U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
XXX Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997.
Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0-28604
SOUND SOURCE INTERACTIVE, INC.
- ------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 95-426046
-------- ---------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
26115 MUREAU ROAD, SUITE B, CALABASAS, CALIFORNIA 91302
- -------------------------------------------------------
(Address of Principal Executive Offices)
(818) 878-0505
- --------------
(Issuer's Telephone Number, Including Area Code)
2985 E. HILLCREST DRIVE, SUITE A, WESTLAKE VILLAGE, CALIFORNIA 91362
- --------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be file by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XXX No ___
The number of shares outstanding of the issuer's common stock as of April
25, 1996 was 4,409,099
Transitional Small Business Disclosure Format (check one):
Yes ___ No XXX
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SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1997 AND 1996
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet - March 31, 1997 3
Condensed Consolidated Statements of Operations - Three month
periods ended March 31, 1997 and 1996, and nine month
periods ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows - Nine month 6
periods ended March 31, 1997 and 1996
Notes to the Condensed Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Outlook 13
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
Financial Data Schedule 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 959,844
Accounts receivable - net 1,258,497
Inventory - net 443,530
Prepaid royalties 1,539,052
Prepaid expenses 132,495
------------
Total current assets 4,333,418
Property and equipment - net 443,010
------------
TOTAL ASSETS $ 4,776,428
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 710,027
Accrued compensation and related taxes 204,418
Accrued royalties 1,400,781
Current portion of capital lease obligations 15,842
Deferred revenues 16,655
------------
Total current liabilities 2,347,723
------------
Capital lease obligations, net of current portion 5,024
------------
Accrued compensation, net of current portion 88,908
------------
Stockholder's Equity:
Common stock - $.001 par value, 20,000,000 shares
authorized, 4,409,099 shares issued and outstanding 4,409
Warrants 1,104,926
Additional paid-in capital 13,359,503
Accumulated deficit (12,134,065)
------------
Total stockholders' equity 2,334,773
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,776,428
============
See notes to condensed consolidated financial statements.
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SOUND SOURCE INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1997 1996
---- ----
Net revenues $ 929,271 $ 807,958
Cost of sales 470,878 432,595
----------- -----------
Gross profit 458,393 375,363
----------- -----------
Operating costs and expenses:
Marketing and sales 262,122 349,437
Compensation in connection with
common stock and common stock
options issued for services
rendered 89,304
Other general and administrative 480,692 607,772
Research and development 244,466 222,900
----------- -----------
Total operating costs and expenses 1,076,584 1,180,109
----------- -----------
Operating loss (618,191) (804,746)
Other income (expense) 12,442 (420,464)
----------- -----------
Loss before provision for income taxes (605,749) (1,225,210)
Provision for income taxes (870) 0
----------- -----------
Net loss $ (604,879) $(1,225,210)
=========== ===========
Net loss per common share $ (0.14) $ (0.65)
=========== ===========
Weighted average number of common
shares outstanding 4,403,040 1,877,108
=========== ===========
See notes to condensed consolidated financial statements.
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SOUND SOURCE INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1997 1996
---- ----
Net revenues $ 3,359,517 $ 1,928,649
Cost of sales 1,423,880 1,115,105
----------- -----------
Gross profit 1,935,637 813,544
----------- -----------
Operating costs and expenses:
Marketing and sales 954,875 922,215
Compensation in connection with
common stock and common stock
options issued for services
rendered 267,911
Other general and administrative 1,495,546 1,816,610
Research and development 813,339 489,053
----------- -----------
Total operating costs and expenses 3,531,671 3,227,878
----------- -----------
Operating loss (1,596,034) (2,414,334)
Other income (expense) 53,579 (820,048)
----------- -----------
Loss before provision for income taxes (1,542,455) (3,234,382)
Provision for income taxes 4,060 1,200
----------- -----------
Net loss $(1,546,515) $(3,235,582)
=========== ===========
Net loss per common share $ (0.36) $ (1.76)
=========== ===========
Weighted average number of common
shares outstanding 4,346,100 1,842,638
=========== ===========
See notes to condensed consolidated financial statements.
