Club, QVC, Musicland, Circuit City and others.

INDUSTRY BACKGROUND

In recent years, the installed base of Multimedia PCs in households has
grown substantially as prices have declined significantly and as improvements in
computing power and capability have been achieved. There are a number of
factors driving the increased demand and use of Multimedia PCs in U.S. and
foreign households beyond the general impact of falling prices and increased
performance. Enabling technologies and standards, such as graphical user
interfaces and the Microsoft-Registered Trademark- Windows-Registered Trademark-
operating system, and the recent release of the Windows '95-Registered
Trademark- operating system, have made Multimedia PCs easier to use for a broad
range of applications, resulting in the transformation of Multimedia PCs into
general-purpose tools. In addition, today's Multimedia PCs feature high-speed
microprocessors, large amounts of memory, high-resolution monitors and enhanced
sound and speaker and graphics capabilities. These advanced capabilities, along
with the introduction of CD-ROM multimedia technology, have allowed software
developers to produce more engaging software with advanced three-dimensional
graphics, realistic sound and full motion video. The Company believes that CD-
ROM multimedia technology will continue to impact the growth of the consumer
software market as software developers take advantage of the multimedia
capabilities of this more advanced hardware technology.

-38-
<PAGE>

The resulting increased penetration of Multimedia PCs into domestic
households has created a large and growing mass market for consumer software as
consumers wish to maximize the utility of their Multimedia PCs. The
distribution of consumer software has also expanded beyond traditional software
retailers and computer stores to include general mass merchandisers.

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. The Company believes that consumers are more frequently
purchasing software on impulse in the same way that they often buy books, music
compact discs ("CDs") and motion picture videos. With the increasing
consumerization of the software market, the Company believes that the prices for
consumer software products may fall. If this occurs, the distribution channels
for consumer software could continue to expand to include book and music stores,
video outlets and, possibly, supermarkets.

As consumer software becomes more of a mass market product, the Company
believes it will become increasingly important for consumer software companies
to have direct relationships with retailers and to effectively market their
products to consumers. Competition for retail shelf space is also likely to
increase due to the proliferation of consumer software products and companies.
As a result, the Company believes that in order to be successful, consumer
software companies must have a consumer-driven focus, a broad offering of
category-leading products, close relationships with retailers, a recognized
brand name and a cost-efficient business model.

BUSINESS STRATEGY

The Company's objective is to be a leading publisher of high quality, value
priced family oriented consumer software. The Company seeks to develop a broad
line of products in categories in which a substantial market share can be
attained. The Company also seeks to expand product franchises by upgrading
successful products and developing product line extensions and complementary
products. The Company believes that it may achieve its objectives utilizing the
following strategies:

- MAINTAIN CONSUMER-DRIVEN FOCUS. The Company develops what it believes
are creative and innovative products with mass market appeal,
targeting families who are familiar with the Company's licensed movie
titles, television series and comic book characters. The Company
believes that these consumers base their software purchasing decisions
largely on quality, value, ease of use, recognition and personal
affinity for recognizable motion picture and television productions
upon which the Company's products are based. As a result, the Company
is committed to providing products that are high quality, value priced
and which require minimal computer experience to operate. The
Company's consumer-oriented marketing strategy combines attractive and
informative shrink-wrap packaging with high-impact promotional
campaigns to encourage impulse purchases. To enhance customer
satisfaction, the Company also provides technical support for all of
its products. In addition, the Company revises products in response
to consumer feedback and upgrades products to utilize new technologies
as those technologies gain broader acceptance in the consumer market.
The Company receives consumer feedback primarily from comments on
product registration cards submitted to it by customers.

- DEVELOP DIVERSIFIED TITLES WITH STRONG FRANCHISE VALUE. The Company
seeks to develop a broad line of products in sustainable categories in
which a substantial market share can be achieved. The Company
currently has 21 software products available for sale in stores in the
education and entertainment categories. Hollywood content such as
motion pictures and television shows will continue to be the
foundation on which the products are based. The Company seeks
to build franchise value through its merchandising programs and seeks

-39-
<PAGE>

to create franchises by upgrading products and developing product line
extensions and complementary products. Several of the Company's
licenses permit it to produce multiple software titles using the same
proprietary subject matter. The Company also seeks to create
"evergreen" titles with extended lifecycles by upgrading successful
products to incorporate new features and to adapt to new technologies.

- LEVERAGE STUDIO RELATIONSHIPS. The Company is developing a variety of
cross-marketing promotional programs with its movie studio licensors
and other licensees of movie titles licensed by the Company for its
software products. For example, the Company has worked with the MCA
Home Video Division to include discount coupons for the Company's
BABE-TM- MOVIEBOOK-TM- in video cassettes of BABE-TM-. The Company is
further working with MCA Home Video Division to include trailers for
MCA movie titles in the Company's software products. In addition, the
Company is working with the manufacturers of toy action figures to
include rebate coupons for the Company's products with the related
action figures. The Company has also developed a screen saver for
Universal Studios Florida in return for trip packages to be used for
promotional contests. The Company's goal is to run one special
promotion, such as a contest, every two to three months. Based on
currently pending negotiations with its movie studio licensors,
management believes the Company will have the opportunity to develop a
variety of new cross-promotional programs that may significantly
enhance the Company's marketing efforts.

- PROMOTE TRADENAME RECOGNITION. The Company promotes its licensed
properties in conjunction with its brand name "Sound Source
Interactive" in order to encourage customer loyalty and repeat
purchases. The Company believes that its brand name products are
recognized by consumers as high quality, fully featured software that
consistently exceed consumer expectations. Drawing upon established
consumer marketing techniques, the Company uses its brand name and
consistent packaging style which emphasize high-impact design and
recognizable motion picture and television titles. The Company
includes a mail-in order form with each product it sells, which
includes a list of the Company's other available products to encourage
repeat purchases. The Company believes that by promoting a
recognizable brand name and consistent packaging, satisfied consumers
are more likely to purchase additional Company-produced products when
faced with multiple options in a software category. The Company also
has an established public relations effort which seeks to broaden
consumer awareness and acceptance of its tradename. As the consumer
software industry becomes more of a mass market, the Company believes
that tradename recognition will become an increasingly important means
of product differentiation among retailers and consumers.

- MANAGE DEVELOPMENT PROCESS TO MAINTAIN QUALITY AND VALUE PRICING. The
Company manages its development process in an attempt to provide
consistent product quality, shorter and more predictable delivery
schedules, and lower overall development costs. The Company works
closely with each licensor to carefully select appropriate product
development opportunities. The Company's internal development efforts
are focused primarily on product design and features, consistent user
interfaces and product quality and consistency. The Company
supplements its internal product development resources by utilizing
existing technologies and externally developed programming. This
process allows the Company to maintain internal control over the
creative and market-driven aspects of its product development efforts,
while using outside resources to lessen its development risks and
control costs. This allows the Company to offer value pricing of its
products. As consumer software becomes more of a mass market driven
by consumer demand and lower price points, the Company believes that
its ability to develop, produce, market and support value-priced
products provides it with a competitive advantage.

-40-
<PAGE>

- DEVELOP GAME PRODUCTS. The Company intends to develop products
intended for the game market in the future. The Company believes that
its access to motion picture and related content will enable it to
produce games that can be successfully marketed. The Company intends
to market its game products in concert with studio releases and
events.

- ACQUISITIONS. The Company intends to pursue acquisitions of
entertainment software companies and selected titles within existing
or new product categories. The Company believes that acquisitions may
provide diversification of revenues and enhanced revenues growth. The
Company is not currently a party to any discussion, agreement,
arrangement or understanding in connection with any such acquisition.

PRODUCTS

INTERACTIVE CD-ROM

The Company has created MOVIEBOOKS-TM- for children, which are electronic
storybooks with full motion video based on the licensed property. MOVIEBOOKS-
TM- are marketed as reading aids for young children. Research studies involving
literacy have shown that children learn to read by repetitive reading -- usually
with the aid of a parent or teacher. This learning process begins at about 18
months of age and continues through the first and second grades for many
children. The targeted ages for MOVIEBOOKS-TM- are three through ten. The
Company has released five of its MOVIEBOOKS-TM- on CD-ROM. This product
provides options for automatic reading by the computer, user reading, a
dictionary invoked by "clicking" on a dictionary book icon, actual full motion
video taken from the motion picture that coincides with the text pages, high-
quality sound, art and animation as well as a quiz consisting of multiple choice
questions on a related topic to the story, reinforcement through a "jigsaw"
puzzle which can be printed, and a "bookmark" so the adventure can be stopped,
put away and restarted at the same point at a later date. More elaborate
activities in the MOVIEBOOK-TM- have been included in BABE-TM-, THE LITTLE
RASCALS-TM-, FREE WILLY 2-TM-, EXOSQUAD-TM- and THE ADVENTURES OF BATMAN AND
ROBIN-TM-, will be further incorporated in the next generation of products.

The Company first introduced its MOVIEBOOK-TM- product line into the
marketplace in August 1994 with the release of Warner Bros.' THE SECRET GARDEN-
TM-. The Company released Warner Bros.' BLACK BEAUTY-TM- in November 1994,
Broadway Video's LASSIE-TM-," a Paramount Pictures release, in December 1994 and
Universal Pictures' LITTLE RASCALS-TM- in June 1995. The Company released
Warner Bros.' FREE WILLY 2-TM- in July 1995. During November 1995, three new
MOVIEBOOKS-TM- were completed and released: BABE-TM- (Universal Pictures),
EXOSQUAD-TM- (Universal Pictures) and THE ADVENTURES OF BATMAN & ROBIN-TM- (DC
Comics). These three products, however, did not receive widespread distribution
until the first calendar quarter of 1996. All products are currently Windows
'95-Registered Trademark- compatible. Currently, the products are sold at a
suggested retail price of up to $30 each, a price point intended to generate
impulse purchases among consumers at the retail level.

The Company intends to introduce four to five new MOVIEBOOKS-TM- annually
in the future. Each is expected to experience its highest sales prices and
volumes within the 12 months following its introduction. Although the products
may continue to be sold after 12 months, they typically will be sold on a
discounted basis.

The following is a listing of the Company's MOVIEBOOK-TM- products which
are currently existing or planned for release, all of which are on CD-ROM:

-41-
<PAGE>

MOVIEBOOK-TM-TITLE LICENSOR RELEASE DATE CURRENT PLATFORM
---------------------------- ---------------- -------------- ------------------
<S> <C> <C> <C>
The Secret Garden-TM- Warner Bros. August 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
Black Beauty-TM- Warner Bros. November 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
Lassie-TM- Broadway Video December 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
The Little Rascals-TM- Universal Pictures June 1995 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
Free Willy 2-TM- Warner Bros. July 1995 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
Babe-TM- Universal Pictures November 1995 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
ExoSquad-TM- Universal Pictures November 1995 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
The Adventures of DC Comics November 1995 Windows-Registered Trademark- and
Batman and Robin-TM- Windows '95-Registered Trademark-
Land Before Time-TM- UniversalPictures July 1996 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
All Dogs Go to Heaven II-TM- MGM October 1996 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
Batman and Robin II-TM- DC Comics March 1997 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
</TABLE>

The Company is currently developing another line of interactive CD-ROM
based products which it refers to as creativity centers. This product line
combines learning activities such as painting, drawing, matching, puzzles and
images within a framework of three distinct skill levels. The Company intends
to introduce its first creativity center product in June 1996, and to introduce
one or two new creativity centers annually thereafter.

The following creativity center products which are planned for release in
1996.

CREATIVITY CENTER TITLE LICENSOR RELEASE DATE CURRENT PLATFORM
------------------------ -------- ------------- ---------------------
<S> <C> <C> <C>
DRAGONHEART-TM- Universal June 1996 Macintosh-Registered Trademark-,
Pictures Windows-Registered Trademark- and
Windows '95-Registered Trademark-
LAND BEFORE TIME-TM- Universal October 1996 Macintosh-Registered Trademark-,
Pictures Windows-Registered Trademark- and
Windows '95-Registered Trademark-

</TABLE>

ENTERTAINMENT UTILITIES

The Company was one of the first to license motion picture studio
properties to create entertainment utility software. The first product was Star
Trek AUDIOCLIPS-Registered Trademark- and the second was a sub-license for a
STAR TREK-TM- Screen Saver. The Company followed its STAR TREK-TM- products
with STAR WARS-TM-, THE WIZARD OF OZ-TM-, TERMINATOR 2: JUDGMENT DAY-TM- and
others. The Company's screen saver line-up now includes TERMINATOR 2: JUDGMENT
DAY-TM-, THE TWILIGHT ZONE-TM- and SATURDAY NIGHT LIVE-TM-. Additionally, the
sub-license for Star Trek AUDIOCLIPS-Registered Trademark- now extends to STAR
TREK: THE NEXT GENERATION-TM-, STAR TREK: THE MOTION PICTURES-TM- and a Stardate
Desktop Calendar.

-42-

<PAGE>

Entertainment utility products may include AUDIOCLIPS-Registered Trademark-,
screen savers based on animation, video and still images, and wallpaper,
VISUALCLIPS-Registered Trademark- and jigsaw puzzles.

- LIMITED EDITION ENTERTAINMENT UTILITIES. The Company's new
entertainment computer software utilities incorporate screen savers,
AUDIOCLIPS-Registered Trademark- and other content based on
entertainment properties. The new entertainment utilities are
marketed as limited issue, serialized collector editions. For
Christmas 1995, the Company released a Limited Edition BABYLON 5-TM-
(Warner Bros.) Entertainment Utility which contains screen savers and
AUDIOCLIPS-Registered Trademark-. Limited edition products are
serialized and retail at approximately $30 each. The Company expects
the limited edition products to replace stand alone screen savers and
AUDIOCLIPS-Registered Trademark- by Christmas of 1996. The Company
currently sells the following limited edition entertainment utilities:

<TABLE>
<CAPTION>
TITLE LICENSOR RELEASE DATE CURRENT PLATFORM
-------------------------- ------------------- -------------------- ----------------------------------
<S> <C> <C> <C>
STAR WARS TRILOGY-TM- Lucasfilm, Ltd. July 1985 Macintosh-Registered Trademark-,
Windows-Registered Trademark- and
Windows '95-Registered Trademark-
BABYLON 5-TM- Warner Bros. November 1995 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
TERMINATOR 2; Carolco Pictures July 1996 Windows-Registered Trademark- and
JUDGMENT DAY-TM- Windows '95-Registered Trademark-
STAR TREK DEEP SPACE Paramount/ August 1996 Windows-Registered Trademark- and
NINE-TM- Viacom Windows '95-Registered Trademark-
STAR TREK VOYAGER-TM- Paramount/ November 1996 Windows-Registered Trademark- and
Viacom Windows '95-Registered Trademark-
I LOVE LUCY-TM- CBS November 1996 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
</TABLE>

- AUDIOCLIPS-Registered Trademark-. The Company's AUDIOCLIPS-Registered
Trademark- Desktop Diversion Utilities are audio computer software
utilities which utilize segments of dialogue, music or sound effects
from original soundtracks of major motion pictures and hit television
shows to provide complementary audio "cues" for certain computer
system functions. The AUDIOCLIPS-Registered Trademark- utilities are
packaged with default assignments via the playing "engine" to enable
consumers to personalize their computing environment. Thus, although
AUDIOCLIPS-Registered Trademark- are pre-programmed for use by the
computer novice, the technology enables the user to assign other
sounds to the computer function of their choice. AUDIOCLIPS-
Registered Trademark- products were first introduced into the
marketplace in December 1991. Currently, the products are sold at a
suggested retail price of approximately $15 each, a price point
intended to generate impulse purchases among consumers at the retail
level. The Company currently sells the following AUDIOCLIPS-
Registered Trademark- products:

<TABLE>
<CAPTION>
AUDIOCLIPS Registered
Trademark- TITLE LICENSOR RELEASE DATE CURRENT PLATFORM
--------------------------- ------------------- ---------------- ---------------------------------
<S> <C> <C> <C>
TERMINATOR 2: Carolco Pictures January 1993 Windows-Registered Trademark- and
JUDGMENT DAY-TM- Windows '95-Registered Trademark-
TOTAL RECALL-TM- Carolco Pictures February 1993 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
STAR WARS-TM- Lucasfilm, Ltd. October 1992 Macintosh-Registered Trademark-
STAR WARS-TM- Lucasfilm, Ltd. August 1993 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
THE EMPIRE STRIKES BACK-TM- Lucasfilm, Ltd. August 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
</TABLE>

-43-
<PAGE>

RETURN OF THE JEDI-TM- Lucasfilm, Ltd. October 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
STAR TREK-TM- Paramount March 1995 Windows-Registered Trademark- and
(original TV show) /Viacom Windows '95-Registered Trademark-
STAR TREK: Paramount March 1995 Windows-Registered Trademark- and
THE NEXT GENERATION-TM- /Viacom Windows '95-Registered Trademark-
STAR TREK: Paramount October 1994 Windows-Registered Trademark- and
THE MOTION PICTURES-TM- /Viacom Windows '95-Registered Trademark-
STAR WARS TRILOGY-TM- (limited Lucasfilm, Ltd. July 1995 Macintosh-Registered Trademark-,
edition of AUDIOCLIPS- Windows-Registered Trademark- and
Registered Trademark- Windows '95-Registered Trademark-
and VISUALCLIPS-
Registered Trademark-)
</TABLE>

- SCREEN SAVERS. Originally developed as a utility to protect computer
monitors from image "burn-in," screen saver utilities have evolved
into desktop entertainment software. Market observers estimate the
screen saver market currently to exceed $80 million per annum. The
Company first introduced its screen saver product line into the
marketplace in August 1993 with the release of its TERMINATOR 2:
JUDGMENT DAY-TM- screen saver. In November 1994, the Company released
its THE TWILIGHT ZONE-TM- screen saver and SATURDAY NIGHT LIVE-TM-
screen saver.

Currently, the stand alone screen saver products are sold at a suggested
retail price of approximately $20 each, a price point intended to generate
impulse purchases among consumers at the retail level. The Company currently
sells the following screen saver products:

<TABLE>
<CAPTION>
SCREEN SAVERS TITLE LICENSOR RELEASE DATE CURRENT PLATFORM
------------------- ------------------ ---------------- ----------------------------------
<S> <C> <C> <C>
TERMINATOR 2: Carolco Pictures August 1993 Windows-Registered Trademark- and
JUDGMENT DAY-TM- Windows '95-Registered Trademark-
THE TWILIGHT ZONE-TM- CBS Television November 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
SATURDAY NIGHT LIVE-TM- Broadway Video November 1994 Windows-Registered Trademark- and
Windows '95-Registered Trademark-
</TABLE>

MUSIC INDUSTRY PRODUCTS

The Company's original products were sound libraries for professional
musicians sold to musical instrument manufacturers, music stores and directly to
end users. Although sales of the hardware that utilize the products continue
today, software sales remain flat due to the limited consumer population. The
Company recently discontinued its music industry products operations in order to
focus entirely on the computer software market. The Company will continue to
utilize its sound laboratory facilities and its sound library as it exists today
for incorporation into multimedia products as necessary. Using its own sound
library, the Company is capable of providing all of its own music and sound
effects for its software products, and creating new sounds as required for each
project. The Company believes that the discontinuance of its music industry
business will not materially affect its future earnings.

DEVELOPMENT AGREEMENTS

The Company has entered into development agreements with MTV Music
Television, NBC Television and Fox Interactive, pursuant to which the Company is
entitled to receive fees for its

-44-
<PAGE>

development services and/or royalties on the products sold by the contracting
parties. The Company has developed or is in current development with the
following entities for the following titles:

CLIENT CONTENT CATEGORY STATUS
-------------------------- --------------------- ------------------ --------------------
<S> <C> <C> <C>
MTV Music Television DEAD AT 21-TM- Screen Saver Completed
NBC Television HISTORIC PEACOCK-TM- Screen Saver Completed
Fox Interactive EEK! THE CAT-TM- MOVIEBOOK-TM- In Final Approval
Fox Interactive THE TICK-TM- MOVIEBOOK-TM- In Final Approval
Fox Interactive BOBBY'S WORLD-TM- MOVIEBOOK-TM- In Development
Fox Interactive LIFE WITH LOUIE-TM- MOVIEBOOK-TM- In Development
</TABLE>

The Company currently does not intend to enter into additional development
agreements in the foreseeable future, because it intends to emphasize the
development of its own products.

PRODUCT DISTRIBUTION

In June 1995, the Company entered into a Sales and Distribution Agreement
with Acclaim Distribution, Inc., a subsidiary of Acclaim Entertainment, Inc.
(collectively, "Acclaim," as previously defined), a distributor of entertainment
software. The Company had no sales to or through Acclaim during its fiscal year
ended June 30, 1995. During the six-month period ended December 31, 1995, of
the Company's total revenues from retail software sales of $1,120,691, a total
of $819,619 (73 percent) were generated by Acclaim. Under the terms of this
agreement, Acclaim was the exclusive distributor of the Company's products on a
worldwide basis to retail accounts, resellers and distributors except with
respect to distribution in North America by direct mail, "infomercials,"
television home shopping channels or through "bundling" agreements with OEMs.
As a result of the foregoing, the Company was substantially dependent upon
Acclaim for the distribution and sale of its products through March 31, 1996.
See "Business -- Relationship With Acclaim."

The Company was not satisfied with the distribution of its products through
Acclaim and determined to terminate the Acclaim distribution agreement in March
1996. The Company and Acclaim have terminated the distribution agreement as of
April 30, 1996. On or before June 30, 1996, Acclaim will render a final
accounting to the Company together with payment of the balance of any amounts
due to the Company under the distribution agreement. Acclaim has notified its
accounts that it will not accept returns of any of the Company's software
products after June 30, 1996. The Company, however, will remain liable for all
such returns regardless of when received by Acclaim.

The Company believes that it has the ability to distribute its products
through nonexclusive software distributors and by means of direct sales to major
computer and software retailers. The Company further believes that it could
generate sales sufficient to allow it to operate profitability without a major
exclusive distribution relationship similar to its past relationship with
Acclaim. Nevertheless, the Company believes that it is possible to generate
higher sales to mass marketers through an exclusive affiliate distributor, and
that the attendant risk of collection of accounts can be mitigated. Therefore,
the Company is currently in the process of negotiating distribution agreements
with potential new exclusive distributors. There can be no assurance, however,
that the Company will be successful in entering into any such distribution
agreements, or that the terms of any such distribution agreement will be
favorable to the Company. Moreover, even if the Company does enter into one or
more such distribution agreements, there can be no assurance that the
distributors in question will successfully market the Company's products. The
Company may experience a loss of sales momentum as a result of the termination
of the Acclaim distribution agreement, even if the Company enters into
agreements with new distributors.

-45-
<PAGE>

The Company believes that its products currently are in distribution to
approximately 6,000 retail outlets. Retailers currently selling the Company's
products include Target, Tower Records, Sears, Wal-Mart, Price/Costco, CompUSA,
Best Buy, BJ's, Computer City, Egghead, Electronics Boutique, Babbages, Software
Etc., Kmart, Barnes & Noble, Sam Goody, Sam's Club, QVC, Musicland, Circuit
City, Blockbuster Video and others.

In fiscal 1994, the Company had four customers who collectively represented
29 percent of the Company's sales, including two distributors, Cameo Interactive
and Good Times Interactive, each of which accounted for ten percent or more of
the Company's sales. As a result of the Company's broader distribution to
retail customers during fiscal 1995, only one customer, Comp USA, accounted for
18 percent of the Company's gross sales, and no other customer accounted for ten
percent or more of the Company's gross sales. The Company believes that mass
market retailers will increasingly be significant outlets for consumer software.

SALES AND MARKETING

The Company intends to tailor marketing efforts, promotions and
merchandising displays to fit the needs of specific retailers. This strategy
enables the Company to identify and react to trends in the retail consumer
market and to help build incremental sales. The Company believes that its
attention to detail at the retail level and careful execution will be key
factors in successful marketing programs. As the number of consumer software
titles continues to grow and as the competition for retail shelf space
increases, the Company believes that this marketing strategy, combined with the
strength of its licensed titles, will give it a competitive advantage.

Offering a wide variety of products, the Company can provide retailers with
an assortment of titles in categories of interest to consumers. The Company
also supports its retailers by setting up special displays, end caps and kiosks,
executing targeted promotions and analyzing sales trends to help build
incremental sales. The Company is currently developing a variety of cross-
marketing promotional programs with its movie studio licensors and other
licensees of movie titles licensed by the Company for its software products.
These promotional programs will include discount coupons for products in video
cassettes, rebate coupons with action figures, movie trailers in the Company's
software products, and promotional contests with various motion picture studios.

Drawing upon established consumer marketing techniques, the Company's
marketing department creates and executes high-impact merchandising programs
with the goal of maximizing each product's retail exposure. The Company
believes that its consumer-driven marketing, the relatively high perceived value
and low price points of its products, and easily identifiable packaging which
emphasizes high-impact design and concise, nontechnical product information lead
to higher visibility and impulse purchases of its products in retail stores.

The Company provides technical support by telephone at no additional
charge. The Company has installed a telephone system and a call handling center
to facilitate its response to customer inquiries. Customer feedback is shared
among other support representatives and made available to product managers for
development of product enhancements and upgrades.

DEVELOPMENT

The Company seeks to develop a broad line of products in sustainable market
categories in which a leading market share can be obtained. The Company depends
on a flow of creative ideas to develop high-quality, value-priced products. The
Company believes that its efficient development model has certain key advantages
including consistent product quality, reliable delivery schedules, cost
containment and low investment risk.

-46-
<PAGE>

The Company's product managers oversee the development of various products
from conception through completion, and control the products' content, design,
scope and development schedule. New product ideas are evaluated with each
studio partner based upon upcoming theatrical releases, detailed market research
on the subject matter, the type and demographics of the target consumer, and the
existence and characteristics of competitive products. The Company seeks to
design new products which 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 other Company
products. Whenever possible, the software is designed to incorporate technology
used in existing Company 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
the Company's margin requirements at consumer price points.

The product managers then execute the development project with a team that
includes programmers, sound engineers, artists, animators, designers, writers
and testers. The Company's internal development efforts are focused primarily
on product design and features, consistent user interfaces, and product quality
consistency. The Company supplements its internal product development resources
by utilizing existing technologies and externally developed programming when
such utilization can result in a more efficient method of creating a higher
quality product. Using this method, the Company maintains internal control over
the creative and market-driven aspects of product development while using
external resources to shorten development time and lower development risks.
Development costs associated with externally licensed technology are generally
paid by royalties based on net sales, which lowers the Company's investment
risk. The Company's agreements with its external developers typically grant the
Company an exclusive worldwide license to use the developers' software. The
agreements typically have three-year terms, with renewal provisions upon mutual
agreement of the parties.

The Company currently is the licensee under technology licenses with Apple
Computer, Iterated Systems, Qsound Labs, Rock Ridge, Echo and Rhode Island Soft
Systems. The Company utilizes technology provided by these licensors to develop
and operate various of its products. With the exception of the Apple Computer
license, there are alternative products for each of the technologies now
licensed by the Company. Therefore, the Company believes that it could readily
obtain licenses to comparable products from other sources at comparable costs.

Products under development are extensively tested by the quality assurance
department, and must be approved by the licensor before being released for
production. The department tests for bugs, functionality, ease-of-use and
compatibility with the many popular Multimedia PC configurations that are
available to consumers.

Product managers are also responsible for reviewing customer feedback,
competitive products, product performance and market positioning in order to
introduce upgrades that keep abreast of consumer tastes and trends. The Company
has increased its development of new CD-ROM products to address the shift to CD-
ROM-based products.

OPERATIONS

The Company controls all purchasing, inventory, scheduling, order
processing and accounting functions related to its operations, with all
production and warehousing performed by independent contractors in accordance
with the Company's specifications. The Company intends to invest in management
information systems and other capital equipment which it believes are necessary
to achieve operational efficiencies and support increasing sales volumes.

-47-
<PAGE>

Software orders can be automatically tracked through to delivery to enhance
customer satisfaction and prompt delivery. Shipments are generally made within
48 hours of receiving an order. The Company has relatively little backlog at
any given date, and its backlog is not indicative of potential sales for any
future period.

The Company prepares master software disks, user manuals and packaging
designs. Disk and CD-ROM duplication, printing of documentation and packaging,
as well as the assembly of purchased components and the shipment of finished
products, are performed by third parties in accordance with the Company's
specifications. The Company has multiple sources for all components, with
assembly and shipping currently performed by three independent fulfillment
houses. To date, the Company has not experienced any material difficulties or
delays in the production and assembly of its products. To the extent that the
Company's fulfillment houses do not continue to perform assembly and shipping
functions in a cost-efficient and timely manner, and transition to substitute
fulfillment houses is not completed in a timely fashion, the Company's business,
operating results and financial condition could be adversely affected.

COMPETITION

The market for the Company's consumer software products is intensely and
increasingly competitive. The Company's competitors range from small companies
with limited resources to large companies with substantially greater financial,
technical and marketing resources than those of the Company. Existing consumer
software companies may broaden their product lines to compete with the Company's
licensed products, and potential new competitors, including computer hardware
and software manufacturers, diversified media companies and book publishing
companies, may enter or increase their focus on the consumer software market,
resulting in greater competition for the Company.

Only a small percentage of products introduced in the consumer software
market achieve any degree of sustained market acceptance. Principal competitive
factors in marketing consumer software include product features, quality,
reliability, tradename 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. The
Company believes that it competes effectively in these areas, particularly in
the areas of quality, brand recognition, ease-of-use, merchandising, access to
distribution channels and retail shelf space and price. To the extent that
competitors achieve performance, price or other selling advantages, the Company
could be adversely affected. There can be no assurance that the Company will
have the resources required to respond to market or technological changes or to
compete successfully in the future. In addition, increasing competition in the
consumer software market may cause prices to fall, which could adversely affect
the Company's business, operating results and financial condition.

The Company considers Microsoft Corp., Broderbund, Inc., Knowledge
Adventure, Disney, Maxis, 7th Level, Inc. and A.D.A.M. Software, Inc. its chief
competitors in the interactive entertainment CD-ROM market. The Company
considers Microsoft, Inc. and Berkeley Systems its chief competitors in the
entertainment utility software market. Microsoft has introduced screen savers
and generic sounds, as well as licensed sounds from the MGM/Turner film library.
The Company considers Berkeley Systems its chief competitor in the screen saver
market. The Company developed the concept and provided the introductions that
led to the development of the STAR TREK-TM- series of screen savers by Berkeley
Systems. The Company has received over $300,000 in earnings from this sub-
license, which continues until 1997. The Company notes that there are a number
of other smaller entertainment utility publishers competing in this market.

-48-
<PAGE>

The Company has entered into license agreements with Warner Bros.,
Paramount/Viacom, Lucasfilm, Turner Broadcasting, Universal Pictures, Carolco
and MGM, among others. Several of the major motion picture studios now have
captive interactive software divisions. As these types of software become
better known in the marketplace, these profit centers may begin to vie for their
studio's product. Management believes that Disney, Lucasfilm and
Paramount/Viacom are currently the most active studios in publishing their own
product to create software packages. Fox, Universal Pictures, Sony Pictures and
Warner Bros. each have announced the formation of divisions to publish software
products using their own license content. See "Risk Factors -- Competition."

PROPRIETARY RIGHTS AND LICENSES

The Company regards its software as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, employee and third
party nondisclosure agreements and other methods to protect its proprietary
rights. All of the Company's new products are CD-ROM based, and hence are
difficult to copy. However, unauthorized copying occurs within the software
industry, and if a significant amount of unauthorized copying of the Company's
products were to occur, the Company's business, operating results and financial
condition could be adversely affected. Also, as the number of software products
in the industry increases and the functionality of these products further
overlaps, software developers and publishers may increasingly become subject to
infringement claims. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to
current or future products. Any such claims, with or without merit, can be time
consuming and expensive to defend and resolve.

Although the Company has not been the subject of any actual, pending or
threatened intellectual property litigation, there has been substantial
litigation regarding copyright, trademark, and other intellectual property
rights involving computer software companies. In the future, litigation may be
necessary to enforce the Company's proprietary rights, to protect copyrights,
trademarks and trade secrets and other intellectual property rights owned by the
Company or its licensors, to defend the Company against claimed infringements of
the rights of others and to determine the scope and validity of the proprietary
rights of the Company and others. Any such litigation, with or without merit,
could be costly and result in a diversion of management's attention, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from selling its products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors -- Limited Protection of Intellectual Property and
Proprietary Rights."

The Company's licenses and other intellectual property may not be
transferred to third parties without the consent of the licensors. Under the
terms of certain such licenses, transfer of ownership of stated percentages of
the Common Stock would constitute a prohibited transfer of the licenses. The
licensors under such licenses have agreed that neither the sale by the Company
of the Common Stock pursuant to this offering nor the issuance by the Company of
the Common Stock underlying the Redeemable Warrants and the Representative's
Warrant will cause a termination of such licenses. Certain other such licenses
are terminable upon a change in the management of the Company. The Company does
not believe that any such change in management will occur in the foreseeable
future.

Any future change in ownership or control of the Company could result in
the termination of the licenses referred to above. The potential terminability
of such licenses could have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price of the Common Stock.

-49-
<PAGE>

The Company's products are based upon licensed content of major motion
pictures and television shows under license and/or development agreements with
major entertainment studios. See "Business -- General" and "-- Products." All
of such license and development agreements to which the Company currently is a
party are for fixed terms which will expire over the next one to five years.
The Company anticipates that the licensor under each agreement will extend its
terms, although no licensor is required to extend any license, provided that the
Company is in compliance with all requirements of each license, including most
significantly that the Company have satisfied the applicable minimum royalty
guarantees. In the event that any licensor failed to renew its license
agreement, then the subject license would terminate and the Company would no
longer be entitled to sell the licensed product. The loss of one or more of the
licenses could have a material adverse effect on the Company's revenues and
profits. There can be no assurance that the Company will satisfy its
performance obligations under any license or development agreement, or that,
even if such requirements are satisfied, all material licenses will be renewed.

EMPLOYEES

As of March 31, 1996, the Company had 30 full-time employees, including
five employees in sales and marketing, 20 employees in development and customer
support and five employees in administration and finance. None of the Company's
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company has never experienced a work stoppage and
believes that its relations with its employees are good.

FACILITIES

The Company leases approximately 8,000 square feet of office and
warehousing space in Westlake Village, Ventura County, California. The lease
for the Company's current office space expires on March 31, 1997. The Company
currently expects that this facility will be sufficient for its needs at least
through the term of the lease. The Company may lease additional adjacent space
as its needs require, which it believes will be available on acceptable terms.

LEGAL MATTERS

At present there is no pending litigation or proceeding involving the
Company or any director or officer of the Company.

-50-

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company, their ages and their
positions with the Company are as follows:

NAME AGE POSITION
---- --- ---------

Vincent J. Bitetti 41 Chairman of the Board, Chief
Executive Officer and Director

Eric H. Winston 48 President, Chief Operating Officer
and Director

Ulrich E. Gottschling 37 Chief Financial Officer, Treasurer,
Secretary and Director

VINCENT J. BITETTI 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 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. Mr. Bitetti developed the concepts for the Company's MOVIEBOOK-TM-,
AUDIOCLIPS-Registered Trademark-, VISUALCLIPS-Registered Trademark-, limited
edition and creativity center products.

ERIC H. (RICK) WINSTON has served as President and director of the Company
and the Subsidiary since April 1994, and Chief Operating Officer of the Company
and the Subsidiary since October 1995. Prior to joining the Company, Mr.
Winston was President of E.H. Winston & Associates, a business consulting firm
which he established in 1991. Mr. Winston was President and Chief Executive
Officer of Computer Data Information Systems, Inc. from 1985 to 1989, when it
was acquired by NYNEX. As part of that acquisition, Mr. Winston was retained as
Vice President and General Manager of The DATAGROUP, a NYNEX subsidiary, and
remained with The DATAGROUP until 1991 when he departed to start E.H. Winston &
Associates.

ULRICH E. GOTTSCHLING was appointed as Chief Financial Officer, Treasurer
and director of the Company on October 9, 1995, and as Secretary of the Company
on November 17, 1995. 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 independent auditors. From 1987 through May
1991, he was employed as a certified public accountant by Deloitte & Touche.
From 1980 through 1986, Mr. Gottschling held various management positions with
Westin Hotels and Marriott Corporation.

The Company is currently conducting a search for a new Chief Executive
Officer. It is anticipated that such person will be appointed following the
closing of this offering. Upon the commencement of his or her employment by the
Company, Mr. Bitetti will resign his current position as Chief Executive
Officer.

It is also anticipated that the Board of Directors will be reconstituted
following this offering to comprise a total of five members. Mr. Gottschling
will resign as a director, and three independent directors are expected to be
appointed. Thereafter, all of the Company's directors will be elected

-51-
<PAGE>

annually and will serve until the next annual meeting of stockholders or until
the election and qualification of their successors. The Board of Directors
elects the Company's officers and such officers serve at the discretion of the
Board of Directors. There are no family relationships between the directors and
executive officers of the Company. See generally "Risk Factors -- Dependence on
Key Personnel."

The Company has agreed to grant to each of The Boston Group, L.P., Joseph
Stevens & Company, L.P. and ASSI, Inc., the right to nominate from time to time
one director of the Company or to have an individual designated thereby attend
all meetings of the Board of Directors of the Company as a nonvoting advisor.
See "Underwriting" and "Certain Transactions -- Agreements With ASSI, Inc."

Vincent J. Bitetti and Eric H. Winston have entered into voting agreements
with each of The Boston Group, L.P., Joseph Stevens & Company, L.P. and ASSI,
Inc. Pursuant to these agreements, Messrs. Bitetti and Winston have agreed to
vote their Common Stock for the three director nominees of The Boston Group,
L.P., Joseph Stevens & Company, L.P. and ASSI, Inc. In addition, ASSI, Inc. has
agreed to vote its shares of Common Stock for two directors nominated by Mr.
Bitetti for as long as he holds 20 percent or more of the issued and outstanding
Common Stock, and for one director nominated by Mr. Bitetti for as long as he
holds at least ten perent but less than 20 percent of the issued and outstanding
Common Stock. The voting agreements with ASSI, Inc. will terminate when Messrs.
Bitetti and Winston together cease to own at least ten percent of the issued and
outstanding Common Stock.

BOARD OF DIRECTORS AND COMMITTEES

The business of the Company's Board of Directors currently is conducted
through full meetings of the Board. Upon the expansion of the Board following
the completion of this offering, it is expected that the Board also will conduct
business through meetings of its committees. Set forth below is a description
of the committees of the Board.

The Audit Committee will review and report to the Board on various auditing
and accounting matters, including an annual audit report from the Company's
independent public accountants. The Chief Financial Officer, if a director,
will not be a member of the Audit Committee.

The Compensation Committee will establish compensation levels for the
Company's executive officers and will administer and determine appropriate
awards under the Company's 1995 Stock Option Plan. See "Management -- 1995
Stock Option Plan." Two of the independent directors to be appointed by the
Board of Directors will serve on the Compensation Committee.

The Executive Committee will have the authority to act on behalf of the
full Board of Directors in between meetings of the Board, except that the
Executive Committee will not have the authority to amend the Certificate of
Incorporation or the Bylaws of the Company, adopt an agreement of merger or
consolidation, recommend to the stockholders a dissolution of the Company or a
revocation of dissolution or remove or indemnify a director. To the extent
authorized by the Board of Directors, the Executive Committee will also be
authorized to declare dividends of the Company and to issue shares of authorized
and unissued Common Stock of the Company. The Executive Committee will also act
as the Nominating Committee to nominate officers and directors of the Company
for election. The Executive Committee will consist of the Chairman of the
Board, the Chief Executive Officer and an independent director.

-52-
<PAGE>

COMPENSATION OF BOARD OF DIRECTORS

Directors previously have received no cash compensation for serving on the
Board of Directors. Beginning in December 1995, the Company adopted a policy
that will provide for payment of fees to its nonofficer directors for serving on
its Board of Directors and for their attendance at Board and committee meetings.
The Company will pay each nonofficer director an annual fee of $15,000. In
addition, each nonofficer director will receive options to purchase 10,000
shares of Common Stock annually.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION. The following table sets forth information
concerning compensation of the Company's Chief Executive Officer and each of the
Company's other executive officers who received compensation from the Company
and/or the Subsidiary in excess of $100,000 for the fiscal year ended June 30,
1995 (the "Named Executives"). No other executive officer's compensation
exceeded $100,000 during fiscal 1995.

<TABLE>
<CAPTION>
Summary Annual Long-Term
COMPENSATION COMPENSATION
---------------------------- ---------------------------------
NAME AND STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
- ------------------ ---- ---------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Vincent J. Bitetti, 1995 $150,000 $75,000 0 $ 6,200
Chairman of the Board and
Chief Executive Officer
Eric H. Winston, 1995 150,000 75,000 0 9,600
President and Chief
Operating Officer
</TABLE>

(1) The bonuses accrued for fiscal year 1995 were fully paid in December 1995.

(2) The amounts in this column for 1995 consist of the following: (a) personal
use of Company car (50 percent of payment for car expenses): Mr. Bitetti -
$4,800; Mr. Winston - $4,800; (b) life insurance premiums: Mr. Bitetti -
$1,400; and (c) medical insurance premiums: Mr. Winston - $4,800.

OPTION GRANTS. The following table provides information concerning options
granted by the Company to each of the Named Executives during its fiscal year
ended June 30, 1995 and to Ulrich E. Gottschling during its current fiscal year.

<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SHARES SUBJECT TOTAL OPTIONS
TO COMMON GRANTED TO
STOCK OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE(2) DATE
- ---------------------- -------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Vincent J. Bitetti 0 0.0% $ -- --
Eric H. Winston 0 0.0 -- --
Ulrich Gottschling(3) 100,000 70.5 5.00 10/8/05

</TABLE>

-53-
<PAGE>

- ----------------------
(1) This column shows the hypothetical gains or option spreads of the options
granted based on assumed annual compound stock appreciation rates of zero
percent, five percent and ten percent over the full ten-year term of the
options. The five percent and ten percent assumed rates of appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.

(2) The number of options granted and the exercise price per share were
established by negotiation between the Company and Mr. Gottschling at the
time of his hiring by the Company. The exercise price is equal to the
price per share at which Common Stock was sold in the October 1995 Private
Placement.

(3) Mr. Gottschling became an executive officer and employee of the Company on
October 9, 1995. The information concerning Mr. Gottschling is as of
December 31, 1995, and includes an option granted to Mr. Gottschling on
October 9, 1995. This option was cancelled on March 31, 1996. See
"Management -- Employment Agreements."

OPTION EXERCISES AND HOLDINGS. The following table sets forth information
concerning each exercise of a stock option during the fiscal year ended June 30,
1995 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,
1995.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF SHARES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT 6/30/95(1) 6/30/95(1)
NUMBER OF ------------------- ---------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------- ---------------- -------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Vincent J. Bitetti 0 $ 0 0/0 $ 0/0
Eric H. Winston(2) 0 0 292,838/0 1,153,782/0

</TABLE>

(1) Based on the fair market value of the Common Stock in this offering ($4.00
per share), less the option exercise price.

(2) 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.

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, Mr. Bitetti is to
receive annual base compensation of $200,000, which will be reduced to $160,000
upon the date of this Prospectus. Mr. Bitetti's annual base compensation
will be increased by $40,000 at such time as the Company realizes net sales
(gross sales less returns and allowances) of $1,500,000 or more for any three
consecutive calendar months. Mr. Bitetti's salary also is subject to
escalation annually in accordance with the Consumer Price Index (the "CPI").
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 business in the future, the
related revenues and profits will not be taken into account in determining
entitlements to these bonuses.

-54-
<PAGE>

The gross revenue bonus would entitle Mr. Bitetti to receive the following
amounts if the following gross revenues are attained for the fiscal year ending
June 30, 1996.

Gross Revenue Cumulative Cash Bonus
------------- ---------------------
$ 7,500,000 $ 25,000
10,000,000 75,000
15,000,000 125,000

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

The gross profit bonus would entitle Mr. Bitetti to receive the following
amounts if the following gross profit amounts (defined as annual sales revenue
less all costs of sale as determined by the Company's independent public
accountants) are attained for the fiscal year ending June 30, 1996:

Gross Profit Cumulative Cash Bonus
------------ ----------------------
$2,000,000 $ 50,000
2,250,000 75,000
2,500,000 100,000

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

The pre-tax profitability bonus would entitle Mr. Bitetti to the following
amounts if the following pre-tax profit amounts (defined as annual earnings
before interest, taxes, depreciation and amortization) are attained for each
fiscal year during the term of Mr. Bitetti's employment agreement:

Profitability Cumulative Cash Bonus
------------- ---------------------
10% $ 50,000
15% 100,000

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's employment agreement further provides that his
salary may not be less than that of the Company's new Chief Executive Officer,
up to a maximum of $300,000.

The Company has entered into an employment agreement with Eric H. Winston,
President and Chief Operating Officer, for a term ending on September 15, 1998.
Pursuant to that employment agreement, Mr. Winston is to receive annual base
compensation of $175,000, which will be reduced to $140,000 upon the date of
this Prospectus. Mr. Winston's annual base compensation will be increased by
$35,000 at such time as the Company realizes net sales of $1,500,000 or more
for any three consecutive calendar months. Mr. Winston's salary also is
subject to escalation annually in accordance with the CPI. Mr. Winston's
employment agreement entitles him to receive three annual bonuses 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.

-55-
<PAGE>

Pursuant to his employment agreement the Company has granted Mr. Winston
options to purchase 292,838 shares of Common Stock at an exercise price of $.06
per share. See "Management -- Executive Compensation." 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 will only become effective upon
the voluntary or involuntary 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.

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 offer 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 that proposed to be offered to
the third party. If Mr. Bitetti rejects such offer, then Mr. Winston is free to
sell to the third party on terms no less favorable than offered to Mr. Bitetti.

The Company also separately agreed to pay each of Messrs Bitetti and
Winston a bonus equal to the sum of three percent of the Company's net sales.
The entitlement to receive such bonuses ended November 30, 1995. A bonus of
$16,578 was paid to each of Messrs. Bitetti and Winston for the two-month period
ended November 30, 1995.

The Company entered into an employment agreement with Ulrich E.
Gottschling, Chief Financial Officer, Treasurer, Secretary and director, for a
term ending October 9, 1997. The employment agreement entitles 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.
See "Management -- Executive Compensation" and "-- 1992 Stock Option Plan." 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 1992 Stock Option Plan. The
Company granted this option to Mr. Gottschling on April 30, 1996. The option is
exercisable upon the date of its grant as to 100,000 shares at a purchase price
of $3.40 per share, and will become exercisable as to 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 option agreement.

1995 STOCK OPTION PLAN

GENERAL

On October 9, 1995, the Board of Directors of the Company adopted the
Company's 1995 Stock Option Plan, which plan was approved by the stockholders of
the Company the same day. The following summary of the Company's 1995 Stock
Option Plan is qualified in its entirety by the 1995 Stock Option Plan, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.

The 1995 Sound Source Interactive, Inc. Stock Option Plan (the "1995 Stock
Option Plan") is designed to promote and advance the interests of the Company
and its stockholders by (i) enabling the Company to attract, retain, and reward
managerial and other key employees and nonemployee directors, and (ii)
strengthening the mutuality of interests between participants in the 1995 Stock
Option Plan and the stockholders of the Company in its long term growth,
profitability and financial success by offering stock options.

-56-
<PAGE>

The 1995 Stock Option Plan empowers the Company to award or grant from time
to time until September 30, 2005, to officers, directors and key employees of
the Company and its subsidiaries, Incentive and Non-Qualified Stock Options
("Options") authorized by the Compensation Committee of the Board of Directors
(the "Committee") which will administer the 1995 Stock Option Plan.

The Company has not yet granted any options under the 1995 Stock Option
Plan. The Board of Directors however, has resolved to grant 13,610 to
nonexecutive Company employees on the closing date of this offering at an
exercise price of $4.00 per share.

ADMINISTRATION

The 1995 Stock Option Plan will be administered by the Committee. The 1995
Stock Option Plan provides that the Committee must consist of at least two
directors of the Company who are "disinterested directors" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Committee has the sole authority to construe and interpret the 1995
Stock Option Plan, to make rules and procedures relating to the implementation
of the 1995 Stock Option Plan, to select participants, to establish the terms
and conditions of Options and to grant Options, with broad authority to delegate
its responsibilities to others, except with respect to the selection for
participation of, and the granting of Options to, persons subject to Sections
16(a) and 16(b) of the Exchange Act. Members of the Committee will not be
eligible to receive discretionary Options under the 1995 Stock Option Plan.

ELIGIBILITY CONDITIONS

All officers and key employees of the Company and its subsidiaries and
nonemployee directors will be eligible to receive Options under the 1995 Stock
Option Plan. Nonemployee directors are only eligible to receive Non-Qualified
Stock Options under the 1995 Stock Option Plan. Except for Non-Qualified Stock
Options granted to nonemployee directors, the selection of recipients of, and
the nature and size of, Options granted under the 1995 Stock Option Plan will be
wholly within the discretion of the Committee. Subject to specific formula
provisions relating to the grant of options to nonemployee directors and except
with respect to the exercisability of Incentive Stock Options and the total
shares available for option grants under the 1995 Stock Option Plan, there is no
limit on the number of shares of Common Stock or type of option in respect of
which Options may be granted to or exercised by any person.

SHARES SUBJECT TO 1995 STOCK OPTION PLAN

The maximum number of shares of Common Stock in respect of which Options
may be granted under the Plan (the "Plan Maximum") is 500,000. For the purpose
of computing the total number of shares of Common Stock available for Options
under the 1995 Stock Option Plan, the above limitations shall be reduced by the
number of shares of Common Stock subject to issuance upon exercise or settlement
of Options previously granted, determined at the date of the grant of such
Options. However, if any Options previously granted are forfeited, terminated,
settled in cash or exchanged for other Options or expire unexercised, the shares
of Common Stock previously subject to such Options shall again be available for
further grants under the 1995 Stock Option Plan. The shares of Common Stock
which may be issued to participants in the 1995 Stock Option Plan upon exercise
of an Option may be either authorized and unissued Common Stock or issued Common
Stock reacquired by the Company. No fractional shares may be issued under the
1995 Stock Option Plan.

The maximum number of shares of Common Stock issuable upon the exercise of
Options granted under the 1995 Stock Option Plan is subject to appropriate
equitable adjustment in the event of a reorganization, stock split, stock
dividend, combination of shares, merger, consolidation or other

-57-
<PAGE>

recapitalization of the Company. The effect of such adjustment would be to
provide customary anti-dilution protection.

TRANSFERABILITY

No Option granted under the 1995 Stock Option Plan, and no right or
interest therein, shall be assignable or transferable by a participant except by
will or the laws of descent and distribution.

TERM, AMENDMENT AND TERMINATION

The 1995 Stock Option Plan will terminate on September 30, 2005 except with
respect to Options then outstanding. The Board of Directors of the Company may
amend or terminate the 1995 Stock Option Plan at any time, except that, to the
extent restricted by Rule 16b-3 promulgated under the Exchange Act, as amended
and in effect from time to time (or any successor rule), the Board of Directors
may not, without approval of the Stockholders of the Company, make any amendment
that would increase the total number of shares covered by the 1995 Stock Option
Plan, change the class of persons eligible to receive Options granted under the
1995 Stock Option Plan, reduce the exercise price of Options granted under the
1995 Stock Option Plan or extend the latest date upon which Options may be
exercised.

INCENTIVE STOCK OPTIONS

Options designated as Incentive Stock Options, within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), in
respect of up to the Plan Maximum may be granted under the 1995 Stock Option
Plan. The number of shares of Common Stock in respect of which Incentive Stock
Options are first exercisable by any participant in the 1995 Stock Option Plan
during any calendar year shall not have a fair market value (determined at the
date of grant) in excess of $100,000 (or such other limit as may be imposed by
the Code). To the extent the fair market value of the shares for which options
are designated as Incentive Stock Options that are first exercisable by any
optionee during any calendar year exceed $100,000, the excess amount shall be
treated as Non-Qualified Stock Options. Incentive Stock Options shall be
exercisable for such period or periods, not in excess of ten years after the
date of grant, as shall be determined by the Committee.

NON-QUALIFIED STOCK OPTIONS

Non-Qualified Stock Options may be granted for such number of shares of
Common Stock and will be exercisable for such period or periods as the Committee
shall determine.

OPTIONS TO NONEMPLOYEE DIRECTORS

The 1995 Stock Option Plan also provides for the grant of Options to
nonemployee directors of the Company without any action on the part of the Board
or the Committee, only upon the terms and conditions set forth in the 1995 Stock
Option Plan. Each nonemployee director shall automatically receive Non-
Qualified Options to acquire 10,000 shares of Common Stock upon appointment, and
shall receive Non-Qualified 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 shall 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 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

-58-
<PAGE>

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.

OPTION EXERCISE PRICES

The exercise price of any Option granted under the 1995 Stock Option Plan
shall be at lest 100 percent of the fair market value of the Common Stock on the
date of grant, except that the exercise price of any Option granted to any
participant in the 1995 Stock Option Plan who owns in excess of ten percent of
the outstanding voting stock of the Company shall be 110 percent of the fair
market value of the Common Stock on the date of grant. Fair market value per
share of Common Stock is quoted by the Nasdaq SmallCap Market, or as the amount
determined in good faith by the Committee if the Common Stock is neither listed
for trading on an exchange or quoted by the Nasdaq SmallCap Market. Options
granted effective as of the closing date of this offering will have an exercise
price equal to the initial public offering price per share.

EXERCISE OF OPTIONS

No Option may be exercised, except as provided below, unless the holder
thereof remains in the continuous employ or service of the Company. Options
shall be exercisable upon the payment in full of the applicable option exercise
price in cash or, if approved by the Committee, by instruction to a broker
directing the broker to sell the Common Stock for which such Option is exercised
and remit to the Company the aggregate exercise price of the Option or upon such
terms as the Committee shall approve, in shares of the Common Stock then owned
by the optionee (at the fair market value thereof at exercise date).

1992 STOCK OPTION PLAN

On May 4, 1992, the Board of Directors adopted the Company's 1992 Stock
Option Plan. The Board of Directors has resolved that no further options are to
be granted pursuant to the 1992 Stock Option Plan. All existing options
previously issued under the 1992 Stock Option Plan will remain enforceable in
accordance with their respective terms.

Options to purchase a total of 384,070 shares of Common Stock currently are
issued pursuant to the 1992 Stock Option Plan. All of such options are non-
qualified stock options, all of which have an exercise price of $.06 per share.
Of the 384,070 options that have been granted pursuant to the 1992 Stock Option
Plan, 191,199 are presently exercisable, 45,840 will become exercisable in
fiscal 1997 and the balance will become exercisable in fiscal 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to November, 1995, the Company did not have a compensation committee
or other committee of the Board of Directors performing similar functions.
Decisions concerning compensation of executive officers previously were made by
Vincent J. Bitetti.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS

DIRECTOR EXCULPATION

The Company's Certificate of Incorporation provides that a director of the
Company, to the maximum extent now or hereafter permitted by Section 102 (b)(7)
of the Delaware GCL will have no personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the Delaware GCL currently provides that directors of
corporations

-59-
<PAGE>

that have adopted such a provision will not be so liable, except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) as provided under Section 174 of
the Delaware GCL for the payment of certain unlawful dividends and the making of
certain stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit. This provision would absolve
directors of personal liability for negligence in the performance of their
duties, including gross negligence. It would not permit a director to be
exculpated, however, for liability for actions involving conflicts of interest
or breaches of the traditional "duty of loyalty" to the Company and its
stockholders, and it would not affect the availability of injunctive or other
equitable relief as a remedy.

This provision does not eliminate or alter the duty of the Company's
directors; it merely limits personal liability for monetary damages to the
maximum extent now or permitted by the Delaware GCL. Moreover, it applies only
to claims against a director arising out of his role as a director; it does not
apply to claims arising out of his role as an officer (if he is also an officer)
or arising out of any other capacity in which he serves. While this provision
does not affect the availability of injunctive or other equitable relief as a
remedy for breach of duty by directors, it does limit the remedies available to
a stockholder who has an otherwise valid claim that a director acted in
violation of his duties, if the action is among those as to which liability is
limited. Because of this provision, stockholders will not have a claim for
monetary damages based on breach of the directors' duty, even if the directors'
conduct involved gross negligence (including a grossly negligent business
decision involving a takeover proposal for the Company), unless the conduct is
of a type for which the Delaware GCL does not permit limitation of liability.
If the stockholders do not have a claim for monetary damages, their only remedy
may be a suit to enjoin completion of the Board's action or to rescind completed
action. The stockholders may not be aware of a proposed transaction that might
otherwise give rise to a claim until the transaction is completed or until it is
too late to prevent its completion by injunction. In such a case, the Company
and its stockholders may have no effective remedy for an injury resulting from
the Board's action.

This provision may reduce the likelihood of stockholder derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duties,
even though such action, if successful, might otherwise have benefited the
Company and its stockholders. The Securities and Exchange Commission has taken
the position that similar provisions added to other corporations' certificates
of incorporation would not protect those corporations' directors from liability
for violations of the federal securities laws.

The Company included this exculpation provision in its Certificate of
Incorporation to provide its directors with the maximum protection from personal
liability made available by the Delaware GCL. It is believed that this
provision will help the Company to attract and retain as directors the persons
most qualified for those positions.

DIRECTOR INDEMNIFICATION

The Company's Bylaws generally require the Company to indemnify and advance
expenses to its directors, officers, employees and other agents to the fullest
extent permitted by Delaware law. The Company also has entered into
indemnification agreements with each of its existing directors, and plans to
enter into indemnification agreements with directors appointed in the future,
whereby the Company will indemnify each such person against certain claims
arising out of certain past, present or future acts, omissions or breaches of
duty committed by an indemnitee while serving as a Company director. Such
indemnification does not apply to acts or omissions which are knowingly
fraudulent, deliberately dishonest or arise from willful misconduct.
Indemnification will only be provided to the extent that the indemnitee has not
already received payments in respect of a claim from the Company

-60-
<PAGE>

or from an insurance company. Under certain circumstances, such indemnification
(including reimbursement of expenses incurred) will be allowed for liability
arising under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or person controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

The Company intends to purchase a directors' and officers' liability policy
insuring directors and officers of the Company effective upon the closing of
this offering.

-61-

<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the ownership
of the Common Stock, prior to the offering and immediately following completion
of the offering, by (i) each selling stockholder, (ii) each person who is known
to the Company to own, of record or beneficially, more than five percent of the
Common Stock; (iii) each of the Company's directors; and (iv) all directors, and
executive officers as a group. The Company and the selling stockholders have
granted the Underwriters an option to purchase up to an aggregate of 360,000
additional shares of Common Stock, exercisable within 30 days of the date
hereof, solely to cover over-allotments, if any. The Common Stock being offered
by the selling shareholders will be sold only if such over-allotment option is
exercised. See "Underwriting." 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.

<TABLE>
<CAPTION>
BEFORE OFFERING(2)-(3) NUMBER OF AFTER OFFERING(2)-(3)
NUMBER SHARES BEING NUMBER
NAME(1) OF SHARES PERCENT OFFERED(4) OF SHARES PERCENT(4)
- ------- --------- ------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Vincent J. Bitetti(5) 1,557,901 86.2% 10,000 1,547,901 36.7%

Eric H. Winston(6) 392,838 18.7 10,000 382,838 8.5

Ulrich E. Gottschling(7) 100,000 5.2 0 100,000 2.3

All directors and
executive officers as a
group (three persons)(8) 1,950,739 88.6 20,000 1,930,739 42.0

Mark Lane 122,323 6.8 0 122,323 2.9

GFL Ultra Fund Limited 183,723 10.2 0 183,723 4.4
</TABLE>

- -------------------
(1) The address of each of Messrs. Bitetti, Winston and Gottschling is c/o the
Company, 2985 E. Hillcrest Drive, Suite A, Westlake Village, California
91362. The address of Mark Lane is 2818 Birch Creek Place, Thousand Oaks,
California 91360. The address of GFL Ultra Fund Limited is Kaya Flamboyan
9, P.O. Box 812, Netherlands Antilles.

(2) Each person's beneficial ownership is determined by assuming that options
and warrants that are held by such person or entity (but not those held by
any other person or entity) and which are exercisable within 60 days have
been exercised.

(3) Unless otherwise noted, the Company believes that all persons and entities
named in the table have sole voting and investment power with respect to
all shares of stock beneficially owned by them.

(4) Reflects the issuance of 2,400,000 shares of Common Stock by the Company,
and 20,000 shares of Common Stock by the selling stockholders as part of
the Underwriter's over-allotment option, pursuant to this offering.

(5) Includes 73,394 and 122,323 shares of Common Stock owned of record by
Martin H. Meyer and Mark Lane, respectively, for which Vincent J. Bitetti
holds a right of first offer to purchase and an irrevocable

-62-
<PAGE>

voting proxy. See "Certain Transactions -- 1994 Acquisition." Also
includes 100,000 shares of Common Stock which Mr. Winston is entitled to
acquire from Mr. Bitetti pursuant to a presently exercisable option. See
"Certain Transactions -- Sales by Controlling Stockholder.

(6) Includes 292,838 shares of Common Stock issuable under stock options
granted by the Company to Mr. Winston which are presently exercisable. See
"Management -- Executive Compensation." Also includes 100,000 shares of
Common Stock which Mr. Winston is entitled to acquire from Mr. Bitetti
pursuant to a presently exercisable option. See "Certain Transactions --
Sales by Controlling Stockholder."

(7) Includes 100,000 shares of Common Stock issuable to Mr. Gottschling under a
presently exercisable option. Excludes 100,000 shares of Common Stock
issuable to Mr. Gottschling under an option that is not presently
exercisable. See "Management -- Employment Agreements."

(8) Includes 292,838 shares of Common Stock issuable to Mr. Winston and 100,000
shares of Common Stock issuable to Mr. Gottschling under presently
exercisable options. Excludes 100,000 shares of Common Stock issuable to
Mr. Gottschling under an option that is not presently exercisable.

RESALE OF OUTSTANDING SECURITIES

This Prospectus relates to the sale by the Company of 2,400,000 shares of
Common Stock and 1,200,000 Redeemable Warrants for aggregate gross consideration
of $9,900,000. A separate Prospectus is being filed with the Registration
Statement of which this Prospectus is a part which relates, in part, to the sale
by the Selling Security Holders of 107,500 shares of Common Stock and 5,689,665
Redeemable Warrants for aggregate gross consideration of $1,852,416 (assuming an
offering price of $4.00 per share of Common Stock and $.25 per Redeemable
Warrant). None of the Common Stock or Redeemable Warrants being offered by the
Selling Security Holders are being underwritten by the Underwriters. The second
Prospectus also will be used by the Company for the issuance of Common Stock
pursuant to the exercise of Redeemable Warrants.

The Company will not receive any of the proceeds of the sale of the Common
Stock or Redeemable Warrants by the Selling Security Holders, although it will
receive the exercise price of such Redeemable Warrants when and if they are
exercised. None of the Selling Security Holders had any position, office or
material relationship with the Company or its affiliates during the last three
years except for Financial West Group, Inc., which served as dealer manager for
the Company's 1995 Bridge Offering and its 1995 Private Placement. See "Certain
Transactions -- 1995 Bridge Offering" and "-- 1995 Private Placement."

Prior to this offering, the Selling Security Holders collectively held
107,500 shares of Common Stock and Redeemable Warrants to purchase 5,689,665 of
Common Stock. Assuming the sale of all such Common Stock and Redeemable
Warrants pursuant to the separate Prospectus referred to above, the Selling
Security Holders will not own any securities of the Company after the completion
of such offering.

CERTAIN TRANSACTIONS

1994 ACQUISITION

On May 16, 1994, the Company consummated the 1994 Acquisition, whereby the
Company acquired all the issued and outstanding capital stock of the Subsidiary
in exchange for newly issued

-63-
<PAGE>

stock of the Company. The 1994 Acquisition was accomplished by the issuance of
1,278,515 shares of Common Stock and 1,000,000 shares of the Company's Series A
Preferred Stock to Vincent J. Bitetti, 73,394 shares of Common Stock to Martin
H. Meyer and 122,323 shares of Common Stock to Mark Lane, and the simultaneous
cancellation of 60,241 shares of Common Stock held by former directors and
officers of the Company, the cancellation of an option to purchase 3,347 shares
of Common Stock held by a former director and officer of the Company, which
option was to become exercisable only upon the satisfaction of certain
contingencies, and the cancellation of an option to purchase 3,347 shares of
Common Stock held by a former director of the Company, which option was to
become exercisable only upon the satisfaction of certain contingencies.
Effective upon the closing of the 1994 Acquisition, all of the Company's former
directors and officers resigned and were replaced by Vincent J. Bitetti, Joseph
Urquidi, Eric H. Winston and Martin H. Meyer. Mr. Urquidi resigned as an
officer and director as of June 29, 1994. Mr. Meyer resigned as a director as
of August 5, 1994. Subsequent to the 1994 Acquisition, Mr. Bitetti exchanged
his 1,000,000 shares of Series A Preferred Stock for 83,669 shares of Common
Stock issued by the Company.

Simultaneously with the 1994 Acquisition, Martin H. Meyer and Mark Lane
each granted to Vincent J. Bitetti a right of first offer to purchase their
Common Stock. Such first offer right provides that before Messrs. Meyer and
Lane offer all or any of their shares to any third party, they must first offer
to sell such shares to Mr. Bitetti at a price which Mr. Bitetti determines to be
their fair market value. If the selling party disagrees with Mr. Bitetti's
determination as to fair market value, then the issue will be resolved by an
arbitration procedure. If Mr. Bitetti does not elect to purchase the shares
proposed for sale, then they may be sold to third parties. Messrs. Meyer and
Lane also have granted Mr. Bitetti an irrevocable proxy to vote all their shares
of Common Stock on all matters coming before the holders of the Common Stock for
a vote. See "Risk Factors -- Control of the Company" and "Principal
Stockholders."

1994 PRIVATE PLACEMENT

During May through August 1994, the Company conducted a private offering of
its Common Stock (the "1994 Private Placement"). Pursuant to that offering, a
total of 113,036 shares of Common Stock were sold for total cash consideration
of approximately $1,492,000. An additional 1,841 shares were issued to the
brother of the Chief Executive Officer in payment of a $22,000 note payable. An
additional 81,997 shares of Common Stock were issued to the placement agent for
such offering in partial payment for its services as such. Subsequently, the
Company's founders, who also were affiliates of the placement agent, distributed
all 81,997 such shares plus an additional 26,772 shares held by them to the
investors in the 1994 Private Placement in settlement of litigation initiated by
one of such investors, and returned 15,120 shares of Common Stock to the
Company, which were cancelled.

1995 BRIDGE FINANCING

During June through August of 1995, the Company conducted a private
offering (the "1995 Bridge Financing") of Units consisting of notes and
warrants. Pursuant to that offering, a total of 32 Units were sold at a price
of $10,000 per Unit. Each Unit consisted of $9,975 principal amount of the
Company's 10% Secured Promissory Notes due August 15, 1995 (the "Bridge Notes")
and warrants to purchase 586 shares of Common Stock (the "Bridge Warrants").
The gross offering proceeds of the 1995 Bridge Financing were $320,000.
Pursuant to the 1995 Bridge Financing, $319,200 in aggregate principal amount of
the Bridge Notes were issued. The Bridge Notes were repaid in full out of the
proceeds of the 1995 Private Placement, and the related liens upon the assets of
the Company and the Subsidiary were extinguished. Such repayment was in the
amount of $332,320. Pursuant to the 1995 Bridge Financing, the Company also
issued 18,747 Bridge Warrants to investors, and

-64-
<PAGE>

issued 20,918 Bridge Warrants to Financial West Group, Inc. in partial
consideration for its services as dealer manager for the 1995 Bridge Offering.

Subsequent to the completion of the 1995 Bridge Offering, the Company and
the Subsidiary agreed with the holders of all of the Bridge Warrants as to
certain changes to the terms of the Bridge Warrants. As amended, the terms of
the Bridge Warrants, including the registration rights applicable thereto, are
identical to those of the Private Warrants as described below. See "Certain
Transactions -- 1995 Private Placement."

The terms of the Bridge Warrants provide that if the Company consummates an
initial public offering (an "IPO") which includes warrants to purchase shares of
Common Stock, then the Bridge Warrants shall automatically be converted into
warrants included in the IPO; such warrants into which the Bridge Warrants are
automatically converted shall be exercisable to purchase the same number of
shares as the Bridge Warrants, and shall contain the same terms (including
exercise price) as the warrants offered to the public. Accordingly, the Bridge
Warrants, which in the aggregate are exercisable to purchase 39,665 shares of
Common Stock, will, upon the consummation of this offering, be automatically
converted into Redeemable Warrants to purchase an aggregate of 39,665 shares of
Common Stock and such Redeemable Warrants, as well as the underlying shares of
Common Stock, have been included in the Registration Statement of which this
Prospectus is a part.

1995 PRIVATE PLACEMENT

In September and October 1995, the Company conducted a private offering
(the "1995 Private Placement"). Pursuant to that offering, a total of 52.5
Units were sold 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
"Private Notes") and warrants to purchase 100,000 shares of Common Stock (the
"Private Warrants"). The gross offering proceeds of the 1995 Private Placement
were $5,250,000. Pursuant to the 1995 Private Placement, $4,987,500 in
aggregate principal amount of the Private Notes were issued. The Private Notes
are secured by a first priority lien on substantially all of the assets of the
Company (including a pledge of all capital stock of the Subsidiary) and are
guaranteed by the Subsidiary. The Private Notes are due and payable in the
principal amount plus accrued interest on the earlier of (i) September 1, 1996
or (ii) the completion of any IPO by either the Company or the Subsidiary.
Accordingly, the aggregate principal amount of $4,987,500 of the Private Notes,
and accrued interest estimated at $242,500 as of March 31, 1996, will be repaid
out of the net proceeds of this offering. See "Use of Proceeds." Pursuant to
the 1995 Private Placement, the Company issued 5,250,000 Private Warrants to
investors and issued 400,000 Private Warrants to Financial West Group, Inc. in
partial consideration for its services as dealer manager for the 1995 Private
Placement.

The Private Warrants become exercisable commencing on the earlier of (i)
December 31, 1996 or (ii) one year following the completion by the Company or
the Subsidiary of any IPO, and expire on December 31, 2001. The exercise price
of the Private Warrants is 110 percent of the price per share of the Common
Stock (or the Subsidiary's common stock as applicable) in the IPO, or if the IPO
has not occurred by December 31, 1996, $4.50 per share. If the Company has not
completed an IPO by the earlier of December 31, 1996 or the date that an IPO by
the Subsidiary is completed, the Private Warrants will be automatically
converted to warrants exercisable for shares of Subsidiary Common Stock on a
one-for-one basis, at an exercise price of $4.50 per share, for the period
commencing December 31, 1996 and ending on December 31, 2001. In addition, the
holders of the Private Warrants and Common Stock issued or issuable upon the
conversion of the Private Warrants have certain registration rights.
Concurrently with the registration of the Securities in this offering, the
Company is registering the Private Warrants and the underlying Common Stock as
part of the Registration Statement of which this Prospectus is a part,
satisfying the applicable rights.

-65-
<PAGE>

The terms of the Private Warrants provide that, if the Company consummates
an IPO which includes warrants to purchase shares of Common Stock, then the
Private Warrants shall automatically be converted into warrants included in the
IPO; such warrants into which the Private Warrants are automatically converted
shall be exercisable to purchase the same number of shares as the Private
Warrants, and shall contain the same terms (including exercise price) as the
warrants offered to the public. Accordingly, the Private Warrants, which in the
aggregate were exercisable to purchase 5,650,000 shares of Common Stock, will,
upon the consummation of this offering, be automatically converted into
Redeemable Warrants exercisable to purchase an aggregate of 5,650,000 shares of
Common Stock and such Redeemable Warrants, as well as the underlying shares of
Common Stock, have been included in the Registration Statement of which this
Prospectus forms a part, and comprise a portion of the Selling Security Holders'
Securities. See "Selling Security Holders."

Contemporaneously with the 1995 Private Placement, Vincent J. Bitetti, the
Company's Chief Executive Officer, privately sold 107,500 shares of Common Stock
for total cash consideration of $537,500. Such shares of Common Stock have been
included in the Registration Statement of which this Prospectus is a part, and
comprise a portion of the Selling Security Holders' Securities. See "Selling
Security Holders."

On April 3, 1995, Vincent J. Bitetti, for nominal consideration granted
Eric H. Winston, the Company's President, 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.

AGREEMENTS WITH ASSI, INC.

In consideration of certain financial and personnel consulting services
provided to the Company in 1996, including advising the Company regarding
capital raising alternatives and executive recruiting, the Company has issued to
ASSI, Inc. warrants to purchase 2,000,000 shares of Common Stock at an exercise
price of $4.40 per share (the "ASSI Warrants," as previously defined). The
terms of the ASSI Warrants are substantially identical to those of the Private
Warrants, except that they become exercisable September 1, 1996, they are not
mandatorily redeemable by the Company and they are subject to separate
registration rights, including one demand registration right and unlimited
piggyback 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 Redeemable Warrants. The demand registration rights will expire on
September 1, 2001. Until and unless exercised, the holders of the ASSI Warrants
will have no voting, dividend or other rights as shareholders of the Company.
The Company also has agreed that the Private Warrants held by ASSI, Inc. will
become exercisable September 1, 1996.

The Company has also agreed to grant ASSI, Inc. the right to nominate from
time to time one director of the Company. Vincent J. Bitetti and Eric H.
Winston have entered into a voting agreement with ASSI, Inc. to vote their
shares of Common Stock for the election of such nominee. In addition, ASSI,
Inc. has agreed to vote its shares of Common Stock for two directors nominated
by Mr. Bitetti for as long as he holds 20 percent or more of the Common Stock,
and for one director nominated by Mr. Bitetti for as long as he hlds at least
ten percent but less than 20 percent of the issued and outstanding Common Stock.
The voting agreements with ASSI, Inc. will terminate when Messrs. Bitetti and
Winston together cease to own at least ten percent of the Common Stock. See
"Management -- Directors and Executive Officers."

-66-

<PAGE>

DESCRIPTION OF SECURITIES

GENERAL

The Securities consist of shares of Common Stock and Redeemable Warrants.
One Redeemable Warrant entitles the holder thereof to purchase one share of
Common Stock.

Under the Company's Restated Certificate of Incorporation, the authorized
capital stock of the Company consists of 20,000,000 shares of Common Stock. As
of March 31, 1996, the Company had 1,808,291 shares of Common Stock outstanding,
which were held by approximately 130 shareholders of record.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote for each share
on all matters to be voted on by the stockholders. Holders of shares of Common
Stock are entitled to share ratably in dividends, if any, as may be declared
from time to time by the Board of Directors in its discretion, from funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of shares of Common Stock are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
Holders of Common Stock have no preemptive rights to purchase Common Stock.
There are no conversion rights or redemption or sinking fund provisions with
respect to the Common Stock. All of the outstanding shares of Common Stock
issuable upon exercise of the Warrants will be, when issued and delivered, fully
paid and non-assessable.

As a QUASI-California corporation, the Company will be subject to certain
provisions of the California GCL, as more fully described under "Description of
Securities - Application of California GCL." Amongst other consequences of the
Company's status as a QUASI-California corporation, at the request of any
stockholder, the election of the Company's directors will be determined by
cumulative voting procedures. Consequently, following this offering the
Company's stockholders other than its current officers and directors will have
sufficient votes, if cumulative voting rights are exercised, to elect two of its
three directors (or three of its five directors, upon the anticipated expansion
of the Board following this offering) assuming no exercise of the Redeemable
Warrants and two of its three (or four of its five, as applicable) directors
assuming exercise of the Redeemable Warrants in full. See "Risk Factors --
Control of the Company by Officers and Directors" and "Management -- Directors
and Executive Officers."

REDEEMABLE WARRANTS

The following is a brief summary of certain provisions of the Redeemable
Warrants, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Warrant Agreement between
the Company and Corporate Stock Transfer Company as warrant agent (the "Warrant
Agreement"). A copy of the Warrant Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."

Each Redeemable Warrant entitles the holder thereof to purchase, at any
time during the 54-month period commencing one year after the date of this
Prospectus, one share of Common Stock at a price of 110 percent of the initial
public offering price per share, subject to adjustment in accordance with the
anti-dilution and other provisions referred to below.

-67-
<PAGE>

offering price 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
notice of redemption. If the Redeemable Warrants were redeemed prior to their
exercise, the holders thereof would lose the benefit of the difference between
the market price of the underlying Common Stock as of such date and the exercise
price of such Warrants, as well as any possible future price appreciation in the
Common Stock.

