PACIFIC MULTIMEDIA INC, SB-2/A, 1997-09-26

PACIFIC MULTIMEDIA INC
SB-2/A, 1997-09-26
ELECTRONIC PARTS & EQUIPMENT, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997

REGISTRATION NO. 333-26245

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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PACIFIC MULTIMEDIA, INC.

(Exact name of registrant as specified in its charter)

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<S> <C> <C>
WASHINGTON 5065 33-0477912
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
</TABLE>

2477 E. ORANGETHORPE AVENUE, FULLERTON, CALIFORNIA 92831
(714) 441-0782

(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)

JAMES E. CAMPBELL, III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PACIFIC MULTIMEDIA, INC.
2477 E. ORANGETHORPE AVENUE, FULLERTON, CALIFORNIA 92831
(714) 441-0782

(Name, address, including zip code and telephone number, including area code, of
agent for service)

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COPIES TO:

GARY J. KOCHER, ESQ.
Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
(206) 623-7580

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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

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. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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

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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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PACIFIC MULTIMEDIA, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART 1 ITEMS OF FORM SB-2

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
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1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page; Front of Registration Statement

2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages

3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors; The Reorganization; The
Company

4. Use of Proceeds...................................... Prospectus Summary; Risk Factors; Use of Proceeds;
Management's Discussion and Analysis of Financial Condition
and Results of Operations

5. Determination of Offering Price...................... Outside Front Cover Page; Risk Factors; Underwriting

6. Dilution............................................. Risk Factors; Dilution

7. Selling Security Holders............................. Not Applicable

8. Plan of Distribution................................. Outside Front Cover Page; Underwriting

9. Legal Proceedings.................................... Business

10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management

11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Shareholders

12. Description of Securities............................ Description of Capital Stock

13. Interests of Named Experts and Counsel............... Legal Matters

14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management

15. Organization Within Last Five Years.................. Not Applicable

16. Description of Business.............................. Prospectus Summary; Risk Factors; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; 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....................................... The Reorganization; Certain Transactions; Principal
Shareholders

20. Market for Common Equity and Related Shareholder
Matters............................................ Outside Front Cover Page; Prospectus Summary; Risk Factors;
The Reorganization; Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale

21. Executive Compensation............................... Management

22. Financial Statements................................. Financial Statements

23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Not Applicable
</TABLE>
<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 26, 1997

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.
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1,250,000 SHARES

[LOGO]

COMMON STOCK
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All of the shares of Common Stock (the "Common Stock") of Pacific
MultiMedia, Inc. ("Pacific MultiMedia" or the "Company") offered hereby (the
"Offering") are being sold by Pacific MultiMedia. The Offering is being
conducted on a "best efforts" minimum/maximum basis. No shares will be sold
unless the Company receives and accepts subscriptions for a minimum (the
"Minimum") of 750,000 shares of Common Stock and the Offering is limited to a
maximum (the "Maximum") of 1,250,00 shares of Common Stock. Prior to this
Offering, there has been no public market for the Common Stock. The initial
public offering price of the Common Stock will be $5.00 per share. For
information relating to the factors considered in determining the initial
offering price to the public, see "Underwriting." Upon completion of the
Offering, the Company intends to list the Common Stock on the Pacific Stock
Exchange ("PSE") SCOR/Reg A marketplace.

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

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 3.
---------------------
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.

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<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $5.00 $0.40 $4.60
Total Minimum................................... $3,750,000.00 $300,000.00 $3,450,000.00
Total Maximum................................... $6,250,000.00 $500,000.00 $5,750,000.00
</TABLE>

(1) See "Underwriting " for indemnification arrangement with the Underwriter.

(2) Before deduction of expenses payable by the Company, estimated at $250,000.
------------------------

The shares of Common Stock are offered through the Underwriter acting on a
best efforts basis, when, as and if issued by the Company, and subject to the
Company's right to reject subscriptions in whole or in part. The Offering will
be conducted for a period ending November 30, 1997, subject to extension for up
to an additional 90 days in the discretion of the Company (the "Offering
Period"). Pending completion of the Offering, all subscription amounts will be
held in a segregated escrow account with First Trust N.A. (the "Escrow Agent")
and will be forwarded to the Escrow Agent as soon as reasonably practicable
after their receipt by the Company or the Underwriter, as the case may be. If
suitable subscriptions for the Minimum amount are not received and accepted by
the Company prior to the end of the Offering Period, the Offering will be
terminated without any Common Stock being sold and all funds remitted by
potential investors will be returned, plus any interest earned thereon while
held in escrow, as soon thereafter as reasonably practicable (but in no event
more than 30 days after such termination). See "Underwriting."

TRADEWAY SECURITIES GROUP, INC.
UNDERWRITER

THE DATE OF THIS PROSPECTUS IS , 1997.
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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" OR
"PACIFIC MULTIMEDIA" WHEN USED IN THIS PROSPECTUS REFERS TO PACIFIC MULTIMEDIA,
INC., A WASHINGTON CORPORATION WHICH IS THE SUCCESSOR TO PACIFIC AUDIO
RECORDING, INC., A CALIFORNIA CORPORATION, PURSUANT TO A REINCORPORATION MERGER
THAT WILL BE EFFECTED PRIOR TO THE CLOSING OF THE OFFERING. SEE "THE
REORGANIZATION." THE FOLLOWING SUMMARY AND CERTAIN PORTIONS OF THIS PROSPECTUS
INCLUDE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS PREDICTED BY
SUCH FORWARD-LOOKING STATEMENTS DUE TO VARIOUS FACTORS, INCLUDING BUT NOT
LIMITED TO THOSE DISCUSSED IN "RISK FACTORS."

THE COMPANY

Pacific MultiMedia, Inc. ("Pacific MultiMedia" or the "Company") is a full
service audio and video production company that provides a wide array of
services, including recording, mastering and duplicating of audio and video
cassette tapes, primarily consisting of spoken-word (non-musical) content.
Pacific MultiMedia provides high quality recordings and immediate duplication
services at on-site (client-selected) locations, as well as at its own facility
in Fullerton, California. In addition to housing the Company's duplication
equipment and recording studio, the Company provides packaging, shipping,
storage and other fulfillment services from its Fullerton facility. Upon closing
of this Offering, the Company intends to relocate its corporate offices and open
a second production and fulfillment facility in the Seattle, Washington area.

Pacific MultiMedia's customer base encompasses a wide variety of industries.
However, materials recorded and duplicated by the Company can generally be
categorized as business related, religious, musical/artistic or health oriented.
The overwhelming majority of these materials are spoken-word recordings that
present information regarding personal or professional improvement.

Audio recordings have been found to be a powerful method of delivering self
improvement messages. Producers of such tapes use various sound effects,
background music and speaking tones to enhance the effectiveness of the message
being conveyed. Many business promoters have also realized that cassette tapes
are as effective or more effective marketing materials than brochures and other
print literature because business professionals perceive that they do not
possess enough time to read printed materials. However, these busy professionals
can easily listen to an audio tape while they are driving, working or performing
other tasks.

The Company's goal is to become a leading provider of remote and on-site
audio and video tape recording and duplication services. The Company has
historically focused on providing a high level of customer service to a limited
number of small accounts. Management believes that significant opportunities
exist to expand the Company's core business activities to service more and
larger accounts as well as to expand selectively the Company's operations into
related service areas. Through the application of the net proceeds raised in
this Offering, the Company intends to implement a strategy designed to capture
these perceived market opportunities, primarily focusing on expansion of audio
and video tape duplication activities through investment in new equipment and
the opening of a Seattle, Washington production and fulfillment facility,
increased emphasis on marketing of "message on hold" and other studio services
and the addition of several sales and marketing and other key management
personnel. In addition, the Company intends to expand the range of its services
to include video production capabilities and the compilation and marketing of an
audio library comprised of on-site, spoken word content recorded by the Company.
The Company believes each of these expanded services is a natural fit with the
Company's existing business and/or customer base.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE PSE SCOR/REG A MARKET OR
OTHERWISE. SUCH TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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THE OFFERING

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<CAPTION>
MAXIMUM MINIMUM
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<S> <C> <C>
Common Stock Offered.................................. 1,250,000 shares 750,000 shares
Common Stock Outstanding after the Offering........... 5,000,000 shares (1) 4,500,000 shares (1)
Use of Proceeds....................................... To purchase equipment, to finance increased marketing
activities, to satisfy cash payment obligations in
connection with the Pearl Share Exchange, to finance
opening the Seattle, Washington facility, to make the S
Distribution and certain other payments to officers of the
Company and for working capital and general corporate
purposes. See "The Reorganization," "Use of Proceeds," and
"S Corporation Matters."
</TABLE>

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(1) Excludes 750,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan (the "Option Plan") and includes the
issuance of 3,330,000 shares of Common Stock as Exchange Consideration in
connection with the Pearl Share Exchange. See "The Reorganization,"
"Capitalization," "Management-- Executive Compensation" and "Certain
Transactions."

SUMMARY FINANCIAL DATA (1)

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YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
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1996 1995 1997 1996
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<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................ $ 773,590 $ 352,611 $ 338,275 $ 331,647
Cost of sales.................................... 478,817 212,672 185,524 209,147
Gross profit..................................... 294,773 139,939 152,751 122,500
Selling, general and administrative.............. 255,345 140,729 105,900 81,563
Operating income (loss).......................... 39,428 (790) 46,851 40,937
Other income (expense), net...................... 420 2,241 -- --
Income before tax................................ 39,848 1,451 46,851 40,937
Pro forma net income (2)......................... 30,748 651 33,951 30,537
Net income per share (2)......................... $ 0.31 $ 0.00 $ 0.34 $ 0.30
Shares used in per share computations............ 100,000 100,000 100,000 100,000
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
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PRO FORMA
AS ADJUSTED(3)
---------------------------
ACTUAL MAXIMUM MINIMUM
--------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET AND OTHER DATA:
Cash.................................................................... $ 15,367 $ 4,516,922 $ 2,216,922
Working capital......................................................... 42,774 4,302,124 2,002,124
Total assets............................................................ 164,004 4,650,494 2,350,494
Long-term liabilities................................................... 20,840 20,840 20,840
Total shareholders' equity.............................................. 98,499 4,357,849 2,057,849
Net income (loss)....................................................... 30,748 (36,083) (36,083)
Net income (loss) per share............................................. $ 0.31 $ (0.01) $ (0.01)
</TABLE>

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(1) See the Company's annual audited and interim unaudited financial statements
and accompanying notes thereto included elsewhere in this Prospectus.

(2) Reflects a pro forma adjustment for the payment of income taxes assuming the
Company's election to be treated as an S Corporation had not been in effect
for such periods. See Note 1(h) of Notes to Audited Financial Statements.

(3) Pro Forma to reflect the effects of the Pearl Share Exchange and adjusted to
reflect the (i) sale of the 1,250,000 shares (Maximum) and 750,000 shares
(Minimum) of Common Stock offered hereby at an initial public offering price
of $5.00 per share after deducting underwriting discounts and estimated
offering expenses and (ii) the issuance of 3,330,000 shares of Common Stock
and the payment of the maximum cash consideration of $1.0 million by the
Company as the Exchange Consideration in connection with the Pearl Share
Exchange. See "The Reorganization," "Use of Proceeds," "Capitalization," and
Note 5 of Notes to Unaudited Financial Statements.

2
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RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SHARES SHOULD NOT BE PURCHASED BY A PERSON WHO CAN NOT AFFORD
THE LOSS OF HIS OR HER ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING PRINCIPAL RISK FACTORS IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS. THIS PROSPECTUS INCLUDES FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE RESULTS PREDICTED BY SUCH FORWARD-LOOKING
STATEMENTS DUE TO VARIOUS FACTORS, INCLUDING BUT NOT LIMITED TO THOSE WHICH ARE
DISCUSSED BELOW.

DETERMINATION OF OFFERING PRICE

The offering price for the shares of Common Stock offered hereby has been
determined by the Company based on the Company's prospects for future growth and
bears no relationship to assets, earnings, net worth or any other traditional
objective criteria of value. See "Underwriting."