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SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,546,515) $(3,235,582)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 74,454 565,980
Allowance for sales returns 144,420 998,148
Allowance for bad debt reserves (64,250)
Allowance for inventories
Common stock and common stock options
issued for services rendered 267,911
Changes in operating assets and liabilities:
Accounts receivable (490,013) (1,581,862)
Inventories (180,873) (165,606)
Prepaid royalties (910,376) (232,943)
Prepaid expenses and other (103,732) (32,121)
Accounts payable and accrued expenses (302,618) 44,858
Accrued compensation and related taxes 218,427 (154,049)
Accrued interest (367,695) 242,520
Commissions payable (159,593)
Accrued royalties 857,977 36,104
Deferred revenues (67,704) 18,955
----------- -----------
Net cash used by operating activities (2,406,337) (3,719,441)
----------- -----------
Cash flows from investing activities-
Purchases of property and equipment (340,397) (91,579)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 7,969,618
Proceeds from issuance of warrant 341,575 263,350
Repayment of notes payable (4,987,500)
Issuance of notes payable 4,987,500
Repayment of notes payable to officer (13,500)
Deferred offering costs 620,904 (146,890)
Deferred financing costs (993,600)
Payments on capital lease obligations (20,004) (20,985)
Repayment of short term advance (400,000)
----------- -----------
Net cash provided by financing activities 3,524,593 4,075,875
----------- -----------
Net change in cash and cash equivalents 777,859 264,855
Cash and cash equivalents, beginning of period 181,985 213,730
----------- -----------
Cash and cash equivalents, end of period $ 959,844 $ 478,585
=========== ===========
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SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
1997 1996
---- ----
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $382,970 $15,279
======== =======
Income taxes $ 4,059 $ 1,200
======== =======
Supplemental disclosure of noncash investing and financing activities:
During the nine-month period ended March 31, 1996, the Company purchased
property and equipment valued at $38,471 through the issuance of capital leases.
During the nine-month period ended March 31, 1997, the Company issued 2,016,657
warrants in connection with the conversion of a note payable to related party in
the amount of $500,000 and accrued interest thereon in the amount of $4,164.
See notes to condensed consolidated financial statements.
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SOUND SOURCE INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. The unaudited condensed consolidated financial
statements include the accounts of Sound Source Interactive, Inc. and its
wholly-owned subsidiary (collectively referred to as the Company). The operating
results for interim periods are unaudited and are not necessarily an indication
of the results to be expected for the full fiscal year. In the opinion of
management, the results of operations as reported for the interim period reflect
all adjustments which are necessary for a fair presentation of operating
results.
Note B - Initial Public Offering (IPO)
On July 1, 1996, the Company issued 2,400,000 shares of common stock at $4.00
per share and 1,200,000 redeemable warrants at $.25 per warrant. Net proceeds
totalled $7,973,305, net of offering costs of $1,926,695. On August 14, 1996,
the underwriters exercised a portion of their "overallotment" option, pursuant
to the underwriting agreement, which resulted in the Company issuing an
additional 160,000 shares of common stock at $4.00 per share and 171,775
redeemable warrants at $.25 per warrant. Net proceeds totalled $594,161, net of
offering costs of $88,783.
Note C - Notes Payable and Notes Payable to Related Party
On July 7, 1996, in connection with the IPO, the Company repaid notes payable
issued during fiscal 1996 aggregating $4,987,500 plus accrued interest of
$373,753.
On July 7, 1996, in connection with the IPO, the Company issued 2,016,657
redeemable warrants in connection with the conversion of a note payable to
related party of $500,000, plus accrued interest of $4,164.
Note D - Accounts Receivable and Short Term Advance
In June, 1995, the Company entered into a sales and distribution agreement with
a subsidiary of Acclaim Entertainment, Inc. (Acclaim). 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. Effective April 1, 1996, such
agreement was terminated.
In July, 1996, Acclaim submitted certain information to the Company together
with payment of $256,067 and a promissory note with a principal amount of
$256,067, maturing August 26, 1996 and bearing interest at 10% per annum. Such
represented the balances of all amounts due to the Company under the
distribution agreement, as determined by Acclaim. Included in the information
provided by Acclaim, it was noted that the Company was not obligated to repay a
short-term advance totaling $400,000 previously made by Acclaim to the Company.