The exercise price and the terms of the Redeemable Warrants bear no
relation to any objective criteria of value and should in no event be regarded
as an indication of any future market price of the Securities offered hereby.

The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Redeemable Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification on or of the common Stock and issuances of
shares of Common Stock for a consideration less than the exercise price of the
Redeemable Warrants. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation or sale of all or substantially all of
the assets of the Company in order to enable holders of Redeemable Warrants to
acquire the kind and number of shares of stock or other securities or property
receivable in such event by a holder of the number of shares that might
otherwise have been purchased upon the exercise of the Redeemable Warrant. No
adjustments will be made unless such adjustment would require an increase or
decrease of at least $.10 or more in such exercise price. No adjustment to the
exercise price of the shares subject to the Redeemable Warrants will be made for
dividends (other than stock dividends), if any, paid on the Common Stock.

The Redeemable Warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at the offices of the Warrant
Agent, with the exercise form on the reverse side of the certificate completed
and executed as indicated, accompanied by full payment of the exercise price (by
certified check payable to the Company) to the Warrant Agent for the number of
Redeemable Warrants being exercised. The holders of Redeemable Warrants do not
have the rights or privileges of holders of Common Stock.

No Redeemable Warrant will be exercisable unless at the time of exercise
the Company has filed a current prospectus with the Securities and Exchange
Commission (the "Commission") covering the shares of Common Stock issuable upon
exercise of such Redeemable Warrant and such shares have been registered or
qualified or deemed to be exempt under the securities laws of the jurisdiction
of residence of the holder of such Redeemable Warrant. The Company will use its
best efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Redeemable Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there is no assurance
that it will be able to do so.

The Bridge Warrants issued by the Company in the 1995 Bridge Financing and
the Private Warrants issued by the Company in the 1995 Private Placement provide
that, if the Company consummates a public offering of its securities which
includes warrants to purchase shares of Common Stock, then the Bridge Warrants
and the Private Warrants shall automatically be converted into warrants included
in the public offering; accordingly, the 39,665 Bridge Warrants issued in the
1995 Bridge Financing and the 5,650,000 Private Warrants issued in the 1995
Private Placement have been converted as of the date of this Prospectus into a
like number of Redeemable Warrants.

-68-
<PAGE>

APPLICATION OF CALIFORNIA GCL

Although incorporated in Delaware, the business of the Company has been
conducted through its operating subsidiary which is domiciled and headquartered
in the State of California. Section 2115 of the California GCL ("Section 2115")
provides that certain provisions of the California GCL shall be applicable to a
corporation organized under the laws of another state to the exclusion of the
law of the state in which it is incorporated, if the corporation meets certain
tests regarding the business done in California and the number of its
California stockholders.

An entity such as the Company can be subject to Section 2115 even though it
does not itself transact business in California if, on a consolidated basis, the
average of the property factor, payroll factor and sales factor is more than 50
percent deemed to be in California during its latest full income year and more
than one-half of its outstanding voting securities are held of record by persons
having addresses in California. Section 2115 does not apply to corporations
with outstanding securities listed on the New York or American Stock Exchange,
or with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the Company currently would be deemed
to meet these factors and does not currently qualify as a national market
security on NASDAQ, it is subject to Section 2115.

During the period that the Company is subject to Section 2115, the
provisions of the California GCL regarding the following matters are made
applicable to the exclusion of the law of the State of Delaware: (i) general
provisions and definitions; (ii) annual election of directors; (iii) removal of
directors without cause; (iv) removal of directors by court proceedings;
(v) filling of director vacancies where less than a majority in office were
elected by the stockholders; (vi) directors' standard of care; (vii) liability
of directors for unlawful distributions; (viii) indemnification of directors,
officers and others; (ix) limitations on corporate distributions of cash or
property; (x) liability of a stockholder who receives an unlawful distribution;
(xi) requirements for annual stockholders meetings; (xii) stockholders' right to
cumulate votes at any election of directors; (xiii) supermajority vote
requirements; (xiv) limitations on sales of assets; (xv) limitations on mergers;
(xvi) reorganizations; (xvii) dissenters' rights in connection with
reorganizations; (xviii) required records and papers; (xix) actions by the
California Attorney General; and (xx) rights of inspection.

TRANSFER AGENT AND WARRANT AGENT

The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Redeemable Warrants is Corporate Stock Transfer Company, 370 17th
Street, Suite 2350, Denver, Colorado 80202.

SHARES ELIGIBLE FOR FUTURE SALE

The offering made by this Prospectus is the initial registered public
offering of the Securities. There is no public trading market for any of the
Company's securities at the present time. There can be no assurance that a
public trading market will ever develop or, if a market develops, that it will
be sustained. See "Risk Factors -- No Prior Market; Arbitrary Determination of
Offering Price; Possible Volatility of Trading Prices for Securities." Although
it has no legal obligation to do so, the Representative and one or more other
Underwriters may from time to time become market-makers or otherwise effect
transactions in the Securities (and the Representative has indicated to the
Company that it intends to do so). The Representative, if it participates in
the market, may be a dominating influence in any market that might develop for
any of the Securities. The price and liquidity of the Securities may be
significantly affected by the degree, if any, of the Representative's
participation in

-69-
<PAGE>

the market. Such activities, if commenced, may be discontinued at any time or
from time to time. See "Risk Factors -- Representative's Potential Influence on
the Market."

Upon the consummation of this offering, 4,208,291 shares of Common Stock
will be outstanding, assuming that the Underwriters' over-allotment option is
not exercised and excluding (a) 384,070 shares of Common Stock underlying
options granted pursuant to the Company's 1992 Stock Option Plan; (b) 500,000
shares of Common Stock underlying options which may be granted pursuant to the
Company's 1995 Stock Option Plan; (c) 292,838 shares of Common Stock underlying
options granted to the Company's President; and (d) an aggregate of 9,249,665
shares of Common Stock issuable upon the exercise of (i) the Redeemable Warrants
being offered by the Company (1,200,000 shares), (ii) the Redeemable Warrants
that were issued in connection with the 1995 Bridge Financing (39,665 shares),
(iii) the Redeemable Warrants that were issued in connection with the 1995
Private Placement (5,650,000 shares), (iv) the ASSI Warrants (2,000,000 shares),
and (v) the Representative's Warrant (360,000 shares).

Of the 4,208,291 shares of Common Stock that will be issued and outstanding
upon the consummation of this offering (subject to the assumptions in the
preceding paragraph), the 2,400,000 shares offered by the Company and the
107,500 shares offered by the Selling Security Holders will be freely tradeable
without further registration under the Securities Act, except for any such
shares of Common Stock purchased by an "affiliate" of the Company. Of the
remaining 1,700,791 outstanding shares, 183,723 shares are freely tradeable and
the remainder are "restricted shares" as defined in Rule 144 under the
Securities Act and may not be sold without registration under the Securities Act
unless pursuant to an applicable exemption therefrom.

In general, under Rule 144, a person (or persons whose shares are required
to be aggregated) who has satisfied a two-year holding period may, under certain
circumstances, commencing 90 days after the date hereof, sell within any three-
month period, in ordinary brokerage transactions or in transactions directly
with a market maker, a number of shares of Common Stock equal to the aggregate
of one percent of the then outstanding Common Stock or the average weekly
trading volume during the four calendar weeks prior to such sale. Rule 144 also
permits the sale of shares of Common Stock without any quantity limitations by a
person who is not an "affiliate" of the Company and who has owned the shares for
at least three years. The foregoing summary of Rule 144 is not intended to be a
complete description thereof.

Vincent J. Bitetti, Eric H. Winston and Ulrich E. Gottschling have agreed
not to directly or indirectly offer, offer to sell, grant an option for the
purchase or sale of, transfer, assign, pledge hypothecate or otherwise encumber
(either pursuant to Rule 144 or otherwise) any of their securities for a period
of 18 months from the date of this Prospectus without the prior written consent
of the Company and the Representative. The Company intends to make a public
announcement in the event that a material amount of securities subject to a
lock-up arrangement described in this paragraph are released prior to the
expiration of the term of such arrangement if such announcement is required by
the federal securities laws.

The 1,200,000 Redeemable Warrants being offered by the Company (assuming
that the Underwriters' over-allotment option is not exercised) and the 5,689,665
Redeemable Warrants being registered for the account of the Selling Security
Holders entitle the holders of such Redeemable Warrants to purchase up to an
aggregate of 6,889,665 shares of Common Stock at any time during the 54-month
period commencing one year after the date of this Prospectus. The Redeemable
Warrants being registered for the account of the Selling Security Holders or, if
exercised, the shares of Common Stock issuable upon the exercise of such
Redeemable Warrants, may be sold by the Selling Security Holders or their
transferees commencing on the third business day after the date of this
Prospectus. Sales of either the Redeemable Warrants or the underlying shares of
Common Stock, or

-70-
<PAGE>

even the existence of the right to exercise such Redeemable Warrants, may
depress the price of the Common Stock or the Redeemable Warrants in any market
that may develop for such Securities. See "Selling Security Holders" and
"Description of Securities."

In connection with this offering, the Company will grant to the
Underwriters an over-allotment option, exercisable within 45 days of the date of
this Prospectus, to purchase up to an additional 360,000 shares of Common Stock
and/or up to an additional 180,000 Redeemable Warrants and issue to the
Representative the Representative's Warrant to purchase up to 240,000 shares of
Common Stock and/or 120,000 Redeemable Warrants. In the event that any holder
of warrants issued by the Company exercises its warrants, the percentage of
ownership of the Company by persons who invest hereunder will be diluted and any
sales of the securities acquired thereby might have an adverse effect on the
market price of the Common Stock and Redeemable Warrants. See "Underwriting."

The Company has granted options for the purchase of 384,070 shares of
Common Stock to certain key employees, officers, directors and consultants
pursuant to the Company's 1992 Stock Option Plan. The Company has determined
not to issue any further options under its 1992 Stock Option Plan, but all
outstanding options under such plan will remain valid. Of the 384,070 options
granted under the 1992 Stock Option Plan, 191,199 are presently exercisable,
45,840 will become exercisable in fiscal 1997 and the balance will become
exercisable in fiscal 1998. The Company also has reserved 500,000 shares of
Common Stock for issuance to key employees, officers, directors and consultants
pursuant to the Company's 1995 Stock Option Plan. All Common Stock issuable
upon exercise of such options will be "restricted stock" and will be subject to
resale pursuant to Rule 144 as described above. Following completion of this
offering, however, the Company intends to take action to register all such
options and the underlying Common Stock under the Securities Act. Upon the
effectiveness of such registration, the Common Stock issuable upon exercise of
the options will be freely tradeable. See "Management -- 1995 Stock Option
Plan" and "-- 1992 Stock Option Plan."

The holders of the Bridge Warrants issued in the 1995 Bridge Financing and
the Private Warrants issued in the 1995 Private Placement have certain
registration rights which will be satisfied by virtue of the registration of
such Bridge Warrants and Private Warrants (all of which will be converted to
Redeemable Warrants upon the consummation of this offering and will comprise a
portion of the Selling Security Holders' Securities) pursuant to the
Registration Statement of which this Prospectus is a part. See "Certain
Transactions -- 1995 Bridge Financing" and "-- 1995 Private Placement." Except
for the registration rights of Vincent J. Bitetti and Eric H. Winston and ASSI,
Inc. described below, following this offering no other existing security holder
of the Company will have registration rights with respect to any Company
security which it holds.

The Company has granted Eric H. Winston an option to purchase 292,838
shares of Common Stock which is presently exercisable. All Common Stock is
issuable upon exercise of such option will be "restricted stock" and will be
subject to resale pursuant to Rule 144 as described above. Following
termination of his employment with the Company, Mr. Winston is entitled to
certain registration rights with respect to the Common Stock issuable upon
exercise of this option. Upon the effectiveness of such registration, the
Common Stock issued upon exercise of this option will be freely tradeable.
Following termination of his employment with the Company, Vincent J. Bitetti
also is entitled to certain registration rights with respect to the Common Stock
owned by him. Upon the effectiveness of such registration, the Common Stock
owned by Mr. Bitetti will be freely tradeable. See "Management -- Employment
Agreements."

The Company has issued to ASSI, Inc. the ASSI Warrants to purchase
2,000,000 shares of Common Stock. See "Certain Transactions -- Agreements With
ASSI." All such ASSI Warrants and the Common Stock issuable upon exercise
thereof will be restricted securities and will be subject to resale pursuant to
Rule 144 as described above. ASSI, Inc. is entitled to certain registration
rights with

-71-
<PAGE>

respect to the ASSI Warrants and the Common Stock issuable upon exercise
thereof. Upon the effectiveness of such registration, the ASSI Warrants and
underlying Common Stock will be freely tradeable.

The Company is unable to predict the effect that any subsequent sales of
the Company's securities, under this Registration Statement, Rule 144 or
otherwise, may have on the then-prevailing market price of the Common Stock,
although such sales could have a depressive effect on such market price. See
"Risk Factors -- Shares Eligible for Future Sale."

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
(the form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part), the Underwriters named below (the
"Underwriters") have severally agreed to purchase from the Company the
respective number of shares of Common Stock and Redeemable Warrants set forth
opposite their name indicated below. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions precedent,
and that the Underwriters will be obligated, as set forth in the Underwriting
Agreement, to purchase all of the 2,400,000 shares of Common Stock and 1,200,000
Redeemable Warrants being offered hereby, excluding shares of Common Stock and
Redeemable Warrants covered by the over-allotment options granted to the
Underwriters, if any are purchased.

NUMBER OF
UNDERWRITER NUMBER OF SHARES REDEEMABLE WARRANTS
- ----------------------------- ----------------- --------------------
The Boston Group, L.P.
Joseph Stevens & Company, L.P.

Both of the Representatives are recently formed, and neither has extensive
experience as an underwriter of securities. The Boston Group, L.P., which was
formed in March 1995, has acted as the managing underwriter for three public
offerings and has not acted as a member of an underwriting syndicate Joseph
Stevens & Company, L.P., which was formed in May 1994, has acted as the managing
underwriter for four public offerings and as a member of an underwriting
syndicate on approximately seven occasions. After interviewing various
underwriters, the Company selected the Representatives to act as co-managers for
this offering because it believes they have a thorough understanding of its
business.

Through the Representatives, the Underwriters have advised the Company that
the Underwriters propose to offer the Common Stock and Redeemable Warrants to
the public initially at the public offering price set forth on the cover page of
this Prospectus, and may offer the Common Stock and Redeemable Warrants to
selected dealers at such price less a concession of not more than $__ per share
and $___ per Redeemable Warrant. The Underwriters may allow, and such dealers
may reallow, a concession of not more than $__ per share and $___ per
Redeemable Warrant on sales to certain other dealers. The initial public
offering price and concessions and re-allowances to dealers may be changed by
the Underwriters.

The Company has agreed to pay to the Representatives a nonaccountable
expense allowance equal to three percent of the gross proceeds from the sales of
all shares of Common Stock and Redeemable Warrants offered hereby, including
shares sold to cover over-allotments, if any.

-72-
<PAGE>

The Underwriters have been granted the option, exercisable within 45 days
after the date of this Prospectus, to purchase up to an aggregate of an
additional 340,000 shares of Common Stock from the Company and up to 20,000
shares of Common Stock from Vincent J. Bitetti and Eric H. Winston (see
"Principal and Selling Stockholders") and to purchase up to 180,000 Redeemable
Warrants from the Company to cover over-allotments, at the same price being paid
by the Underwriters for the other shares of Common Stock and Redeemable Warrants
offered hereby. To the extent that the Underwriters exercise such option, each
of the Underwriters will have, subject to certain conditions, a firm commitment,
as set forth in the Underwriting Agreement, to purchase approximately the same
percentage of the additional shares of Common Stock and Redeemable Warrants as
the percentage of Common Stock and Redeemable Warrants to be purchased by it
shown in the above table bear to 2,400,000 and 1,200,000, respectively, and the
Company and the affiliated selling stockholders will be obligated, pursuant to
the option, to sell such shares of Common Stock and Redeemable Warrants to the
Underwriters.

The Company has agreed to grant to each of the Representatives, effective
upon the closing of the offering, the right to nominate from time to time one
director of the Company or to have an individual selected by each such
Representative attend all meetings of the Board of Directors of the Company as a
non-voting advisor. Vincent J. Bitetti and Eric H. Winston have agreed to vote
their shares of Common Stock for the election of such nominee. The Company has
agreed to indemnify and hold harmless such directors or advisors to the maximum
extent permitted by law in connection with such individual's service as a
director or advisor.

The Company has agreed to sell to the Representatives for an aggregate of
$50 the Representatives Warrant to purchase up to 240,000 shares of Common Stock
and/or 120,000 Redeemable Warrants at an exercise price of 120 percent of the
initial public offering price per share of Common Stock or Redeemable Warrants,
as applicable. The Representatives Warrant may not be transferred for one year,
except basically to officers or partners of the Representatives, any member of
the NASD participating in the offering hereunder, officers or partners of such
member or any successor of any of the foregoing, and is exercisable during the
four-year period commencing one year from the date of this Prospectus (the
"Representatives Warrant Exercise Term"). The Company has granted certain
rights to the holders of the Representative's Warrant to register the Common
Stock underlying the Representatives Warrant under the Securities Act. Such
rights require the Company to file a registration statement pertaining to the
Representatives Warrant and the underlying Common Stock and to maintain the
effectiveness of such registration statement for the period commencing one year
after the date of this Prospectus and continuing until the earlier of the sale
of all the registered securities or the fifth anniversary of the initial
effectiveness of the registration statement.

The Company has agreed, in connection with the exercise of Redeemable
Warrants pursuant to solicitation by the Representatives (commencing one year
from the date of this Prospectus), to pay to the Representatives a fee of five
percent of the Redeemable Warrant exercise price for each Redeemable Warrant
exercised, provided, however, that the Representatives will not be entitled to
receive such compensation in any Redeemable Warrant exercise transactions in
which (i) the market price of the Common Stock of the Company at the time of
exercise is lower than the exercise price of the Redeemable Warrants; (ii) the
Redeemable Warrants are held in any discretionary account; (iii) disclosure of
compensation arrangements is not made, in addition to the disclosure provided in
this Prospectus, in documents provided to holders of the Redeemable Warrant at
the time of exercise; (iv) the exercise of the Redeemable Warrants is
unsolicited; (v) after the Company has called the Redeemable Warrants for
redemption; or (vi) the solicitation of exercise of the Redeemable Warrants was
in violation of Rule 10b-6 promulgated under the Exchange Act. In addition,
unless granted an exemption by the Commission from Rule 10b-6, the
Representative will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's securities during
the period prescribed by Rule 10b-6 before the solicitation of the exercise of
any Redeemable

-73-
<PAGE>

Warrant until the later of (i) the termination of such solicitation activity, or
(ii) the termination by waiver or otherwise of any right the Representatives may
have to receive a fee for the exercise of the Redeemable Warrants following such
solicitations. The Company has agreed not to solicit Warrant exercise other
than through the Representative.

The Company's officers and directors, including the controlling beneficial
stockholder, have agreed not to, directly or indirectly offer, offer to sell,
sell, grant an option to purchase or sell, transfer, assign, pledge, hypothecate
or otherwise encumber any shares of Common Stock owned by them for a period of
18 months from the date of this Prospectus without the prior written consent of
the Representatives.

The Underwriters have informed the Company that no sales to any accounts
over which they exercise discretionary authority will be made in this offering.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

Prior to this offering, there has not been an established public market for
the Common Stock or Redeemable Warrants of the Company. The initial public
offering price of the Company Securities and the exercise price and other terms
of the Representatives Warrant have been determined by negotiations between the
Company and the Representatives. The major factors considered in determining
the public offering price of the Common Stock and the Redeemable Warrants were
the prevailing market conditions, the market prices relative to earnings, cash
flow and assets for publicly traded Common Stocks of comparable companies, the
sales and earnings of the Company and comparable companies in recent periods,
the Company's earning potential, the experience of its management and the
position of the Company in the industry.

LEGAL MATTERS

The validity of the Securities offered hereby will be passed upon for the
Company by McDermott, Will & Emery, Washington, D.C. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Jeffer,
Mangels, Butler & Marmaro LLP, Los Angeles, California. Robert G. Kalik, of
counsel to McDermott, Will & Emery, holds a presently exercisable option to
purchase 33,467 shares of Common Stock.

EXPERTS

The financial statements included in this Prospectus have been audited by
Corbin & Wertz, independent certified public accountants, to the extent and for
the periods set forth in their report appearing elsewhere herein and are
included in reliance upon such report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933,

-74-
<PAGE>

as amended (the "Securities Act"), with respect to the securities offered
hereby. The Company is currently not a reporting company under the Securities
Exchange Act of 1934, as amended. This Prospectus, filed as part of the
Registration Statement, does not contain certain information set forth in or
annexed as exhibits to the Registration Statement, and reference is made to such
exhibits to the Registration Statement for the complete text thereof. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
filed as part thereof, which may be inspected at the office of the Commission
without charge, or copies thereof may be obtained therefrom upon payment of a
fee prescribed by the Commission. Statements contained in this Prospectus and
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the complete text of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Such Registration
Statement may be inspected and copied at the public facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048 and at the Chicago Regional Office, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2511.

-75-
<PAGE>

Sound Source Interactive

Index to Consolidated Financial Statements

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-1

Financial statements

Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . F-2

Consolidated Statements of Operations. . . . . . . . . . . . . . . F-4

Consolidated Statements of Stockholders' Deficit . . . . . . . . . F-6

Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . F-9

Notes to Consolidated Financial Statements . . . . . . . . . . . . F-13

-76-

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
Sound Source Interactive, Inc.

We have audited the accompanying consolidated balance sheet of Sound Source
Interactive, Inc. (a Delaware corporation) and subsidiary (collectively referred
to as the "Company") as of June 30, 1995 and the related consolidated statements
of operations, stockholders' deficit and cash flows for each of the years in the
two-year period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Source
Interactive, Inc. and subsidiary as of June 30, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
then ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations, its excess of current liabilities (which, as of December 31, 1995,
include notes payable of $4,987,500 plus accrued interest which come due
September 1, 1996) over current assets and its stockholders' deficit raises
substantial doubt about its ability to continue as a going concern. The Company
is currently funding operations from the proceeds of the 1995 Private Placement
and is in the process of filing a Registration Statement for an initial public
offering of its common stock as more fully described in Note 14. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Corbin & Wertz

CORBIN & WERTZ

Irvine, California
September 8, 1995, except
for Notes 7, 14 and 15, as to
which the dates are as specified
therein

F-1

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31,
June 30, 1995
1995 (Unaudited)
ASSETS (Note 14) ---------- ------------
<S> <C> <C>
Current assets:
Cash $ 213,730 $ 1,492,507
Accounts receivable, net of allowances
of $104,250 and $447,310 (unaudited),
as of June 30, 1995 and December 31,
1995, respectively (Notes 5 and 11) 60,828 405,279
Inventories (Note 2) 150,320 457,232
Prepaid royalties 481,412 673,503
Deferred financing costs, net of
accumulated amortization of $262,732
(unaudited) as of December 31, 1995
(Note 14) --- 730,868
Deferred offering costs (Note 14) --- 106,160
Prepaid expenses and other --- 94,882
---------- ----------
Total current assets 906,290 3,960,431

Property and equipment, net of accumulated
depreciation of $84,724 and $104,161
(unaudited) as of June 30, 1995 and
December 31, 1995, respectively (Notes
3 and 7) 92,841 193,027

Other assets 3,060 12,400
---------- ----------

$ 1,002,191 $ 4,165,858
---------- ----------
---------- ----------

</TABLE>

Continued

F-2

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS - CONTINUED

December 31,
June 30, 1995
1995 (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY ----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable (Note 14) $ --- 4,987,500
Accrued interest (Note 14) --- 118,176
Accounts payable and accrued expenses
(Notes 7 and 12) 535,046 745,430
Accrued compensation and related taxes 244,039 53,686
Commissions payable (Note 7) 159,593 35,555
Accrued royalties 542,513 37,124
Short-term advance (Note 5) 400,000 400,000
Deferred revenue (Note 6) 64,000 66,000
Notes payable to officers (Note 4) 13,500 ---
Current portion of capital lease
obligations (Note 7) 12,921 30,000
---------- ----------

Total current liabilities 1,971,612 6,873,471
---------- ----------

Capital lease obligations, net of
current portion (Note 7) 16,771 25,601
---------- ----------

Commitments and contingencies (Notes 5
and 7)

Stockholders' deficit (Notes 8, 9, 10
and 14):
Series A preferred common stock,
$.001 par value; 1,000,000 shares
authorized, no shares issued and
outstanding; liquidation value of
$.001 per share --- ---
Common stock, $.001 par value;
20,000,000 shares authorized;
1,859,182 and 1,808,291 shares
issued and outstanding at June 30,
1995 and December 31, 1995 (unaudited),
respectively 1,859 1,808
Warrants (Note 14) --- 263,350
Additional paid-in capital 5,124,525 5,124,576
Accumulated deficit (6,112,576) (8,122,948)
---------- ----------

Total stockholders' deficit (986,192) (2,733,214)
---------- ----------

$ 1,002,191 $ 4,165,858
---------- ----------
---------- ----------

</TABLE>

See accompanying notes to consolidated financial statements
F-3

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Six
Months Ended December 31,
For The Years Ended June 30, 1994 1995
1994 1995 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>

Revenues (Notes 6 and 11):
Product sales $ 1,313,890 $ 1,255,230 $ 1,006,849 $ 1,077,547
Development fees 112,520 343,250 127,250 ---
Original equipment manufacturing 5,500 479,675 389,979 21,466
Royalties 253,961 76,771 76,253 21,678
---------- ---------- ---------- ----------
Net revenues 1,685,871 2,154,926 1,600,331 1,120,691

Cost of sales 1,180,803 1,072,691 956,368 682,510
---------- ---------- ---------- ----------

Gross profit 505,068 1,082,235 643,963 438,181
---------- ---------- ---------- ----------
Operating costs and expenses:
Marketing and sales (Note 7) 356,381 516,886 291,805 572,778
Compensation in connection with
common stock and common stock
options issued for services
rendered (Note 10) 2,992,862 733,165 193,332 ---
Other general and administrative 828,866 1,049,858 495,642 1,208,838
Research and development 116,559 378,471 76,725 266,153
---------- ---------- ---------- ----------
Total operating costs and
expenses 4,294,668 2,678,380 1,057,504 2,047,769
---------- ---------- ---------- ----------

Operating loss (3,789,600) (1,596,145) (413,541) (1,609,588)

Interest income 855 8,550 --- 22,172

Interest expense (38,513) (2,698) (4,439) (118,176)

Amortization of deferred loan costs
(Note 14) --- --- --- (262,732)

Other income (expense) (32,988) 839 (16,461) (40,848)
---------- ---------- ---------- ----------

Loss before provision for
income taxes (3,860,246) (1,589,454) (434,441) (2,009,172)

Provision for income taxes (Note 13) 1,600 1,600 1,200 1,200
---------- ---------- ---------- ----------

Loss from continuing operations (3,861,846) (1,591,054) (435,641) (2,010,372)
---------- ---------- ---------- ----------

Continued

F-4

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED

For The Six
Months Ended December 31,
For The Years Ended June 30, 1994 1995
1994 1995 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>

Discontinued operations (Note 12):
Loss from operations of discontinued
music division (115,887) (111,106) (13,376) ---
Estimated operating loss and loss on
disposal of discontinued music
division during phase-out period --- (32,000) --- ---
---------- ---------- ---------- ----------

Loss from discontinued operations (115,887) (143,106) (13,376) (2,010,372)
---------- ---------- ---------- ----------

Net loss $ (3,977,733) $ (1,734,160) $ (449,017) $ (2,010,372)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per common share (Note 14):
Loss from continuing operations $ (2.38) $ (0.85) $ (0.23) $ (1.08)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss from discontinued operations $ (0.07) $ (0.08) $ (0.01) $ ---
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Net loss per common share $ (2.45) $ (0.93) $ (0.24) $ (1.08)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Weighted average number of common
shares outstanding 1,626,107 1,862,908 1,869,998 1,868,145
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

</TABLE>

See accompanying notes to consolidated financial statements
F-5

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

For The Six Months Ended December 31, 1995 (Unaudited)
And For Each Of The Years In The Two-Year
Period Ended June 30, 1995

Series A
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Warrants Capital Deficit Total
--------------------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Balance, July 1, 1993 1,000,000 $ 1,000 1,474,463 $ 1,474 $ --- $ 27,526 $ (400,683) $ (370,683)

Shares issued in
connection with
reverse acquisition 99,992 100 (100)

Issuance of stock
options for services
(Note 10) 2,347,862 2,347,862

Issuance of common
stock in exchange
for preferred stock
(Note 9) (1,000,000) (1,000) 83,669 84 644,916 644,000

Issuance of common
stock in connection
with private offering,
net of offering
costs of $58,312
(Note 8) 55,639 56 664,944 665,000

Shares issued for
services performed in
connection with
private offering
(Note 8) 39,770 40 475,275 475,315

Offering costs
(Note 8) (475,315) (475,315)

Continued
F-6

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - CONTINUED

For The Six Months Ended December 31, 1995 (Unaudited)
And For Each Of The Years In The Two-Year
Period Ended June 30, 1995

Series A
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Warrants Capital Deficit Total
-------- -------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Net loss (3,977,733) (3,977,733)
---------- ------- ---------- ------- ------- --------- ---------- ---------

Balance, June 30,
1994 --- --- 1,753,533 1,754 --- 3,685,108 (4,378,416) (691,554)

Issuance of common
stock in connection
with private offering,
net of offering costs
of $61,759 (Note 8) 59,238 59 706,048 706,107

Shares issued for
services performed
in connection with
private offering
(Note 8) 42,227 42 504,644 504,686

Offering costs (Note 8) (504,686) (504,686)

Issuance of stock
options for services
(Note 10) 733,165 733,165

Issuance of common
stock in connection
with exercise of
options (Note 10) 4,184 4 246 250

Net loss (1,734,160) (1,734,160)
---------- ------- ---------- ------- ------- --------- ---------- ----------

Balance, June 30,
1995 --- --- 1,859,182 1,859 --- 5,124,525 (6,112,576) (986,192)

Continued

F-7

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - CONTINUED

For The Six Months Ended December 31, 1995 (Unaudited)
And For Each Of The Years In The Two-Year
Period Ended June 30, 1995

Series A
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Warrants Capital Deficit Total
-------- -------- -------- -------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Issuance of warrants
in connection with
private offerings
(Note 14) 263,350 263,350

Cancellation of shares
in connection with
settlement (Note 7) (15,120) (15) 15

Cancellation of shares
for which the Company
had not received
valid consideration
(Note 8) (35,771) (36) 36

Net loss (2,010,372) (2,010,372)
---------- ------- ---------- ------- ------- --------- ---------- ----------
Balance, December
31, 1995 $ --- $ --- $ 1,808,291 $ 1,808 $263,350 $5,124,576 $(8,122,948) $(2,733,214)
---------- ------- ---------- ------- ------- --------- ---------- ----------
---------- ------- ---------- ------- ------- --------- ---------- ----------

</TABLE>

See accompanying notes to consolidated financial statements
F-8

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Six
Months Ended December 31,
For The Years Ended June 30, 1994 1995
1994 1995 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>

Cash flows from operating activities:
Net loss from continuing operations $ (3,861,846) $ (1,591,054) $ (435,641) $ (2,010,372)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization
(Note 14) 25,852 27,541 13,600 282,169
Allowance for sales returns (29,173) (8,732) 77,537 407,310
Allowance for doubtful accounts 69,306 (56,566) 55,218 (64,250)
Common stock and stock options
issued for services rendered 2,992,862 733,165 193,332 ---
Changes in operating assets and
liabilities:
Accounts receivable (68,570) 66,352 (262,652) (687,511)
Inventories 83,006 (99,576) (98,004) (306,912)
Prepaid royalties (146,903) 1,537 (56,833) (192,091)
Prepaid expenses and other 1,934 --- --- (94,882)
Other assets --- --- --- (9,340)
Accrued interest (Note 14) --- --- --- 118,176
Accounts payable and accrued
expenses 83,186 (125,686) (298,493) 210,384
Accrued compensation and related
taxes 139,838 92,394 60,170 (190,353)
Commissions payable 44,807 114,786 (9,252) (124,038)
Accrued royalties 189,780 (20,697) 43,177 (105,389)
Deferred revenue 72,795 (8,795) 139,705 2,000
---------- ---------- ---------- ----------

Net cash used by continuing operations (403,126) (875,331) (578,136) (2,765,099)
---------- ---------- ---------- ----------

Continued

F-9

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

For The Six
Months Ended December 31,
For The Years Ended June 30, 1994 1995
1994 1995 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>

Net loss from discontinued
operations (115,887) (143,106) (13,376) ---
Reserve for estimated loss on
disposal --- 32,000 --- ---
Depreciation 8,328 8,878 4,441 ---
Changes in operating assets and
liabilities of discontinued
operations:
Accounts receivable (5,007) (2,471) (2,021) ---
Inventories 12,248 1,351 9,842 ---
Accounts payable and accrued
expenses 10,601 3,098 1,884 ---
Accrued royalties --- 3,415 --- ---
Commissions payable --- 12,498 --- ---
---------- ---------- ---------- ----------

Net cash used by discontinued
operations (89,717) (84,337) 770 ---
---------- ---------- ---------- ----------

Cash flows from investing activities
of continuing operations -
Purchases of property and equipment (3,376) (38,876) (48,561) (81,152)
---------- ---------- ---------- ----------

Cash flows from investing activities
of discontinued operations -
Purchases of property and equipment (1,036) (6,665) (6,665) ---
---------- ---------- ---------- ----------

Continued

F-10

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

For The Six
Months Ended December 31,
For The Years Ended June 30, 1994 1995
1994 1995 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common
stock (Note 8) 665,000 684,107 684,107 ---
Proceeds from issuance of warrants
(Note 14) --- --- --- 263,350
Proceeds from issuance of notes
payable (Note 14) 22,000 --- --- 4,987,500
Notes payable to officers --- 13,500 --- (13,500)
Payments on note payable (16,999) (19,587) (19,587) ---
Deferred financing costs (Note 14) --- --- --- (993,600)
Deferred offering costs (Note 14) --- --- --- (106,160)
Payments on capital lease obligation (18,257) (13,678) (8,059) (12,562)
Short-term advance --- 400,000 --- ---
---------- ---------- ---------- ----------

Net cash provided by financing
activities 651,744 1,064,342 656,461 4,125,028
---------- ---------- ---------- ----------

Net increase in cash 154,489 59,133 23,869 1,278,777

Cash, beginning of period 108 154,597 154,597 213,730
---------- ---------- ---------- ----------

Cash, end of period $ 154,597 $ 213,730 $ 178,466 $ 1,492,507
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Supplemental disclosure of cash flow
information -
Cash paid during the period for:
Interest $ 14,785 $ 9,742 $ 14,301 $ 13,120
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income taxes $ 1,800 $ 1,600 $ 1,800 $ 1,600
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

</TABLE>

Continued

F-11

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Supplemental disclosure of noncash investing
and financing activities:

During the fiscal years ended June 30, 1994 and 1995, the Company purchased
property and equipment valued at $5,653 and $8,979, respectively, through
the issuance of capital leases (Note 7).

During the fiscal year ended June 30, 1995, the Company repaid a note to an
affiliate of a stockholder totalling $22,000 through issuance of common
stock shares in connection with a private placement (Note 4).

During the six months ended December 31, 1995, the Company purchased property
and equipment valued at $38,471 (unaudited) through issuance of capital
leases (Note 7).

See accompanying notes to consolidated financial statements

F-12

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Sound Source Interactive, Inc., (a California corporation) was incorporated on
March 5, 1990, under the name Sound Source Unlimited, Inc. On May 16, 1994,
Sound Source Interactive, Inc. ("SSI") consummated a stock-for-stock exchange
with Basic Science Associates, Inc. ("BSA"), a Delaware corporation. As part of
the exchange, BSA issued 1,474,232 shares of its common stock and 1,000,000
shares of its Series A preferred stock (see Note 11) in exchange for all of the
outstanding shares of SSI. The exchange has been accounted for as a reverse
acquisition because stockholders of SSI maintained control of the surviving
entity, BSA. Accordingly, for financial reporting purposes, the shares issued
by BSA are considered outstanding since the date of incorporation of SSI, and
the 99,992 shares of common stock retained by the stockholders of BSA are
reflected as consideration issued to consummate the stock-for-stock exchange.
No value was ascribed to the shares of common stock retained by the stockholders
of BSA since as of the date of the exchange, BSA had nominal assets and
stockholders' equity and was an inactive company. Concurrent with the stock-
for-stock exchange, BSA changed its name to Sound Source Interactive, Inc. (a
Delaware corporation) (the "Company").

The Company, through its wholly-owned subsidiary (SSI), is in the business of
developing, publishing and distributing entertainment software, specializing in
interactive educational software, "screen savers" software and sound clips.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates, among other things, the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the accompanying consolidated financial statements, at December 31, 1995, the
Company's current liabilities exceeded its current assets by $2,913,040
(unaudited) and the Company had a stockholders' deficit of $2,733,214
(unaudited). In addition, the Company has incurred net losses of $3,977,733,
$1,734,160, $449,017 (unaudited) and $2,010,372 (unaudited) for the years ended
June 30, 1994 and 1995 and for the six months ended December 31, 1994 and 1995,
respectively. The Company is currently funding operations from the proceeds of
the 1995 Private Placement (see Note 14). The notes payable of $4,987,500 at
December 31, 1995 (unaudited) and related accrued interest of $118,176 is due
September 1, 1996. The Company has also not generated sufficient cash flows to
fund operations due in part to its problems with its major distributor, Acclaim
Entertainment, Inc. ("Acclaim") (see Note 15). The Company plans to effect an
initial public offering to raise proceeds to repay these notes payable and
related accrued interest and to fund its working capital requirements (see Note
14). These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

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 reported period.
Actual results could materially differ from those estimates.

Continued

F-13
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

DISCONTINUED OPERATIONS

In July 1995, the Company approved a formal plan to license the rights to its
music division (which developed and sold sound patches for electronic keyboards
and synthesizers) and sold the related inventory and property and equipment to
an unrelated third party (see Note 12). Accordingly, the Company has classified
such as discontinued operations in the accompanying consolidated financial
statements for all years presented.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Sound Source Interactive, Inc. (a
California corporation). The results of operations of BSA, the acquired
business, have been consolidated with those of Sound Source Interactive, Inc.
commencing May 16, 1994. The results of operations of BSA for the period July
1, 1993 to May 16, 1994 were not material.

All significant intercompany transactions and balances have been eliminated in
consolidation.

INTERIM FINANCIAL STATEMENTS

The consolidated financial statements for the six months ended December 31, 1994
and 1995 and the related notes thereto are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at
December 31, 1995, and the results of operations and cash flows for the six
months ended December 31, 1994 and 1995. Results for the 1995 interim period
are not necessarily indicative of the results to be expected for the fiscal year
ended June 30, 1996.

ACCOUNTS RECEIVABLE

Accounts receivable are principally from distributors and retailers of the
Company's products. The Company performs periodic credit evaluations of its
customers and maintains allowances for potential credit losses and returns. The
Company estimates credit losses and returns based on management's evaluation of
historical experience and current industry trends. As of June 30, 1995,
reserves for credit losses and returns totalled $40,000 and $64,250,
respectively. As of December 31, 1995, reserves for returns totalled $447,310
(unaudited). As of December 31, 1995, reserves for credit losses were not
deemed necessary by management of the Company (see Note 5). The Company is
subject to rapid changes in technology and shifts in consumer demand which could
result in product returns in excess of the Company's reserves at June 30, 1995
and December 31, 1995.

INVENTORIES

Inventories, which consist primarily of software media, manuals and related
packaging materials, are stated at the lower of cost or market with cost
determined on a first-in, first-out (FIFO) basis. Provision has been made to
write-down obsolete inventories to market value.

Continued

F-14
<PAGE>
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the related assets, generally ranging from five to
seven years.

Depreciation expense related to continuing operations totalled $25,852 and
$27,541 for the years ended June 30, 1994 and 1995, respectively, and totalled
$13,600 (unaudited) and $19,437 (unaudited), respectively, for the six months
ended December 31, 1994 and 1995, and is included in other general and
administrative expense in the accompanying consolidated statements of
operations.

DEFERRED FINANCING COSTS

Deferred financing costs represent costs associated with the issuance of debt.
Deferred financing costs are amortized over the term of the related debt. For
the six months ended December 31, 1995, amortization expense totalled $262,732.

DEFERRED OFFERING COSTS

Deferred offering costs represent costs associated with the Company's intended
Initial Public Offering ("IPO") (see Note 14). Deferred offering costs will be
recorded as a reduction in proceeds upon completion of the intended IPO. If the
IPO is unsuccessful, such costs will be charged to operations.

REVENUE RECOGNITION

Sales are recognized at the time the products are shipped, in accordance with
the provisions of Statement of Position 91-1, "SOFTWARE REVENUE RECOGNITION".
While the Company has no obligations to perform future services subsequent to
shipment, the Company provides telephone customer support as an accommodation to
purchasers of its products for a limited time. Costs associated with this
effort are expensed as incurred (see Note 5).

The Company recognizes revenue for product shipped to Acclaim on the date that
Acclaim purchases such product and ships it to their customers. Acclaim is
obligated to pay the Company on the earlier of the month following the date of
receipt of payment by it or 120 days following the end of the month that the
product was shipped. The Company is responsible for product returns, and
records a reserve for returns based on management's evaluation of historical
experience and current industry trends (see Note 15).

Continued

F-15
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

ROYALTIES

The Company enters into license agreements with movie studios, actors and sound
developers for recognizable movie and television properties which require the
Company to pay royalties to such movie studios, actors and sound developers.
The license agreements generally require the Company to pay a percentage of
sales of the products but no less than a specified amount (the minimum
guaranteed royalty). The Company records the minimum guaranteed royalty as a
liability and a related asset at the time the agreement is consummated. The
liability is extinguished as payments are made to the license holders and the
asset is amortized on a straight-line basis over the expected number of units to
be sold. Royalties are recognized upon the sale of the related product.
Royalty liabilities in excess of the minimum guaranteed amount are recorded when
such amounts are earned. Royalties for the years ended June 30, 1994 and 1995
amounted to $275,407 and $325,981, respectively. Royalties for the six months
ended December 31, 1994 and 1995 amounted to $252,505 (unaudited) and $190,977
(unaudited), respectively, and are included in cost of sales in the accompanying
consolidated statements of operations.

Generally, the terms of a license agreement state that, upon any bankruptcy or
liquidation of the Company, licensing rights revert to the license holder.

The Company's products are based upon such licensed content of major motion
pictures and television shows under license and/or development agreements with
major entertainment studios. All of such license and development agreements to
which the Company currently is a party are for fixed terms which will expire
over the next one to five years. Although no licensor is required to extend any
license, the Company anticipates that the licensor under each agreement will
extend its terms, provided that the Company is in compliance with all
requirements of each license, including most significantly that the Company has
satisfied the applicable minimum royalty guarantees. In the event that any
licensor fails to renew its license agreement, then the subject license will
terminate and the Company will no longer be entitled to sell the licensed
product. The loss of one or more of the licenses could have a material adverse
effect on the Company's revenues and operating results. There can be no
assurance that the Company will satisfy its performance obligations under any
license or development agreement or, that even if such requirements are
satisfied, all material licenses will be renewed.

SOFTWARE DEVELOPMENT COSTS

In accordance with Statement of Financial Accounting Standards No. 86,
"ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED," ("SFAS No. 86"), the Company examines its software development costs
after technological feasibility has been established to determine if
capitalization is required. Through December 31, 1995, all software development
costs have been expensed.

INCOME TAXES

The Company accounts for income taxes under Statement on Financial Accounting
Standards No. 109, "ACCOUNTING FOR INCOMES TAXES" ("SFAS No. 109"), which
requires that deferred income taxes be recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities and
their financial reporting basis at rates based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income.

Continued

F-16
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Current income tax expense
represents the tax payable for the period. The deferred income tax expense
(benefit) represents the change during the period in the balance of deferred
taxes (see Note 13).

STOCK SPLIT

In September, 1995, the Company effectuated a 1-for-5.976 reverse stock split of
issued and outstanding common shares and common shares reserved for options in
connection with the August 1995 private placement (see Note 14). The
accompanying consolidated financial statements have been adjusted to reflect the
reverse stock split.

NET LOSS PER COMMON SHARE

Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the respective period. Common stock equivalents include
shares issuable upon the exercise of the Company's stock options. For the years
ended June 30, 1994 and 1995 and for the six months ended December 31, 1994
(unaudited) and 1995 (unaudited), common stock equivalents were excluded from
the computation of loss per common share because the effect of including such in
the computation would have been anti-dilutive (see Notes 10 and 14), except as
discussed below.

Pursuant to Securities and Exchange Commission Staff Bulletin No. 83, common
shares issued for consideration below an assumed initial public offering price
(estimated at $4.00 per share) and stock options granted (see Note 14) with
exercise prices below the IPO price during the twelve-month period preceding the
date of the filing of the Registration Statement have been included in the
calculation of common share equivalents, using the treasury stock method, as if
they were outstanding for all periods presented, including loss years where the
impact is anti-dilutive.

The only securities issued within twelve months of the registration statement
are options to purchase 100,000 shares granted at $3.40 per share (see Note 14).

The computations of the weighted average common shares and equivalents
outstanding follows:

Year Ended June 30, Six Months Ended December 31,
------------------- -----------------------------
1994 1995 1994 (unaudited) 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding
during the period 1,611,107 1,847,908 1,854,998 1,853,145

Incremental shares assumed
to be outstanding related
to stock options granted 15,000 15,000 15,000 15,000
--------- --------- --------- ---------

Weighted average common
shares and equivalents
outstanding 1,626,107 1,862,908 1,869,998 1,868,145
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>

Continued

F-17
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

SEASONALITY

The consumer software business traditionally has been seasonal. Typically, net
sales are highest during the fourth calendar quarter and decline sequentially in
the first and second calendar quarters. The seasonal pattern is due primarily
to the increased demand for consumer software during the year-end holiday buying
season. The Company expects its net sales and operating results to continue to
reflect seasonality.

CONCENTRATION OF CREDIT RISK

The Company, at times, maintains cash balances at certain financial institutions
in excess of the federally insured maximum.

RECLASSIFICATIONS

Certain reclassifications have been made to 1994 amounts to conform to the 1995
presentation.

NOTE 2 - INVENTORIES

Inventories consisted of the following:

December 31,
June 30, 1995
1995 (Unaudited)
----------- ------------
Finished goods $ 66,114 $ 390,036
Raw materials (components) 84,206 67,196
----------- -----------

$ 150,320 $ 457,232
----------- ------------
----------- ------------

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

December 31,
June 30, 1995
1995 (Unaudited)
----------- ------------
Studio computers and equipment $ 118,496 $ 236,274
Office furniture and equipment 59,069 60,914
----------- ------------
177,565 297,188
Less accumulated depreciation (84,724) (104,161)
----------- ------------

$ 92,841 $ 193,027
----------- ------------
----------- ------------

Continued
F-18
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 4 - NOTES PAYABLE

During the year ended June 30, 1995, the Company repaid a note due to a
stockholder amounting to $19,587. The Company also repaid a $22,000 note due to
an affiliate of a stockholder through issuance of shares in conjunction with the
1994 private placement.

As of June 30, 1995, the Company owed certain officers of the Company $13,500 in
the form of short-term non-interest bearing advances. In July 1995, such
advances were paid.

For discussion of notes payable issued in connection with the August 1995
private placement (see Note 14).

NOTE 5 - SHORT-TERM ADVANCE

In June 1995, the Company entered into a five-year sales and distribution
agreement (the "Agreement") with a subsidiary of Acclaim, a distributor of
entertainment software. Under the terms of the Agreement, Acclaim was
responsible for the distribution of the Company's products on a world-wide basis
to retail accounts. The Company retained the rights to certain direct
distribution, such as direct mail and infomercials.

In conjunction with the signing of the Agreement, the Company received a non-
interest bearing advance from Acclaim in the amount of $400,000. The advance is
due in twelve monthly installments of $33,333 each, commencing no later than 90
days subsequent to first billing by the Company. The installments are to be
deducted from amounts due the Company from Acclaim related to product sales.
Management of the Company expects that this advance will be deducted in its
entirety from amounts due from Acclaim prior to June 30, 1996.

The Company is required under the terms of the Agreement to expend six percent
of the "projected sales revenues", as defined by Acclaim, related to each
product on the advertising and marketing of such product.

Under the Acclaim Distribution Agreement, all risks associated with collection
of accounts receivable with respect to all products sold by the Company through
Acclaim are solely the responsibility of Acclaim, whereas the risk of product
returns remains with the Company. The Company, however, is exposed to the risk
of credit collection from retailers and distributors other than Acclaim. As
discussed in Note 1, the Company establishes reserves for returns that it
believes to be adequate based upon historical return data and its analysis of
current customer inventory levels and sell through rates. Nonetheless, the
Company could be forced to accept substantial product returns to maintain its
relationships with retailers and its access to distribution channels. The
Company's policies also allow for returns of defective merchandise for credit.
Any significant amount of product returns could have a material adverse effect
on the Company's business, operating results and financial condition.

In March 1996, such agreement was terminated (see Note 15).

Continued

F-19
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 6 - DEFERRED REVENUE

In August 1994, the Company entered into a contract to develop computer software
for Fox Interactive, a division of Fox, Inc. In exchange, the Company received
nonrefundable advances based upon the attainment of certain milestones. The
Company recognizes these advances into revenues based upon the percentage of
completion method. As of June 30, 1995 and as of December 31, 1995 (unaudited),
the Company had received $24,000 of advances in excess of earnings and has
therefore recorded such amount as deferred revenue in the accompanying
consolidated balance sheet.

The Company has entered into various agreements with computer manufacturers to
sell and distribute certain of the Company's products. In exchange, the Company
receives royalties and advances against expected royalties. As of June 30,
1995, the Company received $40,000 of advances in excess of royalties earned.
Accordingly, the Company has recorded such amounts as deferred revenues on the
accompanying June 30, 1995 consolidated balance sheet. As of December 31, 1995,
the Company had earned $10,000 (unaudited) of such advances. As of December 31,
1995, the Company received $12,000 (unaudited) of advance royalties in
connection with the licensing of the music division (see Note 12).

NOTE 7 - COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS

The Company has entered into employment contracts with five of its employees,
including three officers, which expire on various dates through April, 1998.
Certain of the employment contracts provided for mandatory increases in salary
if the Company completed an initial public offering or a secondary offering (see
Note 14), provided for commissions based on net sales and provide for automobile
allowances.

In May 1996, the employment contracts of the two officers were modified.

During September 1995, the employment contracts of two of the officers were
modified as follows:

i) The terms were extended through August 31, 1998 and 2000,
respectively.

ii) The contracts no longer provide for commissions after November 1995,
or increases in base salaries other than cost of living increases.

iii) The contracts provide for bonuses based on the attainment of certain
milestones related to gross revenues, gross profits, and pre-tax
profit percentages.

Effective September 5, 1995, another officer of the Company with an employment
contract resigned from the Company.

Effective October 9, 1995, the Company entered into a two-year employment
contract with a new officer of the Company. The contract provides for a minimum
base salary and certain expense reimbursements.

Continued

F-20
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED

Future minimum base salaries, by year and in the aggregate, after giving effect
to the modification of two of the contracts, the termination of another due to
resignation of the officer and the new contract, consist of the following at
June 30, 1995:

1996 $ 459,167
1997 485,000
1998 402,500
1999 229,166
2000 200,000
2001 33,333
---------

$ 1,809,166
---------
---------

Commissions under employment contracts for the year ended June 30, 1994 and
1995, related to continuing operations amounted to $44,807 and $132,078,
respectively, and are included in marketing and sales costs in the accompanying
consolidated statements of operations. At June 30, 1995, $156,063 of such
amounts remain unpaid and are included as commissions payable in the
accompanying consolidated balance sheet.

OPERATING LEASES

The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through February 1997.

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

Future minimum annual lease payments at June 30, 1995 are as follows:

1996 $ 89,916
1997 55,667
---------

$ 145,583
---------
---------

Rent expense under operating lease agreements totalled $75,311 and $94,006 for
the years ended June 30, 1994 and 1995, respectively, and $38,903 (unaudited)
and $48,514 (unaudited) for the six months ended December 31, 1994 and 1995,
respectively, and is included in other general and administrative expenses on
the accompanying consolidated statements of operations.

CAPITAL LEASES

The Company leases certain equipment and computers under capital lease
obligations with interest rates ranging from 13.35% to 30.45% per annum.
Aggregate monthly principal and interest payments total $1,717 at June 30, 1995.

Continued

F-21
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED

Future minimum lease payments, by year and in the aggregate, under capital
leases for equipment and computers with initial or remaining terms of one year
or more, consist of the following at June 30, 1995:

1996 $ 17,387
1997 11,462
1998 6,513
1999 2,365
---------
37,727

Less amount representing interest (8,035)
---------

Present value of net minimum lease
payments 29,692

Less current portion (12,921)
---------

$ 16,771
---------
---------

During the six months ended December 31, 1995, the Company entered into two
capital leases for certain office equipment aggregating $38,471 (unaudited) with
interest rates ranging from 17.38% to 27.93% (unaudited) per annum and which
expire through 1998 (unaudited).

Interest expense under capital lease obligations amounted to $5,888 and $7,045
for the years ended June 30, 1994 and 1995, respectively, and was insignificant
for the six months ended December 31, 1994 (unaudited) and 1995 (unaudited) and
is included in other income (expense) on the accompanying consolidated
statements of operations.

LITIGATION

In July 1995, a stockholder of the Company filed a complaint in the United
States District Court for the District of Washington, naming, among others, the
Company and its subsidiary, and Bentley Richards Investments (the "Placement
Agent") claiming federal and state securities violations, breach of contract,
and negligent misrepresentation related to the 1994 Private Placement (see Note
8). The complaint sought rescission of all monies paid to the Company and
unspecified amounts of punitive damages, attorney's fees and costs, prejudgment
and postjudgment interest and cost of suit.

In September 1995, the stockholder entered into a settlement agreement whereby
the stockholder dismissed all defendants, including the Company and its
subsidiary, upon delivery of certain shares of the Company's common stock owned
by the Placement Agent and its affiliates. A portion of these shares have been
distributed to the 1994 Private Placement holders and the balance are to be
canceled. Pursuant to the settlement, the Placement Agent's options also were
canceled. The Company was not required to pay any consideration as a part of
the settlement. The Company has been dismissed with prejudice from the
complaint (see Note 8).

Continued

F-22
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8 - COMMON STOCK

During the fiscal year 1994, the Company engaged a Placement Agent to sell a
private placement of up to 125,502 shares of its common stock at $13.00 per
share. Through June 30, 1994, the Company issued 55,639 shares of its common
stock for $665,000 in cash, net of offering costs of $58,312.

During the fiscal year 1995, the Company issued an additional 59,238 shares of
its common stock in exchange for $706,107 in cash, net of costs of $61,759.

In accordance with the terms of the private offering, the Company agreed to
compensate the Placement Agent with up to 81,997 shares of its common stock and
an option to purchase up to 60,241 shares of its common stock at a price equal
to the closing bid price of the common stock on the first day of trading
following the stock-for-stock exchange (see Note 1). For the years ended June
30, 1994 and 1995, the Placement Agent earned 39,770 and 42,227 shares valued at
$475,315 and $504,686, respectively.

During September 1995, the Placement Agent notified the Company that all shares
held by the Placement Agent or its affiliates, or held in escrow for the benefit
of the Placement Agent or its affiliates, representing and aggregate of 108,769
shares of the Company's common stock, will be distributed to the holders of the
1994 Private Placement shares and approximately 15,000 will be returned to the
Company for retirement (see Note 7).

CANCELLATION OF SHARES

In fiscal 1996, it has been determined by the Company that 35,771 shares of
common stock were improperly issued in 1992 due to the fact no consideration was
received. Accordingly, such common shares were cancelled effective December 31,
1995.

NOTE 9 - SERIES A PREFERRED STOCK

In connection with the Company's reverse acquisition of BSA (see Note 1) on May
16, 1994, the Company issued to its major stockholder 1,000,000 shares of Series
A preferred stock, par value of $.001. The Series A preferred stockholder was
entitled to vote as a single class with the holders of the Company's common
stock on all matters coming before the Company's stockholders for a vote. The
holder of the Series A preferred stock was entitled to ten votes per share
whereas the holders of common stock are entitled to only one vote per share.
The Series A preferred stock was not redeemable or convertible, and the holder
of the Series A preferred stock was not entitled to receive any dividends. The
holder was entitled to a liquidation preference of $.001 per share, provided the
holder would not share any liquidating distribution except to the extent of such
preference. The Company did not ascribe any value to the preferred shares.

Prior to June 30, 1994, the 1,000,000 shares of Series A preferred stock were
converted into 83,669 shares of the Company's common stock. The Company
ascribed a value to the 83,669 shares of common stock of $645,000 and included
such amount under operating costs and expenses in the 1994 accompanying
consolidated statement of operations.

Subsequent to June 30, 1995, the Company amended its articles of incorporation
and deleted the authorization to issued Series A preferred stock.

Continued

F-23
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10 - STOCK OPTIONS

The Company adopted the 1992 Stock Option Plan (the "Plan") in May, 1992,
authorizing the issuance of up to 2,000,000 shares of common stock to employees,
officers and directors and to employees of companies who do business with the
Company.

Any shares which are subject to an award but are not used because the terms and
conditions of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards under the Plan. However, shares with respect to which a stock
appreciation right (see below) has been exercised may not again be made subject
to an award.

At the discretion of a committee comprised of directors, officers and key
employees of the Company and its subsidiaries or employees of companies with
which the Company does business may become participants in the Plan upon
receiving grants in the form of stock options or restricted stock.

Stock options may be granted as non-qualified stock options or incentive stock
options, upon stockholder approval as defined, but incentive stock options may
not be granted at a price less than 100% of the fair market value of the stock
as of the date of grant (110% as to any 10% stockholder at the time of grant);
non-qualified stock options may not be granted at a price less than 85% of fair
market value of the stock as of the date of grant. Restricted stock may not be
granted under the Plan in connection with incentive stock options.

Stock options granted under the Plan may include the right to acquire an
Accelerated Ownership Non-Qualified Stock Option ("AO"). All options granted to
date have included the AO feature. If an option grant contains the AO feature
and if a participant pays all or part of the purchase price of the option with
shares of the Company's common stock, then upon exercise of the option the
participant is granted an AO to purchase, at the fair market value as of the
date of the AO grant, the number of shares of common stock of the Company equal
to the sum of the number of whole shares used by the participant in payment of
the purchase price and the number of whole shares, if any, withheld by the
Company as payment for withholding taxes. An AO may be exercised between the
date of grant and the date of expiration, which will be the same as the date of
expiration of the option to which the AO is related.

Stock appreciation rights and/or restricted stock may be granted in conjunction
with, or may be unrelated to stock options. A stock appreciation right entitles
a participant to receive a payment, in cash or common stock or a combination
thereof, in an amount equal to the excess of fair market value of the stock at
the time of exercise over the fair market value of the date of grant. Stock
appreciation rights may be exercised during a period of time fixed by the
Committee.

Continued

F-24
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10 - STOCK OPTIONS, CONTINUED

Restricted stock requires the recipient to continue in service as an officer,
director, employee or consultant for a fixed period of time for ownership of the
shares to vest. If restricted shares or stock appreciation rights are issued in
tandem with options, the restricted stock or stock appreciation right is
canceled upon exercise of the option and the option will likewise terminate upon
vesting of the restricted shares.

On April 6, 1994, the Company issued a non-qualified stock option outside of the
Plan to an officer of the Company to purchase an aggregate of 251,004 shares of
the Company's common stock for $.06 per share and subsequently in fiscal 1994 an
option was granted to the officer to purchase 41,834 shares of the Company's
common stock for $.06 per share. All stock options issued to the officer were
immediately vested and are exercisable for a period of up to four years after
termination of employment from the Company. The difference between the fair
market value of the common stock underlying the options at the date of grant and
the exercise price has been included in operating costs and expenses in the
accompanying 1994 consolidated statement of operations.

On April 6, 1994, the Company issued options to purchase 199,130 shares of the
Company's common stock at $.06 per share to employees of the Company and to
certain consultants. The difference between fair market value of the common
stock underlying the options at the date of grant and the exercise price has
been included in operating costs and expenses in the accompanying consolidated
statement of operations. These options had an original vesting period of four
years. In connection with the offerings (see Note 14), the Company modified the
vesting period to 50% vested on the first year anniversary from the date of
grant, 25% on the third year anniversary and 25% on the fourth year anniversary
from the date of grant.

On September 5, 1995, in connection with the resignation of an officer of the
Company, 12,550 options were canceled in accordance with the Plan and the
officer's employment contract. In connection with the resignation of such
officer, 4,184 options were exercised effective June 30, 1995.

On October 9, 1995, the Company granted 100,000 options to an employee/officer
with an exercise price of $5.00, the fair market value of the common stock as
determined by the Company. The options vested immediately and expire 10 years
from the date of grant. On March 31, 1996, such options were cancelled and new
options issued (see Note 14).

Continued

F-25
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10 - STOCK OPTIONS, CONTINUED

The following table summarizes option transactions during the years ended June
30, 1994 and 1995 and for the six months ended December 31, 1995:

Number of Price
Shares Per Share
--------- ---------

Balances at July 1, 1993 --- ---
Granted 491,642 $0.06
Exercised --- ---
Canceled --- ---
--------- -------

Balances at June 30, 1994 491,642 $0.06
Granted --- ---
Exercised (4,184) $0.06
Canceled (12,550) $0.06
--------- -------

Balances at June 30, 1995 474,908 $0.06
Granted 100,000 $5.00
Exercised --- ---
Canceled --- ---
--------- -------

Balances at December 31, 1995
(unaudited) 574,908 $0.06-$5.00
--------- -----------
--------- -----------

Vested as of December 31, 1995
(unaudited) 484,037
---------

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "ACCOUNTING FOR STOCK BASED COMPENSATION"
("Statement No. 123"). Statement No. 123 is primarily a disclosure standard for
the Company because the Company will continue to account for employee stock
options under Accounting Principles Board Opinion No. 25. The disclosure
requirements for the Company required by Statement No. 123 will be effective for
financial statements issued after fiscal year 1996.

NOTE 11 - SIGNIFICANT CUSTOMERS

During the year ended June 30, 1994, four of the Company's customers accounted
for 29% of total revenues. A listing of revenues, as a percentage of total
revenues from continuing operations, for each of such customers for the years
ended June 30, 1994 is as follows:

Customer A 10%
Customer B 8%
Customer C 7%
Customer D 4%
-----

29%
-----
-----

During the year ended June 30, 1995, one customer accounted for 18% of total
revenues from continuing operations.

Continued

F-26
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 11 - SIGNIFICANT CUSTOMERS, CONTINUED

During the six months ended December 31, 1994, three different customers
accounted for an aggregate 17% (unaudited) of total revenues from continuing
operations.

During the six months ended December 31, 1995, one of the Company's customers, a
subsidiary of Acclaim (see Note 5), accounted for 73% (unaudited) of total
revenues from continuing operations. Significantly, all accounts receivable as
of December 31, 1995 is due from such customer.

NOTE 12 - DISCONTINUED OPERATIONS

In July 1995, the Company approved a formal plan to license certain proprietary
assets to Greytsounds Sound Development ("GSD") in exchange for royalties, as
defined. Upon commencement of a license agreement with GSD, $15,000 is to be
paid to the Company representing advance royalties. GSD also is to guarantee
$50,000 of royalties over the license term of two years. The expected date of
the agreement is to be no later than November 1, 1995. The license agreement is
to be exclusive and worldwide.

The proprietary assets licensed to GSD include the Company's musical instrument
sound library, all music related inventory and all music related fixed assets
owned and leased by the Company. As of June 30, 1995, the net carrying value of
these assets included on the accompanying consolidated balance sheet amounted to
$50,913. Net liabilities related to the Company's music division not licensed
to GSD totalled $32,722 as of June 30, 1995.

The Company recorded a liability of $32,000 as of June 30, 1995 representing
estimated losses on disposal and estimated operating losses from July 1, 1995 to
the date of disposal, net of guaranteed royalties of $50,000. The net
liabilities related to the disposal of the music division are included in
accounts payable and accrued expenses on the accompanying consolidated balance
sheet as of June 30, 1995.

Continued

F-27
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 12 - DISCONTINUED OPERATIONS, CONTINUED

The following summarized the assets and liabilities of the music division at
June 30, 1995:

Assets:
Accounts receivable $ 4,458
Inventory 24,049
Property and equipment, net 26,864
------------
$ 55,371
------------
------------

Liabilities:
Accounts payable and accrued
expenses $ 21,267
Accrued royalties 3,415
Commissions payable 12,498
------------
$ 37,180
------------
------------
</TABLE>

As of December 31, 1995 (unaudited) no assets or liabilities of the music
division are included on the accompanying consolidated balance sheet. Included
in deferred revenue on the accompanying consolidated balance sheet is $12,000
(unaudited) as of December 31, 1995.

The following summarizes the results of operations for the discontinued
operations:

<TABLE>
<CAPTION>
For The Years Ended December 31,
December 31, 1994 1995
1994 1995 (Unaudited) (Unaudited)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 217,837 $ 220,937 $ 138,394 $ ---
Costs and expenses (333,724) (332,043) (151,770) ---
---------- ---------- ---------- ----------
Loss from operations $ (115,887) $ (111,106) $ (13,376) $
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

NOTE 13 - INCOME TAXES

The provision for income taxes from continuing operations for the years ended
June 30, 1994 and 1995 is comprised of minimum state taxes only.

A reconciliation of the provision for income taxes from continuing operations
with expected income tax benefit computed by applying the federal statutory
income tax rate to loss before provision for income taxes for the years ended
June 30, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1994 1995
----------------- -----------------
$ % $ %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Income tax benefit computed
at federal statutory tax
rate (1,312,484) (34.0)% (540,414) (34.0)%

State and local taxes 1,600 0.0 1,600 0.0

Expenses not deductible
for income tax purposes 1,028,553 26.6 252,173 15.9

</TABLE>

Continued

F-28
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 13 - INCOME TAXES, CONTINUED

<TABLE>
<CAPTION>
1994 1995
----------------- -----------------
$ % $ %
----------------- -----------------
<S> <C> <C> <C> <C>
Change in the beginning-of-
the-period balance of the
valuation allowance for
deferred tax assets
allocated to income tax
benefit 283,931 7.4 288,241 18.1
--------- ----- ---------- -----

$ 1,600 0.0% $ 1,600 0.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>

The components of the net deferred tax asset recorded in the accompanying
balance sheets for the year ended June 30, 1995 is as follows:

<TABLE>
<S> <C>
Accounts receivable, principally due to allowances
for sales returns and doubtful accounts $ 48,104

Accrued liabilities, principally due to accrual for
financial reporting purposes 1,882,280

Net operating loss carryforwards 931,659

Less valuation allowance (2,862,043)
----------
$ ---
----------
----------
</TABLE>

The valuation allowance increased $1,185,225 during the year ended June 30,
1995.

At June 30, 1995, the Company had federal and state net operating loss
carryforwards of approximately $2,513,000 and $1,248,000, respectively,
available to offset future taxable federal and state income. The federal and
state carryforward amounts expire in varying amounts through 2011 and 2000,
respectively.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for federal income tax reporting purposes are
subject to annual limitations. Should a change of ownership occur, net
operating loss carryforwards may be limited as to use in future years.

NOTE 14 - SUBSEQUENT EVENTS

1995 BRIDGE FINANCING

During June through August 1995, the Company offered up to $700,000 of Units
(the "1995 Bridge Financing"), each consisting of $9,975 in principal amount of
the Company's 10% Secured Promissory Notes (the "Bridge Notes") and warrants to
purchase 586 shares of the Company's common stock (the "Bridge Warrants").
Pursuant to this offering, the Company sold 32 Units for aggregate proceeds to
the Company of $278,400, net of costs of $41,600. A total of 18,747 Bridge
Warrants were issued in connection therewith which are exercisable as indicated
below. The dealer/manager received 20,918 Bridge Warrants for $50 as partial
consideration for services in connection with this offering which are
exercisable as indicated below.

During August 1995, the Company notified the dealer/manager to discontinue
offering additional units.

Continued

F-29
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 14 - SUBSEQUENT EVENTS, CONTINUED

The principal and accrued interest on the Bridge Notes was due and payable in
full on August 15, 1995. The Company did not repay the Bridge Notes upon their
maturity. During the pendency of any such default, the Bridge Note holders were
entitled to receive a penalty of two percent per month in addition to the
interest otherwise payable on the Bridge Notes. These notes were repaid in full
during September 1995 in connection with the 1995 Private Placement (see below).

The obligations of the Company under the Bridge Notes were secured by a security
interest in all the assets of the Company, including a pledge of all of the
issued and outstanding capital stock of the Subsidiary.

Each Bridge Warrant entitles its holder to purchase one share of common stock.
The Bridge Warrants become exercisable commencing on the earlier of (I) December
31, 1996 or (II) the completion by the Company of an initial registered public
offering of its common stock (IPO). The Bridge Warrants will expire on the
earlier of (I) December 31, 2000 or (II) the date 18 months after completion of
an IPO. The exercise price of the Bridge Warrants will equal 110% of the price
per share of the common stock in the IPO, or if the IPO has not occurred by
December 31, 1996, $5.98 per share. In November 1995, the Bridge Warrant holders
exchanged these Bridge Warrants for new warrants with the same terms as the
warrants issued in connection with the 1995 Private Placement (see below).

1995 PRIVATE PLACEMENT

In August 1995, the Company engaged two dealer/managers to assist in a private
placement (the "1995 Private Placement") to sell a minimum of $1,000,000 of
Units to a maximum of $5,000,000 of Units, each consisting of $95,000 in
principal amount of the Company's 10% Secured Promissory Notes (the "Private
Notes") due on the earlier of September 1, 1996 or the completion by the Company
of an IPO, and 100,000 warrants (the "Private Warrants") to purchase one share
of the Company's common stock. A total of 5,250,000 Private Warrants were
issued in connection therewith which are exercisable as indicated below. As of
December 31, 1995, the Company had sold 52.5 units for aggregate proceeds of
$4,256,400, of which $262,500 represents the Private Warrants, net of costs of
$993,600. In connection with this offering, the Company issued 400,000 Private
Warrants as partial consideration for services provided by a dealer/manager,
which are exercisable as indicated below.

The obligations of the Company under the Private Notes are secured by a security
interest in all the assets of the Company, including a pledge of all of the
issued and outstanding capital stock of its Subsidiary. A portion of the net
proceeds of this private placement were utilized to retire all of the
outstanding indebtedness of the 1995 Bridge Financing.

Each Private Warrant entitles its holder to purchase one share of common stock.
The Private Warrants become exercisable commencing on the earlier of (I)
December 31, 1996 or (II) the completion by the Company of an IPO. The Private
Warrants expire on December 31, 2001. The exercise price of the Private
Warrants will equal 110% of the price per share of the common stock in the IPO,
or if the IPO has not occurred by December 31, 1996, $4.50 per share.

Upon completion of any IPO, each outstanding Private Warrant will be converted
into warrants included in the IPO (the "IPO Warrants"). The terms of the IPO
Warrants may not be any less favorable than the terms of the Private Warrants,
except that the IPO Warrants may be redeemable at the option of the Company upon
certain terms.

Continued

F-30
<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 14 - SUBSEQUENT EVENTS, CONTINUED

STOCKHOLDER PRIVATE PLACEMENT

Concurrent with the 1995 Private Placement, a current stockholder conducted a
private placement of up to 200,000 shares of common stock, held by such
stockholder, at a purchase price of $5.00 per share. If the Company has not
completed an IPO by the earlier of December 31, 1996 or the date that an initial
public offering of the Company's subsidiary's common stock is completed, the
common stock purchased in this private placement will be exchanged for shares of
the Company's subsidiary's common stock on a one-for-one basis. Through
December 31, 1995, the stockholder had sold 107,500 shares.

REGISTRATION STATEMENT

The Company has filed a registration statement on Form SB-2, as amended, with
the Securities and Exchange Commission for an initial public offering of
2,400,000 shares at an estimated offering price of $4.00 and 1,200,000
redeemable warrants at $.25 per warrant. In connection with the proposed
offering, the Company has incurred expenses amounting to $106,160. Such
expenses have been capitalized on the accompanying balance sheet as of December
31, 1995 (unaudited).

In connection therewith, the Company is also registering 340,000 shares of its
common stock and 20,000 shares of common stock held by selling stockholders to
cover over-allotments and 107,500 shares of common stock registered for the
account of certain selling stockholders. The Company is also registering
180,000 redeemable warrants to cover over-allotments.

The Company has also, in connection with the IPO, given the underwriter a
warrant, for $50, which entitles the underwriter to purchase 240,000 shares of
common stock and/or 120,000 redeemable warrants at 120 percent of the IPO price.

ASSI WARRANTS

On May 1, 1996, in consideration of certain financial and personnel consulting
service provided to the Company in 1996, including advising the Company
regarding capital raising alternatives and executive recruiting, the company has
entered into an agreement to issue to ASSI, Inc. warrants to purchase 2,000,000
shares of common stock at an exercise price of $4.40 per share (the "ASSI
Warrants"). The terms of the ASSI Warrants will be identical to those of the
public warrants except that they will not be mandatorily redeemable. The ASSI
Warrants and shares issuable upon their exercise will not be transferable for
one year following the effective date of the Registration Statement, other than
to than to officers of ASSI, Inc. The holders of the ASSI Warrants and the
shares issuable upon their exercise will have one demand registration right,
providing for registration, at the Company's expense, of the shares issuable
pursuant to the ASSI Warrants. The demand registration rights will expire five
years from the date of the registration statement discussed above. Until and
unless exercised, the holders of the ASSI Warrants will have no voting, dividend
or other rights as stockholders of the Company.

Continued

F-31

<PAGE>

SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 14 - SUBSEQUENT EVENTS, CONTINUED

OPTIONS

On October 9, 1995, the Company adopted the 1995 stock option plan, whereby the
Company can grant up to 500,000 options for shares of the Company's common
stock. Currently, no options have been granted under this plan. On March 31,
1996, an employee/officer 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 1992 stock option plan. Such option will
be vested and exercisable upon the date of its grant as to 100,000 shares at a
purchase price of $3.40 per share, and will become vested and exercisable as to
100,000 shares ratably between June 30, 1996 and September 30, 1997 at a
purchase price of $4.00 per share. The employee/officer's employment agreement
further provides that following the voluntary or involuntary termination of his
employment by the Company, the employee/officer is entitled to a single demand
registration right with respect to the common stock held by or issuable to him
pursuant to his option agreement.

The Company has also agreed to grant 13,610 options under the 1995 stock option
plan to other non-executive employees at an exercise price of $4.00 per share.

EMPLOYMENT CONTRACTS

In April 1996, the Company modified the employment contracts of two officers.
Such modifications reduced the annual base compensation by a specified amount.
Upon the Company achieving specified sales levels, the annual base compensation
is increased by the amount of the specified reduction. The Company also
modified the employment contract of a third officer in April 1996 to change the
number and vesting period of options previously granted and to grant additional
options (see Note 1).

NOTE 15 - TERMINATION OF DISTRIBUTION AGREEMENT

The Company and Acclaim have terminated the distribution agreement as of April
30, 1996. On or before June 30, 1996, Acclaim will render a final accounting to
the Company together with payment of the balances of any amounts due to the
Company under the distribution agreement. Acclaim has notified its accounts
that it will not accept returns of any of the Company's software products after
June 30, 1996. The Company, however, will remain liable for all such returns
regardless of when received by Acclaim.

F-32
<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Sound Source Interactive, Inc.

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.

/s/ Corbin & Wertz

CORBIN & WERTZ

Irvine, California
May 3, 1996
<PAGE>

[GRAPHIC] [GRAPHIC]

Interactive MovieBook-TM- - Storybooks designed to promote literacy with
definitions, synonyms, and spelling activities and early learning games for
young children. Shown here: Screen shots form "Babe-TM-".(Universal Pictures)

[GRAPHIC] [GRAPHIC]

Creativity Centers - Designed to foster creativity in kids and challenge
their critical thinking skills.
Shown here: Work in progress from "Dragonheart-TM-" (Universal Pictures)

[GRAPHIC] [GRAPHIC]

Entertainment Utilities - Products designed to put the fun and excitement
back into your workday. Shown here: Screen saver image and user interface from
"Babylon 5-TM-" (Warner Bros.)