ABILITY TO ACHIEVE AND MANAGE GROWTH

The Company's growth plans are subject to numerous and substantial risks.
The Company's ability to achieve such growth and profitability will depend upon
a number of factors, including the ability of the Company to attract and retain
sufficient qualified managerial and sales and marketing personnel, successful
offerings of new services, existing and emerging competition, collection of
accounts receivable and the availability of working capital to support
anticipated growth. Pacific MultiMedia must adapt its management structure and
internal control systems as the Company expands. There can be no assurances that
the Company will successfully realize its growth objectives. Any inability to
achieve and manage the Company's growth plans would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategy."

DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT ADDITIONAL MANAGEMENT

The Company is highly dependent upon James E. Campbell, III, its President
and Chief Executive Officer. Mr. Campbell has historically performed a wide
variety of functions for the Company and the loss of the services of Mr.
Campbell would have material and adverse affect on the Company. The Company's
future success will depend upon its ability to retain Mr. Campbell. In order to
realize the Company's growth plans, the Company will also be required to locate
and hire several key management personnel including a Chief Financial Officer
and a Vice President-Sales and Marketing as well as several key
marketing and sales personnel. The competition for such employees is intense and
the Company must compete with other companies with greater resources and name
recognition in order to attract and retain highly qualified personnel. The
failure to attract and retain qualified personnel for such positions will
severely restrict the Company's ability to achieve its growth objectives. See
"Business--Strategy" and "Management."

INTENSE COMPETITION

The audio and video production, duplication and fulfillment industry is
highly competitive and many of the Company's competitors have substantially
greater name recognition, customer bases, and financial, marketing and
management resources than the Company. In the audio and video tape duplication
markets, the Company competes with Cassette Productions Unlimited, Inc., Fosdick
Corporation and others which are larger, nationally-known companies which have
financial and personnel resources substantially in excess of those of the
Company's. In the on-site convention recording market, the Company competes with
a number of smaller, regional companies such as Convention Cassettes Unlimited
and Infomedix, both located in Southern California. Furthermore, the audio and
video production, duplication and fulfillment business has relatively few
barriers to entry. The Company attempts to compete

3
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based on offering quality service at a reasonable price. There can be no
assurance, however, that the Company will be successful in improving or
maintaining its competitive position against its existing competitors or that
new competitors will not enter into the market. Any such failure to improve the
Company's competitive position VIS-A-VIS existing competitors and/or the entry
of significant new competitors into the Company's existing markets and targeted
areas for expansion will have a material and adverse effect on the Company's
ability to achieve its growth objectives See "Business--Strategy" and
"--Competition."

VARIABILITY OF OPERATING RESULTS

The Company's annual and quarterly operating results are affected by a
number of factors including the level and timing of customer orders. The level
and timing of orders may vary widely due to customer needs, general economic
conditions and competition. One or more large orders may affect the Company's
performance in any quarter and the delay of one or more orders expected in a
particular quarter could severely and adversely impact the Company's financial
performance for such quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

CUSTOMER CONCENTRATION: DEPENDENCE ON SIGNIFICANT CUSTOMERS

The Company is dependent upon a limited number of customers for a
substantial portion of its net sales. Sales to the Company's five largest
customers accounted for 72% and 62% of the Company's gross sales in the years
ended December 31, 1996 and 1995, respectively. During the same periods, sales
to the Company's largest customer accounted for 20% and 26%, respectively. In
addition, as part of the Company's strategy, it intends to aggressively target
larger run accounts which could have the effect of increasing customer
concentration in future periods. The Company has not entered into long-term
contracts with any of its customers. The loss of, or any material reduction in,
orders from the Company's significant customers for any reason could have a
material adverse effect on the Company's results of operations and financial
condition and the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Strategy."

ACCOUNTS RECEIVABLE

As the Company expands its capacity to undertake larger run orders, the
Company's revenues and receivables with respect to their customers can be
expected to increase and such receivables could account for a significant
portion of the Company's revenues and/or profits in any quarterly or annual
period. See "Risk Factors--Customer Concentration: Dependence on Significant
Customers." The failure of the Company to collect any such accounts receivable
or to experience higher than normal bad debt expense on its traditional accounts
would have a material adverse effect on the Company's results of operations,
financial condition and the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategy."

TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS

The Company's primary line of business involves the duplication of analog
audio cassettes and VHS videocassettes. Both of these technologies have been in
existence for a number of years. Recent audio and video industry developments
have included the introduction of a number of newer technologies such as the
compact disc, digital video disc, laser disc and digital audio tape. Many of
these newer technologies offer performance characteristics and other features
which are superior to analog audio and VHS video. The Company believes, however,
that the market for spoken-word recording does not demand the use of such newer,
improved technologies. If this assumption proves incorrect or if new
technologies are developed which become accepted among the Company's targeted
customers, the Company's existing equipment could become obsolete and the
Company will be required to invest significant amounts of capital to upgrade to
such newer technologies. Moreover, there can be no assurance that new
technologies, new

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products or new services developed or offered by others will not reduce the
demand for the Company's products and services and have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business--Strategy."

SEATTLE EXPANSION; DUAL FACILITIES

Upon completion of the Offering, the Company intends to open a second
production and fulfillment facility in the Seattle, Washington area. The Seattle
facility will also house the executive offices of the Company. The operation of
two facilities will require additional management time to coordinate activities
between the two operations and suitable managers will need to be retained to run
both operations. While the Company believes that suitable space in the Seattle
area will be available, the Company has not entered into any commitment
therefor. The lease for the Company's Fullerton facility is on a month-to-month
basis. If necessary, the Company believes that suitable space for the Company's
California operations can be located in the event the Company's lease is
terminated. However, there can be no assurance that suitable facilities in
either Seattle or California will be located and available at commercially
reasonable rates. Any move of the California operations could cause disruption
to the Company's business and which could adversely impact the Company's results
of operations. See "Risk Factors--Dependence on Key Personnel; Ability to
Attract Additional Management" and "Business--Strategy" and
"--Properties."

CONTROL BY CERTAIN SHAREHOLDERS

Upon completion of the Offering and the Reorganization, Mr. Robert W.
McMichael, a director of the Company, will beneficially own 58.3% (Minimum) or
52.4% (Maximum) of the outstanding shares of Common Stock. Accordingly, Mr.
McMichael will have majority control of the Company, with the potential ability
to elect the Board of Directors and to approve or prevent certain fundamental
corporate transactions (including mergers, consolidations and sales of all or
substantially all of the Company's assets). See "The Reorganization," "Principal
Shareholders" and "Description of Capital Stock."

BANKRUPTCY PROCEEDINGS OF AMERINATIONAL

AmeriNational Financial Services, Inc. ("AmeriNational"), which formerly was
a wholly-owned subsidiary of Pearl Financial, is currently involved in
bankruptcy proceedings in United States Bankruptcy Court for the Central
District of California (San Fernando Valley) (Docket No. SV97-01537-GM). The
Securities Investor Protection Corporation ("SIPC") is supervising the
liquidation of AmeriNational pursuant to the Securities Investor Protection Act.
Mr. McMichael owns a majority of the outstanding stock of Pearl Financial. Pearl
Financial will become a subsidiary of the Company upon completion of the
Reorganization. See "The Reorganization" and "Management."

THE REORGANIZATION

In connection with the Pearl Share Exchange, the shareholders of Pearl
Financial will exchange substantially all of the outstanding equity securities
of Pearl Financial for shares of Common Stock of the Company and Pearl Financial
will become a subsidiary of the Company. Pearl Financial has no significant
assets and had no significant income, operations or prospects in the year ended
December 31, 1996. In connection with the Pearl Share Exchange, Mr. McMichael
(the majority stockholder of Pearl Financial) has agreed to serve on the
Company's Board of Directors and Pearl Financial has agreed to borrow funds to
pay certain costs and expenses of the Company in connection with the Offering
and the Reorganization. The funds advanced to the Company by Pearl Financial
will be repaid by the Company upon successful completion of the Offering and
Pearl Financial will then pay out such funds to retire the debt incurred in
connection therewith. Other than the foregoing, the Company will not derive any
significant benefit from the Pearl Share Exchange. See "The Reorganization,"
"Certain Transactions" and "Underwriting."

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<PAGE>
RELATED PARTY TRANSACTIONS

The Company has engaged in transactions with certain of its directors,
officers and significant shareholders ("affiliates"). All future transactions
between the Company and its affiliates will be on terms no more favorable to the
affiliates than those available to unaffiliated third parties and must be
approved by a majority of the disinterested directors of the Company. See
"Certain Transactions."

CONSENT TO USE RECORDED MATERIALS

A component of the Company's growth strategy is to compile and market a
library of recorded materials. Historically, the Company has not received a
license or other right to duplicate or otherwise sell or use the recorded
materials (beyond that authorized in the initial engagement). Therefore, the
Company's ability to market such materials as part of a tape library will
require that the Company secure the originating party's consent to such use and
may require payment of advance royalties with respect thereto. Furthermore,
because much of the Company's business and self-improvement materials have a
limited life, the failure to receive such rights on a timely basis will severely
restrict the Company's ability to successfully market such materials. As a
matter of course, the Company will seek to secure such rights with respect to
future client engagements. However, there can be no assurance that the Company
will secure the necessary rights to use such materials in a timely manner or on
terms which are commercially reasonable or favorable to the Company. See
"Business--Strategy."

RISK OF LIABILITY CLAIMS

The Company has historically operated with minimum levels of insurance
coverage. The Company currently maintains commercial general liability
insurance, with limits of $0.5 million per occurrence and in the aggregate per
year. There can be no assurance that the Company's insurance will be adequate to
cover future liability claims, or that the Company will be successful in
maintaining adequate liability insurance at acceptable rates. Any losses that
the Company may suffer from any liability claims, and the effect that any
litigation may have upon the reputation and marketability of the Company's
products, may divert management's attention from other matters and may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."

SUBSTANTIAL AND IMMEDIATE DILUTION; ABSENCE OF DIVIDENDS

Purchasers of the Shares offered hereby will incur immediate dilution per
share in net tangible book value. The exercise of outstanding options or options
granted in the future by the Company may also have a dilutive effect on the
interests of the investors in this Offering. See "Dilution." The Company does
not contemplate or anticipate paying any dividends upon its Common Stock in the
foreseeable future. It is currently anticipated that earnings, if any, will be
used to finance the development and expansion of the Company's business. See
"Dividend Policy" and "Dilution."

NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Common
Stock. Upon completion of the Offering, the Company intends to list the Common
Stock on the PSE SCOR/Reg A marketplace. However, there can be no assurance that
an active trading market will develop or, if one does develop, that it will be
maintained. Many of the issuers listed on the PSE experience light trading
volume and limited liquidity, especially issuers listed on the SCOR/Reg A
marketplace. The initial public offering price has been established by the
Company and may not be indicative of prices that will prevail in the trading
market. See "Underwriting" for information relating to the method of determining
the initial public offering price. The market price of shares of Common Stock is
likely to be volatile. Announcements of technological innovations and new
commercial products and changes in the general conditions in the

6
<PAGE>
convention and audio/video production industries may have a significant effect
on the Company's business and on the market price of the Company's Common Stock.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. The securities of small and emerging companies have
experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performance. Sales of a substantial number
of shares of Common Stock by existing security holders could also have an
adverse effect on the market price of the Company's securities. See "Shares
Eligible for Future Sale."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding an
aggregate of 5,000,000 shares (Maximum) or 4,500,000 shares (Minimum) of Common
Stock. The shares sold in this Offering will be freely tradable without
restriction or further registration under the federal Securities Act, unless
purchased by an "affiliate" of the Company, as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). However, the shares to be sold in the
Offering have been registered or qualified for sale in only a limited number of
states (currently limited to California, Colorado and Florida) and may not be
sold or otherwise transferred to persons who are residents of any state in which
the shares have not been registered or qualified unless they are subsequently
registered or qualified or there exists an exemption from the applicable state's
registration requirements with respect to such sale or transfer. The Company has
undertaken to the California Department of Corporations not to apply for a
secondary trading exemption under Section 25101(b) of the California
Corporations Code (which would permit resales of the shares sold in the Offering
to California residents) for at least 90 days following completion of the
Offering. The remaining 3,750,000 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under the
Securities Act, including, but not limited to Rule 144 under the Securities Act.
Sales of the Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock. In
addition, since only a limited number of shares will be available for sale in
the public market after this Offering because of certain contractual and legal
restrictions on resale, sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity in
the future. See "Shares Eligible for Future Sale."