On August 28, 1996, the Company received $256,067 plus accrued interest of
$2,175 pursuant to the terms of the promissory note. As of December 31, 1996,
the Company has recorded additional amounts which it believes are due from
Acclaim. Such amounts are fully reserved, due to disputes and discrepancies in
the information as reported by Acclaim, (see Part II, Item 1 - Legal
Proceedings).
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As of March 31, 1997, $576,104 of the accounts receivable balance is due from
Simon & Schuster Interactive Distribution Services (SSIDS). SSIDS is the
consumer software distribution unit of Simon & Schuster, Inc., the publishing
operations of Viacom, Inc. Pursuant to a distribution agreement between the
Company and SSIDS, SSIDS will provide distribution, warehousing and order
fulfillment services for all of the Company's products throughout the United
States and Canada.
Note E - Cash and Cash Equivalents
The Company invests all excess cash in working capital asset management accounts
with Merrill Lynch and Company. All such amounts are 100% federally insured at
all times.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996
Net Sales. Net sales increased by 15.0 percent from $807,958 for the three
months ended March 31, 1996 to $929,271 for the three months ended March 31,
1997. This increase is primarily attributable to increased distribution by the
Company's North American distributor, Simon and Schuster Interactive
Distribution Services, Inc. (SSIDS), sales by the Company to its foreign
distributors, and other direct sales in North America. Sales to international
distributors for the three months ended March 31, 1997, were approximately
$194,544 as compared to minimal international sales during the same period in
1996. Sales to SSIDS for the three month period ended March 31, 1997, were
approximately $648,400. No sales during the comparable period in 1996 were to
SSIDS. During the three months ended March 31,1996, the Company recorded sales
to its former distributor, Acclaim Distribution, Inc. in the amount of $797,187.
During the three months ended March 31, 1997, net sales of one of the Company's
products was $322,518. The license on this product expired on March 31, 1997
with the sell-off period ending on June 30, 1997. During the three months ended
March 31, 1996, net sales of one of the Company's products was $298,597.
Cost of Sales. Cost of sales increased by 8.9 percent from $432,595 for the
three months ended March 31, 1996 to $470,878 for the three months ended March
31, 1997. However, cost of sales as a percentage of net sales decreased slightly
from 53.5 percent to 50.7 percent during these respective periods. The increase
in total cost of sales is due to the above noted 15.0 percent increase in net
sales partially offset by decreased write-downs of excess or slow moving
inventories. Gross margin for the three months ended March 31, 1997 was lower
than year-to-date as 39.9 percent of net revenues for the quarter compared to
19.2 percent year-to-date was derived from one product which has a higher cost
of sales due to higher packaging and royalty costs as well as continued
marketplace pressures to reduce sales prices.
Marketing and Sales. Marketing and sales expenses decreased by 25 percent from
$349,437 for the three months ended March 31, 1996 to $262,122 for the three
months ended March 31, 1997, and decreased as a percentage of net sales from
43.3 percent to 28.2 percent, respectively. The higher dollar amount for the
three months ended March 31, 1996 compared to the three months ended March 31,
1997 is due to the higher advertising expenses and charges by Acclaim
Distribution, Inc. for co-op advertising. The decrease as a percentage of sales
is due to the above noted 15.0 percent increase in net sales, particularly
international sales for which a smaller percentage of marketing effort is
required by the Company as many of those functions are primarily performed by
the individual distributors.
During the three months ended March 31, 1997 the Company did not launch any new
products or major promotions which resulted in lower marketing expenses. The
Company expects an increase in marketing expenses during the quarter ending June
30, 1997 due to launching of new products. Additionally, in March and April
1997, the Company hired additional sales and public relations personnel.