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, salesperson or any other person has been authorized to give any
information or to make representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by the Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security by any person in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information in this Prospectus is correct as of any time subsequent to
the date of this Prospectus.

________________________

TABLE OF CONTENTS

PAGE
----
Prospectus Summary . . . . . . . 3
Risk Factors . . . . . . . . . . 10
Use of Proceeds . . . . . . . . . 25
Dividend Policy . . . . . . . . . 26
Dilution . . . . . . . . . . . . 27
Capitalization . . . . . . . . . 30
Selected Financial Data . . . . 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . 33
Business . . . . . . . . . . . . 38
Management . . . . . . . . . . . 51
Principal and Selling
Stockholders . . . . . . . . . . 62
Resale of Outstanding Securities . 63
Certain Transactions . . . . . . 63
Description of Securities . . . . 66
Shares Eligible for Future Sale . 69
Underwriting . . . . . . . . . . 72
Legal Matters . . . . . . . . . . 74
Experts . . . . . . . . . . . . 74
Additional Information . . . . . 74
Index to Consolidated Financial
Statements . . . . . . . . . . . 76

Until __________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This obligation is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

2,400,000 SHARES OF COMMON STOCK

AND

1,200,000 REDEEMABLE
WARRANTS

[SOUND SOURCE
INTERACTIVE, INC.
LOGO]

________________________

P R O S P E C T U S

________________________

THE BOSTON GROUP, L.P.
JOSEPH STEVENS & COMPANY, L.P.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SUBJECT TO COMPLETION, DATED MAY 9, 1996

PROSPECTUS

[SOUND SOURCE
INTERACTIVE, INC. LOGO]

107,500 SHARES OF COMMON STOCK
5,689,665 REDEEMABLE WARRANTS
9,069,665 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF REDEEMABLE WARRANTS

---------------------

This Prospectus relates to the registration by Sound Source Interactive,
Inc. (the "Company"), at its expense, for the account of certain non-affiliated
security holders (the "Selling Security Holders") of 107,500 shares of common
stock, par value $.001 (the "Common Stock"), and 5,689,665 Redeemable Warrants
(the "Redeemable Warrants") (the Common Stock and Redeemable Warrants offered by
the Selling Security Holders are sometimes collectively referred to herein as
the "Selling Security Holders' Securities"). The Selling Security Holders'
Securities are not being underwritten in this offering and the Company will not
receive any proceeds from the sale of the Selling Security Holders Securities.
See "Selling Security Holders". The Selling Security Holders' Securities may be
sold by the Selling Security Holders or their respective transferees commencing
on the date of this Prospectus. Sales of the Selling Security Holders'
Securities may depress the price of the Common Stock and Redeemable Warrants in
any market that may develop for the Common Stock and Redeemable Warrants. See
"Prospectus Summary -- The Offering," "Selling Security Holders" and "Certain
Transactions."

This Prospectus also relates to the registration by the Company for its own
account of 9,069,665 shares of Common Stock issuable by the Company upon
exercise of the 5,689,665 Redeemable Warrants being registered for the account
of the Selling Security Holders as described in the preceding paragraph,
1,380,000 Redeemable Warrants issued by the Company pursuant to a separate
Prospectus (the "Primary Offering Prospectus") filed with the Registration
Statement of which this Prospectus is a part, and 2,000,000 warrants issued by
the Company to ASSI, Inc., a consultant to and creditor of the Company. This
Prospectus, except for this Cover Page, the back Cover Page and the information
contained herein under the heading "Selling Security Holders" and "Plan of
Distribution," is identical to the Primary Offering Prospectus. This Prospectus
includes certain information that may not be pertinent to the sale by the
Selling Security Holders.

Prior to this offering, there has been no public market for the Common Stock
or the Redeemable Warrants and there can be no assurance that such a market will
exist after this offering.
------------------------

THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION"
COMMENCING ON PAGES 10 AND 26, RESPECTIVELY.

---------------------

------------------------

The date of this Prospectus is , 1996

SS-1
<PAGE>

The sale of the Selling Security Holders' Securities may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Security Holders) in the over-the-counter market or in
negotiated transactions, through the writing of options on the Selling Security
Holders' Securities, through a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. If any Selling
Security Holder sells his, her or its Selling Security Holders' Securities
pursuant to this Prospectus at a fixed price or at a negotiated price which is,
in either case, other than the prevailing market price or in a block transaction
to a purchaser who resells, or if any Selling Security Holder pays compensation
to a broker-dealer that is other than the usual and customary discounts,
concessions or commissions, or if there are any arrangements either individually
or in the aggregate that would constitute a distribution of the Selling Security
Holders' Securities, a post-effective amendment to the Registration Statement of
which this Prospectus is a part would need to be filed and declared effective by
the Securities and Exchange Commission before such Selling Security Holder could
make such sale, pay such compensation or make such a distribution. The Company
is under no obligation to file a post-effective amendment to the Registration
Statement of which this Prospectus is a part under such circumstances.

SS-2

<PAGE>

SELLING SECURITY HOLDERS

An aggregate of 107,500 shares of Common Stock and 5,689,665 Redeemable
Warrants are being registered in this offering for the account of the Selling
Security Holders. The Selling Security Holders' Securities may be sold by the
Selling Security Holders or their respective transferees commencing on the date
of this Prospectus. Sales of such shares of Common Stock by the Selling
Security Holders or their respective transferees may depress the price of the
Common Stock and Redeemable Warrants in any market that may develop for such
securities.

The following table sets forth certain information with respect to persons
for whom the Company is registering such shares of Common Stock and Redeemable
Warrants for resale to the public. The Company will not receive any of the
proceeds from the sale of such shares of Common Stock and Redeemable Warrants.
None of the Selling Security Holders has had any position, office or material
relationship with the Company or its affiliates during the last three years
except for Financial West Group, Inc., which served as dealer manager for the
Company's 1995 Bridge Offering and 1995 Private Placement. See "Certain
Transactions -- 1995 Bridge Offering" and "-- 1995 Private Placement." The
Selling Security Holders' Securities are not being underwritten by the
Underwriters. The Selling Security Holders, however, may sell the Selling
Security Holders' Securities through the Underwriters.

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
NAME OF SELLING / WARRANTS OWNED / WARRANTS BEING / WARRANTS OWNED
SECURITY HOLDER(1) BEFORE OFFERING REGISTERED AFTER OFFERING(2)
- ---------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>

Robert Ahr and Antoinette Ahr, Joint
Tenants with Right of Survivorship 50,000 (4) 50,000 (wt) 0

Stanley S. Arkin 100,000 (4) 100,000 (wt) 0

Lester C. Aroh 100,000 (4) 100,000 (wt) 0
5,000 (5) 5000 (sh) 0

Assi, Inc. 3,100,000 (4) 1,100,000 (wt) 2,000,000
40,000 (5) 40,000 (sh)

Jonathan Axelrod 200,000 (4) 200,000 (wt) 0
10,000 (5) 10,000 (sh) 0

Harvey Bibicoff 100,000 (4) 100,000 (wt) 0
5,000 (5) 5,000 (sh) 0

Marvin H. Bluman 50,000 (4) 50,000 (wt) 0

Charles R. Buckridge, Grantor and Trustee
of Charles R. Buckridge Revocable Trust 100,000 (4) 100,000 (wt) 0

Robert Burkhardt 50,000 (4) 50,000 (wt) 0

Burford A. Carlson and Joan E. Carlson,
Grantors and Trustees for Burford A.
Carlson Revocable Trust 586 (3) 586 (wt) 0

Mark Jeffrey Chayet, Grantor and Trustee
for Mark Jeffrey Chayet Revocable Trust 100,000 (4) 100,000 (wt) 0

Cliffdale Investments, Inc. 100,000 (4) 100,000 (wt) 0

Arlene Colman-Schwimmer, Grantor and 100,000 (4) 100,000 (wt) 0
Trustee for Arlene Colman-Schwimmer APC 5,000 (5) 5,000 (sh) 0
Profit Sharing Plan and Trust

SS-3

<PAGE>

<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
NAME OF SELLING / WARRANTS OWNED / WARRANTS BEING / WARRANTS OWNED
SECURITY HOLDER(1) BEFORE OFFERING REGISTERED AFTER OFFERING(2)
- ---------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>

David B. Coward and Linda J. Coward, 50,000 (4) 50,000 (wt) 0
Grantors and Trustees for David B. and 2,500 (5) 2,500 (sh) 0
Linda J. Coward Trust

Deller Capital Corporation 1,758 (3) 1,758 (wt) 0

Laura M. Durso 50,000 (4) 50,000 (wt) 0

Gerald F. Edelstein 50,000 (4) 50,000 (wt) 0

Financial West Group, Inc. 20,918 (6) 420,918 (wt) 0
400,000 (6)

Robert Gault and Thelma Gault, Joint
Tenants with Right of Survivorship 100,000 (4) 100,000 (wt) 0
25,000 (5) 25,000 (sh) 0

Barbara Goldstein 100,000 (4) 100,000 (wt) 0

Larry R. Gordon 600,000 (4) 600,000 (wt) 0

Nicholas Gotten Jr. and Pamela Gotten,
Joint Tenants with Right of Survivorship 2,929 (3) 2,929 (wt) 0

Donald B. Greenwood 50,000 (4) 50,000 (wt) 0

Prabhakar R. Guniganti 100,000 (4) 100,000 (wt) 0

W. Burns Hoffman 100,000 (4) 100,000 (wt) 0

Edward Hookstratten 100,000 (4) 100,000 (wt) 0

Richard Houlihan 100,000 (4) 100,000 (wt) 0

Edward Jones 50,000 (4) 50,000 (wt) 0

John Paul DeJoria 100,000 (4) 100,000 (wt) 0

Gabriel Kaplan 250,000 (4) 250,000 (wt) 0
10,000 (5) 10,000 (sh) 0

Gabriel Kaplan, P/ADM City National Bank
C/F Rotunda Productions Inc. MPPP 250,000 (4) 250,000 (wt) 0

Hazen Peter Kelley and Valerie Kelley, Joint
Tenants with Right of Survivorship 50,000 (4) 50,000 (wt) 0

Honorata Knight 586 (3) 586 (wt) 0

Marc Levin 50,000 (4) 50,000 (wt) 0

Fred Martell and Barbara Martell, Joint
Tenants with Right of Survivorship 100,000 (4) 100,000 (wt) 0

Edward I. Miller 586 (3) 586 (wt) 0

L.A. Moore 50,000 (4) 50,000 (wt) 0

Louis M. Mucci 100,000 (4) 100,000 (wt) 0

David A. Mulkey, Grantor and Trustee for 100,000 (4) 100,000 (wt) 0
David A. Mulkey 1987 Living Trust 5,000 (5) 5,000 (sh) 0

T.W. Muller 2,929 (3) 2,929 (wt) 0

SS-4

<PAGE>

Steve Natale 100,000 (4) 100,000 (wt) 0

Saburo Oto 100,000 (4) 100,000 (wt) 0

Resources Trust Co., FBO Donald B. Pooley 1,172 (3) 1,172 (wt) 0

Patrick J. Riley 100,000 (4) 100,000 (wt) 0

Patricia C. Rinaldi 2,929 (3) 2,929 (wt) 0

Stanley B. Schneider 100,000 (4) 100,000 (wt) 0

Izhar Shy and Nitza Shy, Trustees for Izhar 1,172 (3) 1,172 (wt) 0
and Nitza Shy Revocable Estate Trust

David H. Smith 4,100 (3) 4,100 (wt) 0

Isaac Starkman 100,000 (4) 100,000 (wt) 0

Triventures 50,000 (4) 50,000 (wt) 0

James Edward Willard 50,000 (4) 50,000 (wt) 0

</TABLE>

- --------------------
(1) Information set forth in the table regarding the Non-Affiliated Selling
Security Holders' Securities is provided to the best knowledge of the
Company based on information furnished to the Company by the respective
Non-Affiliated Selling Security Holders and/or available to the Company
through its stock ledgers.

(2) Assumes that each Selling Security Holder sells all of the Selling
Security Holders' Securities held by such Selling Security Holder.

(3) Pursuant to the 1995 Bridge Financing, 32 Units were sold, each Unit
consisting in part of 586 Bridge Warrants, each such warrant to purchase
one share of Common Stock. See "Certain Transactions."

(4) Pursuant to the 1995 Private Placement, 52.5 Units were sold, each Unit
consisting in part of 100,000 Private Warrants, each such warrant to
purchase one share of Common Stock. See "Certain Transactions."

(5) Pursuant to the Concurrent Secondary Placement, 107,500 shares of Common
Stock were sold. See "Certain Transactions."

(6) Dealer Manager Warrants.

(sh) Shares of Common Stock.

(wt) Redeemable Warrants, each warrant to purchase one share of Common Stock.

SS-5

<PAGE>

PLAN OF DISTRIBUTION

The sale of the Selling Security Holders' Securities may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Security Holders) in the over-the-counter market or in
negotiated transactions, through a combination of such methods of sale, or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. If any Selling
Security Holder sells his, her or its Selling Security Holders' Securities,
pursuant to this Prospectus at a fixed price or at a negotiated price which is,
in either case, other than the prevailing market price or in a block transaction
to a purchaser who resells, or if any Selling Security Holder pays compensation
to a broker-dealer that is other than the usual and customary discounts,
concessions or commissions, or if there are any arrangements either individually
or in the aggregate that would constitute a distribution of the Selling Security
Holders' Securities, a post-effective amendment to the Registration Statement of
which this Prospectus is a part would need to be filed and declared effective by
the Securities and Exchange Commission before such Selling Security Holder could
make such sale, pay such compensation or make such a distribution. The Company
is under no obligation to file a post-effective amendment to the Registration
Statement of which this Prospectus is a part under such circumstances.

The Selling Security Holders may effect transactions in their Selling
Security Holders' Securities by selling such securities directly to purchasers,
through broker-dealers acting as agents for the Selling Security Holders or to
broker-dealers who may purchase the Selling Security Holders' Securities as
principals and thereafter sell such securities from time to time in the over-
the-counter market, in negotiated transactions, or otherwise. Such broker-
dealers, if any, may receive compensation in the form of discounts, concessions
or commissions from the Selling Security Holders and/or the purchasers for whom
such broker-dealers may act as agents or to whom they may sell as principals or
both.

The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.

SS-6
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

________________________

TABLE OF CONTENTS

PAGE
----
Prospectus Summary . . . . . . . __
Risk Factors . . . . . . . . . . __
Use of Proceeds . . . . . . . . . __
Dividend Policy . . . . . . . . . __
Dilution . . . . . . . . . . . . __
Capitalization . . . . . . . . . __
Selected Financial Data . . . . __
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . __
Business . . . . . . . . . . . . __
Management . . . . . . . . . . . __
Principal Stockholders . . . . . __
Selling Security Holders . . . . __
Certain Transactions . . . . . . __
Description of Securities . . . . __
Shares Eligible for Future Sale . __
Plan of Distribution . . . . . . __
Legal Matters . . . . . . . . . . __
Experts . . . . . . . . . . . . __
Additional Information . . . . . __
Index to Consolidated Financial
Statements . . . . . . . . . . . __

107,500 SHARES OF COMMON
STOCK

5,689,665 REDEEMABLE WARRANTS

AND

9,069,665 SHARES OF
COMMON STOCK ISSUABLE
UPON EXERCISE OF
REDEEMABLE
WARRANTS

[SOUND SOURCE
INTERACTIVE, INC.
LOGO]

________________________

P R O S P E C T U S

________________________

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law, as amended (the
"Delaware GCL"), permits under certain circumstances, the indemnification of any
person with respect to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative, to which
such person was or is a party or is threatened to be made a party by reason of
the fact that such person is or was a director, officer, employee, or agent of
the corporation or was serving in a similar capacity for another enterprise at
the request of the corporation. To the extent that a director, officer,
employee, or agent of the corporation has been successful in defending any such
proceeding, the Delaware GCL provides that he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

With respect to a proceeding by or in the right of the corporation, such
person may be indemnified against expenses (including attorneys' fees) if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. The statute provides,
however, that no indemnification is allowed in such a proceeding if such person
is adjudged liable to the corporation unless, and only to the extent that, the
court may, upon application, determine that he is entitled to indemnification
under the circumstances. With respect to proceedings other than those brought
by or in the right of the corporation, such person may be indemnified against
judgments, fines, and amounts paid in settlement, as well as expenses, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful,
notwithstanding the outcome of the proceeding. Except with respect to mandatory
indemnification of expenses to successful defendants as described in the
preceding paragraph or pursuant to a court order, the indemnification described
in this paragraph may be made only upon a determination in each specific case by
majority vote of a quorum of directors not parties to the proceeding, by written
opinion of independent legal counsel, or by the stockholders, that the defendant
met the applicable standard of conduct described above.

The Delaware GCL permits a corporation to advance expenses incurred by a
proposed indemnitee in advance of final disposition of the proceeding provided
the indemnitee undertakes to repay such advanced expenses if it is ultimately
determined that he is not entitled to indemnification. A corporation may
purchase insurance on behalf of an indemnitee against any liability asserted
against him in his designated capacity, whether or not the corporation itself
would be empowered to indemnify him against such liability.

Delaware law also provides that the above rights shall not be deemed
exclusive of other rights of indemnification or advancement of expenses under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Registrant's Bylaws generally require the Registrant to
indemnify and advance expenses to its directors and its officers, employees and
other agents to the fullest extent permitted by the Delaware GCL as the same
exists or may hereafter be amended. The Registrant also has entered into
indemnification agreements with each of its directors whereby the Company will
indemnify each such person against certain claims arising out of certain past,
present or future acts, omissions or breaches of duty committed by an indemnitee
while serving as a Company director. Such indemnification does not apply to
acts or omissions which are knowingly fraudulent, deliberately dishonest or
arise from willful misconduct. Indemnification will only be provided to the
extent that the indemnitee has not already received payments in respect of a
claim from the Company

II-1

<PAGE>

or from an insurance company. Under certain circumstances, such indemnification
(including reimbursement of expenses incurred) will be allowed for liability
arising under the Securities Act.

The Company intends to purchase a directors' and officers' liability policy
insuring directors and officers of the Company effective upon the closing of
this offering.

Section 102(b)(7) of the Delaware GCL permits Delaware corporations in
their certificates of incorporation to eliminate or limit the personal liability
of directors to the corporation or its stockholders for monetary damages for
breaches of certain duties. Under the Registrant's Certificate of
Incorporation, a director of the Registrant shall, to the maximum extent
currently or hereafter permitted by Section 102(b)(7) of the Delaware GCL (or
any successor provision), have no personal liability to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the Delaware GCL provides that Delaware corporations may
not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) as provided under Section 174 of the Delaware
GCL (involving certain unlawful dividends and stock purchases or redemptions),
or (iv) for any transaction from which the director derived an improper peroneal
benefit.

The foregoing descriptions are general summaries only. Reference is made
to the full text of Registrant's Certificate of Incorporation and Bylaws filed
as part of this Registration Statement.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following tables sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions and non-accountable expense allowance.
All of the amounts shown are estimates except the Securities and Exchange
Commission registration and NASD filing fees.

Securities and Exchange Commission registration fee. . . . . . . . $21,157.85
NASD fees and expenses . . . . . . . . . . . . . . . . . . . . . . *
Nasdaq listing fee . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . *
Printing and engraving expenses . . . . . . . . . . . . . . . . . *
Transfer agent and registrar (fees and expenses) . . . . . . . . . *
Blue Sky fees and expenses (including counsel fees). . . . . . . . *
Other legal fees and legal expenses. . . . . . . . . . . . . . . . *
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *

- -------------------
* To be supplied by amendment.

II-2

<PAGE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

On May 16, 1994, the Registrant consummated the 1994 Acquisition, whereby
the Registrant acquired all the issued and outstanding capital stock of the
Subsidiary in exchange for newly issued stock of the Company. Pursuant to the
1994 Acquisition, the Registrant issued 1,278,515 shares of Common Stock and
1,000,000 shares of the Registrant's Series A Preferred Stock to Vincent J.
Bitetti, 73,394 shares of Common Stock to Martin H. Meyer and 122,323 shares of
Common Stock to Mark Lane. Each of such persons was an "accredited investor" as
defined in Securities Act Rule 501(a). The issuance of Common Stock to such
persons was exempt from the registration requirements of the Securities Act of
1993, as amended (the "Securities Act") pursuant to Section 4(2) thereof.

During May through August 1994, the Registrant conducted a private offering
of its Common Stock (the "1994 Private Placement"). Pursuant to that offering,
a total of 113,036 shares of Common Stock were sold for total cash consideration
of approximately $1,492,000. An additional 1,841 shares were issued to the
brother of the Chief Executive Officer in payment of a $22,000 note payable.
The 1994 Private Placement was made on a private basis only to persons who were
"accredited investors" as defined in Securities Act Rule 501(a). The issuance
of Common Stock to such persons was exempt from the registration requirements of
the Securities Act pursuant to Sections 4(2) and 4(6) thereof.

As compensation for its services as the placement agent for the 1994
Private Placement, the Registrant paid Bentley, Richards Investments ("Bentley,
Richards"), an affiliate of the Registrant's then controlling stockholders, Jehu
Hand and Eric Anderson, 81,997 shares of Common Stock, and issued to Bentley,
Richards an option to purchase up to 60,241 shares of Common Stock, subject to
the satisfaction of certain contingencies, at a price to be determined in
accordance with a formula. In July 1995, one of the investors in the 1994
Private Placement filed a suit naming as defendants the following: Jehu Hand
and Eric Anderson (who together organized the Registrant and managed it prior to
the 1994 Acquisition), and their spouses Jacqueline Hand and Marie Anderson; the
Registrant and the Subsidiary; and Bentley Richards. No then current director
or officer of the Registrant was named as a defendant. Such litigation was
settled in September 1995. In connection with such settlement, Bentley,
Richards distributed all 81,997 shares of Common Stock issued to it for its
services as placement agent for the 1994 Private Placement to the investors in
the 1994 Private Placement. Bentley, Richards also agreed to the cancellation
of its option to purchase 60,241 shares of the Registrant's Common Stock. In
addition, Jehu Hand distributed an additional 26,772 shares of Common Stock held
by him to the investors in the 1994 Private Placement, and returned 15,120
shares of Common Stock to the Company, which were cancelled. The Company did
not pay any consideration to any party in connection with such settlement.

During May 1992 through October 1994, the Registrant, pursuant to its 1992
Stock Option Plan, issued options to purchase 190,763 shares of Common Stock to
its directors, employees and one unaffiliated party. The issuance of such
options to such persons was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof. Of these, options to purchase
a total of 184,070 shares of Common Stock currently are issued pursuant to the
1992 Stock Option Plan. All of such options are non-qualified stock options
with an exercise price of $.06 per share, and are presently exercisable. On
June 30, 1995, David Weiss, then an executive officer and director of the
Registrant, exercised an option to purchase 4,184 shares of Common Stock for an
aggregate purchase price of $251, which option had been granted pursuant to the
Registrant's 1992 Stock Option Plan. The issuance of Common Stock to Mr. Weiss
upon such exercise was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) and 4(6) thereof. No one other than Mr.
Weiss has ever exercised an option granted pursuant to the 1992 Stock Option
Plan.

II-3
<PAGE>

In April 1994, the Registrant granted Eric H. Winston, its President, an
option to purchase 251,004 shares of Common Stock. In June 1994, the Registrant
granted Mr. Winston an option to purchase 41,834 shares of Common Stock. The
issuance of such options to such person was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.

During June through August of 1995, the Registrant conducted a private
offering (the "1995 Bridge Financing") of Units consisting of notes and
warrants. Pursuant to that offering, a total of 32 Units were sold at a price
of $10,000 per Unit. Each Unit consisted of $9,975 principal amount of the
Registrant's 10% Secured Promissory Notes due August 15, 1995 and warrants to
purchase 586 shares of Common Stock (the "Bridge Warrants"). The gross offering
proceeds of the 1995 Bridge Financing were $320,000. The 1995 Bridge Financing
was made on a private basis only to persons who were "accredited investors" as
defined in Securities Act Rule 501(a). The issuance of the Units to such
persons was exempt from the registration requirements of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof and Rule 506 of Regulation D
thereunder. In consideration for its services as dealer manager for the 1995
Bridge Offering, the Registrant paid Financial West Group, Inc. aggregate
commissions and fees of $41,600. The Registrant also issued to Financial West
Group, Inc. a Bridge Warrant to purchase 20,918 shares of Common Stock for $50.
Such Bridge Warrant is on the same terms as the other Bridge Warrants, except
that the Company separately agreed that it may be exercised on a cashless basis.

During November 1995, the Registrant effectuated an exchange offer with the
holders of the Bridge Warrants, whereby all of the Bridge Warrants originally
issued in connection with the 1995 Bridge Financing were exchanged for new
Bridge Warrants having terms substantially identical to those of the Private
Warrants referred to below. Such exchange offer was made on a private basis
only to persons who were "accredited investors" as defined in Securities Act
Rule 501(a). The exchange offer was exempt from the registration requirements
of the Securities Act pursuant to Sections 4(2) and 4(6) thereof and Rule 506 of
Regulation D thereunder.

As described under "Certain Transactions -- 1995 Bridge Financing," upon
the effectiveness of this Registration Statement, all of the Bridge Warrants
(including the warrant issued to Financial West Group, Inc.) will be converted
to Redeemable Warrants. In connection with the 1995 Bridge Financing, the
Registrant retained Financial West Group, Inc. as its warrant agent for the
Bridge Warrants. Subsequently, Financial West Group, Inc. assigned to The
Boston Group, L.P. (the "Representative") its right to serve as warrant agent
for the Bridge Warrants. As compensation for such services as warrant agent,
the Representative will receive a solicitation fee of five percent of the
exercise price of the Bridge Warrants, payable upon exercise of the Bridge
Warrants.

In September and October 1995, the Registrant conducted a private offering
(the "1995 Private Placement"). Pursuant to that offering, a total of 52.5
Units were sold at a price of $100,000 per Unit. Each Unit consisted of $95,000
principal amount of the Registrant 10% Secured Promissory Notes due 1996 and
warrants to purchase 100,000 shares of Common Stock (the "Private Warrants").
The gross offering proceeds of the 1995 Private Placement were $5,250,000. The
1995 Private Placement was made on a private basis only to persons who were
"accredited investors" as defined in Securities Act Rule 501(a). The issuance
of the Units to such persons was exempt from the registration requirements of
the Securities Act pursuant to Sections 4(2) and 4(6) thereof and Rule 506 of
Regulation D thereunder. In consideration for its services as dealer manager
for the 1995 Private Placement, the Registrant paid Financial West Group, Inc.
aggregate commissions and fees of $199,500. Additionally, $483,000 was
allocated to the Representative for its services as a selected broker. The
Registrant also issued to Financial West Group, Inc. a warrant to purchase
400,000 shares of Common Stock. Such warrant is on the same terms as the
Private Warrants, except that the Company separately agreed that it may be
exercised on a cashless basis. As described under "Certain Transactions -- 1995
Private Placement," upon the effectiveness of this Registration Statement all of

II-4
<PAGE>

the Private Warrants (including the warrant issued to Financial West Group,
Inc.) will be converted to Redeemable Warrants. In connection with the 1995
Private Placement, the Registrant retained Financial West Group, Inc. as its
warrant agent for the Private Warrants. Subsequently, Financial West Group,
Inc. assigned to the Representative its right to serve as warrant agent for the
Private Warrants. As compensation for its services as warrant agent, the
Representative will receive a solicitation fee of five percent of the exercise
price of the Private Warrants, payable upon exercise of the Private Warrants.

On October 9, 1995, the Registrant granted to Ulrich E. Gottschling, who is
the Chief Financial Officer, Treasurer and a director of the Registrant, an
option to purchase 100,000 shares of Common Stock pursuant to the Registrant's
1992 Stock Option Plan. On April 30, 1996, Mr.Gottschling agreed to the
termination of the existing 100,000 share option in consideration for the
Registrant's granting him a new 200,000 share option. Such transactions were
exempt from the registration requirements of the Securities Act pursuant to
Sections 4(2) and 4(6) thereof.

On April 30, 1996, the Company granted ASSI, Inc. warrants to purchase
2,000,000 shares of Common Stock. Such transaction was exempt from the
registration requirements of the Securities Act pursuant to Sections 4(2) and
4(6) thereof.

See "Certain Transactions" for additional information concerning the
Registrant's stock issuances for the past three years.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

Exh.
No. Description of Exhibits
---- -----------------------

II-5
<PAGE>

10.3 Employment Agreement of Ulrich E. Gottschling, as amended. Filed
herewith.
10.4 Sound Source Interactive, Inc. 1992 Stock Option Plan. Previously
filed.
10.5 Sound Source Interactive, Inc. 1995 Stock Option Plan. Previously
filed.
10.6 Warrant Agreement, dated as of September 26, 1995, among the
Registrant, Sound Source Interactive, Inc., a California corporation
("Subsidiary") and Financial West Group, Inc., a California
corporation ("FWG"), as Warrant Agent, pertaining to the Bridge
Warrants (as defined in the Prospectus). Previously filed.
10.7 Warrant Agreement, dated as of June 30, 1995, between the Registrant
and FWG, as Warrant Agent, pertaining to the Private Warrants (as
defined in the Prospectus). Previously filed.
10.8 Form of Bridge Warrant and Private Warrant. Previously filed.
10.9 Form of 10% Secured Promissory Note due 1996 of the Registrant (the
"Private Notes"). Previously filed.
10.10 Company Security Agreement, dated as of September 26, 1995, among
the Registrant, the Secured Parties (as defined therein) and Paradox
Holdings, Inc. ("PHI"), as Security Agent, pertaining to the Private
Notes. Previously filed.
10.11 Guaranty of the Subsidiary, dated September 26, 1995, pertaining to
the Private Notes. Previously filed.
10.12 Subsidiary Security Agreement, dated as of September 26, 1995, among
the Registrant, the Subsidiary and PHI, as Security Agent,
pertaining to the Private Notes. Previously filed.
10.13 Sales and Distribution Agreement, dated as of June 15, 1995, between
the Registrant and Acclaim Distribution, Inc. Previously filed.
10.14 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "Willy 2." Previously filed.
10.15 Retail License Agreement, dated July 7, 1995, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
television series, "Babylon 5." Previously filed.
10.16 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "The Secret Garden." Previously filed.
10.17 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "Black Beauty." Previously filed.
10.18 Merchandising License Agreement, dated March 7, 1995, between Sony
Signature, Inc., as agent for Columbia Pictures Industries, Inc.,
and the Subsidiary, pertaining to the motion picture, "Close
Encounters of the Third Kind." Previously filed.
10.19 CD-ROM Development Agreement, dated August 30, 1994, between Fox
Electronic Publishing, Inc., doing business as Fox Interactive, and
"Sound Source Interactive." Previously filed.
10.20 (a) Merchandising Licensing Agreement, dated December 5, 1994,
between MCA/Universal Merchandising, Inc. and "Sound Source
Interactive," pertaining to the motion picture, "The Little
Rascals." Previously filed.
(b) Multimedia Rights License, dated June 14, 1995, between The
Harry Fox Agency, Inc. and "Sound Source Interactive," pertaining to
the motion picture, "The Little Rascals." Previously filed.
(c) Letter of Agreement, dated June 28, 1995, between Roy Shield
Music Company and "Sound Source Interactive," pertaining to the
motion picture, "The Little Rascals." Previously filed.

II-6
<PAGE>

(d) Multi Media Rights License, dated July 27, 1995, between MCA,
Inc. and "Sound Source Interactive," pertaining to the motion
picture, "The Little Rascals." Previously filed.
10.21 Merchandising Licensing Agreement, dated March 16, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the animated television series, "ExoSquad."
Previously filed.
10.22 Merchandising Licensing Agreement, dated August 10, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion picture, "Babe." Previously filed.
10.23 (a) License Agreement, dated October 1, 1994, between Lucasfilm Ltd.
("LFL") and "Sound Source Interactive," pertaining to AUDIOCLIPS-C-
of sound effects, dialogue and movie soundtracks for the motion
pictures, "Star Wars," "The Empire Strikes Back," and "Return of the
Jedi." Previously filed.
(b) License Agreement, dated October 1, 1994, between LFL and "Sound
Source Interactive," pertaining to VISUALCLIPS-C- of film/video cues
for the motion pictures, "Star Wars," "The Empire Strikes Back," and
"Return of the Jedi." Previously filed.
(c) Soundtrack License Agreement, dated October 1, 1994, between LFL
and "Sound Source Interactive," pertaining to the use of the
soundtrack of the "Star Wars Films" (as defined therein).
Previously filed.
(d) Film Footage License, dated October 1, 1994, between LFL and
"Sound Source Interactive," pertaining to the use of the film
footage of the "Star Wars Films" (as defined therein). Previously
filed.
(e) Letter of Intent and Star Wars Classic License Agreement, dated
September 15, 1995, between LFL and "Sound Source Interactive,
Inc.," pertaining to the grant of a license for sales in Canada.
Previously filed.
(f) Addendum to the agreement dated October 28, 1992, between
Horatio Productions and the Subsidiary, pertaining to the use of
preexisting dialogue of the Darth Vader character. Previously
filed.
10.24 Merchandising License Agreement, dated July 8, 1994, between Viacom
Consumer Products, as agent for Paramount Pictures Corporation, and
"Sound Source Interactive, Inc.," pertaining to the television
series, "Star Trek: The Original Series," the first six motion
pictures based thereon and the television series, "Star Trek: The
Next Generation." Previously filed.
10.25 (a) License Agreement, dated as of July 10, 1995, between DC Comics
and "Sound Source Interactive," pertaining to the animated
television series initially entitled "Batman: The Animated Series"
and thereafter entitled, "The Adventures of Batman and Robin."
Previously filed.
(b) Interactive/Multimedia Adherence Letter, dated November 10,
1995, between the Screen Actors Guild and "Sound Source
Interactive," pertaining to the animated television series initially
entitled "Batman: The Animated Series" and thereafter entitled,
"The Adventures of Batman and Robin." Previously filed.
10.26 Licensing Agreement, dated as of June 14, 1994 among CBS
Entertainment ("CBS"), Rod Serling Trust and "Sound Source
Interactive," pertaining to the television series, "The Twilight
Zone." Previously filed.
10.27 Merchandising License Agreement, dated as of October 30, 1992, among
Carolco Pictures Inc., Carolco International N.V. and "Sound Source
Unlimited, Inc.," pertaining to the motion picture, "Total Recall."
Previously filed.
10.28 Merchandising License Agreement, dated as of October 30, 1992, among
Carolco Pictures Inc., Carolco International N.V. and "Sound Source
Unlimited, Inc.," pertaining to the motion picture, "Terminator 2:
Judgment Day." Previously filed.

II-7
<PAGE>

10.29 License Agreement, dated as of September 20, 1994, between Palladium
Limited Partnership and "Sound Source Interactive," pertaining to
the motion picture, "Lassie." Previously filed.
10.30 License Agreement, dated as of September 20, 1994, between Broadway
Video Entertainment and "Sound Source Interactive," pertaining to
the television series, "Saturday Night Live." Previously filed.
10.31 Merchandising License Agreement, dated as of October 12, 1995,
between DESILU, TOO, CBS and "Sound Source Interactive," pertaining
to the television series, "I Love Lucy." Previously filed.
10.32 Memorandum of Understanding, dated May 26, 1994, between Brian
Leader, doing business as Sentient Software, and "Sound Source
Interactive, Inc.," pertaining to program development and licensing
agreements related to MOVIEBOOKS-TM-. Previously filed.
10.33 (a) Royalty Programming Contract, dated July 12, 1993, between Rhode
Island Soft Systems ("RISS") and the Subsidiary, pertaining to
screen saver modules. Previously filed.
(b) Amendment to Royalty Programming Contract, dated September 12,
1994, between RISS and the Subsidiary. Previously filed.
(c) Agreement, dated April 12, 1995, between RISS and "Sound Source
Interactive," pertaining to MOVIEBOOKS-TM-. Previously filed.
(d) Letter of Intent, dated August 24, 1995, between RISS and "Sound
Source Interactive," pertaining to MOVIEBOOKS-TM-. Previously
filed.
10.34 Merchandising License Agreement, dated September 1, 1995, between
Greytsounds Sound Development and "Sound Source Interactive,"
pertaining to Registrant's Sound Library. Previously filed.
10.35 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Vincent J. Bitetti. Filed herewith.
10.36 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Eric H. Winston. Filed herewith.
10.37 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Ulrich Gottschling. Filed herewith.
10.38 Merchandising License Agreement, dated October 24, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion picture, "Dragonheart." Filed herewith.
10.39 Merchandising License Agreement, dated January 10, 1996, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion pictures, "The Land Before Time" (I, II and
III). Filed herewith.
10.40 Agreement, dated March 18, 1996, between Musicians' Union and "Sound
Source Interactive," pertaining to the use of music from the motion
pictures, "The Land Before Time" (I, II and III). Filed herewith.
10.41 License Agreement, dated February 27, 1996, between MGM/UA
Merchandising, Inc. and Subsidiary, pertaining to the motion
picture, "All Dogs Go To Heaven 2." Filed herewith.
10.42 Agreement, dated January 4, 1996, between Universal Studios Florida
and "Sound Source Interactive," pertaining to the "Universal Studios
Florida T2 Screensaver Sweepstakes." Filed herewith.
10.43 Agreement, dated January 24, 1996, between Warner Bros. Television
and "Sound Source Interactive," pertaining to the "Babylon 5
Contest." Filed herewith.
10.44 Form of Registration Procedures Agreement for execution between the
Company and each of the Selling Security Holders. Filed herewith.

II-8
<PAGE>

10.45 Consulting Agreement, dated as of April 30, 1996, between the
Company and ASSI, Inc. Filed herewith.
10.46 Share Purchase Agreement, dated April 3, 1995, between Eric Winston
and Vincent Bitetti. Filed herewith.
21.1 Subsidiary of the Registrant. Previously filed.
23.1 Consent of Corbin & Wertz. Filed herewith.
23.2 Consent of McDermott, Will & Emery (included in Exhibit 5).
24.1 Power of Attorney (incorporated by reference to page II-11 of the
Registration Statement on Form SB-2).

(b) Financial Statement Schedules

None Required

ITEM 28. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act;

(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually,
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(Section 230.424(b) of this Chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-9
<PAGE>

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising from the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against policy
polish as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-10

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, on May 6, 1996.

SOUND SOURCE INTERACTIVE, INC.

By: /S/ VINCENT J. BITETTI
----------------------------
Vincent J. Bitetti, Chairman of the Board
and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints
Vincent J. Bitetti and/or Eric H. Winston his true and lawful attorney-in-fact
and agent, acting alone, with full powers of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, any Amendments thereto and any Registration Statement for the same
offering which is effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, each acting alone,
full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C> <C>
CHIEF
EXECUTIVE OFFICER /s/ Vincent J. Bitetti Director, Chairman of May 6, 1996
---------------------- the Board and Chief
Vincent J. Bitetti Executive Officer

PRINCIPAL
ACCOUNTING OFFICER /s/ Ulrich E. Gottschling Director, May 6, 1996
------------------------- Chief Financial Officer,
Ulrich E. Gottschling Treasurer and Secretary

PRESIDENT /s/ Eric H. Winston Director, May 6, 1996
------------------------ President and
Eric H. Winston Chief Operating Officer
</TABLE>

II-11
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

EXHIBITS

PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2

REGISTRATION STATEMENT
(No. 33-80827)

UNDER

THE SECURITIES ACT OF 1933

----------------

SOUND SOURCE INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

Registration Statement on Form SB-2 Exhibit Volume Index

Exh. Sequential
No. Description of Exhibits Page No.
- ----- ----------------------- ----------

1 Form of Underwriting Agreement, between the Registrant and The Boston
Group, L.P. ("Representative"), as Representative of the Several
Underwriters (as defined therein). Filed herewith.
3.1 Second Restated Articles of Incorporation of the Registrant. Previously
filed.
3.2 Amended and Restated Bylaws of the Registrant. Previously filed.
4.1 Specimen Common Stock Certificate. Previously filed.
4.2 Form of Warrant Agreement and Warrant. Filed herewith.
4.3 Form of Representative's Warrant Agreement and Warrant. Filed herewith.
4.4 Warrant dated April 30, 1996 issued to ASSI, Inc. Filed herewith.
5 Opinion of McDermott, Will & Emery. Filed herewith.
9.1 Stockholder Voting Agreement, dated as of April 30, 1996, among ASSI,
Inc., Vincent J. Bitetti and Eric H. Winston. Filed herewith.
9.2 Irrevocable Proxy of Vincent J. Bitetti to ASSI, Inc., dated April 30,
1996. Filed herewith.
9.3 Irrevocable Proxy of Eric H. Winston to ASSI, Inc., dated April 30, 1996.
Filed herewith.
9.4 Irrevocable Proxy of ASSI, Inc. to Vincent J. Bitetti, dated April 30,
1996. Filed herewith.
10.1 Second Amended and Restated Employment Agreement of Vincent J. Bitetti
dated as of April 30, 1996. Filed herewith.
10.2 Second Amended and Restated Employment Agreement of Eric H. Winston dated
as of April 30, 1996. Filed herewith.
10.3 Employment Agreement of Ulrich E. Gottschling, as amended. Filed
herewith.
10.4 Sound Source Interactive, Inc. 1992 Stock Option Plan. Previously filed.
10.5 Sound Source Interactive, Inc. 1995 Stock Option Plan. Previously filed.
10.6 Warrant Agreement, dated as of September 26, 1995, among the Registrant,
Sound Source Interactive, Inc., a California corporation ("Subsidiary")
and Financial West Group, Inc., a California corporation ("FWG"), as
Warrant Agent, pertaining to the Bridge Warrants (as defined in the
Prospectus). Previously filed.
10.7 Warrant Agreement, dated as of June 30, 1995, between the Registrant and
FWG, as Warrant Agent, pertaining to the Private Warrants (as defined in
the Prospectus). Previously filed.
10.8 Form of Bridge Warrant and Private Warrant. Previously filed.
10.9 Form of 10% Secured Promissory Note due 1996 of the Registrant (the
"Private Notes"). Previously filed.
10.10 Company Security Agreement, dated as of September 26, 1995, among the
Registrant, the Secured Parties (as defined therein) and Paradox
Holdings, Inc. ("PHI"), as Security Agent, pertaining to the Private
Notes. Previously filed.
10.11 Guaranty of the Subsidiary, dated September 26, 1995, pertaining to the
Private Notes. Previously filed.
10.12 Subsidiary Security Agreement, dated as of September 26, 1995, among the
Registrant, the Subsidiary and PHI, as Security Agent, pertaining to the
Private Notes. Previously filed.
10.13 Sales and Distribution Agreement, dated as of June 15, 1995, between the
Registrant and Acclaim Distribution, Inc. Previously filed.

<PAGE>

Registration Statement on Form SB-2 Exhibit Volume Index

Exh. Sequential
No. Description of Exhibits Page No.
- ----- ----------------------- ----------

10.14 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "Willy 2." Previously filed.
10.15 Retail License Agreement, dated July 7, 1995, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
television series, "Babylon 5." Previously filed.
10.16 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "The Secret Garden." Previously filed.
10.17 Retail License Agreement, dated June 16, 1994, between Warner Bros.
Consumer Products and "Sound Source Interactive," pertaining to the
motion picture, "Black Beauty." Previously filed.
10.18 Merchandising License Agreement, dated March 7, 1995, between Sony
Signature, Inc., as agent for Columbia Pictures Industries, Inc., and the
Subsidiary, pertaining to the motion picture, "Close Encounters of the
Third Kind." Previously filed.
10.19 CD-ROM Development Agreement, dated August 30, 1994, between Fox
Electronic Publishing, Inc., doing business as Fox Interactive, and
"Sound Source Interactive." Previously filed.
10.20 (a) Merchandising Licensing Agreement, dated December 5, 1994, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion picture, "The Little Rascals." Previously
filed.
(b) Multimedia Rights License, dated June 14, 1995, between The Harry Fox
Agency, Inc. and "Sound Source Interactive," pertaining to the motion
picture, "The Little Rascals." Previously filed.
(c) Letter of Agreement, dated June 28, 1995, between Roy Shield Music
Company and "Sound Source Interactive," pertaining to the motion picture,
"The Little Rascals." Previously filed.
(d) Multi Media Rights License, dated July 27, 1995, between MCA, Inc.
and "Sound Source Interactive," pertaining to the motion picture, "The
Little Rascals." Previously filed.
10.21 Merchandising Licensing Agreement, dated March 16, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the animated television series, "ExoSquad." Previously
filed.
10.22 Merchandising Licensing Agreement, dated August 10, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion picture, "Babe." Previously filed.
10.23 (a) License Agreement, dated October 1, 1994, between Lucasfilm Ltd.
("LFL") and "Sound Source Interactive," pertaining to AUDIOCLIPS-C- of
sound effects, dialogue and movie soundtracks for the motion pictures,
"Star Wars," "The Empire Strikes Back," and "Return of the Jedi."
Previously filed.
(b) License Agreement, dated October 1, 1994, between LFL and "Sound
Source Interactive," pertaining to VISUALCLIPS-C- of film/video cues for
the motion pictures, "Star Wars," "The Empire Strikes Back," and "Return
of the Jedi." Previously filed.
(c) Soundtrack License Agreement, dated October 1, 1994, between LFL and
"Sound Source Interactive," pertaining to the use of the soundtrack of
the "Star Wars Films" (as defined therein). Previously filed.

-2-

<PAGE>

Registration Statement on Form SB-2 Exhibit Volume Index

Exh. Sequential
No. Description of Exhibits Page No.
- ----- ----------------------- ----------

(d) Film Footage License, dated October 1, 1994, between LFL and "Sound
Source Interactive," pertaining to the use of the film footage of the
"Star Wars Films" (as defined therein). Previously filed.
(e) Letter of Intent and Star Wars Classic License Agreement, dated
September 15, 1995, between LFL and "Sound Source Interactive, Inc.,"
pertaining to the grant of a license for sales in Canada. Previously
filed.
(f) Addendum to the agreement dated October 28, 1992, between Horatio
Productions and the Subsidiary, pertaining to the use of preexisting
dialogue of the Darth Vader character. Previously filed.
10.24 Merchandising License Agreement, dated July 8, 1994, between Viacom
Consumer Products, as agent for Paramount Pictures Corporation, and
"Sound Source Interactive, Inc.," pertaining to the television series,
"Star Trek: The Original Series," the first six motion pictures based
thereon and the television series, "Star Trek: The Next Generation."
Previously filed.
10.25 (a) License Agreement, dated as of July 10, 1995, between DC Comics and
"Sound Source Interactive," pertaining to the animated television series
initially entitled "Batman: The Animated Series" and thereafter
entitled, "The Adventures of Batman and Robin." Previously filed.
(b) Interactive/Multimedia Adherence Letter, dated November 10, 1995,
between the Screen Actors Guild and "Sound Source Interactive,"
pertaining to the animated television series initially entitled "Batman:
The Animated Series" and thereafter entitled, "The Adventures of Batman
and Robin." Previously filed.
10.26 Licensing Agreement, dated as of June 14, 1994 among CBS Entertainment
("CBS"), Rod Serling Trust and "Sound Source Interactive," pertaining to
the television series, "The Twilight Zone." Previously filed.
10.27 Merchandising License Agreement, dated as of October 30, 1992, among
Carolco Pictures Inc., Carolco International N.V. and "Sound Source
Unlimited, Inc.," pertaining to the motion picture, "Total Recall."
Previously filed.
10.28 Merchandising License Agreement, dated as of October 30, 1992, among
Carolco Pictures Inc., Carolco International N.V. and "Sound Source
Unlimited, Inc.," pertaining to the motion picture, "Terminator 2:
Judgment Day." Previously filed.
10.29 License Agreement, dated as of September 20, 1994, between Palladium
Limited Partnership and "Sound Source Interactive," pertaining to the
motion picture, "Lassie." Previously filed.
10.30 License Agreement, dated as of September 20, 1994, between Broadway Video
Entertainment and "Sound Source Interactive," pertaining to the
television series, "Saturday Night Live." Previously filed.
10.31 Merchandising License Agreement, dated as of October 12, 1995, between
DESILU, TOO, CBS and "Sound Source Interactive," pertaining to the
television series, "I Love Lucy." Previously filed.
10.32 Memorandum of Understanding, dated May 26, 1994, between Brian Leader,
doing business as Sentient Software, and "Sound Source Interactive,
Inc.," pertaining to program development and licensing agreements related
to MOVIEBOOKS-TM-. Previously filed.

-3-

<PAGE>

Registration Statement on Form SB-2 Exhibit Volume Index

Exh. Sequential
No. Description of Exhibits Page No.
- ----- ----------------------- ----------

10.33 (a) Royalty Programming Contract, dated July 12, 1993, between Rhode
Island Soft Systems ("RISS") and the Subsidiary, pertaining to screen
saver modules. Previously filed.
(b) Amendment to Royalty Programming Contract, dated September 12, 1994,
between RISS and the Subsidiary. Previously filed.
(c) Agreement, dated April 12, 1995, between RISS and "Sound Source
Interactive," pertaining to MOVIEBOOKS-TM-. Previously filed.
(d) Letter of Intent, dated August 24, 1995, between RISS and "Sound
Source Interactive," pertaining to MOVIEBOOKS-TM-. Previously filed.
10.34 Merchandising License Agreement, dated September 1, 1995, between
Greytsounds Sound Development and "Sound Source Interactive," pertaining
to Registrant's Sound Library. Previously filed.
10.35 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Vincent J. Bitetti. Filed herewith.
10.36 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Eric H. Winston. Filed herewith.
10.37 Indemnification Agreement, dated as of January 1, 1996, between the
Company and Ulrich Gottschling. Filed herewith.
10.38 Merchandising License Agreement, dated October 24, 1995, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion picture, "Dragonheart." Filed herewith.
10.39 Merchandising License Agreement, dated January 10, 1996, between
MCA/Universal Merchandising, Inc. and "Sound Source Interactive,"
pertaining to the motion pictures, "The Land Before Time" (I, II and
III). Filed herewith.
10.40 Agreement, dated March 18, 1996, between Musicians' Union and "Sound
Source Interactive," pertaining to the use of music from the motion
pictures, "The Land Before Time" (I, II and III). Filed herewith.
10.41 License Agreement, dated February 27, 1996, between MGM/UA Merchandising,
Inc. and Subsidiary, pertaining to the motion picture, "All Dogs Go To
Heaven 2." Filed herewith.
10.42 Agreement, dated January 4, 1996, between Universal Studios Florida and
"Sound Source Interactive," pertaining to the "Universal Studios Florida
T2 Screensaver Sweepstakes." Filed herewith.
10.43 Agreement, dated January 24, 1996, between Warner Bros. Television and
"Sound Source Interactive," pertaining to the "Babylon 5 Contest." Filed
herewith.
10.44 Form of Registration Procedures Agreement for execution between the
Company and each of the Selling Security Holders. Filed herewith.
10.45 Consulting Agreement, dated as of April 30, 1996, between the Company and
ASSI, Inc. Filed herewith.

10.46 Share Purchase Agreement, dated April 3, 1995, between Eric Winston and
Vincent Bitetti. Filed herewith.

21.1 Subsidiary of the Registrant. Previously filed.
23.1 Consent of Corbin & Wertz. Filed herewith.

-4-

<PAGE>

PROOF OF MAY 1, 1996

2,400,000 Shares of Common Stock
and 1,200,000 Redeemable Warrants

SOUND SOURCE INTERACTIVE, INC.

UNDERWRITING AGREEMENT

Los Angeles, California
, 1996
----------

THE BOSTON GROUP, L.P. and
JOSEPH STEVENS & COMPANY, L.P.
As Representatives of the
Several Underwriters
Named in Schedule I Hereto
c/o 1999 Avenue of the Stars, Suite 2550
Los Angeles, California 90067

Ladies and Gentlemen:

Sound Source Interactive, Inc., a Delaware corporation (the
"Company"), Vincent J. Bitetti ("Bitetti") and Eric H. Winston ("Winston")
confirm their agreement with the several Underwriters named in Schedule I
("Schedule I") attached hereto and incorporated herein by this reference (the
"Underwriters") with respect to the sale by the Company and the purchase by the
Underwriters, severally and not jointly, of an aggregate of two million four
hundred thousand (2,400,000) shares ("Firm Shares") of the Company's common
stock, no par value (the "Common Stock") and one million two hundred thousand
(1,200,000) redeemable warrants (the "Redeemable Warrants"), each Redeemable
Warrant to purchase one (1) additional share of Common Stock. The public
offering price per share of Common Stock is $4.00 and the public offering price
per Redeemable Warrant is $.25. Each Redeemable Warrant is exercisable
commencing on ____________, 1997 until ______________, 2001, unless previously
redeemed by the Company, at an initial exercise price equal to $4.40 per share,
subject to adjustment. The Redeemable Warrants may be redeemed by the Company
at a redemption price of twenty-five cents ($.25) per Redeemable Warrant at any
time commencing _________, 1997, subject to earlier redemption with the consent
of the Representatives, provided that the average closing bid price of the
Common Stock equals or exceeds $5.60 per share for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. Such Shares and
Redeemable Warrants

<PAGE>

are hereinafter referred to collectively as the "Firm Securities." Upon notice
by the Representatives (as defined below), as provided in Section 3(b) hereof,
the Company shall also issue and sell to the Underwriters, severally and not
jointly, an aggregate of up to an additional three hundred forty thousand
(340,000) shares of Common Stock and/or one hundred eighty thousand (180,000)
Redeemable Warrants, and Bitetti and Winston shall each sell to the
Underwriters, severally and not jointly, ten thousand (10,000) shares of Common
Stock, for the purpose of covering over-allotments, if any. Such 360,000
additional shares of Common Stock and/or 180,000 additional Redeemable Warrants
are hereinafter referred to as the "Option Securities." The Firm Securities and
the Option Securities are hereinafter referred to collectively as the
"Securities" and are more fully described in the Registration Statement and the
Prospectus referred to below. The Company also proposes to issue and sell to
The Boston Group, L.P. and Joseph Stevens & Co., L.P. (the "Representatives"),
individually and not in their capacities as Representatives, or their designees
a warrant (the "Representatives' Warrant") pursuant to the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement"), for the purchase
of an additional two hundred forty thousand (240,000) shares of Common Stock
(the "Representatives' Shares") and one hundred twenty thousand (120,000)
Redeemable Warrants. The shares of Common Stock issuable upon exercise of the
Redeemable Warrants (including the Redeemable Warrants issuable upon exercise of
the Representatives' Warrants) are hereinafter referred to as the "Warrant
Shares." Further, the following additional securities are being registered in
connection with this offering, but are not being underwritten by the
Underwriters, for the account of certain non affiliated selling security holders
and one selling director (collectively, the "Non-Affiliated Selling Security
Holders"): (i) one hundred seven thousand five hundred (107,500) shares of
Common Stock (the "Non-Affiliated Shares"); (ii) five million six hundred eighty
nine thousand six hundred sixty five (5,689,665) previously issued redeemable
warrants (the "Non-Affiliated Warrants"); (iii) five million six hundred eighty
nine thousand six hundred sixty five (5,689,665) shares of Common Stock issuable
upon exercise of the Non-Affiliated Warrants (the "Non-Affiliated Warrant
Shares"); and (iv) two million (2,000,000) shares of Common Stock issuable upon
exercise of warrants granted to ASSI, Inc. ("ASSI Warrants"). The Non-
Affiliated Shares, Non-Affiliated Warrants and Non-Affiliated Warrant Shares are
sometimes collectively referred to herein as the "Non-Affiliated Securities").

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, each of the
Underwriters as of the date hereof, and as of the Closing Date and each option
Closing Date (as such terms are defined below), if any, as follows:

(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a

-2-

<PAGE>

registration statement, and amendments thereto, on Form SB-2 (Registration No.
33-80827), including any related preliminary prospectus (the "Preliminary
Prospectus"), for the registration of the Shares under the Securities Act of
1933, as amended (the "Act"). After the date hereof, the Company shall not file
any other amendment to such registration statement which the Representatives
shall have reasonably objected to after having been furnished with a copy
thereof unless the Company's outside counsel reasonably determines in a written
opinion that such amendment or supplement is required to be filed pursuant to
applicable law. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to Rule 430A promulgated under the Act and any information
included in a term sheet (the "Term Sheet") as described in Rule 434 promulgated
under the Act), is hereinafter called the "Registration Statement," and the form
of prospectus in the form first filed with the Representatives' consent with the
Commission pursuant to Rule 424(b) promulgated under the Act and including any
information included in the Term Sheet, after the Registration Statement shall
have been declared effective by the Commission, is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" means the rules and
regulations adopted by the Commission under the Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as applicable.

(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any of
the foregoing, and no proceedings for a stop order suspending the effectiveness
of the Registration Statement or any part thereof have been initiated or are
pending, contemplated or threatened. Each Preliminary Prospectus and the
Registration Statement (including each amendment thereto), at the time of filing
thereof, complied with the requirements of the Act and the Rules and
Regulations, and neither any Preliminary Prospectus nor the Registration
Statement, at the time of filing thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; PROVIDED, HOWEVER, that the foregoing
shall not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company by the
Representatives with respect to any Underwriter expressly for use in any
Preliminary Prospectus or the Registration Statement.

-3-

<PAGE>

(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to and including the Closing Date and each Option
Closing Date, if any, and during such other periods as a prospectus may be
required to be delivered in connection with sales by any Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will comply with the requirements of the Act
and the Rules and Regulations, and at and through such dates, neither the
Registration Statement, the Prospectus nor any amendment thereof or supplement
thereto will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, PROVIDED, HOWEVER, that the foregoing shall not apply to statements
made or statements omitted in reliance upon and in conformity with written
information furnished to the Company by the Representatives with respect to any
Underwriter expressly for use in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto.

(d) Except for Sound Source Interactive, Inc., a California
corporation ("SSI California" or the "Subsidiary") the Company does not own an
interest in any corporation, partnership, trust, joint venture or other entity.
SSI California is a wholly-owned subsidiary of the Company. Each of the Company
and the Subsidiary has been duly organized and is validly existing as a
corporation in good standing under the laws of the respective jurisdiction of
its incorporation, as applicable. Each of the Company and the Subsidiary is
duly qualified and licensed and in good standing as a foreign corporation, in
each jurisdiction in which it owns or leases property or in which the conduct of
its business, as currently being conducted, requires such qualification or
licensing. Each of the Company and the Subsidiary has all requisite power and
authority (corporate, if applicable, and other), and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials, agencies,
authorities and bodies (including, without limitation, those having jurisdiction
over environmental, health or similar matters) necessary to own or lease its
properties and conduct its business as described in the Prospectus other than
those authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials, agencies,
authorities and bodies (including, without limitation, those having jurisdiction
over environmental, health or similar matters) which, singularly or in the
aggregate, the failure to obtain would not materially and adversely affect the
condition (financial or otherwise), earnings, business affairs, position,
prospects, shareholders' equity, operations, properties, businesses or results
of operations of the Company and the Subsidiary taken as a whole. Each of the
Company and the Subsidiary is and has been doing business in substantial

-4-

<PAGE>

compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local laws,
rules, regulations and orders; and neither the Company nor the Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such authorizations, approvals, orders, licenses, certificates, franchises
or permits which, singularly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition (financial or otherwise), earnings, business affairs, position,
prospects, shareholders' equity, operations, properties, businesses or results
of operations of the Company or the Subsidiary. The disclosure in the
Registration Statement concerning the effects of federal, state and local laws,
rules, regulations and orders on the Company's and the Subsidiary's businesses
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.

(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization" and "Description of Securities" and will have
the adjusted capitalization set forth therein on the Closing Date and each
Option Closing Date, if any, based upon the assumptions set forth therein.
Neither the Company nor the Subsidiary is a party to or bound by any instrument,
agreement or other arrangement or understanding providing for or requiring it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement, the Representatives' Warrant Agreement, options previously
issued under the Company's 1992 Stock Option Plan (the "1992 Plan") and the
Company's 1995 Stock Option Plan (the 1995 Plan"), options granted by the
Company to Eric Winston for 200,000 shares of Common Stock, and the ASSI
Warrants for 2,000,000 shares, all as described in the Registration Statement.
The Securities and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform, in all respects to the
description thereof contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company and the Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto, and the
holders of ownership interests in the Company and the Subsidiary are not subject
to personal liability by reason of being such holders; and none of such
securities was issued in violation of the preemptive rights or other similar
rights of any holders of any security of either the Company or the Subsidiary.
Except as provided in that certain Confidential Offering Memorandum dated
September 18, 1995 with respect to certain shares of the Company which may,
under certain conditions, convert to shares of common stock of the Subsidiary
and certain warrants to purchase Common Stock of the Company

-5-

<PAGE>

which may, under certain conditions, convert to warrants to purchase Stock of
the Subsidiary, the Company has not entered into any agreements, arrangements or
understandings pursuant to which any third party has the right to acquire from
the Company any securities of the Subsidiary owned by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any shareholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Shares, when delivered by the
Company, will be in due and proper form. Upon the issuance and delivery
pursuant to the terms hereof and the Representatives' Warrant Agreement of the
Securities to be sold by the Company hereunder and thereunder, respectively, the
Underwriters and the Representatives, respectively, will acquire good and
marketable title to such Securities, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever.

(f) The combined financial statements of the Company and the
notes thereto included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, results of
operations and cash flow and changes in financial position and shareholders'
equity of the Company and its Subsidiary at the respective dates and for the
respective periods to which they apply, and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved. The
as adjusted and/or pro forma combined financial information included in each
Preliminary Prospectus, the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in conformity with the
Rules and Regulations and have been properly compiled on the basis described
therein consistent with the historical financial statements included in the
Registration Statement, each Preliminary Prospectus and the Prospectus. The
assumptions underlying such as adjusted and/or pro forma financial information
are reasonable, and the adjustments made therein are appropriate to give effect
to the transactions or circumstances referred to therein. There has been no
material adverse change, or development involving a material prospective change,
in the condition (financial or otherwise), earnings, business affairs, position,
prospects, shareholders, equity, operations, obligations, properties, businesses
or results of operations of the Company and the Subsidiary taken as a whole,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
The outstanding debt, the property and assets (both tangible and intangible) and
the businesses of the Company and

-6-

<PAGE>

the Subsidiary conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information set forth in the Prospectus under the headings "Prospectus Summary -
Summary Financial Data," "Dilution," "Capitalization," "Selected Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" fairly presents the information set forth therein and such financial
information has been derived from or compiled on a basis consistent with that of
the audited combined financial statements included in the Registration
Statement, each Preliminary Prospectus and the Prospectus as described above.

(g) The Company and the Subsidiary (i) have paid all federal,
state and local taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the "Code"), and any other
assessments, fines or penalties leveled against any of them and have furnished
all information returns any of them are required to furnish pursuant to the Code
or otherwise, (ii) have established adequate reserves for such taxes,
assessments, fines or penalties which are not due and payable and (iii) does not
have any tax deficiency or claims outstanding, proposed or assessed against any
of them.

(h) No transfer tax, stamp duty or other similar tax, fee or
duty is payable by or on behalf of the Underwriters or the Representatives, as
applicable, in connection with (i) the issuance by the Company of the
Securities, (ii) the purchase by the Underwriters of the Securities or (iii) the
consummation of any of the transactions contemplated by this Agreement, the
Representatives' Warrant Agreement, the Registration Statement or the
Prospectus.

(i) The Company and the Subsidiary maintains insurance policies,
including, without limitation, general liability, property and personal
liability insurance, and surety bonds which insure such entities, their
employees and patrons and such other persons to whom such entities may become
liable against such losses and risks generally insured against by comparable
businesses.

(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding (including,
without limitation, those pertaining to environmental, health or similar
matters) pending, contemplated or threatened (or circumstances that may give
rise to the same), to which the Company or the Subsidiary is subject or to which
any property or assets (tangible or intangible) of the Company or the Subsidiary
is subject (or circumstances that may give rise to the same) which (i) questions
the validity of the capital stock of the Company or the Subsidiary, of this
Agreement, of the Representatives' Warrant Agreement or of any

-7-

<PAGE>

action or transaction contemplated by this Agreement, the Representatives'
Warrant Agreement, the Registration Statement or the Prospectus, (ii) is
required to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects) or (iii) might, if adversely determined,
materially and adversely affect the condition (financial or otherwise),
earnings, business affairs, position, prospects, shareholders' equity,
operations, properties, businesses or results of operations of the Company or
the Subsidiary taken as a whole.

(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Warrant Agreement and the Representatives' Warrant Agreement and to
consummate the transactions contemplated in such agreements, the Registration
Statement and the Prospectus; and this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement have each been or will each be duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement, the Warrant Agreement and the Representatives' Warrant Agreement
constitutes or will constitute a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors, rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).

(l) Neither the issuance, delivery and sale of the Securities,
the execution, delivery or performance of this Agreement, the Warrant Agreement
and Representatives' Warrant Agreement, the consummation of the transactions
contemplated herein, therein, in the Registration Statement and in the
Prospectus, or the conduct of the Company's or the Subsidiary's business as
described in the Registration Statement, the Prospectus and any amendments
thereof or supplements thereto, conflicts or will conflict with, or results or
will result in any breach or violation of any of the terms, covenants,
conditions or provisions of, or constitutes or will constitute (with notice, the
lapse of time or both) a default under, or results or will result in the
creation or imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever upon any
property or assets (tangible or intangible) of the Company or the Subsidiary
(except as described in the Prospectus) pursuant to the terms of, (i) the
certificate of incorporation or bylaws of the Company or the Subsidiary, (ii)
any license, contract, indenture, mortgage, installment sale agreement, lease,
deed of trust, voting trust agreement, shareholders, agreement, purchase order,
note, loan or credit agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other

-8-

<PAGE>

material agreement or instrument to which the Company or the Subsidiary is a
party or by which they are or may be bound or to which any of their properties
or assets (tangible or intangible) are or may be subject or (iii) any law,
statute, judgment, decree, order, rule or regulation applicable to the Company
or the Subsidiary of any arbitrator, court, administrative agency or other
governmental or regulatory official, agency authority or body (including,
without limitation, those having jurisdiction over environmental, health or
similar matters) having jurisdiction over the Company or the Subsidiary or any
of their activities or properties.

(m) No consent, approval, authorization, registration,
qualification, or order of, and no filing with, any court, administrative agency
or other government or regulatory official, agency, authority or body is
required for the issuance, delivery and sale of the Securities pursuant to this
Agreement, the Prospectus and the Registration Statement, the performance of
this Agreement, the Warrant Agreement and the Representatives' Warrant Agreement
and the consummation of the transactions contemplated hereby, thereby, by the
Registration Statement and by the Prospectus, except such as have been or may be
obtained under the Act, state securities or "blue sky" laws and the rules of the
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the Underwriters' purchase and distribution of the Securities.

(n) All material agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed or required to
be filed as exhibits to the Registration Statement to which the Company or the
Subsidiary is a party or by which it may be bound are accurately described and
fairly present the information required to be shown with respect thereto by Form
SB-2; there are no agreements, contracts or other documents which are required
by the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the
agreements, contracts or other documents of which they purport to be copies.

(o) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company,
nor the Subsidiary has done, or has agreed to do, any of the following, (i)
issued any securities or incurred any liability or obligation, direct, indirect
or contingent, for borrowed money, (ii) entered into any transaction other than
in the ordinary course of business or (iii) declared or paid any dividend or
made any other distribution on or in respect of any class of its capital stock;
and, subsequent to such dates, there has not been any change in the capital
stock or any change in the debt (long- or short-term) or liabilities or
obligations or any material

-9-

<PAGE>

change in the condition (financial or otherwise), earnings, business affairs,
position, prospects, shareholders, equity, operations, properties, businesses or
results of operations of the Company or the Subsidiary except for debt,
liabilities and obligations incurred in the normal course of business consistent
with past practices.

(p) No material default exists, and no event has occurred which,
with notice, lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant, condition or provision of any
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, shareholders' agreement, purchase order, note,
loan or credit agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company or the Subsidiary is a party or by which it is
or may be bound or its properties or assets (tangible or intangible) are or may
be subject.

(q) The Company and the Subsidiary have generally enjoyed a
satisfactory employer-employee relationship with their employees and they are in
substantial compliance with all federal, state and local laws, rules,
regulations and orders respecting employment and employment practices,
including, without limitation, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company or the
Subsidiary by the U.S. Department of Labor, the Department of Justice -
Immigration and Naturalization Service or any other governmental or regulatory
official, agency, authority or body responsible for the enforcement of such
federal, state or local laws, rules, regulations and orders except as previously
disclosed in writing to the Representatives or the Underwriters' Counsel, which
matters are not required to be disclosed in the Registration Statement. There
is no unfair labor practice charge or complaint pending, threatened or
contemplated against the Company or the Subsidiary before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending, threatened or contemplated against or involving the Company or the
Subsidiary and none has ever occurred. There are no existing collective
bargaining agreements with the Company or the Subsidiary. No representation
question exists respecting the employees of the Company or the Subsidiary, and
no collective bargaining agreement or modification thereof is currently being
negotiated by or on behalf of the Company or the Subsidiary. No grievance or
arbitration proceeding is pending, threatened or contemplated under any expired
collective bargaining agreements of the Company or the Subsidiary. No labor
dispute with the employees of the Company or the Subsidiary is pending,
threatened or contemplated.

(r) Neither the Company nor the Subsidiary maintains, sponsors,
contributes, has any obligation to contribute or has any obligation with respect
to, or at any time

-10-

<PAGE>

previously maintained, sponsored, contributed, had any obligation to contribute
or had any obligation with respect to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan" or a "multi-
employer plan" (each an "ERISA Plan"), as such terms are defined in Sections
3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), other than as previously disclosed in writing
to the Representatives or to the Underwriters' Counsel. Neither the Company nor
the Subsidiary maintains, sponsors, contributes, has any obligation to
contribute or has any obligation with respect to or at any time previously has
maintained, sponsored, contributed, had any obligation to contribute or had any
obligation with respect to, a "defined benefit plan," as defined in section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in
a "prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the code which could subject the Company or the Subsidiary to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all material reporting, disclosure and
other requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Neither the Company nor the Subsidiary is in any way liable in connection with a
"multiemployer plan" from which it has ever completely or partially withdrawn.

(s) Neither the Company nor the Subsidiary, nor any of their
employees, directors, shareholders or affiliates (within the meaning of the
Rules and Regulations) of any of the foregoing, has taken or will take, directly
or indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act or otherwise, the illegal
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.

(t) Each of the Company and the Subsidiary own all trademarks,
trade names, service marks, service names, copyrights, patents and patent
applications or any licenses or rights to the foregoing, which, individually or
in the aggregate, are material to its condition (financial or otherwise),
earnings, business affairs, position, prospects, shareholders, equity,
operations, properties, businesses or results of operations, and, no such used
trademarks, trade names, service marks, service names, copyrights or patents are
in dispute or are in conflict with any right of any other person or entity.

(u) Each of the Company and the Subsidiary has the unrestricted
right to use all trade secrets, know-how (including, without limitation, all
unpatented and/or unpatentable proprietary or confidential information, systems
or

-11-

<PAGE>

procedures), inventions, technology, designs, processes, works of authorship,
computer programs and technical data and information that are material to the
development, manufacture, operation and sale of all products and services sold
or proposed to be sold by the Company and the Subsidiary, free and clear of and
without violating any right, lien or claim of others, including, without
limitation, former employers of their employees.

(v) The Company and the Subsidiary have good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property owned or leased, by them.

(w) Corbin & Wertz, whose report is filed with the Commission as
a part of the Registration Statement, each Preliminary Prospectus and the
Prospectus, is an accounting firm of independent certified public accountants as
required by the Act and the Rules and Regulations.

(x) The Company has caused to be executed agreements pursuant to
which each of Vincent J. Bitetti and Eric H. Winston has agreed, for a period of
eighteen (18) months following the effective date of the Registration Statement,
not to, directly or indirectly, offer, offer to sell, sell, grant an option for
the purchase or sale of, transfer, assign, pledge, hypothecate or otherwise
encumber (whether pursuant to Rule 144 under the Act or otherwise) any
securities issued or issuable by the Company, whether or not owned by or
registered in the name of such person, or dispose of any interest therein,
without the prior written consent of the Representatives (collectively, the
"Lock-Up Agreements"). The Company will cause its transfer agent to mark an
appropriate legend on the face of the stock certificates representing all of
such securities and to place "stop transfer" orders on the Company's stock
ledgers.

(y) There are no claims, payments, issuances, agreements,
arrangements or understandings, whether oral or written, for services in the
nature of a finder's fee, brokerage fee, origination fee or otherwise with
respect to the offerings contemplated by this Agreement, the Representatives'
Warrant Agreement, the Registration Statement and the Prospectus or any other
arrangements, agreements, understandings, payments or issuances that may affect
the Underwriters' compensation as determined by the NASD other than as disclosed
in the Registration Statement and Prospectus and other than as the
Representatives may itself have agreed to with third parties.

(z) The Securities have been approved for quotation on the
NASDAQ SmallCap Market (the "SCM"), which has approved the Company's right to
delay the trading of the shares for two days after the Closing Date.

(aa) Neither the Company nor the Subsidiary, nor any officer,
shareholder, employee, agent nor any other person

-12-

<PAGE>

acting on behalf of the Company or the Subsidiary has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or any official
or employee of any governmental agency or instrumentality of any government or
any political party or candidate for office or any other person who was, is or
may be in a position to help or hinder the business of the Company or the
Subsidiary (or assist them in connection with any actual or proposed
transactions) which might subject the Company or the Subsidiary, or any other
such person to any damage or penalty in any civil, criminal or governmental
action, suit, inquiry, investigation, litigation or proceeding.

(ab) Except as set forth in the Prospectus under "Certain
Transactions," no officer, director or shareholder of the Company or the
Subsidiary, and no affiliate or associate (as those terms are defined in the
Rules and Regulations) of any of the foregoing persons or entities, has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by the Company or the Subsidiary or (B)
purchases from or sells or furnishes to the Company or the Subsidiary any
products or services or (ii) a beneficial interest in any contract, arrangement,
understanding or agreement to which the Company or the is a party or by which
the Company or the Subsidiary or any of its property or assets (tangible or
intangible) may be bound or affected. Except as set forth in the Prospectus
under "Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or the Subsidiary
and any officer or director of the Company or the Subsidiary or any person
listed in the "Principal Shareholders" section of the Prospectus, or any
affiliate or associate of any of the foregoing persons or entities.

(ac) The minute books of the Company and the Subsidiary have been
made available to the Representatives, contain a complete summary of all
meetings and actions of the directors, including any committee thereof, and
shareholders of the Company and the Subsidiary since the time of their
incorporation or formation, as applicable, and reflect all transactions referred
to in such minutes accurately in all material respects.

(ad) Except as described in the Registration Statement, no
person, corporation, trust, partnership, association or other entity has the
right to include or register any securities of the Company in the Registration
Statement or to require that any registration statement be filed by the Company
or, if filed, to include any security in such registration statement. No
person, corporation, trust, partnership,

-13-

<PAGE>

association or other entity holds any antidilution rights with respect to any
securities of the Company.

(ae) Any certificate signed by any officer of the Company or the
Subsidiary, and delivered to the Representatives or to the Underwriters' Counsel
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.

(af) The Company has (i) entered into an employment agreement
with each of Vincent J. Bitetti, Eric H. Winston and Ulrich Gottschling in the
forms filed as Exhibits 10.1, 10.2 and 10.3, respectively, to the Registration
Statement, and (ii) purchased key-man life insurance on the life of each of
Vincent J. Bitetti, Eric H. Winston and Ulrich Gottschling in the amounts of
$5,000,000, $2,000,000 and $500,000, respectively, which policies name the
Company as the sole beneficiary thereof.

(ag) The Company has entered into a warrant agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement
(the "Warrant Agreement") with Corporate Stock Transfer Company in form and
substance satisfactory to the Representatives, with respect to the Redeemable
Warrants and providing for the payment of commissions contemplated by Section
4(ab) hereof. The Warrant Agreement has been duly and validly authorized by the
Company and, assuming due execution by the parties thereto other than the
Company, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).

(ah) Each Redeemable Warrant that is a Non-Affiliated Warrant has
been automatically converted into a Redeemable Warrant without any action by the
holder thereof and all of such Redeemable Warrants, as converted (and the shares
of Common Stock underlying such Redeemable Warrants, as converted), have been
registered in the Registration Statement.