The Company has reserved 750,000 shares of Common Stock for grants under its
Stock Option Plan. The Company may file a registration statement under the
Securities Act, covering the shares of Common Stock issuable under the Stock
Option Plan. Upon effectiveness of such registration, shares issued upon the
exercise of options covered thereby generally will be freely tradable in the
open market (subject to Rule 144 limitations applicable to affiliates). No
prediction can be made as to the effect, if any, that future sales of Common
Stock or the availability of Common Stock for sale will have on the market price
prevailing from time to time. See "Management--Stock Option Plan" and "Shares
Eligible for Future Sale."

7
<PAGE>
THE REORGANIZATION

Prior to the closing of the Offering, Pacific Audio Recording, Inc., a
California corporation ("Pacific Audio California"), will merge with and into
Pacific MultiMedia, Inc., a Washington corporation and wholly-owned subsidiary
of Pacific Audio California ("Pacific MultiMedia" or the "Company"), with
Pacific MultiMedia being the surviving corporation (referred to herein as the
"Reincorporation"). In addition, after effectiveness of the Reincorporation and
immediately prior to the closing of the Offering, the holders of all or
substantially all of the outstanding shares of capital stock of Pearl Financial
Services, Inc., a Washington corporation ("Pearl Financial"), will exchange such
shares for shares of Common Stock of the Company on the terms outlined below
(the "Pearl Share Exchange"). Upon consummation of the Pearl Share Exchange,
Pearl Financial will become a subsidiary of the Company. The Reincorporation and
the Pearl Share Exchange are referred to herein collectively as the
"Reorganization."

Pursuant to the terms of the Exchange Agreement between the Company and
Pearl Financial, holders of common stock of Pearl Financial will be entitled to
receive either (i) one share of Common Stock of the Company for every 3.4274
shares of common stock of Pearl Financial so exchanged, or (ii) $1.00 in cash
for each share of common stock of Pearl Financial so exchanged up to a maximum
aggregate cash payment by the Company of $1.0 million, or (iii) a combination of
cash and shares of Common Stock of the Company based on the foregoing exchange
rates (collectively referred to herein as the "Exchange Consideration"). Based
on the number of shares of common stock of Pearl Financial currently outstanding
and assuming holders of such stock elect to receive the maximum cash
consideration in connection with the Pearl Share Exchange, the Company will
issue 3,330,000 shares of its Common Stock as Exchange Consideration (in
addition to $1.0 million cash consideration). In the event that holders of more
than 1.0 million shares of Pearl Financial elect to receive cash rather than
shares of Common Stock of the Company, such holders will receive a PRO RATA
allocation of the maximum $1.0 million cash proceeds based on their relative
ownership interest in Pearl Financial. Robert McMichael, a director of the
Company, owns 8,986,644 shares of common stock of Pearl Financial and will
receive 2,622,000 shares of Common Stock of the Company and no cash proceeds as
Exchange Consideration in the Pearl Share Exchange. See "Certain Transactions."

Pacific Audio California was incorporated under the laws of the State of
California in June 1991 and Pacific MultiMedia was incorporated under the laws
of the State of Washington in April 1997. As used in this Prospectus, references
to "Company" and "Pacific MultiMedia" refer to Pacific MultiMedia, Inc., after
giving effect to the Reorganization and to its predecessor entities to the
extent appropriate. The principal executive offices of the Company are currently
located at 2477 E. Orangethorpe Avenue, Fullerton, California 92631, and the
Company's telephone number is (714) 441-0782. Following the closing of the
Offering, the Company intends to relocate its principal offices to the Seattle,
Washington area. See "Risk Factors--Seattle Expansion; Dual Facilities" and
"Business--Properties."

8
<PAGE>
USE OF PROCEEDS

Based on an initial public offering price of $5.00 per share, the net
proceeds to the Company, assuming the sale of the Minimum of 750,000 shares of
Common Stock in this Offering, after deducting the underwriter discount and
estimated fees and expenses incurred in connection with the Offering, will be
approximately $3.2 million. If the Maximum of 1,250,000 shares are sold in the
Offering, the net proceeds will be $5.5 million. The Company intends to apply
such proceeds for the purposes set forth below:

<TABLE>
<CAPTION>
AMOUNT
APPLICATION OF NET PROCEEDS MINIMUM MAXIMUM
- ------------------------------------------------------------------------------------------- ------------- -------------
($ MILLIONS)
<S> <C> <C>
Purchase of additional audio and video production, recording and duplication equipment..... $ 0.7 $ 1.8
Increase sales and marketing activities (including salaries to hire new marketing
personnel)............................................................................... 0.7 1.0
Cash payment obligations in connection with Pearl Share Exchange........................... 1.0 1.0
Relocation expenses and tenant improvements for new Seattle, Washington facility........... 0.3 0.5
Distributions to officers and existing shareholders to redeem outstanding stock and make S
distribution............................................................................. 0.1 0.1
General corporate purposes................................................................. 0.4 1.1
--- ---
Total...................................................................................... $ 3.2 $ 5.5
</TABLE>

The Company may use a portion of the proceeds to make strategic
acquisitions. However, the Company is not currently involved in discussions for
any such acquisition. See "The Reorganization," "S Corporation Matters,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Certain Transactions." Pending such uses, the
Company intends to invest the net proceeds of the Offering in short-term,
interest bearing, investment-grade securities.

DIVIDEND POLICY

Except as described under "S Corporation Matters" above, the Company has not
paid any cash dividends on the shares of its Common Stock and currently intends
to retain future earnings, if any, to fund the development and growth of its
business.

S CORPORATION MATTERS

In 1991, the Company elected to be treated as a corporation subject to
taxation under Subchapter S of the internal Revenue Code of 1986, as amended (an
"S Corporation"). As a result, substantially all taxable income and losses since
such time have flowed though the Company to its shareholders for federal and
state income tax purposes. The Company's status as an S Corporation will
terminate effective as of the closing of this Offering and the Company
thereafter will become subject to tax at the corporate level.

Since 1991, the Company has made distributions of accumulated earnings and
profits to shareholders to enable them to satisfy their income tax liabilities
with respect to such earnings and profits. The Company intends to distribute
(the "S Distribution") to the current shareholders of the Company an amount
equal to the Company's estimated taxable income from January 1, 1996 to the date
of closing of this Offering. The S Distribution will be made shortly after the
closing of this Offering and is currently estimated to be approximately $30,000
to $50,000. Purchasers of shares of Common Stock in this Offering will not
receive the S Distributions. See "Certain Transactions."

9
<PAGE>
DILUTION

The pro forma net tangible book value of the Company's Common Stock at June
30, 1997 (assuming consummation of the Reorganization but excluding the S
Distribution at such date) was $98,499, or $0.01 per share. "Pro forma net
tangible book value per share" represents the amount of the Company's total
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding after giving effect to the Reorganization. Without taking into
account any other changes in net tangible book value after June 30, 1997, other
than to give effect to the sale by the Company of the Maximum and Minimum shares
offered hereby at an initial public offering price of $5.00 per share and after
deduction of underwriting discounts and commissions and estimated offering
expenses, pro forma net tangible book value of the Company at June 30, 1997 is
illustrated by the following tables:

<TABLE>
<S> <C> <C>
Maximum Shares Sold
- ------------------------------------------------------------------------------------
Initial public offering price per share....................... $ 5.00
Pro forma net tangible book value per share before this
Offering.................................................. $ 0.01
Increase per share attributable to new investors............ 0.91
---------
Net tangible book value per share after this Offering......... 0.92
---------
Dilution per share to new investors......................... $ 4.08
---------
---------

Minimum Shares Sold
- ------------------------------------------------------------------------------------
Initial public offering price per share....................... $ 5.00
Pro forma net tangible book value per share before this
Offering.................................................. $ 0.01
Increase per share attributable to new investors............ 0.50
---------
Net tangible book value per share after this Offering......... 0.51
---------
Dilution per share to new investors......................... $ 4.49
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis assuming the sale of
the Maximum number of Common Shares offered hereby and the consummation of the
Reorganization as of June 30, 1997, the difference between the number of shares
of Common Stock purchased from the Company, the total cash consideration paid
and the average cash price per share paid by the existing shareholders and by
the investors purchasing shares of Common Stock in this Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............................ 3,750,000 75.0% $ 1,000 0.0% $ 0.00
New Investors.................................... 1,250,000 25.0 $ 6,250,000 100.0 5.00
---------- ----------- ------------ ----- -----
Total........................................ 5,000,000 100.0% $ 6,251,000 100.0% $ 1.25
</TABLE>

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

(1) Before deducting estimated underwriting discounts and estimated expenses of
the Offering payable by the Company.

(2) Excludes 750,000 shares of Common Stock reserved for issuance under the
Option Plan. See "Management--Stock Option Plan." To the extent that options
granted under the Option Plan are exercised, there may be further dilution
to new investors.

10
<PAGE>
CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, and (ii) the pro forma capitalization of the
Company assuming consummation of the Reorganization and as adjusted to give
effect to the Reorganization and the sale of the 1,250,000 shares (Maximum) and
750,000 shares (Minimum) of Common Stock offered by the Company hereby (at an
initial public offering price of $5.00 per share, after deduction of
underwriting discounts and commissions and estimated offering expenses). See
"The Reorganization" and "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
PRO FORMA
AS ADJUSTED(1)
--------------------------
ACTUAL MAXIMUM MINIMUM
---------- ------------ ------------
<S> <C> <C> <C>
Long-term liabilities, net of current portion......... $ 20,840 $ 20,840 $ 20,840
Shareholders' equity:
Common Stock, no par value, 25,000,000 shares
authorized 100,000 shares outstanding; 3,750,000
shares outstanding pro forma; 5,000,000 shares
(Maximum) 4,500,000 shares (Minimum) outstanding,
as adjusted (2)................................... 1,000 4,501,000 2,201,000
Retained earnings................................... 97,499 97,499 97,499
Total shareholders' equity........................ 98,499 4,598,499 2,298,499
Total capitalization............................ $ 119,399 $ 4,619,339 $ 2,319,339
</TABLE>

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

(1) Pro Forma information reflects the effects of consummation of the Pearl
Share Exchange, including the issuance of 3,330,000 shares of Common Stock
and payment of $1.0 million as Exchange Consideration in connection with the
Pearl Share Exchange. See "The Reorganization" and Note 5 of Notes to
Unaudited Financial Statements.

(2) Excludes shares of Common Stock issuable upon exercise of options which may
be granted under the Option Plan. See "Management--1997 Stock Plan."

11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (i) should be read in conjunction with the Company's
annual audited financial statements, the notes thereto and the other financial
data included elsewhere in this Prospectus and (ii) includes forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from the results predicted by such forward-looking
statements due to various factors, including but not limited to those which are
discussed below and elsewhere in this Prospectus, including "Risk Factors."

OVERVIEW

The Company is a full service audio and video production company that
provides high quality recording services to a wide variety of industries. The
Company was incorporated in 1991, after current management purchased certain
assets from Tape Data Media, a subsidiary of Mc-Graw Hill. The Company's
original market focus was on audio production and duplication. In 1993, the
Company became involved in video production and duplication.

Pacific Audio's net sales are generated in five main areas: audio and video
tape duplication services; on-site convention recording and sales; studio
operations; fulfillment services and message recording and other related
services. For the year ended December 31, 1996, net sales increased 119% over
1995 net sales in the same period. For the six months ended June 30 1997, net
sales increased 2% over 1996 net sales in the same period. For the year ended
December 31, 1996, duplication services accounted for approximately 38% of net
sales, fulfillment operations represented approximately 26% of net sales,
on-site convention recording and sales represented approximately 23% of net
sales, studio operations accounted for approximately 1% of net sales, and other
miscellaneous services represented approximately 12% of net sales.