Research and Development. Research and development costs increased 9.7 percent
from $222,900 during the three months ended March 31, 1996 to $244,466 for the
three months ended March 31, 1997, and decreased as a percentage of net sales
from 27.6 percent to 26.3 percent, respectively. The increase in costs is
primarily associated with (i) the Company hiring programmers to bring product
development in-house, (ii) increased personnel and hardware/software costs
associated with the development of the Company's video games and other new
products, (iii) increased personnel as the Company increases the quantity of
products under development and (iv) the enhancement of its current product
lines. The Company anticipates that research and development costs will continue
to increase as the Company hires
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additional personnel to support an increase in the number of products under
development and to perform additional development activities internally.
General and Administrative. General and administrative expenses decreased by
20.9 percent from $607,772 during the three months ended March 31, 1996 to
$480,692 for the three months ended March 31, 1997, and decreased as a
percentage of sales from 75.2 percent to 51.7 percent, respectively. During the
three months ended March 31, 1997, the Company incurred additional expenses
associated with being a publicly held company, principally directors' and legal
fees including those fees associated with the Acclaim Distribution, Inc. law
suit (see Part II, Item 1- Legal Proceedings). During the three months ended
March 31, 1996, the Company recorded an allowance for doubtful accounts
receivable from its former distributor, Acclaim Distribution, Inc., in the
amount of $252,668.
Compensation in Connection with Common Stock and Common Stock Options Issued for
Services Rendered. Expenses recorded by the Company in connection with common
stock and common stock options issued for services rendered amounted to $89,304
for the three months ended March 31, 1997 and relate to the vesting of common
stock options issued during fiscal 1994. No such expense was recorded in the
three months ended March 31, 1996 as no vesting occurred during that quarter.
Nine Months Ended March 31, 1997 Compared to the Nine Months Ended March 31,
1996
Net Sales. Net sales increased by 74.2 percent from $1,928,649 for the nine
months ended March 31, 1996 to $3,359,517 for the nine months ended March 31,
1997. This increase is primarily attributable to increased distribution by the
Company's North American distributor, Simon and Schuster Interactive
Distribution Services, Inc. (SSIDS), sales by the Company to its foreign
distributors and other direct sales in North America. Sales to international
distributors for the nine months ended March 31, 1997 were approximately
$629,675, as compared to minimal international sales during the same period in
1996. Sales to SSIDS for the nine month period ended March 31, 1997, were
approximately $2,099,253. No sales during the comparable period in 1996 were to
SSIDS. During the nine months ended December 31, 1996, the Company recorded
sales to its former distributor, Acclaim Distribution, Inc., in the amount of
$1,617,839.
During the nine months ended March 31, 1997, net sales of one of the Company's
products was $645,457. The license on this product expired on March 31, 1997
with the sell-off period ending on June 30, 1997. During the nine months ended
March 31, 1997, net sales of one of the Company's products was $414,757.
Cost of Sales. Cost of sales increased by 27.7 percent from $1,115,105 for the
nine months ended March 31, 1996 to $1,423,880 for the nine months ended March
31, 1997. However, cost of sales as a percentage of net sales decreased from
57.8 percent to 42.4 percent during these respective periods. The increase in
total cost of sales is due to the above noted 74.2 percent increase in net
sales. The decrease in cost of sales as a percentage of revenues is primarily
due to changes in product mix to higher priced items and the sale of certain
end-of-life inventory which had been previously written-off as slow-moving.
During the nine months ended March 31, 1996, the Company recorded reserves
related to guaranteed royalties and slow-moving inventories which also resulted
in the higher percentage of cost of sales during the nine months ended March 31,
1996.
Marketing and Sales. Marketing and sales expenses increase by 3.5 percent from
$922,215 for the nine months ended March 31, 1996 to $954,875 for the nine
months ended March 31, 1997, and decreased as a percentage of net sales from
47.8 percent to 28.4 percent, respectively. The change in dollar amount is
principally related to increased marketing and sales efforts to support new
product releases during the nine months ended March 31, 1996 and increased
salaries due to additional sales personnel. The decrease as a percentage of
sales is due to the above noted 74.2 percent increase in net sales, particularly
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international sales for which a smaller percentage of marketing effort is
required by the Company as many of those functions are primarily performed by
the individual distributors.