(ai) The Company has entered or will enter into the
Representatives' Warrant Agreement, substantially in the form filed as Exhibit
4.3 to the Registration Statement, with the Representatives. The
Representatives' Warrant Agreement has been duly and validly authorized by the
Company and, assuming due execution by the Representatives, constitutes or will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors'

-14-

<PAGE>

rights and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be limited by
applicable law). The Company shall at all times following the Closing Date have
reserved and available for issuance a sufficient number of shares of Common
Stock to be issued upon exercise of the Representatives' Warrant.

(aj) The Company will apply the proceeds from the sale of the
Securities in the manner set forth in the Prospectus under the caption "Use of
Proceeds."

(ak) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and
has in the past conducted, and intends in the future to conduct, its affairs in
such a manner as to ensure that it will not become an "investment company"
within the meaning of the 1940 Act and such rules and regulations.

(al) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions and dispositions of
the assets of the Company and the Subsidiary. The system of internal accounting
controls maintained by the Company and the Subsidiary is sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary (A) to permit preparation of financial statements and (B) to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.

2. REPRESENTATIONS AND WARRANTIES OF BITETTI AND WINSTON.

Each of Bitetti and Winston, with respect to the shares (the "Shares")
to be sold by him, represent and warrant to, and covenant and agree with, each
of the Underwriters as of the date hereof, and as of the Option Closing Date in
which his Shares are sold, as follows:

(a) He has full legal right, power and authority to enter into
this Agreement and to sell and deliver his Shares to the Underwriters. This
Agreement constitutes his legal, valid and binding agreement enforceable against
him in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law).

-15-

<PAGE>

(b) He has, and on the applicable Option Closing Date will have,
good, valid and marketable title to the Shares; and upon the delivery of and
payment for the Shares, good, valid and marketable title thereto, free and clear
of all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, will pass to
the Underwriters.

(c) Neither the execution, delivery or performance of this
Agreement, the delivery and sale of the Shares nor the consummation of the
transactions contemplated by this Agreement, the Registration Statement and the
Prospectus conflicts or will conflict with or results or will result in any
breach or violation of any of the terms, covenants, conditions or provisions of,
or constitutes or will constitute (with notice, the lapse of time or both) a
default under, or results or will result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon any of his property or assets
(tangible or intangible) of _____________ pursuant to the terms of, (i) any
agreement, (ii) any license, contract, indenture, mortgage, installment sale
agreement, lease, deed of trust, voting trust agreement, purchase order, note,
loan or credit agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which he is a party or by which he is or may be bound or to which
any of his properties or assets (tangible or intangible) is or may be subject or
(iii) any law, statute, judgment, decree, order, rule or regulation applicable
to him of any arbitrator, court, administrative agency or other governmental
official, agency, authority or body (including, without limitation, those having
jurisdiction over environmental, health or similar matters) having jurisdiction
over him or any of his activities or properties.

(d) Neither he nor any of his affiliates (within the meaning of
the Rules and Regulations) have taken, or will take, directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares or otherwise.

(e) He has duly delivered to the Company as his attorney-in-
fact, certificates evidencing the Shares, duly executed blank stock powers with
respect thereto and a duly executed power of attorney authorizing the Company to
deliver such certificates as part of, and in accordance with, the transactions
contemplated hereby. Such stock powers and powers of attorney are in form and
substance satisfactory to the Representatives.

(f) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental

-16-

<PAGE>

or other proceeding pending, contemplated or threatened (or circumstances that
may give rise to the same), to which he is subject or to which any of his
property or assets (tangible or intangible) is subject (or circumstances that
may give rise to the same) which questions the validity of this Agreement or of
any action or transaction contemplated by this Agreement, the Registration
Statement or the Prospectus.

3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.

(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters the Firm Securities,
and each of the Underwriters agrees, severally and not jointly, to purchase from
the Company that number of the Firm Securities set forth opposite such
Underwriter's name, in Schedule I at a price equal to $3.60 per share of Common
Stock and $.125 per Redeemable Warrant.

(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company and Bitetti and Winston hereby
grant an option to the Underwriters to purchase all or any part of their
respective Option Securities at a price equal to $3.60 per share of Common Stock
and $.125 per Redeemable Warrant. The Option Securities shall be purchased, if
the Option is exercised as provided herein, from the Company and/or Winston and
Bitetti for the accounts of the several Underwriters, severally and not jointly,
in proportion to the aggregate number of Firm Securities set forth opposite such
Underwriter's name in Schedule I, except that the respective purchase
obligations of each Underwriter may be adjusted by the Representatives so that
no Underwriter shall be obligated to purchase fractional Option Securities. The
option granted hereby will expire, to the extent unexercised, forty-five (45)
days after the date hereof, and may be exercised, in the Representatives' sole
discretion, in whole or in part from time to time, only for the purpose of
covering overallotments which may be made in connection with the offering and
distribution of the Firm Securities, upon notice by the Representatives to the
Company, Bitetti and Winston setting forth the number of Option Securities as to
which the Underwriters are then exercising the option and the time and date of
payment for and delivery of any such Option Securities. Any such time and date
of delivery (an "Option Closing Date") shall be determined by the
Representatives, but shall not be later than five (5) full business days after
the exercise of said option, or in any event prior to the Closing Date, unless
otherwise agreed upon by the Representatives and the Company. Nothing herein
contained shall in any way obligate the Underwriters to exercise the option
granted hereby. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.

-17-

<PAGE>

(c) Payment of the purchase price for, and delivery of
certificates evidencing, the Firm Securities shall be made at the offices of The
Boston Group, L.P. at 1999 Avenue of the Stars, Suite 2550, Los Angeles,
California, or at such other place as shall be agreed upon by the
Representatives and the Company. Such delivery and payment shall be made at
9:30 a.m. (Los Angeles time) on ________________, 1996 or at such other time and
date as shall be agreed upon by the Representatives and the Company (such time
and date of payment and delivery being herein called the "Closing Date"). In
addition, in the event that any or all of the Option Securities are purchased by
the Underwriters, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above-mentioned
office of The Boston Group, L.P. or at such other place as shall be agreed upon
by the Representatives and the Company with respect to each applicable Option
Closing Date as specified in the relevant notice from the Representatives to the
Company. Delivery of the certificates representing the Firm Securities and the
Option Securities, if any, shall be made to the Representatives against payment
by the Underwriters of the purchase price for the Firm Securities and the Option
Securities, if any, respectively, to the order of the Company, or to the order
of Bitetti or Winston with respect to the Shares sold by them, by certified or
official bank checks payable in Los Angeles Clearing House funds (next day
funds). Certificates representing the Firm Securities and the Option
Securities, if any, respectively, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Representatives may request in writing at least
two (2) business days prior to the Closing Date or the relevant Option Closing
Date, as the case may be. The certificates representing the Firm Securities and
the Option Securities, if any, shall be made available to the Representatives at
such offices or such other place as the Representatives may designate for
inspection, checking and packaging no later than 9:30 a.m. Los Angeles time on
the last business day prior to the Closing Date or the relevant Option Closing
Date, as the case may be.

(d) On the Closing Date, the Company shall issue and sell to
each of you, individually and not in your capacities as the Representatives, or
to your designees, the Representatives' Warrants for an aggregate purchase price
of fifty dollars ($50), which warrants shall entitle the holders thereof to
purchase an aggregate of an additional two hundred forty thousand (240,000)
shares of Common Stock and one hundred twenty thousand (120,000) Redeemable
Warrants. The Representatives' Warrants shall be issued pursuant to the
Representatives' Warrant Agreement, substantially in the form filed as Exhibit
4.3 to the Registration Statement. Payment for the Representatives' Warrants
shall be made on the Closing Date. The Representatives' Warrants and the
Securities underlying them shall be registered in the Registration Statement and
such

-18-

<PAGE>

Registration Statement shall be kept effective as required by the
Representatives' Warrant Agreement.

4. PUBLIC OFFERING OF THE SECURITIES. As soon after the
Registration Statement becomes effective as the Representatives deems advisable,
the Underwriters shall make a public offering of the Firm Securities and such of
the Option Securities as the Representatives may determine at the initial price
and upon the other terms set forth in the Prospectus. The Underwriters may from
time to time increase or decrease the public offering price of the Securities to
such extent as the Representatives, in their sole discretion, deem advisable.
The Underwriters may enter into one or more agreements as they, in their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.

5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company, Bitetti
and Winston jointly and severally, covenant and agree with each of the
Underwriters as follows:

(a) The Company, Bitetti and Winston shall use their best
efforts to cause the Registration Statement and any amendments thereto to become
effective as promptly as practicable and will not at any time, whether before or
after the effective date of the Registration Statement, file any amendment to
the Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriters of which the Representatives shall
not previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected (unless the Company's outside
counsel reasonably determines in a written opinion that such amendment or
supplement is required to be filed pursuant to applicable law) or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations. The
Company, Bitetti and Winston shall use their best efforts to maintain the
effectiveness of the Registration Statement (by filing supplements or post-
effective amendments or as otherwise may be required under the Act and the Rules
and Regulations) until the earlier of (i) the date that all Redeemable Warrants
have either been exercised or redeemed and all of the Non-Affiliated Securities
have been sold; and (ii) the date which is five years after the Effective Date.

(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the same in
writing (i) when the Registration Statement, as amended, becomes effective, when
any post-effective amendment to the Registration Statement becomes effective
and, if the provisions of Rule 430A promulgated under the Act will be relied
upon, when the Prospectus has been filed in accordance with said Rule 430A, (ii)
of the issuance by the Commission or any State or other regulatory body of any
stop order or other

-19-

<PAGE>

order, or of the initiation or the threat or contemplation of any proceeding,
the outcome of which may result in the suspension of the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of any proceedings for that purpose, (iii) of the
issuance by the Commission or any State or other regulatory body of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation or the threat or
contemplation of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state or
other regulatory body shall enter a stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or suspend such qualification at any time, the Company will make every
effort to obtain promptly the lifting of such order or suspension.

(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) under the Act (or, if applicable and
if consented to by the Representatives, pursuant to Rule 424(b)(4)) within the
time period specified in Rule 424(b)(1) (or if applicable, Rule 424(b)(4)) or
shall deliver and shall file with the Commission a Term Sheet (in form and
substance satisfactory to the Representatives) in accordance with Rule 434 under
the Act.

(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendments) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) under the Act), and will furnish the
Representatives with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement to which the Representatives or
Jeffer, Mangels, Butler & Marmaro, LLP, the Underwriters' counsel (the
"Underwriters' Counsel"), shall reasonably object unless the Company's outside
counsel reasonably determines in a written opinion that such amendment or
supplement is required to be filed pursuant to applicable law.

-20-

<PAGE>

(e) The Company shall use its best efforts, at or prior to the
time the Registration Statement becomes effective, to qualify the Securities for
offering and sale under the securities or "blue sky" laws of such jurisdictions
as the Representatives may reasonably designate to permit the continuance of
sales and dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents and furnish
such information as may be required for such purpose; PROVIDED, HOWEVER, the
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will use
its best efforts to file and make such statements or reports at such times as
are or may be required by the laws of such jurisdiction to continue such
qualification.

(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall comply with all requirements imposed
upon it by the Act and the Exchange Act, as now and hereafter amended, and by
the Rules and Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities in accordance
with the provisions hereof and the Prospectus, or any amendments or supplements
thereto. If at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of the Company or counsel for the Company or the
Representatives or the Underwriters' Counsel, the Prospectus, as then amended or
supplemented, would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with the Act, the Company will promptly notify the
Representatives and prepare and file, at the Company's expense, with the
Commission an appropriate amendment or supplement to the Registration Statement
or an amendment or supplement to the Prospectus which will correct such
statement or omission, or effect such compliance, each such amendment or
supplement to be reasonably satisfactory to the Representatives and the
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.

(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the twelve (12) month period beginning
after the effective date of the Registration Statement occurs, the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) under the Act, and to the Representatives, an earnings statement
which will comply with the provisions of

-21-

<PAGE>

Section 11(a) of the Act and Rule 158(a) promulgated under the Act.

(h) During the five (5) year period commencing on the date
hereof, so long as the Company has securities which are registered under the Act
or the Exchange Act or otherwise publicly tradeable and Common Stock continues
to be outstanding, the Company, at its expense, will furnish to its
shareholders, as soon as practicable, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports for each of the first three (3) fiscal quarters of the Company
(such reports, whether or not the Company is then subject to the periodic
reporting requirements of the Exchange Act, are to be in conformity with the
requirements of the Exchange Act) and will deliver to the Representatives:

(i) concurrently with furnishing such quarterly reports to
its shareholders, statements of income of the Company for such quarter in the
form furnished to the Company's shareholders and certified by the Company's
principal financial or accounting officer;

(ii) concurrently with furnishing such annual reports to its
shareholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, shareholders' equity and
cash flows of the Company for such fiscal year, accompanied by a copy of the
report thereon of independent certified public accountants;

(iii) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;

(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission, the NASD,
Nasdaq or any securities exchange;

(v) as soon as they are available, all press releases,
material news items or articles of interest to the financial community in
respect of the Company or the Subsidiary or their affairs which are released or
prepared by or on behalf of the Company or the Subsidiary; and

(vi) any additional information of a public nature
concerning the Company and the Subsidiary or their businesses which the
Representatives may request.

During such five (5) year period, if the Company has active
subsidiaries or is a partner in any venture, the foregoing financial statements
will be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries (including any venture of which it is a partner) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary (as defined in the Rules and Regulations) which is not so
consolidated.

-22-

<PAGE>

(i) The Company will maintain a transfer and warrant agent and,
if necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Common Stock.

(j) The Company will furnish to the Representatives, without
charge and at such place as the Representatives may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which will be signed and will include
all financial statements and exhibits, one for the Representatives and one for
the Underwriters' Counsel), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement and any Term Sheet, in each case as soon as available and
in such quantities as the Representatives may request.

(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with true copies of
valid, duly executed, legally binding and enforceable Lock-Up Agreements. On or
before the Closing Date, the Company shall deliver instructions to its transfer
agent authorizing such transfer agent to place appropriate legends on the
certificates representing the securities subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers. The Company
agrees that, for a period of twelve (12) months commencing with the effective
date of the Registration Statement, except as contemplated hereby, it shall not,
without the prior written consent of the Representatives, issue, sell, grant an
option for the sale of, assign, transfer, pledge, distribute or otherwise
dispose of, directly or indirectly, or agree or offer to do any of the
foregoing, any shares of Common Stock or any option, warrant or other contract
right or security convertible, directly or indirectly, into shares of Common
Stock, other than grants of options under the 1995 Plan as described (including,
without limitation, as to the maximum number of shares of Common Stock issuable
thereunder) in the Registration Statement and the issuance of shares of Common
Stock upon the exercise of options granted under the 1995 Plan.

(l) Neither the Company nor any of its officers, directors,
shareholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to illegally stabilize or
manipulate the price of any securities of the Company or which might be expected
to cause or result in, under the Exchange Act or otherwise, the illegal
stabilization or manipulation of the price of any security of the Company.

(m) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.

-23-

<PAGE>

No portion of the net proceeds will be used, directly or indirectly, to acquire
any securities issued by the Company.

(n) The Company shall timely file all registrations, reports,
forms or other documents as may be required (including, without limitation, any
Form SR required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act and the Rules and Regulations, all such registrations, reports,
forms and other documents shall comply as to form and substance with the
applicable requirements under the Act, the Exchange Act and the Rules and
Regulations. The Company shall promptly provide to the Representatives and,
upon request, the Underwriters copies of such registrations, regulations,
reports, forms or other documents.

(o) The Company shall furnish to the Representatives as early as
practicable prior to the date hereof, the Closing Date and each Option Closing
Date, if any, but no later than two (2) full business days prior thereto, a copy
of the latest available unaudited combined interim financial statements of the
Company (which in no event shall be as of a date more than forty-five (45) days
prior to the date hereof, the Closing Date or the relevant Option Closing Date,
as the case may be) which have been read by the Company's independent certified
public accountants, as stated in their letters to be furnished pursuant to
Sections 7(i) and 7(k) hereof.

(p) The Company shall cause the Securities to be quoted on the
SCM or some other nationally recognized stock exchange immediately upon issuance
of the Securities. Promptly upon becoming eligible for listing on the Pacific
Stock Exchange or on the Nasdaq National Market, the Company will apply for
listing the Securities on either the Pacific Stock Exchange or the Nasdaq
National Market, as determined by the Representatives. For a period of five (5)
years from the date hereof, the Company shall maintain the appropriate Nasdaq or
stock exchange listing of the Securities so long as the Company continues to
have securities registered under the Act or the Exchange Act or otherwise
publicly tradeable and Securities Stock continue to be outstanding and shall
comply with all registration, filing, reporting and other requirements of Nasdaq
or such stock exchange, which may from time to time be applicable to the
Company.

(q) For a period of five (5) years from the Closing Date, the
Company shall furnish or cause to be furnished to the Representatives, upon any
and all reasonable requests of the Representatives and at the Company's sole
expense, (i) daily consolidated transfer sheets relating to the Common Stock and
(ii) a list of holders of all of the Company's securities.

(r) For a period of five (5) years from the Closing Date, so
long as the Company continues to have securities registered under the Act or the
Exchange Act or otherwise

-24-

<PAGE>

publicly tradeable and Common Stock continues to be outstanding, the Company
shall, at the Company's sole expense, (i) provide the Representatives, upon any
and all reasonable requests of the Representatives, with a "blue sky trading
survey" for secondary sales of the Company's securities prepared by counsel to
the Company, and (ii) take all necessary and appropriate actions to further
qualify the Company's securities in all jurisdictions of the United States in
order to permit secondary sales of such securities pursuant to the securities or
"blue sky" laws of those jurisdictions, PROVIDED, HOWEVER, that the Company
shall not be required to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction. In the event that
the Company does not comply with the provisions of this Section 5(r), the
Company authorizes the Underwriters' Counsel to take all necessary and
appropriate actions to comply with the provisions of this section 5(r), at the
company's sole expense payable in advance, provided that in no event shall the
Company be obligated for expenses in excess of five thousand dollars ($5,000).

(s) As soon as practicable, (i) but in no event more than five
(5) business days before the effective date of the Registration Statement, the
Company shall file a Form 8-A with the Commission providing for the registration
under the Exchange Act of the Securities, which registration shall become
effective concurrently on such effective date, and (ii) but in no event more
than one hundred twenty (120) days after the effective date of the Registration
Statement, the Company shall take all necessary and appropriate actions to be
included in Standard & Poor's Corporation Manual and Moody's Investors Services,
Inc. Manual and to continue such inclusion for a period of not less than seven
(7) years so long as the Company has securities which are registered under the
Act or the Exchange Act or otherwise publicly tradeable and Common Stock
continues to be outstanding.

(t) The Company hereby agrees that it will not, for a period of
thirty six (36) months commencing with the effective date of the Registration
Statement, without the Representatives' written approval, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan, agreement, understanding or arrangement permitting the
grant, issue, sale or entry into any agreement, understanding or arrangement to
grant, issue or sell any option, warrant or other contract right (x) at an
exercise price that is less than the greater of the initial public offering
price of the Securities as set forth herein and the fair market value per share
of Common Stock on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of five percent (5%) or more of the
Common Stock or any holder of five percent (5%) or more of the Common Stock as
the result of the exercise or conversion of equivalent securities, including,
without limitation, options, warrants or other contract rights or securities
convertible, directly or indirectly, into shares of Common Stock; (ii) permit
the maximum

-25-

<PAGE>

number of shares of Common Stock or other securities of the Company purchasable
at any time pursuant to options, warrants or other contract rights or securities
convertible, directly or indirectly, into shares of Common Stock to exceed ten
percent (10%) of the outstanding shares unless such action is approved by at
least three independent directors of the Company; (iii) permit the payment for
such securities, including, without limitation, upon the exercise of any option,
warrant or other contract right upon the conversion of any security convertible,
directly or indirectly, into shares of Common Stock, with any form of
consideration other than cash (other than payments made pursuant to, and in
accordance with, the 1995 Plan); or (iv) permit the existence of stock
appreciation rights, phantom options or similar arrangements. The provisions of
this Section 5(t) shall not apply to grants, issuances or sales to, or
agreements with, the Underwriters or you, individually and not in your
capacities as the Representatives, or grants to members of the Company's Stock
Option Committee pursuant to, and in accordance with, the 1995 Plan.

(u) Until the completion of the distribution (as such term would
be applied under Rule 10b-6 promulgated under the Exchange Act) of the Firm
Securities and, if applicable, the Option Securities to the public, the Company
shall not, without the prior written consent of the Representatives, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations or except as required by law as advised to the Company by
its outside counsel.

(v) Prior to the earlier of (i) the date which is seven (7)
years from the date hereof and (ii) the date of the completion of the sale to
the public of all of the Representatives' Securities, the Company will not take
any action or actions which may prevent or disqualify the Company's use of Form
S-1 (or other appropriate form) for the registration under the Act of the
Representatives' Securities.

(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
from time-to-time by The Boston Group, L.P. and one (1) individual selected from
time to time by Joseph Stevens & Company, L.P., to be nominated as directors of
the Company, if requested by you. Vincent J. Bitetti and Eric H. Winston hereby
agree to vote all shares of Common Stock held of record or beneficially by
either of them in favor of each of your nominees. The Company shall provide you
with reasonable notification of any meeting of the Company's board of directors
held expressly for the purpose of nominating directors to the Company's board of
directors so as to allow each of you adequate time to select, if desired, an
individual to be nominated as a

-26-

<PAGE>

director of the Company. In the event that either of you shall not have
designated such individual at the time of any meeting of the Company's board of
directors held expressly for the purpose of nominating directors to the
Company's board of directors or in the event that such individual has not been
elected or is unavailable to serve, the Company shall provide you with
reasonable notification of each meeting of its board of directors and, in such
event, an individual selected by you shall be permitted to attend all meetings
of the Company's board of directors as a non-voting advisor and to receive all
notices and other correspondence and communications sent by the Company to
members of its board of directors. Such director or advisor shall receive no
more or less compensation than is paid to other non-officer directors of the
Company for attendance at meetings of the Company's board of directors, and such
director or advisor shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings, including, without
limitation, food, lodging and transportation in accordance with the policy
established by the independent members of the Board of Directors. The Company
hereby agrees to indemnify and hold such director or advisor harmless, to the
maximum extent permitted by law, against any and all actions, suits,
proceedings, inquiries, arbitrations, investigations, litigation, governmental
or other proceedings and awards and judgments arising out of such individual's
service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers or
directors, and/or in the event that the Company has entered into an
indemnification agreement with any of its officers or directors, the Company
agrees to include such director or advisor as an insured under such insurance
policy and/or to enter into an indemnification agreement with such director or
advisor which is at least as favorable to such individual as any indemnification
agreement that the Company has entered into with any of its officers or
directors. The rights and benefits of such indemnification and the benefits of
such insurance shall, to the maximum extent possible, extend to you insofar as
you may be or may be alleged to have any obligation or liability in connection
with an action or inaction of such director or advisor.

(x) For a period of thirty-six (36) months after the effective
date of the Registration Statement, the Company shall not, without the written
consent of the Representatives, restate, amend, modify or otherwise alter any
term of any written employment, consulting or similar agreement entered into
between the Company and any officer, director or key employee as of the
effective date of the Registration Statement in a manner which is more favorable
to such officer, director or key employee. For a period of thirty-six (36)
months from the effective date of the Registration

-27-

<PAGE>

Statement, neither the Company nor the Subsidiary shall enter into a written
employment, consulting or similar agreement with any officer, director or key
employee with whom the Company has entered into a written employment, consulting
or similar agreement as of the effective date of the Registration Statement
other than the renewal of such agreement on terms which are no more favorable to
such officer, director or key employee unless agreed upon in writing by the
Representatives.

(y) For a period of seven (7) years from the effective date of
the Registration Statement, the Company and all of its subsidiaries shall obtain
and maintain insurance policies, including, without limitation, general
liability, property, and personal liability insurance, and surety bonds which
insure such entities, their employees and patrons and such other persons to whom
such entities may become liable against such losses and risks generally insured
against by comparable businesses.

(z) For a period of five (5) years from the date hereof, the
Company will retain Corbin & Wertz (or such other nationally-recognized
accounting firm qualified to practice in front of the Commission as is
reasonably acceptable to the Representatives) as its independent certified
public accountants and, during such period, the Company will promptly submit to
the Representatives copies of all accountant's management reports, Company
representation letters and similar correspondence between the Company's
accountants and the Company.

(aa) The Company hereby grants to the Representatives a
preferential right, on the terms and subject to the conditions set forth in this
paragraph, during the period beginning on the date hereof and ending on
__________, 1999 (the "Preference Period"), to purchase for its account, or to
sell for the account of the Company or its present or future affiliates or
subsidiaries, any debt or equity securities of the Company or any of its present
or future affiliates or subsidiaries, with respect to which the Company or any
of its present or future affiliates or subsidiaries may seek to sell in a public
or private offering for cash (a "Covered Offering"). The term "Covered
Offering" shall not include public or private offerings of securities of the
Company or any of its present or future affiliates or subsidiaries in exchange
for properties, assets or stock of other individuals or corporations, borrowings
from banks and institutional lenders, or equipment lease financing. The Company
will consult the Representatives with regard to any Covered Offering, and will
offer, or cause any of its present or future affiliates or subsidiaries to
offer, to the Representatives the opportunity, on terms not more favorable to
the Company or such present or future affiliate or subsidiary than they can
secure elsewhere, to purchase or sell any such securities. The Company shall
provide written notice to the Representatives of the terms offered to the
Representatives to participate in the Covered Offering. The Representatives
shall have a period of 30 days from the date of such notice to notify the
Company in writing of its decision to accept or reject such offer. If the
Representatives rejects the offer, then the Company may proceed with the Covered
Offering with any other third party. However, if the Company proceeds with a
Covered Transaction on terms materially different from those offered to the
Representatives,

-28-

<PAGE>

the Company shall be required to provide written notice to the Representatives
of the revised terms, and to offer the Representatives the right to participate
in the Covered Offering on such revised terms. The Representatives shall have a
period of 30 days from the date of such notice to notify the Company in writing
of its decision to accept or reject the offer on such revised terms.

(ab) The Company hereby appoints the Representatives as the
exclusive solicitation agent for the Redeemable Warrants, and hereby agrees to
pay the Representatives a commission equal to five percent (5%) of the exercise
price of the Redeemable Warrants, payable on the date of the exercise thereof on
terms provided in the Warrant Agreement. The Company will not solicit the
exercise of the Redeemable Warrants other than through the Representatives.

6. PAYMENT OF EXPENSES.

(a) The Company hereby agrees to pay (such payment to be made on
the Closing Date as part of the closing on such date and on each Option Closing
Date as part of the closing on such date (to the extent not paid on the Closing
Date or a previous Option Closing Date)) all expenses and fees (other than fees
of the Underwriters' Counsel not specifically provided for in this Section 6)
incident to the issuance, offer, sale and delivery of the Securities and the
performance of the obligations of the Company under this Agreement, the Warrant
Agreement and the Representatives' Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of each Preliminary Prospectus, the Registration Statement and the
Prospectus and any amendments and supplements thereto and the printing, mailing
(including the payment of postage with respect thereto) and delivery of this
Agreement, the Warrant Agreement, all other underwriting documents, the
Representatives' Warrant Agreement and agreements with selected dealers, and
related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to each of the Underwriters and such dealers as the
Underwriters may request, in such quantities as the Underwriters may reasonably
request, (iii) all costs and expenses (including issue and transfer taxes)
incurred in connection with the printing, engraving, issuance, sale and delivery
of the shares, including (x) the purchase by each of the Underwriters, severally
and not jointly, of the number of the Securities from the Company set forth
opposite its name on Schedule I, (y) the consummation by the Company of any of
its obligations under this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement and (z) the resale of the Securities by each
of the Underwriters in connection with the

-29-

<PAGE>

distribution contemplated hereby, (iv) all costs and expenses incurred in
connection with the qualification of the Securities under state securities or
"blue sky" laws and the determination of the status of such securities under
legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
the "Legal Investments Survey," if any, (v) the fees, costs and expenses
incurred in connection with any required filing with the NASD and obtaining a
determination from the NASD with respect to the fairness and reasonableness of
the underwriting terms and arrangements and disbursements and fees of Jeffer,
Mangels, Butler & Marmaro, LLP in connection with such determinations, filings,
documents and qualifications of the Securities, (v) all advertising costs and
expenses, including costs and expenses in connection with "road shows,"
information meetings and presentations, bound volumes and prospectus memorabilia
and "tombstone" advertisements, (vi) all costs and expenses incurred in
connection with due diligence investigations by an independent third party,
subject to the Company's prior approval which shall not be unreasonably
withheld, including the fees of any independent counsel (other than Jeffer,
Mangels, Butler & Marmaro, LLP) or consultants, (vii) the fees and expenses of a
transfer agent and registrar for the Securities, (viii) the fees payable to the
Commission and (ix) the fees and expenses incurred in connection with the
listing of the Securities on the SCM and any other exchange.

(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or 11 hereof, by the Underwriters in
accordance with a reasonable application of Section 10(a) hereof or the
transactions contemplated hereby are not consummated by the Company for any
reason, the Company shall reimburse and indemnify the Underwriters for all of
their actual out-of-pocket expenses, including, without limitation, all of the
fees and disbursements of Underwriters' Counsel (including, without limitation,
the fees of the Underwriters' Counsel specifically provided for herein).

(c) The Company further agrees that, in addition to the expenses
payable pursuant to Section 6(a) hereof, it will pay to each of you,
individually and not in your capacities as the Representatives, on the Closing
Date by certified or bank cashier's check, or, at your election, by deduction
from the proceeds of the offering of the Firm Securities, a non-accountable
expense allowance equal to an aggregate of three percent (3%) of the gross
proceeds received by the Company from the sale of the Firm Securities. In the
event the Underwriters elect to exercise all or any part of the over-allotment
option described in Section 3(b) hereof, the Company (and Bitetti and Winston
with respect to the Shares sold by each of them) further agrees to pay to each
of you, individually and not in your capacities as the Representatives, on each
Option Closing Date, by certified or bank cashier's check, or, at your election,
by deduction from the proceeds of the Option Securities purchased on

-30-

<PAGE>

such Option Closing Date, a non-accountable expense allowance equal to an
aggregate of three percent (3%) of the gross proceeds received by the Company
(or Bitetti and Winston with respect to the Shares sold by each of them) from
the sale of such Option Securities.

7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
each of the Underwriters hereunder shall be subject to the continuing accuracy
of the representations and warranties of the Company herein as of the date
hereof and as of the Closing Date and each Option Closing Date, if any, as if
they had been made on and as of the Closing Date or each Option Closing Date, as
the case may be; the accuracy on and as of the Closing Date and each Option
Closing Date, if any, of the statements of officers of the Company made and
certificates of officers of the Company delivered pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of all of its covenants and obligations
hereunder and to the following further conditions:

(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representatives, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or shall be pending, threatened or contemplated by the Commission or
any State or other regulatory body and any request on the part of the Commission
or any State or other regulatory body for additional information shall have been
complied with to the reasonable satisfaction of the Representatives and the
Underwriters' Counsel. If the Company has elected to rely upon Rule 430A under
the Act, the price of the Securities and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) under the Act within the prescribed time period or shall have been
delivered and shall have been filed with the Commission as required by Rule 434
under the Act, as applicable, and, prior to the Closing Date, the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A under the Act. Neither the Registration Statement nor the Prospectus
nor any amendment thereto or supplement thereof (including a Term Sheet) shall
have been filed to which the Representatives shall have reasonably objected
after it shall have had the chance to review such amendment or supplement unless
the Company's outside counsel reasonably determines in a written opinion that
such amendment or supplement is required to be filed pursuant to applicable law.

-31-

<PAGE>

(b) No Underwriter shall have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or that the Prospectus,
or any amendment or supplement thereto, contains an untrue statement of fact
which, in the Representatives' opinion, is material, or omits to state a fact
which, in the Representatives' opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

(c) On or prior to the Closing Date, the Representatives shall
have received from the Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Representatives may request and the Underwriters' Counsel shall have received
such papers and information as it may request in order to enable it to pass upon
such matters.

(d) At the Closing Date, the Representatives shall have received
the favorable opinion of McDermott, Will & Emery, counsel to the Company, dated
the Closing Date, addressed to the Representatives, in form and substance
satisfactory to the Underwriters' Counsel and subject to customary
qualifications and conditions, to the effect that:

(i) each of the Company and the Subsidiary (A) has been
duly organized and is validly existing as a corporation in good standing under
the laws of the respective jurisdiction of its incorporation or formation, (B)
is duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which it owns or leases property or in which the conduct of
its business requires such qualification or licensing, and (C) has all requisite
power and authority (corporate, if applicable, and other) to own or lease its
properties and conduct its business as described in the Prospectus;

(ii) to such counsel's knowledge, (A) the Company and the
subsidiaries are doing business in compliance with all authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials, agencies, authorities and bodies
necessary to own or lease its properties and conduct its business as described
in the Prospectus other than those authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials, agencies, authorities and bodies which, singularly or in the
aggregate, the failure to obtain would not materially and adversely affect the

-32-

<PAGE>

condition (financial or otherwise), earnings, business affairs, position,
prospects, shareholders' equity, operations, properties, businesses or results
of operations of the Company and the Subsidiary taken as a whole; (B) are and
have been operating their business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, state and local laws, rules, regulations and orders; and (C) neither
the Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition (financial or otherwise), earnings, business
affairs, position, prospects, shareholders' equity, operations, properties,
businesses or results of operation of the Company and the Subsidiary taken as a
whole.

(iii) To such counsel's knowledge, the statements in the
Registration Statement concerning the effects of federal, state and local laws,
rules, regulations and orders on the Company's and the Subsidiary's businesses
as currently conducted and as contemplated are correct in all respects and do
not omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading;

(iv) the Company owns of record one hundred percent (100%)
of the outstanding capital stock of the Subsidiary; and neither the Company nor
the Subsidiary owns any other interest in any corporation, partnership, joint
venture, trust or other business entity;

(v) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Securities" and
will have the adjusted capitalization set forth therein in the Closing Date and
the Option Closing Date, if any, based upon the assumptions set forth therein;
and, neither the Company nor any Subsidiary is a party to or bound by any
instrument, agreement or other arrangement or understanding providing for or
requiring it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representatives' Warrant Agreement
and the 1995 Plan as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform in all respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities (including, without
limitation, any ownership interest in the Subsidiary) of the Company and the
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by

-33-

<PAGE>

reason of being such holders; and none of such securities was issued in
violation of the preemptive or other similar rights of any holders of any
security of either the Company or the Subsidiary. The Company has not entered
into any agreements or understandings pursuant to which any third party has the
right to acquire from the Company any securities of the Subsidiary owned by the
Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any shareholder, have been duly authorized and, when
issued, paid for and delivered, or when paid for and delivered, as applicable,
in accordance with the terms hereof, the Warrant Agreement or the
Representatives' Warrant Agreement, as applicable, will be validly issued, fully
paid and non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue, sale and delivery of the Securities has been duly and validly taken; and
the certificates representing the Securities are in due and proper form. The
Representatives' Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby, which
obligations are enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law). Upon the issuance and delivery pursuant to the
terms hereof, the terms of the Warrant Agreement and the terms of the
Representatives' Warrant Agreement of the Securities to be sold by the Company
hereunder and thereunder, the Underwriters and the Representatives, as
applicable, will acquire good and marketable title to such Securities and
Representatives' Warrants, free and clear of any lien, charge, claim,
encumbrance, pledge, security, interest, defect or other restriction or equity
of any kind whatsoever. No transfer tax, stamp duty or other similar tax, fee
or duty is payable by or on behalf of any of the Underwriters or the
Representatives, as applicable, in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriters of the
Securities from the Company or (C) the consummation of any of the transactions
contemplated by this Agreement, the Warrant Agreement, the Representatives'
Warrant Agreement, the Registration Statement or the Prospectus;

(vi) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A under the Act or under Rule 434 under the
Act, and no stop order suspending the use of the Preliminary Prospectus, the
Registration Statement or the Prospectus or any part of any thereof or
suspending the effectiveness of the Registration

-34-

<PAGE>

Statement has been issued and no proceedings for that purpose have been
instituted or are pending, threatened or contemplated under the Act;

(vii) each Preliminary Prospectus, the Registration
Statement and the Prospectus, and any amendments or supplements thereto (other
than the financial statements and schedules and other financial and statistical
data included therein or omitted therefrom, as to which no opinion need be
rendered), comply as to form in all material respects with the requirements of
the Act and the Rules and Regulations;

(viii) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement (or required to be filed under the Exchange Act if upon
such filing they would be incorporated, in whole or in part, by reference
therein) other than those described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement; (B) the
descriptions in the Registration Statement and the Prospectus, and any
supplement or amendment thereto, of agreements, contracts and other documents to
which the Company or any Subsidiary is a party or by which any of them are bound
are accurate and fairly represent the information required to be shown by Form
SB-2; (C) there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding (including,
without limitation, those pertaining to environmental, health or similar
matters) pending, contemplated or threatened to which the Company or the
Subsidiary is subject or to which any property or assets (tangible or
intangible) of the Company or the Subsidiary is subject, which (x) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are accurately
summarized in all respects) or (y) questions the validity of the capital stock
of the Company or any Subsidiary or of this Agreement, the Warrant Agreement or
the Representatives' Warrant Agreement or of any actions or transactions
contemplated by this Agreement, the Warrant Agreement, the Representatives'
Warrant Agreement, the Registration Statement or the Prospectus or (z) might
materially and adversely effect the condition (financial or otherwise),
earnings, business affairs, position, property, shareholders, equity,
operations, properties, businesses or results of operations of the Company or
the Subsidiary or the ability of the Company to perform its obligations under
this Agreement, the Warrant Agreement and the Representatives' Warrant
Agreement; and (D) no law, statute, judgment, decree, rule, regulation or order
or legal or governmental proceeding required to be described in the Prospectus
is not described as required;

(ix) the Company has full legal right, power and authority
under its articles of incorporation and bylaws, to

-35-

<PAGE>

authorize, issue, deliver and sell the Securities, to enter into each of this
Agreement, the Warrant Agreement and the Representatives' Warrant Agreement, and
Bitetti and Winston have full legal right, power and authority to enter into
this Agreement, and to consummate the transactions contemplated herein, therein,
in the Registration Statement and in the Prospectus; and each of this Agreement,
the Warrant Agreement and the Representatives' Warrant Agreement has been duly
authorized, executed and delivered by the Company and Bitetti and Winston, as
applicable. Each of this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement, assuming due authorization, execution and
delivery by the parties thereto other than the Company, constitutes a legal,
valid and binding agreement of the Company and Bitetti and Winston, as
applicable, enforceable against the Company, Bitetti and Winston, as applicable,
in accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors, rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law). Neither the issuance, delivery and sale of the Securities, execution,
delivery or performance of this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement, the consummation of the transactions
contemplated herein, therein, in the Registration Statement and in the
Prospectus, or the conduct of the Company's business as described in the
Registration Statement, the Prospectus and any amendments or supplements
thereto, conflicts or will conflict with, or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute (with notice, the lapse of time or both) a default under, or results
in or will result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon any property or assets (tangible or intangible) of the
Company or the Subsidiary pursuant to the terms of (A) the certificate of
incorporation or bylaws of the Company or the Subsidiary, (B) any material
license, contract, indenture, mortgage, installment sale agreement, lease, deed
of trust, voting trust agreement, shareholders, agreement, purchase order, note,
loan or credit agreement or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company or the Subsidiary is a party or by which either
of them is or may be bound or to which any of its properties or assets (tangible
or intangible) are or may be subject or (C) any law, statute, judgment, decree,
order, rule or regulation applicable to the Company or the Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body having jurisdiction over the Company or the
Subsidiary or any of their respective activities or properties;

-36-

<PAGE>

(x) no consent, approval, authorization, registration,
qualification or order of, and no filing with, any court, administrative agency
or other government or regulatory official, agency, authority or body is
required in connection with the issuance, delivery and sale of the Securities,
the performance of this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement or the consummation of the transactions
contemplated hereby, thereby, by the Registration Statement and by the
Prospectus, other than such as may be required under the securities or "blue
sky" laws of any State and the rules and regulations of the NASD and the
Commission, as to which no opinion need be rendered;

(xi) the properties and businesses of the Company and the
Subsidiary conform in all material respects to the description thereof contained
in the Registration Statement and the Prospectus;

(xii) to such counsel's knowledge, neither the Company nor
the Subsidiary is in breach of, or in default under, and no event has occurred
which, with notice, lapse of time or both, would constitute a material default
of, any term, covenant, condition or provision of any material license,
contract, indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, shareholders' agreement, purchase order, note, loan or
credit agreement or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company or the Subsidiary is a party or by which it is or may be bound
or to which its properties or assets (tangible or intangible) are or may be
subject; and neither the Company nor any Subsidiary is in violation of any term,
covenant, condition or provision of its certificate of incorporation or bylaws
or in material violation of any franchise, license, permit, judgment, decree,
order, law, statute, rule or regulation to which it or any of its properties or
assets (tangible or intangible) are subject;

(xiii) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "Business," "Management," "Principal Shareholders,"
"Resales of Outstanding Securities," "Certain Transactions," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting" have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules, regulations or legal conclusions, are
correct in all material respects;

(xiv) the Company and the Subsidiary own or possess, free
and clear of all liens or encumbrances and rights thereto or therein by third,
the requisite licenses or other rights to use all trademarks, trade names,
service marks, service names, copyright or patents which, individually or in the
aggregate, are material to its condition (financial or

-37-

<PAGE>

otherwise), earnings, business affairs, position, prospects, shareholders,
equity, operations, properties, businesses or results of operations, and there
is no claim or action by any person pertaining to, or proceeding, pending, or
threatened, which challenges the rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses used in the conduct of the Company's business
(including, without limitation, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company), and the Company's
current products, services and processes do not and will not infringe on the
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications or licenses held by any third party;

(xv) to such counsel's knowledge, no person, corporation,
trust, partnership, association or other entity has the right to include or
register any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include any
security in such registration statement; and no person, corporation, trust,
partnership, association or other entity holds any antidilution rights with
respect to any securities of the Company;

(xvi) to such counsel's knowledge, except as described in
the Registration Statement and the Prospectus, there are no claims, payments,
arrangements or understandings, whether oral or written, for services in the
nature of a finder's fee, brokerage fee, origination fee or otherwise with
respect to the offerings contemplated by the Agreement, the Warrant Agreement,
the Representatives' Warrant Agreement, the Registration Statement and the
Prospectus or any other arrangements, agreements, understandings, payments or
issuances that may affect the Representatives' compensation, as determined by
the NASD other than as the Representatives itself may have agreed to with third
parties;

(xvii) to such counsel's knowledge, except as set forth in
the Prospectus under "Certain Transactions," no officer, director or shareholder
of the Company or the Subsidiary, and no affiliate or associate (as those terms
are defined in the Rules and Regulations) of any of the foregoing persons or
entities, has or has had, either directly or indirectly, (A) an interest in any
person or entity which (x) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company or the
Subsidiary or (y) purchases from or sells or furnishes to the Company or the
Subsidiary any products or services or (B) a beneficial interest in any contract
or agreement to which the Company or the Subsidiary is a party or by which the
Company or the Subsidiary or any property or asset (tangible or intangible) of
the Company or the Subsidiary may be bound or affected. To such counsel's
knowledge, except as set forth in the Prospectus, there are no existing
agreements, arrangements, understandings or

-38-

<PAGE>

transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or the Subsidiary and any officer,
director of the Company or the Subsidiary or any person listed in the "Principal
Shareholder" section of the Prospectus, or any affiliate or associate of any of
the foregoing persons or entities;

(xviii) the minute books of the Company and the Subsidiary
have been made available to the Representatives and, to such counsel's
knowledge, contain a complete summary of all meetings and actions of the
directors, including any committee thereof, and shareholders of the Company and
the Subsidiary since the time of their incorporation or formation and reflect
all transactions referred to in such minutes accurately in all respects.

(xix) assuming due execution by the parties thereto other
than the Company, the Lock-Up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the parties thereto and
any subsequent holder of the securities subject thereto in accordance with its
terms; and

(xx) to such counsel's knowledge, the Company does not (i)
maintain, sponsor or contribute to any ERISA Plans, (ii) maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (iii) has never completely or partially withdrawn from a
"multiemployer plan."

Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and the
Subsidiary, representatives of the independent certified public accountants for
the Company, representatives of the Representatives and representatives of the
Underwriters' Counsel, at which conferences such counsel made inquires of such
officers, such other representatives of the Company and the Subsidiary and
representatives of such accountants and discussed the contents of each
Preliminary Prospectus, the Registration Statement, the Prospectus and related
matters and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus (except as and to the extent stated in (xiii) above), on the basis of
the foregoing and such counsel's participation in the preparation of each
Preliminary Prospectus, the Registration Statement and the Prospectus, no facts
have come to the attention of such counsel which leads it to believe that either
the Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or as of the Closing Date
(or the Option Closing Date, as the case may be) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the

-39-

<PAGE>

Prospectus or any supplement thereto, at the date of each such Prospectus or
supplement and at the Closing Date (or the Option Closing Date, as the case may
be) contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in or omitted therefrom in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any supplements or amendments thereto).

In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which it is admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to the Underwriters'
Counsel) of other counsel, acceptable to the Underwriters' Counsel, familiar
with the applicable laws; and (B) as to matters of fact, to the extent it deems
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statement of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company or the Subsidiary, provided that
copies of any such opinions, statements or certificates shall be delivered to
the Representatives and the Underwriters' Counsel. The opinion of such counsel
for the Company shall state that the opinion of any such other counsel is in
form satisfactory to such counsel and that the Underwriters and the
Underwriters' Counsel are justified in relying thereon.

At each Option Closing Date, if any, the Representatives shall
have received the favorable opinion of McDermott, Will & Emery, counsel to the
Company, dated such Option Closing Date, addressed to the Representatives and in
form and substance satisfactory to Underwriters' Counsel confirming as of such
option Closing Date the statements made by McDermott, Will & Emery in its
opinion delivered on the Closing Date.

(e) on or prior to each of the Closing Date and each Option
Closing Date, if any, the Underwriters' Counsel shall have been furnished with
such documents, certificates and opinions as it may reasonably require for the
purpose of enabling it to review or pass upon the matters referred to in Section
7(c) hereof, or in order to evidence the accuracy, completeness or satisfaction
of any of the representations, warranties or conditions of the company or the
subsidiaries herein contained.

(f) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no adverse change or development involving a
prospective adverse change in the

-40-

<PAGE>

condition (financial or otherwise), earnings, business affairs, position,
prospects, shareholders' equity, operations, properties, businesses or results
of operations of the Company or the Subsidiary from the latest dates as of which
such matters are set forth in the Registration Statement and the Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business and consistent with past practices, entered into by the Company or the
Subsidiary, from the latest date as of which the financial condition of the
Company or the Subsidiary is set forth in the Registration Statement and the
Prospectus, which may in any way be adverse to the Company or the Subsidiary;
(iii) neither the Company nor the Subsidiary shall be in default, and no event
shall have occurred which, with notice, lapse of time or both, would constitute
a default, under any provision of any agreement, instrument or other document
relating to any outstanding indebtedness; (iv) neither the Company nor the
Subsidiary shall have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class, and there shall not have been any change in the capital
stock, or any change in the debt (long- or short-term) or liabilities or
obligations (contingent or otherwise), of the Company or the Subsidiary; (v) no
material amount of the property or assets (tangible or intangible) of the
Company or the Subsidiary shall have been pledged, mortgaged or otherwise
encumbered; and (vi) no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding (including,
without limitation, those pertaining to environmental, health or similar
matters) shall be pending, contemplated or threatened (or circumstances giving
rise to same) to which the Company or the Subsidiary is subject or to which any
property or assets (tangible or intangible) of the Company or the Subsidiary are
subject wherein an unfavorable decision, ruling or finding may materially
adversely affect the condition (financial or otherwise), earnings, business
affairs, position, prospects, shareholders' equity, operations, properties,
businesses or results of operations of the Company and the Subsidiary taken as a
whole, except as set forth in the Registration Statement and Prospectus and
except for debts, liabilities and obligations incurred in the normal course of
business consistent with past practices.

(g) At the Closing Date and each Option Closing Date, if any,
the Representatives shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or such Option Closing Date, as
the case may be, to the effect that each of such persons has carefully examined
the Registration Statement, the Prospectus and this Agreement, and that:

(i) the representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
such Option Closing Date, as the

-41-

<PAGE>

case may be, and the Company and the Subsidiary have complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on their part to be performed or satisfied at or prior to the Closing
Date or such Option Closing Date, as the case may be;

(ii) no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been initiated or are pending, contemplated or threatened;

(iii) the Registration Statement, the Prospectus and each
amendment and supplement thereto, if any, contain all statements and information
required to be included therein, and neither the Registration Statement nor any
amendment thereto, at the time such Registration Statement or amendment became
effective and as of the date of such certificate included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and neither
any Prospectus nor any supplement thereto, at the date of such Prospectus or
supplement thereto and at the date of such certificate, included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; and

(iv) subsequent to the latest respective dates as of which
information is given in the Registration Statement and the Prospectus, (A)
neither the Company nor the Subsidiary has incurred any liabilities or
obligations, direct, indirect or contingent, other than in the ordinary course
of business; (B) neither the Company nor the Subsidiary paid or declared any
dividends or other distributions on its capital stock or other ownership
interests; (C) neither the Company nor the Subsidiary has entered into any
transactions not in the ordinary course of business; (D) there has not been any
change in the capital stock, long-term debt or short-term debt (other than any
increase in short-term debt in the ordinary course of business) of the Company
or the Subsidiary; (E) other than ordinary wear and tear, neither the Company
nor the Subsidiary has sustained any material loss or damage to its property or
assets (tangible and intangible), whether or not insured; (F) there is no
litigation which is pending, threatened or contemplated (or circumstances giving
rise to same) against the Company or the Subsidiary which is required to be set
forth in an amended or supplemented Prospectus which has not been so set forth;
and (G) there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth.

References to the Registration Statement and the Prospectus in this Section 6(g)
are to such documents as amended and supplemented at the date of such
certificate.

-42-

<PAGE>

(h) By the Closing Date, the Representatives shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, in the amount as described in the Registration Statement.

(i) At or prior to the time this Agreement is executed, the
Representatives shall have received a letter, dated such date, addressed to the
Representatives and in form and substance satisfactory in all respects to the
Representatives from Corbin & Wertz:

(i) confirming that it is an accounting firm of independent
certified public accountants with respect to the Company and the Subsidiary
within the meaning of the Act and the Rules and Regulations;

(ii) stating its opinion that the combined financial
statements and schedules of the Company and the Subsidiary included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations and
that each of the Underwriters may rely upon the opinion of Corbin & Wertz with
respect to such combined financial statements and schedules included in the
Registration Statement;

(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited combined interim financial
statements of the Company and the Subsidiary (with an indication of the date of
the latest available unaudited combined interim financial statements), a reading
of the latest available minutes of the shareholders and the board of directors,
including any committees of the board of directors, of the Company and the
Subsidiary, consultations with officers and other employees of the Company and
the Subsidiary responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to its attention which
would lead it to believe that (A) the unaudited combined financial statements
and schedules of the Company and the Subsidiary included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited combined
financial statements of the Company and the Subsidiary included in the
Registration Statement or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there has been any
change in the capital stock, short-term debt or long-term debt of the Company
and the Subsidiary, or any decrease in the shareholders, equity or net current
assets or net assets of the Company and the Subsidiary as compared with amounts
shown in the ________________ balance sheet included in the Registration
Statement or, if there was any change or decrease, setting forth the amount of
such change or decrease, or (C) during the period

-43-

<PAGE>

from _____________ to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
revenues, net income or net earnings per share of Common Stock, in each case as
compared with the corresponding period beginning ____________________, or, if
there was any such decrease, setting forth the amount of such decrease;

(iv) stating that it has compared specific dollar amounts,
numbers of shares, percentages, statements and other financial information
pertaining to the Company and the Subsidiary set forth in the Registration
Statement, in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets or analysis, of the Company and the Subsidiary, with the
results obtained from the application of specific readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement;

(v) stating it has reviewed the internal controls of the
Company and the Subsidiary and that, since _________________, it has not noted
or brought to the attention of any of the management of the Company or the
Subsidiary any "weakness," as defined in Statement of Auditing Standard No. 60
(entitled "Communication of Internal Control Structure Related Matters Noted in
an Audit"), in any of the Company's or the Subsidiary's internal controls;

(vi) stating it has read the unaudited combined financial
statements referred to in Section 5(o) hereof; and

(vii) statements as to such other matters as the
Representatives may request.

(j) At the Closing Date and each Option Closing
Date, if any, the Representatives shall have received from Corbin & Wertz a
letter, dated as of the Closing Date or such Option Closing Date, as the case
may be, to the effect that (i) it reaffirms that statements made in the letter
furnished pursuant to Section 7(i) hereof, (ii) if the Company has elected to
rely on Rule 430A under the Act, to the further effect that it has carried out
procedures as specified in clause (iv) of such Section 7(i) with respect to
certain amounts, numbers, percentages, statements and other financial
information as specified by the Representatives and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and has found such amounts,
numbers, percentages, statements and other financial information to be in
agreement with the documents specified in such clause (iv); and (iii) it has
read the unaudited combined financial statements referred to in Section 5(o)
hereof.

-44-

<PAGE>

(k) On the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representatives the appropriate
number of Securities.

(l) No order suspending the sale of the shares in any
jurisdiction designated by the Representatives pursuant to Section 5(e) hereof
shall have been issued on either the Closing Date or any Option Closing Date,
and no proceedings for that purpose shall have been initiated or shall be
pending, contemplated or threatened.

(m) On or before the Closing Date, the Company shall have
executed and delivered to you, individually and not in your capacity as the
Representatives, the Representatives' Warrant Agreement, substantially in the
form filed as Exhibit 4.3 to the Registration Statement. The executed version
of the Representatives' Warrant Agreement shall be satisfactory to you.

(n) On or before the effective date of the Registration
Statement, the Securities shall have been duly approved for quotation on the SCM
and a delay of trading of the Securities for two days after the Closing Date
shall have been approved by the SCM.

(o) On or before the effective date of the Registration
Statement, there shall have been delivered to the Representatives all of the
Lock-Up Agreements, in form and substance satisfactory to the Underwriters'
Counsel.

(p) The Company and the Subsidiary shall provide the
Representatives with such additional documents and certificates as the
Representatives may reasonably request.

If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or at any Option Closing Date, as the
case may be, is not so fulfilled, the Underwriters may terminate this Agreement,
without liability to any of the Underwriters, or, if the Representatives so
elects in its sole discretion, it may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.

8. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company agrees to indemnify and hold harmless each
Underwriter (for purposes of this Section 8, "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of each
Underwriter), and each person, if any, who controls any of the Underwriters, as
applicable ("controlling person"), within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses (including, without limitation, reasonable attorneys,
fees and expenses) or liabilities and all actions, suits, proceedings,
inquiries, arbitrations, investigations, litigation or governmental or other

-45-

<PAGE>

proceedings (in this Section 8, collectively, "actions") in respect thereof,
whatsoever (including, without limitation, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any action,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which any Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; (iii) in any application or other
document or written communication (in this Section 8, collectively,
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities or "blue sky" laws thereof or filed with the Commission,
any state securities commission or agency, the NASD or the SCM or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in light of the circumstances in
which they were made), unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Representatives with respect to an Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be. In addition to its other obligations under this Section 8(a), the Company
agrees that, as an interim measure during the pendency of any action arising out
of or based upon any untrue statement or omission, or alleged untrue statement
or alleged omission as described in this Section 8(a), it will reimburse each
Underwriter (and, to the extent applicable, each controlling person), on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such action, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the Company's
obligations to reimburse each Underwriter and (and, to the extent applicable,
each controlling person), for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement is so held to
have been improper as to the Company, each Underwriter (and, to the extent
applicable, each controlling person), shall promptly return it to the Company
together with interest compounded daily, based on the "reference rate" announced
from time to time by Bank of American N.T. & S.A. (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter, or a
controlling person, as applicable, within thirty (30) days of a

-46-

<PAGE>

request for reimbursement shall bear interest at the Prime Rate from the date of
such request.

The indemnity agreement in this Section 8(a) shall be in addition to
any liability which the Company may have at common law or otherwise.

(b) Each Underwriter severally, but not jointly, agrees to
indemnity and hold harmless the Company (for purposes of this Section 8,
"Company" shall include the officers, directors, partners, employees, agents and
counsel of the Company), and each other person, if any, who control the Company
("controlling person") within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with respect
to statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company by the Representatives with
respect to such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto or in any application, provided that such written information or
omissions only pertain to disclosures in any Preliminary Prospectus, the
Registration Statement or the Prospectus directly relating to the transactions
effected by such Underwriter or the Underwriters as a group in connection with
the offering contemplated hereby. The Company acknowledges that the statements
with respect to the Underwriters and the public offering of the Securities set
forth under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Representatives with respect to the
Underwriters expressly for use therein and constitute the only information
furnished in writing by the Representatives with respect to the Underwriters for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. In addition to its other obligations under this Section 8(b), each
Underwriter severally, but not jointly, agrees that, as an interim measure
during the pendency of any action arising out of or based upon any untrue
statement or omission, or alleged untrue statement or alleged omission as
described in this Section 8(b), it will reimburse Company and (and, to the
extent applicable, each controlling person) on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such action, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of such Underwriter's
obligations to reimburse the Company (and, to the extent applicable, each
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement is so held to have been
improper as to such Underwriter, such Underwriter (and, to the extent
applicable, each controlling person) shall promptly return it to the Company,
together with interest compounded

-47-

<PAGE>

daily, based on the "prime rate" announced from time to time by Bank of American
NTSA (the "Prime Rate"). Any such interim reimbursement payments which are not
made to the Company within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request. Notwithstanding
the provisions of this Section 8(b), no Underwriter shall be required to
indemnify or hold harmless the Company, or any controlling person for, in the
aggregate, any amounts in excess of the underwriting discount applicable to the
Securities purchased by such Underwriter hereunder.

The indemnity agreement in this Section 8(b) shall be in addition to
any liability which each Underwriter severally, but not jointly, may have at
common law or otherwise.

(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall notify each party against whom indemnification is to be sought in writing
of the commencement thereof (but the failure to so notify an indemnifying party
shall not relieve it from any liability which it may have under this Section 8
except to the extent that it has been materially prejudiced by such failure).
In case any such action is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties shall be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party or parties promptly after receiving the aforesaid notice from such
indemnified party or parties, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party or parties in
connection with the defense of such action at the expense of the indemnifying
party or parties, (ii) the indemnifying party or parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) such indemnified party shall have reasonably concluded that
there may be one or more defenses available to it which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel (in addition to
appropriate local counsel) shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to appropriate local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related

-48-

<PAGE>

actions in the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 8 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent; PROVIDED, HOWEVER, that such consent may
not be unreasonably withheld.

(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 8, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 8 provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities (before
deducting expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the cover page
of the Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Representatives with respect to an
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to in the first
sentence of this Section 8(e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(e), no Underwriter shall be required to contribute
any amount in excess of the underwriting discount applicable to the

-49-

<PAGE>

Securities purchased by such Underwriter hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act and
the cases and promulgations thereunder) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8(e), each person, if any, who controls the Company, or
an Underwriter within the meaning of the Act, each officer of the Company who
has signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Underwriters, or the Company, as the
case may be, subject in each case to the provisions of this Section 8(e). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
8(e), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 8(e) except to the extent it
has been materially prejudiced by such failure. The contribution agreement set
forth above shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.

9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties, covenants and agreements contained in this
Agreement, or contained in certificates of officers of the Company delivered
pursuant hereto, shall be deemed to be representations, warranties, covenants
and agreements at the Closing Date and at each Option Closing Date, as the case
may be, and such representations, warranties, covenants and agreements of the
Company, and the respective indemnity and contribution agreements contained in
Section 8 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Representatives, any of the
Underwriters or the Company, and shall survive the termination of this Agreement
and the issuance, sale and delivery of the Securities to the Underwriters.

10. EFFECTIVE DATE. This Agreement shall become effective at 10:00
a.m., New York City time, on the date one (1) business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representatives, in their sole discretion shall release the
Securities for sale to the public; PROVIDED, HOWEVER, that the provisions of
Sections 6, 8 and 11 hereof shall at all times be effective. For purposes of
this Section 10, the Securities to be purchased hereunder shall be deemed to
have been so released upon the earlier of dispatch by the Representatives of
telegrams to securities dealers releasing such Securities for offering or the
release by the Representatives for publication of the first newspaper
advertisement which is subsequently published relating to the Securities.

-50-

<PAGE>

11. TERMINATION.

(a) The Representatives shall have the right to terminate this
Agreement after it becomes effective, the exercise of which shall be determined
in the Representatives' sole discretion, if: (i) any domestic or international
event or act or occurrence has, as determined in the Representatives' sole
judgment, disrupted, or in the Representatives' sole judgment will in the
immediate future materially disrupt, the financial markets; or (ii) any material
adverse change, as determined in the Representatives' sole judgment, in the
financial markets shall have occurred; or (iii) trading on the New York Stock
Exchange, the American Stock Exchange, the SCM or the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or the Commission or any other
governmental authority having jurisdiction; or (iv) the United States shall have
become involved in a war or in hostilities, or there shall have been an
escalation in an existing war or hostilities or a national emergency shall have
been declared in the United States; or (v) a banking moratorium shall have been
declared by any state or federal authority or body; or (vi) a moratorium in
foreign exchange trading shall have been declared; or (vii) the Company and the
Subsidiary taken as a whole shall have sustained a material or substantial loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Representatives' sole judgment, make it inadvisable to
proceed with the offering, sale or delivery of the Securities; or (viii) there
shall have been a material adverse change or development involving a material
prospective change, in the condition (financial or otherwise), earnings,
business affairs, position, prospects, shareholders, equity, operations,
obligations, properties, businesses or results of operations of the Company and
the Subsidiary taken as a whole, whether or not arising in the ordinary course
of business, or if there shall have been a material adverse change in the
general market, political or economic conditions, whether in the United States
or elsewhere, as in the Representatives' sole judgment would make it inadvisable
to proceed with the offering, sale or delivery of the Securities.

(b) Notwithstanding any contrary provision contained in this
Agreement, in the event of any termination of this Agreement (including, without
limitation, pursuant to Sections 7, 11(a) or 12 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Sections 6 and 8 hereof
shall remain effective and shall not in any way be affected by such termination
or failure to carry out the terms of this Agreement or any part hereof.

12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to

-51-

<PAGE>

sell and deliver the number of Securities which it is obligated to sell and
deliver hereunder on such date, then this Agreement shall terminate (or, if such
default shall occur with respect to any Option Securities to be purchased on an
Option Closing Date, the Underwriters may, in the Representatives' sole
discretion, by notice from the Representatives to the Company, terminate the
Underwriters' obligation to purchase such Option Securities from the Company on
such date) with no liability whatsoever on the part of any non-defaulting party
other than pursuant to Sections 6, 8 and 11 hereof. No action taken pursuant to
this Section 12 shall relieve the Company from liability, if any, in respect of
such default.

13. SUBSTITUTION OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase the number of Securities which it has agreed to purchase
under this Agreement, the non-defaulting Underwriters shall be obligated to
purchase (in the respective proportions which the number of Securities set forth
opposite the name of each non-defaulting Underwriter in Schedule I bears to the
total number of Securities set forth opposite the names of all the non-
defaulting Underwriters in Schedule I) the Securities which the defaulting
Underwriter agreed but failed to purchase; except that the non-defaulting
Underwriters shall not be obligated to purchase any of the Securities if the
total number of Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase exceeds 10% of the total number of Securities, and
any non-defaulting Underwriter shall not be obligated to purchase more than 110%
of the number of Securities set forth opposite its name in Schedule I plus the
total number of Option Securities purchasable by it pursuant to the terms of
Section 3(b) hereof. If the foregoing maximums are exceeded, the non-defaulting
Underwriters, and any other underwriters satisfactory to you who so agree, shall
have the right, but shall not be obligated, to purchase (in such proportions as
may be agreed upon among them) all the Securities. If the non-defaulting
Underwriters or the other underwriters satisfactory to you do not elect to
purchase the Securities which the defaulting Underwriter or Underwriters agreed
but failed to purchase, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter, the Company except for the payment of
expenses to be borne by the Company as provided in Section 6(a) hereof and the
indemnify and contribution agreements of the Company and the Underwriters
contained in Section 8 hereof; PROVIDED, HOWEVER, that this provision shall not
affect any Closing which at the time of such termination already shall have
taken place.

Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have for damages caused by its default. If the other
underwriters satisfactory to you are obligated or agreed to purchase the
Securities of a defaulting Underwriter, either you or the Company may postpone
the Closing Date for up to seven full Business Days in order to effect any
changes that may be necessary in the Registration

-52-

<PAGE>

Statement, the Prospectus or in any other document or agreement, and to file
promptly any amendments or any supplements to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary.

14. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed, delivered by hand or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to The Boston Group, L.P. at 1999 Avenue of the Stars, Suite 2550, Los
Angeles, California 90067, Attention: Mr. Robert A. DiMinico, with a copy to
Jeffer, Mangels, Butler & Marmaro, LLP, 2121 Avenue of the Stars, 10th Floor,
Los Angeles, California 90067, Attention: Steven J. Insel, Esq. Notices to the
Company shall be directed to the Company at 2985 E. Hillcrest Drive, Suite A,
Westlake Village, California 91362, Attention: Vincent J. Bitetti and Eric H.
Winston, with a copy to McDermott, Will & Emery, 1850 K. Street, N.W., Suite
500, Washington, D.C. 20006, Attention: Robert Kalik, Esq.

15. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, and the controlling
persons, officers, directors and others referred to in Section 8 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from an Underwriter shall be
deemed to be a successor merely by reason of such purchase.

16. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to conflict of laws principles thereof.

17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to he one and the same instrument.

18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Warrant
Agreement and the Representatives' Warrant Agreement constitute the entire
agreement of the parties hereto concerning the subject matter hereof and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended,
modified or altered except in a writing signed by the Representatives and the
Company.

If the foregoing correctly sets forth the understanding among the
parties hereto, please so indicate in the space

-53-

<PAGE>

provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.

Very truly yours,

SOUND SOURCE INTERACTIVE, INC.

By:
-----------------------------
Name: Vincent J. Bitetti

--------------------------
Vincent J. Bitetti

--------------------------
Eric H. Winston

Confirmed and accepted as of
the date first above written.

THE BOSTON GROUP, L.P.

AS REPRESENTATIVE FOR THE
SEVERAL UNDERWRITERS NAMED
IN SCHEDULE I ATTACHED HERETO

By:
---------------------------
Name: Robert A. DiMinico
Title: Chairman

JOSEPH STEVENS & COMPANY, L.P.

AS REPRESENTATIVE FOR THE
SEVERAL UNDERWRITERS NAMED
IN SCHEDULE I ATTACHED HERETO

By:
---------------------------
Name:
Title:

-54-

<PAGE>

WARRANT AGREEMENT

This WARRANT AGREEMENT, dated this ____ day of ________, 1996, by and
between SOUND SOURCE INTERACTIVE, INC., a Delaware corporation (the "Company"),
and CORPORATE STOCK TRANSFER COMPANY, a Colorado corporation.

WITNESSETH:

WHEREAS, in connection with (i) the offering to the public (the
"Public Offering") of Two Million Four Hundred Thousand (2,400,000) shares (the
"Shares") of the Company's common stock and One Million Two Hundred Thousand
(1,200,000) redeemable warrants, each warrant entitling the holder thereof to
purchase one Share of the Company's common stock (the "Warrant Stock") pursuant
to that certain Underwriting Agreement (the "Underwriting Agreement") dated
____________, 1996 among the Company, Vincent J. Bitetti, Eric H. Winston, The
Boston Group, L.P. and Joseph Stevens & Company, L.P., as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), (ii) the
over-allotment option granted to the Underwriters in connection with the Public
Offering to purchase up to an additional Three Hundred Sixty Thousand (360,000)
Shares (including 10,000 shares each from Vincent J. Bitetti and Eric H.
Winston) and/or an additional One Hundred Eighty Thousand (180,000) Warrants
(the "Over-Allotment Option"), (iii) the sale by certain selling security
holders of the Company (the "Selling Security Holders") of One Hundred Seven
Thousand Five Hundred (107,500) Shares, Five Million Six Hundred Eighty Nine
Thousand Six Hundred Sixty Five (5,689,665) warrants previously issued by the
Company which shall convert to redeemable warrants having the same terms and
conditions as the warrants to be issued in the Public Offering (collectively
with the warrants issued in the Public Offering, the "Warrants") and Five
Million Eight Hundred Eighty Nine Six Hundred Sixty Five (5,889,665) Shares
issuable upon exercise of the Warrants, (iv) the issuance of Two Million
(2,000,000) Warrants to ASSI, Inc. (the "ASSI Warrants") and (v) the issuance of
warrants to the Representatives (the "Representatives' Warrants") exercisable
for Two Hundred Forty Thousand (240,000) shares of Common Stock and One Hundred
Twenty Thousand (120,000) Redeemable Warrants, plus an additional 120,000
Warrants which may be issued upon exercise of the Representatives' Warrants, the
Company will have outstanding a total of Nine Million Sixty Nine Thousand Six
Hundred Sixty Five (9,069,665) warrants, all of which shall be designated as
"Redeemable Warrants" (referred to herein as "Warrants") (subject to increase as
provided herein (as such term is defined in SECTION 1(u) hereof)).

WHEREAS, the Company desires to provide for the issuance of
certificates representing the Redeemable Warrants; and

<PAGE>

WHEREAS, the Company desires Corporate Stock Transfer Company to act
on behalf of the Company, and Corporate Stock Transfer Company is willing to so
act, in connection with the issuance, registration, transfer and exchange of
certificates representing the Warrants and the exercise of the Warrants.

NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Representatives, the holders of certificates representing the Warrants and
Corporate Stock Transfer Company, the parties hereto agree as follows:

SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise requires:

(a) "Act" shall have the meaning assigned to such term in
Section 5(b) of this Agreement.

(b) "Change of Shares" shall have the meaning assigned to such
term in SECTION 8(a)(i) of this Agreement.

(d) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
voting and in the distribution of earnings and assets of the Company without
limit as to amount or percentage.

(e) "Company" shall have the meaning assigned to such term in
the first (1st) paragraph of this Agreement.

(f) "Corporate Office" shall mean the office of the Warrant
Agent (as such term is defined in SECTION 1(y) hereof) at which at any
particular time its principal business in New York, New York, shall be
administered, which office is located on the date hereof at 370 17th Street,
Suite 2350, Denver, Colorado 80202.

(g) "Exchange Act" shall have the meaning assigned to such term
in SECTION 4(b) of this Agreement.

(h) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder (as such
term is defined in SECTION 1(o) hereof) thereof or his attorney duly authorized
in writing, and (ii) payment in cash or by check made

-2-

<PAGE>

payable to the Warrant Agent for the account of the Company of the amount in
lawful money of the United States of America equal to the applicable Purchase
Price (as such term is defined in SECTION 1(l) hereof).

(i) "Initial Warrant Exercise Date" shall mean ________, 1997
[ONE YEAR AFTER THE DATE OF THE PROSPECTUS].

(j) "Initial Warrant Redemption Date" shall mean ________, 1997
[ONE YEAR AFTER THE DATE OF THE PROSPECTUS].

(k) "NASD" shall have the meaning assigned to such term in
SECTION 4(b) hereof.

(l) "Purchase Price" shall mean, subject to modification and
adjustment as provided in SECTION 8 hereof, four dollars and forty cents ($4.40)
per share of Common Stock.

(m) "Over-Allotment Option" shall have the meaning assigned to
such term in the first (1st) WHEREAS clause of this Agreement.

(n) "Redemption Date" shall have the meaning assigned to such
term in Section 9(c) hereof.

(o) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to SECTION 6 hereof.

(p) "Representatives" shall have the meaning assigned to such
term in the first (1st) WHEREAS clause of this Agreement.

(q) "Selling Security Holders" shall have the meaning assigned
to such term in the first (1st) WHEREAS clause of this Agreement.

(r) "Shares" shall have the meaning assigned to such term in the
first (1st) WHEREAS clause of this Agreement.

(s) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.

(t) "Transfer Agent" shall mean Corporate Stock Transfer
Company, Denver, Colorado, or its authorized successor.

-3-

<PAGE>

(u) "Underwriters" shall have the meaning assigned to such term
in the first (1st) WHEREAS clause of this Agreement.

(v) "Representatives' Warrant Agreement" shall mean the
agreement dated as of ___________, 1996 between the Company and the
Representatives relating to and governing the terms and provisions of the
Representatives' Warrants.

(w) "Representatives' Warrants" shall mean the warrants issued
by the Company to the Representatives to purchase up to Two Hundred Forty
Thousand (240,000) shares of Common Stock and One Hundred Twenty Thousand
(120,000) Warrants pursuant to the Representatives' Warrant Agreement.

(x) "Underwriting Agreement" shall have the meaning assigned to
such term in the first (1st) WHEREAS clause of this Agreement.

(y) "Warrant Agent" shall mean Corporate Stock Transfer Company,
Denver, Colorado or its authorized successor.

(z) "Warrant Certificate" shall mean a certificate representing
each of the Warrants substantially in the form annexed hereto as EXHIBIT A.

(aa) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m.
(California time) on __________, 2001, or, if such date shall in the State of
California be a holiday or a day on which banks are authorized to close, then
5:00 p.m. (California time) on the next following day which in the State of
California is not a holiday or a day on which banks are authorized to close,
subject to the Company's right, prior to the Warrant Expiration Date, in its
sole discretion, to extend such Warrant Expiration Date on five (5) business
days prior written notice to the Registered Holders.

(bb) "Warrants" shall have the meaning assigned to such term in
the first (1st) WHEREAS clause of this Agreement.

(cc) "Warrant Stock" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.

SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.

(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in SECTION 8 hereof.

-4-

<PAGE>

(b) Upon execution of this Agreement, Warrant Certificates
representing Eight Million Eight Hundred Eighty Nine Thousand Six Hundred Sixty
Five (8,889,665) Warrants to purchase up to an aggregate of Eight Million Eight
Hundred Eighty Nine Thousand Six Hundred Sixty Five (8,889,665) shares of Common
Stock (subject to modification and adjustment as provided in Section 8 hereof),
shall be executed by the Company and delivered to the Warrant Agent.

(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to One Hundred Eighty Thousand
(180,000) Warrants to purchase up to an aggregate of One Hundred Eighty Thousand
(180,000) shares of Common Stock (subject to modification and adjustment as
provided in SECTION 8 hereof) shall be executed by the Company and delivered to
the Warrant Agent.

(d) Upon exercise of the Representatives' Warrants, Warrant
Certificates representing up to One Hundred Twenty Thousand (120,000) Warrants
to purchase up to an aggregate of One Hundred Twenty Thousand (120,000) shares
of Common Stock (subject to modification and adjustment as provided in SECTION 8
hereof and in the Representatives' Warrant Agreement), shall be countersigned,
issued and delivered by the Warrant Agent upon written order of the Company
signed by its Chairman of the Board, Chief Executive Officer, President or a
Vice President and by its Chief Financial Officer or its Secretary or an
Assistant Secretary.

(e) From time to time, up to the Warrant Expiration Date, as the
case may be, the Warrant Agent shall countersign and deliver Warrant
Certificates in required denominations of one or whole number multiples thereof
to the person entitled thereto in connection with any transfer or exchange
permitted under this Agreement. No Warrant Certificates shall be issued except
(i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to SECTION 7 hereof, (iv) Warrant Certificates issued
pursuant to the Representatives' Warrant Agreement (including Warrants in excess
of the One Hundred Twenty Thousand (120,000) Representatives' Warrants issued as
a result of the antidilution provisions contained in the Representatives'
Warrant Agreement), and (v) at the option of the Company, Warrant Certificates
in such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common Stock
purchasable upon the exercise of a Warrant or the redemption price therefor.

-5-

<PAGE>

SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.

(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates).

(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold such
office.

SECTION 4. EXERCISE.

(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date or the Redemption Date,
upon the terms and subject to the conditions set forth herein (including the
provisions set forth in SECTIONS 5 and 9 hereof) and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, together with payment in cash or by check made payable to the Warrant
Agent for the account of the Company of an amount in lawful money of the United
States of America equal to the applicable Purchase Price, has been received by
the Warrant Agent. The person entitled to receive the securities

-6-

<PAGE>

deliverable upon such exercise shall be treated for all purposes as the holder
of such securities as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date and in any event within five (5)
business days after such date, the Warrant Agent on behalf of the Company shall
cause to be issued to the person or persons entitled to receive the same a
Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of any Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities delivered upon such exercise and, subject to Section
4(b) hereof, shall cause all payments in cash or by check made payable to the
order of the Company in respect of the Purchase Price to be deposited promptly
in the Company's bank account.