The Company's cost of sales includes all direct material, labor, overhead
and production expenses related to net sales. Cost of sales for the year ended
December 31, 1996 marginally increased as a percentage of net sales, compared to
the same period for 1995. Cost of sales for the six monthe ended June 30, 1997
was $185,524 or 55% of net sales, compared to 63% of net sales for the same
period in 1996. The Company currently expects that its cost of sales, as a
percentage of revenues, will decline as sales volumes increase.

The Company is not currently required to pay federal income tax as a result
of the Company's Subchapter S election. The Company's status as a Subchapter S
corporation will terminate upon the closing of the Offering and thereafter the
Company will be subject to federal income tax on its net income. The Company
pays state income taxes at an effective rate of 1.5%.

12
<PAGE>
RESULTS OF OPERATION

The following table summarizes certain components of net income as a
percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Net Sales.................................................................... 100.0% 100.0%
Cost of Sales................................................................ 54.9 63.1
Gross Profit............................................................... 45.1 36.9
Selling, general and administrative expenses................................. 31.3 36.9
Income (loss) from Operations................................................ 13.8 12.3
Other Income................................................................. -- --
Income before income taxes................................................... 13.8 12.3
Provision for income taxes................................................... 0.2 0.2
Net Income................................................................. 13.6% 12.1%
--------- ---------
--------- ---------
</TABLE>

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997

NET SALES

For the six months ended June 30, 1997, net sales increased by $6,628 or 2%
to $338,275, compared with net sales of $331,647 for the comparable period of
1996.

COST OF SALES

For the six months ended June 30, 1997, cost of sales totaled $185,524, down
$23,623 from the $209,147 reported for the six months ended June 30, 1996. As a
percentage of net sales, cost of sales for the first six months of 1997 declined
to 54.9%, compared to 63.1% for the same period of 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses were up $24,337 and
totaled $105,900 in the six months ended June 30, 1997, compared to $81,563 for
the comparable period of 1996. The increase resulted primarily from increased
audit and legal expenses attributable to this Offering and initial relocation
costs to begin operations in Seattle, Washington. The Company's SG&A expenses as
a percentage of net sales increased to 31.3% in the first six months of 1997,
from 24.6% in the six months ended June 30, 1996.

PROVISION FOR INCOME TAXES

The provision for state income taxes for the six months ended June 30, 1997
totaled $800 (the minimum annual California franchise fee), and was unchanged
from the provision for the first six months of 1996. Taxes for future periods
will be higher in the event the Company terminates its S election for federal
income tax purposes.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996

NET SALES

For the twelve months ended December 31, 1996, net sales increased by
$420,979 or 119%, to $773,590, compared with the net sales of $352,611 for 1995.
The increase was attributable primarily to growth in video services and new
audio services customers and to a lesser extent increased fulfillment services.

13
<PAGE>
COST OF SALES

For the twelve months ended December 31, 1996, cost of sales totaled
$478,817, up $266,145 from the $212,672 reported for the year ended December 31,
1995. As a percentage of net sales, costs of sales for 1996 increased to 61.9%,
compared to 60.3% for the same period of 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses, were up $114,616, and
totaled $255,345 in the year ended December 31, 1996, compared to $140,729 for
1995. The increase was attributable primarily to the addition of an office
manager, increased audit and legal expenses attributable to this Offering and
additional marketing expenses. The Company's SG&A expenses as a percentage of
net sales dropped 33% in 1996, from 39.9% in 1995. The percentage decrease in
these expenses was attributable to revenue growth which outpaced the growth in
SG&A expenses.

PROVISION FOR INCOME TAXES

The provision for state income taxes for the year ended December 31, 1996
totaled $800 (the minimum annual California franchise fee), and was unchanged
from 1995. Taxes for future periods will be higher as a result of termination of
the Company's S election for federal income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has funded its operations through cash flow from
operations, capital equipment leases, bank borrowing and loans from the
Company's officers. As of June 30, 1997, the Company had no outstanding balances
on bank credit facilities and no outstanding loans to officers. The balance on
the Company's capital leases at June 30, 1997 was $45,350, down from $48,545 at
June 30, 1996 due primarily to scheduled principal amortization.

Capital expenditures were approximately $30,000 and $1,200 for the twelve
months ended December 31, 1996, and 1995; respectively. Capital expenditures for
the six months ended June 30, 1997 and 1996 were approximately $16,295 and
$1,180, respectively. The Company intends to significantly increase capital
expenditures after completion of the Offering. See "Use of Proceeds."

The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with cash anticipated to be generated by operations,
will satisfy the Company's projected working capital and capital expenditures
requirements for the foreseeable future. However, the Company may be required to
finance its future cash flow requirements through additional equity or debt
financings or credit facilities. There can be no assurance that such additional
financings or credit facilities will be available, or if available, that they
will be on satisfactory terms.

From time to time, the Company may consider certain strategic acquisitions
and business alliances. The Company is not currently involved in discussions for
any such acquisition or alliance. To the extent that the Company undertakes a
material acquisition, it may require additional capital to finance such
transaction.

14
<PAGE>
BUSINESS

OVERVIEW

Pacific MultiMedia, Inc. is a full service audio and video production
company that provides a wide array of services, including recording, mastering,
duplicating and distributing audio and video cassette tapes. The Company offers
authors and creators of spoken-word audio recordings the necessary facilities,
services and resources to prepare audio recordings for sale to end users.

The Company also provides on-site recording services, which involve the use
of portable recording equipment at client-selected locations to record materials
in a non-studio environment. The most common non-studio locations recorded by
the Company are conventions, conferences, seminars, religious revivals and other
public gatherings. The Company records, duplicates and sells audio and video
tapes of the speeches and presentations made at these events.

The Company also maintains and operates a warehouse and fulfillment center
that stores client-owned materials, such as books, tapes, manuals and marketing
materials. Upon receipt of an order, Pacific MultiMedia packages and ships these
materials in accordance with customer specifications. Pacific MultiMedia also
drop ships materials in bulk to the location of a client's speaking engagement,
when that client wants to have materials on hand to sell directly. Pacific
MultiMedia also maintains a recording studio in Fullerton, California and
performs a variety of audio recording services for its clients, including
digital tape mastering, development of message-on-hold systems and various other
services.

The Company's operations are grouped into five distinct categories. The
revenue breakdown by category for 1995 and 1996 is shown below:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Duplication Services...................................................... 28.0% 38.4%
Fulfillment Services...................................................... 16.2 25.9
On-Site Convention Recording & Sales...................................... 36.8 23.0
Studio Operations......................................................... 10.0 1.0
Message Recording and Other Services...................................... 9.0 11.7
----- ---
Total................................................................. 100.0% 100%
----- ---
----- ---
</TABLE>

STRATEGY

The Company intends to devote a significant portion of the proceeds of this
Offering to the purchase of new audio and video duplication equipment, the
opening of a Seattle, Washington production and fulfillment facility and for the
addition of marketing personnel. The addition of the Company's Seattle facility
and new audio and video duplication equipment will significantly expand the
Company's audio and video production capacity. This will enable the Company to
compete for larger run orders (5,000 to 50,000 pieces) which it is currently not
able to effectively undertake. Participants in this market include the direct
response television industry (such as infomercials and other paid commercial
television advertisements) and distributors of movies and home videos. The
Company also intends to begin marketing to professional organizations that
maintain significant continuing education requirements (such as the American
Medical Association, the American Bar Association and the American Institute of
Certified Public Accountants),

15
<PAGE>
and corporate and industrial accounts which require instructional and product
promotion materials on a routine and regular basis.

In addition, the Company intends to expand the range of services it offers
to include video production capabilities. Currently, the Company offers only
video duplication which requires Company clients to contract with a third party
for video production (or possess such capabilities in-house). The Company
intends to purchase digital video editing equipment which the Company intends to
offer on a rental basis and to also offer trained technical operators if
requested by the client. The addition of video production services will allow
the Company to provide a more comprehensive service package to its clients

Finally, the Company intends to leverage its position in the spoken-word
recording market to compile and market a library of recorded materials.
Historically, the Company has not received a license or other rights to
duplicate or otherwise use the recorded materials (beyond that authorized in the
initial engagement). Therefore, the Company's ability to market such materials
as part of a tape library will require that the Company secure the originating
party's consent to such use. As a matter of course, the Company will seek to
secure such rights with respect to future client engagements. However, there can
be no assurance that the Company will secure the necessary rights to use such
materials in a timely manner or on terms which are commercially reasonable or
favorable to the Company. The Company believes that through its role as a
provider of on-site recordings, the Company can efficiently obtain mailing lists
of conference attendees and use such lists to implement highly focused marketing
for such materials to a base of "pre-screened" consumers. See "Risk
Factors--Consent to Use Recorded Materials."

DUPLICATION SERVICES

The Company's primary line of business involves the duplication of audio and
video tapes. The duplication process begins with a prerecorded tape known as a
"master." Pacific MultiMedia uses its duplicating equipment to reproduce
multiple copies of the master, as specified by the client. The Company also
handles all of the tasks and details necessary to produce a complete and
attractive cassette package. Such services include designing and printing custom
labels that are applied to each tape and packaging the final product in
accordance with customer specifications.

The Company currently operates three audio duplication systems and one video
duplication system. Pacific MultiMedia's current duplication capacity is
approximately 40,000 audio tapes per week and approximately 700 video tapes per
week. The Company intends to expand capacity to up to 100,000 audio tapes and
12,500 video tapes per week through the addition of new equipment from the
proceeds of the Offering. The Company duplicated approximately 700,000 audio
tapes and 22,500 video tapes in 1996.

The Company's duplication business specializes in relatively short
production runs involving 1,000 to 10,000 units. This segment of the market is
highly dependent on customer service. As a result, Pacific MultiMedia is well
known in the industry as a service-oriented company willing to get intimately
involved in the details associated with such small orders. Pacific MultiMedia's
customers have responded with a high incidence of repeat business.

Typical customers of the Company's duplication services include motivational
speakers, investment advisors, spiritual leaders, musicians, medical
professionals and experts in various other fields. These individuals produce
audio and video tapes for a variety of purposes with the most common uses being
resale and profit generation; training and professional development; promotion
of businesses, products and services; and spiritual guidance. Other customers
produce audio and video tapes as "value added" complements to other product
offerings. Most customers sell their tapes through catalog, mail order and
direct marketing channels. Other customers, such as multi-level marketing
organizations, use the cassettes as a "give away" item in order to promote their
businesses.

The Company's audio and video duplicating pricing is largely a function of
the component cost of the materials needed to produce the required quantity of
tapes. The principal components of a duplication

16
<PAGE>
project include raw tape stock, cassette shells, labels, and non-essential items
such as the packing box, pre-printed materials, shrink wrapping and other
optional items. The Company presently purchases fixed length tape stock and uses
subcontractors to load tapes. Management believes that the purchase of a tape
loading machine and other planned equipment purchases will significantly reduce
component costs and increase the gross profits of the duplication business.

ON-SITE (CONVENTION) RECORDING AND SALES

The Company provides high quality, on-site duplication services for
conventions and other public forums, such as conferences, seminars, religious
revivals and other public events. Under contract with the event organizers, the
Company records and duplicates audio and video tapes of the presentations made
by featured speakers at the event. Prior to the end of the day, and usually
within 20 minutes of the completion of the presentations, the event attendees
are provided an opportunity to purchase an assortment package of audio
recordings containing the presentations. Video tape recordings are duplicated
and made available to the attendees within three to four hours of the completion
of the presentations.

At most large conventions and conferences, the attendees are permitted to
select a fixed number of cassettes from the total number of recordings
available. Audio cassette tapes sold by the Company generally range from $6.00
and $10.00 per tape and video tapes generally range from $15.00 to $30.00 per
tape, depending on the quantity of tapes purchased. Most convention tape
customers choose to purchase multiple tape packages which retail for
approximately $50.00 to $80.00 for audio tapes and from $50.00 to $200.00 for
video tapes.