Research and Development. Research and development costs increased 66.3 percent
from $489,053 for the nine months ended March 31, 1996 to $813,339 for the nine
months ended March 31, 1997, and decreased as a percentage of net sales from
25.4 percent to 24.2 percent, respectively. The increase in costs is primarily
associated with (i) the Company hiring programmers to bring all product
development in-house, (ii) increased personnel and hardware/software costs
associated with the development of the Company's video games and other new
products, (iii) increased personnel as the Company increases the quantity of
products under development and (iv) the enhancement of its current product
lines. The Company anticipates that research and development costs will continue
to increase as the Company hires additional personnel to support an increase in
the number of products under development and to perform additional development
activities internally.
General and Administrative. General and administrative expenses decreased by
17.7 percent from $1,816,610 during the nine months ended March 31, 1996 to
$1,495,546 for the nine months ended March 31, 1997, and decreased as a
percentage of net sales from 94.2 percent to 44.5 percent, respectively.
Included in general and administrative expenses for the nine months ended March
31, 1997 is a one-time charge of $329,644 related to the departure of the
Company's former president/chief operating officer. During the nine months ended
March 31, 1997, the Company incurred additional expenses associated with being a
publicly held company, principally directors' and legal fees; legal fees
associated with the Acclaim Distribution, Inc. law suit (see Part II, Item 1
Legal Proceedings); and printing, mailing and legal fees associated with the
Company's annual report and stockholder meeting. During the nine month period
ended March 31, 1996, the Company recorded an allowance for doubtful accounts
receivable from its former distributor, Acclaim Distribution, Inc., in the
amount of $662,478.
Compensation in Connection with Common Stock and Common Stock Options Issued for
Services Rendered. Expenses recorded by the Company in connection with common
stock and common stock options issued for services rendered amounted to $267,911
for the nine months ended March 31, 1997 and relate to the vesting of common
stock options issued during fiscal 1994. No such expense was recorded for the
nine months period ended March 31, 1996 as no vesting occurred during this
period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of $1,985,695 compared to
($5,373,974) at June 30, 1996, an increase of $7,359,669. During the nine months
ended March 31, 1997, cash and cash equivalents increased $777,859 directly as a
result of the Company's initial public offering on July 1, 1996. Accounts
receivable increased $345,593 due to increased sales of products to the
Company's North American distributor, it's international distributors and other
direct sales, partially off-set by the collection of $912,134 from Acclaim
Distribution, Inc.
During the nine months ended March 31, 1997, current liabilities decreased by
$5,649,241, from $7,996,964 at June 30, 1996 to $2,347,723 at March 31, 1997.
This decrease is primarily attributable to the repayment of notes payable, notes
payable to related party and a short-term advance, as well as accrued interest
thereon, aggregating $6,255,195 at June 30, 1996.
The Company has experienced a significant increase in growth during the last
nine month period, as compared to the same period of time in the prior fiscal
year. The Company continues to search for new opportunities to obtain licenses,
develop and sell products, and to purchase products that are at or near
completion of development. Additionally, the Company is seeking new and
innovative ways to deliver its products to consumers, some of which may require
large up-front cash resources. If the Company enters into agreements in such
business opportunities in the future, the Company may require additional
financing to fund its growth.
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OUTLOOK
The condensed consolidated financial statements contained in this report on Form
10-QSB that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future.
Forward-looking statements include, but are not limited to: statements regarding
the Company's sales and future revenues, statements regarding future research
and development costs and products, and statements regarding the future
flexibility of the Company's cash reserves. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
Among the factors that could cause actual results to differ materially are the
factors detailed below. Please consult the risk factors listed from time to time
in the Company's reports on Form 10-QSB and 10-KSB and Annual Reports to
Stockholders.
Sound Source Interactive, Inc. does not provide forecasts of potential future
financial performance. While management of the Company is optimistic about the
Company's long-term prospects, the following issues and uncertainties among
others, should be considered in evaluating its growth outlook.
Technological Developments. The personal computer software industry is
characterized by rapid technological advancement and the uncertainty of new
breakthroughs and developments in emerging areas such as the Internet.