(b) The Company has appointed the Representatives as the
exclusive solicitation agents for the Warrants, and has agreed to pay the
Representatives a commission equal to five percent (5%) of the exercise price of
the Warrants, payable on the date of the exercise thereof. The Company has
agreed that it will not solicit the exercise of the Warrants other than through
the Representatives. Upon exercise of any Warrants, the Representative
responsible for the solicitation of exercise of such Warrants shall be
identified by the holder of the Warrants, and the commission payable for
exercise of such Warrants shall be paid to the Representative so designated.

(c) At any time upon the exercise of any Warrants after the
Initial Warrant Exercise Date, the Warrant Agent shall, on a daily basis, within
two (2) business days after any such exercise, notify the designated
Representative or its successors or assigns of the exercise of any such Warrants
and shall, on a weekly basis (subject to collection of funds constituting the
tendered Purchase Price, but in no event later than five (5) business days after
the last day of the calendar week in which such funds were tendered), remit to
the designated Representative or its successors or assigns an amount equal to
five percent (5%) of the Purchase Price of such Warrants being then exercised
unless the Representative or its successors or assigns shall have notified the
Warrant Agent that the payment of such amount with respect to any such Warrant
is violative of the rules and regulations promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the rules and regulations
of the National Association of Securities Dealers, Inc. (the "NASD") or
applicable state securities or "blue sky" laws, in which event the Warrant Agent
shall have to pay such amount to the Company; PROVIDED, HOWEVER, that the
Warrant Agent shall not be obligated to pay any amounts pursuant to this SECTION
4(c) during any week that such amounts payable are less than one thousand
dollars ($1,000) and the Warrant Agent's obligation to make such payments shall
be suspended until the amount payable aggregates one thousand dollars ($1,000),
and provided further,

-7-

<PAGE>

that, in any event, any such payment (regardless of amount) shall be made not
less frequently than monthly. Under current rules of the NASD, amounts can be
paid to the Representatives upon any exercise of a Warrant under this Section
4(c) only if (i) the market price of the Company's Common Stock is greater than
the then Purchase Price of the Warrants, (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"), (iii) the Warrant was not held in a discretionary account, (iv)
disclosure of compensation arrangements has been made in documents provided to
customers both as part of the original offering and at the time of exercise and
(v) the solicitation of the exercise of the Warrant was not in violation of Rule
10b-6 (as such rule or any successor rule may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934. The provisions
of this Section 4(b) may not be modified, amended or deleted without the prior
written consent of the Representatives.

(d) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fraction equal to or greater than one-half shall be
rounded up to the next full share or Warrant, as the case may be. Any fraction
less than one-half shall be eliminated.

SECTION 5. RESERVATION OF SHARES; LISTING, PAYMENT OF TAXES; ETC.

(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance such shares shall be listed or quoted
on each securities exchange or NASDAQ, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.

(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of

-8-

<PAGE>

the Warrants are outstanding and deliver a prospectus which complies with
Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"), to the
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Securities and
Exchange Commission (the "Commission") stating that it would not take any
enforcement action if such registration is not effected). The Company will use
its best efforts to obtain appropriate approvals or registrations under the
state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.

(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; PROVIDED, HOWEVER, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.

(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.

(e) Nothing contained in this Agreement shall be constructed as
conferring upon any Registered Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, the Company shall adopt a
resolution for the liquidation, dissolution or winding up of the Company's
business, then the Company shall give written notice of the adoption of such
resolution to all Registered Holders. No such liquidation, dissolution or
winding-up of the Company's affairs shall commence until at least thirty (30)
days after such written notice is given, at which time the right of the
Registered Holders to participate in the liquidation, dissolution or winding-up
of the Company's affairs shall terminate unless the Redeemable Warrants are
exercised within such thirty (30) day period.

-9-

<PAGE>

SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.

(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.

(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment
for registration of transfer of any Warrant Certificate at such office, the
Company shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.

(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duty executed by the Registered Holder thereof or his attorney duly
authorized in writing.

(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.

(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly canceled by the Warrant Agent.

(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.

SECTION 7. LOSS OR MUTILATION.

Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and

-10-

<PAGE>

(in the case of loss, theft or destruction) of indemnity satisfactory to them,
and (in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall countersign and deliver in lieu
thereof a new Warrant Certificate, representing an equal number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.

SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF
COMMON STOCK DELIVERABLE.

(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the Purchase
Price or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (A) the sum of
(x) the total number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect immediately
prior to such Change of Shares, and (y) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination by (B) the
total number of sham of Common Stock outstanding immediately after such Change
of Shares; PROVIDED, HOWEVER, that in no event shall the Purchase Price be
adjusted pursuant to this computation to an amount in excess of the Purchase
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.

For the purposes of any adjustment to be made in accordance with this
Section 8(a)(i) the following provisions shall be applicable:

(A) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if shares of Common
Stock are offered by the Company for subscription, or (ii) the public offering
price (before deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to under-

-11-

<PAGE>

writers or dealers for public offering without a subscription offering, or (iii)
the gross amount of cash actually received by the Company for such securities,
in any other case.

(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash or as
part of a unit, the amount of the consideration therefor other than cash deemed
to have been received by the Company or the amount received per share as part of
a unit shall be the value of such consideration as determined in good faith by
the Board of Directors of the Company on the basis of a record of values of
similar property, services or securities.

(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.

(D) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in Section 8(a)(i)(B) hereof.

(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.

(ii) Upon each adjustment of the Purchase Price pursuant to
this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.

-12-

<PAGE>

(b) In case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in Section 8(a)(i)
hereof and as provided below) less than the Purchase Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, or without consideration (including the issuance of
any such securities by way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a)(i) hereof, provided that:

(i) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable or that may become issuable under such options,
rights or warrants (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued and
outstanding at the time such options, rights or warrants were issued, for a
consideration equal to the minimum purchase price per share provided for in such
options, rights or warrants at the time of issuance, plus the consideration, if
any, received by the Company for such options, rights or warrants; PROVIDED,
HOWEVER, that upon the expiration or other termination of such options, rights
or warrants, if any thereof shall not have been exercised, the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(i) (and for the purposes of Section 8(a)(i)(E) hereof) shall be reduced by the
number of shares as to which options, warrants and/or rights shall have expired,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.

(ii) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; PROVIDED, HOWEVER, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or

-13-

<PAGE>

otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (ii) (and for the purposes of Section
8(a)(i)(E) hereof) shall be reduced by the number of shares as to which the
conversion or exchange rights shall have expired or terminated unexercised, and
such number of shares shall no longer be deemed to be issued and outstanding,
and the Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been made on the
basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.

(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in Section
8(b)(i) hereof, or in the price per share or ratio at which the securities
referred to in Section 8(b)(ii) hereof are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercised, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities.

(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chairman of the Board, President or a Vice President and by its Treasurer
or an Assistant Treasurer or its

-14-

<PAGE>

Secretary or an Assistant Secretary evidencing such provision. Such provisions
shall include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in Sections 8(a) and 8(b)
hereof. The above provisions of this Section 8(c) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.

(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.

(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman of the Board, President, or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth: (i) the Purchase Price, as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.

(f) No adjustment of the Purchase Price shall be made as a
result of or in connection with (i) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements and convertible
or exchangeable securities outstanding or in effect on the date hereof, (ii) the
issuance or sale of shares of Common Stock upon the exercise of any "incentive
stock options" (as such term is defined in the Internal Revenue Code of 1986, as
amended), or any non-qualified stock options to non-employee directors of the
Company pursuant to the Company's 1995 Stock Option Plan, whether or not such
options were outstanding on the date hereof, or (C) the issuance or sale of
shares of Common Stock if the amount of said adjustment shall be less than ten
cents ($.10); PROVIDED,

-15-

<PAGE>

HOWEVER, that in such case, any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that shall amount, together with
any adjustment so carried forward, to at least ten cents ($. 10). In addition,
Registered Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Warrant or Warrants held by them.

(g) In case of any consolidation of the Company with or merger
of the Company into another corporation or other entity or in case of any sale,
lease, conveyance or other transfer to another corporation, person or other
entity of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, person or other entity, as the case may be, shall execute with the
Warrantholder, and the agreements governing such consolidation, merger, sale,
lease, conveyance or other transfer shall require such execution of, an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such event, upon exercise of
the Warrants, to receive the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, lease, conveyance or other
transfer had the Warrants (and each underlying security) been exercised
immediately prior to such action. The Company shall promptly mail to each
Warrantholder by first class mail, postage prepaid, notice of the execution of
any such agreement. In the event of a merger described in Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase shares of Warrant Stock under the Warrants
shall terminate on the date of such merger and thereupon the Warrants shall
become null and void, but only if the controlling corporation shall agree to
substitute for the Warrants its warrant which entitles the holder thereof to
purchase upon its exercise the kind and amount of shares and other securities
and property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this Section 8(g) shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 8 hereof, and shall provide for terms and provisions at least as
favorable to the Warrantholder as those contained in this Agreement. The
provisions of this Section 8(g) shall similarly apply to successive
consolidations, mergers, sales, leases, conveyances or other transfers.

(h) Before taking any action which would cause an adjustment
effectively reducing the portion of the Purchase Price allocable to each share
of Warrant Stock below the then par value per share, if any, of the Warrant
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that

-16-

<PAGE>

the Company may validly and legally issue fully paid and nonassessable Warrant
Stock upon exercise of the Warrants.

(i) The Company may retain Corbin & Wertz (or such other
accounting firm qualified to practice in front of the Securities and Exchange
Commission (the "Commission") as is reasonably acceptable to the
Representatives) to make any computation required under this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 8.

SECTION 9. REDEMPTION.

(a) Commencing on the Initial Warrant Redemption Date, the
Company may, on thirty (30) days prior written notice redeem all of the Warrants
at a redemption price of twenty five cents ($.25) per Warrant; PROVIDED,
HOWEVER, that before any such call for redemption of Warrants can take place,
(i) the average closing bid price for the Common Stock in the over-the-counter
market as reported by the Nasdaq Stock Market or (ii) the average closing sale
price on the primary exchange on which the Common Stock is traded, if the Common
Stock is traded on a national securities exchange, shall have for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth (5th) trading day prior to the date on which the notice
contemplated by SECTIONS 9(b) and 9(c) hereof is given, equalled or exceeded
Five Dollars and Sixty Cents ($5.60) per share (subject to adjustment in the
event of any stock splits or other similar events as provided in SECTION 8
hereof).

(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders (including
their respective addresses and number of Warrants beneficially owned by them) to
whom such notice of redemption has been or will be given.

(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price that shall
be paid, (iv) that the Representatives or their successors or assigns is the
Company's exclusive warrant solicitation agent

-17-

<PAGE>

and shall receive the commission contemplated by SECTION 4(b) hereof, and (v)
that the right to exercise the Warrant shall terminate at 5:00 p.m. (California
time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrants shall be the "Redemption Date"
for purposes of this Agreement. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a holder (A) to whom notice was not mailed or
(B) whose notice was defective. An affidavit of the Warrant Agent or the
Secretary or Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.

(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(California time) on the business day immediately preceding the Redemption Date.
The redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.

(e) The Company shall indemnify the Representatives and each
person, if any, who controls either of the Representatives within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise
arising out of the registration statement or prospectus referred to in Section
5(b) hereof to the same extent and with the same effect (including the
provisions regarding contribution) as the provisions pursuant to which the
Company has agreed to indemnify the Underwriters contained in SECTION 7 of the
Underwriting Agreement.

(f) Five (5) business days prior to the Redemption Date, the
Company shall furnish to the Representatives (i) an opinion of counsel to the
Company, dated such date and addressed to the Representatives, and (ii) a "cold
comfort' letter dated such date addressed to the Representatives, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in the registration statement referred to in
SECTION 5(b) hereof, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities, including, without limitation,
those matters covered in SECTION 6(i) of the Underwriting Agreement.

(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within fifteen (15)

-18-

<PAGE>

months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with SECTION II(a) of the Act and covering a period of at
least twelve (12) consecutive months beginning after the Redemption Date.

(h) The Company shall deliver to the Representatives within five
(5) business days prior to the Redemption Date copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement referred to in SECTION 5(b) hereof and permit the
Representatives to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
the miles of the NASD. Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as the Representatives shall reasonably
request.

SECTION 10. REGISTRATION REQUIREMENT.

(a) The Company shall be obligated to the registered holders of
the Warrants to continually maintain, at the Company's own expense, the currency
and effectiveness of a registration statement of the Company under the
Securities Act of 1933, as amended, including the filing of any and all
applications and other notifications, filings and post-effective amendments and
supplements (collectively, the "Current registration statement") and any
necessary filings under applicable state blue sky (securities) laws, as may be
necessary, so as to permit the issuance of the Common Stock underlying the
Warrants to the holder of the Warrants until the earlier of the time that all
shares of Securities have been exercised pursuant to the Current Registration
Statement or the Expiration Date.

SECTION 11. CONCERNING THE WARRANT AGENT.

(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representatives, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and non-
assessable.

-19-

<PAGE>

(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct.

(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Representatives)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.

(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.

(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.

(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense.
Upon such resignation the

-20-

<PAGE>

Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published report to
its stockholders, of not less than ten million dollars ($10,000,000) or a stock
transfer company reasonably acceptable to the Representatives. After acceptance
in writing of such appointment by the new warrant agent is received by the
Company, such new warrant agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named herein as the
warrant agent, without any further assurance, conveyance, act or deed; but if
for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.

(g) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.

(h) The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.

(i) The Warrant Agent shall retain for a period of two (2) years from
the date of exercise any Warrant Certificate received by it upon such exercise.

-21-

<PAGE>

SECTION 12. MODIFICATION OF AGREEMENT.

The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (a) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained, or (b) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; PROVIDED, HOWEVER, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders holding not less than sixty-six and
two-thirds percent (66-2/3%) of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, and no change that increases the Purchase
Price of any Warrant, other than such changes as are specifically set forth in
this Agreement as originally executed, shall be made without the consent in
writing of each Registered Holders affected by such change. In addition, this
Agreement may not be modified, amended or supplemented without the prior written
consent of the Representatives or their successors or assigns, other than to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained or to make any such change that the
Warrant Agent and the Company deem necessary or desirable and which shall not
adversely affect the interests of the Representatives or its successors or
assigns.

SECTION 13. NOTICES.

All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or mailed first-
class postage prepaid or delivered to a telegraph office for transmission, if to
the Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the Company
at 2985 East Hillcrest Drive, Suite A, Westlake Village, California 91362,
Attention: Vincent J. Bitetti, Chief Executive Officer, or at such other address
as may have been furnished to the Warrant Agent in writing by the Company; and
if to the Warrant Agent, at its Corporate Office. Copies of any notice
delivered pursuant to this Agreement shall also be delivered to The Boston
Group, L.P., 1999 Avenue of the Stars, Suite 2550, Los Angeles, California
90067, Attention: Robert A. DiMinico, or at such other address as may have been
furnished by the Representatives to the Company and the Warrant Agent in
writing.

SECTION 14. GOVERNING LAW.

This Agreement shall be governed by and construed in accordance with the
laws of the State of California without giving effect to conflicts of laws.

-22-

<PAGE>

SECTION 15. BINDING EFFECT.

This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representatives are, and
shall at all times irrevocably be deemed to be, third-party beneficiaries of
this Agreement, with full power, authority and standing to enforce the rights
granted to them hereunder.

SECTION 16. COUNTERPARTS.

This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.

[Rest of page intentionally left blank]

-23-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

SOUND SOURCE INTERACTIVE, INC. CORPORATE STOCK TRANSFER COMPANY
As Warrant Agent

BY: By:
------------------------- -------------------------
Name: Eric H. Winston Name:
Title: President Title:

-24-

<PAGE>

EXHIBIT A

No. W VOID AFTER , 2001
----- -----------

WARRANTS
----

REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK

SOUND SOURCE INTERACTIVE, INC.

CUSIP
-----------

THIS CERTIFIES THAT, FOR VALUE RECEIVED

or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, no par value,
of Sound Source Interactive, Inc., a Delaware corporation (the "Company"), at
any time from ________, 1997 and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Corporate Stock Transfer Company, 370 17th Street, Suite 2350, Denver,
Colorado 80202, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $4.40, subject to adjustment (the "Purchase Price"),
in lawful money of the United States of America in cash or by check made payable
to the Warrant Agent for the account of the Company.

This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated ___________,
1996, by and between the Company and the Warrant Agent.

In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.

Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute

A-1

<PAGE>

and deliver a new Warrant Certificate or Warrant Certificates of like tenor,
which the Warrant Agent shall countersign, for the balance of such Warrants.

The term "Expiration Date" shall mean 5:00 p.m. (California time) on
__________, 2001. If such date shall in the State of California be a holiday or
a day on which banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (California time) the next following day which in the State of
California is not a holiday or a day on which banks are authorized to close.

The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, to keep such registration statement current, if required under the
Act, while any of the Warrants are outstanding, and deliver a prospectus which
complies with Section 10(a)(3) of the Act to the Registered Holder exercising
this Warrant. This Warrant shall not be exercisable by a Registered Holder in
any state where such exercise would be unlawful.

This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.

Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.

Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.25 per
Warrant, at any time commencing ________________, 1997, provided that (i) the
average closing bid price for the Company's Common Stock in the over-the-counter

A-2

<PAGE>

market as reported by the Nasdaq Stock Market or (ii) the average closing sale
price on the primary exchange on which the Common Stock is traded, if the Common
Stock is traded on a national securities exchange, shall have for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth trading day prior to the Notice of Redemption, as defined below,
equalled or exceeded $5.60 per share (subject to adjustment in the event of any
stock splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.25 per Warrant upon surrender of
this Certificate.

Under certain circumstances, The Boston Group, L.P. or Joseph Stevens &
Company, L.P. shall be entitled to receive an aggregate of five percent of the
Purchase Price of the Warrants represented hereby.

Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.

This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of California without giving effect to conflicts of
laws.

This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.

A-3

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.

Dated: 1996
SOUND SOURCE INTERACTIVE, INC.
[SEAL]

By:
------------------------------
Name: Vincent J. Bitetti
Title: Chief Executive Officer

By:
--------------------------
Name: Ulrich Gottschling
Title: Chief Financial Officer

COUNTERSIGNED:

CORPORATE STOCK TRANSFER COMPANY,
as Warrant Agent

By:
-----------------------------
Authorized Officer

A-4

<PAGE>

SUBSCRIPTION FORM

To Be Executed by the Registered Holder
in Order to Exercise Warrant

The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities be issued in the name of

PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER

-----------------------

-----------------------
(please print or type name and address)

and be delivered to

-----------------------

please print or type name and address)

and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.

A-5

<PAGE>

The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by The Boston Group,
L.P. of Joseph Stevens & Company, L.P.

Check below to indicate the soliciting agent:

The Boston Group, L.P.
- -----

Joseph Stevens & Company, L.P.
- -----

-----------------------
(Name of NASD member if
other than The Boston
Group, L.P. or Joseph
Stevens & Company, L.P.)

Dated: X
------------- ----------------------

-----------------------

-----------------------
Address

-----------------------
Social Security or Taxpayer
Identification Number

-----------------------
Signature Guaranteed

-----------------------

A-6

<PAGE>

ASSIGNMENT

To Be Executed by the Registered Holder
in Order to Assign Warrants

FOR VALUE RECEIVED, ______________________, hereby sells, assigns and
transfers unto

PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER

-----------------------

-----------------------
(please print or type name and address)

________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
________________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.

Dated: X
------------- ----------------------

-----------------------
Signature Guaranteed

THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.

A-7

<PAGE>

PROOF OF MAY 1, 1996
- --------------------------------------------------------------------------------

SOUND SOURCE INTERACTIVE, INC.

THE BOSTON GROUP, L.P.

JOSEPH AND STEVENS & COMPANY, L.P.

REPRESENTATIVES' WARRANT AGREEMENT

Dated as of ____________, 1996

----------------------

- --------------------------------------------------------------------------------

<PAGE>

REPRESENTATIVES' WARRANT AGREEMENT

THIS REPRESENTATIVES' WARRANT AGREEMENT (the "Agreement"), dated as of
_________ __, 1996, is made and entered into by and between SOUND SOURCE
INTERACTIVE, INC., a Delaware corporation (the "Company"), and THE BOSTON GROUP,
L.P. and JOSEPH STEVENS & CO., L.P. ("the Representatives").

The Company agrees to issue and sell to the Representatives and the
Representatives agree to purchase from the Company, for the price of $50,
warrants, as hereinafter described (the "Warrants" and together with any
warrants subsequently issued hereunder, the "Warrants"), to purchase (a) up to
240,000 shares, as may be adjusted from time to time as set forth herein, of the
Company's common stock, no par value (the "Common Stock") and (b) up to 120,000
Redeemable Warrants (as defined below), as adjusted from time to time as set
forth herein or in the Warrant Agreement dated ____________, 1996 between the
Company and Corporate Stock Transfer Corporation (the "Redeemable Warrant
Agreement"). This Warrant is being issued in connection with a public offering
(the "Offering") by the Company of 2,400,000 shares of Common Stock and
1,200,000 warrants to purchase Common Stock subject to the terms of the
Redeemable Warrant Agreement (the "Redeemable Warrants"), pursuant to an
underwriting agreement (the "Underwriting Agreement"), dated as of ___________,
1996, by and between the Company, Vincent Bitetti, Eric H. Winston, the several
Underwriters named therein and the Representatives. The shares of Common Stock
purchasable upon exercise of these Warrants, and the shares of Common Stock
issuable upon exercise of the Redeemable Warrants that may be purchased under
this Warrant are hereinafter referred to as the "Warrant Stock" and "Redeemable
Warrants." Redeemable Warrants are identical to the Redeemable Warrants issued
pursuant to the Underwriting Agreement. The Warrants shall be issued pursuant
to this Agreement on the Closing Date, as such term is defined in the
Underwriting Agreement.

In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants, the Warrant Stock, the Redeemable Warrants
and the respective rights and obligations thereunder, the Company and the
Representatives, for value received, hereby agree as follows:

SECTION 1. TRANSFERABILITY AND FORM OF WARRANTS.

1.1 REGISTRATION. All Warrants shall be numbered and shall be
registered on the books of the Company when issued.

1.2 TRANSFER. The Warrants shall be transferable only on the books
of the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by a Warrant holder (a
"Warrantholder") or by its duly authorized attorney or representative and with
the signatures properly guaranteed, accompanied by proper evidence

-1-

<PAGE>

of succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new certificate evidencing
each such Warrant to each person entitled thereto.

1.3 LIMITATIONS ON TRANSFER OF THE WARRANTS. Warrants, Warrant
Stock, and Redeemable Warrants (collectively the "Securities") shall not be
sold, transferred, assigned or hypothecated by the Representatives until 9:00
a.m., Pacific time, on ______________, 1997 [ONE YEAR AFTER THE EFFECTIVE DATE]
and appropriate legends shall be placed on the Securities, except that Warrants
may be transferred before such date: (i) to one or more officers or partners of
any Warrantholder, and the officers or partners of any such partner; (ii) to any
other member of the National Association of Securities Dealers, Inc. which
participated in the Offering and the officers or partners of any such member;
(iii) to successors to a Warrantholder or the officers or partners of any such
successor; (iv) to a purchaser of all or substantially all of the assets of a
Warrantholder; or (v) by will, pursuant to the laws of descent or distribution
or by operation of law. The Warrants may be divided or combined, upon request
to the Company by a Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of Warrant Stock.
Unless the context indicates otherwise, the term "Warrantholder" shall include
the Representatives and any transferee or transferees of the Warrants pursuant
to this subsection 1.3 and as otherwise permitted by this Agreement, and the
term "Warrants" shall include any and all Warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.

1.4 FORM OF WARRANTS. The text of the Warrants and of the form of
election to purchase Warrant Stock and/or Redeemable Warrants shall be
substantially as set forth in Exhibit A attached hereto. The aggregate number
of shares of Common Stock and Redeemable Warrants issuable upon exercise of the
Warrants is subject to adjustment upon the occurrence of certain events, all as
hereinafter or therein provided. The Warrants shall be executed on behalf of
the Company by its Chief Executive Officer or its President and attested to by
its Chief Financial Officer or its Secretary. A Warrant bearing the signature
of an individual who was at any time the proper officer of the Company shall
bind the Company, notwithstanding that such individual shall have ceased to hold
such office prior to the delivery of such Warrant or did not hold such office on
the date of this Agreement or at any time thereafter.

The Warrants shall be dated as of the date of signature thereof
by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.

1.5 LEGENDS. Each certificate for any of the Securities and the
Common Stock underlying the Warrants shall

-2-

<PAGE>

bear the following legend, unless, at the time of issuance such Security or
Common Stock is subject to a currently effective Registration Statement under
the Securities Act of 1933, as amended (the "Act"):

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 11 OF THE REPRESENTATIVES' WARRANT
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED."

Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to an effective registration
statement under the Act, of the securities represented thereby) shall also bear
the above legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.

SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of shares of Warrant Stock or Redeemable
Warrants as the certificate or certificates surrendered then entitled such
Warrantholder to purchase. Any Warrantholder desiring to exchange a Warrant
certificate shall make such request in writing delivered to the Company, and
shall surrender, properly endorsed, the certificate evidencing the Warrant to be
so exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate or certificates as so requested.

SECTION 3. TERM OF WARRANTS; EXERCISE OF WARRANTS.

3.1 EXERCISE OF WARRANTS. Subject to the terms of this Agreement,
the Warrantholder shall have the right, at any time until 5:00 p.m., Pacific
Time, on _____________, 2001 [FOUR YEARS AFTER THE EFFECTIVE DATE] (the
"Termination Date"), to purchase from the Company up to the number of fully paid
and nonassessable shares of Warrant Stock and Redeemable Warrants to which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the purchase
form on the reverse thereof duly completed and executed, and upon payment to the
Company of the respective Warrant Price (as defined in and determined in
accordance with the provisions of this Section 3 and Sections 7 and 8 hereof)
for the number of shares of Warrant Stock and/or Redeemable Warrants in respect
of which such Warrants are then exercised, but in no event for less than 100

-3-

<PAGE>

shares of Warrant Stock or 100 Redeemable Warrants (unless less than an
aggregate of 100 shares of Warrant Stock or Redeemable Warrants, respectively,
are then purchasable under all outstanding Warrants held by such Warrantholder).
This Warrant may be exercised from time to time in whole or in part.

3.2 PAYMENT OF WARRANT PRICE. Payment of the Warrant Price shall be
made in cash, by certified or official bank check in Los Angeles Clearing House
funds (next day funds), or any combination thereof.

3.3 CASHLESS EXERCISE. In addition to the method of payment set
forth in Section 3.2 above and in lieu of any cash payment required thereunder,
unless otherwise prohibited by law, the Warrantholders shall have the right at
any time and from time to time to exercise the Warrants in full or in part (i)
by receiving from the Company the number of shares of Warrant Stock or
Redeemable Warrants, as the case may be, equal to the number of shares of
Warrant Stock or Redeemable Warrants, respectively, otherwise issuable upon such
exercise less the number of shares of Warrant Stock or Redeemable Warrants,
respectively, having an aggregate value on the date of exercise equal to the
respective Warrant Price multiplied by the number of shares of Warrant Stock or
Redeemable Warrants, respectively, for which this Warrant is being exercised
and/or (ii) by delivering to the Company the number of shares of Common Stock or
Redeemable Warrants, respectively, having an aggregate value on the date of
exercise equal to the respective Warrant Price multiplied by the number of
shares of Warrant Stock or Redeemable Warrants, respectively, for which this
Warrant is being exercised.

Upon surrender of the Warrants and payment of the respective
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrantholder,
and in such name or names as the Warrantholder may designate, certificates for
the number of full shares of Warrant Stock or Redeemable Warrants so purchased
upon such exercise of the Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional shares or Redeemable Warrants otherwise
issuable upon such surrender. Such certificate or certificates, to the extent
permitted by law, shall be deemed to have been issued and any person so
designated to be named therein shall be defined to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the respective Warrant Price, as aforesaid, notwithstanding that the
certificate or certificates representing such securities shall not actually have
been delivered or that the stock transfer books or Redeemable Warrants books of
the Company shall then be closed. The Warrants shall be exercisable, at the
election of the Warrantholder, either in full or from time to time in part for
Common Stock or Redeemable Warrants, or both, and, in the event that a Warrant
is exercised in respect of less than all of the shares of Warrant Stock or
Redeemable Warrants specified therein at any time prior to the

-4-

<PAGE>

Termination Date, a new Warrant evidencing the remaining shares of the Warrant
Stock or Redeemable Warrants purchasable by such Warrantholders hereunder shall
be issued by the Company to such Warrantholders.

3.4 SOLICITATION FEE. The Company hereby appoints the
Representatives as the exclusive solicitation agents for the Warrants, and
hereby agrees to pay the Representatives a commission equal to five percent (5%)
of the exercise price of the Warrants, payable on the date of the exercise
thereof. The Company will not solicit the exercise of the Warrants other than
through the Representatives.

SECTION 4. VALIDITY; PAYMENT OF TAXES. All securities delivered upon
exercise of a Warrant shall be duly and validly issued and non-assessable. The
Company shall pay all documentary stamp taxes, if any, attributable to the
initial issuance of the Warrants and the shares of Warrant Stock and Redeemable
Warrants issuable upon the exercise of the Warrants; provided, however, the
Company shall not be required to pay any tax which may be payable in respect of
any secondary transfer of the Warrants, the Warrant Stock or Redeemable
Warrants.

SECTION 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant.

SECTION 6. RESERVATION OF SHARES. The Company represents and warrants to
the Warrantholder that there has been reserved, and the Company shall at all
times keep reserved so long as the Warrants and Redeemable Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants and Redeemable
Warrants. Every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants shall be irrevocably
authorized and directed at all times to reserve such number of authorized shares
and other securities as shall be requisite for such purpose. The Company shall
keep a copy of this Agreement on file with every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants. The Company shall supply every such transfer agent with duly executed
stock and other certificates, as appropriate, for such purpose and shall provide
or otherwise make available any cash which may be payable in lieu of the
issuance of fractional shares, as provided in Section 9 hereof.

-5-

<PAGE>

SECTION 7. WARRANT PRICE. The price per share at which shares of Warrant
Stock shall be purchasable upon the exercise of the Warrants shall be 120% of
the initial public offering price of Common Stock in the Offering, subject to
adjustment pursuant to Section 8 hereof (as so adjusted from time to time, the
"Purchase Price"). The price per Redeemable Warrant at which Redeemable
Warrants shall be purchasable upon the exercise of the Warrants shall be 120% of
the initial public offering price of Redeemable Warrants sold in the Offering,
subject to adjustment pursuant to Section 8 hereof (as so adjusted from time to
time, the "Redeemable Warrant Price"). (The "Purchase Price" and "Redeemable
Warrant Price" are herein referred to as the respective "Warrant Price".)

SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON
STOCK DELIVERABLE.

8.1 ADJUSTMENT OF PURCHASE PRICE.

(a) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any shares
of Common Stock for a consideration per share less than the Purchase Price or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price for the Warrants in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (A) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the
Purchase Price in effect immediately prior to such Change of Shares, and (y) the
consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination by (B) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; PROVIDED, HOWEVER, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.

For the purposes of any adjustment to be made in accordance with this
Section 8.1(a) the following provisions shall be applicable:

(i) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if

-6-

<PAGE>

shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other case.

(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash or as
part of a unit, the amount of the consideration therefor other than cash deemed
to have been received by the Company or the amount received per share as part of
a unit shall be the value of such consideration as determined in good faith by
the Board of Directors of the Company on the basis of a record of values of
similar property, services or securities.

(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.

(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in Section 8.1(a)(ii) hereof.

(v) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.

(b) Upon each adjustment of the Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by multiplying the number of shares of
Common Stock

-7-

<PAGE>

purchasable immediately prior to such adjustment by the Purchase Price in effect
prior to such adjustment and dividing the product so obtained by the applicable
adjusted Purchase Price.

8.2 ADJUSTMENTS FOR OPTIONS, ETC. In case the Company shall at any
time after the date hereof issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, for a consideration per share (determined as
provided in Section 8.1(a) hereof and as provided below) less than the Purchase
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of dividend
or other distribution), the Purchase Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Section 8.1(a) hereof, provided that:

(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable or that may become issuable under such options, rights
or warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration equal
to the minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the Company for such options, rights or warrants; PROVIDED, HOWEVER, that upon
the expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of Section 8.1(a)(v) hereof) shall be reduced by the number of shares
as to which options, warrants and/or rights shall have expired, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.

(b) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any,

-8-

<PAGE>

receivable by the Company upon the conversion or exchange thereof; PROVIDED,
HOWEVER, that upon the termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (b) (and for the purposes of Section
8.1(a)(v) hereof) shall be reduced by the number of shares as to which the
conversion or exchange rights shall have expired or terminated unexercised, and
such number of shares shall no longer be deemed to be issued and outstanding,
and the Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been made on the
basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.

(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in Section 8.2(a)
hereof, or in the price per share or ratio at which the securities referred to
in Section 8.2(b) hereof are convertible or exchangeable, such options, rights
or warrants or conversion or exchange rights, as the case may be, to the extent
not theretofore exercised, shall be deemed to have expired or terminated on the
date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange thereof,
and the Company shall be deemed to have issued upon such date new options,
rights or warrants or convertible or exchangeable securities.

(d) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,

-9-

<PAGE>

consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chairman of the Board, President or a Vice President and by its Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Sections 8.1 and 8.2 hereof. The above provisions of this Section 8.2(d)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.

(e) Irrespective of any adjustments or changes in the Warrant
Price or the number of shares of Common Stock or Redeemable Warrants purchasable
upon exercise of the Warrants, no changes shall be necessary to the face of the
Warrant Certificates theretofore and thereafter issued.

(f) After each adjustment of the Purchase Price and the Warrant
Exercise Price pursuant to this Section 8, the Company will promptly prepare a
certificate signed by the Chairman of the Board, President, or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth: (i) the Purchase Price and Warrant
Exercise Price, as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Company's Transfer Agent and cause a
brief summary thereof to be sent by ordinary first class mail to each Registered
Holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.

(g) No adjustment of the Purchase Price shall be made as a
result of or in connection with (i) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements and convertible
or exchangeable securities outstanding or in effect on the date hereof, (ii) the
issuance or sale of shares of Common Stock upon the exercise of any "incentive
stock options" (as such term is defined in the Internal Revenue Code of 1986, as
amended), or any non-qualified stock options to non-employee directors of the
Company pursuant to the Company's 1995 Stock Option Plan, whether or not such
options were outstanding on the date hereof, or (iii) the issuance or sale of
shares of Common Stock if the amount of said

-10-

<PAGE>

adjustment shall be less than ten cents ($.10); PROVIDED, HOWEVER, that in such
case, any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so carried
forward, to at least ten cents ($. 10). In addition, Registered Holders shall
not be entitled to cash dividends paid by the Company prior to the exercise of
any Warrant or Warrants held by them.

8.3 ADJUSTMENT OF REDEEMABLE WARRANT PRICE. Upon each adjustment of
the Purchase Price pursuant to this Section 8, the Redeemable Warrant Price
shall be adjusted by multiplying the number of Redeemable Warrants immediately
prior to such adjustment by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the applicable adjusted
Purchase Price. Upon any exercise of this Warrant, the Redeemable Warrants
issued shall reflect all anti-dilution changes made in such Redeemable Warrants
since the Warrant Agreement for the Redeemable Warrants was entered into.

8.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or other entity or in case of any sale,
lease, conveyance or other transfer to another corporation, person or other
entity of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, person or other entity, as the case may be, shall execute with the
Warrantholder, and the agreements governing such consolidation, merger, sale,
lease, conveyance or other transfer shall require such execution of, an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such event, upon exercise of
the Warrants, to receive the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, lease, conveyance or other
transfer had the Warrants (and each underlying security) been exercised
immediately prior to such action. The Company shall promptly mail to each
Warrantholder by first class mail, postage prepaid, notice of the execution of
any such agreement. In the event of a merger described in Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase shares of Warrant Stock under the Warrants
shall terminate on the date of such merger and thereupon the Warrants shall
become null and void, but only if the controlling corporation shall agree to
substitute for the Warrants its warrant which entitles the holder thereof to
purchase upon its exercise the kind and amount of shares and other securities
and property which it would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this Section 8.4 shall provide for adjustments, which shall be as

-11-

<PAGE>

nearly equivalent as may be practicable to the adjustments provided for in
Section 8 hereof, and shall provide for terms and provisions at least as
favorable to the Warrantholder as those contained in this Agreement. The
provisions of this Section 8.4 shall similarly apply to successive
consolidations, mergers, sales, leases, conveyances or other transfers.

8.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action
which would cause an adjustment effectively reducing the portion of the Warrant
Price allocable to each share of Warrant Stock below the then par value per
share, if any, of the Warrant Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Stock upon exercise of the Warrants.

8.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain Corbin &
Wertz (or such other accounting firm qualified to practice in front of the
Securities and Exchange Commission (the "Commission") as is reasonably
acceptable to the Representative) to make any computation required under this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of any computation made under this Section 8.

SECTION 9. FRACTIONAL SHARES; CURRENT MARKET PRICE. The Company shall not
be required to issue fractional shares of Common Stock or Redeemable Warrants on
the exercise of a Warrant. If any fraction of a share of Common Stock or
Redeemable Warrants would, except for the provisions of this Section 9, be
issuable upon the exercise of a Warrant (or specified portion thereof), the
Company shall in lieu thereof pay an amount in cash equal to the then Current
Market Price multiplied by such fraction (less the applicable Redeemable Warrant
Price for a Redeemable Warrant). For purposes of this Agreement, the term
"Current Market Price" shall mean (i) if the Common Stock is traded on the
Nasdaq National Market ("NNM") or on a national securities exchange, the per
share closing price of the Common Stock in the NNM or on the principal stock
exchange on which it is listed, as the case may be, on the date of exercise of
the Warrant or, with respect to any adjustment pursuant to Section 8.1 hereof,
on the date immediately preceding the announcement of the event causing such
adjustment or (ii) if the Common Stock is traded in the over-the-counter market
and not in the NNM or on any national securities exchange, the average of the
per share closing bid prices of the Common Stock on the thirty (30) consecutive
trading days immediately preceding the date in question, as reported by The
Nasdaq Small Cap Market (or an equivalent generally accepted reporting service
if quotations are not reported on The Nasdaq Small Cap Market). The closing
price referred to in clause (i) above shall be the last reported sale price or,
in the case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case in the NNM or on the
principal stock exchange on which the Common Stock is

-12-

<PAGE>

then listed. For purposes of clause (ii) above, if trading in the Common Stock
is not reported by The Nasdaq Small Cap Market, the bid price referred to in
said clause shall be the lowest bid price as reported in the Nasdaq Electronic
Bulletin Board or, if not reported thereon, as reported in the "pink sheets"
published by National Quotation Bureau, Incorporated, and, if such Common Stock
is not so reported, shall be the price of a share of Common Stock determined by
the Company's Board of Directors in good faith.

SECTION 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Except as
expressly provided herein, nothing contained in this Agreement or in the
Warrants shall be construed as conferring upon the warrantholder or its
transferees any rights as a shareholder of the Company, including the right to
vote, receive dividends, consent or receive notices as a shareholder in respect
of any meeting of shareholders for the election of directors of the Company or
any other matter. if, however, at any time prior to the expiration of the
Warrants and prior to their exercise, any one or more of the following events
shall occur:

(a) any action which would require an adjustment pursuant to
Section 8 hereof;

(b) an issuance by the Company of rights, options, warrants or
convertible securities to all or substantially all holders of its Common Stock,
without any charge to such holders, containing the right to subscribe for or
purchase Common Stock; or

(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;

then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 13 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution or other rights or for the determination of stockholders entitled
to vote on such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be.

SECTION 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS; OBLIGATION'S IN
REGISTRATION.

11.1 NOTICE OF TRANSFER. The Warrantholder agrees that prior to
making any disposition of the Securities, other than to persons or entities
identified in the first sentence of Section 1.3, the Warrantholder shall give
written notice to the Company describing briefly the manner in which any such
proposed

-13-

<PAGE>

disposition is to be made; and no such disposition shall be made unless the
Warrantholder has notified, or currently with such disposition notifies, the
Company that in the opinion of counsel reasonably satisfactory to the Company a
registration statement, application or other notification, filing or post-
effective amendment or supplement thereto (hereinafter collectively a
"Registration Statement") under the Act or the state securities or "blue sky"
laws of any applicable jurisdiction is not required with respect to such
disposition and no such Registration Statement has been filed by the Company
with, and declared effective, if necessary, by, the Commission or state
securities commission or agency. The Warrantholder agrees that it shall use its
reasonable best efforts to obtain from any transferee who acquires any Warrants
in a private transaction with the Warrantholder an agreement by such transferee
that it agrees to be bound by any transfer restrictions set forth in this
subsection 11(a) then applicable to such transferees.

11.2 REGISTRATION OF SECURITIES. The Company shall be obligated to
prepare and file a registration statement, and amendments thereto, with the
Commission for the registration of the Securities under the Act and shall be
obligated to cause such registration statement, and amendments thereto, to be
declared effective by the Commission on or prior to ______________, 199_ [ONE
YEAR AFTER WARRANT ISSUED]. The Company shall be obligated to the registered
holders of the Securities to continually maintain, at the Company's own expense,
the currency and effectiveness of such registration statement of the Company,
including the filing of any and all applications and other notifications,
filings and post-effective amendments and supplements (collectively, the
"Current Registration Statement"), as may be necessary, so as to permit the
resale of the Securities until the earlier of the time that all shares of
Securities have been sold pursuant to the Current Registration Statement or the
Termination Date.

11.3 FURTHER RIGHTS OF WARRANT HOLDERS. If at any time after the date
hereof the Current Registration Statement is no longer in effect other than
because all Securities have been sold pursuant to the Current Registration
Statement or because the Termination Date has already occurred, the Company
shall be obligated to the registered holders of the Securities as follows:

(a) Whenever during the period beginning on ____________, 1997
[ONE YEAR AFTER THE EFFECTIVE DATE] and ending on _____________, 2004 [SEVEN
YEARS AFTER THE EFFECTIVE DATE], the Company proposes to file with the
Commission a Registration Statement (other than as to securities issued pursuant
to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act), it shall, at least thirty (30) days prior to each
such filing, give written notice of such proposed filing to each holder of the
Securities at their respective addresses as they appear on the records of the
Company, and shall offer to include and shall include in such filing any
proposed

-14-

<PAGE>

disposition of the Securities upon receipt by the Company, not more than twenty
(20) days following the receipt of such notice, of a request therefor setting
forth the facts with respect to such proposed disposition and all other
information with respect to such person reasonably necessary to be included in
such Registration Statement. In the event that such registration statement
relates to an underwritten offering on a "firm commitment" basis and the
managing underwriter for said offering advises the Company in writing that the
inclusion of such Securities in the offering would be materially and
substantially detrimental to the completion of the offering, such Securities
shall nevertheless be included in the Registration Statement, provided that the
Warrantholder and each holder of Securities desiring to have such Securities
included in the Registration Statement agrees in writing for a period of ninety
(90) days following such offering not to sell or otherwise dispose of such
Securities pursuant to such Registration Statement, which Registration Statement
the Company shall keep effective for a period of at least nine (9) months
following the expiration of such ninety (90) day period.

(b) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the four-year period beginning on _____________,
1997 [ONE YEAR AFTER THE EFFECTIVE DATE] and ending on the Termination Date, the
Company will, as promptly as practicable (but in any event within sixty (60)
days), after written request (the "Request") by the Representative, or by a
person or persons holding (or having the right to acquire by virtue of holding
the Warrants) at least sixty percent (60%) of the shares of Warrant Stock which
have been (or may be) issued upon exercise of the Warrants and Redeemable
Warrants underlying the Warrants, prepare and file at the Company's expense a
Registration Statement with the Commission and such applications or other
filings as required under applicable state securities or blue sky laws
sufficient to permit the public offering of the Securities, and shall use its
reasonable best efforts at its own expense through its officers, directors,
auditors and counsel, in all matters necessary or advisable, to cause such
Registration Statement to become effective as promptly as practicable and to
maintain such effectiveness so as to permit resale of the Securities covered
by the Request until the earlier of the time that all such Securities have been
sold or the expiration of ninety (90) days from the effective date of the
Registration Statement; provided, however, that the Company shall only be
obligated to file one such Registration Statement under this Section 11.3(b).
Notwithstanding the foregoing, once and only once during the period the Company
would have an obligation to register the Securities pursuant to this Section
11.3(b), the Company shall not be obligated to effect a registration pursuant to
this Section 11.3(b) during the three (3) month period starting with the date
thirty (30) days prior to the Company's estimated date of filing of an
underwritten public offering of securities solely for the account of the
Company; provided that the Company is

-15-

<PAGE>

actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith; provided
further, that the Company shall furnish to the Warrantholder and each holder of
Securities a certificate signed by the managing underwriter stating that it
would be seriously detrimental to the Company or its shareholders for the
registration statement to be filed in the near future.

(c) All fees, disbursements and out-of-pocket expenses (other
than the Warrantholder's brokerage fees and commissions and legal fees of
counsel to the Warrantholder, if any) in connection with the filing of any
Registration Statement or maintaining the currency and effectiveness of the
Current Registration Statement (or obtaining the opinion of counsel and any no-
action position of the commission with respect to sales under Rule 144) and in
complying with applicable federal securities and state securities and blue sky
laws shall be borne by the Company. The Company at its expense shall supply any
holder of the Securities with copies of such Registration Statement and the
prospectus included therein and other related documents and any opinions and no-
action letters in such quantities as may be reasonably requested by such holder
of the Securities.

(d) The Company shall not be required by this Section 11 to file
such Registration Statement if, in the opinion of counsel for the
Representative, which counsel shall be reasonably satisfactory to the Company,
or in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders, the proposed public offering or other
transfer as to which such Registration Statement is requested is exempt from
applicable federal securities and state securities and blue sky laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities," as defined in Rule 144 under the Act.

(e) The provisions of this Section 11 and of Section 12 hereof
shall apply to the extent provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.

(f) Notwithstanding the other provisions of this Section 11, the
Company may, in full satisfaction of its obligations under this Section 11,
register the Securities with the Commission pursuant to the Act on any form then
available to it so as to allow the unrestricted sale of the Securities to the
public from time to time commencing at 9:00 a.m. Pacific time on _____________,
199_ and ending at 5:00 p.m. Pacific time on ____________, 200_ (the
"Registration Period"). If the Company elects to so satisfy its obligations
under this Section 11, the Company shall also file such applications and other
documents necessary to permit the sale of the Securities to the public

-16-

<PAGE>

during the Registration Period in those states in which the Securities was
qualified for sale in the offering or such other states as the holders of the
Securities reasonably request. In order to comply with the provisions of this
Section 11.3(f), the Company may, but is not required to, file more than one
Registration Statement. The Company shall file such post-effective amendments
and supplements as may be necessary to maintain the currency of such
Registration Statement(s) during the period of its (their) use. In addition, if
the holders of the Securities participating in such registration are advised by
counsel that such Registration Statement, in their opinion, is deficient in any
material respect, the Company shall use its best efforts to cause such
Registration Statement to be amended to eliminate the concerns raised.

(g) The Company agrees that until all the Securities have been
sold under a Registration Statement or pursuant to Rule 144 under the Act, it
shall keep current in filing all materials required to be filed with the
Commission in order to permit the holders of such securities to sell the same
under Rule 144.

(h) In the event any holder of Securities timely elects to
participate in an offering by including Securities in a Registration Statement
pursuant to Section 11.3 hereof, the Company shall use its reasonable best
efforts to effect such registration to permit the sale of Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto, the Company shall, as expeditiously as possible:

(i) Prepare and file with the Commission a Registration
Statement or Registration Statements on a form available for the sale of the
Securities, and to cause any such Registration Statement filed under the Act
pursuant to Section 11.3 hereof to become effective at the earliest possible
date after the filing thereof and remain effective as provided herein and to
comply with all applicable rules and regulations of the Commission (the "Rules
and Regulations") in connection therewith, provided, however, that before filing
a Registration Statement or prospectus or any amendments or supplements thereto,
including documents which would be incorporated or deemed to be incorporated by
reference in the Registration Statement after the initial filing of any
Registration Statement, the Company will furnish to the Representatives and the
holders of the Securities, their respective counsel, and the underwriters, if
any, to be engaged in connection with the offering and sale by the Company (for
purposes of this Section 11.3(f), the "Public Underwriter"), copies of all such
documents proposed to be filed, which documents will he subject to the review of
the Representatives and such holders of the Securities, their respective counsel
and the Public Underwriter, if any, and the Company will not file any
Registration Statement, amendment thereto, any prospectus or any supplement
thereto (including such documents incorporated or deemed to be incorporated by
reference) to which the

-17-

<PAGE>

Representatives or the Public Underwriter, if any, shall reasonably object;

(ii) Prepare and promptly file with the Commission such
amendments and post-effective amendments to a Registration Statement as may be
necessary to keep such Registration Statement continuously effective for a
period of twelve (12) months; cause the related prospectus to be supplemented,
by any required prospectus supplement, and as so supplemented, to be filed
pursuant to Rule 424 under the Act; and comply with the provisions of the Act
with respect to the disposition of all Securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition as set forth in such Registration Statement or supplement to such
prospectus; the Company shall not be deemed to have used its reasonable best
efforts to keep a Registration Statement effective during the applicable period
if it intentionally or voluntarily takes any action that would result in the
Representatives or such Warrantholders not being able to sell such Securities;

(iii) As soon as the Company is advised or obtains knowledge
thereof, advise the Representatives and confirm the same in writing (1) when the
Registration Statement, as amended, becomes effective and when any post-
effective amendment to the Registration Statement becomes effective, (2) of the
issuance by the Commission or any State or other regulatory body of any stop
order or other order, or of the initiation or the threat or contemplation of any
proceeding, the outcome of which may result in the suspension of the
effectiveness of the Registration Statement or the issuance of any order
preventing or suspending the use of any preliminary prospectus or the
prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (3) of the issuance by the Commission or any State
or other regulatory body of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation or the threat or contemplation of any proceeding for that
purpose, (4) of the receipt of any comments from the Commission and (5) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the prospectus related thereto or for additional
information; if the commission or any State or other regulatory body shall enter
a stop order or other order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any preliminary prospectus or
the prospectus, or any amendment or supplement thereto, or suspend such
qualification at any time, make every effort to obtain promptly the lifting of
such order or suspension;

(iv) If requested by the Public Underwriter, if any, or the
Representative, or any holder of Securities (1) immediately incorporate in a
prospectus supplement or post-effective amendment such information as the
Representatives or

-18-

<PAGE>

such Warrantholder and the Public Underwriter, if any, agree should be included
therein relating to such sale and distribution of the Securities, including,
without limitation, information with respect to the number of Securities being
sold to such Public Underwriter, the purchase price being paid therefor by such
Public Underwriter and with respect to any other terms of the underwritten
offering of the Securities to be sold in such offering; (2) make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be so incorporated in such prospectus supplement or
post-effective amendment; and (3) supplement or amend any Registration Statement
if requested by the Representative, the holders of Securities or any underwriter
of Securities;

(v) Furnish to the Representative, each of the holders of
Securities and their respective counsel, without charge and at such place as the
Representatives may designate, copies of each preliminary prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which will be signed and will include all financial statements
and exhibits, one for the Representatives and one for the Representatives'
Counsel), the Prospectus, and all amendments and supplements thereto, including
any prospectus prepared after the effective date of the Registration Statement
and any term sheet, in each case as soon as available and in such quantities as
the Representatives and each holder of the Securities may request;

(vi) During the time when a prospectus is required to be
delivered under the Act, shall comply with all requirements imposed upon it by
the Act and the Exchange Act, 1934, as amended (the "Exchange Act"), as now and
hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the prospectus, or
any amendments or supplements thereto; if at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of the Company or counsel for
the Company or the Representatives or counsel for the Representatives, the
prospectus, as then amended or supplemented, would include an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, or if it is necessary at
any time to amend or supplement the Prospectus to comply with the Act, notify
the underwriter and prepare and file, at the Company's expense, with the
Commission an appropriate amendment or supplement to the Registration Statement
or an amendment or supplement to the prospectus which will correct such
statement or omission, or effect such compliance, each such amendment or
supplement to be reasonably satisfactory to the Representatives and the counsel
for the Representative; and furnish to the Representatives copies of such

-19-

<PAGE>

amendment or supplement as soon as available and in such quantities as the
Representatives may request;

(vii) As soon as practicable, but in any event not later
than forty-five (45) days after the end of the twelve (12) month period
beginning after the effective date of the Registration Statement occurs, make
generally available to its security holders, in the manner specified in Rule
158(b) promulgated under the Act, and to the Representative, an earnings
statement which will comply with the provisions of Section 11(a) of the Act and
Rule 158(a) promulgated under the Act;

(viii) Deliver to the Representatives and each of the
holders of Securities, their respective counsel and the Public Underwriter, if
any, without charge, as many copies of the prospectus or prospectuses (including
each preliminary prospectus) and any amendment or supplement thereto as such
persons may reasonably request; the Company consents to the use of any such
prospectus or any amendment or supplement thereto by the Representatives, the
holders of Securities and the Public Underwriter, if any, in connection with the
offering and sale of the Securities covered by such prospectus or any amendment
or supplement thereto;

(ix) Prior to any public offering of Securities, use its
best efforts, at or prior to the time the Registration Statement becomes
effective, to qualify the Shares for offering and sale under the securities or
"blue sky" laws of such jurisdictions as the Representatives may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any such
jurisdiction; in each jurisdiction where such qualification shall be effected,
use its best efforts to file and make such statements or reports at such times
as are or may be required by the laws of such jurisdiction to continue such
qualification;

(x) Cooperate with the Representatives, the holders of the
Securities and the Public Underwriter, if any, to facilitate the timely
preparation and delivery of certificates representing Securities to be sold,
which certificates shall not bear any restrictive legends; and enable such
Securities to be in such denominations and registered in such names as the
Public Underwriter, if any, may request at least two (2) business days prior to
any sale of Securities;

(xi) Use its reasonable best efforts to cause the
Securities covered by the Registration Statement to be registered with or
approved by such other governmental bodies, agencies or authorities as may be
necessary to enable the

-20-

<PAGE>

Representatives, the holders of the Securities or the Public Underwriter, if
any, to consummate the disposition of such Securities;

(xii) Make every reasonable effort to cause all Securities
covered by such Registration Statement to be (1) listed on each securities
exchange, if any, in which equity securities issued by the Company are then
listed or (2) authorized to be quoted on the NNM if the Company's Common Stock
is then authorized to be quoted on the NNM;

(xiii) Enter into such agreements (including, without
limitation, if applicable, an underwriting agreement, in form, scope and
substance as is customary in underwritten offerings) and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of such Securities and, in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration, (1) make such representations and warranties to the
Representatives and the holders of the Securities with respect to the business
of the Company and its subsidiaries and the Public Underwriter, if any, the
Registration Statement, the prospectus, the prospectus supplement (if any) and
documents, if any, incorporated or deemed to be incorporated by reference in the
Registration Statement, in each case in such form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested; (2) obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Representatives and the
holders of the Securities), addressed to the Representatives and the holders of
the Securities with respect to the matters referred to in the preceding clause
in such form, scope and substance as are customarily rendered to underwriters in
underwritten offerings and such other matters as may be reasonably requested by
counsel to the Representatives, the holders of the Securities or the Public
Underwriter, if any; (3) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement) addressed to the Representatives, the holders of the
Securities and each of the Public Underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with underwritten offerings; (4)
if an underwriting agreement is entered into, the same shall set forth in full
the indemnification and contribution provisions and procedures of Section 12
hereof (or such other provisions and procedures as shall be acceptable to the
Representatives, the holders of the Securities and to the Public Underwriter of
such underwritten offering) with respect to all

-21-

<PAGE>

parties to be indemnified pursuant to said section; and (5) deliver such
documents and certificates as may be reasonably requested by the
Representatives, the holders of the Securities and the Public Underwriter, if
any, to evidence the continued validity of the representations and warranties
made pursuant to clause (1) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;

(xiv) Make available for inspection by a representative of
the Representatives or the holders of the Securities or any Public Underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney or accountant retained by the Representatives or the holders of the
Securities or such Public Underwriter, all financial and other records,
pertinent corporate documents and properties and assets of the Company and its
subsidiaries and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information reasonably requested by
any such representative, Public Underwriter, attorney or accountant in
connection with any registration of the Securities; provided, however, that any
records, information or documents that are designated by, the Company in writing
at the time of delivery of such records, information or documents as
confidential shall be kept confidential by such persons unless (1) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of governmental or regulatory
bodies, agencies or authorities, (2) disclosure of such records, information or
documents is, in the opinion of counsel to the Representatives or the holders of
the Securities or to any Public Underwriter, required by law regulations or
legal process, (3) such records, information or documents are otherwise publicly
available or (4) such records, information or documents become available to such
person from a source other than the Company, and such source is not bound by a
confidentiality agreement;

(xv) If the Company, in the exercise of its reasonable
judgment, objects to any change reasonably requested by the Representatives, the
holders of the Securities or the Public Underwriter, if any, to any Registration
Statement or prospectus or any amendments or supplements thereto (including
documents incorporated or deemed to be incorporated therein by reference) as
provided for in this Section 11.3(h), the Company shall not be obligated to make
any such change and the Representatives or the holders of the Securities may
withdraw Securities from such registration, in which event the Company shall pay
all registration expenses (including, without limitations, attorneys' fees and
expenses) incurred by the Representatives and the holders of the Securities in
connection with such Registration Statement or prospectus or any amendment
thereto or supplement thereof; provided, that if the Company

-22-

<PAGE>

provides the Representatives and the holders of the Securities, as applicable,
with a written opinion of independent counsel (which counsel may be the
Company's regular outside counsel), upon which the Representatives and such
holders of the Securities may rely, that the change so requested is not required
in order that the Registration Statement comply with all applicable securities
laws (including any rules and regulations promulgated thereunder), the
Representatives and such holders of the Securities may withdraw Securities from
such registration but the Company shall not be obligated to pay any registration
expenses incurred by the Representatives and the holders of the Securities; and

(xvi) Pay all costs and expenses incident to the
performance of or compliance with the Company's obligations under Section 11.2
hereof and under this Section 11.3 (collectively, "Registration Expenses")
whether or not any Registration Statement is filed or becomes effective,
including, without limitation, the fees and disbursements of the Company's
auditors, legal counsel, special legal counsel, legal counsel responsible for
qualifying the Securities under blue sky laws, all filing fees and printing
expenses, all expenses in connection with the transfer and delivery of the
Securities, and all expenses in connection with the qualification of the
Securities under applicable blue sky laws; provided, however, that the Company
shall not bear the Public Underwriter's discount or commission with respect to,
or any transfer taxes imposed on, the Securities or the fees and expenses of
counsel to the Representatives or the holders of the Securities; provided,
further, however, that the Representatives shall not be responsible in any way
for any fees or expenses of the Company's counsel, except, in each case, as
provided in this Section 11.3.

(xvii) For purposes of this Section 11, a holder of
Securities shall include any holder of the Securities which have not been
offered in the public.

SECTION 12. INDEMNIFICATION AND CONTRIBUTION.

12.1 INDEMNIFICATION OF WARRANTHOLDERS. The Company agrees to
indemnify and hold harmless the Warrantholders and any Holder of Securities (for
purposes of this Section 12, "Holder" shall include such individuals and the
officers, directors, partners, employees, agents and counsel of a Warrantholder
or a holder of Securities), and each person, if any, who controls a Holder
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses (including, without limitation, reasonable attorneys' fees and
expenses) or liabilities and all actions, suits, proceedings, injuries,
arbitrations, investigations, litigation or governmental or other proceedings
(in this Section 12, collectively, "actions") in respect thereof, whatsoever
(including, without limitation, any and all expenses whatsoever reasonably
incurred in investigating

-23-

<PAGE>

preparing or defending against any action, commenced or threatened, or any claim
whatsoever), as such are incurred, to which a Holder or such controlling person
may become subject under the Act, the Exchange Act or any other statute or at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in any preliminary
prospectus, the Current Registration Statement, the Registration Statement or
any prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Warrants; or (iii) in any application or other document or
written communication (in this Section 12, collectively, "application") executed
by the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities or blue sky
laws thereof or filed with the Commission, any state securities commission or
agency, the National Association of Securities Dealers, Inc. (the "NASD") or the
NNM or any other securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of any prospectus, in light
of the circumstances in which they were made), unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to a Holder by or on behalf of such Holder expressly
for use in any preliminary prospectus, the registration statement or any
prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be. In addition to its other obligations under
this Section 12.1, the Company agrees that, as an interim measure during the
pendency of any action arising out of or based upon any untrue statement or
omission, or alleged untrue statement or alleged omission as described in this
Section 12.1, it shall reimburse the Holders (and, to the extent applicable,
each controlling person) on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such action
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligations to reimburse the Holders (and, to
the extent applicable, each controlling person) for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement is so held to have been improper as to the Company, the Holders
(and, to the extent applicable, each controlling person) shall promptly return
it to the Company, together with interest compounded daily, based on the
"reference rate" announced from time to time by Bank of America NTSA (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
applicable Holder within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.

-24-

<PAGE>

The indemnity agreement in this subsection 12.1 shall be in
addition to any liability which the Company may have at common law or otherwise.

12.2. INDEMNIFICATION OF COMPANY. Each Holder severally agrees to
indemnify and hold harmless the Company (for purposes of this Section 12,
"Company" shall include the officers, directors, partners, employees, agents and
counsel of the Company) and each other person, if any, who controls the Company
("controlling person") within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Holders, but only with respect to
statements or omissions, if any, made in any preliminary prospectus, the Current
Registration Statement, the Registration Statement or any prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to such Holder by or on behalf of such Holder expressly for
use in any preliminary prospectus, the Current Registration Statement, the
Registration Statement or any prospectus or any amendment thereof or supplement
thereto or in any application, provided that such written information or
omissions only pertain to disclosures in any preliminary prospectus, the Current
Registration Statement, the Registration Statement or any prospectus directly
relating to the transactions in connection with the offering contemplated
hereby. In addition to its other obligations under this Section 12.2, each
Holder severally agrees that, as an interim measure during the pendency of any
action arising out of or based upon any untrue statement or omission, or alleged
untrue statement or alleged omission as described in this Section 12.2, it shall
reimburse the Company (and, to the extent applicable, each controlling person)
on a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any action with respect to such
Holder notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Holder's obligations to reimburse the
Company (and, to the extent applicable, each controlling person) for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement is so held to have been improper as to such Holder, the
Company (and, to the extent applicable, each controlling person) shall promptly
return it to such Holder, together with interest compounded daily, based on the
Prime Rate. Any such interim reimbursement payments which are not made to the
company within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. Notwithstanding the
provi-

-25-

<PAGE>

sions of this Section 12.2, in connection with a registration that includes
Securities pursuant to Section 11.3(a) hereof, no such Holder shall be required
to indemnify or hold harmless the Company or any controlling person for any
amounts in excess of the net proceeds (before deducting expenses) applicable to
the Securities sold by such Holder pursuant to the Registration Statement.
Notwithstanding the provisions of this Section 12.2, in connection with a
registration that includes that Holder's Securities pursuant to Sections 11.2 or
11.3, no such Holder shall be required to indemnify and hold harmless the
Company or any controlling person for any amounts in excess of that portion of
all expenses as to which indemnification is properly claimed under this
Agreement equal to such Holder's relevant proportion of all net proceeds (before
deduction of expenses) applicable to all securities sold pursuant to the Current
Registration Statement or the Registration Statement, as applicable.

12.3. NOTICE OF CLAIM. Promptly after receipt by an indemnified party
under this Section 12 of notice of the commencement of any action, such
indemnified party shall notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 12 except to the extent that it has been materially
prejudiced by such Failure). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties shall be entitled to
participate therein, and to the extent it or they may elect by written notice
delivered to the indemnified party or parties promptly after receiving the
aforesaid notice from such indemnified party or parties, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, an indemnified party shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party or parties in connection with the defense of such action at
the expense of the indemnifying party or parties, (ii) the indemnifying party or
parties shall not have employed counsel reasonably satisfactory to such
indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action or (iii) such
indemnified party shall have reasonably concluded that there may be one or more
defenses available to it which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel (in addition to appropriate
local counsel) shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to appropriate local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this Section 12 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any

-26-

<PAGE>

claim or action effected without its written consent; provided, however, that
such consent may not be unreasonably withheld.

12.4. CONTRIBUTION. In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 12, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 12 provide for indemnification in
such case or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified, on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to in the first sentence of this Section 12.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 12.4, in a
registration that includes a Holder's Securities pursuant to Sections 11.2 or
11.3 hereof, no Holder shall be required to contribute any amount in excess of
the net proceeds (before deducting expenses) applicable to the Securities sold
by such Holder pursuant to such registration statement and prospectus. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act and the cases and promulgations thereunder) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action against such party in respect to
which a claim for contribution may be made against another party or parties
under this Section 12.4, notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this Section 12.4 except to
the extent it has been materially prejudiced by such failure. The contribution

-27-

<PAGE>

agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.

SECTION 13. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed, delivered by hand or transmitted by any
standard form of telecommunication. Notices to the Warrantholders or a holder
of Securities shall be directed to The Boston Group, L.P. at 1999 Avenue of the
Stars, Suite 2550, Los Angeles, California 90067, Attention: Mr. Robert A.
DiMinico, with a copy to Jeffer, Mangels, Butler & Marmaro LLP, 2121 Avenue of
the Stars, 10th Floor, Los Angeles, California 90067, Attention: Steven J.
Insel, Esq. Notices to the Company shall be directed to the Company at 2985
East Hillcrest Drive, Suite A, Westlake Village, California 91362, Attention:
Mr. Vincent J. Bitetti and Mr. Eric H. Winston, with a copy to McDermott, Will &
Emery, 1850 K Street N.W., Suite 500, Washington, D.C. 20006, Attention: Robert
Kalik, Esq.

SECTION 14. PARTIES. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Representative, the Company and the
Warrantholders and the holders of Securities and the controlling persons,
officers, directors and others referred to in Section 12 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.

SECTION 15. MERGER OR CONSOLIDATION OF THE COMPANY. The Company shall not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 hereof are complied with.

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in the Underwriting Agreement, any schedule, exhibit, certificate or
other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated by this Agreement, shall be deemed
to be representations and warranties hereunder. Notwithstanding any
investigations made by or on behalf of the parties to this Agreement, all
representations, warranties and agreements made by the parties to this Agreement
or pursuant hereto shall survive the termination of this Agreement and the
issuance, sale and delivery of the Warrant and the Securities.

SECTION 17. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to conflict of laws principles thereof.

SECTION 18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to

-28-

<PAGE>

be an original, and all of which taken together shall be deemed to be one and
the same instrument.

SECTION 19. ENTIRE AGREEMENT, AMENDMENTS. This Agreement and the
Underwriting Agreement constitute the entire agreement of the parties hereto
concerning the subject matter hereof and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended, modified or altered except in a
writing signed by the Representatives and the Company.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.

SOUND SOURCE INTERACTIVE, INC.

By:
----------------------------
Name:
Title:

THE BOSTON GROUP, L.P.

By:
----------------------------
Name:
Title:

JOSEPH STEVENS & COMPANY, L.P.

By:
----------------------------
Name:
Title:

-29-

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 1.3 OF THE REPRESENTATIVES' WARRANT
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.

WARRANT CERTIFICATE NO.
---

WARRANT TO PURCHASE
-------
SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS
----------
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON , 2001
-----------------

SOUND SOURCE INTERACTIVE, INC.

INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE

This certifies that, for value received, THE BOSTON GROUP, L.P., the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from SOUND SOURCE INTERACTIVE, INC. (the "Company"), at any time during
the period commencing at 9:00 am., Pacific time, on ________________, 199_, and
before 5:00 p.m., Pacific time, on ________________, 200_, at the purchase price
per share of Common Stock of $___________ (the "Purchase Price"), _______ shares
of Common Stock of the Company (the "Warrant Stock") and __________ Redeemable
Warrants. The number of shares of Common Stock of the Company purchasable upon
exercise of each Warrant or exercise price of such shares and Redeemable
Warrants evidenced hereby shall be subject to adjustment from time to time as
set forth in the Representatives' Warrant Agreement, dated as of ___________,
199_, by and between the Company and the Representatives (the "Representatives'
Warrant Agreement").

The Warrants evidenced hereby are issued under and in accordance with the
Representatives' Warrant Agreement and a Warrant Agreement dated ____________,
1996 between the Company and Corporate Stock Transfer Corporation, as warrant
agent (the "Redeemable Warrant Agreement"), and are subject to the terms and
provisions contained in the Representatives' Warrant Agreement and the
Redeemable Warrant Agreement, to all of which the Warrantholder by acceptance
hereof consents.

The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided hereon) and simultaneous
payment of the respective Warrant Price at the principal office of the Company.
Payment of such price shall be made at the option of the Warrantholder in any
manner allowed in the Representatives' Warrant Agreement.

-30-

<PAGE>

Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the shares of Warrant Stock and Redeemable Warrants as to which the Warrants
evidenced hereby shall not have been exercised. These Warrants may be exchanged
at the office of the Company by surrender of this Warrant Certificate properly
endorsed for one or more new Warrants of the same aggregate number of shares of
Warrant Stock or Redeemable Warrants as evidenced by the Warrant or Warrants
exchanged. No fractional securities shall be issued upon the exercise of rights
to purchase hereunder, but the Company shall pay the cash value of any fraction
upon the exercise of one or more Warrants. These Warrants are transferable at
the office of the Company in the manner and subject to the limitations set forth
in the Warrant Agreement.

This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a shareholder of the Company.

SOUND SOURCE INTERACTIVE, INC.

By:
----------------------------
Name: Eric H. Winston
Title: President

Dated: , 1996
-------------

ATTEST: [Seal]

- -----------------------------
Name: Ulrich Gottschling
Title: Chief Financial Officer

-31-

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
PURCHASE FORM

SOUND SOURCE INTERACTIVE, INC. (the "Company")
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attention: President

The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
_____ shares of common stock of the Company (the "Warrant Stock") and/or
________ Redeemable Warrants provided for therein, and requests that
certificates for the Warrant Stock and/or Redeemable Warrants be issued in the
name of:

--------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)

--------------------------------------------------------

and, if said number of shares of Warrant Stock and Redeemable Warrants shall not
be all the Warrant Stock and Redeemable Share purchasable hereunder, that a new
Warrant Certificate for the balance of the Warrant Stock and Redeemable Share
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Warrantholder or his Assignee as below indicated and delivered
to the address stated below.

Dated:
-----------------

Name of Warrantholder
or Assignee:
-------------------------
(Please Print)

Address:
-------------------------

-------------------------

Signature:
-------------------------

Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.

Signature Guaranteed:
-----------------------------

(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange of the National Association of Securities Dealers, Inc.)

-32-

<PAGE>

ASSIGNMENT
(To be signed only upon assignment of Warrants)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
right to purchase _____ shares of Warrant Stock represented by the within
Warrant Certificate unto, and requests that a certificate for such Warrant be
issued in the name of:

--------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)

--------------------------------------------------------

hereby irrevocably constituting and appointing _______________ Attorney to
transfer said Warrants on the books of the Company, with full power of
substitution in the premises and, if said number of warrant Stock shall not be
all of the Securities purchasable under the within Warrant Certificate, that a
new Warrant Certificate for the balance of the Securities purchasable under the
within Warrant Certificate be registered in the name of the undersigned
Warrantholder and delivered to such Warrantholder's address as then set forth on
the Company's books.

Dated:
--------------- -----------------------------------
Signature of Registered Holder

Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.

Signature Guaranteed:
----------------------------------

(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.

-33-

<PAGE>

WARRANT CERTIFICATE NO.
---

WARRANT TO PURCHASE
-------
SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS
----------
VOID AFTER 5:00 P.M.
PACIFIC TIME, ON , 2001
-----------------

SOUND SOURCE INTERACTIVE, INC.

INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE

This certifies that, for value received, JOSEPH STEVENS & COMPANY, L.P.,
the registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from SOUND SOURCE INTERACTIVE, INC. (the "Company"), at any time during
the period commencing at 9:00 am., Pacific time, on ________________, 199_, and
before 5:00 p.m., Pacific time, on ________________, 200_, at the purchase price
per share of Common Stock of $___________ (the "Purchase Price"), _______ shares
of Common Stock of the Company (the "Warrant Stock") and __________ Redeemable
Warrants. The number of shares of Common Stock of the Company purchasable upon
exercise of each Warrant or exercise price of such shares and Redeemable
Warrants evidenced hereby shall be subject to adjustment from time to time as
set forth in the Representatives' Warrant Agreement, dated as of ___________,
199_, by and between the Company and the Representatives (the "Representatives'
Warrant Agreement").

-34-

<PAGE>

This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a shareholder of the Company.

SOUND SOURCE INTERACTIVE, INC.

By:
----------------------------
Name: Vincent J. Bitetti
Title: Chief Executive Officer

Dated: , 199
------------- -
ATTEST: [Seal]

- -----------------------------
Name: Ulrich Gottschling
Title: Chief Financial Officer

-35-

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
PURCHASE FORM

SOUND SOURCE INTERACTIVE, INC. (the "Company")
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attention: President

--------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)

--------------------------------------------------------

Dated:
-----------------

Name of Warrantholder
or Assignee:
-------------------------
(Please Print)

Address:
-------------------------

-------------------------

Signature:
-------------------------

Signature Guaranteed:
-----------------------------

-36-

<PAGE>

ASSIGNMENT
(To be signed only upon assignment of Warrants)

--------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)

--------------------------------------------------------

Dated:
--------------- -----------------------------------
Signature of Registered Holder

Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.

Signature Guaranteed:
----------------------------------

-37-

<PAGE>

THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH WARRANT AND SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

SOUND SOURCE INTERACTIVE, INC. (DE)
SOUND SOURCE INTERACTIVE, INC. (CA)

WARRANT

DATED: April 30, 1996

----------------

Holder: ASSI, Inc., a Nevada corporation

Number of Warrants: 2,000,000

----------------

THIS CERTIFIES THAT Holder is the owner of the number of Warrants
set forth above of Sound Source Interactive, Inc., a Delaware corporation
(hereinafter called the "Company"), and, under the circumstances herein
described, of Sound Source Interactive, Inc., a California corporation
(hereinafter called the "Subsidiary") which is a wholly owned subsidiary of the
Company. Each Warrant entitles the registered holder (the "Holder") to purchase
one share of Common Stock of the Company ("Company Common Stock"), or, under the
circumstances herein described, one share of the Common Stock of the Subsidiary
("Subsidiary Common Stock"). The Company Common Stock and Subsidiary Common
Stock are herein sometimes generally referred to collectively as the "Common
Stock" and are referred to as "Warrant Shares" with reference to the specific
shares of Common Stock issued upon exercise of the Warrants. This Warrant is
issued in connection with certain consulting services rendered to the Company by
Holder.

The term "Public Offering" means an offering of securities by the
Company or the Subsidiary which is registered under the Securities Act of 1933,
as amended (the "Securities Act") (other than in connection with a merger,
acquisition or exchange offer or pursuant to Form S-8 or successor form).

1. WARRANT TO PURCHASE COMPANY COMMON STOCK OR SUBSIDIARY
COMMON STOCK. This Warrant initially shall constitute a Warrant to purchase
Company Common Stock. If the Company consummates an initial Public Offering by
December 31, 1996 and prior to the consummation of a Public Offering by the
Subsidiary, then this Warrant shall remain a Warrant to purchase Company Common
Stock for the remainder of its term. If, however, the Company has not
consummated a Public Offering by December 31,

<PAGE>

1996, or if the Subsidiary consummates a Public Offering prior to such date,
then this Warrant shall also become a Warrant to purchase Subsidiary Common
Stock.

Each Warrant evidenced by this Certificate shall constitute a
Warrant to purchase one share of Company Common Stock at an exercise price per
share equal to $4.40 per share, subject to adjustment as set forth herein.

If this Warrant also becomes a Warrant to purchase shares of
Subsidiary Common Stock as provided in the first paragraph of this Paragraph 1,
each Warrant evidenced by this Certificate shall also constitute a Warrant to
purchase one share of Subsidiary Common Stock at an exercise price of $4.40 per
share.