SHIPPING & FULFILLMENT

The Company maintains and operates a warehouse and fulfillment center that
stores client-owned materials, including books, tapes, manuals, marketing
materials and other media. Upon receipt of an order, Pacific MultiMedia packages
and ships these materials in accordance with customer specifications. Pacific
MultiMedia also drop ships materials in bulk to client-specified locations,
usually the site of a client's speaking engagement, when such client wants to
have materials on hand to sell directly.

STUDIO OPERATIONS

The Company operates a multi-track recording facility within its Fullerton
location. The studio is available for use on an hourly rental basis. Pacific
MultiMedia's studio has been used to record and edit a wide variety of
materials, including books on tape, home study courses, foreign language
studies, sales motivation techniques, management techniques and
self-improvement, and multi-level marketing organization promotions. In
addition, the Company provides support and services beyond the initial recording
session including editing, mastering and preparing tapes for duplication.

OTHER SERVICES

The Company produces professional quality message on-hold systems (recorded
messages that telephone callers hear when they are on-hold) to businesses and
consumers. Message-On-Hold ("MOH") tape recordings are standard audio tape
recordings developed in accordance with exact customer specifications. Most MOH
recordings are produced in Pacific MultiMedia's recording studio with voice
talent provided by Company personnel. These tapes are used with conventional
hardware that plug into standard business telephone systems. Most MOH recordings
are updated annually, thus creating recurring revenue opportunities for the
Company.

SALES AND MARKETING

The Company currently uses a variety of sales and marketing techniques to
promote each segment of the business. However, much of the success of the
Company's sales and marketing efforts results from its

17
<PAGE>
relationships with key personnel and organizations that have been maintained
over the years. The Company intends to hire additional sales and marketing
personnel which will be responsible for specific areas of the Company's
business. The implementation of a focused marketing effort should enhance the
Company's ability to capture market share in its targeted markets.

The Company's management directly approaches speakers at conventions,
conferences and trade shows in order to solicit duplication services and other
applicable business. The Company's presence as a subcontractor of the conference
organizer provides Pacific MultiMedia with credibility to most speakers. Many of
these speakers are members of groups and organizations being promoted by the
conference organizers. Members of these "affinity" groups often are inclined to
do business with other members of the group.

Pacific MultiMedia's success in marketing on-site recording services is
largely a result of its long-term relationships with conference organizers.
Pacific MultiMedia believes it has earned a reputation for dependability,
quality, integrity and honesty. Accordingly, the Company has experienced a high
degree of repeat business with several conference organizers. The Company also
maintains relationships with audio visual equipment rental companies. Such
companies are usually contacted by conference organizers to reserve equipment in
advance of events. Key personnel at the equipment rental companies notify
Pacific MultiMedia of many on-site recording, duplication and sales
opportunities.

The in-house studio is used by many potential duplication customers that
management has solicited at conferences, conventions and trade shows. The
Company also uses yellow page and trade advertisements to attract business
promoters, local music groups, sales and marketing organizations,
choreographers, and other potential users of its in-house studio.

EQUIPMENT

Pacific MultiMedia currently operates three audio duplication systems and
one video duplication system. Audio recordings can be duplicated in a shorter
period of time than the length of the recording. However, the quality of the
recording is largely a function of the duplication time. Ultra high quality
recordings can be obtained on the Company's Telex 6120 XLP duplicator. The Telex
6120 can make 11 reproductions from each master in 1/8th the time of the
original recording. For mass production projects which require less than ultra
high quality, the Company utilizes a portable duplication system that can
simultaneously reproduce 39 duplicate recordings from each master in 1/16th the
time of the actual recording. The Company also utilizes a Sony audio duplication
system that can simultaneously reproduce 51 recordings from each master at
1/16th the time of the actual recording.

Video duplication is performed on a Sony video duplication system capable of
simultaneously producing 20 videocassette copies from each master. Video
duplication occurs in a real-time environment. Accordingly, videocassettes are
duplicated in accordance with the length of the video. Pacific MultiMedia's
video duplication system is portable, and it is frequently used in on-site
duplication assignments.

COMPETITION

The audio and video production, duplication and fulfillment industry is
highly competitive and many of the Company's competitors have substantially
greater name recognition, customer bases, and financial, marketing and
management resources than the Company. In the audio and video tape duplication
markets, the Company competes with Cassette Productions Unlimited, Inc., Fosdick
Corporation and Audio Video Color Corporation which are larger, nationally-known
companies which have financial and personnel resources substantially in excess
of those of the Company's. In the on-site convention recording market, the
Company competes with a number of smaller, regional companies such as Convention
Cassettes Unlimited and Infomedix, both located in Southern California.
Furthermore, the audio and video production, duplication and fulfillment
business has relatively few barriers to entry. The Company attempts to compete
based on offering quality service at a reasonable price. There can be no
assurance,

18
<PAGE>
however, that the Company will be successful in improving or maintaining its
competitive position against its existing competitors or that new competitors
will not enter into the market. Any such failure to improve the Company's
competitive position VIS-A-VIS existing competitors and/or the entry of
significant new competitors into the Company's existing markets and targeted
areas for expansion will have a material and adverse effect on the Company's
ability to achieve its growth objectives. See "Risk Factors--Intense
Competition."

FACILITIES

The Company leases a 2,500 square foot two-story facility in Fullerton,
California which it has possessed since the Company commenced operations in
1991. The facility contains a recording studio, editing/control room,
duplication area, warehouse and administrative offices. The Company's most
recent 3 year lease on the premises expired in December of 1996. At that time
the Company elected not to enter into an additional long-term lease due to
uncertainty over the Company's future needs and the planned opening of a
Seattle, Washington facility. The Company currently operates on a month to month
basis and pays approximately $1650 per month in rent. The Company's tenancy is
terminable by either party on 90 days prior written notice. The Company believes
its relations with the property owners are excellent and a long term lease is
available to the Company.

After the closing of this Offering, the Company intends to open a second
production and fulfillment facility in the Seattle, Washington area. This
facility will also house the Company's executive offices. The Company believes
the Seattle market possesses demographics and characteristics which should be
very favorable for the Company's business. While the Company has not identified
specific space for its operations, it believes that suitable facilities are
available at commercially reasonable rates. See "Risk Factors--Seattle
Expansion; Dual Facilities."

EMPLOYEES

The Company currently employs 7 persons, one in productions, two in assembly
and fulfillment, two in accounting and office operations and two in marketing.
None of the Company's employees are represented by labor unions or have a
collective bargaining agreement. The Company believes its relationship with its
employees is good.

LEGAL PROCEEDINGS

The Company may from time to time become a party to various legal
proceedings arising in the normal course of its business. The Company is not
currently subject to any material legal proceedings.

THE PEARL SHARE EXCHANGE

In connection with the Offering, the Company intends to effect the Pearl
Share Exchange pursuant to which Pearl Financial will become a wholly-owned
subsidiary of the Company. See "Risk Factors--The Reorganization" and "The
Reorganization" for additional information with respect to the Pearl Share
Exchange and Pearl Financial.

19
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers key employees and directors of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------------------------------------

<S> <C> <C>
James E. Campbell.................. 45 President, Chief Executive Officer, Chief Financial Officer and Director

Craig D. Patterson................. 46 Vice President--California Operations and Director

Robert W. McMichael................ 69 Director
</TABLE>

JAMES E. CAMPBELL, III has served as the Company's President, Chief
Executive Officer and Chief Financial Officer since April 1997 and has been a
director since the Company's organization in 1991. Along with Craig Patterson,
Mr. Campbell founded the Company and he has served in a variety of management
positions since such date and has been responsible for all management, financial
and marketing operations of the Company. Prior to founding the Company, Mr.
Campbell was employed by Tape Data Media, a division of McGraw-Hill and
predecessor to the Company. At Tape Data Media, Mr. Campbell held a variety of
technical responsibilities, including Chief Engineer responsible for managing
all aspects of the engineering and recording operations.

CRAIG D. PATTERSON has served as the Company's Vice President--California
Operations since April 1997 and has been a director of the Company since
September 1997. Along with Mr. Campbell, he founded the Company in 1991 and has
served in a variety of management positions including President and has been a
member of the Board of Directors. Mr. Patterson has over 20 years of experience
in the sound engineering and recording industry. Prior to founding the Company,
Mr. Patterson was a recording engineer at Tape Data Media where he handled
production work on commercials.

ROBERT W. MCMICHAEL has been a member of the Company's Board of Directors
since April 1997. In 1950, he joined General Electric Company ("GE") where he
spent 15 years in various financial management positions. From 1963 to 1976, Mr.
McMichael held various financial and management positions with large
manufacturing and food processing companies including Allis-Chalmers in
Milwaukee, Wisconsin, International Multifoods in Minneapolis, Minnesota,
Jeffery-Galion, Inc. in Columbus, Ohio and White Motor Corporation in Cleveland,
Ohio. In 1976, Mr. McMichael purchased majority control of Trundle Consultants,
Inc., a general management consulting firm in Cleveland, Ohio and served as a
director and Chairman and Chief Executive Officer. At the same time he also
became a director and Chairman and Chief Executive Officer of Computer
Management, Inc., an affiliate of Trundle. In 1981, Mr. McMichael, with two
other partners, founded and developed Bentley Village, Inc., a $50 million
continuing-care retirement community in Naples, Florida. He served as a director
and President, Chief Executive Officer and Chief Financial Officer of Bentley
Village until 1986 and sold his interest therein in 1989. Since that time Mr.
McMichael has been retired and living in Bonita Springs, Florida.

ELECTION OF DIRECTORS AND OFFICERS

All members of the Company's Board of Directors hold office until the next
annual meeting of shareholders or until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors and are
elected annually. There are no family relationships among the directors or
officers of the Company.

BOARD COMMITTEES AND COMPENSATION

The Company's Board of Directors has two committees--an Audit Committee and
a Compensation Committee.

20
<PAGE>

The Audit Committee consists of Messrs. McMichael and Campbell. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors, and reviews
and evaluates the Company's internal control functions.

The Compensation Committee consists of Messrs. Campbell and McMichael. The
Compensation Committee administers the Company's Stock Option Plan and makes
recommendations to the Board of Directors concerning compensation for executive
officers and consultants of the Company.

The Company's directors currently do not receive cash compensation for
attendance at Board of Directors or committee meetings. However, in the future,
non-employee directors who are not significant shareholders or representatives
of significant shareholders may receive compensation for attendance and may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 1996, decisions regarding
compensation of executive officers were made by the entire Board of Directors.
Certain members of the Board of Directors have been party to transactions with
the Company since January 1, 1994. See "Certain Transactions."

EXECUTIVE COMPENSATION

The following table sets forth compensation earned during the fiscal year
ended December 31, 1996 by the Company's Chief Executive Officer and by all
directors and executive officers of the Company as a group. No executive officer
received total salary and bonus during such year in excess of $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
- ------------------------------------------- --------- ------------ ------------- --------------- ---------------

<S> <C> <C> <C> <C> <C>
James E. Campbell III
Chief Executive Officer.................. $ 21,637 -- $ 17,034(1) -- --
--------- -------------

All directors and executive officers
(2 persons).............................. $ 44,979 -- $ 28,068 -- --
--------- -------------
--------- -------------
</TABLE>

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

(1) Includes $11,033.52 attributable to equipment rental payments pursuant to
equipment leases between the Company and Mr. Campbell and $6,000 of certain
child care benefits paid by the Company.

STOCK OPTION PLAN

In April 1997, the Board of Directors adopted the 1997 Stock Option Plan
(the "Option Plan") and reserved 750,000 shares of Common Stock for issuance
upon exercise of options granted thereunder. The Option Plan is administered by
the Compensation Committee of the Board of Directors. The Option Plan permits
the Compensation Committee to select eligible persons to receive grants and to
determine certain terms and conditions of such grants, including the vesting
schedule and exercise price of each award, and whether such award will
accelerate upon the occurrence of a change of control of the Company. Options
may be granted with an option exercise price that is less than the then current
market value of such stock. The Option Plan may be amended, suspended or
terminated at any time as provided therein. However, the maximum number of
shares that may be sold or issued under the Option Plan may not be increased
without the approval of the Company's shareholders.