Distribution Channels. Traditional retail distribution channels have been
experiencing a major restructuring and are fostering the development of
alternative distribution outlets.
Licensed Properties. There is a risk factor inherent in any venture involving
licensed properties. Not every licensed product is guaranteed success; only the
software consumer can ultimately determine the outcome. Additionally, there is
no guarantee that the Company can obtain future licenses of either the quality
or the quantity necessary for the Company to reach its goals.
Product Ship Schedules. Delays in product ship schedules can cause problems with
product fulfillment, revenue recognition and retailer orders.
Research and Development. Research and development costs can very significantly
depending on the products currently in development and potential products the
Company may choose to develop.
Consumer Preferences. Consumers ultimately determine the success of software
products. Not every product will be a hit and residual inventory may exist
depending on actual sell through.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, and in the future the Company and/or its officers and directors
may be involved in suits and actions incidental to the Company's business. The
Company does not believe that the resolution of any of the current suits or
actions will result in any material adverse effect on the financial condition or
operations of the Company.
On December 13, 1996, the Company filed suit in Superior Court for the County of
Los Angeles, California, against its former distributor, Acclaim Distribution,
Inc. seeking compensatory damages of at least $2,124,259 and consequential
damages of at least $20,000,000 arising out of Acclaim's alleged breach of its
exclusive distribution agreement with the Company and other related matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders on December 9, 1996, the following
proposals were voted upon:
Proposal 1 - Election of Directors
Nominees for Director Votes Cast For Votes Withheld
--------------------- -------------- --------------
Vincent J. Bitetti 4,026,124 23,750
Ulrich E. Gottschling 4,026,124 23,750
Ronald W. Hart 4,026,124 23,750
Mark A. James 4,026,124 23,750
Ernest T. Klinger 4,026,124 23,750
Proposal 2 - 1995 Stock Option Plan
Votes Cast For Votes Withheld Votes Against
------------------ -------------- -------------
1,748,822 88,786 40,490
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Indemnification Agreement, dated as of February 3, 1997, between the
Company and Robert S. Burke filed as Exhibit 10.23 to the Company's
Registration Statement on Form SB-2 (File No. 333-24271) and incorporated
herein by reference.
10.2 Office Lease, dated as of March 4, 1997, between Arden Realty Limited
Partnership and the Company filed as Exhibit 10.24 to the Company's
Registration Statement on Form SB-2 (File No. 333-24271) and incorporated
herein by reference.
10.3 Amended and Restated Employment Agreement of Ulrich Gottschling, dated as
of February 1, 1997, filed as Exhibit 10.3 to the Company's Registration
Statement on Form SB-2 (File No. 333-24271) and incorporated herein by
reference.
27 Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUND SOURCE INTERACTIVE, INC.
By: /s/Vincent J. Bitetti Date: May 7, 1997
----------------------
Vincent J. Bitetti
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/Ulrich E. Gottschling Date: May 7, 1997
------------------------
Ulrich E. Gottschling
President/Chief Operating Officer/
Chief Financial Officer, Treasurer
and Corporate Secretary
(Chief Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Sound Source
Interactive, Inc and subsidiary for the period July 1, 1996 through March 31,
1997 and is qualified in its entirety by reference to such condensed
consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 959,844
<SECURITIES> 0
<RECEIVABLES> 2,106,878
<ALLOWANCES> (848,381)
<INVENTORY> 443,530
<CURRENT-ASSETS> 4,333,418
<PP&E> 647,418
<DEPRECIATION> (204,408)
<TOTAL-ASSETS> 4,776,428
<CURRENT-LIABILITIES> 2,347,723
<BONDS> 0
0
0
<COMMON> 4,409
<OTHER-SE> 2,330,363
<TOTAL-LIABILITY-AND-EQUITY> 4,776,428
<SALES> 929,271
<TOTAL-REVENUES> 929,271
<CGS> 470,878
<TOTAL-COSTS> 1,547,462
<OTHER-EXPENSES> (12,442)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1529
<INCOME-PRETAX> (605,749)
<INCOME-TAX> (870)
<INCOME-CONTINUING> (604,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604,879)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