2. CONVERSION TO PUBLIC WARRANTS. Upon consummation of a
Public Offering by the Company or the Subsidiary, as the case may be, prior to
December 31, 1996, in the event that the Public Offering includes warrants to
purchase shares of Common Stock (the "Public Warrants"), this Warrant
automatically shall be converted into an equivalent number of Public Warrants
with an exercise price and other terms identical to those ultimately issued in
the Public Offering; provided, however, that, for so long as the above-named
Holder or an Affiliate is the record owner of this Warrant (or the Public
Warrant into which this Warrant converts), (i) any provisions of the Public
Warrants granting the Company the right to call the Public Warrants for
redemption shall not apply to the Public Warrants issued as a result of
conversion of this Warrant, (ii) the registration rights described in Section 6
of this Warrant shall remain in effect with respect to the Public Warrants
issued as a result of conversion of this Warrant, and (iii) those Public
Warrants shall be exercisable at any time on or after September 1, 1996. For
purposes of this Section 2, the term "Affiliate" means ASSI, Inc., a Nevada
corporation ("ASSI"), or any person or entity controlling, controlled by or
under common control with ASSI. For purposes hereof, a person shall be deemed
to have "control" of an entity if such person is the owner of a majority voting
interest in such entity.

3. RIGHT TO EXERCISE WARRANTS. Unless this Warrant has been
converted into a Public Warrant as provided in Paragraph 2, the rights
represented by this Warrant may be exercised during the period commencing on
September 1, 1996 (the "Exercise Date"), and terminating at 2:00 p.m., Pacific
Standard Time, five (5) years after the Exercise Date. If this Warrant is
converted into a Public Warrant as provided in Paragraph 2, the rights to
exercise such Public Warrant shall be as described therein.

Notwithstanding the foregoing, in the event of a complete
liquidation of the Company (or the Subsidiary, as applicable), or a merger,
reorganization, consolidation of the Company with any other corporation in which
the Company is not the surviving corporation or the Company becomes a wholly-
owned subsidiary of another corporation, or the Company sells all or
substantially all of its assets (each such event referred to herein as a
"Corporate Event"), this Warrant shall become exercisable in full during the
thirty (30) day period ending on the fifth day prior to such Corporate Event.
The Company shall provide written notice of the proposed Corporate Event to all
Holders of Warrants thirty-five (35) days prior to the occurrence of any such
Corporate Event, describing all material terms of the proposed Corporate Event
and providing the opportunity to all Holders to review all relevant documents in
connection with the Corporate Event.

4. EXERCISE OF WARRANTS. Subject to Paragraph 3 and the other
provisions of this Warrant, the rights represented by this Warrant may be
exercised by (i) surrender of this Warrant (with the purchase form at the end
hereof properly executed) at the principal executive office of the Company or
the Subsidiary, as applicable (or such other office or agency of the Company or
the Subsidiary, as applicable, as it may designate by notice in writing to
Holder at the address of Holder appearing on the books of the Company or the
Subsidiary, as applicable); (ii) payment to the Company or the Subsidiary, as
applicable, of the exercise price for the number of shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company or the Subsidiary, as applicable, of a
statement by Holder (in a form acceptable to the Company or the Subsidiary, as
applicable, and its counsel) that such shares are being acquired by Holder for
investment and not with a view to their distribution or resale. This Warrant

-2-

<PAGE>

shall be deemed to have been exercised immediately prior to the close of
business on the date the Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this Paragraph 4, and the person or
persons in whose name or names the certificates for shares of Common Stock shall
be issuable upon such exercise shall become the holder or holders of record of
such Common Stock at that time and date. The certificates for the Common Stock
so purchased shall be delivered to Holder within a reasonable time, not
exceeding ten (10) business days, after the rights represented by this Warrant
shall have been so exercised, and shall bear a legend substantially similar to
the following restrictive legend:

"This security has not been registered under the Securities Act
of 1933 and may not be sold or offered for sale unless registered
under said Act and any applicable state securities laws or unless
the Company has received an opinion of counsel satisfactory to
the Company that such registration is not required."

The Boston Group, L.P. shall be the exclusive solicitation agent
for exercise of this Warrant. At any time upon the exercise of this Warrant,
the Company shall, within two business days after any such exercise, notify The
Boston Group, L.P. of the exercise of the Warrant and shall, not later than five
business days after the last day of the calendar week in which such funds were
tendered, remit to The Boston Group, L.P. or its successors or assigns an amount
equal to five percent (5%) of the purchase price of the Warrant being then
exercised unless The Boston Group, L.P. shall have notified the Company that the
payment of such amount with respect to the Warrant is violative of the rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD") or applicable state securities or "blue
sky" laws.

5. ASSIGNMENT. This Warrant may be transferred, sold, assigned
or hypothecated, only pursuant to a valid and effective registration statement
or if the Company or the Subsidiary, as applicable, has received from counsel to
the Company (or from counsel to the Holder that is reasonably acceptable to the
Company) a written opinion to the effect that registration of the Warrant or the
Common Stock underlying the Warrant is not necessary in connection with such
transfer, sale, assignment or hypothecation. Any such assignment shall be
effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Warrant for cancellation at the office or agency of the
Company or the Subsidiary, as applicable, referred to in Paragraph 4 hereof,
accompanied by the opinion of counsel referred to above; and (iii) delivery to
the Company or the Subsidiary, as applicable, of a statement by the transferee
Holder (in a form acceptable to the Company or the Subsidiary, as applicable,
and its counsel) that such Warrant is being acquired by such Holder for
investment and not with a view to its distribution or resale; whereupon the
Company or the Subsidiary, as applicable, shall issue, in the name or names
specified by Holder (including Holder), new Warrants representing in the
aggregate rights to purchase the same number of Shares as are purchasable under
the Warrant surrendered. The term "Holder" shall be deemed to include any
person to whom this Warrant is transferred in accordance with the terms herein.

6. REGISTRATION RIGHTS.

a. DEMAND REGISTRATION. At any time during the period
commencing on the earlier of (i) the day following the closing date of the
Public Offering, or (ii) September 1, 1996, and expiring five (5) years
thereafter, the holder(s) of Warrants and/or Warrant Shares (the "Holders")
representing a Majority of such securities shall have the right (which right is
in addition to the registration rights under Paragraph 6.b hereof), exercisable
by written notice to the Company or the Subsidiary, as applicable, to have the
Company or the Subsidiary, as applicable, prepare, file and use its best efforts
to have declared effective by the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company or the Subsidiary, as applicable, and counsel for the
Holder(s), if any, in order to comply with the provisions of the Securities Act,
so as to permit a public offering and sale of their respective Warrants and
Warrant Shares for twenty-four (24) consecutive months by such Holder(s) and any
other Holder(s) of the

-3-

<PAGE>

Warrants and/or Warrant Shares who notify the Company or the Subsidiary, as
applicable, within ten (10) days after receiving notice from the Company or the
Subsidiary, as applicable, of such request.

The Company and the Subsidiary, as applicable, covenant and
agree to give written notice of any registration request under this Paragraph
6.a by any Holder or Holders to all other registered Holders of the Warrants
and/or Warrant Shares within ten (10) days from the date of the receipt of any
such registration request.

b. PIGGYBACK REGISTRATION. If at any time commencing on
the date of this Warrant, the Company or the Subsidiary, as applicable, proposes
to register any of its securities under the Securities Act (other than in
connection with a merger, acquisition or exchange offer, pursuant to Form S-8 or
successor form or otherwise on a form which does not permit registration of the
Warrants or Warrant Shares) it will give written notice by registered mail, at
least twenty (20) days prior to the filing of each such registration statement,
to the Holder(s) of the Warrants and/or Warrant Shares of its intention to do
so. Upon the written request of any Holder of the Warrants and/or Warrant
Shares given within ten (10) days after receipt of any such notice of its or
their desire to include any such Warrants and/or Warrant Shares in such proposed
registration statement, the Company or the Subsidiary, as applicable, shall
afford such Holder(s) of the Warrants and/or Warrant Shares the opportunity to
have any such Warrants and/or Warrant Shares registered under such registration
statement. The "piggy-back" registration rights described in this Paragraph 6.b
shall terminate at such time as the Warrants and/or Warrant Shares are saleable
in one or more transactions pursuant to Rule 144 of the Securities Act during a
90-day period.

Notwithstanding anything to the contrary contained in the
provisions of this Paragraph 6.b, the Company or the Subsidiary, as applicable,
shall have the right at any time after it shall have given written notice
pursuant to this Paragraph 6.b (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date hereof. Any sales of Warrant Shares pursuant to
such registration statement shall be effected through the underwriter of the
Public Offering, if any, and the holders thereof shall compensate the
underwriter in accordance with its customary compensation practices.

c. INDEMNIFICATION. The Company and Subsidiary shall
indemnify and hold harmless the Holder from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement filed by the Company or Subsidiary
under the Act by reason of this Agreement, any post-effective amendment to such
registration statements, or any prospectus included therein, or caused by any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission based upon information furnished or required to be furnished in
writing to the Company or Subsidiary by the Holder (or the authorized
representatives or agents of the Holder) expressly for use therein, which
indemnification shall include each person, if any, who controls the Holder
within the meaning of the Act and each officer, director, employee and agent of
the Holder; provided, however, that the indemnification in this Paragraph 6.c
with respect to any prospectus shall not inure to the benefit of the Holder (or
to the benefit of any person controlling the Holder) on account of any such
loss, claim, damage or liability arising from the sale of Warrants or Warrant
Shares by the Holder, if a copy of a subsequent prospectus correcting the untrue
statement or omission in such earlier prospectus was provided to the Holder by
the Company or Subsidiary prior to the subject sale and the subsequent
prospectus was not delivered or sent by the Holder to the purchaser of such
securities prior to such sale; and provided further, that the Company or
Subsidiary shall not be obligated to so indemnify the Holder or any other person
referred to above unless the purchaser or other person, as the case may be,
shall at the same time indemnify the Company or Subsidiary, as applicable, its
directors, each officer signing the Registration Statement and each person, if
any, who controls the Company or Subsidiary, as applicable, within the meaning
of the Act, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by

-4-

<PAGE>

reason of this Agreement or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission based upon information furnished in
writing to the Company or Subsidiary by the Holder expressly for use therein.

If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.

d. EXPENSES OF REGISTRATION; PROSPECTUS DELIVERY. All
expenses, filing fees and other costs incurred by the Company or Subsidiary in
connection with any registration of securities pursuant to this Paragraph 6
(exclusive of underwriting discounts and selling commissions applicable to any
sale of registered securities) shall be borne by the Company or Subsidiary, as
applicable.

In the case of each registration effected by the Company or
Subsidiary pursuant to this Paragraph 6, the Company or Subsidiary, as
applicable, will (i) furnish to the holders of the registered securities such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as such
holders may reasonably request in order to facilitate the disposition of the
registered securities owned by them, and (ii) notify each holder of registered
securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.

e. MAJORITY. For purposes of this Warrant, the term
"Majority" in reference to the Holders of Warrants and/or Warrant Shares, shall
mean in excess of fifty percent (50%) of the then outstanding Warrants and/or
Warrant Shares that (i) are not held by the Company or the Subsidiary, as
applicable, by any affiliate, officer, creditor, employee or agent thereof or by
any of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the
Securities Act.

7. COMMON STOCK. The Company and the Subsidiary covenant and
agree that all shares of Common Stock which may be issued upon exercise hereof
will, upon issuance, be duly and validly issued, fully paid and non-assessable
and no personal liability will attach to the holder thereof. The Company and
the Subsidiary further covenant and agree that, during the periods within which
this Warrant may be exercised, the Company and the Subsidiary will at all times
have authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of this Warrant and all other Warrants.

8. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle
Holder to any voting rights or other rights as a stockholder of the Company.

9. ADJUSTMENT OF RIGHTS. In the event that the outstanding
shares of Common Stock of the Company or the Subsidiary, as applicable, are at
any time increased or decreased or changed into or exchanged for a different
number or kind of share or other security of the Company or the Subsidiary, as
applicable, or of another corporation through reorganization, merger,
consolidation, liquidation, recapitalization, stock split, combination of shares
or stock dividends payable with respect to such Common Stock, appropriate
adjustments in the number and kind of such securities then subject to this
Warrant shall be made effective as of

-5-

<PAGE>

the date of such occurrence so that the position of Holder upon exercise will be
the same as it would have been had he owned immediately prior to the occurrence
of such events the Common Stock subject to this Warrant. Such adjustment shall
be made successively whenever any event listed above shall occur and the Company
or the Subsidiary, as applicable, will notify Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.

10. NOTICES. Unless applicable law requires a different method
of giving notice, any and all notices, demands or other communications required
or desired to be given hereunder by any party shall be in writing. Assuming
that the contents of a notice meet the requirements of the specific Paragraph of
this Warrant which mandates the giving of that notice, a notice shall be validly
given or made to another party if served either personally or if postage
prepaid, or if transmitted by telegraph, telecopy or other electronic written
transmission device or if sent by overnight courier service, and if addressed to
the applicable party as set forth below. If such notice, demand or other
communication is served personally, service shall be conclusively deemed made at
the time of such personal service. If such notice, demand or other communication
is given by mail, service shall be conclusively deemed given upon the earlier of
receipt or ninety-six (96) hours after the deposit thereof in the United States
mail, postage prepaid. If such notice, demand or other communication is given
by overnight courier, or electronic transmission, service shall be conclusively
made at the time of confirmation of delivery. The addresses for Holder and the
Company are as follows:

If to Holder: ASSI, Inc.
Two ADP Plaza
2000 Crow Canyon Place, Suite 420
San Ramon, CA 94583
Attn: President
Telecopier: (510) 277-3962

With a copy to: Hewitt & McGuire
19900 MacArthur Boulevard, Suite 1050
Irvine, CA 92715
Attn: William L. Twomey
Telecopier: (714) 798-0511

If to the Company: Sound Source Interactive, Inc.
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attn: Vincent J. Bitetti
Telecopier: (805) 495-0016

With a copy to: McDermott, Will & Emery
1850 K Street, N.W., Suite 500
Washington, DC 20006
Attn: Robert Kalik
Telecopier: (202) 778-8087

Any party hereto may change its or his or its address for the purpose of
receiving notices, demands and other communications as herein provided, by a
written notice given in the aforesaid manner to the other parties hereto.

11. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the internal laws of Delaware.

-6-

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers, and to be dated as of the date set forth above.

SOUND SOURCE INTERACTIVE, INC.,
a Delaware corporation

By: /s/ Vincent J. Bitetti
------------------------------
Name: Vincent J. Bitetti
------------------------------
Title: CEO
------------------------------

SOUND SOURCE INTERACTIVE, INC.,
a California corporation

By: /s/ Vincent J. Bitetti
------------------------------
Name: Vincent J. Bitetti
------------------------------
Title: CEO
------------------------------

-7-

<PAGE>

PURCHASE FORM

(To be signed only upon exercise of Warrant)

The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant to exercise
___________ Warrants for, and to the purchase thereunder, __________ shares of
Common Stock of Sound Source Interactive, Inc., a [Delaware] [California]
corporation, and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.

Dated:____________, 199_

------------------------------

------------------------------
Address

<PAGE>

TRANSFER FORM

(To be signed only upon transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase shares of Common Stock represented by
_________________________ Warrants, and appoints _________________________
attorney to transfer such rights on the books of _________________________, with
full power of substitution in the premises.

Dated:____________, 199_

------------------------------
Holder

------------------------------
Address

In the presence of:

- -------------------------

<PAGE>

[MCDERMOTT, WILL & EMERY LETTERHEAD]

May 6, 1996

Sound Source Interactive, Inc.
2985 E. Hillcrest Drive
Suite A
Westlake Village, CA 91362

Re: SOUND SOURCE INTERACTIVE, INC.

Gentlemen:

We are providing this opinion in connection with the Registration Statement
(No. 33-80827) of Sound Source Interactive, Inc. (the "Company") on Form SB-2,
as amended (the "Registration Statement"), filed under the Securities Act of
1933, as amended. Capitalized terms used herein without definition have the
meanings set forth in the Registration Statement.

The Registration Statement relates to the following:

(a) (i) 1,610,000 shares of Common Stock registered for the account of the
Company, and (ii) 107,500 shares of Common Stock registered for the
account of certain Selling Security Holders;

(b) (i) 1,610,000 Redeemable Warrants registered for the account of the
Company, and (ii) 5,689,665 Redeemable Warrants registered for the
account of certain Selling Security Holders;

(c) (i) 1,610,000 shares of Common Stock issuable upon exercise of
Redeemable Warrants which Redeemable Warrants are being registered for
the account of the Company, and (ii) 5,689,665 shares of Common Stock
issuable by the Company upon exercise of Redeemable Warrants which
Redeemable Warrants are being

<PAGE>

Sound Source Interactive, Inc.
May 6, 1996
Page 2

registered for the account of certain Selling Security Holders; and

(d) (i) the Representative's Warrant, (ii) 140,000 shares of Common Stock
issuable upon exercise of the Representative's Warrant, (iii) 140,000
Redeemable Warrants issuable upon exercise of the Representative's
Warrant, and (iv) 140,000 shares of common stock issuable upon
exercise of the Redeemable Warrants issuable upon exercise of the
Representative's Warrant.

The Common Stock referred to in clauses (a)(i)-(ii), (c)(i)-(ii) and (d)(ii) and
(iv) are herein referred to as the "Shares." The warrants referred to in
clauses (b)(i)-(ii) and (d)(i) and (iii) are herein referred to as
the "Warrants."

We have examined (i) the Company's Second Restated Certificate of
Incorporation and its Amended and Restated By-Laws; (ii) the form of
Underwriting Agreement to be entered into between the Company and The Boston
Group, L.P. attached as an exhibit to the Registration Statement; (iii) an
officer's certificate as to the corporate proceedings of the Company relating to
the issuance of the Shares and the Warrants and other factual matters; and (iv)
such other documents and records as we have deemed necessary in order to render
this opinion.

Based on the foregoing, it is our opinion that:

1. The Shares have been duly authorized, and when sold as described in
the Registration Statement for the consideration described therein,
will be validly issued, fully paid and nonassessable by the Company.

2. The Warrants have been duly authorized, and when sold as described
therein, will be validly issued and enforceable against the Company in
accordance with their terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or other laws of general
applicability relating to or affecting the enforcement of creditor's
rights and by general equity principals.

<PAGE>

Sound Source Interactive, Inc.
May 6, 1996
Page 3

We consent (i) to the use of this opinion as an exhibit to the Registration
Statement and (ii) to the reference to our firm name under the caption "Legal
Matters" in the Prospectus.

Very truly yours,

/s/ McDermott, Will & Emery

(SPM)

<PAGE>

STOCKHOLDER VOTING AGREEMENT

This STOCKHOLDER VOTING AGREEMENT (the "Agreement") is made and
entered into as of this 30th day of April, 1996, by and among Vincent J. Bitetti
("Bitetti") and Eric H. Winston ("Winston") (collectively, the "Principal
Stockholders"), ASSI, Inc., a Nevada corporation ("ASSI") and Sound Source
Interactive, Inc., a Delaware corporation (the "Company"), with reference to the
following:

A. Bitetti owns 1,362,184 shares and Winston holds options to
acquire 392,838 shares of Common Stock of the Company. ASSI owns 40,000 shares
and holds warrants to acquire 3,100,000 shares of Common Stock of the Company.

B. Simultaneously with the execution of this Agreement, ASSI is
entering into an Agreement with the Company (the "Related Agreement") and, among
other things, receiving a warrant to purchase shares of Common Stock of the
Company.

C. As a condition to ASSI entering into the Related Agreement, the
Principal Stockholders have agreed to vote their shares of Common Stock of the
Company to elect one nominee to the Board of Directors selected by ASSI, as set
forth in this Agreement.

In consideration of the foregoing and the mutual covenants set forth
in this Agreement, the parties agree as follows:

1. VOTING AGREEMENT BY PRINCIPAL STOCKHOLDERS.

(a) VOTING COMMITMENT. Each of the Principal Stockholders
irrevocably agrees to vote or cause to be voted all shares of Common Stock of
the Company, held of record and beneficially by each of the Principal
Stockholders, whether now owned or acquired in the future (the "Principal
Stockholders' Shares"): (i) in favor of one nominee to the Board of Directors
selected by ASSI; and (ii) in favor of an amendment to the Bylaws of the Company
providing that the number of directors of the Company shall be five, which
provision may not be amended except with the consent of ASSI.

(b) TRANSFEREES BOUND. Each of the Principal Stockholders
further agrees that any transferee of the Principal Stockholders' Shares shall
take subject to and be bound by the provisions of this Agreement, and to obtain
the written agreement of any such transferee to be so bound; provided, however,
the foregoing shall not apply to any transferee pursuant to a sale in a
registered offering or in the public markets.

2. VOTING AGREEMENT BY ASSI. ASSI irrevocably agrees to vote or
cause to be voted all shares of Common Stock of the Company, held of record and
beneficially by ASSI, whether now owned or acquired in the future (the "ASSI
Shares"), in favor of (i) two nominees to the Board of Directors selected by
Bitetti for so long as Bitetti owns at least 20% of the issued

<PAGE>

and outstanding shares of Common Stock of the Company, or (ii) one nominee
selected by Bitetti for so long as Bitetti owns less than 20% but at least 10%
or more of the issued and outstanding shares of Common Stock of the Company.

3. IRREVOCABLE PROXY.

(a) FROM PRINCIPAL STOCKHOLDERS. In order to ensure the voting
of the Principal Stockholders in accordance with this Agreement, each Principal
Stockholder agrees to execute an irrevocable proxy simultaneously with the
execution hereof in the form of Annex A attached hereto granting to ASSI the
right to vote all Principal Stockholders' Shares in the name of such
Stockholder. It is understood and agreed that such irrevocable proxy relates
solely to voting for the election of directors and amendment of bylaws in
accordance with this Agreement and does not constitute the grant of any rights
to said proxy to vote as to any other matters.

(b) FROM ASSI. In order to ensure the voting of ASSI in
accordance with this Agreement, ASSI agrees to execute an irrevocable proxy
simultaneously with the execution hereof in the form of Annex B attached hereto
granting to Bitetti the right to vote all ASSI Shares in the name of ASSI. It
is understood and agreed that such irrevocable proxy relates solely to voting
for the election of directors in accordance with this Agreement and does not
constitute the grant of any rights to said proxy to vote as to any other
matters.

(c) CUMULATIVE VOTING. In the event cumulative voting is
invoked at any meeting of the stockholders of the Company involving the election
of directors, the parties agree that the proxies executed in connection with
this Agreement shall be deemed a proxy to cast the minimum number of cumulative
votes necessary to elect the nominee(s) of the proxyholder pursuant to this
Section 3, with the proxyholder agreeing to cast the remaining votes in
accordance with the instructions of the person or entity giving the proxy.

4. REPRESENTATIONS AND WARRANTIES.

(a) REPRESENTATIONS AND COVENANTS OF PRINCIPAL STOCKHOLDERS.
Each of the Principal Stockholders hereby represents and warrants to ASSI that
(a) he owns or has the right to acquire the number of shares set forth above,
(b) he has full power to enter into this Agreement and has not, prior to the
date of this Agreement, executed or delivered any proxy or entered into any
other voting agreement or similar arrangement other than one which has expired
or terminated prior to the date hereof, and (c) he will not take any action
inconsistent with the purposes and provisions of this Agreement. The parties
hereby acknowledge that the Principal Stockholders have or will enter into
agreements with each of The Boston Group, L.P. and Joseph Stevens & Co.,
providing for each of them to nominate one director to the Board of Directors
for a term of five years.

(b) REPRESENTATIONS AND COVENANTS OF ASSI. ASSI hereby
represents and warrants to Bitetti that (a) it owns or has the right to acquire
the number of shares set forth above, (b) it has full power to enter into this
Agreement and has not, prior to the date of this Agreement, executed or
delivered any proxy or entered into any other voting agreement or

<PAGE>

similar arrangement other than one which has expired or terminated prior to the
date hereof, and (c) it will not take any action inconsistent with the purposes
and provisions of this Agreement.

5. TERMINATION OF VOTING AGREEMENT. This Agreement shall terminate
on the earlier of (i) five years from the date of the closing of an initial
public offering of Common Stock by the Company, (ii) ten years from the date
hereof, or (iii) such time as Bitetti and Winston collectively are the
beneficial owners of less than 10% of the issued and outstanding shares of
Common Stock of the Company.

6. MISCELLANEOUS PROVISIONS.

(a) SUCCESSORS AND ASSIGNS. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors and permitted assigns.

(b) SEVERABILITY. In the event one or more of the provisions of
this Agreement should, for any reason, be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.

(c) AMENDMENTS AND WAIVER. Any amendment or modification of
this Agreement shall be effective only if evidenced by a written instrument
executed by duly authorized representatives of the parties hereto. Any waiver
by a party of its rights hereunder shall be effective only if evidenced by a
written instrument executed by a duly authorized representative of such party.
In no event shall such waiver of any rights hereunder constitute a waiver of
such rights in any future instance unless the waiver so specifies in writing.

(d) GOVERNING LAW; SOLE FORUM; VENUE. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Delaware. In the event a judicial proceeding is necessary, the sole and
exclusive forum for resolving disputes arising under or relating to this
Agreement shall be the Municipal and Superior Courts for the County of Los
Angeles, California, or the federal district court in the Central District of
California and all related appellate courts, and the parties hereby consent to
the jurisdiction and venue of such courts.

(e) ATTORNEYS' FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach hereof, or for a declaration of rights under, the
prevailing party shall be entitled to receive from parties opposing such
prevailing party all costs and expenses, including reasonable attorneys' fees,
incurred by the prevailing party in connection with such action or proceeding.

<PAGE>

(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instruments.

(g) REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the respective parties hereto are cumulative with one another and
with any other remedies available at law, in equity or otherwise. In
particular, without limiting the generality of the foregoing, in recognition of
the special and unique character of the parties' obligations hereunder and the
fact that damages in an action at law may be inadequate, each party agrees that
specific performance and other equitable relief may be had in the event of
actual or threatened breach of such obligations.

The parties have executed this Agreement on the day and year first
indicated above.

"PRINCIPAL STOCKHOLDERS"

/s/ Vincent J. Bitetti
---------------------------------------
Vincent J. Bitetti

/s/ Eric H. Winston
---------------------------------------
Eric H. Winston

"ASSI"

ASSI, INC., a Nevada corporation

/s/ Louis Habash
By: ---------------------------------
President
Its: ---------------------------------

"COMPANY"

SOUND SOURCE INTERACTIVE, INC., a
Delaware corporation

/s/ Vincent J. Bitetti
By: ---------------------------------
CEO
Its: ---------------------------------

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
IRREVOCABLE PROXY

The undersigned agrees to, and hereby grants to ASSI, Inc., a Nevada
corporation ("ASSI"), an irrevocable proxy pursuant to the provisions of Section
212 of the Delaware General Corporation Law to vote, or to execute and deliver
written consents or otherwise act with respect to, all shares of capital stock
(the "Stock") of Sound Source Interactive, Inc. (the "Corporation") now owned or
hereafter acquired by the undersigned as fully, to the same extent and with the
same effect as the undersigned might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of a Delaware
corporation in connection with the election of directors of the Corporation and
the amendment of the bylaws of the Corporation as provided in a certain
Stockholders Voting Agreement, dated as of April 30, 1996 (the "Voting
Agreement"), among the undersigned and certain other stockholders of the
Corporation. As set forth in the Voting Agreement, this proxy is intended to
give ASSI the right to vote the Stock (i) in favor of one nominee to the Board
of Directors of the Corporation and (ii) in favor of an amendment to the Bylaws
of the Company providing that the number of directors shall be five. The
undersigned hereby affirms that this proxy is given as a condition of the Voting
Agreement and as such is coupled with an interest and is irrevocable. It is
further understood by the undersigned that this proxy may be exercised by ASSI
for the period beginning the date hereof and ending on the earlier of (i) five
years from the date of the closing of the initial public offering of Common
Stock by the Corporation and (ii) ten years from the date hereof, unless
terminated earlier pursuant to the terms of the "Voting Agreement."

THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE STOCK.

Dated this 30th day of April, 1996.

/s/ Vincent J. Bitetti
------------------------------------------
(Signature of Shareholder)

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
IRREVOCABLE PROXY

The undersigned agrees to, and hereby grants to Vincent Bitetti
("Bitetti"), an irrevocable proxy pursuant to the provisions of Section 212 of
the Delaware General Corporation Law to vote, or to execute and deliver written
consents or otherwise act with respect to, all shares of capital stock (the
"Stock") of Sound Source Interactive, Inc. (the "Corporation") now owned or
hereafter acquired by the undersigned as fully, to the same extent and with the
same effect as the undersigned might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of a Delaware
corporation in connection with the election of directors of the Corporation as
provided in a certain Stockholders Voting Agreement, dated as of April 30, 1996
(the "Voting Agreement"), among the undersigned and certain other stockholders
of the Corporation. As set forth in the Voting Agreement, this proxy is
intended to give Bitetti the right to vote the Stock in favor of (i) two
nominees to the Board of Directors of the Corporation for so long as Bitetti
owns at least 20% of the issued and outstanding shares of Common Stock of the
Corporation or (ii) one nominee to the Board for so long as Bitetti owns less
than 20% but at least 10% or more of the issued and outstanding shares of Common
Stock of the Corporation. The undersigned hereby affirms that this proxy is
given as a condition of the Voting Agreement and as such is coupled with an
interest and is irrevocable. It is further understood by the undersigned that
this proxy may be exercised by Bitetti for the period beginning the date hereof
and ending on the earlier of (i) five years from the date of the closing of the
initial public offering of Common Stock by the Corporation and (ii) ten years
from the date hereof, unless terminated earlier pursuant to the terms of the
"Voting Agreement."

THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE STOCK.

Dated this _____ day of _______, 1996.

ASSI, INC., a Nevada corporation

By: _____________________________________

Its: _____________________________________

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
IRREVOCABLE PROXY

THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE STOCK.

Dated this 30th day of April, 1996.

/s/ Vincent J. Bitetti
------------------------------------------
(Signature of Shareholder)

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
IRREVOCABLE PROXY

The undersigned agrees to, and hereby grants to ASSI, Inc., a Nevada
corporation ("ASSI"), an irrevocable proxy pursuant to the provisions of Section
212 of the Delaware General Corporation Law to vote, or to execute and deliver
written consents or otherwise act with respect to, all shares of capital stock
(the "Stock"), of Sound Source Interactive, Inc. (the "Corporation") now owned
or hereafter acquired by the undersigned as fully, to the same extent and with
the same effect as the undersigned might or could do under any applicable laws
or regulations governing the rights and powers of shareholders of a Delaware
corporation in connection with the election of directors of the Corporation and
the amendment of the bylaws of the Corporation as provided in a certain
Stockholders Voting Agreement, dated as of April 30, 1996 (the "Voting
Agreement"), among the undersigned and certain other stockholders of the
Corporation. As set forth in the Voting Agreement, this proxy is intended to
give ASSI the right to vote the Stock (i) in favor of one nominee to the Board
of Directors of the Corporation and (ii) in favor of an amendment to the Bylaws
of the Company providing that the number of directors shall be five. The
undersigned hereby affirms that this proxy is given as a condition of the Voting
Agreement and as such is coupled with an interest and is irrevocable. It is
further understood by the undersigned that this proxy may be exercised by ASSI
for the period beginning the date hereof and ending on the earlier of (i) five
years from the date of the closing of the initial public offering of Common
Stock by the Corporation and (ii) ten years from the date hereof, unless
terminated earlier pursuant to the terms of the "Voting Agreement."

THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE STOCK.

Dated this 30th day of April, 1996.

/s/ Eric H. Winston
-----------------------------------
(Signature of Shareholder)

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
IRREVOCABLE PROXY

THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE
AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE STOCK.

Dated this 30th day of April, 1996.

ASSI, INC., a Nevada corporation

By: /s/ Louis Habash
-------------------------------

Its: President
-------------------------------

<PAGE>

SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT, (this
"Agreement") dated as of April 30, 1996, by and among Sound Source Interactive,
Inc., a Delaware corporation ("SSI/DE"), and Sound Source Interactive, Inc., a
California corporation ("SSI/CA") (SSI/DE and SSI/CA collectively, "Employer"),
and Vincent J. Bitetti ("Executive").

W I T N E S S E T H:

WHEREAS, Executive has served as Chief Executive Officer of Employer
since 1988;

WHEREAS, Employer and Executive entered into an Amended and Restated
Employment Agreement dated as of September 15, 1995 (the "Prior Agreement");

WHEREAS, Employer and Executive mutually desire to amend and restate
the Prior Agreement in its entirety as set forth herein;

WHEREAS, Executive continues to possess an intimate knowledge of the
business and affairs of Employer, its policies, methods, personnel,
opportunities and problems;

WHEREAS, Employer desires to assure itself of Executive's continued
employment by Employer and to compensate him for such efforts; and

WHEREAS, Executive is desirous of committing himself to
serve Employer on the terms herein provided;

NOW, THEREFORE, in consideration of the covenants herein contained,
the parties hereto hereby agree as follows:

1. EMPLOYMENT. Executive is hereby employed as the Chairman of the
Board and Chief Executive Officer ("CEO") of Employer. Executive acknowledges
that Employer is currently seeking to retain a new CEO, and Executive hereby
agrees to resign as CEO upon the commence of employment of a new CEO, such
resignation to be effective automatically upon the appointment of a new CEO by a
majority of the Board of Directors of Employer (the "Board").

Executive, subject to the authority of the CEO and of the Board,
shall have supervision and control over, and responsibility for, the operations
and affairs of Employer involving product development/creative content,
licensing and marketing, and shall have such other powers and duties as may be
from time to time assigned to him by the CEO and the Board;

<PAGE>

provided, that in no event shall Executive be required to perform duties not in
keeping with his position as an executive officer of Employer. Executive
hereby accepts such employment, all subject to the terms and conditions herein
contained. Executive hereby agrees that during the period of his employment
hereunder he shall devote substantially all of his business time, attention and
skills to the business and affairs of Employer and its subsidiaries.

2. PLACE OF PERFORMANCE. In connection with his employment by
Employer, Executive shall be based at Employer's principal executive offices.

3. COMPENSATION.

(a) BASE SALARY. Employer shall pay to Executive, and Executive
shall accept, for all services which may be rendered by him pursuant to this
Agreement, a base salary ("Base Salary") as hereinafter set forth. The initial
Base Salary of Executive hereunder shall be $200,000 per annum. Upon the
effectiveness of SSI/DE's pending Registration Statement (No. 33-80827) under
the Securities Act of 1933, as amended, the annual Base salary shall be reduced
by $40,000. At the end of the first full year of this Agreement, the Base
Salary shall be increased by an amount equal to the Base Salary then in effect
multiplied by a fraction, the numerator of which shall be the difference between
(a) the Consumer Price Index (as hereinafter defined) as of the first
anniversary of the Effective Date (as hereinafter defined) and (b) the Consumer
Price Index as of the Effective Date, and the denominator of which shall be the
Consumer Price Index as of the Effective Date; provided, that the "fraction" set
forth in this sentence shall never be zero or less. At the end of each
succeeding full year of this Agreement, the Base Salary shall be increased in a
like manner.

At such time as the Company shall have net revenues of $1,500,000
or more for any three consecutive calendar month period during the term
hereof, the Base Salary shall be increased by $40,000 per annum, retroactive
to the first day of the period in question. Such adjustment shall be made one
time only, but shall continue in effect thereafter for the remaining term of
this Agreement.

-2-

<PAGE>

Salary hereunder shall not thereafter be reduced, other than as necessitated by
Employer's adverse financial condition. Executive's salary shall be payable in
accordance with Employer's payroll practices as from time to time in effect.

For purposes of this Agreement, the "Consumer Price Index" as of
any particular date means the Consumer Price Index for Urban Consumers for All
Items, as reported in the Monthly Labor Review (published by the Bureau of Labor
Statistics of the United States Department of Labor) in respect of the month
immediately preceding such particular date. In the event that the Consumer
Price index is not available, a successor or substitute index shall be used for
the computations herein set forth. In the event that the Consumer Price Index
or such successor or substitute index is not published, a reliable governmental
or other nonpartisan publication evaluating the information theretofore used in
determining the Consumer Price index shall be used for the computations herein
set forth.

(b) ADDITIONAL CASH COMPENSATION. Employer shall pay Executive
compensation in addition to Executive's Base Salary upon Employer's attainment
of one or more revenue or profitability levels. This additional compensation
shall be computed on an annual basis at the close of the Employer's fiscal year
and paid to Executive within ten days of completion of the annual audit. Such
bonuses will be measured only with respect to the financial results related to
products developed by Employer and its current employees ("Included Products"),
and not with respect to any products that may be owned or developed by companies
acquired by or merged with Employer after the date hereof ("Excluded Products").
Bonuses shall be determined based on an allocation of expenses between Included
Products and Excluded Products in accordance with Generally Accepted Accounting
Principles ("GAAP") consistently applied. Any disagreements regarding the
calculation of the bonuses payable under this Section 3(b) shall be determined
by binding arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in Los Angeles, California. Such
arbitration shall be conducted by a single arbitrator who shall be a certified
public accountant associated with a "Big Six" accounting firm and not affiliated
with either party. Such arbitrator shall be selected by Employer and shall be
reasonably acceptable to Executive.

-3-

<PAGE>

(i) REVENUE ATTAINMENT. Employer shall pay Executive a cash
bonus if Employer realizes certain gross revenues. The cash bonus shall be
based upon the following schedule:

Cumulative
Revenue Attainment Cash Bonus
------------------ ----------

$ 7,500,000 $ 25,000
$10,000,000 $ 75,000
$15,000,000 $125,000

The foregoing schedule shall apply in respect of the fiscal year ending June 30,
1996. The revenue attainment levels set forth in the schedule shall be
increased annually by 60 percent per annum for each subsequent fiscal year
during the term of this Agreement.

(ii) EMPLOYER GROSS PROFIT. Employer shall pay Executive a
cash bonus if Employer achieves successful gross profit levels. For purposes
hereof, "gross profit" means total revenues less cost of sales as determined by
Employer's independent public accountants in accordance with GAAP consistently
applied. The cash bonus shall be calculated based upon the following
performance schedule:

Cumulative
Gross Profit Cash Bonus
------------ ----------

$ 2,000,000 $ 50,000
$ 2,250,000 $ 75,000
$ 2,500,000 $100,000

The foregoing schedule shall apply respect of the fiscal year ending June 30,
1996. The gross profit levels set forth in the schedule shall be increased
annually by 60 percent per annum for each subsequent year during the term of
this Agreement.

(iii) PRE-TAX PROFITABILITY. Employer shall pay Executive a
cash bonus upon Employer's achieving certain levels of pre-tax profitability.
For purposes hereof, "pre-tax profitability" shall mean earnings before
interest, amortization, depreciation and income taxes divided by gross revenues
as determined by Employer's independent public accountants in accordance with
GAAP consistently applied. For each fiscal year during the term of this
Agreement, the cash payment shall be based on the following pre-tax
profitability schedule:

-4-

<PAGE>

Cumulative
Pre-Tax Profitability Cash Bonus
--------------------- ----------

10% $ 50,000
15% $100,000

(iv) SEPARATE BONUS CATEGORIES. Each of the three bonus
categories set forth above shall be independent of each other and Executive may
obtain cash bonuses from one or more of the categories in the same fiscal year.

(c) AUTOMOBILE. In order to facilitate travel by Executive in
the performance of his duties hereunder, Employer shall furnish Executive, at no
expense to him, with an automobile owned or leased by Employer; provided, that
the total cost to the Company for lease/purchase payments shall not exceed
$1,000 per month. The manufacturer and type of such automobile shall be chosen
by Employer. Employer shall reimburse Employee for all expenses of maintaining,
insuring and operating such automobile upon the presentation of appropriate
vouchers and/or receipts (to the extent that Employer does not pay such expenses
directly). At the discretion of Executive, Employer shall, in lieu of
furnishing Executive with an automobile owned or leased by Employer and paying
all maintenance, insurance and operation expenses in connection therewith,
reimburse Executive for all expenses he incurs in maintaining, insuring and
operating one automobile owned or leased by Executive upon the presentation of
appropriate vouchers and/or receipts (to the extent that Employer does not pay
such expenses directly); provided, that the aggregate amount of such expenses
subject to reimbursement shall not exceed $1,000 per month.

(d) LIFE INSURANCE. During the term of his employment
hereunder, the Company shall purchase and keep in effect life insurance in the
amount of $5,000,000 on the life of the Executive; provided, that the total cost
to the Company for such insurance shall not exceed $7,500 per annum. Such life
insurance will name as beneficiaries those individuals designated by the
Executive.

(e) EXPENSES. During the term of his employment hereunder,
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him in performing services hereunder, provided that
Executive properly accounts therefor in accordance with Employer's policy
relating thereto. Without limiting the generality of the foregoing, the parties
agree that any travel Executive undertakes in connection with the performance of
his duties hereunder shall be in business

-5-

<PAGE>

class or better, and Employer shall reimburse Executive for such expenses.

(f) BENEFIT PLANS. Executive shall be entitled to participate
in or receive benefits under any employee benefit plan or arrangement currently
available, or made available by Employer in the future, to its executives and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plan or arrangement. Employer
shall not make any changes in any employee benefit plans or arrangements in
effect on the date hereof or during the term of this Agreement in which
Executive participates (including, without limitation, any pension and
retirement plan, supplemental pension and retirement plan, savings and profit
sharing plan, stock ownership plan, stock purchase plan, stock option plan, life
insurance plan, medical insurance plan, disability plan, dental plan, health-
and-accident plan or arrangement) which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executives of Employer and does not result in a
proportionately greater reduction in the rights of or benefits to Executive as
compared with any other executive of Employer. Any payments or benefits payable
to Executive hereunder in respect of any calendar year during which Executive is
employed by Employer for less than the entire such year shall, unless otherwise
provided in the applicable plan or arrangement, be prorated in accordance with
the number of calendar days in such calendar year during which he is so
employed.

(g) VACATIONS, HOLIDAYS AND SICK LEAVE. Executive shall be
entitled to the number of paid holidays, personal days off, vacation days and
sick leave days in each calendar year as are determined by Employer from time to
time for its senior executive officers, but not less than four weeks in any
calendar year (prorated, in any calendar year during which Executive is employed
under this Agreement for leans than the entire such year, in accordance with the
number of calendar days in such calendar year during which he is so employed).
Vacation may be taken in Executive's discretion, so long as it is not
inconsistent with the reasonable business needs of Employer. Executive shall be
entitled to accrue from year to year all vacation days not taken by him.

(h) PERQUISITES. Executive shall be entitled to continue to
receive the perquisites and fringe benefits appertaining to the office of the
Chief Executive Officer of Employer in accordance with present practice and
appropriate to the industry.

-6-

<PAGE>

(i) KEY MAN LIFE INSURANCE. Executive shall cooperate with
Employer to secure, for Employer, a key man life insurance policy on the life of
Executive in the amount of $2,000,000 to $5,000,000, to be paid to Employer upon
Executive's death.

(j) BASE SALARY NOT EFFECTED BY OTHER BENEFITS. None of the
benefits to which Executive is entitled under any of the provisions of Sections
3(b) - 3(g) hereof shall in any manner reduce or be deemed to be in lieu of the
Base Salary payable to Executive pursuant to Section 3(a) hereof.

(k) MINIMUM COMPENSATION. Notwithstanding any other provision
hereof, in no event shall the cash compensation payable to Executive hereunder
for any fiscal year be less than the lesser of (i) the cash compensation paid to
the CEO during that fiscal year and (ii) $300,000. Employer also agrees to
accord to Executive substantially the same perquisites and fringe benefits
(excluding stock options, stock appreciation rights, restricted stock awards and
similar equity based compensation) as may from time to time be awarded to the
CEO.

(l) STOCK REGISTRATION. Employer shall undertake its best
efforts to cause the underwriters for its pending initial public offering to
cause to be registered and sold pursuant to the underwriters' over-allotment
portion of such offering 10,000 shares of Employer's common stock owned by
Executive.

4. TERM OF EMPLOYMENT. The employment by Employer of Executive
pursuant hereto shall commence as of the date hereof (the "Effective Date") and,
subject to the provisions of Section 5 hereof, shall terminate on September 15,
1998 (the "Termination Date"). This Agreement shall automatically be extended
for one additional year beyond the Termination Date (the "Extended Termination
Date") unless at least 30 calendar days prior to the Termination Date, Executive
or Employer shall have given notice that he or it does not wish to extend this
Agreement.

5. PREMATURE TERMINATION. Anything in this Agreement contained to
the contrary notwithstanding:

(a) DEATH. Executive's employment hereunder shall terminate
forthwith upon the death of Executive.

(b) DISABILITY. Executive's employment hereunder shall
terminate, at the option of Employer, in the event that the Board makes a good
faith determination that Executive suffers from

-7-

<PAGE>

Disability (as hereinafter defined) so as to be unable to substantially perform
his duties hereunder for an aggregate of 180 calendar days during any period of
12 consecutive months. As used in this Agreement, the term "Disability" shall
mean the material inability, in the opinion of three-fourths of the entire
membership of the Board set forth in a resolution giving the particulars
thereof, of Executive to render his agreed-upon services to Employer due to
physical and/or mental infirmity, which opinion is concurred in by a physician
or psychiatrist selected by Executive or his duly appointed representative or
guardian and reasonably acceptable to Employer.

(c) TERMINATION FOR CAUSE. Employer may terminate Executive's
employment hereunder for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate Executive's employment hereunder upon (i) the willful
and continued failure by Executive to substantially perform his duties hereunder
(other than any such failure resulting from Executive's incapacity due to
physical or mental illness) after demand for substantial performance is
delivered by Employer specifically identifying the manner in which Employer
believes Executive has not substantially performed his duties, or (ii) the
willful engaging by Executive in misconduct which is materially injurious to
Employer, monetarily or otherwise, or (iii) the willful violation by Executive
of the provisions of Section 8 hereof provided that such violation results in
material injury to Employer. No act, or failure to act, on Executive's part
shall be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in the
best interest of Employer. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice to Executive and an opportunity for him, together with his
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Executive conducted, or failed to conduct, himself in a manner set
forth above in clause (i), (ii), or (iii) of this Section 5(c), and specifying
the particulars thereof in detail. Any dispute as to whether Cause to dismiss
Executive exists, shall be resolved by arbitration conducted in Los Angeles,
California in accordance with the rules of the American Arbitration Association
and by a single arbitrator reasonably acceptable to Executive and Employer.

(d) TERMINATION BY EXECUTIVE. Executive may terminate his
employment hereunder (i) for Good Reason (as

-8-

<PAGE>

hereinafter defined) or (ii) if his physical or mental health becomes impaired
to an extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, provided that Executive
shall have furnished Employer with a written statement from a doctor or
psychiatrist to such effect, and provided further, that, at Employer's request
and expense, Executive shall submit to an examination by a physician or
psychiatrist selected by Employer and such physician or psychiatrist shall have
concurred in the conclusion of Executive's physician or psychiatrist. Until
Executive terminates his employment pursuant to clause (ii) of this Section
5(d), he shall continue to receive his full Base Salary, payable at the time
such payments are due.

(e) "GOOD REASON" DEFINED. For purposes of this Agreement,
"Good Reason" shall mean (i) any removal of Executive as, or any failure to re-
elect Executive as, Chairman of the Board of Employer except in connection with
termination of Executive's employment for Cause (as hereinafter defined) or
Disability, provided, however, that any removal of Executive as, or any failure
to re-elect Executive as, Chairman of the Board of Employer (except in
connection with termination of Executive's employment for Cause or Disability)
shall not diminish or reduce the obligations of Employer to Executive under this
Agreement, or (ii) a reduction of ten percent or more in Executive's then
current Base Salary, other than a reduction necessitated by Employer's adverse
financial condition, or any failure by Employer to comply with any of the
provisions of Sections 1, 2, 3 or 4 hereof, or (iii) the failure of Employer to
obtain the assumption of the agreement to perform this Agreement by any
successor to Employer, as provided for in Section 8 hereof.

(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by Employer or by Executive (other than termination pursuant to
Section 5(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice Of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.

-9-

<PAGE>

hereof, 30 calendar days after Notice of Termination is given (provided that
Executive shall not have returned to the performance of his duties on a full-
time basis during such 30-day period), (iii) if Executive's employment is
terminated pursuant to Section 5(c) hereof, the date specified in the Notice of
Termination, and (iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given.

6. PAYMENTS AND BENEFITS UPON EARLY TERMINATION.

(a) EARLY TERMINATION FOR DEATH, DISABILITY OR CAUSE. Upon the
termination of this Agreement prior to the Termination Date (or, if this
Agreement shall have been extended to the Extended Termination Date, as provided
in Section 4 hereof, prior to the Extended Termination Date) (X) by Employer as
a result of death, Disability or termination of Executive for Cause or (Y) by
Executive for any of the reasons set forth in clause (ii) of Section 5(d)
hereof, Employer shall pay Executive:

(i) his Base Salary through the Date of Termination at the
rate in effect at the time of Notice of Termination is given or, in
the case of the death of Executive, the Date of Termination, payable
at the time such payments are due; and

(ii) all other amounts to which Executive is entitled,
including, without limitation, expense reimbursement amounts or
amounts due under any benefit plan of Employer accrued to the Date of
Termination, at the time such payments are due.

(b) EARLY TERMINATION OTHER THAN FOR DEATH, DISABILITY OR CAUSE.
Upon the termination of this Agreement prior to the Termination Date (or, if
this Agreement shall have been extended to the Extended Termination Elate, as
provided in Section 4 hereof, prior to the Extended Termination Date) (X) by
Employer other than for death, Disability or Cause or (Y) by Executive for Good
Reason or as a result of a breach of this Agreement by Employer, Employer shall
pay to Executive:

(i) his Base Salary through the Termination Date at the rate in
effect at the time Notice of Termination is given, payable at the time
such payments are due (or, if this Agreement shall have been extended
to the Extended Termination Date, as provided in Section 4 hereof, his
Base Salary through the Extended Termination Date at the rate in
effect at the time Notice of Termination is

-10-

<PAGE>

given, payable at the time such payments are due); and

(ii) all other amounts to which Executive is entitled, including,
without limitation, expense reimbursement amounts or amounts due under
any benefit plan of Employer accrued to the Date of Termination, at
the time such payments are due.

In addition, for the 36-month period after termination for
any of the reasons specified in this Section 6(b), Employer shall arrange to
provide Executive with life and health insurance benefits substantially similar
to those which Executive was receiving immediately prior to the Notice of
Termination.

(c) PAYMENT OF DAMAGES. Upon the early termination of this
Agreement, Employer shall pay all other damages to which Executive may be
entitled as a result of Employer's termination of his employment under this
Agreement, including damages for any and all loss of benefits to Executive under
Employer's employee benefit plans which he would have received if Employer had
not breached this Agreement and had his employment continued for the full term
provided in Section 4 hereof, and including all legal fees and expenses incurred
by him in contesting or disputing any such termination of in seeking to obtain
or enforce any right or benefit provided by this Agreement.

(d) MITIGATION NOT REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for in this Section 6 by seeking
other employment or otherwise. However, the amount of any payment provided for
in this Section 6 shall be reduced by any compensation earned by Executive as
the result of employment by another employer engaged in the business of
interactive educational computer software after the Date of Termination, or
otherwise.

7. REGISTRATION RIGHTS.

-11-

<PAGE>

appropriate Blue Sky authorities the necessary documents to register or qualify
such Registrable Securities. Notwithstanding the foregoing, Executive shall not
be entitled to exercise his rights under this Section 7(a) for a period of one
year following the initial public offering of common stock of the employer
without the consent of the lead underwriters in the initial public offering.

(b) Any sale of Registrable Securities pursuant to Section 7(a)
shall be made through The Boston Group, L.P. If the Registrable Securities are
offered and sold through The Boston Group, L.P. on an underwritten basis, then
Executive shall enter into an underwriting agreement with The Boston Group, L.P.
on customary terms and conditions, and shall pay The Boston Group, L.P. a
customary underwriting discount. If the Registrable Securities are offered and
sold through The Boston Group, L.P. on a nonunderwritten basis, then Executive
shall pay The Boston Group, L.P. its customary and reasonable fees.

(c) As a condition for the inclusion of any Registrable
Securities in any registration statement pursuant to this paragraph 7, at the
request of SSI/DE, Executive shall enter into an underwriting agreement with
SSI/DE and the underwriter(s) with respect to the registration of the
Registrable Securities, in such form as may be reasonably agreed upon by
Employer and such underwriter(s), as long as such agreement is consistent with
those then in use by major underwriters and with the provisions hereof.

(d) SSI/DE shall pay all registration expenses relating to any
registration of Registrable Securities pursuant to this paragraph 7. Executive
shall pay all brokerage fees, underwriting fees and discounts, transfer taxes,
if any, and the fees and expenses of Executive's legal counsel in connection
with the registration and sale of the Registrable Securities.

8. NONDISCLOSURE; NONCOMPETE.

-12-

<PAGE>

techniques, or other information relating to the business of Employer, and
Executive confirms that such information constitutes the exclusive property of
Employer. However, said restriction on confidential information shall not apply
to information which is: (i) generally available in the industry in which
Employer operates, (ii) disclosed in published literature or (iii) obtained by
Executive from a third party without binder or secrecy. Executive agrees that,
except as otherwise expressly agreed to by Employer, he will return to Employer,
promptly upon the request of the Board or any executive officer designated by
the Board, any physical embodiment of such confidential information.

(b) NONCOMPETITION. During the term of his employment by
Employer, Executive shall not engage, directly or indirectly (which includes,
but is not limited to, owning, managing, operating, controlling, being employed
by, giving financial assistance to, participating in or being connected in any
material way with any business or person so engaged), anywhere in the
continental United States, in the business of interactive educational computer
software based on licensed products from major motion pictures and televisions;
provided, however, that Executive's ownership as a passive investor of less than
five percent of the issued and outstanding stock of any publicly held
corporation or partnership so engaged shall not by itself be deemed to
constitute such engagement by Executive; and provided further that, subject to
obtaining (as and when required) prior written consent, which consent will not
be unreasonably withheld, nothing herein shall be construed to prevent Executive
from engaging, directly or indirectly, in any capacity in any business in the
computer software or movie industries not specified above. During such period,
Executive shall not act to induce any of Employer's or its subsidiaries,
customers or employees to take action which might be disadvantageous to
Employer.

(c) REMEDIES. Executive recognizes that the possible
restrictions on his activities which may occur as a result of his performance of
his obligations under this Section 8 are required for the reasonable protection
of Employer and its investments, and Executive expressly acknowledges that
damages alone will be an inadequate remedy for any breach or violation of this
Section 8, and that Employer, in addition to all other remedies at law or in
equity, shall be entitled, as a matter of right, to injunctive relief, including
specific performance, with respect to any such breach or violation, in any court
of competent jurisdiction. If any of the provisions of this Section 8 are held
to be in any respect an unreasonable restriction upon Executive, then they shall
be deemed to extend only over the maximum period of

-13-

<PAGE>

time, geographic area, and/or range of activities as to which they may be
enforceable.

(d) NONEXCLUSIVITY. The undertakings of Executive contained in
Sections 8(a), 8(b) and 8(c) hereof shall be in addition to, and not in lieu of,
any obligations which he may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise.

9. CONVERSION TO SUBSIDIARY COMMON STOCK.

(a) Employer acknowledges that Executive is or is about to sell
a portion of the common stock of SSI/DE ("Company Common Stock") owned by
Executive on a private basis. The prospective purchasers of such Company Common
Stock as a condition to their purchase of such Company Common Stock, require
that such Company Common Stock be automatically convertible into (or
exchangeable for) shares of the common stock of SSI/CA ("Subsidiary Common
Stock") in the event that SSI/DE has not completed an IPO by the earlier of
December 31, 1996 or the date of the completion of an IPO by SSI/CA.

(b) In consideration for Executive's amending the Prior
Agreement as provided herein, SSI/CA agrees that in the event that SSI/DE has
not completed an IPO by the earlier of December 31, 1996 or the date of the
completion of an IPO by SSI/CA, the shares of Company Common Stock sold by
Executive as provided in the preceding paragraph shall be automatically
converted into (or exchanged for) shares of Subsidiary Common Stock, such that
upon such conversion (or exchange), the percentage of the issued and outstanding
Subsidiary Common Stock owned by the holders of the Subsidiary Common Stock
issued such conversion (or exchange) shall equal the percentage of the issued
and outstanding Company Common Stock owned by such holders immediately prior to
the conversion (or exchange). In no event shall the total number of shares of
Company Common Stock subject to the conversion privilege set forth in this
Section 9(b) exceed 1,000,000 shares (on a pre-split basis).

10. SUCCESSORS; BENEFITS.

-14-

<PAGE>

had taken place. Failure of Employer to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Executive to compensation from Employer in the same amount and on
the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Employer" shall
mean Employer as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 9 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.

(b) BENEFITS. This Agreement and all rights of Executive
hereunder shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amounts
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's devisee, legatee, or other designee or,
if there be no such designee, to Executive's estate.

11. MISCELLANEOUS PROVISIONS.

(a) EXECUTION IN COUNTERPARTS. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

(b) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, if delivered personally, or three
calendar days after having been mailed, if mailed by registered or certified
mail, postage prepaid, return receipt requested, as follows:

If to Employer, to: Sound Source Interactive,Inc.
2985 East Hillcrest Drive
Suite A
Westlake Village, CA 91362
Attention: President

-15-

<PAGE>

If to Executive, to: Vincent J. Bitetti
776 Emerson Street
Thousand Oaks, CA 91362

or to such other address as either party hereto shall have designated by like
notice to the other party hereto (except that a notice of change of address
shall only be effective upon receipt).

(d) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties hereto, oral
and written, with respect to the subject matter hereof, except that the
entitlement of Executive under paragraph 7 of the Prior Agreement to receive a
bonus from Employer computed as a percentage of Employer's net sales revenue
shall continue in effect until November 30, 1995.

(e) APPLICABLE LAW. This Agreement shall be governed by the
laws of the State of California applicable to contracts made and to be wholly
performed therein.

(f) HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.

(g) WAIVER, ETC. The failure of either of the parties hereto to
at any time enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought; and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.

-16-

<PAGE>

IN WITNESS WHEREOF, this Agreement has been executed
and delivered by the parties hereto as of the date first above
written.

EMPLOYER:

SOUND SOURCE INTERACTIVE, INC.,
a Delaware corporation

By: /s/ Eric H. Winston
----------------------------------
Eric H. Winston, President &
Chief Operating Officer

SOUND SOURCE INTERACTIVE, INC.,
a California corporation

By: /s/ Eric H. Winston
----------------------------------
Eric H. Winston, President &
Chief Operating Officer

EXECUTIVE:

/s/ Vincent J. Bitetti
----------------------------------
Vincent J. Bitetti

-17-

<PAGE>

SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") dated as of April 30, 1996, by and among Sound Source
Interactive, Inc., a Delaware corporation ("SSI/DE"), and Sound Source
Interactive, Inc., a California corporation ("SSI/CA") (collectively,
"Employer"), and Eric H. Winston ("Executive").

W I T N E S S E T H:

WHEREAS, Executive has served as President and Chief Operating
Officer of Employer since April 1994;

WHEREAS, Employer and Executive entered into an Employment
Agreement dated as of April 6, 1994, a copy of which is attached hereto as
Exhibit A (the "Original Agreement");

WHEREAS, Employer and Executive entered into an Amended and
Restated Employment Agreement dated as of September 15, 1995 (the "Prior
Agreement"), pursuant to which the Original Agreement was amended and
restated as set forth therein;

WHEREAS, Employer and Executive mutually desire to amend and
restate the Prior Agreement as set forth herein;

WHEREAS, Executive continues to possess an intimate knowledge of
the business and affairs of Employer, its policies, methods, personnel,
opportunities and problems;

WHEREAS, Employer desires to assure itself of Executive's continued
employment by Employer and to compensate him for such efforts; and

WHEREAS, Executive is desirous of committing himself to serve
Employer on the terms herein provided;

NOW, THEREFORE, in consideration of the covenants herein contained,
the parties hereto hereby agree as follows:

1. EMPLOYMENT. Executive is hereby employed as the President and
Chief Operating Officer of Employer. Executive shall report to the Chief
Executive Officer of Employer. Until the appointment of a new Chief
Executive Officer, Executive, along with the Chief Executive Officer of
Employer, shall have supervision and control over, and responsibility for,
the operations and affairs of Employer, and shall have such other powers and
duties as may be from time assigned to him by the Board of Directors (the
"Board"). Upon the appointment of a new Chief Executive Officer, Executive's
duties may be changed by the Chief Executive Officer or the Board; Executive
may, at his option, either accept the new duties or advise the Board that he
will perform no duties. Such an event

<PAGE>

will not constitute a breach of contract by either Executive or Employer, and
Executive shall be entitled to the continuation of his salary, bonuses and
benefits and all other covenants for the remaining original term of this
Agreement and shall not thereafter be obligated to devote further time and
attention to the affairs of Employer.

2. PLACE OF PERFORMANCE. In connection with his employment by
Employer, Executive shall be based at Employer's principal executive offices.

3. COMPENSATION.

(a) BASE SALARY. Employer shall pay to Executive, and
Executive shall accept, for all services which may be rendered by him
pursuant to this Agreement, a base salary ("Base Salary") as hereinafter set
forth. The initial Base Salary of Executive hereunder shall be $175,000 per
annum. Executive acknowledges that Employer is currently seeking to retain a
new Chief Executive Officer, and agrees that upon the commencement of
employment thereof the annual Base Salary shall be reduced by $35,000. At
the end of the first full year of this Agreement, the Base Salary shall be
increased by an amount equal to the Base Salary then in effect multiplied by
a fraction, the numerator of which shall be the difference between (a) the
Consumer Price Index (as hereinafter defined) as of the first anniversary of
the Effective Date (as hereinafter defined) and (b) the Consumer Price Index
as of the Effective Date, and the denominator of which shall be the Consumer
Price Index as of the Effective Date; provided, that the "fraction" set forth
in this sentence shall never be zero or less. At the end of each succeeding
full year of this Agreement, the Base Salary shall be increased in a like
manner.

At such time as the Company shall have net revenues of
$1,500,000 or more for any three consecutive calendar month period during the
term hereof, the Base Salary shall be increased by $35,000 per annum,
retroactive to the first day of the three calendar month period in question.
Such adjustment shall be made one time only, but shall continue in effect
thereafter for the remaining term of this Agreement.

Any increase in Base Salary or other compensation granted by
Employer, the Board or any committee thereof shall in no way limit or reduce
any other obligation of Employer hereunder and, once established at an
increased specified rate, Executive's Base Salary hereunder shall not
thereafter be reduced, other than as necessitated by Employer's adverse
financial condition.

-2-

<PAGE>

Executive's salary shall be payable in accordance with Employer's payroll
practices as from time to time in effect.

For purposes of this Agreement, the "Consumer Price Index" as
of any particular date means the Consumer Price Index for Urban Consumers for
All Items, as reported in the Monthly Labor Review (published by the Bureau
of Labor Statistics of the United States Department of Labor) in respect of
the month immediately preceding such particular date. In the event that the
Consumer Price index is not available, a successor or substitute index shall
be used for the computations herein set forth. In the event that the
Consumer Price Index or such successor or substitute index is not published,
a reliable governmental or other nonpartisan publication evaluating the
information theretofore used in determining the Consumer Price index shall be
used for the computations herein set forth.

(b) ADDITIONAL CASH COMPENSATION. Employer shall pay
Executive compensation in addition to Executive's Base Salary upon attainment
of one or more revenue or profitability levels. This additional compensation
shall be computed on an annual basis at the close of Employer's fiscal year
and paid to Executive within ten days of completion of the annual audit.
Such bonuses will be measured only with respect to the financial results
related to products developed by Employer and its current employees
("Included Products"), and not with respect to any products that may be owned
or developed by companies acquired by or merged with Employer after the date
hereof ("Excluded Products"). Bonuses shall be determined based on an
allocation of expenses between Included Products and Excluded Products in
accordance with Generally Accepted Accounting Principles ("GAAP")
consistently applied. Any disagreements regarding the calculation of the
bonuses payable under this Section 3(b) shall be determined by binding
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association in Los Angeles, California. Such
arbitration shall be conducted by a single arbitrator who shall be a
certified public accountant associated with a "Big Six" accounting firm and
not affiliated with either party. Such arbitrator shall be selected by
Employer and shall be reasonably acceptable to Executive.

-3-

<PAGE>

(i) REVENUE ATTAINMENT. Employer shall pay Executive a
cash bonus if Employer realizes certain gross revenues. The cash bonus shall
be based upon the following schedule:

CUMULATIVE
REVENUE ATTAINMENT CASH BONUS
------------------ ----------
<S> <C>

$ 7,500,000 $ 25,000
$10,000,000 $ 75,000
$15,000,000 $125,000
</TABLE>

The foregoing schedule shall apply in respect of the fiscal year ending June
30, 1996. The revenue attainment levels set forth in the schedule shall be
increased annually by 60 percent per annum for each subsequent fiscal year
during the term of this Agreement.

(ii) EMPLOYER GROSS PROFIT. Employer shall pay Executive
a cash bonus if Employer achieves successful gross profit levels. For
purposes hereof, "gross profit" means total revenues less cost of sales as
determined by Employer's independent public accountants in accordance with
GAAP consistently applied. The cash bonus shall be calculated based upon the
following performance schedule:

CUMULATIVE
GROSS PROFIT CASH BONUS
------------ ----------
<S> <C>

$ 2,000,000 $ 50,000
$ 2,250,000 $ 75,000
$ 2,500,000 $100,000

</TABLE>

The foregoing schedule shall apply in respect of the fiscal year ending June
30, 1996. The gross profit attainment levels set forth in the schedule shall
be increased annually by 60 percent per annum per annum for each subsequent
year during the term of this Agreement.

(iii) PRE-TAX PROFITABILITY. Employer shall pay
Executive a cash bonus upon Employer's achieving certain levels of pre-tax
profitability. For purposes hereof, "pre-tax profitability" shall mean
earnings before interest, amortization, depreciation and income taxes divided
by gross revenues as determined by Employer's independent public accountants
in accordance with GAAP. For each fiscal year during the term of this
Agreement, the cash payment shall be based on the following pre-tax
profitability schedule:

-4-

<PAGE>

CUMULATIVE
PRE-TAX PROFITABILITY CASH BONUS
--------------------- ----------
<S> <C>

10% $ 50,000
15% $100,000

</TABLE>

(iv) SEPARATE BONUS CATEGORIES. Each of the three bonus
categories set forth above shall be independent of each other and Executive
may obtain cash bonuses from one or more of the categories in the same fiscal
year.

(c) AUTOMOBILE. In order to facilitate travel by Executive
in the performance of his duties hereunder, Employer shall furnish Executive,
at no expense to him, with an automobile owned or leased by Employer;
provided, that the total cost to the Company for lease/purchase payments
shall not exceed $1,000 per month. The manufacturer and type of such
automobile shall be chosen by Employer. Employer shall reimburse Employee
for all expenses of maintaining, insuring and operating such automobile upon
the presentation of appropriate vouchers and/or receipts (to the extent that
Employer does not pay such expenses directly). At the discretion of
Executive, Employer shall, in lieu of furnishing Executive with an automobile
owned or leased by Employer and paying all maintenance, insurance and
operation expenses in connection therewith, reimburse Executive for all
expenses he incurs in maintaining, insuring and operating one automobile
owned or leased by Executive upon the presentation of appropriate vouchers
and/or receipts (to the extent that Employer does not pay such expenses
directly); provided, that the aggregate amount of such expenses subject to
reimbursement by Employer shall not exceed $1,000 per month.

(d) LIFE INSURANCE. During the term of his employment
hereunder, the Company shall purchase and keep in effect life insurance in
the amount of $1,000,000 on the life of the Executive; provided, that the
total cost to the Company for such insurance shall not exceed $7,500 per
annum. Such life insurance will name as beneficiaries those individuals
designated by the Executive.

(e) EXPENSES. During the term of his employment hereunder,
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in performing services hereunder,
provided that Executive properly accounts therefor in accordance with
Employer's policy relating thereto. Without limiting the generality of the
foregoing, the parties agree that any travel Executive undertakes in
connection with the performance of his duties hereunder shall be in business

-5-

<PAGE>

class or better, and Employer shall reimburse Executive for such expenses.

(f) BENEFIT PLANS. Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement currently available, or made available by Employer in the future,
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plan
or arrangement. If Executive elects not to participate in any of the health
plans sponsored by Employer, then Employer shall reimburse Executive in an
amount not to exceed $1,000 per month for costs incurred by Executive in
obtaining alternative health care coverage for Executive and his family.
Employer shall not make any changes in any employee benefit plans or
arrangements in effect on the date hereof or during the term of this
Agreement in which Executive participates (including, without limitation, any
pension and retirement plan, supplemental pension and retirement plan,
savings and profit sharing plan, stock ownership plan, stock purchase plan,
stock option plan, life insurance plan, medical insurance plan, disability
plan, dental plan, health-and-accident plan or arrangement) which would
adversely affect Executive's rights or benefits thereunder, unless such
change occurs pursuant to a program applicable to all executives of Employer
and does not result in a proportionately greater reduction in the rights of
or benefits to Executive as compared with any other executive of Employer.
Any payments or benefits payable to Executive hereunder in respect of any
calendar year during which Executive is employed by Employer for less than
the entire such year shall, unless otherwise provided in the applicable plan
or arrangement, be prorated in accordance with the number of calendar days in
such calendar year during which he is so employed.

(g) VACATIONS, HOLIDAYS AND SICK LEAVE. Executive shall be
entitled to the number of paid holidays, personal days off, vacation days and
sick leave days in each calendar year as are determined by Employer from time
to time for its senior executive officers, but not less than four weeks in
any calendar year (prorated, in any calendar year during which Executive is
employed under this Agreement for leans than the entire such year, in
accordance with the number of calendar days in such calendar year during
which he is so employed). Vacation may be taken in Executive's discretion, so
long as it is not inconsistent with the reasonable business needs of
Employer. Executive shall be entitled to accrue from year to year all
vacation days not taken by him.

(h) PERQUISITES. Executive shall be entitled to continue to
receive the perquisites and fringe benefits

-6-

<PAGE>

appertaining to the office of the President and Chief Operating Officer of
Employer in accordance with present practice and appropriate to the industry.

(i) KEY MAN LIFE INSURANCE. Executive shall cooperate with
Employer to secure, for Employer, a key man life insurance policy on the life
of Executive in the amount of $2,000,000 to $5,000,000, to be paid to
Employer upon Executive's death.

(j) BASE SALARY NOT EFFECTED BY OTHER BENEFITS. None of the
benefits to which Executive is entitled under any of the provisions of
Sections 3(b) - 3(g) hereof shall in any manner reduce or be deemed to be in
lieu of the Base Salary payable to Executive pursuant to Section 3(a) hereof.

(k) STOCK REGISTRATION. Employer shall undertake its best
efforts to cause the underwriters for its pending initial public offering to
cause to be registered and sold pursuant to the underwriters' over-allotment
option portion of such offering 10,000 shares of Employer's common stock
owned by Executive.

4. TERM OF EMPLOYMENT. The employment by Employer of Executive
pursuant hereto shall commence as of the date hereof (the "Effective Date")
and, subject to the provisions of Section 5 hereof, shall terminate on
September 15, 1998 (the "Termination Date"). This Agreement shall
automatically be extended for one additional year beyond the Termination Date
(the "Extended Termination Date") unless at least 30 calendar days prior to
the Termination Date, Executive or Employer shall have given notice that he
or it does not wish to extend this Agreement.

5. PREMATURE TERMINATION. Anything in this Agreement contained
to the contrary notwithstanding:

(a) DEATH. Executive's employment hereunder shall terminate
forthwith upon the death of Executive.

(b) DISABILITY. Executive's employment hereunder shall
terminate, at the option of Employer, in the event that the Board makes a
good faith determination that Executive suffers from Disability (as
hereinafter defined) so as to be unable to substantially perform his duties
hereunder for an aggregate of 180 calendar days during any period of 12
consecutive months. As used in this Agreement, the term "Disability" shall
mean the material inability, in the opinion of three-fourths of the entire
membership of the Board set forth in a resolution giving the particulars

-7-

<PAGE>

thereof, of Executive to render his agreed-upon services to Employer due to
physical and/or mental infirmity, which opinion is concurred in by a
physician or psychiatrist selected by Executive or his duly appointed
representative or guardian and reasonably acceptable Employer.

(c) TERMINATION FOR CAUSE. Employer may terminate
Executive's employment hereunder for Cause. For purposes of this Agreement,
Employer shall have "Cause" to terminate Executive's employment hereunder
upon (i) the willful and continued failure by Executive to substantially
perform his duties hereunder (other than any such failure resulting from
Executive's incapacity due to physical or mental illness) after demand for
substantial performance is delivered by Employer specifically identifying the
manner in which Employer believes Executive has not substantially performed
his duties, or (ii) the willful engaging by Executive in misconduct which is
materially injurious to Employer, monetarily or otherwise, or (iii) the
willful violation by Executive of the provisions of Section 8 hereof provided
that such violation results in material injury to Employer. No act, or
failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of Employer.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to
Executive and an opportunity for him, together with his counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board,
Executive conducted, or failed to conduct, himself in a manner set forth
above in clause (i), (ii), or (iii) of this Section 5(c), and specifying the
particulars thereof in detail. Any dispute as to whether Cause to dismiss
Executive exists, shall be resolved by arbitration conducted in Los Angeles,
California in accordance with the rules of the American Arbitration
Association and by a single arbitrator reasonably acceptable to Executive and
Employer.

(d) TERMINATION BY EXECUTIVE. Executive may terminate his
employment hereunder (i) for Good Reason (as hereinafter defined) or (ii) if
his physical or mental health becomes impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Executive shall have furnished
Employer with a written statement from a doctor or psychiatrist to such
effect, and provided further, that, at Employer's request and expense,
Executive shall submit to an examination by a physician or

-8-

<PAGE>

psychiatrist selected by Employer and such physician or psychiatrist shall
have concurred in the conclusion of Executive's physician or psychiatrist.
Until Executive terminates his employment pursuant to clause (ii) of this
Section 5(d), he shall continue to receive his full Base Salary, payable at
the time such payments are due.

(e) "GOOD REASON" DEFINED. For purposes of this Agreement,
"Good Reason" shall mean (i) any removal of Executive as, or any failure to
re-elect Executive as, President of Employer except in connection with
termination of Executive's employment for Disability; provided, however, that
any removal of Executive as, or any failure to re-elect Executive as,
President of Employer (except in connection with termination of Executive's
employment for Disability) shall not diminish or reduce the obligations of
Employer to Executive under this Agreement, or (ii) a reduction of ten
percent (10%) or more in Executive's then current Base Salary, other than a
reduction necessitated by Employer's adverse financial condition, or any
failure by Employer to comply with any of the provisions of Sections 1, 2, 3
or 4 hereof, or (iii) the failure of Employer to obtain the assumption of the
agreement to perform this Agreement by any successor to Employer, as provided
for in Section 8 hereof.

(f) NOTICE OF TERMINATION. Any termination of Executive's
employment by Employer or by Executive (other than termination pursuant to
Section 5(a) hereof) shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice Of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.

(g) DATE OF TERMINATION. For purposes of this Agreement,
"Date of Termination" shall mean (i) if Executive's employment is terminated
by his death, the date of his death, (ii) if Executive's employment is
terminated pursuant to Section 5(b) hereof, 30 calendar days after Notice of
Termination is given (provided that Executive shall not have returned to the
performance of his duties on a full-time basis during such 30-day period),
and (iii) if Executive's employment is terminated for any other reason, the
date on which a Notice of Termination is given.

-9-

<PAGE>

6. PAYMENTS AND BENEFITS UPON EARLY TERMINATION.

(a) EARLY TERMINATION FOR DEATH OR DISABILITY. Upon the
termination of this Agreement prior to the Termination Date (or, if this
Agreement shall have been extended to the Extended Termination Date, as
provided in Section 4 hereof, prior to the Extended Termination Date) (X) by
Employer as a result of death or Disability or (Y) by Executive for any of
the reasons set forth in clause (ii) of Section 5(d) hereof, Employer shall
pay Executive:

(ii) all other amounts to which Executive is entitled,
including, without limitation, expense reimbursement amounts or
amounts due under any benefit plan of Employer accrued to the Date
of Termination, at the time such payments are due.