21
<PAGE>
BONUS PLAN

In April 1997, the Board of Directors adopted the 1997 Performance Bonus
Plan (the "Bonus Plan") which is administered by the Compensation Committee of
the Board of Directors. The Compensation Committee will select each year the
executive officers of the Company who will be eligible to receive awards under
the Bonus Plan. Upon achievement by the Company of certain targeted operating
results or other performance goals, such as operating income, pre-tax income or
net income, the Company will pay performance bonuses, the aggregate amounts of
which will be determined annually based upon an objective formula. The actual
amount of such bonuses may be proportionality greater or less than the target
bonus established for each participant, to the same extent to which the
Company's actual performance exceeds or falls short of the targeted goals.

EMPLOYMENT AGREEMENTS

Prior to closing of the Offering, the Company intends to enter into an
employment agreement with James E. Campbell, providing for a base salary of
$65,000 per year, which will remain in effect for two years from the effective
date of the agreement (July 1, 1997), unless terminated by either the Company or
Mr. Campbell at any time and for any reason, with or without cause, upon 30 days
notice to the other party. The agreement contains non-compete and
confidentiality clauses and provides that, in the event Mr. Campbell's
employment is terminated by the Company without cause, Mr. Campbell shall be
entitled to receive a severance payment equal to three months base salary
payable over three months. In addition, the Company intends to enter into an
employment agreement with Craig Patterson, providing for a base salary of
$40,000 per year, which will remain in effect for one year from the effective
date of the agreement, unless terminated by either the Company or Mr. Patterson
at any time and for any reason, with or without cause, upon 30 days notice to
the other party. The agreement contains non-compete and confidentiality clauses
and provides that, in the event Mr. Patterson's employment is terminated by the
Company without cause, Mr. Patterson shall be entitled to receive a severance
payment equal to one month base salary.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Section 23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Company's Articles of Incorporation and Bylaws require
indemnification of the Company's officers and directors to the fullest extent
permitted by Washington law. The Company also intends to secure a director's and
officer's liability insurance policy prior to the closing of this Offering.

The Company's Bylaws and Articles of Incorporation provide that the Company
shall, to the full extent permitted by the Business Corporation Act of the State
of Washington, as amended from time to time, indemnify all directors and
officers of the Company. In addition, the Company's Articles of Incorporation
contains a provision eliminating the personal liability of directors to the
Company or its shareholders for monetary damages arising out of a breach of
fiduciary duty. Under Washington law, this provision eliminates the liability of
a director for breach of fiduciary duty but does not eliminate the personal
liability of any director for (i) acts or omissions of a director that involve
intentional misconduct or a knowing violation of law, (ii) conduct in violation
of Section 23B.08.310 of the Revised Code of Washington (which section relates
to unlawful distributions) or (iii) any transaction from which a director
personally received a benefit in money, property or services to which the
director was not legally entitled.

The Company intends to enter into separate indemnification agreements with
each of its directors and officers prior to Closing of the Offering. These
agreements require the Company, among other things, to indemnify such
individuals against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from actions
not taken in good faith or in a manner the

22
<PAGE>
indemnitee believed to be opposed to the best interests of the Company) to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified and to obtain directors' insurance if available
on reasonable terms. Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers or persons 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 believes that its Articles of Incorporation and Bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.

BANKRUPTCY PROCEEDINGS OF AMERINATIONAL

AmeriNational, which formerly was a wholly-owned subsidiary of Pearl
Financial, is currently involved in bankruptcy proceedings in United States
Bankruptcy Court for the Central District of California (San Fernando Valley)
(Docket No. SV97-01537-GM). SIPC is supervising the liquidation of Amerinational
pursuant to the Securities Investor Protection Act. Mr. McMichael owns a
majority of the outstanding stock of Pearl Financial. Pearl Financial will
become a subsidiary of the Company upon completion of the Reorganization. See
"Risk Factors--Bankruptcy Proceedings of Amerinational."

CERTAIN TRANSACTIONS

From time to time, the Company has made salary advances to James Campbell
and Craig Patterson which are due on demand. Officer receivables for the years
ended December 31, 1996 and 1995 amounted to $20,730 and $18,957, respectively.

In 1996 and 1995, the Company leased certain equipment from Messrs. Campbell
and Patterson under terms of a noncancelable operating lease. Rental expense to
these officers amounted to $22,072 in each of the years ended December 31, 1996
and 1995. These leases will terminate on December 31, 1997 and the leased assets
will be contributed to the capital of the Company.

Upon closing of the Offering, the Company intends to distribute the S
Distribution to the current shareholders of the Company. See "S Corporation
Matters." In addition, prior to the closing of this Offering, the Company
intends to enter into the Stock Redemption Agreement with Craig Patterson
pursuant to which the Company will repurchase 37,000 shares of common stock of
Pacific Audio California held by Mr. Patterson in exchange for a cash payment of
$37,000, options to purchase 20,000 shares of Common Stock at an exercise price
of $5.00 per share and the Employment Agreement referred to above. See
"Management--Employment Agreements."

All future transactions with affiliates of the Company will be on terms no
more favorable to the affiliate than those available from unaffiliated third
parties and must be approved by a majority of the disinterested directors of the
Company.

23
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth the pro forma beneficial ownership of the
Common Stock as of July 31, 1997 (assuming consummation of the Reorganization at
such date), by (i) each person or entity known to the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each
director and executive officer of the Company, and (iii) all directors and
executive officers of the Company as a group. The address of each 5% beneficial
owner is 2477 E. Orangethorpe Avenue, Fullerton, California 92631. The following
share information assumes and has been adjusted to reflect the consummation of
the Pearl Share Exchange and assumes the issuance by the Company of 3,330,000
shares of Common Stock as Exchange Consideration. See "The Reorganization." See
"Management" for each individual's position with the Company.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY OWNED
TO THE OFFERING(1) AFTER THE OFFERING(1)
----------------------- ----------------------------------------
NUMBER PERCENT NUMBER
---------- ----------- ----------
PERCENT
----------------------------
NAME MAXIMUM MINIMUM
------------- -------------

<S> <C> <C> <C> <C> <C>
Robert W. McMichael.................................... 2,622,000 69.9% 2,622,000 52.4% 58.3%

James E. Campbell III.................................. 400,000 10.7 400,000 8.0 8.9

Craig D. Patterson(2).................................. 40,000 1.1 40,000 * *

All executive officers and directors as a group (3
persons)............................................. 3,062,000 81.7 3,062,000 61.2 68.0
</TABLE>

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

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.

(2) Includes currently exercisable options to acquire 20,000 shares of Common
Stock at an exercise price of $5.00 per share.

24
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, no par value per share and 5,000,000 shares of Preferred Stock.

COMMON STOCK

As of July 31, 1997, there were 100,000 shares of Common Stock outstanding
held by two shareholders of record and there were no shares of Preferred Stock
outstanding. Assuming consummation of the Reorganization as of July 31, 1997,
there were 3,750,000 shares of Common Stock outstanding held by approximately 35
shareholders of record. There will be 5,000,000 shares (assuming Maximum) or
4,500,000 shares (assuming Minimum) of Common Stock outstanding after giving
effect to the sale of 1,250,000 shares (Maximum) or 750,000 (Minimum) of Common
Stock offered hereby and after giving effect to the Reorganization.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, including the election of
directors, and do not have cumulative voting rights. The holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of liquidation, dissolution or winding up of
the Company, the holders of shares of Common Stock shall be entitled to receive
pro rata all of the assets of the Company available for distribution to its
shareholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and shares of Common Stock to be issued pursuant to this
Offering shall be fully paid and nonassessable.

PREFERRED STOCK

Pursuant to its Articles of Incorporation, the Company is authorized to
issue 5,000,000 shares of preferred stock (the "Preferred Stock"), which may be
issued from time to time in one or more classes or series or both upon
authorization by the Company's Board of Directors. The Board of Directors,
without further approval of the shareholders, is authorized to fix the dividend
rights and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each class or series of Preferred Stock. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, discourage bids for the Company's Common Stock at a premium, or
otherwise adversely affect the market price of the Common Stock. The Company has
no current plans to issue any Preferred Stock.

CERTAIN ARTICLES OF INCORPORATION, BYLAWS, AND STATUTORY PROVISIONS AFFECTING
SHAREHOLDERS

SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN
CONSENT. The Company's Articles of Incorporation require that any action
required or permitted to be taken by the Company's shareholders may be effected
at a duly called annual or special meeting of shareholders or by consent in
writing. Additionally, the Articles of Incorporation and Bylaws require that
special meetings of the shareholders of the Company may be called by a majority
of the Board of Directors or an authorized committee thereof or one or more
shareholders holding 20% or more of the outstanding shares of Common Stock.

ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Bylaws provide that shareholders seeking to bring
business before or to nominate directors at any meeting of shareholders must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than (i) with respect to an annual meeting, 120 calendar
days in advance of the date that the Company's proxy

25
<PAGE>
statement was released to shareholders in connection with the previous year's
annual meeting, except that if no annual meeting was held in the previous year
or if the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, such notice must be received by the Company a reasonable time before
the Company's proxy statement is to be released and (ii) with respect to a
special meeting of shareholders, a reasonable time before the Company's proxy
statement is to be released. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may preclude
some shareholders from bringing matters before the shareholders or from making
nominations for directors.

DIRECTOR AND OFFICER INDEMNIFICATION. The Washington Business Act provides
that a Washington corporation may include provisions in its articles of
incorporation relieving each of its directors of monetary liability arising out
of his or her conduct as a director for breach of his or her fiduciary duty
except liability for (i) acts or omissions of a director that involve
intentional misconduct or a knowing violation of law, (ii) conduct violating
Section 23B.08.310 of the Washington Business Act (which section relates to
unlawful distributions) or (iii) any transaction from which a director will
personally receive a benefit in money, property or services to which the
director was not legally entitled. The Company's Articles of Incorporation
include such provisions.

The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by the Washington Business Act, as
amended from time to time, indemnify and advance expenses to each of its
currently acting and former directors and officers, and may so indemnify and
advance expenses to each of its current and former employees and agents. The
Company believes the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers. Prior to the consummation of the
Offerings, the Company intends to enter into separate indemnification agreements
with each of its directors and executive officers in order to effectuate such
provisions.

RESTRICTIONS ON CHANGE OF CONTROL. Washington law contains certain
provisions that may have the effect of delaying, deterring or preventing a
change in control of the Company. Chapter 23B.19 of the Revised Code of
Washington ("RCW"), prohibits a "target corporation," with certain exceptions,
from engaging in certain "significant business transactions," with an "acquiring
person" who acquired more than 10% of the voting securities of the target
corporation for a period of five years after such acquisition, unless the
transaction is approved by a majority of the members of the target corporation's
board of directors prior to the date of the transaction or unless the aggregate
amount of the cash and market value of non-cash consideration received by the
holders of outstanding shares of any class or series of stock of the target
corporation is equal to certain minimum amounts. Such transactions include,
among others, a merger with, dispositions of assets to, or issuance or
redemption of stock to or from, the acquiring person, or otherwise allowing the
acquiring person to receive any disproportionate benefit as a shareholder. Such
prohibitions do not apply to any shareholders who beneficially owned ten percent
or more of the Company's outstanding voting securities prior to the time the
Common Stock was registered with the Securities and Exchange Commission pursuant
to Section 12 or 15 of the Securities Exchange Act of 1934, as amended. For
purposes of Chapter 23B.19, upon consummation of the Offering the Company will
be a "target corporation." The Company may not exempt itself from coverage of
Chapter 23B.19.

STOCK TRANSFER AGENT AND REGISTRAR

The stock transfer agent and registrar for the Company's Common Stock is
TranSecurities International, Inc., Spokane, Washington.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of the
Company. Upon completion of the Offering, the Company intends to list the Common
Stock on the PSE SCOR/Reg A marketplace. However, no assurance can be made that
an active trading market will develop, or if one does

26
<PAGE>

develop, that it will be maintained. Many of the issuers listed on the PSE
experience light trading volume and limited liquidity, especially issuers listed
on the SCOR/Reg A marketplace. Therefore, future sales of substantial amounts of
Common Stock in the public market could adversely affect market prices
prevailing from time to time. Furthermore, since only a limited number of shares
will be available for sale shortly after this Offering because of certain
contractual and legal restrictions on resale (as described below), sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity in the future.