(b) EARLY TERMINATION OTHER THAN FOR DEATH OR DISABILITY.
Upon the termination of this Agreement prior to the Termination Date (or, if
this Agreement shall have been extended to the Extended Termination Date, as
provided in Section 4 hereof, prior to the Extended Termination Date) (X) by
Employer other than for death or Disability or Cause or (Y) by Executive for
Good Reason or as a result of a breach of this Agreement by Employer,
Employer shall pay to Executive:

(ii) all other amounts to which Executive is entitled, including,
without limitation, expense reimbursement amounts or amounts due under
any benefit plan of Employer accrued to the Date of Termination, at
the time such payments are due.

-10-

<PAGE>

In addition, for the 36-month period after termination
for any of the reasons specified in this Section 6(b), Employer shall arrange
to provide Executive with life and health insurance benefits substantially
similar to those which Executive was receiving immediately prior to the
Notice of Termination.

(c) PAYMENT OF DAMAGES. Upon the early termination of this
Agreement, Employer shall pay all other damages to which Executive may be
entitled as a result of Employer's termination of his employment under this
Agreement, including damages for any and all loss of benefits to Executive
under Employer's employee benefit plans which he would have received if
Employer had not breached this Agreement and had his employment continued for
the full term provided in Section 4 hereof, and including all legal fees and
expenses incurred by him in contesting or disputing any such termination of
in seeking to obtain or enforce any right or benefit provided by this
Agreement.

(d) MITIGATION NOT REQUIRED. Executive shall not be required
to mitigate the amount of any payment provided for in this Section 6 by
seeking other employment or otherwise. However, the amount of any payment
provided for in this Section 6 shall be reduced by any compensation earned by
Executive as the result of employment by another employer engaged in the
business of interactive educational computer software after the Date of
Termination, or otherwise.

7. REGISTRATION RIGHTS.

(a) At the request of Executive made at any time subsequent
to the Date of Termination, SSI/DE, on not more than two occasions, will, as
promptly as practicable (and in any event no later than 120 days following
the Executive's request): (i) prepare and file under the Securities Act of
1933, as amended ("Securities Act"), using its year-end financial statements
for the preceding year, a registration statement relating to all of the
common stock of SSI/DE held by or issuable to Executive pursuant to any
option or other agreement between SSI/DE and Executive (collectively, the
"Registrable Securities"); and (ii) prepare and file with the appropriate
Blue Sky authorities the necessary documents to register or qualify such
Registrable Securities. Notwithstanding the foregoing, Executive shall not
be entitled to exercise his rights under this Section 7(a) for a period of
one year following the initial public offering of common stock of the
employer without the consent of the lead underwriter in the initial pubic
offering.

-11-

<PAGE>

(b) Any sale of Registrable Securities pursuant to Section
7(a) shall be made through The Boston Group, L.P. If the Registrable
Securities are offered and sold through The Boston Group, L.P. on an
underwritten basis, then Executive shall enter into an underwriting agreement
with The Boston Group, L.P. on customary terms and conditions, and shall pay
The Boston Group, L.P. a customary underwriting discount. If the Registrable
Securities are offered and sold through The Boston Group, L.P. on a
nonunderwritten basis, then Executive shall pay The Boston Group, L.P. its
customary and reasonable fees.

(c) As a condition for the inclusion of any Registrable
Securities in any registration statement pursuant to this paragraph 7, at the
request of SSI/DE, Executive shall enter into an underwriting agreement with
SSI/DE and the underwriter(s) with respect to the registration of the
Registrable Securities, in such form as may be reasonably agreed upon by
SSI/DE and such underwriter(s), as long as such agreement is consistent with
those then in use by major underwriters and with the provisions hereof.

(d) SSI/DE shall pay all registration expenses relating to
any registration of Registrable Securities pursuant to this paragraph 7.
Executive shall pay all brokerage fees, underwriting fees and discounts,
transfer taxes, if any, and the fees and expenses of Executive's legal
counsel in connection with the registration and sale of the Registrable
Securities.

8. NONDISCLOSURE; NONCOMPETE.

(a) CONFIDENTIAL INFORMATION. Executive shall not, to the
detriment of Employer, knowingly use for his own benefit or disclose or
reveal to any unauthorized person, any trade secret or other confidential
information received by Executive in the course of his employment or
engagement in any capacity by employer which relates to Employer or to any of
the businesses operated by it, including, but not limited to, any customer
lists, customer needs, price and performance information, specifications,
hardware, software, devices, supply sources and characteristics, business
opportunities, marketing, promotional, pricing and financing techniques, or
other information relating to the business of Employer, and Executive
confirms that such information constitutes the exclusive property of
Employer. However, said restriction on confidential information shall not
apply to information which is: (i) generally available in the industry in
which Employer operates, (ii) disclosed in published literature or (iii)
obtained by Executive from a third party without binder or secrecy.
Executive agrees that, except as otherwise expressly agreed to by Employer,
he will return to Employer, promptly upon the request of the Board

-12-

<PAGE>

or any executive officer designated by the Board, any physical embodiment of
such confidential information.

(b) NONCOMPETITION. During the term of his employment by
Employer, Executive shall not engage, directly or indirectly (which includes,
but is not limited to, owning, managing, operating, controlling, being
employed by, giving financial assistance to, participating in or being
connected in any material way with any business or person so engaged),
anywhere in the continental United States, in the business of interactive
educational computer software based on licensed products from major motion
pictures and television shows; provided, however, that Executive's ownership
as a passive investor of less than five percent of the issued and outstanding
stock of any publicly held corporation or partnership so engaged shall not by
itself be deemed to constitute such engagement by Executive; and provided
further that, subject to obtaining (as and when required) prior written
consent, which consent will not be unreasonably withheld, nothing herein
shall be construed to prevent Executive from engaging, directly or
indirectly, in any capacity in any business in the computer software or movie
industries not specified above. During such period, Executive shall not act
to induce any of Employer's or its subsidiaries, customers or employees to
take action which might be disadvantageous to Employer.

(c) REMEDIES. Executive recognizes that the possible
restrictions on his activities which may occur as a result of his performance
of his obligations under this Section 8 are required for the reasonable
protection of Employer and its investments, and Executive expressly
acknowledges that damages alone will be an inadequate remedy for any breach
or violation of this Section 8, and that Employer, in addition to all other
remedies at law or in equity, shall be entitled, as a matter of right, to
injunctive relief, including specific performance, with respect to any such
breach or violation, in any court of competent jurisdiction. If any of the
provisions of this Section 8 are held to be in any respect an unreasonable
restriction upon Executive, then they shall be deemed to extend only over the
maximum period of time, geographic area, and/or range of activities as to
which they may be enforceable.

(d) NONEXCLUSIVITY. The undertakings of Executive contained
in Sections 8(a), 8(b) and 8(c) hereof shall be in addition to, and not in
lieu of, any obligations which he may have with respect to the subject matter
hereof, whether by contract, as a matter of law or otherwise.

-13-

<PAGE>

9. SUCCESSORS; BENEFITS.

(a) SUCCESSORS. Employer shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of Employer, by
agreement in form and substance satisfactory to Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform it if no such succession
had taken place. Failure of Employer to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Executive to compensation from Employer in the same amount and
on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Employer" shall
mean Employer as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 9 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.

(b) BENEFITS. This Agreement and all rights of Executive
hereunder shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while
any amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee,
or other designee or, if there be no such designee, to Executive's estate.

10. MISCELLANEOUS PROVISIONS.

(a) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.

(b) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, if delivered personally, or
three calendar days after having been mailed, if mailed by registered or
certified mail, postage prepaid, return receipt requested, as follows:

-14-

<PAGE>

If to Employer, to: Sound Source Interactive,Inc.
2985 East Hillcrest Drive
Suite A
Westlake Village, CA 91362

If to Executive, to: Eric H. Winston
5567 Springhill Court
Westlake Village, CA 91362

or to such other address as either party hereto shall have designated by like
notice to the other party hereto (except that a notice of change of address
shall only be effective upon receipt).

(i) SURVIVAL OF OPTIONS. The options to purchase a
total of 292,838 shares of SSI/DE's common stock granted to Executive
pursuant to the Original Agreement shall remain in full force and effect and
shall not be affected by this Agreement, and Executive shall be entitled to
exercise all such options on a cashless basis (I.E., the option exercise
price may be paid by the surrender of shares of SSI/DE's common stock to
Employer).

(ii) SURVIVAL OF RIGHT OF FIRST OFFER. The right of
first offer granted by Executive to Vincent J. Bitetti pursuant to paragraph
15 of the Original Agreement shall survive in full force and effect.

(e) APPLICABLE LAW. This Agreement shall be governed by the
laws of the State of California applicable to contracts made and to be wholly
performed therein.

(f) HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.

(g) WAIVER, ETC. The failure of either of the parties hereto
to at any time enforce any of the provisions of this Agreement shall not be
deemed or construed to be a waiver of any

-15-

<PAGE>

such provision, nor to in any way affect the validity of this Agreement or
any provision hereof or the right of either of the parties hereto to
thereafter enforce each and every provision of this Agreement. No waiver of
any breach of any of the provisions of this Agreement shall be effective
unless set forth in a written instrument executed by the party against whom
or which enforcement of such waiver is sought; and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.

IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto as of the date first above written.

EMPLOYER:

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Vincent J. Bitetti
---------------------------------
Vincent J. Bitetti
Chairman of the Board & Chief
Executive Officer

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Vincent J. Bitetti
----------------------------------
Vincent J. Bitetti
Chairman of the Board & Chief
Executive Officer

EXECUTIVE:

/s/ Eric H. Winston
---------------------------------------
Eric H. Winston

-16-

<PAGE>

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of October 9, 1995, between Sound Source
Interactive, Inc., a Delaware corporation, and Sound Source Interactive, Inc., a
California corporation (collectively, "Employer"), and Ulrich Gottschling
("Executive").

W I T N E S S E T H:

WHEREAS, Employer and Executive entered into an Employment Agreement dated
October 9, 1995,

WHEREAS, Executive continues to possess an intimate knowledge of the
business and affairs of Employer, its policies, methods, personnel,
opportunities and problems;

WHEREAS, Employer desires to assure itself of Executive's continued
employment by Employer and to compensate him for such efforts; and

WHEREAS, Executive is desirous of committing himself to serve Employer on
the terms herein provided;

NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto hereby agree as follows:

1. EMPLOYMENT. Executive is hereby employed as the Chief Financial
Officer of Employer. Executive, along with the Chief Executive Officer and
President of Employer, shall have supervision and control over, and
responsibility for, the operations and affairs of Employer, and shall have such
other powers and duties as may be from time to time assigned to him by the Board
of Directors of Employer (the "Board"), and Executive hereby accepts such
employment, all subject to the terms and conditions herein contained. Executive
hereby agrees that during the period of his employment hereunder he shall devote
substantially all of his business time, attention and skills to the business and
fairs of Employer and its subsidiaries. Executive will report directly to
President of Corporation, and/or the CEO when President unavailable or away from
the Corporation offices.

2. PLACE OF PERFORMANCE. In connection with his employment by Employer,
Executive shall be based at Employer's principal executive offices.

3. COMPENSATION.

(a) BASE SALARY. Employer shall pay to Executive, and Executive
shall accept, for all services which may be rendered by

<PAGE>

him pursuant to this Agreement, a base salary ("Base Salary") as hereinafter set
forth. The Base Salary during the term of this
Agreement shall be $110,000.00.

Any increase in Base Salary or other compensation granted by Employer, the
Board or any committee thereof shall in no way limit or reduce any other
obligation of Employer hereunder and, once established at an increased specified
rate, Executive's Base all not thereafter be reduced, other than as necessitated
by Employer's adverse financial condition, Executive's salary shall be payable
in accordance with practices as from time to time in effect.

(b) AUTOMOBILE. In order to facilitate travel by Executive in the
performance of his duties hereunder, Employer shall furnish Executive, at no
expense to him, with a monthly automobile allowance that shall not exceed
$300.00 per month.

(c) EXPENSES. During the term of his employment hereunder, Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him in performing services hereunder, provided that Executive
properly accounts therefore in accordance with Employer's policy relating
thereto. Without limiting the generality of the foregoing, the parties aggree
that any travel Executive undertakes in connection with the performance of his
duties hereunder shall be in (business class or better), and Employer shall
reimburse Executive for such expenses.

(d) BENEFIT PLANS. Executive shall be entitled to participate in or
receive bcnefils under any employee benefit plan or arrangement currently
available, or made available by Employer in the future, to its executives and
key management employees, subject to an on a basis consistent with the terms,
conditions and overall administration of such plan or arrangement. Employer
will provide 100% medical coverage for Executive and family. If Executive
elects not to participate in any of the health plans sponsored by Employer, then
Employer shall reimburse Executive in an amount not to exceed the dollar amount
which the Company would incur in providing such benefits through Company
provided policies or plans, per month for costs incurred by Executive and his
family. Employer shall not make any changes in any employee benefit plans or
arrangements in effect on the date hereof or during the term of this Agreement
in which Executive participates (including, without limitation, any pension and
retirement plan, supplemental pension and retirement plan, savings and profit
sharing plan, stock ownership plan, stock purchase plan, Stock option plan, life
insurance plan, medical insurance plan, disability plan, dental plan, health-
and-accident plan or arrangement) which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executives of the

<PAGE>

Employer and does not result in a proportionately greater reduction in the
rights of or benefits to Executive as compared with any other executive of
Employer. Any payments or benefits payable to Executive hereunder in respect of
any calendar year during which Executive is employer by Employer for less than
the entire such year shall, unless otherwise provided in the applicable plan or
arrangement, be otherwise provided in the applicable plan or arrangement, be
prorated in accordance with number of calendar days in such calendar year during
which he is so employed.

(e) VACATIONS, HOLIDAYS AND SICK LEAVE. Executive shall be entitled
to the number of paid holidays, personal days off, vacations days and sick
leave days in each calendar year as are determined by Employer from time to time
for its senior executive officers, but not less than two weeks in the first
calendar year and three weeks thereafter (prorated, in any calendar year during
which Executive is employed under this Agreement for less than the entire such
year, in accordance with the number of calendar days in such calendar year
during which he is so employed). Vacation may be taken in Executive's
discretion, so long as it is not inconsistent with the reasonable business needs
of Employ. Executive shall be entitled to accrue up to two years vacation days
not taken by him.

(f) KEY MAN LIFE INSURANCE. Executive shall cooperate with Employer
to secure, for Employer, a key man life insurance policy on the life of
Executive in the amount of $500,000, to be paid to Employer upon Executive's
death.

(g) BASE SALARY NOT EFFECTED BY OTHER BENEFITS. None of the benefits
to which Executive is entitled under any of the provisions of Section 3(b)-3(g)
hereof shall in any manner reduce or be deemed to be in lieu of the Base Salary
payable to Executive pursuant to Section 3(a) hereof.

4. STOCK OPTIONS. Executive shall be granted 100,000 options at an
excercise price of $5.00 per share. All options are vested as of the effective
date.

5. TERM OF EMPLOYMENT. The employment by Employer of Executive pursuant
hereto shall commence as of the date hereof (the "Effective Date") and, subject
to the provisions of Section 5 hereof, shall terminate two years after the
Effective Date (the "Termination Date"). This Agreement shall automatically be
extended for one additional year beyond the Termination Date (the "Extended
Termination Date") unless at least 30 calendar days prior to the Termination
Date, Executive or Employer shall have given notice that he or it does not wish
to extend this Agreement.

<PAGE>

6. PREMATURE TERMINATION. Anything in this Agreement contained to the
contrary notwithstanding:

(a) DEATH. Executive's employment hereunder shall terminate
forthwith upon the death of Executive.

(b) DISABILITY. Executive's employment hereunder shall terminate, at
the option of Employer, in the event that the CEO and President make a good
faith determination that Executive suffers from Disability (as hereinafter
defined) so as to be unable to substantially perform his duties hereunder for a
period of no less than 30 consecutive calendar days during any period of 12
consecutive months. As used in this Agreement, the term "Disability" shall mean
the material inability, in the opinion of the Chief Executive Officer and the
President, of Executive to render his agreed-upon services to Employer due to
physical and/or mental infirmity, which opinion is concurred in by a physician
or psychiatrist selected by Executive or his duly appointed representative or
guardian and reasonably acceptable Employer.

(c) TERMINATION FOR CAUSE. Employer may terminate Executive's
employment hereunder for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate Executive's employment hereunder upon (i) the willful
and continued failure by Executive to substantially perform his duties hereunder
(other than any such failure resulting from Executive's incapacity due to
physical or mental illness) after demand for substantial performance is
delivered by Employer specifically identifying the manner in which Employer
believes Executive has not substantially performed his duties, or (ii) the
willful engaging by Executive in misconduct which is materially injurious to
Employer, monetary or otherwise, or (iii) the willful violation by Executive of
the provision of Section 8 hereof provided that such violation results in
material injury to Employer. No act, or failure to act, on Executive's part
shall be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that this action or omission was in the
best interest of Employer. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been offered to Executive an opportunity for him, together with him counsel, to
be heard by the CEO and President and/or counsel for the Company), finding that,
in the good faith opinion of the CEO or President, Executive conducted, or
failed to conduct, himself in a manner set forth above in clause (i), (ii), or
(iii) of this Section 5(c), and specifying the particulars thereof in detail

<PAGE>

duties hereunder hazardous to his physical or mental health or his life,
provided that Executive shall have furnished Employer with a written statement
from a doctor or psychiatrist to such effect.

(e) "GOOD REASON" DEFINED. For purposes of this Agreement, "Good
Reason" shall mean any removal of Executive as or any failure to re-elect
Executive as, Chief Financial Officer of Employer except in connection with
termination of Executive's employment for Disability; provided, however, that
any removal of Executive as, or any failure to re-elect Executive as, Chief
Financial Officer of Employer (except in connection with termination of
Executive's employment for Disability) (i) a reduction of ten percent (10%) or
more in Executive's then current Base Salary, other than a reduction
necessitated by Employer's adverse financial condition, or any failure by
Employer to comply with any of the provisions of Sections 1, 2, 3 or 4 hereof,
or (ii) the failure of Employer to obtain the assumption of the agreement to
perform this Agreement by any successor to Employer, as provided for in Section
8 hereof.

(f) NOTICE OF TERMINATION. Any termination of Executive's employment
by Employer or by Executive will be provided through written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated.

(g) PAYMENT OF DAMAGES. Upon the early termination of this
Agreement, and if Employer has breeched this Agreement, Employer shall pay all
benefits to which Executive may be entitled as a result of Employer's
termination of his employment under this Agreement, including any or all loss of
benefits to Executive under Employer's employee benefit plans which he would
have received if Employer had not breached this Agreement and had his employment
continued for the full term.

(h) MITIGATION NOT REQUIRED. Executive shall not be required to
mitigate thee amount of any payment provided for in this Section 6 by seeking
other employment or otherwise. However, the amount of any payment provided for
in this Section 6 shall be reduced by any compensation earned by Executive as
the result of employment by another employer after the Date of Termination, or
otherwise.

7. REGISTRATION RIGHTS.

(a) At the request of Executive made at any time subsequent to the
Date of Termination, Employer, will, as promptly as practicable (and in any
event no later than 120 days

<PAGE>

following the Executive's request): (i) prepare and file under the Securities
Act of 1933, as amended ("Securities Act"), using its year-end financial
statements for the preceding year, a registration statement relating to all of
the common stock of Employer held by or issuable to Executive pursuant to any
option or other agreement between Employer and Executive (collectively, the
"Registrable Securities"); and (ii) prepare and file with appropriate Blue Sky
authorities the necessary documents to register or qualify such Registrable
Securities. Nonwithstanding the foregoing, Executive shall not be entitled to
exercise his rights under this Section 7(a) for a period of one year following
the initial public offering of common stock of the employer without the consent
of the lead underwriter in the initial public offering.

(b) Any sale of Registrable Securities pursuant to Section 7(a) shall
be made through The Boston Group, L.P. If the Registrable Securities are
offered and sold through The Boston Group, L.P. on an underwritten basis, then
Executive shall enter into an underwriting agreement with The Boston Group, L.P.
on customary terms and conditions, and shall pay The Boston Group, L.P. a
customary underwriting discount. If the Registrable Securities are offered and
sold through The Boston Group, L.P. on a nonunderwritten basis, then Executive
shall pay The Boston Group, L.P. its customary and reasonable fees.

(c) As a condition for the inclusion of any Registrable Securities in
any registration statement pursuant to this paragraph 7, at the request of
Employer, Executive shall enter into an underwriting agreement with Employer and
the underwriter(s) with respect to the registration of the Registrable
Securities, in such form as may be reasonable agreed upon by Employer and such
underwriter(s), as long as such agreement is consistent with those then in use
by major underwriters and with the provisions hereof.

(d) Employer shall pay all registration expenses relating to any
registration of Registrable Securities pursuant to this paragraph 7. Executive
shall pay all brokerage fees, underwriting fees and discounts, transfer taxes,
if any, and the fees and expenses of Executive's legal counsel in connection
with the registration and sale of the Registrable Securities.

8. NONDISCLOSURE; NONCOMPETE.

<PAGE>

lists, customer needs, price and performance information, specifications,
hardware, software, devices, supply sources and characteristics, business
opportunities, marketing, promotional, pricing and financing techniques, or
other information relating to the business of Employer, and Executive confirms
that such information constitutes the exclusive property of Employer. However,
said restriction on confidential information shall not apply to information
which is: (i) generally available in the industry in which Employer operates,
(ii) disclosed in published literature or (iii) obtained by Executive from a
third party without binder or secrecy. Executive agrees that, except as
otherwise expressly agreed to by Employer, he will return to Employer, promptly
upon the request of the Board or any executive officer designated by the Board,
any physical embodiment of such confidential information.

(b) NONCOMPETITION. During the term of his employment by Employer,
Executive shall not engage, directly or indirectly (which includes, but is not
limited to, owning, managing, operating, controlling, being employed by, giving
financial assistance to, participating in or being connected in any material way
with any business or person so engaged), anywhere in the continental United
States, in the business of interactive educational computer software based on
licensed products from major motion pictures and television shows; provided,
however, that Executive's ownership as a passive investor of less than five
percent of the issued and outstanding stock of any publicly held corporation or
partnership so engaged shall not by itself be deemed to constitute such
engagement by Executive; and provided further that, subject to obtaining (as and
when required) prior written consent, which consent will not be unreasonable
withheld, nothing herein shall be construed to prevent Executive from engaging,
directly or indirectly, in any capacity in any business in the computer software
or movie industries not specified above. During such period, Executive shall
not act to induce any of Employer's or its subsidiaries, customers or employees
to take action which might be disadvantageous to Employer.

(c) REMEDIES. Executive recognizes that the possible restrictions on
his activities which may occur as a result of his performance of his obligations
under this Section 8 are required for the reasonable protection of Employer and
its investments, and Executive expressly acknowledges that damages alone will be
an inadequate remedy for any breach or violition of this Section 8, and that
Employer, in addition to all other remedies at law or in equity, shall be
entitled, as a matter of respect to any such breach or violation, in any court
of competent jurisdiction. If any of the provisions of this Section 8 are held
to be in any respect an unreasonable restriction upon Executive, then they shall
be deemed to extend only over the maximum period of time, geographic area,
and/or range of activities as to which they may be enforceable.

<PAGE>

9. SUCCESSORS; BENEFITS.

(a) SUCCESSORS. Employer shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that Employer
would be required to perform it if no such succession had taken place. Failure
of Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Executive to
compensation from Employer in the same amount and on the same terms as he would
be entitled to hereunder if he terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used
in this Agreement, "Employer" shall mean Employer as hereinbefore defined and
any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 9 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.

(b) BENEFITS. This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to Executive's estate.

10. MISCELLANEOUS PROVISIONS.

(a) EXECUTION IN COUNTERPARTS. 'This Agreement may be executed in
one or more counterparts and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

(b) NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the ate delivered, if

<PAGE>

delivered personally, or three calendar days after having been mailed, if mailed
by registered or certified mail, postage prepaid, return receipt requested, as
follows:

If to Employer, to: Sound Source Interactive, Inc.
2985 East Hillcrest Drive
Suite A
Westlake Villam CA 91362

If to Executive, to, Ulrich Gottschling
6437 East Joshua Tree
Orange, CA 92667

or to such other address as either party hereto shall have designated by like
notice to the other party hereto (except that a notice of change of address
shall only be effective upon receipt).

(e) APPLICABLE LAW. This Agreement shall be governed by the laws of
the State of California applicable to contracts made and to be wholly performed
therein.

(f) HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.

(g) WAIVER, ETC. The failure of either of the parties hereto to at
any time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of either of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth in a written instrument executed by the party against
whom or which enforcement of such waiver is sought; and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.

<PAGE>

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.

EMPLOYER:

SOUND SOURCE INTERACTIVE, INC.

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

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Eric Winston
--------------------------------
Eric Winston
President

EXECUTIVE:

/s/ Ulrich Gottschling
-----------------------------------
Ulrich Gottschling

<PAGE>

AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT

This AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment"), dated as
of April 30, 1996, by and among Sound Source Interactive, Inc., a California
corporation, and Sound Source Interactive Inc., a Delaware corporation
(collectively, "Employer"), and Ulrich Gottschling ("Executive").

W I T N E S S E T H:

WHEREAS, Employer and Executive entered into a certain Employment Agreement
dated as of October 9, 1995 (the "Existing Agreement"), which provides for the
employment of the Executive by the Employer and other related matters as set
forth therein; and

WHEREAS, Employer and Executive wish to amend the Existing Agreement in
certain respects as provided herein;

NOW THEREFORE, in consideration of the premises and the covenants
hereinafter set forth, the parties hereto have agreed to, and do hereby, amend
the Existing Agreement as follows:

1. The option granted to the Executive pursuant to Section 4 of the
Existing Agreement is hereby cancelled, and the Employer shall have no further
obligations to the Executive under Section 4 of the Existing Agreement.

2. SSI/DE hereby agrees to grant to Executive options (the "Option") to
purchase 200,000 shares of SSI/DE common stock, par value $.001 per share (the
"Common Stock"), pursuant to the 1992 Stock Option Plan of SSI/DE (the "Plan").
The Option shall be granted no later than June 30, 1996, shall have the standard
terms associated with nonqualified stock options granted pursuant to the Plan
and shall have the following additional terms:

(a) Of the 200,000 shares of Common Stock subject to purchase
pursuant to the Option, (x) 100,000 shares shall have an exercise price
equal to $3.40 per share and shall be fully vested and exercisable upon the
date of grant, (y) and 100,000 shares shall have an exercise price of $4.00
per share and shall become exercisable as provided in subparagraph (b)
below and shall vest as provided in subparagraph (c) below.

(b) The option to purchase 100,000 shares referred to in subparagraph
(a)(y) above shall become exercisable upon the earliest of the following:

(i) September 30, 1997;

-1-

<PAGE>

(ii) the effective date of either the merger or
consolidation of SSI/DE with or into another corporation, or the
acquisition by another corporation or person of all or substantially
all of SSI/DE's assets or 80% or more of the then outstanding voting
stock of SSI/DE, or the liquidation or dissolution of the SSI/DE (At
least ten days prior to the effective date of such merger,
consolidation, acquisition, liquidation or dissolution, the Board of
Directors shall give the Executive notice of such event if this option
has then neither been fully exercised nor become unexercisable
hereunder.); or

(iii) any change in the title or responsibilities of
Executive such that he is no longer the Chief Financial Officer of
Employer.

(c) The option to purchase 100,000 shares referred to in subparagraph
(a)(y) above shall vest as to 16,666 shares on the last day of each
calendar quarter commencing on June 30, 1996 and continuing thereafter
until September 30, 1997, on which date such option shall vest in full.

(d) The number of shares of Common Stock issuable upon exercise of
the Option, and the exercise price therefor, shall be appropriately
adjusted by the Company in the event that the shares of Common Stock are
changed into or exchanged for a different number or kind of shares of
capital stock or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, to the extent that after such event the
Employee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment shall be made without change in
the total price applicable to the unexercised portion of the Option (except
for any change resulting from rounding off of share quantities or prices)
and with any necessary corresponding adjustment in the exercise price per
share. Any such adjustment made by the Company shall be final and binding
upon the Company, the Employee and all other interested persons.

3. This Amendment may be executed simultaneously in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.

4. This Amendment is an integrated agreement and contains the entire
agreement regarding the matters herein by and among the parties hereto and no
representations, warranties or promises have been made or relied upon by the
parties other than as set forth herein.

-2-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.

EMPLOYER:
Sound Source Interactive, Inc.,
a California corporation

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

- AND -

Sound Source Interactive, Inc.,
a Delaware corporation

By: /s/ Vincent J. Bitetti
--------------------------------
Vincent J. Bitetti
Chairman of the Board& Chief
Executive Officer

EXECUTIVE:
Ulrich Gottschling

/s/ Ulrich Gottschling
-----------------------------------
Ulrich Gottschling

-3-

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is effective as of January 1,
1996, by and between Sound Source Interactive, Inc., a Delaware corporation (the
"Company"), and Vincent J. Bitetti ("Indemnitee").

W I T N E S S E T H:

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for its officers and directors, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance; and

WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation, subjecting officers and directors to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited; and

WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other officers
and directors of the Company may not be willing to continue to serve in such
capacities without additional protection; and

WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.

NOW, THEREFORE, in consideration for Indemnitee's agreement to continue to
serve the company, the Company and Indemnitee hereby agree as follows:

1. INDEMNIFICATION.

(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution

<PAGE>

mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee or agent of the Company, or
any subsidiary of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including an appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is; approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter ("Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than five days after written demand by Indemnitee therefor is presented
to the Company.

(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligation of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion in any case in which the Independent Legal
Counsel referred to in section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party shall have determined that
Indemnitee would not be permitted to be so indemnified under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Reviewing
Party that Indemnitee would not be permitted to be indemnified under applicable
law shall not be binding and Indemnitee shall not be

-2-

<PAGE>

required to reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for any Expense Advance shall be unsecured and no interest shall be
charged thereon. If there has not been a Change in Control (as defined in
Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(c) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.

(c) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, (as defined in Section 10(d) hereof) shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.

(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit,

-3-

<PAGE>

proceeding, inquiry or investigation referred to in Section 1(a) hereof or in
the defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee in connection therewith.

2. EXPENSES; INDEMNIFICATION PROCEDURES.

(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.

(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.

(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by Judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not create a presumption that indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has not any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.

(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company, of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may

-4-

<PAGE>

cover such claim, the Company shall give prompt notice of the commencement of
such Claim to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such action, suit, proceeding, inquiry or
investigation in accordance with the terms of such policies.

(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim with counsel approved by
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee
and the retention of such counsel by the Company, the Company will not be liable
to Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's counsel in any such Claim at
Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the reasonable fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.

3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.

(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change after the date of this Agreement in any applicable law, statute or rule
which expands the right of a Delaware corporation to indemnify a member of its
Board of Directors or an officer, such changes shall be, IPSO FACTO, within the
purview of an Indemnitee's rights, and the Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
Board of Directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder.

(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Certificate of

-5-

<PAGE>

Incorporation, the Company's Bylaws, any agreement, any vote of stockholders or
disinterested Directors, the General Corporation Law of the State of Delaware,
or otherwise, both as to action in Indemnitee's official capacity and as to
action in another capacity while holding such office. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.

4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.

5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred by him in connection with any Claim, but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may override
Delaware law and prohibit the Company from indemnifying its directors and
officers under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the Securities and Exchange Commission has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.

7. OFFICER AND DIRECTOR LIABILITY. The Company shall, from time to time,
make the good faith determination whether or not it is practicable for the
Company to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the officers and directors of the Company with
coverage for losses from wrongful acts, or to ensure the Company's performance
of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner

-6-

<PAGE>

as to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if the Indemnitee is a
director; or of the Company's officers, if the Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, if Indemnitee
is not an officer or director but is a key employee. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium costs for such insurance are disproportionate
to the amount of coverage provided, the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or Indemnitee is
covered by a similar insurance maintained by a subsidiary or parent of the
Company.

8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law;

(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;

(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of intent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;

(d) INSURED CLAIMS. To indemnify indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, Judgments,
fines ERISA excise taxes or Penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and

-7-

<PAGE>

directors' liability insurance maintained by the Company or any parent or
subsidiary of the Company; or

(e) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.

9. PERIOD OF LIMITATION. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, that if any shorter period of
limitations is otherwise applicable to any such cause of action, such shorter
period shall govern.

10. CONSTRUCTION OF CERTAIN PHRASES.

(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its officers and directors, so that if Indemnitee is or
was an officer or director of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, Indemnitee shall stand in the same position
under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as an officer or director of the Company which imposes duties on, or
involves services by, such officer or director with respect to an employee
benefit plan, its participants or its beneficiaries and if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan, Indemnitee
shall be

-8-

<PAGE>

deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.

(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination or election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all of substantially all of the Company's assets.

(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitee under similar indemnity agreements).

-9-

<PAGE>

(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.

(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.

11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.

12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the company, spouses, heirs
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director or officer of the Company or of any other enterprise at the Company's
request.

13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action including costs and expenses incurred with
respect to Indemnitee's counterclaims and crossclaim made in such action), and
shall be entitled to the advancement of Expenses with respect

-10-

<PAGE>

to such action, unless as a part of such action a court having jurisdiction over
such action determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.

14. NOTICE. All, notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.

15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.

16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.

17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.

18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that say be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

-11-

<PAGE>

19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.

20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.

21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Eric H. Winston
-------------------------

Title: President
----------------------

Address: 2985 E. Hillcrest Drive, Suite A
Westlake Village, California, 91362

AGREED TO AND ACCEPTED

INDEMNITEE:

/s/ Vincent J. Bitetti
- ---------------------------
Vincent J. Bitetti

1759 Bridle Oaks Ct.
- ---------------------------

P.O. , CA 91362
- ---------------------------
(address)

-12-

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is effective as of January 1,
1996, by and between Sound Source Interactive, Inc., a Delaware corporation (the
"Company"), and Eric H. Winston ("Indemnitee").

W I T N E S S E T H:

NOW, THEREFORE, in consideration for Indemnitee's agreement to continue to
serve the company, the Company and Indemnitee hereby agree as follows:

1. INDEMNIFICATION.

<PAGE>

-2-

<PAGE>

-3-

<PAGE>

2. EXPENSES; INDEMNIFICATION PROCEDURES.

(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company, of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may

-4-

<PAGE>

3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.

(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Certificate of

-5-

<PAGE>

-6-

<PAGE>

8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law;

-7-

<PAGE>

directors' liability insurance maintained by the Company or any parent or
subsidiary of the Company; or

10. CONSTRUCTION OF CERTAIN PHRASES.

-8-

<PAGE>
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.

-9-

<PAGE>

(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.

11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.

-10-

<PAGE>

-11-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Vincent J. Bitteti
-------------------------
Title: CEO
----------------------

Address: 2985 E. Hillcrest Drive, Suite A
Westlake Village, California, 91362

AGREED TO AND ACCEPTED

INDEMNITEE:

/s/ Eric H. Winston
- -------------------------------
Eric H. Winston

2985 E. Hillcrest Drive Suite A
- -------------------------------
Westlake Village, CA 91362
- -------------------------------
(address)

-12-

<PAGE>

SOUND SOURCE INTERACTIVE, INC.
INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is effective as of January 1,
1996, by and between Sound Source Interactive, Inc., a Delaware corporation (the
"Company"), and Ulrich E. Gottschling ("Indemnitee").

W I T N E S S E T H:

NOW, THEREFORE, in consideration for Indemnitee's agreement to continue to
serve the company, the Company and Indemnitee hereby agree as follows:

1. INDEMNIFICATION.

<PAGE>

-2-

<PAGE>

-3-
<PAGE>

2. EXPENSES; INDEMNIFICATION PROCEDURES.

(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company, of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may

-4-
<PAGE>

3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.

(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Certificate of

-5-

<PAGE>

-6-
<PAGE>

8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law;

-7-
<PAGE>

directors' liability insurance maintained by the Company or any parent or
subsidiary of the Company; or

10. CONSTRUCTION OF CERTAIN PHRASES.

-8-
<PAGE>

deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.

-9-

<PAGE>

(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.

11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.

-10-
<PAGE>

-11-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

SOUND SOURCE INTERACTIVE, INC.

By: /s/ Vincent J. Bitetti
-----------------------------

Title: CEO
---------------------------

Address: 2985 E. Hillcrest Drive, Suite A
Westlake Village, California, 91362

AGREED TO AND ACCEPTED

INDEMNITEE:

/s/ Ulrich E. Gottschling
- --------------------------------------
Ulrich E. Gottschling

2985 E. Hillcrest Drive, Suite A
- --------------------------------------

Westlake Village, California, 91362
- --------------------------------------
(address)

-12-

<PAGE>

MERCHANDISING LICENSE AGREEMENT

This Merchandising License Agreement between Licensee and Licensor as set forth
below consists of this Schedule I and the Standard Terms and Conditions attached
hereto and incorporated by this reference.

- SCHEDULE I -
Our RMS #32163

AGREEMENT DATE:
October 24, 1995.

PROPRIETARY SUBJECT MATTER:
The theatrical motion picture, "Dragonheart" ("Film") .

CHARACTERS/ARTWORK:
All characters and artwork as embodied in the Film and all artwork and other
pertinent materials that Universal controls, including all major performers and
the voice of Sean Connery. No music rights are granted herein. If any stills
and/or clips are used, Licensee shall be solely responsible for obtaining
separate performer permission if required and paying all requisite third party
performer, Guild or union fees.

LICENSEE:
Sound Source interactive
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attn: Vincent Bitetti

LICENSOR:
MCA/Universal Merchandising, Inc.
100 Universal City Plaza
Universal City, CA 91608

LICENSOR CONTACT PERSON:
Nancy Cushing-Jones

ARTICLES:
One edutainment CD-ROM activities center for children ages 3-12 to
be used on Mac and IMB home computers.

TERRITORY:
Worldwide in English and in applicable local language within each
separate territory.

TERM:
Commencing upon execution hereof and continuing until December 31,
1998.

ADVANCE:
$40,000 payable as follows:
$10,000 upon Licensee's execution hereof;

<PAGE>

$10,000 upon Licensor's acceptance of design but in all cases no later than
December 31, 1995;
$10,000 upon Licensor's approval of final product but in all cases no later than
May 31, 19106;
$10,000 upon Licensee's first shipment of the Articles but in all cases no later
than August 31, 1996.

GUARANTEE:
$80,000.00

ROYALTY RATE:
10%

MARKETING DATE:
Summer, 1996

DISTRIBUTION/SHIPPING DATE:
August, 1996.

EXCLUSIVITY:
This license is exclusive to Licensee.

SELL OFF PERIOD:
120 days.

INITIAL HERE: (LICENSOR)
----------
INITIAL HERE: (LICENSEE)
----------

<PAGE>

STANDARD TERMS AND CONDITIONS
MERCHANDISING LICENSE AGREEMENT

1. PARTIES: This AGREEMENT is entered into by and between MCA/UNIVERSAL
MERCHANDISING, INC., 100 Universal City Plaza, Universal City, California 91608,
(herein called "Licensor"), and Licensee, at the address set forth in Schedule
I, which is attached hereto and incorporated herein by this reference.

2. LICENSE: Upon execution of this Agreement, Licensee is granted the license
to use the Proprietary Subject Matter ("PSM") solely in connection with the
manufacture, sale and distribution of the Articles during the Term and in the
Territory set forth in Schedule I.

3. TERRITORY: The Articles may be distributed only in the Territory as set
forth in Schedule I. Licensee shall also impose the obligation on its customers
to sell the Articles only within the Territory.

4. TERM: The Term of the Agreement shall commence upon
execution of this Agreement and shall expire on the date set forth in Schedule I
unless sooner terminated as provided herein.

5. PAYMENT: Licensee shall pay to Licensor the following:
(a) ADVANCE: A non-refundable, non-returnable advance payable upon the
execution hereof. Royalties earned hereunder shall be offset against the
Advance.
(b) ROYALTY: The royalty set forth in Schedule I based upon the net
invoice amount for goods sold without deductions of any sort (such as
manufacturing costs, freight, distribution costs, advertising costs, marketing
or promotion costs and trade discounts) less actual cash returns and credit
returns for defective merchandise and actual bad debts not to exceed 5% of total
sales. The aforementioned royalty shall be payable on all Articles distributed
by Licensee, whether or not billed.

Royalty reports in full detail including a product sales breakdown by style
number, article, artwork and country, and payments shall be made quarterly
within 45 days after each calendar quarter. If such royalty report and/or
payment in any calendar quarter is late, Licensee shall have a cure period of 30
days from the due date to provide to Licensor the required royalty report and/or
payment. If any royalty payment is late, interest shall accrue thereon from the
due date at the lesser of the common prime interest rate or the maximum rate
permitted by law.

(c) GUARANTEE: As of 45 days following expiration hereof, Licensee
guarantees to pay any difference between royalties paid and the guaranteed
minimum royalty ("Guarantee") set forth in Schedule I.

<PAGE>

6. MANUFACTURING AND DISTRIBUTION OBLIGATIONS: Licensor may terminate this
Agreement or terminate the rights granted to Licensee with respect to any
licensed Article if Licensee:
(a) fails to submit a first level prototype within four months of
execution hereof; or
(b) fails to start manufacturing such Articles within two months after the
first level prototype is approved by Licensor.
In the event Licensee fails to meet the Marketing and/or Shipping Date for
any Article, Licensor shall have the right, upon 15 days prior notice to
Licensee, to terminate the rights granted to Licensee with respect to such
Article, without reducing the Guarantee required to be paid to Licensor by
Licensee hereunder.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing any
design or style ("SKU") of the Articles, Licensor, in addition to any and all
other remedies available to it hereunder, may terminate the license granted
hereunder, with respect to such SKU of the Articles.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing Articles
based upon or derivative of one of the characters or elements licensed
hereunder, Licensor, in addition to any and all other remedies available
hereunder, may terminate the license granted hereunder with respect to such
character or element.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing Articles
in any state, country or substantial portion of the Territory licensed
hereunder, Licensor, in addition to any and all other remedies available
hereunder, may terminate the license granted hereunder with respect to such
portion of the Territory.

7. APPROVALS/QUALITY OF MERCHANDISE/SAMPLES: Licensee undertakes that the
Articles as well as all packaging, hang tags, labels, press releases,
advertising, promotion display or other material prepared in connection with the
Articles ("Collateral Materials") shall be of the highest standard and quality
and shall ensure that all Articles and the distribution thereof comply with all
federal, state, and local laws and regulations.
Licensee shall submit to Licensor and Licensor shall have absolute approval
of the Licensed Articles and all Collateral Materials at all stages of the
development and application thereof.

Licensee may not manufacture, use, sell, advertise, promote, or distribute
any Licensed Articles nor any Collateral Material until and unless Licensee has
received Licensor's prior written approval. The terms of this Paragraph shall
be deemed material to the Agreement.

<PAGE>

Any submission not expressly approved in writing by Licensor within ten
(10) days after submission shall be deemed disapproved. Licensor will provide
Licensee with written reasons for its disapproval. All such material submitted
by Licensee to Licensor shall be at Licensee's expense. Licensee shall supply
Licensor with 10 samples of each SKU of the Articles at the time of first
distribution and a royalty shall not be payable on such samples. Licensor may
purchase additional samples as reasonably necessary at Licensee's wholesale
cost.

8. GOODWILL: Licensee acknowledges that a great deal of time and effort have
gone into developing the goodwill surrounding the Proprietary Subject Matter,
and Licensee agrees that it will not do anything which would jeopardize such
goodwill, and that any goodwill developed hereunder shall accrue to the benefit
of the trademark owner. Additionally, Licensee recognizes that the Proprietary
Subject matter and elements compromising it have a secondary meaning in the
minds of the public so that use by anyone of the foregoing without authorization
would be unlawful.

9. COPYRIGHT AND TRADEMARK:
(a) All ownership, copyrights and trademarks in Articles licensed
hereunder, as well as in all artwork, packaging, copy, literary text,
advertising material of any sort, including material developed by Licensee
shall be in such names and all such items shall bear copyright and trademark
notices and any other legal notices as Licensor directs unless otherwise
specified by Licensor, Licensor shall own all such copyrights and trademarks.
(b) Licensee agrees that it shall sign separate trademark and/or copyright
agreements with Licensor or Licensor's designee at Licensor's request and cost.
(c) Licensee agrees to inform Licensor about claims of third parties with
respect to the rights granted and the Articles manufactured hereunder.
(d) Licensor shall control absolutely all infringement litigation
involving or affecting this license. Licensor may sue in Licensee's name and
Licensee shall have no rights against Licensor for damages as a result of
Licensor's refusal to sue or its settlement of any claim.

<PAGE>

(ii) A photocopy of the canceled check, when available, from the
buyer, which refers to the specific invoice or purchase order.
(b) Licensee shall promptly provide, free of cost to Licensor c/o General
Counsel, six identical specimens of each Article including packaging.

11. RESERVATION OF RIGHTS:
(a) All of Licensor's rights not expressly granted herein to Licensee are
hereby expressly reserved to Licensor or its designees without restriction.
(b) Licensee acknowledges that the license granted herein does not include
any right, title, or interest in or to the PSM nor to any copyrights, patents,
and/or trademarks therein or associated therewith. Furthermore, this Agreement
relates solely to the PSM. Licensee is not, by virtue of this Agreement
acquiring any right whatsoever in any motion picture or television production or
other endeavor which is based upon, derivative of, or otherwise related to the
PSM, including without limitation, remakes, sequels, sound recordings,
publications, or copyrights and/or trademarks in the PSMI.
(c) With respect to the PSM, Licensor reserves unto itself and/or its
designees the right to manufacture, sell, advertise, promote, display and
otherwise exploit articles similar and/or identical to the Articles for use in
connection with premium, promotional, direct mail and/or in-theatre sales and/or
giveaways and for sale, advertising, promotion display and other exploitation in
or in connection with any and all facilities owned, operated and/or controlled
by Licensor, its parent, affiliated and/or subsidiary companies, including
without limitation articles similar or identical to the Articles and products
directly or indirectly competitive with the Articles.
(d) Without limiting the foregoing, Licensor agrees that Licensee will be
free to market the Interactive MovieBooks in or
sell it through direct mail catalogs.

12. BOOKS AND RECORDS: Upon demand of Licensor no more than once per year,
Licensee shall at the expense of Licensor furnish to Licensor a detailed
statement by an independent certified public accountant, showing the number,
description, actual selling price and itemized deductions from such price of the
Articles distributed and/or sold by Licensee to the date of Licensor's demand.
All books of account and records pertaining to transactions relating to this
license shall be kept available to Licensor for at least three (3) years. On
reasonable notice, Licensor shall have the right to have an independent
certified public accountant, or Licensor's authorized representative, examine
Licensee's records. Such right survives the term of this Agreement. If a
review of Licensee's records indicates a discrepancy in Licensor's favor of ten
percent or more, Licensee shall immediately pay the balance of the Guarantee
outstanding to Licensee and any other payments that may be due.

<PAGE>

13. INSURANCE: Licensee agrees to maintain, at its own expense, a
Comprehensive General Liability insurance policy for the entire term of this
license Agreement including the coverage parts for contractual liability
(applying to the terms and conditions of this Agreement), Products Liability and
Personal Injury Liability, with a minimum combined-single limit of liability of
not less than US$3,000,000 each occurrence. Licensee shall provide Licensor,
(MCA/UNIVERSAL MERCHANDISING, INC.), upon execution hereof, with a policy
endorsement to Licensee's Product Liability insurance coverage or an acceptable
certificate of insurance naming UNIVERSAL CITY STUDIOS, INC. and MCA/UNIVERSAL
MERCHANDISING, INC., its parent and affiliated companies as additional insureds,
as well as any Additional Insureds that are listed in Schedule I.

14. WARRANTIES, REPRESENTATIONS & INDEMNIFICATION: Licensor warrants that it
owns or controls the rights granted hereunder. Licensor agrees to indemnify
Licensee against all claims, suits, damages and expenses, including reasonable
legal fees, arising out of Licensor's breach of its representations hereunder.
Licensee's obligations under this contract shall in no event be diminished or
deferred in the event that the Licensee shall be sued by a third party for
copyright or trademark infringement or any other matter arising out of this
license and, further, Licensee agrees that it will not assert the pendency or
such claim as an offset against or to avoid any of its obligations under the
terms of this Agreement.
Licensee shall indemnify, hold harmless, and defend Licensor, its parent,
affiliated and subsidiary companies, and its officers, directors, agents and
employees, as well as any Additional Indemnitees that are listed in Schedule I,
(collectively "Indemnitees") from and against any and all liabilities, claims,
causes of action, suits, losses, damages, fines, judgments, settlements and
expenses (including any and all reasonable legal fees and court costs) which may
be suffered, made or incurred by any of such Indemnitees arising out of any
breach or alleged breach of any of the covenants, warranties, representations
and agreements made by Licensee herein.

15. EXPIRATION: Upon the expiration of the term of this Agreement, or other
termination, all rights licensed hereunder or otherwise acquired in relation to
this Agreement shall revert to Licensor or its designees. Licensee agrees that
its failure to stop manufacture, sale and/or distribution upon expiration or
termination hereof will result in immediate irreparable damage to Licensor, that
there is no adequate remedy at law for such failure, and that in the event of
such failure, in addition to all other remedies available, Licensor shall be
entitled to injunctive relief, and no bond shall be required therefore.

16. TERMINATION OF THE AGREEMENT: Should Licensee be in default with the
statements of account and/or payments on the due dates

<PAGE>

or fail to observe or to perform any of its other obligations under the
Agreement in any way, Licensor may terminate the present Agreement if Licensee's
default has not been cured within forty-five (45) days of notice by Licensor,
except in the case where Licensee has violated Licensor's approval process, in
which case Licensor may terminate immediately. Without limiting any of
Licensor's rights or remedies, the guarantee shall become immediately due and
owing upon Licensee's failure to cure such default.
Licensor may terminate the present Agreement in case of total or partial
alienation of Licensee's enterprise.
If Licensee suspends its payments or if judicial proceedings for bankruptcy
or insolvency are filed or instituted against Licensee, the rights granted
herein shall automatically revert to Licensor. Any further claims shall not be
affected thereby.

17. SELL OFF: With respect only to the expiration of this Agreement in due
course, at the conclusion of the Term, and not by reason of any prior
termination, Licensee shall have the period set forth in Schedule I in which to
sell off existing inventory of the Licensed Articles subject to the terms and
conditions of this Agreement with accounting and payment therefore due 30 days
thereafter. Additionally, Licensor grants Licensee the latitude to reduce the
royalty set forth herein by 50% for actual sales at 50% of the average wholesale
selling price during the sell off period. Following such sell-off period, all
remaining inventory shall be destroyed, and a Certificate of Destruction shall
be forwarded to Licensor. Notwithstanding the foregoing, Licensee shall notify
Licensor of its intent to sell off the Articles, and Universal City Studios
Hollywood and Universal Studios Florida shall have a right of first refusal to
purchase such Articles during the sell off period.

18. MERGER: This Agreement constitutes the entire understanding between
Licensor and Licensee. All previous representations and undertakings, whether
oral or written, have been merged herein.

19 NOTICES AND PAYMENTS: Unless otherwise directed by Licensor, all notices
shall be sent by mail or facsimile to:

MCA/UNIVERSAL MERCHANDISING, INC.
100 Universal City Plaza
Universal City, CA 91608
Attn: Controller

All payments shall be sent to the above address.
All notices to Licensee shall be sent to name and address set forth in Schedule
I.

20. ASSIGNMENT: Licensor may assign any or all its rights hereunder; but this
license and all of Licensee's rights and

<PAGE>

obligation shall not be assigned, mortgaged, sublicensed or otherwise encumbered
by Licensee without Licensor's prior written consent.

21. PARTNERS: The parties hereto are neither partners nor joint venturers
hereunder, and Licensee shall have no power nor authority to obligate or bind
Licensor in any manner whatsoever.

22. AUDITING EXPENSES AND FEES: Licensor shall be entitled to recover from
Licensee all of its legal and auditing fees and expenses in the enforcement of
any provisions of this Agreement excluding normal auditing fees as outlined in
Paragraph 12.

23. MODIFICATION: This Agreement may not be modified and none of its terms may
be waived, except in writing signed by both parties.

24. WAIVER: Licensor's failure or delay to enforce any rights hereunder shall
not be a waiver of such rights or a modification of this Agreement.

25. SEVERABILITY OF PROVISIONS: Should any part of this Merchandising License
Agreement be declared void or unenforceable during the term hereof by any agency
or tribunal of competent jurisdiction, the remainder of the provisions shall
remain in full force and effect.

26. GOVERNING LAW: This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California applicable to agreements
entered into and to be performed wholly in California.

27. CONSENT TO JURISDICTION: Licensee hereby consents to the exclusive
jurisdiction of any State or Federal court empowered to enforce this Agreement
in the State of California, Los Angeles County, and waives any objection thereto
on the basis of personal jurisdiction or venue.

<PAGE>

28. CONFIDENTIALITY: The terms and conditions of this Agreement, and any
materials provided by Licensor to Licensee in connection with the PSM shall
remain confidential except insofar as such Materials are used on the Articles or
in approved Collateral Materials, advertising and/or promotion of the Articles.

AGREED TO AND ACCEPTED BY:

MCA/UNIVERSAL MERCHANDISING, INC.
(LICENSOR)

By: /s/ [Illegible]
------------------------------

Its:
------------------------------

SOUND SOURCE INTERACTIVE
(LICENSEE)

By: /s/ Vincent J. Bitetti
------------------------------

Its: CEO
------------------------------

<PAGE>

LICENSEE'S ROYALTY STATEMENT
--------------------------------
MCA USE ONLY
CONTRACT # __________________
REVIEWED BY _________________
PERIOD ENDING ________________
TO: CONTROLLER CHECK # ______________________
MCA/UNIVERSAL MERCHANDISING, INC. (MCA) CHECK AMT. ______________
--------------------------------
DATE:
----------

LICENSE NAME:
-----------------------------------
ADDRESS:
-----------------------------------
PHONE:
-----------------------------------

CONTRACT DATE: FILM/SERIES NAME: PERIOD BEING REPORTED
------- ----------------------- ---------------

- ---------------------------------------------------------------------------------------------------------------
LICENSEE'S LICENSEE'S NAME OF TERRITORY UNITS GROSS ROYALTY CURRENT CUMULATIVE
PRODUCT STYLE/PRODUCT PERFORMERS (COUNTRY) SHIPPED/ SALES RATE ROYALTY ROYALTY
DESCRIPTION NUMBER USED OF SALE SOLD AMOUNT AMOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

- ---------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------
Royalties Earned
--------------------------
Less: Advance Paid
--------------------------
Less: Prev. Royalty
--------------------------
Payments
--------------------------
Gross Balance Due to
MCA
--------------------------
Unrecouped Advance Less: Remittance
-------- Taxes Withheld
--------------------------
Less: Commissions
Withheld
--------------------------
Net Balance Due to
MCA
--------------------------

--------------------------
Guarantee:
--------------------------
Unearned Guarantee:
--------------------------

</TABLE>

<PAGE>

MERCHANDISING LICENSE AGREEMENT

- SCHEDULE I -
Our RMS #32184

AGREEMENT DATE:
January 10, 1996.

PROPRIETARY SUBJECT MATTER:
The animated theatrical motion picture and/or home video motion pictures
entitled "The Land Before Time" (I, II and III) (collectively herein "Film").

CHARACTER/ARTWORK:
All characters and artwork as embodied in the Film and all artwork and other
pertinent materials that Universal controls, including all major performers. No
music rights are granted herein. If any stills and/or clips are used, Licensee
shall be solely responsible for obtaining separate performer permission if
required, and paying all requisite third party performer, Guild or union fees.

LICENSEE:

Sound Source Interactive
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attn: Vincent Bitetti

LICENSOR:

MCA/Universal Merchandising, Inc.
100 Universal City Plaza
Universal City, CA 91603

LICENSOR CONTACT PERSON:
Noah Dudley.

ARTICLES:
a) one (1) stand alone CD-ROM interactive Moviebook ("Book") consumer software
product, and b) one (1) edutainment CD-ROM activity center ("Center").

a) The Book will be for children in the three to ten-year-old market,
containing a linear retelling of the story. All

<PAGE>

interactive features shall be story-related, which features may include
interspersed full-motion video clips, "3-D" sound, on-line dictionary,
electronic bookmarks, a Who's Who section, an optional "Read To Me" mode, and
story-related educational quizzes, puzzles and appropriate animation and "sound-
event" buttons.

The entire unified product shall he compatible only with individual, stand-alone
Power PC personal computers which utilize Microsoft operating system (CD-ROM
and/or floppy disk electronic delivery formats).

The electronically developed content of the Licensed Articles will not be
adapted, ported, or in any way transferred, in its present or modified state, to
any software format other than those specified herein above. Further, the
software formats authorized herein shall be compatible only with those
electronic delivery systems specified herein above; all other electronic
delivery systems are excluded.

b) one edutainment CD-ROM Activity Center for children ages 3-12 containing
interactive features that may include: Creature Encyclopedia, Geography
oriented-interface, spelling games, musical games, puzzles, concentration skill
activities, maze games, matching games, painting activity, print and color
pages, as well as multimedia "hot buttons" soundtrack and sound effects,
text/story element, video clips photos, illustrations/animation and "virtual"
exploratory 3D front end interface-for navigating the environment.

The entire unified product will be compatible only with individual, stand alone
IBM and compatibles, Apple and Power PC personal computers which utilize either
an Apple or Microsoft operating system (CD-ROM and/or floppy disk electronic
delivery formats).

TERRITORY:
Worldwide in English and in applicable local language within each separate
territory.

TERM:
Commencing upon execution hereof and continuing until December 31, 1997.

ADVANCE:
$17,500 payable as follows:
$5,000 upon Licensee's execution hereof; $5,000 upon Licensee's commencement of
development of either of the Articles; $7,500 upon Licensor's approval of a
final product.

GUARANTEE:
$35,000.

<PAGE>

ROYALTY RATE:
10%.

MARKETING DATE:
TBD

DISTRIBUTION/SHIPPING DATE:
TBD

EXCLUSIVITY:
This license is exclusive to Licensee.

ADDITIONAL INSUREDS/INDEMNITIES:
Amblin Entertainment

SELL OFF PERIOD:
120 days.

INITIAL HERE: /s/ [Illegible] (LICENSOR)
----------------
INITIAL HERE: /s/ VB (LICENSEE)
----------------

<PAGE>

STANDARD TERMS AND CONDITIONS
MERCHANDISING LICENSE AGREEMENT

4. TERM: The Term of the Agreement shall commence upon execution of this
Agreement and shall expire on the date set forth in Schedule I unless sooner
terminated as provided herein.

(c) GUARANTEE: As of 45 days following expiration hereof, Licensee
guarantees to pay any difference between royalties paid and the guaranteed
minimum royalty ("Guarantee") set forth in Schedule I.

<PAGE>

In the event Licensee fails to meet the Marketing and/or Shipping Date for
any Article, Licensor shall have the right, upon 15 days prior written notice to
Licensee, to terminate the rights granted to Licensee with respect to such
Article, without reducing the Guarantee required to be paid to Licensor by
Licensee hereunder.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing any
design or style ("SKU") of the Articles, Licensor, in addition to any and all
other remedies available to it hereunder, may terminate the license granted
hereunder, with respect to such SKU of the Articles.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing Articles
based upon or derivative of one of the characters or elements licensed
hereunder, Licensor, in addition to any and all other remedies available
hereunder, may terminate the license granted hereunder with respect to such
character or element.
If, subsequent to the commencement of marketing and distribution of any
Article, Licensee fails to actively continue marketing and distributing Articles
in any state, country or substantial portion of the Territory licensed hereunder
Licensor, in addition to any and all other remedies available hereunder, may
terminate the license granted hereunder with respect to such portion of the
Territory.

7. APPROVAL/QUALITY OF MERCHANDISE/SAMPLES: Licensee undertakes that the
Articles as well as all packaging, hang tags, labels, press releases,
advertising, promotion display or other material prepared in connection with the
Articles ("Collateral Materials") shall be of the highest standard and quality
and shall ensure that all Articles and the distribution thereof comply with all
federal, state, and local laws and regulations.
Licensee shall submit to Licensor and Licensor shall have absolute approval
of the Licensed Articles and all Collateral Materials at all stages of the
development and application thereof. Licensee may not manufacture, use, sell,
advertise, promote, or distribute any Licensed Articles nor any Collateral
Material until and unless Licensee has received Licensor's prior written
approval. The terms of this Paragraph shall be deemed material to the
Agreement.
Any submission not expressly approved in writing by Licensor within ten
(10) days after submission shall be deemed disapproved.

<PAGE>

Licensor will provide Licensee with written reasons for its disapproval. All
such material submitted by Licensee to Licensor shall be at Licensee's expense.
Licensee shall supply Licensor with 10 samples of each SKU of the Articles at
the time of first distribution and a royalty shall not be payable on such
samples. Licensor may purchase additional samples as reasonably necessary at
Licensee's wholesale cost.

9. COPYRIGHT AND TRADEMARK:
(a) All ownership, copyrights and trademarks in Articles
licensed hereunder, as well as in all artwork, packaging, copy, literary text,
advertising material of any sort, including material developed by Licensee shall
be in such names and all such items shall bear copyright and trademark notices
and any other legal notices as Licensor directs unless otherwise specified by
Licensor, Licensor shall own all such copyrights and trademarks.
(b) Licensee agrees that it shall sign separate trademark and/or copyright
agreements with Licensor or Licensor's designee at Licensor's request and cost.
(c) Licensee agrees to inform Licensor about claims of third parties with
respect to the rights granted and the Articles manufactured hereunder.
(d) Licensor shall control absolutely all infringement litigation
involving or affecting this license. Licensor may sue in Licensee's name and
Licensee shall have no rights against Licensor for damages as a result of
Licensor's refusal to sue or its settlement of any claim.

10. FIRST USE DATA AND TRADEMARK SAMPLES:
(a) No later than fourteen (14) days following the date of the first
interstate shipment by Licensee of each Article, Licensee shall provide Licensor
with the following information and material:
(i) A shipping document, invoice or purchase order which clearly states
the date of first shipment of the Article in interstate commerce, the out-of-
state location of the recipient or buyer, and all uses of any of the Trademarks
in relation to the Article.
(ii) A photocopy of the canceled check, when available, from the buyer,
which refers to the specific invoice or purchase order.
(b) Licensee shall promptly provide, free of cost to Licensor c/o General
Counsel, six identical specimens of each

<PAGE>

Article including packaging.

11. RESERVATION OF RIGHTS:
(a) All of Licensor's rights not expressly granted herein to Licensee are
hereby expressly reserved to Licensor or its designees without restriction.
(b) Licensee acknowledges that the license granted herein does not include
any right, title, or interest in or to the PSM nor to any copyrights, patents,
and/or trademarks therein or associated therewith. Furthermore, this Agreement
relates solely to the PSM. Licensee is not, by virtue of this Agreement
acquiring any right whatsoever in any motion picture or television production or
other endeavor which is based upon, derivative of, or otherwise related to the
PSM, including without limitation, remakes, sequels, sound recordings,
publications, or copyrights and/or trademarks in the PSM.
(c) With respect to the PSM, Licensor reserves unto itself: and/or its
designees the right to manufacture, sell, advertise, promote, display and
otherwise exploit articles similar and/or identical to the Articles for use in
connection with premium, promotional, direct mail and/or in-theatre sales and/or
giveaways and for sale, advertising, promotion display and other exploitation in
or in connection with any and all facilities owned, operated and/or controlled
by Licensor, its parent, affiliated and/or subsidiary companies, including
without limitation articles similar or identical to the Articles and products
directly or indirectly competitive with the Articles.
(d) Without limiting the foregoing, Licensor agrees that Licensee will be
free to market the Interactive MovieBook in or sell it through direct mail
catalogs.

<PAGE>

this Agreement), Products Liability and Personal Injury Liability, with a
minimum combined single limit of liability of not less than US$3,000,000 each
occurrence. Licensee shall provide Licensor, (MCA/UNIVERSAL MERCHANDISING,
INC.), upon execution hereof, with a policy endorsement to Licensee's Product
Liability insurance coverage or an acceptable certificate of insurance naming
UNIVERSAL CITY STUDIOS, INC. and MCA/UNIVERSAL MERCHANDISING, INC., its parent
and affiliated companies as additional insureds, as well as any Additional
Insureds that are listed in Schedule I.

14. WARRANTIES, REPRESENTATIONS & INDEMNIFICATION: Licensor warrants that it
owns or controls the rights granted hereunder. Licensor agrees to indemnify
Licensee against all claims, suits, damages and expenses, including reasonable
legal fees, arising out of Licensor's breach of its representations hereunder.
Licensee's obligations under this contract shall in no event be diminished or
deferred in the event that the Licensee shall be sued by a third party for
copyright or trademark infringement or any other matter arising out of this
license and, further, Licensee agrees that it will not assert the pendency of
such claim as an offset against or to avoid any of its obligations under the
terms of this Agreement.
Licensee shall indemnify, hold harmless, and defend Licensor, its parent,
affiliated and subsidiary companies, and its officers, directors, agents and
employees, as well as any Additional Indemnitees that are listed in Schedule I,
(collectively "Indemnitees") from and against any and all liabilities, claims,
causes of action, suits, losses, damages, fines, judgments, settlements and
expenses (including any and all reasonable legal fees and court costs) which may
be suffered, made or incurred by any of such Indemnitees arising out of any
breach or alleged breach of any of the covenants, warranties, representations
and agreements made by Licensee herein.

16. TERMINATION OF THE AGREEMENT: Should Licensee be in default with the
statements of account and/or payments on the due dates or fail to observe or to
perform any of its other obligations under the Agreement in any way, Licensor
may terminate the present Agreement if Licensee's default has not been cured
within forty-five (45) days of notice by Licensor, except in the case where
Licensee has violated Licensor's approval process, in which case Licensor may
terminate immediately. Without limiting any of

<PAGE>

Licensor's rights or remedies, the guarantee shall become immediately due and
owing upon Licensee's failure to cure such default.
Licensor may terminate the present Agreement in case of total or partial
alienation of Licensee's enterprise.
If Licensee suspends its payments or if judicial proceedings for bankruptcy
or insolvency are filed or instituted against Licensee, the right's granted
herein shall automatically revert to Licensor. Any further claims shall not be
affected thereby.

17. SELL OFF: With respect only to the expiration of this Agreement in due
course, at the conclusion of the Term, and not by reason of any prior
termination, Licensee shall have the period set forth in Schedule I in which to
sell off existing inventory of the Licensed Articles subject to the terms and
conditions of this Agreement with accounting and payment therefore due 30 days
thereafter. Additionally, Licensor grants Licensee the latitude to reduce the
royalty set forth herein by 50% for actual sales at 50% of the average wholesale
selling price during the sell off period. Following such sell-off period, all
remaining inventory shall be destroyed, and a Certificate of Destruction shall
be forwarded to Licensor. Notwithstanding the foregoing, Licensee shall notify
Licensor of its intent to sell off the Articles, and Universal City Studios-
Hollywood and Universal Studios Florida shall have a right of first refusal to
purchase such Articles during the sell off period.

18. MERGER: This Agreement constitutes the entire understanding between
Licensor and Licensee. All previous representations and undertakings, whether
oral or written, have been merged herein.

19. NOTICES AND PAYMENTS: Unless otherwise directed by
Licensor, all notices shall be sent by mail or facsimile to:

MCA/UNIVERSAL MERCHANDISING, INC,
100 Universal City Plaza
Universal City, CA 91608
Attn: Controller

All payments shall be sent to the above address.
All notices to Licensee shall be sent to name and address set
forth in Schedule I.

20. ASSIGNMENT: Licensor may assign any or all its rights hereunder; but this
license and all of Licensee's rights and
obligation shall not be assigned, mortgaged, sublicensed or otherwise encumbered
by Licensee without Licensor's prior written
consent.

21. PARTNERS: The parties hereto are neither partners nor joint venturers
hereunder, and Licensee shall have no power nor authority to obligate or bind
Licensor in any manner whatsoever.

<PAGE>

22. AUDITING EXPENSES AND FEES: Licensor shall be entitled to
recover from Licensee all of its legal and auditing fees and expenses in the
enforcement of any provisions of this Agreement
excluding normal auditing fees as outlined in Paragraph 12.

23. MODIFICATION: This Agreement may not be modified and none of its terms may
be waived, except in writing signed by both parties.

24. WAIVER: Licensor's failure or delay to enforce any rights hereunder shall
not be a waiver of such rights or a modification of this Agreement.

AGREED TO AND ACCEPTED BY:

MCA/UNIVERSAL MERCHANDISING, INC.
(LICENSOR)

By: /s/ [Illegible]
-------------------------------

Its:
------------------------------

SOUND SOURCE INTERACTIVE
(LICENSEE)

By: /s/ Vincent J. Bitetti
-------------------------------

Its: CEO
------------------------------

<PAGE>

MUSICIAN'S
Eugene L Code UNION
Director, License & Contract Management
Sound Source Interactive National Office
2985 E. Hillcrest Drive 60/62 CLAPHAM RD
Suite A LONDON SW9 OJJ
Westlake Village
CA 91362 TEL: 0171 - 682 5466
USA FAX: 0171 - 682 9865

18th March 1996 Ref: Broadcast

Dear Mr. Code

Re: Sound Source Interactive - CD Rom Production

I would refer to your letter of 26th February regarding the possibility of using
music from the film `The Land Before Time' in a CD Rom Interactive MovieBook
project.

On behalf of our members in the London Symphony Orchestra, we can agree to clips
as detailed in your letter, being used subject to a payment of L20 per musician
plus a 10% collection and distribution charge. A total of 115 players were
involved in `The Land Before Time' giving a total payment of:

L20 X 115 = L2,300
PLUS 10% 230
------
L2,530

Please confirm whether you intend to proceed on this basis, and if so I will
arrange for the appropriate invoice to be raised.

Yours sincerely

/s/ Marilyn Stoddart

MARILYN STODDART
MEDIA OFFICIAL

GENERAL SECRETARY
DENNIS SCARB

<PAGE>

CONTRACT # 7296 of

LICENSE AGREEMENT

THIS AGREEMENT (the "Agreement") is made as of this 27th day of February, 1996,
by and between MGM/UA LICENSING AND MERCHANDISING, A DIVISION OF METRO-GOLDWYN-
MAYER INC., a Delaware corporation ("MGM/UA") with offices at MGM Plaza, 2500
Broadway Street, Santa Monica, California 90404-3061, and SOUND SOURCE
INTERACTIVE INC., a California corporation ("Licensee"), with its principal
offices at 2985 East Hillcrest Drive, Suite A, Westlake village, California
91362 (each sometimes referred to as a "Party" and collectively referred to as
"Parties").

W I T N E S S E T H

WHEREAS, MGM/UA owns or controls certain proprietary rights in and to the
motion picture "All Dogs Go To Heaven 2" (the "Licensed Property");

WHEREAS, Licensee desires to manufacture, distribute and sell interactive
entertainment computer software utilizing the Licensed Property;

NOW, THEREFORE, the Parties do hereby agree as follows:

1. DEFINITIONS

For purposes of this Agreement, the following definitions
shall apply:

1.1. "Computer" shall mean any device which acts upon an embodied Computer
Software so as to communicate it to the user, whether separate from or integral
to the embodiment.

1.2. "Computer Software" shall mean any computer software containing full
and complete computer code, including the source code, the assembly code, the
object code and such data files and other files as are deemed necessary for such
computer software to achieve its functional purpose.

1.3. "Licensed Platform" shall mean Microsoft Windows and Apple Mcintosh.
The Computer Software shall be stored and delivered on Compact Disc Read Only
Memory ("CD-ROM"). Specifically excluded from this Agreement are upgrades,
increases in memory, add-ons, or peripherals not existing in the market as of
the date of this Agreement, Sega Systems, Sony PSX and 3DO platforms, any CD-ROM
peripherals with added power which increases the performance ( including
enhanced game play or graphics ) of the SUPER-NES as it exists and performs
today, any systems which deliver software over cable, phone lines, fiber optics,
or

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2)

<PAGE>

broadcast media. All other systems, platforms or distribution channels, whether
now existing or created in the future, are also hereby specifically excluded
from this Agreement.

1.4. "Licensed Products" shall mean one interactive moviebook for use on
the Licensed Platforms as designed for personal computers. The format shall be
CD-ROM and will be designed for the three to ten year old children's market,
containing linear retelling of the story with interspersed video clips,
educational quizzes and puzzles, online dictionary, and appropriate animation
and "sound/event" buttons.

1.5. "Net Sales" shall mean gross unit sales of Licensed Products sold by
Licensee.

1.6. "Term" shall mean the period commencing February 27, 1996 and expiring
October 31, 1999, unless terminated earlier in accordance with the terms and
conditions herein.

1.7. "Territory" shall mean the world in the English language and localized
versions for Germany, Japan and France.

1.8. "Wholesale Price" shall mean, with respect to any
Licensed Products, the published price charged to dealers by
Licensee or its first-tier distributors for such Licensed
Products.

1.9. "Original Equipment Manufacturer" ("OEM") shall mean a
manufacturer of computer hardware, computer peripherals and software who bundles
or combines its products with software for
distribution.

2. GRANT OF LICENSE

2.1. MGM/UA grants and Licensee accepts, subject to the terms herein set
forth, and only until May 30, 1997, the EXCLUSIVE license in the Territory to
utilize the Licensed Property (but not any derivations thereof, including,
without limitation, any prequels, sequels or remakes thereof, or any characters
or roles associated with or related to or spun-off from the Licensed Property)
on and in connection with the manufacture, distribution and sale of the Licensed
Products as localized on the Licensed Platform. From June 1, 1997 through
the grant of license shall be deemed as non-exclusive license for the Territory
during the Term to use the five musical compositions entitled "It's Too Heavenly
Here", "It Feels So Good to Be Bad", "Easy Street", "I'll Always Be with You"
and "Count Me out" and the musical scores derived from the Licensed Property and
the master recordings thereof (the "Music") in the Licensed Products, provided
however, that Licensee shall not be permitted to use the Music in any device for
which the viewer is able or invited to manipulate or

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 2

<PAGE>

in any way alter the Music.

2.3. The grant of license contained in section 2.1 does not extend to any
rights to any likenesses or voices of any actual persons whether or not embodied
in the Licensed Property. Except to the extent as MGM/UA shall, in its sole
discretion, in writing in each such instance specifically agree, Licensee shall
not utilize any of such likenesses or voices in designing, developing, or
creating the Licensed Products or in arranging for the manufacture,
distribution, or sale thereof. The costs or fees associated with the use of any
such likenesses or voices shall be governed by Section 7.3(b).

2.4. All rights whatsoever in the Licensed Property not specifically
granted herein are reserved to MGM/UA and may be freely exercised at any time by
MGM/UA or its designees without accounting to Licensee and without any claim,
charge or encumbrance in favor of Licensee; Licensee shall have no rights
whatsoever in the Licensed Property except as explicitly set forth herein. In
particular, MGM/UA shall have the right to license, manufacture, sell or
distribute other products incorporating and/or using the Licensed Property, and
to make use of any and all means of exploitation and/or distribution related to
the Licensed Property, including, without limitation, the manufacture,
distribution and/or sale of Computer Software on any platform (including,
without limitation, the Licensed Platform) whatsoever. Without derogating from
any of the foregoing, MGM/UA specifically reserves any and all rights in roles
or characters which are or become a part of or associated with the Licensed
Products, whether or not such rights are initially part of the Licensed
Property.

3. CONSIDERATION

3.1. Royalties. In consideration for the rights granted to
it under this Agreement, the Licensee agrees to pay MGM/UA the
following royalties:

(a) The Licensee agrees to pay MGM/UA the following non-refundable
Advance Royalty Amount ("Advance"), which shall be set off as a
credit against the royalties due MGM/UA under subparagraph
3.1(b):

$20,000.00 to be paid as follows:

Four Thousand Dollars ($4,000.00) to be paid concurrently with
Licensee's execution of this Agreement;

Eight Thousand Dollars ($8,000.00) payable on or before June 1,
1996;

Eight Thousand Dollars ($8,000.00)

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 3
<PAGE>

payable on or before March 1, 1997;

(b) Percentage royalties shall be computed as follows:

(i) For sales of the Licensed Products to a wholesaler or
distributor that will itself sell the Licensed Products to retail
accounts, other than bundled sales pursuant to (iii) below, Licensee
shall pay MGM/UA Fifteen percent (15%) of the Wholesale Price.

(ii) As to any Licensed Products that are sold by the Licensee on
an F.O.B. basis to a customer or distributor located in a country
other than the country from which the Licensed Products are shipped
(for example, a shipment of Licensed Products F.O.B. Hong Kong to a
customer in the U.S.), the royalty rate on such sales shall be five
percentage points higher than the applicable percentage royalty
specified in Section 3.1(b)(i).