Upon completion of this Offering, the Company will have outstanding an
aggregate of 5,000,000 shares (Maximum) or 4,500,000 shares (Minimum) of Common
Stock. The shares sold in this Offering will be freely tradable without
restriction or further registration under the Federal Securities Act, unless
purchased by an "affiliate" of the Company, as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). However, the shares to be sold in the
Offering have been registered or qualified for sale in only a limited number of
states (currently limited to California, Colorado and Florida) and may not be
sold or otherwise transferred to persons who are residents of any state in which
the shares have not been registered or qualified unless they are subsequently
registered or qualified or there exists an exemption from the applicable state's
registration requirements with respect to such sale or transfer. The Company has
undertaken to the California Department of Corporations not to apply for a
secondary trading exemption under Section 25101(b) of the California
Corporations Code (which would permit resales of the shares sold in the Offering
to California residents) for at least 90 days following completion of the
Offering. The remaining 3,750,000 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under the
Securities Act, including, but not limited to Rule 144 under the Securities Act
which is summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding; or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an Affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner except an Affiliate),
is entitled to sell such shares without complying with the manner of sale,
public information volume limitation or notice provisions of Rule 144;
therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this Offering.

The Company has reserved 750,000 shares of Common Stock for issuance under
the Option Plan. The Company may file one or more registration statements on
Form S-8 under the Securities Act to register all of the shares of Common Stock
issuable pursuant to the Option Plan. Accordingly, as such shares are registered
under such registration statements they will be, subject to Rule 144 volume
limitations applicable to Affiliates, available for sale in the open market,
except to the extent that such shares are subject to vesting restrictions with
the Company or other contractual restrictions. See "Management-- Stock Option
Plan."

27
<PAGE>
UNDERWRITING

The Common Stock will be offered for sale through Tradeway Securities Group,
Inc. as Underwriter on a best efforts basis without any underwriting commitment
for an Offering Period ending November 30, 1997, subject to extension for up to
an additional 90 days in the discretion of the Company, at $5.00 per share. The
Offering is being conducted on a Minimum/Maximum basis. No shares will be sold
unless the Company receives and accepts subscriptions for a Minimum of 750,000
shares of Common Stock and the Offering is limited to a Maximum of 1,250,000
shares of Common Stock.

As compensation in connection with the Offering, the Company will pay to the
Underwriter cash compensation in the amount of $0.40 per share sold and warrants
to purchase one share of Common Stock for every 12.5 shares sold in the Offering
(an aggregate of 100,000 shares if the Maximum is met and 60,000 shares of the
Minimum is met) at an exercise price equal to the initial public offering price
(the "Underwriter Warrants"). The Underwriter Warrants expire five years from
the date of closing of the Offering (the "Closing Date"). The shares subject to
purchase under the Underwriter Warrants may not be sold, transferred, assigned
or hypothecated for a period of one year from the Closing Date (except as
otherwise permitted under Rule 2710(c)(7)(A) of the NASD Conduct Rules).

Pearl Financial, which will become an affiliate of the Company upon
completion of the Reorganization, has borrowed funds sufficient to advance
expenses relating to the Reorganization and the Offering. Pearl Financial will
be reimbursed by the Company for such expenses from the gross proceeds of the
Offering, all which amount will be used by Pearl Financial to pay down debt
incurred in funding the Offering expenses. See "The Reorganization" and "Certain
Transactions."

The Company, all of its executive officers and directors who own Common
Stock and certain beneficial owners of the Common Stock have agreed, subject to
certain exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common Stock, now
or hereafter acquired, for a period of up to 180 days after the date of this
Prospectus without the prior written consent of the Underwriter. Together, such
shareholders own an aggregate of 3,750,000 shares of Common Stock.

The offering price for the shares of Common Stock offered hereby has been
determined by the Company based on the Company's prospects for future growth and
bears little relationship to assets, earnings, net worth or any other
traditional objective criteria of value. See "Risk Factors--Determination of
Offering Price."

The shares of Common Stock are offered when, as and if subscriptions
therefor are accepted by the Company, subject to the satisfaction of certain
conditions set forth in the Selling Agreement and to approval by counsel of
certain legal matters.

Other than as set forth above, no commissions or other fees will be paid,
directly or indirectly, by the Company, any affiliate of the foregoing or any
shareholder or officer of any of the foregoing, to any person in connection with
the solicitation of purchasers for the Common Stock.

Although acting solely on a best efforts basis, the Underwriter will
constitute an "underwriter" of the Common Stock for purposes of the Securities
Act of 1933. In the Underwriting Agreement, the Company has agreed to indemnify
the Underwriter against certain liabilities that the Underwriter may incur in
connection with the offering and sale of the Common Stock, including liabilities
under the Securities Act.

SUBSCRIPTION PROCEDURE

In order to purchase Common Stock, an investor must complete and execute a
copy of the Subscription Agreement attached hereto as Exhibit A and deliver or
mail such completed Subscription Agreement along with a check or wire transfer
for the full subscription amount in accordance with the

28
<PAGE>

instructions set forth in the Subscription Agreement. Checks should be made
payable to "First Trust N.A., as Escrow Agent for Pacific MultiMedia, Inc." All
subscriptions will be forwarded to the Escrow Agent as soon as reasonably
practicable following their receipt. The Company shall determine, in its sole
discretion, whether to accept or reject any tendered subscription, in whole or
in part. California residents must satisfy minimum suitability requirements set
forth in Section 5(c) of the Subscription Agreement.

Each subscriber will be paid the interest actually earned on his
subscription funds while such funds are held in escrow; provided that, in the
case of accepted subscriptions, interest earned on a subscription while held in
escrow will be paid to the Company when the shares of Common Stock are sold.
When interest in respect of subscription funds while held in escrow and
subscriptions themselves (if a subscription is rejected or the offering is
terminated without any Common Stock being sold) are returned to subscribers,
such payments will be effected by check. Subscription funds will be invested, to
the extent practicable, in money market instruments or comparable instruments
while held in escrow pending investment in the Common Stock and, accordingly,
will earn interest at the prevailing rates on such investments. No fees will be
charged on any subscriptions while held in escrow.

If this Offering is terminated without any Common Stock being sold, or a
subscriber's subscription is rejected, all funds remitted by the subscriber,
plus all interest actually earned thereon while held in escrow, will be returned
as soon thereafter as practicable (but in no event more than 30 calendar days
after such termination or rejection). Subscribers will be notified prior to the
return of their subscriptions, and the amounts returned to them shall in no
event be reduced by any deductions for fees or expenses.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Preston Gates & Ellis LLP, Seattle, Washington.

EXPERTS

The financial statements of Pacific Audio Recording, Inc., as of December
31, 1995 and 1996 and of Pearl Financial, Inc. as of December 31, 1996 have been
audited by Moore Stephens Frazer & Torbet, LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement. Such financial statements have been included herein in
reliance on their report given on their authority as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company intends to furnish to its shareholders annual reports containing
audited financial statements, with an opinion thereon expressed by an
independent certified public accounting firm, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.

The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form SB-2 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained at prescribed
rates from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
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
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.

29
<PAGE>

INDEX TO FINANCIAL STATEMENTS
PACIFIC AUDIO RECORDING, INC.

<TABLE>
<CAPTION>
ANNUAL AUDITED FINANCIAL INFORMATION

<S> <C>
Audit Report of Independent Auditors................................................. F-2

Balance Sheets at December 31, 1995 and 1996......................................... F-3

Statements of Income and Retained Earnings for the years ended December 31, 1995 and
1996............................................................................... F-4

Statements of Cash Flows for the years ended December 31, 1995 and 1996.............. F-5

Notes to Audited Financial Statements................................................ F-6

INTERIM UNAUDITED FINANCIAL INFORMATION

Compilation Report of Independent Auditors........................................... F-9

Balance Sheets as of June 30, 1996 and 1997.......................................... F-10

Statements of Income for the six months ended June 30, 1996 and 1997................. F-11

Statements of Shareholders' Equity for the six months ended June 30, 1996 and 1997... F-12

Statements of Cash Flows for the six months ended June 30, 1996 and 1997............. F-13

Notes to Unaudited Financial Statements.............................................. F-14
</TABLE>

PEARL FINANCIAL, INC.

<TABLE>
<CAPTION>
ANNUAL AUDITED FINANCIAL INFORMATION

<S> <C>
Audit Report of Independent Auditors................................................. F-18

Balance Sheet at December 31, 1996................................................... F-19

Notes to Audited Financial Statements................................................ F-20

INTERIM UNAUDITED FINANCIAL INFORMATION

Compilation Report of Independent Auditors........................................... F-21

Balance Sheet at June 30, 1997....................................................... F-22

Statement of Operations and Retained Earnings (Deficit) for the six months ended June
30, 1997........................................................................... F-23

Statement of Cash Flows for the six months ended June 30, 1997....................... F-24

Notes to Unaudited Financial Statements.............................................. F-25
</TABLE>

F-1
<PAGE>
AUDIT REPORT OF INDEPENDENT AUDITORS

The Shareholders
Pacific Audio Recording, Inc.
Fullerton, California

We have audited the accompanying balance sheets of Pacific Audio Recording,
Inc. as of December 31, 1995 and 1996, and the related statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These 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 financial statements referred to above present fairly,
in all material respects, the financial position of Pacific Audio Recording,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

/s/ MOORE STEPHENS FRAZER AND TORBET, LLP

Certified Public Accountants

March 11, 1997

F-2
<PAGE>

PACIFIC AUDIO RECORDING, INC.

BALANCE SHEETS

AT DECEMBER 31, 1995 AND 1996

ASSETS

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash.................................................................................... $ 4,536 $ 35,390
Accounts receivable, net of allowance for doubtful accounts of $250..................... 30,888 42,740
Inventories............................................................................. 9,874 12,555
Receivables from Pearl Financial Services, Inc.......................................... 28,108
Receivables from officers............................................................... 18,957 20,730
---------- ----------
Total current assets.................................................................. $ 64,255 $ 139,523
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................................................. $ 1,894 $ 1,894
Machinery and equipment................................................................. 54,004 82,435
Furniture and Fixtures.................................................................. 7,474 7,724
---------- ----------
Totals................................................................................ $ 63,372 $ 92,053
Less accumulated depreciation........................................................... 22,614 30,204
---------- ----------
Property and equipment, net........................................................... $ 40,758 $ 61,849
---------- ----------
OTHER ASSETS:
Deposits................................................................................ $ 3,184 $ 3,852
Organization costs, net................................................................. 46
---------- ----------
Total other assets.................................................................... $ 3,230 $ 3,852
---------- ----------
Total assets........................................................................ $ 108,243 $ 205,224
---------- ----------
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable, trade................................................................. $ 39,482 $ 99,142
Accrued liabilities..................................................................... 29,558 13,266
Current portion of capital lease liability.............................................. 6,894 12,347
Income taxes payable.................................................................... 853
---------- ----------
Total current liabilities............................................................. $ 76,787 $ 124,755
---------- ----------
LONG-TERM LIABILITIES:
Capital lease liability................................................................. $ 18,056 $ 28,021
---------- ----------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value, 1,000,000 shares authorized, 100,000 issued and
outstanding........................................................................... $ 1,000 $ 1,000
Retained earnings, Exhibit B............................................................ 12,400 51,448
---------- ----------
Total shareholders' equity............................................................ $ 13,400 $ 52,448
---------- ----------
Total liabilities and shareholders' equity.......................................... $ 108,243 $ 205,224
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-3
<PAGE>