(iii) As to sales of the Licensed Products bundled with Computer
hardware systems (i.e. sold as a single unit without a separate price
for the Licensed Products) by OEMs, Licensee shall pay MGM/UA Thirty
Percent (30%) of Licensee's revenues after deducting cost of goods
sold, cost of goods sold not to exceed One Dollar and Fifty Cents
($1.50) per unit.

(iv) All royalty computations under this Section 3.1(b)(i) and
(ii) shall be made on the basis of the Wholesale Price charged by the
Licensee, or, if the Licensee sells Licensed Products to a subsidiary
or other party controlled by the Licensee, on the basis of the
Wholesale Price for such Licensed Products charged by such subsidiary
or controlled party on resale of the Licensed Products.

METRO-GOLDWYN-MAYER INC.
P.O. BOX 4073
SANTA MONICA, CALIFORNIA 90411
ATTN: LICENSING & MERCHANDISING

3.2. Licensee, and/or any related parties, agrees that they shall not,
without the written consent of MGM/UA, which consent shall be granted or
withheld in MGM/UA's sole discretion:

(a) Sell or otherwise distribute any Licensed Products at a so-called
premium, or to third parties which Licensee has

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 4

<PAGE>

reason to believe intend to sell or distribute the Licensed Products as
Premiums. Sale or distribution of the Licensed Products as "Premiums", for
purposes of the foregoing provisions, shall mean sale or distribution of
the Licensed Products in connection with the following kinds of promotional
activities: self-liquidator programs; joint merchandising programs;
giveaways; sales incentive programs; door openers; traffic builders; and
any other kinds of promotional programs designed to promote the sale of the
Licensed Products or other goods or services of the Licensee or a third
party.

(b) Attempt to structure sales, distribution, or marketing plans for
the purpose of enhancing their revenues at the expense of MGM/UA; more
particularly, neither Licensee nor any Related Party shall make or attempt
to utilize Tier Sales for the purpose of lowering the revenue base for
determining MGM/UA's royalty share. A "Tier Sale" for purposes hereof
shall mean a sale by Licensee or a Related Party to a Related Party for the
purpose of further distribution.

4. ACCOUNTING PROVISIONS

4.1. Licensee agrees to forward to MGM/UA, within THIRTY (30) days after
the end of each calendar quarter ("Royalty Period"), commencing with the first
calendar quarter during which any unit of Licensed Products is sold, a report
(the "Accounting Statement") of the number of units of Licensed Products sold
within such Royalty Period and the royalty amount due for the sale of such
units. Each such Accounting Statement shall include a detailed cumulative
report, certified by Licensee's chief financial officer as accurate, of the
following information concerning each Licensed Products specified for or
allocated on a reasonable basis as to each country in the Territory:

(a) The number of Licensed Products held in inventory at the start
and at the close of the Royalty Period, distributed to customers during the
Royalty Period, and returned to Licensee during the Royalty Period.

(b) The Net Sales, and Wholesale Price for each category of Licensed
Products.

(d) The royalties due to MGM/UA with respect to the Royalty Period.

(e) Any applicable currency exchange rates used to calculate
recoupment and remittances to MGM/UA, if applicable.

All royalties due to MGM/UA shall accrue upon sale of the Licensed

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 5

<PAGE>

Products, regardless of the time of collection by the Licensee, less credits for
actual merchandise returns not exceeding, in any quarterly accounting period,
five percent (5%) of the Licensee's gross sale of the Licensed Products during
such accounting period. For purposes of this Agreement, a unit of Licensed
Products shall be deemed "sold" as of the date on which such item is billed,
invoiced, shipped or paid for, whichever first occurs. If any units are
consigned to a distributor by the Licensee, the units shall be considered "sold"
by the Licensee as of the date on which such distributor bills, invoices, ships
or receives payment for any of the units, whichever first occurs.
Notwithstanding anything herein to the contrary, in the event of a Tier Sale, at
MGM/UA's sole option, the Tier Sale shall not be a sale hereunder, but the first
non-Tier Sale sale thereafter shall be deemed the sale.

4.2. Licensee agrees that accompanying each such Accounting Statement shall
be payment of the amounts then due to MGM/UA for such Royalty Period, less any
unrecouped portion of the Advance. Any payments by Licensee not paid when due
shall bear interest, until paid in full, at a rate equal to the lesser of: (a)
the then highest rate permissible under the laws of California; or (b) a rate
two percent (2%) in excess of the then Bank of America, NT & SA, San Francisco,
published prime rate per annum, compounded annually, or, if such rate is no
longer published, at a rate two percent (2%) in excess of the then composite
prime rate per annum as listed in the Wall Street Journal.

4.3. Royalties in respect of sales outside of the United States shall be
computed in the national currency in which Licensee is paid by its distributors
and royalties shall be computed at the same rate of exchange as Licensee is paid
(or Licensee's account is credited).

4.4. The receipt or acceptance by MGM/UA of any Accounting Statements
furnished pursuant to this Agreement, or the receipt or acceptance of any
royalty payments made, shall not preclude MGM/UA from questioning their accuracy
at any time. If any inconsistencies or mistakes are discovered in such
statements or payments, appropriate adjustments shall be made immediately by the
Parties.

4.5. Licensee agrees to keep accurate books of account and records covering
all sales and royalties due under this Agreement and to permit MGM/UA and its
agents and representatives to inspect such books of account and records, and to
make copies thereof, during reasonable business hours (upon prior reasonable
written notice) for the purpose of verifying the reports provided hereunder. At
MGM/UA's request, Licensee shall provide an authorized employee to assist in the
examination of the Licensee's records.

4.6. There shall be no deduction from the royalties owed to

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 6

<PAGE>

MGM/UA for uncollectible accounts, or for taxes, fees, assessments, or other
expenses of any kind which may be incurred or paid by the Licensee in connection
with: (i) royalty payments due MGM/UA; (ii) the manufacture, sale,
distribution, or advertising of the Licensed Products in the Territory; or (iii)
the transfer of funds or royalties or the conversion of any currency into U.S.
dollars. It shall be the Licensee's sole responsibility at its expense to
obtain the approval of any governmental authorities and to take whatever steps
may be required to: (a) effect the payment of royalties to MGM/UA;
(b) minimize or eliminate the incidence of taxes, fees, or assessments which
may be imposed; and (c) enable Licensee to commence or continue doing business
in any country. Licensee shall comply in any and all respects with all
applicable laws and regulations.

4-7. Notwithstanding the provisions of Section 4.6, if (i) any country
imposes a withholding tax against MGM/UA as licensor, with respect to the
royalties payable to MGM/UA by the Licensee on sales of the Licensed Products in
such country, (ii) such tax is paid by the Licensee on behalf of MGM/UA, and
(iii) such tax is an income tax as to which a foreign tax credit is allowable to
MGM/UA under section 901 of the Internal Revenue Code of 1986, as amended, the
Licensee may deduct the amount of such withholding tax from the royalties paid
to MGM/UA under this Agreement on the condition that the Licensee furnishes to
MGM/UA all information and documentation required by MGM/UA to enable MGM/UA to
obtain a foreign tax credit on its U.S. income tax return with respect to such
withholding tax payment by the Licensee.

5. CONTENT AND QUALITY OF LICENSED PRODUCTS; TIMING OF RELEASE

5.1. The Licensed Products and all related materials as manufactured,
advertised, sold or distributed by Licensee under this Agreement shall be of
first class quality. Without limiting the foregoing, Licensee will maintain a
policy of first class standards as to design, manufacturing, distribution and
sale of
the Licensed Products which will in no manner reflect adversely upon the
Licensed Property or the "Mark" as defined in Section 6.3).

5.2. The quality and style of all Licensed Products, artwork, packaging and
wrapping material, cartons, containers, tags, labels and all other devices used
in connection therewith and all advertising, promotional and display material,
if any, for the Licensed Products will be subject to the prior written approval
of MGM/UA which approval may be given or withheld in MGM/UA's sole discretion.
Licensee will submit the preliminary design and final design of each of these
items to MGM/UA for approval, to the attention of Susan Notarides or her
successor, at the address listed in Section 12 hereof. Any submission will be
deemed disapproved if not approved within twenty (20) calendar days of receipt
by MGM/UA. MGM/UA shall have no monetary obligation to

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 7

<PAGE>

Licensee under this Agreement with regard to any disapproval of any item
(whether pursuant to this Section, Section 6.2 hereof, or any other provision of
this Agreement) subject to MGM/UA's approval pursuant to this Agreement.
Without limiting the generality of any other provision of this Agreement, in no
event shall Licensee, directly or indirectly, undertake or authorize any
billboard, television, radio or other mass media and/or other form or type of
advertising or press releases in connection with the Licensed Products or this
Agreement without MGM/UA's prior written consent in each instance.

5.3. Licensee agrees to furnish MGM/UA, for MGM/UA's approval (to be
granted or withheld in MGM/UA's sole discretion) as to content, quality and
style, a treatment or storyboard of each proposed Licensed Products to be
produced as well as the beta version of the Licensed Products. MGM/UA shall
grant or withhold such approvals according to the time schedule as set forth in
Section 5.2 hereof. All translations of written material used on or in
connection with the Licensed Products and/or Advertising Materials shall be
accurate, and the Licensee, when submitting the Licensed Products and/or
Advertising Materials for approval, shall provide MGM/UA with English
translations of all such written materials in a language other than English.

5.4. Licensee agrees that it will use its best efforts to promote actively
and effectively and to manufacture, sell and distribute each of the Licensed
Products in each of the countries in the Territory, during the Term of this
Agreement. Licensee agrees that it will use marketing efforts which are at
least equal to those made to promote its other products in the same countries.
The timing of the release of Licensed Products and the marketing release pattern
in each such country will be subject to MGM/UA's prior written approval in each
instance. If at any time during the Term, Licensee is not making regular sales
of more than a nominal nature of any Licensed Products in any country in the
Territory, MGM/UA shall have the right, upon thirty (30) days notice, to
terminate the Licensee's rights for all Licensed Products in such country.

5.5. Licensee shall, at Licensee's cost, insert in the packaging of the
Licensed Products, any consumer response forms
requested by MGM/UA.

5.6. Upon commencement of distribution of each Licensed Products, Licensee
will furnish and ship free of charge to MGM/UA fifty (50) samples of each such
Licensed Products, including packaging and two (2) samples of all advertising,
promotional and display materials relating to such Licensed Products. If
additional samples of either the Licensed Products or other materials referred
to herein are required for legal purposes, including protection of rights or
litigation, Licensee shall provide them free of charge.

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 8

<PAGE>

5.7. Licensee will additionally sell the Licensed Products to MGM/UA, in
such quantities as MGM/UA requests, at Licensee's actual net per-unit cost Plus
shipping charges.

5.8. Licensee agrees that it will release the Licensed Products on the
Licensed Platform within thirty (30) days after final approval by MGM/UA of the
Licensed Product. For purposes of this Agreement, "release" shall mean the
manufacture of at least 25,000 units of such Licensed Products for shipment to
distributors.

5.9. Licensee shall in no event manufacture, sell or
otherwise distribute any Licensed Products without having obtained all approvals
by MGM/UA in each and every instance required hereunder.

6. TRADEMARK AND COPYRIGHT

6.1. "Notice" as used in this Section shall mean the appropriate statutory
notice of registration or application for registration of any licensed
copyright, trademark or service mark of which MGM/UA has given Licensee notice,
under the laws of the country where Licensee distributes the Licensed Products.

6.2. Licensee agrees to print, stamp or mold the Notice on each package or
container used in connection with the Licensed Products, and Licensee shall
print the Notice on each label, advertisement and promotional release concerning
any Licensed Products and such Notice shall be imprinted on the back of the
package or container used in connection therewith, displayed on the title screen
of the Licensed Products, and in the instruction booklet, if any, packaged with
the Licensed Products. All aspects of all Notices, including without limitation
size, credit, etc., shall be in accordance with the specifications of MGM/UA.
Licensee agrees to execute and deliver to MGM/UA, in such form as MGM/UA may
reasonably request, all instruments necessary to effectuate copyright, service
mark and trademark protection or to record Licensee as a registered user of any
trademarks or to cancel such registration, and if Licensee fails to execute such
instruments, Licensee hereby appoints MGM/UA as Licensee's attorney-in-fact to
do so on Licensee's behalf. Licensee shall also furnish MGM/UA for MGM/UA's
approval, samples of all advertising or promotional materials bearing the Notice
for MGM/UA's approval that such materials comply with Notice requirements
herein; any such submissions shall be deemed disapproved if not approved within
twenty (20) days of receipt by MGM/UA.

6.3. All Licensed Products which are released by or through Licensee in the
Territory shall embody on screen credits as designated by MGM/UA and on the back
of the packaging of such Licensed Products, MGM/UA's (and/or a division or
affiliate of MGM/UA's, as MGM/UA shall so notify Licensee) distinctive logo

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 9

<PAGE>

(hereinafter referred to as the "Mark"). The size, placement and prominence of
the Mark and juxtaposition of the Mark shall be determined by MGM/UA in its sole
discretion. No other mark may appear as or more prominently than the Mark
without MGM/UA's prior written approval.

6.4. Licensee acknowledges and agrees that (a) all copyrights, trademarks,
and service marks and rights to the same referred to in this Section 6 in the
name of and/or owned by MGM/UA shall be and remain the sole and complete
property of MGM/UA; (b) all such copyrights, trademarks and service marks to the
same and rights in the name of or owned by any copyright proprietor other than
MGM/UA or Licensee shall be and remain the sole and complete property of such
copyright proprietor; (c) Licensee shall not at any time acquire or claim any
right, title or interest of any nature whatsoever in any copyright, trademark or
service mark owned or controlled by MGM/UA by virtue of this Agreement or of
Licensee's uses thereof in connection with the Licensed Products; and (d) any
right, title or interest in or relating to any such copyright, trademark or
service mark, which comes into existence as a result of, or during the term of,
the exercise by Licensee of any right granted to it hereunder shall immediately
vest in MGM/UA. Notwithstanding the foregoing, MGM/UA and Licensee shall
jointly own the Computer Software embodied in any Licensed Products except for
Licensee's proprietary technology ("Licensee Technology") not developed
specifically for the Licensed Products (including algorithms sprite and
animation technologies, data compression techniques and memory management tools
and procedures), which Licensee Technology shall remain the exclusive property
of Licensee and which Licensee Technology MGM/UA shall not analyze or reverse
engineer except as otherwise approved by Licensee in its sole discretion.

6.5. Licensee agrees to assist MGM/UA to the extent necessary to protect
any of MGM/UA's rights to the Licensed Property. Licensee shall notify MGM/UA
in writing of any infringements or imitations by others of the Licensed
Property on products similar to those covered in this Agreement which may
come to the Licensee's attention. MGM/UA shall have the right to commence
action to enforce its proprietary rights and prosecute any such
infringements, and Licensee agrees to fully cooperate, at MGM/UA's expense,
in any such action. However, Licensee shall not incur any such expense
reimbursable by MGM/UA without MGM/UA's express prior written approval and
all recoveries resulting from any such action shall belong solely to MGM/UA.
With regard to any infringements of Licensee's rights hereunder by third
parties, or with regard to any unauthorized imitations by third parties of
the Licensed Products, Licensee may, but only to the extent any such action
is specifically approved in writing by MGM/UA in advance: make demands or
claims, bring suit, and/or effect settlements (collectively, to make
"Licensee Claims"); provided that MGM/UA shall have the right to participate
fully at its own expense in any

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 10

<PAGE>

litigation or other activity relating to any Licensee claim. Notwithstanding
anything herein to the contrary, in no event shall Licensee have the right,
without the specific prior written consent of MGM/UA: to acknowledge the
validity of any third party's claim (collectively, "Third Party Claims")
regarding any aspect of the Licensed Products or the Licensed Property; or to
take any other action which might impair the ability of MGM/UA to contest said
Third Party Claim if MGM/UA so elects.

6.6. Licensee acknowledges that the Licensed Property has extensive
goodwill, publicity, recognition and secondary meaning in the public in the
Territory. Licensee agrees that, except as set forth in Section 7.1, any works
(including, any copyright therein), characters, roles, artwork, trade names,
trademarks and tangible materials relating to or embodying any portion of the
Licensed Property (other than the Licensed Products themselves) and all good
will, publicity, recognition or secondary meaning accruing to the foregoing,
including any characters, created in whole or in part by Licensee, its agents,
contractors or employees, shall vest immediately and irrevocably in MGM/UA as
owner and employer upon creation, free and clear of any right, title, charge,
lien, encumbrance, limitation or claim in favor of Licensee. All of the
foregoing, together with the Licensed Property and the Marks (but not Licensee
Technology), are referred to as "MGM/UA's Property." Licensee agrees that any of
MGM/UA's Property created by Licensee's agents, contractors or employees
relating to the Licensed Property shall be deemed "works made for hire" within
the intended meaning of the Copyright Act of 1976, and all these works shall be
deemed transferred and assigned to MGM/UA promptly upon creation and without any
further action by either party and, to the extent any such property is not
deemed a "work made for hire", Licensee shall assign or cause such works to be
assigned to MGM/UA. It will be Licensee's responsibility: (a) to have
independent contractors or sublicensees (if allowed hereunder) who do creative
work in connection with this Agreement execute an appropriate assignment
document to MGM/UA, and/or (b) to provide a statement from Licensee that such
documents/agreements have been executed or are part of an existing employment
contract or work for hire agreement between Licensee and such third parties.

7. MATERIALS

7.1. All Computer Software (other than Licensee Technology) embodying the
Licensed Products, or any reproduction thereof, shall be and remain MGM/UA's and
Licensee's Joint property, inclusive of all copyrights and right to copyright
therein and thereto for the life of the copyright therein, provided that
Licensee may not exploit such property except as provided under the terms hereof
and provided further that Licensee agrees that it shall not obtain any interest
in the specific Licensed Property which may be embodied in such Computer
Software. All Licensee Technology shall be and remain Licensee's sole and
exclusive property.

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 11
<PAGE>

7.2. In MGM/UA's sole discretion, MGM/UA may make available to Licensee, at
a price to be negotiated in good faith, any artwork relating to the Licensed
Property which MGM/UA owns and which is reasonably available to MGM/UA for
Licensee's use in connection with the exploitation of the Licensed Property.

7.3. (a) In MGM/UA's sole discretion, MGM/UA may also provide to Licensee
free of charge (but subject to Licensee's payment of any applicable royalty,
union fees, guild fees, reuse fees, or other fees) for use in Licensed Products
any film footage from any motion picture, television or other audio-visual
production utilizing the Licensed Property that Licensee may require (provided
that Licensee shall pay MGM/UA's standard fees in connection with the
duplication or shipping to Licensee of any such material).

(b) Licensee shall make payments in the amount of $2,750.00 to each
of the following actors pursuant to their personal service agreements: Charlie
Sheen, Sheena Easton, Dom DeLuise, Ernest Borgnine, Bebe Neuwirth and George
Hearn. If Licensee requests any actor or actress to render additional services
(e.g., record separate dialogue or appear in additional film footage of an
applicable production) for use in connection with the exploitation of Licensed
Products, then Licensee shall be responsible for any payments due any actor or
actress rendering such additional services. Any and all such footage or other
material created in the course of such additional services shall be owned by
MGM/UA, subject to the grant of license hereunder.

8. REPRESENTATIONS AND WARRANTIES

8.1. Licensee hereby warrants and represents that:

(a) This Agreement has been duly authorized, executed and delivered
by Licensee;

(b) Licensee has the full power and authority to enter into this
Agreement and to perform its obligations hereunder;

(d) The making of this Agreement by Licensee does not violate any
agreement, right or obligation existing between Licensee and any other
person, firm or corporation;

(e) That all ideas, creations, materials and intellectual property
furnished by Licensee in connection with the Licensed Products will be
Licensee's own creation (except for matters in the public domain or
material which is licensed hereunder or which Licensee is fully licensed to
use relative hereto provided, however, that the form and substance of all

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 12

<PAGE>

licenses from third parties to Licensee shall be subject to MGM/UA's prior
written approval); and

(f) That the Licensed Products and the manufacture, advertisement,
distribution, sale, and other exploitation thereof hereunder will not
infringe upon or violate any rights of any third party of any nature
whatsoever; provided that the immediately preceding clause shall not refer
to any cause of action, allegation or claim of infringement or violation of
any third party's rights based upon the Licensed Property except to the
extent due to Licensee's breach of the terms hereof.

9. BREACH AND TERMINATION.

9.1. Except as set forth below in Section 9.2 and 9.3, MGM/UA may terminate
this Agreement by notice to Licensee should Licensee breach any term or
condition of this Agreement, if Licensee does not cure the applicable breach or
default to MGM/UA's satisfaction within thirty (30) business days after
receiving such termination notice; should such breach or default not be
completely cured, this Agreement shall then be deemed automatically terminated
without any further notice or other action by MGM/UA.

9.2. Notwithstanding the foregoing, each of the following events shall be
conclusively deemed a material breach of this Agreement by Licensee, resulting
in a three (3) calendar day cure period (in each of which cases this Agreement
shall be deemed automatically terminated without any further notice or other
action by MGM/UA, unless said breach shall have been completely cured to
MGM/UA's satisfaction):

(a) Any failure or refusal by Licensee to make or deliver any payment
or statement to MGM/UA required under the terms of this Agreement.

(b) Any failure or refusal by Licensee to seek and obtain MGM/UA's
consent or approval or to comply with the terms and conditions of any
MGM/UA consents or approvals required by the terms of this Agreement.

(c) Any material failure to distribute or cause a distribution of
Licensed Products in accordance with the terms hereof or any use by or
under the authority of Licensee of any rights in the Licensed Property not
granted to Licensee hereunder.

9.3. This Agreement shall be automatically terminated with no cure period
permitted and no required notice or other action by MGM/UA if any of the
following events occur:

(a) Any breach by Licensee of the terms of any other

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 13

<PAGE>

agreement between Licensee and MGM/UA which, after remaining uncured for
the relevant cure period, has resulted in termination of such agreement.

(b) Should Licensee (i) become insolvent or be unable to pay its
debts as they become due, (ii) make an assignment for the benefit of its
creditors, (iii) acquiesce in the filing of a petition for Licensee's
bankruptcy, the appointment of a receiver or trustee or liquidator for
Licensee, the distress or other forced sale of a substantial part of
Licensee's assets, or the convening of a meeting of Licensee's creditors,
(iv) seek the protection for itself of any applicable bankruptcy or
insolvency law, or (v) take, do or omit to do any action which has the
purpose or effect of substantial cessation of Licensee's business as a
firstclass product manufacturer in the Territory.

(d) If Vincent J. Bitetti, chief Executive Officer and Eric Winston,
President, are no longer in their current capacities as operating
management of Licensee as a result of the transfer of the business and/or a
substantial part of the assets of the Licensee; subject in either case to
the following provisions. If the Licensee has reason to believe that such
a management change has occurred or will occur in the reasonably
foreseeable future, Licensee shall give written notice thereof to MGM/UA.
Within a reasonable time after receiving such notice, MGM/UA shall give the
Licensee written notice stating whether it approves or disapproves of such
a "change in management" and in the case of its disapproval thereof,
whether it exercises its right of termination hereunder if the "change in
management" has already occurred or will exercise its right of termination
if the "change in management" does occur as a result of the transfer of the
business and/or a substantial part of the assets of the Licensee. MGM/UA
agrees that it will not withhold its approval of any such "change in
management" on the part of the Licensee or exercise its right of
termination relative thereto hereunder in an arbitrary or unreasonable
manner. The foregoing disapproval provisions shall not limit in any way
the prohibitions in section 13 against assignments, sublicenses and other
transfers of this Agreement or the rights licensed under this Agreement.

9.4. After any order for relief under the U.S. Bankruptcy Code is entered
against the Licensee, the Licensee must assume or reject this Agreement within
sixty (60) days after the order for relief is entered. If the Licensee does not
assume this Agreement within such 60-day period, MGM/UA may, at its sole option,
terminate this Agreement by giving written notice to the Licensee, without
further

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 14

<PAGE>

liability on the part of MGM/UA.

9.5. Upon the termination of this Agreement pursuant to this Section 9, all
royalties on sales previously made, and all advances and/or minimum guarantees
hereunder (whether or not yet accrued), shall become immediately due and payable
to MGM/UA.

9.6. Upon expiration or termination of this Agreement, Licensee shall
immediately cease all further manufacture, distribution, advertisement, sale,
rental and use of the Licensed Products and related materials and the use of all
Marks and shall terminate all agreements with manufacturers, distributors,
sublicensees (if allowed hereunder), and others which relate to such
manufacture, distribution, sale, rental or use. Within thirty (30) days after
the date of expiration or termination of this Agreement, Licensee shall submit
to MGM/UA a statement containing the following information (the "Final Inventory
Statement"):

(a) A statement attesting to the destruction or delivery to MGM/UA of
all molds, masters or other material used for the manufacture of the
Licensed Products, and

(b) A statement of the number, location and description of all unsold
copies of the Licensed Products in inventory or in process, either in
Licensee's own or anyone else's possession, on the date of said expiration
or termination (the "Closing Inventory") and the total unit cost of the
Closing Inventory.

MGM/UA shall have the right of access to Licensee's and/or any third parties'
(including, without limitation, any distributors' or any sublicensees')
warehousing, other facilities and books and records to take physical inventory
to ascertain or verify the accuracy of the information contained in the Final
Inventory Statement. MGM/UA shall have the right and option to purchase all or
any part of the Closing Inventory at the actual net per-unit cost to Licensee.
MGM/UA may exercise such option, if at all, by notice to that effect to Licensee
("Purchase Notice"): (c) specifying the amounts and description of the Closing
Inventory MGM/UA elects to purchase and designating the points where such
amounts of Closing Inventory should be shipped and the manner of shipment, and
(d) accompanied by payment to Licensee of the total unit cost of the amount of
Closing Inventory MGM/UA elects to purchase; said Purchase Notice shall be given
to Licensee no later than thirty (30) days after service to MGM/UA of a proper
Final Inventory Statement. Within ten (10) days after service to Licensee of
said Purchase Notice, Licensee shall ship the amounts of Closing Inventory
MGM/UA elects to purchase f.o.b. to the points designated by MGM/UA, by the
manner of shipment designated by MGM/UA, at MGM/UA's expense. Notwithstanding
anything to the contrary hereinabove set forth, only to the extent MGM/UA elects
not to purchase any or all of the Closing Inventory, and only in

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 15

<PAGE>

the event this Agreement has expired by the passage of time and not been
theretofore terminated by MGM/UA: Licensee shall have a period of one Hundred
Twenty Days (120) days ("Sell-Off Period"), commencing on service to Licensee of
the Purchase Notice or on expiration of MGM/UA's option to purchase the Closing
Inventory, whichever shall occur first, within which to sell that part of the
Closing Inventory which MGM/UA has not elected to purchase. Licensee shall pay
royalties with respect to any Sell-Off Period activities, and furnish Accounting
Statements with respect thereto, in accordance with the provisions of this
Agreement otherwise applicable to such activities. Not later than twenty (20)
days following the expiration of the Sell-off Period, Licensee shall send to
MGM/UA a certificate signed under oath, stating the amount of the Closing
Inventory not sold during said period and attesting to the fact that all such
Closing Inventory not sold either: (e) has already been completely destroyed, or
(f) will be completely destroyed not later than twenty (20) days following the
date of said certificate. Licensee shall at its sole expense take all steps
required to insure such destruction.

9.7. The rights of termination provided herein are in addition to any other
rights of MGM/UA hereunder, including the right to obtain injunctive relief and
other equitable remedies. In particular, the parties acknowledge that breaches
specified in Section 9.1 will cause irreparable harm to MGM/UA not readily
measurable in monetary amounts, and for which MGM/UA shall, without waiving any
other rights and remedies, be entitled to seek injunctive and declaratory
relief.

9.8. The expiration and/or termination of this Agreement: shall forthwith
automatically terminate all ability of Licensee to manufacture, sell, or
distribute Licensed Products (other than sales or distributions of Closing
Inventory, strictly pursuant to the terms of Section 9.4 hereof, during the
Sell-off period); and shall forthwith automatically terminate all other rights
licensed or granted to Licensee under this Agreement. However, subject to the
foregoing, the expiration and/or termination of this Agreement shall not affect:
any obligations of MGM/UA under Section 10.2 hereof; or any obligations of
Licensee or rights of MGM/UA under Sections 2.2, 2.3, 3.1, 3.2, 4.1, 4.2, 4.3,
4.4, 4.5, 4.6, 4.7, 5.1, 5.2, 6.1, 6.2, 6.3, 6.4, 6.6, 7.1, 7.3, 9.61 10.1,
10.3, 11.1, 11.2 or 14.7.

10. INDEMNIFICATION

10.1. Licensee agrees to indemnify and hold MGM/UA (and its parents,
affiliates, subsidiaries, divisions, licensees, successors, assigns, and their
or any of their agents, officers directors and employees) harmless from and
against any liability, damage, cost or expense (including costs and reasonable
attorneys, fees) occasioned by or arising out of (i) a breach or alleged breach
of any of Licensee's representations, warranties and

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 16
<PAGE>

agreements herein made, or any breach or alleged breach by Licensee of any term
or condition hereof; (ii) any unauthorized use of any patent, process, idea,
method or device in connection with the Licensed Products; or (iii) defects in
the Licensed Products.

10.2. MGM/UA agrees to indemnify and hold Licensee (and its parents,
affiliates, subsidiaries, divisions, licensees, successors, assigns, and their
or any of their agents, officers, directors and employees) harmless from and
against any liability, damage, cost or expense (including costs and reasonable
attorneys' fees) occasioned by or arising out of the breach of any Of MGM/UA's
representations and warranties contained herein.

10.3. With respect to any claims, demands or actions falling within the
scope of the foregoing indemnifications: (a) each party agrees promptly to
notify the other of and keep the other fully advised with respect to such claims
or demands and the progress of any such actions in which the other party is not
participating; (b) each party shall have the right to assume, at its sole
expense, the defense of a claim, demand or action made or filed against the
other party; (c) each party shall have the right to participate, at its sole
expense, in any action instituted against it and to approve any attorneys
selected by the other party to defend it, which approval shall not be
unreasonably withheld or delayed; and (d) a party assuming the defense of a
claim, demand or action against the other party shall not settle such claim,
demand or action without the prior written approval of the other party, which
approval shall not be unreasonably withheld or delayed.

10.4. Licensee agrees that it will obtain and maintain at its own expense,
product liability insurance from a recognized and qualified insurance company
(rated at least "All in Best's Insurance Guide) in the amount of at least one
Million Dollars ($1,000,000) per occurrence and Three Million Dollars
($3,000,000) in the aggregate for personal injury and One Million Dollars
($1,000,000) for property damage against any claims, suits, loss or damage
arising out of any alleged defects in the Licensed Products. Notwithstanding
the foregoing, MGM/UA may from time to time, effective upon notice thereof to
Licensee, require that these policy limits be increased so that the amount
thereof adequately protects MGM/UAfs interests. All Licensee's policies
hereunder shall be non-cancelable and non-modifiable except after thirty (30)
days prior written notice to MGM/UA by certified mail (return receipt
requested), in which case MGM/UA shall require a replacement policy meeting the
aforementioned criteria and reasonably satisfactory to MGM/UA. MGM/UA will be
named as an additional insured on all insurance policies called for hereunder.
As proof of Licensee's obtaining required insurance hereunder, a fully paid
certificate of insurance will be submitted to MGM/UA by Licensee within thirty
(30) days of the execution of this Agreement.

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 17

<PAGE>

11. CONFIDENTIAL INFORMATION

11.1. Licensee acknowledges that, in the course of the performance of
this Agreement, it may obtain the confidential information of MGM/UA
(including, without limitation, the following items related to the Licensed
Property: underlying literary material, locations, creative elements, and
processes or other technological developments relating thereto). Licensee
shall, at all times, both during the Term of this Agreement and thereafter,
keep in confidence and trust all of MGM/UA's confidential information
received by it. Licensee shall not use the confidential information of
MGM/UA other than as expressly permitted under the terms of this Agreement or
by a separate written agreement. Licensee shall take all reasonable steps
(including, without limitation, requiring as needed that Licensee's officers,
employees, agents, or outside contractors, any of whom are granted access to
MGM/UA's confidential information, execute confidentiality agreements in a
form approved by MGM/UA prior to said persons' being granted such access) to
prevent unauthorized disclosure or use of MGM/UA's confidential information
and to prevent it from falling into the public domain or into the possession
of unauthorized persons.

11.2. Licensee hereby acknowledges that any breach of the foregoing is a
material breach which will cause irreparable injury to MGM/UA not readily
measurable in monetary amounts, and for which MGM/UA shall, without waiving any
other rights or remedies, be entitled to seek injunctive and/or declaratory
relief.

11.3. Notwithstanding the foregoing, this requirement of confidentiality
shall not apply (and disclosure of information in the following manner shall not
constitute a breach of this Agreement or be deemed to cause any damage to
MGM/UA) to information that is: (a) in the public domain through no wrongful act
of Licensee; (b) rightfully received by the receiving party from a third party
who is not bound by a restriction of nondisclosure; (c) already in the receiving
party's possession without restriction as to disclosure; (d) is required to be
disclosed by applicable rules and regulations of government agencies or judicial
bodies, any of which properly have jurisdiction; or (e) necessarily disclosed
and/or disseminated to the general public in connection with the release of
Licensed Products.

12. NOTICES

12.1. All notices to be given to either party hereunder shall be addressed
to such party at the address set forth below or at such other address as such
party shall designate in writing from time to time. All notices shall be in
writing and shall either be served by personal delivery or by certified or
registered mail return receipt requested, to the attention of an officer of
MGM/UA

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 18

<PAGE>

and Licensee, as applicable. Except as otherwise provided herein, notices shall
be deemed given when personally delivered or three (3) days after being mailed,
except that notices of change of address shall be effective only after actual
receipt. Notices shall be sent as follows:

TO MGM/UA: MGM/UA Licensing and Merchandising,
a Division of Metro-Goldwyn-Mayer Inc.
MGM Plaza
2500 Broadway Street
Santa Monica, California 90404-3061
ATTN: Susan Notarides

TO LICENSEE: SOUND SOURCE UNLIMITED, INC.
2985 East Hillcrest Drive, Suite A
Westlake Village, California 91362
Attn: Vincent J. Bitetti
Tel No. 805-494-9996
Fax No. 805-495-0016

13. NO ASSIGNMENT OR SUBLICENSING OF RIGHTS; AGREEMENTS WITH
MANUFACTURERS

13.1. The Licensee shall not have the right to assign, sublicense or
otherwise transfer this Agreement or any of the rights granted to it under this
Agreement.

13.2. Notwithstanding the foregoing, the Licensee shall have the right to
arrange with another party to manufacture the Licensed Products and/or
components of the Licensed Products for exclusive sale, use, and distribution by
Licensee. Licensee shall have the further right to have the Licensed Products
manufactured and bundled with computer hardware and other software programs for
distribution by OEMs. Attached as Exhibit A hereto is MGM/UA's form
Manufacturers Representation Agreement. Licensee agrees to ensure that any and
all of its manufacturers will comply with the provisions contained therein.
Licensee further agrees to furnish MGM/UA with copies of its manufacturers
agreements within thirty (30) days after it enters into any such agreements.

13.3. The Licensee agrees strictly to enforce against its manufacturers
all of the provisions which are required to be included in such agreements for
the protection of MGM/UA, as provided in Section 13.2; to advise MGM/UA of any
violations thereof by manufacturers, and of corrective actions taken by the
Licensee and the results thereof; and, at the request of MGM/UA, to terminate
such an agreement with any manufacturer which violates any of such provisions
for the protection of MGM/UA.

14. MISCELLANEOUS

14.1. The entire understanding between the parties hereto

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 19
<PAGE>

relating to the subject matter hereof is contained herein. There are no
representations, warranties, terms, conditions, undertakings or collateral
agreements, express, implied or statutory, between the Parties other than those
expressly set forth in this Agreement. This Agreement cannot be changed,
modified, amended or terminated except by an instrument in writing executed by
both Licensee and MGM/UA.

14.2. No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the Party
charged therewith. No written waiver shall excuse the performance of any act
other than those specifically referred to therein and shall not be deemed or
construed to be a waiver of such terms or conditions for the future or any
subsequent breach thereof.

14.3. This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between MGM/UA and Licensee.
Neither Licensee nor MGM/UA shall have any right to obligate or bind the other
in any manner whatsoever, and nothing herein contained shall give or is intended
to give any rights of any kind to any third persons.

14.4. This Agreement shall be governed by the laws of the State of
California applicable to contracts made and to be wholly performed in the State
of California. Any claim, dispute or disagreement in respect of this Agreement
may be brought only in the courts of the State of California, in Los Angeles, or
the federal courts within the State of California, in Los Angeles, which courts
shall have exclusive jurisdiction thereof, and the Parties hereby waive all
objections thereto on the basis of lack of personal jurisdiction or venue.

14.5. The headings and captions used herein are inserted for convenience
of reference only and shall not affect the construction or interpretation of
this Agreement. This Agreement shall not be deemed effective, final or binding
upon MGM/UA or Licensee until signed by each of them.

14.6. If any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable under the applicable laws or regulations of
any jurisdiction, either such provision will be deemed amended to conform to
such laws or regulations without materially altering the intention of the
parties or it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.

14.7. In the event of litigation between the Parties arising out of or
relating to this Agreement, the prevailing Party will be entitled to recover
court costs and reasonable fees of attorneys, accountants and expert witnesses
incurred by such a Party in connection with such action.

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 20

<PAGE>

14.8. Except as explicitly stated to the contrary herein, all references
in this Agreement to "days" shall be deemed to mean "calendar days" and not
"business days".

IN WITNESS WHEREOF, the Parties hereto have signed this Agreement
as of the day and year first above written.

"MGM/UA"

MGM/UA LICENSING AND MERCHANDISING, a
division of METRO-GOLDWYN-MAY INC.

By: /s/ Susan Notarides
--------------------------------
SUSAN NOTARIDES
Its: Executive Vice President

"LICENSEE"

SOUND SOURCE UNLIMITED, INC.

By: /s/ Vincent J. Bitetti
--------------------------------
VINCENT J. BITETTI
Its:

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 21

<PAGE>
EXHIBIT A

MANUFACTURERS REPRESENTATION AGREEMENT

Date:______________________

MGM/UA LICENSING & MERCHANDISING
MGM PLAZA, 2500 Broadway Street
Santa Monica, California 90404-3061

Gentlemen:

This letter will serve as notice to you that pursuant to the
License Agreement dated___________________________between MGM/UA
Licensing and Merchandising ("MGM/UA") and Sound Source Unlimited, Inc.
("Licensee"), we, ("Manufacturer"), have been engaged as the manufacturer for
Licensee. In consideration of your authorizing the manufacture of_____________
_______________________________________________________________________________
(hereinafter called the "Licensed Product"), we hereby agree that:

1. We will not manufacture the Licensed Products for anyone but
your Licensee;

2. We will not distribute the Licensed Products in any territory;

3. We will not manufacture more quantities of the Licensed Products than
ordered by Licensee;

4. We will not authorize any other party to manufacture the Licensed Products
for its account or the account of Licensee without the express written consent
of MGM/UA;

5. We will ship the duly authorized quantities of the Licensed Products only
to Licensee or its designee and only to the Territory of;______________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________;

6. We will not ( unless MGM/UA otherwise provides its consent in writing )
manufacture any merchandise utilizing any of the copyrighted materials and/or
trademark owned by MGM/UA, other than the Licensed Products;

7. We will permit MGM/UA or its designated representatives to inspect the
activities and premises, accounting books, and invoices of the Manufacturer
relevant to its manufacture and supply to Licensee, of copies of the Licensed
Products;

8. We will not publish or cause the publication of reproductions of the
Licensed Products in any publication or promotional

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 22

<PAGE>

material, nor advertise that we are authorized to manufacture MGM/UA character
merchandise articles; and

9. Whenever Licensee ceases to require the Manufacturer to manufacture the
Licensed Products or if this subcontract supplier agreement expires or is
terminated, the undersigned Manufacturer, unless otherwise advised by MGM/UA,
will immediately send to Licensee or to MGM/UA any and all molds, plates,
engravings, or other devises used to reproduce the said copyrighted materials,
and/or trademarks or will give evidence of the destruction by affidavit, thereof
satisfactory to MGM/UA.

MGM/UA shall be entitled to invoke any remedy permitted by law for violation of
this Agreement by the Manufacturer. Without limiting the foregoing, Licensee or
MGM/UA shall have the right at the sole discretion of each, to terminate this
subcontract supplier agreement on ten (10) days written notice to the
Manufacturer.

It is understood that this engagement is on a royalty-free basis. We understand
that our engagement as the Manufacturer for the Licensee is subject to your
written approval. We request, therefore, that you sign in the space below,
thereby showing your acceptance of our engagement as aforesaid.

Very truly yours,

- -------------------------
By: Manufacturer

ACCEPTED AND AGREED:

By:
-------------------------
MGM/UA LICENSING AND MERCHANDISING
SUSAN NOTARIDES
Executive Vice President

SOUND SOURCE/ALL DOGS GO TO HEAVEN (2) 23

<PAGE>

UNIVERSAL STUDIOS FLORIDA

December 13, 1995

Eric H. "Rick" Winston
President & COO
Sound Source Interactive
2985 E. Hillcrest Dr. Suite A
Westlake Village, CA 91362

Dear Rick:

This letter shall serve to confirm the agreement between Universal Studios
Florida ("USF") and Sound Source Interactive ("Sound"). This agreement relates
solely to the USF/Sound promotion described as follows:

PROMOTION: USF/T2 Screensaver Sweepstakes

CONCEPT: In conjunction with the launch of a new limited edition
Terminator screensaver, consumers can enter to win one of
two trips for 2 to USF for 3N/4D to experience the new
Terminator 2: Battle Across Time attraction. Promotions
will be implemented in key software retailers and mass
merchandisers nationwide. In addition, an insert offering a
specially prices USF travel package will be included in each
box.

DATES: March 1, 1996 - May 1, 1996

MARKETS: National

EXPOSURE: PRINT: - Ads in national sci-fi and multi-media
publications (min 6)
POS: - Displays as allowable by retailers

In conjunction with the sweepstakes:

I. USF will, at no cost to Sound:

A. Waive all customary licensing fees for the use of the USF name, logo
and graphics for this promotion.

B. Provide, exclusive of any and all licensing fees, existing "official"
USF graphics, footage, copy points and artwork to be used in the
development and production

<PAGE>

of all materials employed in the promotion. "Licensing fees," as
stated above, does not include those production costs incurred in
order to develop or produce USF artwork as it is required for the
promotion.

C. Provide two (2) 4 day/3 night trips each for up to two people to USF.
Each trip will include the following:

- Up to two (2) two-day USF Studio Passes.

- Round trip coach class airfare to for up to two (2) people.

- Standard hotel accommodations (room and tax only) (4 days/3
nights), for up to two (2) people (one room, double occupancy).
Accommodations do not include meals, incidentals, tips, telephone
calls or any other personal expenses incurred during the guests'
experience.

- Round trip ground transfers provided via shuttle service between
the airport to the hotel, and the hotel and USF.

- Trips must be redeemed by April 1, 1997. All travel must be
booked a minimum of 45 days in advance. Trip is non-transferable
and has no cash value. All hotel and airline blackout dates and
restrictions apply. USF does not provide necessary 1099 forms
for winner's tax information. Sound will provide the 1099 forms.

D. Coordination and fulfillment of grand prize travel package for winner.
Winner must be 18 years of age or older unless accompanied by a parent
or legal guardian.

E. Design and printing of insert to be included in each of the Terminator
2 limited edition entertainment utility boxes (minimum 50,000).
Insert to include a specially priced USF travel package, as well as
the USF internet address.

II. Sound will, at no cost to USF:

A. Incorporate USF identification as the central thematic and Grand Prize
element in the sweepstakes. USF promotional exposure will include
without limitation:

- Name mention, logo and prominent ride/show copy and visual
representation (USF) on all POS materials which include, but are
not limited to: header cards, posters, countercards, entry
boxes, banners. POS will be placed in locations as allowable by
retailer.

<PAGE>

- Name mention, logo and prominent ride/show copy and visual
representation (USF) in all print/newspaper advertising including
but not limited to: full page, four color ads to be inserted in
select science fiction and gaming publications (minimum six
publications). Ad(s) to be inserted a minimum of 1 time per week
for a minimum of 4 weeks.

- Name mention, logo and ride/show copy inclusion (USF) on all
limited edition T2 screensaver on-pack stickers. Stickers will
be placed on a minimum of fifty-thousand (50,000) packages
released for distribution.

- Insert a USF provided and printed piece in every limited edition
T2 screensaver box produced (minimum 50,000). Sound to provide
USF with the size specifications, if any, for the piece.

- Name mention (USF) in the official rules copy.

B. Create and replicate five hundred (500) USF-themed Windows 3.1 or
Windows 95 compatible Terminator 2 screensavers. Screensaver to
include a static USF attraction visual (to be provided by USF), burst
of USF provided "sell copy", sound (TBD) and the Terminator factory
animation previously created by Sound. Screensaver will loop from
static visual to Terminator Factory animation back to static visual
and so on. Screensaver to be completed and delivered to USF no later
than seven weeks from receipt of content.

C. Assume any and all costs and responsibilities associated with the
administration of this sweepstakes not specifically undertaken by USF
under this agreement including, but not limited to:

1. If necessary, registration of the sweepstakes in compliance with
all applicable international, federal, state, county, and city
laws, statutes, regulations and orders with the legal bodies that
govern such programs.

2. Creation and implementation of official rules and distribution
and retrieval of entry forms.

3. Selection and notification of all winners.

4. Providing, USF with the names and addresses of any and all
recipients in accordance with Addendum 1.

5. Determination and notification of tax liability for prize
winner(s). Filing of all 1099 forms. Sound

<PAGE>

will have winners complete a notarized affidavit of eligibility
and release form to be provided by USF.

D. Prior to the start of the promotion, Sound will provide five (5)
copies of all collateral materials related to the promotion. These
elements are to be received no later than February 28, 1996.
Materials are to be sent to the attention of Jennifer Pearce,
Promotions Manager, Promotions (T-32), 1000 Universal Studios Plaza,
Orlando, FL 32819-7610.

E. A copy of the official rules and regulations pertaining to this
promotion will be forwarded to USF for review and approval by 1/19/96.
If desired, USF will forward a copy of USF standard rules and
regulations for use as a guideline.

F. Provide USF with final creative approval of all promotional materials
pertaining to USF participation and usage of logos and visuals from
pencils through mechanicals and chromalins, prior to final production.

G. Distribute, and assume any and all costs of distribution and
maintenance of all materials employed in this campaign as described in
Section II.A.

H. Provide complete post documentation to USF with final values of
promotional exposure.

I. In the event Sound fails to produce the contracted T2 product, USF
shall have no obligation to provide the promotional consideration set
forth herein above.

J. All unclaimed and/or unused trips and merchandise will remain the
property of Universal Studios Florida.

K. Return all slides, transparencies and other creative materials
provided by USF in this promotion. If materials are not returned,
Sound will pay the amount necessary to replace such materials.
MATERIALS MUST BE RETURNED BY MAY 1, 1996.

L. Sound agrees to indemnify, defend and hold harmless Universal City
Florida Partners, its respective parent, subsidiary and affiliated
companies, its officers, employees and agents from and against any and
all claims, demands and causes of action, liability, judgments,
damages, costs and expenses, including reasonable attorney's fees,
(collectively "Claims") arising out of or relating to: (i) any breach
of Sound warranties and representations made hereunder; and/or (ii)
Sound performance of its obligations under this Agreement.

<PAGE>

Rick, I believe this encapsulizes the entire agreement. Please confirm by
signing each of the enclosed copies of this letter and returning to me after
which I will submit the agreement to USF senior management for the required
final approval and acceptance.

Sincerely,

/s/ Jennifer A. Pearce

Jennifer A. Pearce
Promotions Manager

cc: Terrylynn Battson

AGREED AND ACCEPTED this 22nd day of December, 1995
for Sound
By: /s/ Eric H. Winston Title: President
-------------------- --------------------

AGREED AND ACCEPTED this 4th day of January, 1996
for Universal Studios Florida

By: /s/ [Illegible] Title: V.P. Promotion
-------------------- --------------------

<PAGE>

ADDENDUM I.

USF PRIZE FULFILLMENT PROCEDURE

1. Within 72 hours of selecting contest winner, Sound will forward the
USF winner's names, address and best available telephone numbers to
Terrylynn Battson/USF Promotions Department at (407) 363-8262 --
Telephone, (407) 363-8237 -- Fax.

2. USF will assign each winner a "Winner's Number" and return that list
to Sound with a "Winner's Questionnaire" that must be completed by the
winner in order to facilitate the fulfillment process.

3. Sound will send each winner a congratulatory letter and winner's
questionnaire, providing instructions as to how to claim the trip
element of the prize. USF will provide Sound with specific copy
points that must be incorporated into the congratulatory letter.

4. USF winner's will then send the questionnaire to the Universal City
Travel Company, who will make all air, hotel, and Studio Pass
arrangements for the winner.

<PAGE>

WARNER BROS.
TELEVISION
Sarah Noddings 300 Television Plaza
Vice President Burbank, CA 915-1372
Television Legal Affairs (818) 954-7159

January 24, 1996

VIA FAX #805-495-0016

Sound Source Interactive
Attn: Eugene L. Code
Director, Licensing & Contracts Management
2985 E. Hillcrest Drive, Suite A
Westlake Village, California 91362

Re: Your Letter Dated December 28, 1995 to Warner Bros. Consumer
Products, Attn: Joel Kaplan/Ref: Babylon 5 Contest ("Letter")

Dear Eugene:

Joel forwarded to me for review the above-referenced Letter. This letter
confirms that set forth in your Letter subject to the following clarifications.
For purposes of convenience, the clarifications set forth below will follow the
paragraph headings of the Letter.

THE SWEEPSTAKES: Sound Source's portrayal of Babylon 5 cast members and aliens
in its advertisements is subject to the following: receiving approval of such
use and likenesses, without additional consideration therefor, from such
individuals. In this regard, you will be forwarding shortly to Ken Parks such
information for approval by said individuals. If there are possible variations
regarding said likenesses and the use thereof for the advertisements, then
please forward all at the same time so that approval may be obtained in one
step. Only that approved can be used.

Furthermore, with respect to winning a part as a "non-speaking alien",
certain conditions must be specified. The producer of Babylon 5, John Copeland,
has informed me that a "non-speaking alien" can not have facial or long hair due
to make-up requirements. Therefore, if the winner is not willing to shave
facial hair or cut "long hair", then the winner can not participate as a "non-
speaking alien". In addition, there are no alien outfits that can accommodate a
very large person. If the winner is such a person, then he or she can not be a
"non-speaking alien". The rules and advertisements must make the above
conditions clear (in some reasonable fashion) as well as the fact that "winning
a part" does not mean that the winner will actually appear in the final cut or
an episode when it is broadcast. Such must be subject to

<PAGE>

Sound Source Interactive
January 24, 1996
Page 2

producer's requirements and discretion. Accordingly, in the rules and in the
advertisements there should be some disclaimer to the following effect: "The
Winner will have the opportunity to visit the Babylon 5 set and the "chance" to
participate in a Babylon 5 episode as a "non-speaking alien extra" subject to
producers' requirements and discretion." In addition, the rules should also
provide that such opportunity is subject to the winner being available to visit
the Babylon 5 set when the series is in production and an appropriate extra part
is available. All good faith efforts will be made to provide such extra part
for the winner subject to the above understanding.

PRIZES: Again the language "given a non-speaking part as an alien
in a Babylon 5 episode" is subject to the above understanding.

RESPONSIBILITIES

SOUND SOURCE INTERACTIVE:

1. The rules should be specific re: (i) coach "air fare" (ii) lodging
(i.e., two nights, single room/double occupancy), and (iii) the $200 cash
(i.e., it is to cover all other expenses for the winner and guest including
food). Sound Source has agreed to cover the cost of dinner up to $200.00
for two (i.e., for the winner and quest) at a well known California
restaurant.

5. The indemnification should also include the copyright owner of the
programs, characters, etc. which is PTN Consortium, a division of Time
Warner Entertainment Co., L.P., as well as all other affiliated entities.
Also, "all liability" should include attorneys' fees. Please send us a
certificate of insurance to such effect. Skycastle should also indemnify
all entities in connection with the administration of the Sweepstakes.

9. Warner Bros. and Warner Bros. Interactive Entertainment should
approve all materials, not just print advertisements, if Babylon 5, the
characters therefrom or any other trademark names or logos of Time Warner
Entertainment Co., L.P., and/or its affiliated entities, appear.

Additional paragraphs: Sound Source also will provide an additional means
by which one may obtain information on how to enter the Sweepstakes: at
point of purchase locations where Sound Source's software will be sold
(e.g., persons interested in entering will be able to tear off a post card
type form and will be able to read directions on how to enter the
Sweepstakes (e.g., watch Babylon 5 or access the Website

<PAGE>

Sound Source Interactive
January 24, 1996
Page 3

referenced below) but no alien (scrambled or unscrambled) will be shown.

Sound Source also will provide and administer The Sound Source Website
referenced below.

WARNER BROS.:

1. Again, this is subject to obtaining the necessary approvals.

2. The transportation Warner Bros. is to provide is between the hotel and
Babylon 5 set.

3. At the Website location address (i.e., the Babylon 5 Website), which
may be accessed on the worldwide web and on America online, persons will be
able to see the scrambled alien each week of the Sweepstakes and will be
able to electronically enter the Sweepstakes by following directions found
at the Website. Such persons also will find information at the Babylon 5
Website on how to access The Sound Source Website where additional
information on the software product prize can be found. Warner Bros. will
convey or otherwise make available to Skycastle all electronic entries
within seventy-two (72) hours following the end of the last day by which
such entries must be received.

Last Sentence: With respect to the "additional 1175 units", it is
acknowledged that the total royalty free units are 2375.

BABYLONIAN PRODUCTIONS:

1. Again, the part is subject to that stated above. Probably the episode
will be one produced for the 1996/97 season.

With respect to Exhibit A, the language "appear in an episode of Babylon 5
as a (non-speaking) alien" is subject to the above and language clarifying same
should so appear. With respect to the "Legal Attributions", the Time Warner
Entertainment Co., L.P. copyright should be 1996 and I imagine the same holds
true for the Sound Source Interactive copyright.

Warner Bros. should approve all Sweepstakes rules before they are issued in
formal form as well as all advertisements which reference the Sweepstakes to
make sure that nothing contained therein is inconsistent with the above
understanding.

<PAGE>

Sound Source Interactive
January 24, 1996
Page 4

Finally, all entities involved in the Sweepstakes must comply with all laws
applicable thereto (e.g., it may be necessary for Sound Source to deposit money
into an escrow account equal to the total value of the prizes to be provided by
it. For example, if the value of the Grand Prize to be awarded by Sound Source
is $2,000 (two round trip airfares, etc.) and the 2,000 software products is
$30,000, then Sound Source may have to place into escrow the sum of $32,000.
Also, print advertisements, television promos, etc. should contain the minimum
requisite language to comply with sweepstakes rules (e.g., no consideration
necessary, etc.).

The parties hereto may execute a more formal agreement incorporating the
terms of this letter and the Letter as well as those items customarily included
in a deal of this nature. Pending the finalization and execution of such formal
document, this letter and the Letter shall constitute a binding agreement
between the parties concerning the subject matter hereof.

If the following is your understanding of the agreement, please confirm by
signing below.

We look forward to a very exciting Sweepstakes and worthwhile undertaking.

With best regards,

/s/ Sarah Noddings

Sarah Noddings

SN/syl
cc: Robin Altman
John Copeland
Joel Kaplan
Jim Moloshok
Gary Simon
David Warshawsky

AGREED TO AND ACCEPTED:

PTN Consortium, a Division of Time Sound Source Interactive
Warner Entertainment Co., L.P.

<PAGE>

Sound Source Interactive
January 24, 1996
Page 5

By: /s/ [Illegible] By: /s/ Vincent J. Bitetti
----------------------- --------------------
Title: Sr. V.P. Programs Title: CEO
-------------------- -----------------

Acknowledgement by the following entities to
the extent terms of the agreement apply to them:

Babylonian Productions, Inc.

By: /s/ Douglas Netter
-------------------------
Title: President
----------------------

Warner Bros. Interactive Entertainment, a
Division of Time Warner Entertainment Co., L.P.

By: /s/ [Illegible]
-------------------------
Title: V.P. Legal Affairs
----------------------

Warner Bros. Domestic Television Distribution,
a Division of Time Warner Entertainment Co., L.P.

By: /s/ [Illegible]
-------------------------
Title: Dir., Mktg. & Adver.
----------------------

<PAGE>

REGISTRATION PROCEDURES AGREEMENT

This REGISTRATION PROCEDURES AGREEMENT (this "Agreement") is made as of May
6, 1996, by and between Sound Source Interactive, Inc., a Delaware corporation
(the "Company"), and ________________________ (the "Selling Security Holder").

W I T N E S S E T H:

WHEREAS, the Selling Security Holder is the holder of the number of shares
of issued and outstanding common stock, par value $.001 per share (the "Common
Stock"), of the Company, set forth below the Selling Security Holder's signature
on the signature page of this Agreement (such shares of Common Stock owned by
the Selling Security Holder are referred to herein as the "Shares"); and

WHEREAS, the Selling Security Holder is the holder of the number of
warrants to purchase shares of issued and outstanding Common Stock of the
Company set forth below the Selling Security Holder's signature on the signature
page of this Agreement (such warrants to purchase shares of Common Stock owned
by the Selling Security Holder are referred to herein as the "Redeemable
Warrants"); and

WHEREAS, the Shares and Redeemable Warrants are collectively referred to
herein as the "Securities"; and

WHEREAS, the Selling Security Holder acquired the Securities in connection
with a private placement of the Company's Securities pursuant to a subscription
agreement or some definitive agreement(s) (the "Acquisition Agreement"); and

WHEREAS, in fulfillment of its obligations pursuant to the Acquisition
Agreement to register the Securities under the Act (as hereinafter defined), the
Company has filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 (No. 33-80827) (the "Registration Statement") pursuant to
which the Securities may be registered under the Act; and

WHEREAS, the Selling Security Holder wishes to have the Securities included
in the Registration Statement.

NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and for other valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
mutually agree as set forth below.

<PAGE>

1. CONFIRMATION. The Selling Security Holder hereby confirms, adopts and
ratifies all obligations of the Selling Security Holder as a "Holder" under the
terms of the Acquisition Agreement governing registration rights.

2. COVENANTS. The Selling Security Holder hereby agrees to keep, perform
and fully discharge the covenants and agreements set forth below.

a. INFORMATION. The Selling Security Holder shall furnish to the
Company such information regarding the Selling Security Holder the Securities
held by the Selling Security Holder, and the intended method of disposition of
such Securities as the Company shall reasonably request and as shall be required
in connection with the registration of the Securities under the Act pursuant to
the Registration Statement.

b. SUSPENSION OF DISPOSITION OF THE SECURITIES. Upon receipt of any
notice from the Company of the need for a supplement or amendment to any
prospectus pertaining to the Securities included in the Registration Statement,
the Selling Security Holder will forthwith discontinue disposition of the
Securities until such Selling Security Holder's receipt of copies of a
supplemented or amended prospectus, or until the Selling Security Holder is
advised in writing by the Company that the use of the prospectus may be resumed,
and has received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, and, if so directed by the Company,
the Selling Security Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Selling
Security Holder's possession, of the prospectus covering the Securities current
at the time of receipt of such notice.

c. EXPENSES. All expenses incurred in connection with the offering
of the Securities pursuant to the Registration Statement will be borne by the
Company; provided, however, that the Selling Security Holder shall bear all of
its, his or her own costs, including the costs of its, her or his counsel and
shall pay any commissions and discounts pertaining to the sale of the Securities
pursuant to the Registration Statement.

d. EXECUTION OF DOCUMENTS. The Selling Security Holder agrees to
complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required by the Representative and
the Company in connection with the Offering.

e. INDEMNIFICATION. (i) The Selling Security Holder hereby agrees
to the full extent permitted by law to indemnify

-2-

<PAGE>

and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, each person, if any, who controls the
Company within the meaning of the Act, and any underwriter for the Company
(within the meaning of the Act), against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer, controlling person or underwriter may become subject, under the Act and
applicable state securities laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by the Selling Security Holder expressly for use in connection with the
offering. The Selling Security Holder also agrees to reimburse any legal or
other expenses reasonably incurred by the Company or any such director, officer,
controlling person or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action.

(ii) Promptly after receipt by the Company of notice of the
commencement of any action or knowledge of a claim that would, if asserted, give
rise to a claim for indemnity hereunder, the Company will, if a claim in respect
thereof is to be made against the Selling Security Holder under this Section or
under the Acquisition Agreement, notify the Selling Security Holder in writing
of the commencement thereof or knowledge thereof and the Selling Security
Holder, along with the other selling stockholders under the offering, shall have
the right to participate in, and, to the extent the Company so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify the Selling Security Holder promptly of the commencement of any such
action or of the knowledge of any such claim, if prejudicial to its, his or her
ability to defend such action, shall relieve the Selling Security Holder of any
liability to the Company under this Section, but the omission so to notify the
Selling Security Holder will not relieve him of any liability that he may have
to the Company otherwise than under this Section.

-3-

<PAGE>

(iii) For purposes hereof, "Act" means the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect from time to time; and the terms "register,"
"registered" and "registration" refer to a registration effective by preparing
and filing a registration statement in compliance with the Act and the
declaration or ordering of effectiveness of such registration statement by the
Securities and Exchange Commission.

3. MISCELLANEOUS.

a. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only with
the written consent of (i) both parties in the case of an amendment, and (ii)
the party waiving any term or condition hereof in the case of waiver. Any
amendment or waiver effected in accordance with this Section shall be binding
only in the specific instance for the specific purpose for which given.

b. NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified by hand or professional courier service
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other party.

c. HEADINGS. The headings in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

d. ENTIRE AGREEMENT. This Agreement supersedes any and all oral or
written agreements and understandings heretofore made relating to the subject
matter hereof and contains the entire agreement of the parties relating to the
subject matter hereof.

e. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

f. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

-4-

<PAGE>

g. AMENDMENTS. This Agreement may not be changed, modified or
rescinded, except in writing by all of the parties hereto.

h. SUCCESSORS AND ASSIGNS. This Agreement and the Acquisition
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective heirs, successors and assigns. The successors and assigns
of the Selling Security Holder shall have only the rights and shall be subject
to all obligations under this Agreement and the Acquisition Agreement as if they
had been the original Selling Security Holder and all provisions of this
Agreement and the Acquisition Agreement applicable to the Restricted Stock in
the hands of the original Selling Security Holder shall continue to apply to
such Securities notwithstanding any transfer or assignment thereof.

i. SURVIVAL. All representations, warranties, covenants and
agreements contained in this Agreement shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any party
hereto.

j. SEVERABILITY. If any provision of this Agreement shall be held
invalid, unenforceable or illegal, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and such provisions shall be enforced to the fullest extent possible in
accordance with the mutual intent of the parties hereto.

-5-

<PAGE>

IN WITNESS WHEREOF, and acknowledging that they have entered into a legally
binding obligation, the parties have each caused this Agreement to be duly
executed as of the day and year first above written.

SELLING SECURITY HOLDER: (signature)
------------------------------------------------------
(name)
------------------------------------------------------

No. of Shares:
------------------------------------------------------
No. of Redeemable Warrants:
------------------------------------------------------

Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------

COMPANY: SOUND SOURCE INTERACTIVE, INC.,
a Delaware corporation

------------------------------------------------------
By: Eric H. Winston
Its: President & Chief Operating Officer

Address: 2985 E. Hillcrest Drive
Suite A
Westlake Village, CA 91362

-6-

<PAGE>

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
as of April 30, 1996 (the "Effective Date"), by and between ASSI, Inc., a Nevada
corporation ("ASSI"), and Sound Source Interactive, Inc., a Delaware corporation
(the "Company").

R E C I T A L S

A. The Company is a relatively new enterprise which is engaged
primarily in developing, publishing and marketing educational interactive
computer software for children.

B. ASSI has significant expertise in start-up companies such as the
Company.

C. Since December 1995, ASSI has provided consulting services to the
Company. The Company wishes to engage ASSI to continue to provide such services
and ASSI wishes to accept such engagement, all on the terms and conditions set
forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1. CONSULTING AGREEMENT.

1.1 TERM. From the Effective Date until November 30, 1996 (the
"Term"), ASSI shall provide such consulting services to the Company as the
Company may from time to time reasonably request.

1.2 SCOPE OF CONSULTING SERVICES. During the Term ASSI shall,
from time to time as reasonably requested by the Company, make its personnel
with the appropriate expertise available by telephone or in person to render
such advice, consultation and services as may be requested by the Company. The
Company and ASSI acknowledge that the services to be provided by ASSI pursuant
to this Agreement are of an advisory nature only and shall not involve or
require ASSI to be responsible in any way for the management of the Company or
its day-to-day operations. The Company agrees that any advice or information
provided by ASSI under this Agreement will be independently evaluated by the
Company's officers, directors and other outside consultants and that ASSI shall
in no way be liable to the Company or third parties for any actions taken by the
Company based in whole or in part on such advice or information, other than for
advice provided in writing with a willful intent to cause damage to the Company.
ASSI makes no representations whatsoever to the Company as to the services or
advice to be provided by it under this Agreement.

<PAGE>

2. COMPENSATION. In return for ASSI's past services to the Company
and its consulting services to be rendered to the Company under this Agreement,
the Company shall pay to ASSI the following:

(a) WARRANT. Upon the execution of this Agreement, the Company
shall issue to ASSI a warrant to purchase an aggregate of two million
(2,000,000) shares of Common Stock of the Company at $4.40 per share, which
warrant shall be delivered in the form and subject to the terms and provisions
of Exhibit A attached hereto and incorporated herein by this reference (the
"Warrant"). The Warrant shall be deemed fully earned upon execution of this
Agreement. Upon issuance, ASSI shall acknowledge, accept and agree to be bound
by the terms of the Warrant by executing such Warrant where indicated.

(b) REIMBURSEMENT OF EXPENSES. In addition, within 30 days
after presentation of its demand for payment pursuant to this Section 2(b), ASSI
shall be entitled to receive reimbursement of all reasonable and necessary
expenses incurred by ASSI in performing ASSI's services hereunder, including all
reasonable travel and living expenses of ASSI's personnel while away from home
or business at the request of, or in the service of, the Company, such expenses
not to exceed $25,000 in the aggregate. Expenses covered by this Section 2(a)
shall not include fees and expenses paid pursuant to Section 6(f) of this
Agreement.

3. INDEPENDENT CONTRACTOR. ASSI shall, at all times, render
services pursuant to this Agreement as an independent contractor and not as an
employee, agent or servant of the Company, nor shall ASSI be deemed, by reason
of this Agreement or the services performed pursuant hereto, to be an employee
of the Company for purposes of withholding employee payroll taxes,
contributions, pensions or otherwise.

4. TERMINATION. The Company shall have the right to terminate this
Agreement immediately upon written notice to ASSI at any time, provided that the
obligations of the Company, Vincent Bitetti and Eric Winston under Sections 2
and 5 hereof shall survive for the full term provided in such Sections or in the
documents to which such Sections refer.

5. OTHER AGREEMENTS.

5.1 BOARD REPRESENTATION AND OBSERVER RIGHTS. The Company
agrees to appoint one (1) individual designated by ASSI to the Board of
Directors of the Company, with this obligation to be effective upon completion
of the Company's pending initial public offering. The Company agrees to
indemnify and hold harmless such director to the maximum extent permitted by law
in connection with such individual's services as director. Such director will
be entitled to directors' fees equal to $15,000 per year and shall be granted
annual options under the Company's 1995 Stock Option Plan to purchase no less
than 10,000 shares of Common Stock of the Company, with the first grant
effective as of the date of appointment of such director and at an exercise
price of $4.00 per share. In addition, during the term of this Agreement, one
individual designated by ASSI shall have the right to receive all notices of and
attend as an observer each meeting of the Board of Directors.

<PAGE>

5.2 VOTING AGREEMENT. The Company agrees that as a further
inducement to ASSI to enter into this Agreement, the Company, Vincent Bitetti
and Eric Winston shall enter into a Voting Agreement with ASSI in the form of
Exhibit B attached hereto.

5.3 INDEMNIFICATION OF ASSI. The Company agrees to indemnify
and hold harmless ASSI, and its successors and assigns, to the maximum extent
permitted by law, with respect to any and all claims, losses, damages,
liabilities and expenses, which ASSI is or becomes legally obligated to pay as a
result of any threatened, pending or completed action, claim, suit,
investigation or proceeding ("Proceeding") by reason of the fact that ASSI is or
was a consultant to the Company or otherwise resulting from or in connection
with this Agreement, except to the extent such claims, etc., are based on advice
provided in writing by ASSI with a willful intent to cause damage to the
Company. Costs and expenses (including attorneys' fees) incurred by ASSI in
defending or investigating any Proceeding shall be paid by the Company from time
to time within 30 days of demand by ASSI in advance of the final disposition of
such matter, if ASSI shall undertake in writing to repay any such advances in
the event that it is ultimately determined that ASSI is not entitled to
indemnification under the terms of this Agreement.

5.4 OTHER WARRANTS. ASSI owns other warrants to purchase shares
of Common Stock of the Company ("Other Warrants"). In the event of a public
offering by the Company involving the sale of warrants by the Company ("Public
Warrants"), these Other Warrants are convertible into an equivalent number of
Public Warrants with an exercise price and other terms identical to those of the
Public Warrants. As a further inducement to ASSI to enter into this Agreement,
the Company hereby amends the Other Warrants to provide that upon such a
conversion of the Other Warrants into Public Warrants, for so long as ASSI or
any Affiliate (as defined below) of ASSI is the record and beneficial owner of
any such Public Warrant (i) any provisions of the Public Warrant granting the
Company the right to call the Public Warrant for redemption shall not apply to
that Public Warrant, (ii) the registration rights set forth in the Other
Warrants shall remain in effect with respect to that Public Warrant, and (iii)
the Public Warrant shall be exercisable at any time on or after September 1,
1996. For purposes of this Section 5.4, the term "Affiliate" means ASSI or any
person or entity controlling, controlled by or under common control with ASSI.
For purposes hereof, a person shall be deemed to have "control" of an entity if
such person is the owner of a majority voting interest in such entity.

6. MISCELLANEOUS.

(a) ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, administrators,
executors, successors and assigns.

(b) DISPUTE RESOLUTION. Any controversy, dispute, or claim
arising out of or relating to the interpretation, performance or breach of this
agreement shall be finally determined, at the request of any party, by binding
arbitration conducted in Los Angeles County, California in accordance with the
then existing rules for commercial arbitration of the American

<PAGE>

Arbitration Association. The parties agree that reasonable discovery shall be
allowed in arbitration. Judgment upon any award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall award
to the prevailing party, in addition to the costs of the proceeding, that
party's reasonable attorneys' fees.

(c) ATTORNEYS' FEES. In the event of any controversy, claim or
dispute between the parties hereto arising out of or relating to this Agreement,
the prevailing party shall be entitled to recover from the non-prevailing party
reasonable expenses, including without limitation reasonable attorneys' fees and
reasonable accountants' fees.

(d) NOTICE. All notices under this Agreement shall be effective
upon: (i) personal delivery to the recipient; or (ii) telecopier transmission
so long as the original notice is deposited in overnight mail (Express Mail) or
overnight courier service (e.g., Airborne, Federal Express, etc.); or (iii)
three (3) business days after deposit in the United States mail, registered,
certified, postage fully prepaid and addressed to the respective parties as
follows:

To ASSI: ASSI, Inc.
Two ADP Plaza
2000 Crow Canyon Place, Suite 420
San Ramon, CA 94583
Attn: President
Telecopier: (510) 277-3962

With a copy to: Hewitt & McGuire
19900 MacArthur Boulevard, Suite 1050
Irvine, CA 92715
Attn: William L. Twomey
Telecopier: (714) 798-0511

To the Company: Sound Source Interactive, Inc.
2985 E. Hillcrest Drive, Suite A
Westlake Village, CA 91362
Attn: Vincent J. Bitetti
Telecopier: (805) 495-0016

With a copy to: McDermott, Will & Emery
1850 K Street, N.W., Suite 500
Washington, DC 20006
Attn: Robert Kalik
Telecopier: (202) 778-8087

or to such other address as the parties may from time to time designate in
writing.

<PAGE>

(e) EXPENSES. The Company agrees to pay reasonable fees and
expenses of counsel incurred by ASSI in connection with the negotiation and
documentation of the transactions contemplated by this Agreement up to a maximum
of $12,500.

(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

(g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties.

(h) WAIVERS. No waiver of compliance with any provision of this
Agreement shall be binding unless executed in writing by the party making the
waiver. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver.

(i) AMENDMENTS. Any amendment to this Agreement shall be in
writing and signed by the parties hereto.

(j) INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement.

(k) TITLES. The titles, captions or headings of the Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.

(l) MULTIPLE COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.

"ASSI" "Company"

ASSI, INC., SOUND SOURCE INTERACTIVE, INC.,
a Nevada corporation a Delaware corporation

By: /s/ Louis Habash By: /s/ Vincent J. Bitetti
-------------------------------- --------------------------------
Name: Louis Habash Name: Vincent J. Bitetti
------------------------------ ------------------------------
Its: President Its: CEO
------------------------------- -------------------------------

<PAGE>
EXHIBIT A

WARRANT

[See Exhibit 4.4]

<PAGE>

EXHIBIT B

STOCKHOLDER VOTING AGREEMENT

[See Exhibit 9.1]

<PAGE>

SHARE PURCHASE AGREEMENT

This Share Purchase Agreement is dated 4/3/95 and is intended to
memorialize an oral agreement made between Vincent Bitetti ("Bitetti") and Eric
Winston ("Winston").

SECTION 1. BACKGROUND. The parties agree as to the following facts.
Bitetti currently owns common stock of Sound Source Interactive, Inc. ("SSI");
formerly known as Sound Source Unlimited ("SSU"). Winston and Bitetti have
agreed that Bitetti would provide Winston an option to purchase shares for a
consideration of $2.00 per share; the right to purchase 100,000 shares of common
stock owned by Bitetti. Winston is to deliver to Bitetti a promissory note with
a term to be determined (i.e. 35 years) to exercise option to purchase shares
from Bitetti.

SECTION 2. TRANSFER. Bitetti hereby provides Winston the option to purchase
100,000 (post reversal) shares of Company Common Stock owned by Bitetti. Such
option to purchase shall take place immediately upon presentation by Winston of
an executed promissory note.

SECTION 3. RIGHT OF FIRST OFFERING AND PROXY. Winston hereby grants to
Bitetti a right of first offer and proxy as set forth in a separate agreement.

SECTION 4. TAX MATTERS. Bitetti makes no representations as to
the tax effects of this agreement to Winston and Winston acknowledges that he
must consult his own tax advisors to determine the tax effects hereof.

SECTION 5. DILUTION. Winston acknowledges that the Company may issue
additional shares to raise capital, to comply with stock options or warrants, or
for other corporate purposes as determined by the Company's Board of Directors.
Winston agrees that the number of shares he is receiving this right to purchase,
will not be effected by such issuance's, nor any change in the number of shares
held by Bitetti.

SECTION 6. MISCELLANEOUS. The parties agree to keep the terms of this
agreement in confidence except as required by law. No waiver of any breach or
default of this agreement shall be considered to be a waiver of any other breach
or default of this Agreement. Should any litigation be commenced for such a
breach, the party prevailing in such litigation shall be entitled, in addition
to such other relief that may be granted, to a reasonable sum as and for their
or his or its attorney's fees and costs in such litigation. Every provision of
this Agreement is intended to be severable. If any term or provision hereof is
determined to be illegal or invalid for any reason whatsoever, said illegality
or invalidity shall not affect the validity of the remainder of this Agreement.
The interpretation of this Agreement shall be governed

<PAGE>

by the local law of the State of California, and the parties hereby consent to
the jurisdiction of Ventura County, California courts. This Agreement contains
the entire agreement between the parties hereto with respect to the subject
matter thereof. This Agreement shall inure to the benefit of the parties, its
successors and assigns.

/s/ Eric Winston /s/ Vincent J. Bitetti
- ------------------------- -------------------------
Eric Winston Vincent Bitetti

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Sound Source Interactive, Inc.

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.

/s/ Corbin & Wertz

CORBIN & WERTZ

Irvine, California
May 3, 1996