PACIFIC AUDIO RECORDING, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------------------ -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
SALES, NET..................................................... $ 352,611 100.0 % $ 773,590 100.0%
COST OF SALES.................................................. 212,672 60.3 478,817 61.9
---------- ----- ---------- -----
GROSS PROFIT ON SALES.......................................... 139,939 39.7 294,773 38.1
---------- ----- ---------- -----
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................... 140,729 39.9 255,345 33.0
---------- ----- ---------- -----
OPERATING (LOSS) INCOME........................................ (790) (.2) 39,428 5.1
OTHER INCOME, NET OF OTHER EXPENSES............................ 2,241 .6 420
---------- ----- ---------- -----
INCOME BEFORE STATE INCOME TAXES............................... 1,451 .4 39,848 5.1
PROVISION FOR STATE INCOME TAXES............................... 800 .2 800 .1
---------- ----- ---------- -----
NET INCOME..................................................... 651 .2 % 39,048 5.0%
---------- ----- ---------- -----
----- -----
RETAINED EARNINGS, beginning of year........................... 11,749 12,400
---------- ----------
RETAINED EARNINGS, end of year................................. $ 12,400 $ 51,448
---------- ----------
---------- ----------
PRO FORMA ADJUSTMENTS:
HISTORICAL INCOME BEFORE INCOME TAXES.......................... $ 1,451 .4 % 39,848 5.1%
PRO FORMA PROVISIONS FOR INCOME TAXES.......................... 800 .2 9,100 1.1
---------- ----- ---------- -----
PRO FORMA NET INCOME........................................... 651 .2 30,748 4.0
----- -----
----- -----
PRO FORMA EARNINGS PER SHARE................................... $ .00 $ .31
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE>

PACIFIC AUDIO RECORDING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 651 $ 39,048
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 6,343 7,836
Gain on retirement of assets.......................................................... (650) (416)
Increase in accounts receivable....................................................... (10,267) (11,852)
Increase in receivables from officers................................................. (3,089) (1,773)
Decrease (increase) in inventories.................................................... 4,611 (2,681)
Increase in receivable from Pearl Financial Services, Inc............................. (28,108)
Increase in deposits.................................................................. (668)
Increase in accounts payable and accrued liabilities.................................. 17,004 43,368
Decrease in income taxes payable...................................................... (853)
---------- ----------
Net cash provided by operating activities............................................. $ 14,603 $ 43,901
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment........................................................ $ (1,178) $ (4,404)
Proceeds from sale of property and equipment............................................ 650 500
---------- ----------
Net cash used in investing activities................................................. $ (528) $ (3,904)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft.............................................................. $ (1,535) $
Repayment of note payable............................................................... (2,561)
Principal repayment of capital lease.................................................... (5,636) (9,143)
---------- ----------
Net cash used in financing activities................................................. $ (9,732) $ (9,143)
---------- ----------
NET INCREASE IN CASH...................................................................... $ 4,343 $ 30,854
CASH, beginning of year................................................................... 193 4,536
---------- ----------
CASH, end of year......................................................................... $ 4,536 $ 35,390
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH FLOW INFORMATION:
Interest paid........................................................................... $ 7,139 $ 7,818
---------- ----------
---------- ----------
Income taxes paid....................................................................... $ 800 $ 800
---------- ----------
---------- ----------
Assets acquired under capital lease..................................................... $ $ 24,561
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO AUDITED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. NATURE OF BUSINESS

Pacific Audio Recording, Inc. (the "Company") was incorporated in California
in 1991. The Company provides duplication services to producers of audio and
video recordings.

b. INVENTORIES

Inventories are stated at lower of cost or market on a first-in, first-out
basis.

c. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation, which includes
amortization of assets under capital leases, is based on the straight-line
method over the estimated useful lives of the assets.

The net gain or loss on equipment and vehicles disposed of is removed from
the accounts and the resultant gain or loss is included in earnings. Maintenance
and repairs are expensed currently. Major renewals and betterments are
capitalized.

Depreciation expense for the years ended December 31, 1995 and 1996 amounted
to $6,233 and $7,791, respectively.

d. INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
under section 1362(a) of the Internal Revenue Code (S Corporation) which
provides that, in lieu of corporation income taxes, the shareholders are taxed
on their proportionate share of the Corporation's taxable income. The Company
has also elected to be taxed as an S Corporation under provisions of the
California Tax Code which require that the income or loss of the corporation be
partially passed through to the shareholders, while income is taxed at a reduced
rate at the corporate level. The Company accounts for income taxes using the
liability method as prescribed by Statement of Financial Accounting Standards
No. 109.

SFAS 109 uses the asset and liability method which requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between tax bases and financial reporting bases of
assets and liabilities. There were no material deferred tax items at December
31, 1995 and 1996 and, accordingly, no provision has been made for such items.

e. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from those estimates.

f. CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to customers located throughout the
United States. Credit is extended based on an evaluation of the customer's
financial condition. The Company estimates its potential losses on trade
receivables on an ongoing basis and provides for anticipated losses in the
period in which the revenues are recognized. Actual losses may differ from the
Company's estimates.

F-6
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO AUDITED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the years ended December 31, 1995 and 1996, the Company's five largest
customers accounted for approximately 62% and 72% of the Company's sales,
respectively.

For the year ended December 31, 1996, sales to three customers amounted to
approximately $158,600, $134,200 and $126,400 representing 21%, 17% and 16% of
the Company's net sales, respectively. For the year ended December 31, 1995,
sales to two customers amounted to approximately $83,800 and $37,900
representing 24% and 11% of the Company's net sales, respectively.

Financial instruments potentially subject to concentration of credit risk
consist of trade receivables. At December 31, 1995 and 1996, five of the
Company's customers accounted for 74% and 93% of the total receivables,
respectively.

g. REVENUE RECOGNITION

Revenue is recognized at the date of shipment or when services are
completed.

h. EARNINGS PER SHARE

Earnings per share is based on the weighted average number of common shares
outstanding in each period.

As stated in Note 1 item d, the Company has elected to be taxed under
section 1362(a) of the Internal Revenue Code (S Corporation) which provides
that, in lieu of corporation income taxes, the shareholders are taxed on their
proportionate share of the Corporation's taxable income. A pro forma provision
for income taxes has been calculated for the years ended December 31, 1995 and
1996 to reflect the income taxes which would have applied if the Company had
been taxed at C-corporation rates in effect for those years. The earnings per
share amounts are based on the pro-forma amounts using C-corporation rates.

(2) LEASE OBLIGATIONS

The Company is obligated under operating leases expiring in 1997 for its
office facility and automobiles.

The Company leases equipment under operating leases from related parties
which expire in 1997.

The Company leases equipment under capital leases which are included in
machinery and equipment in the accompanying balance sheet. The amount of
machinery and equipment under such arrangements included in these financial
statements consisted of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Machinery and equipment................................................. $ 36,055 $ 60,616
Less accumulated depreciation........................................... 7,425 12,236
--------- ---------
Total............................................................... $ 28,630 $ 48,380
--------- ---------
--------- ---------
</TABLE>

F-7
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO AUDITED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

(2) LEASE OBLIGATIONS (CONTINUED)
Minimum lease commitments on all noncancelable leases for office facility,
equipment and vehicles as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
1997.................................................................... $ 16,554 $ 19,377
1998.................................................................... 18,682
1999.................................................................... 7,469
2000.................................................................... 6,690
2001.................................................................... 2,791
----------- ---------
Totals................................................................ $ 16,554 $ 55,009
----------- ---------
----------- ---------
Less amount representing interest................................... 14,641
---------
Present value of minimum lease payments............................. $ 40,368
---------
---------
</TABLE>

Total rental expense, including related party rental expense of $22,072 in
each of the years ended December 31, 1995 and 1996, amounted to $44,211 and
$38,777, respectively.

(3) RELATED PARTY TRANSACTIONS

Receivables from officers consist of salary advances to officers which are
due on demand. Officer receivables for the years ended December 31, 1995 and
1996 amounted to $18,957 and $20,730, respectively,

The Company leases certain equipment from officers under terms of a
noncancelable operating lease. Rental expense to related parties amounted to
$22,072 in each of the years ended December 31, 1995 and 1996.

At December 31, 1996, the Company had a receivable in the amount of $28,108
from Pearl Financial Services, Inc., a company currently negotiating with the
Company in connection with a proposed share exchange. The receivable relates to
the reimbursement of expenses incurred by the Company in connection with a
contemplated public offering of its Common Stock.

(4) THE OFFERING, PEARL SHARE EXCHANGE AND REINCORPORATION

The Company is currently engaged in plans for an initial public offering of
its Common Stock (the "Offering"). In connection with the Offering, the Company
contemplates effecting a share exchange (the "Pearl Share Exchange") with the
holders of outstanding stock of Pearl Financial Services, Inc. ("Pearl") with
the result that Pearl will become a wholly-owned subsidiary of the Company. In
addition, the Company contemplates effecting a reincorporation merger with a
newly-formed, wholly-owned subsidiary of the Company (the "Reincorporation")
after which the Company will become a Washington corporation and will change its
name to Pacific MultiMedia, Inc.

F-8

<PAGE>

COMPILATION REPORT OF INDEPENDENT AUDITORS

The Shareholders
Pacific Audio Recording, Inc.
Fullerton, California

We have compiled the accompanying balance sheet of Pacific Audio Recording,
Inc. as of June 30, 1996 and 1997 and the related statements of income,
shareholders' equity, and cash flows for the six months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.

A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and supplemental schedules and,
accordingly, do not express an opinion or any other form of assurance on them.

/s/ MOORE STEPHENS FRAZER AND TORBET, LLP
Certified Public Accountants

August 7, 1997

F-9
<PAGE>

PACIFIC AUDIO RECORDING, INC.

BALANCE SHEETS

AS OF JUNE 30, 1996 AND 1997
(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash.................................................................................... $ 12,533 $ 15,367
Accounts receivable, net of allowance for doubtful accounts of $250..................... 47,818 20,548
Inventories............................................................................. 14,180 9,788
Receivable from Pearl Financial Services, Inc........................................... 15,065
Receivables from officers............................................................... 19,431 26,671
---------- ----------
Total current assets.................................................................. $ 93,962 $ 87,439
---------- ----------
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................................................. $ 1,894 $ 1,894
Machinery and equipment................................................................. 76,742 98,730
Furniture and fixtures.................................................................. 7,724 7,724
---------- ----------
Totals................................................................................ $ 86,360 $ 108,348
Less accumulated depreciation........................................................... 26,059 35,635
---------- ----------
Property and equipment, net......................................................... $ 60,301 $ 72,713
---------- ----------

OTHER ASSETS:
Deposits................................................................................ $ 3,741 $ 3,852
---------- ----------
Total other assets.................................................................... $ 3,741 $ 3,852
---------- ----------
Total assets........................................................................ $ 158,004 $ 164,004
---------- ----------
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable, trade................................................................. $ 35,457 $ 18,701
Accrued liabilities..................................................................... 25,230 12,267
Current portion of capital lease liability.............................................. 10,509 13,667
Income taxes payable.................................................................... 853 30
---------- ----------
Total current liabilities............................................................. $ 72,049 $ 44,665
---------- ----------
LONG-TERM LIABILITIES:
Capital lease liability................................................................. $ 32,418 $ 20,840
---------- ----------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value, 1,000,000 shares authorized, 100,000 shares issued and
outstanding........................................................................... $ 1,000 $ 1,000
Retained earnings, Exhibit C............................................................ 52,537 97,499
---------- ----------
Total shareholders' equity............................................................ $ 53,537 $ 98,499
---------- ----------
Total liabilities and shareholders' equity.......................................... $ 158,004 $ 164,004
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-10
<PAGE>

PACIFIC AUDIO RECORDING, INC.

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
SALES, NET.......................................................... $ 331,647 100.0% $ 338,275 100.0%
COST OF SALES....................................................... 209,147 63.1 185,524 54.9
---------- ----- ---------- -----
GROSS PROFIT ON SALES............................................... $ 122,500 36.9% $ 152,751 45.1%
---------- ----- ---------- -----
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................................................... $ 81,563 24.6% $ 105,900 31.3%
---------- ----- ---------- -----
OPERATING INCOME.................................................... $ 40,937 12.3% $ 46,851 13.8%
PROVISION FOR STATE INCOME TAXES.................................... 800 0.2 800 0.2
---------- ----- ---------- -----
NET INCOME.......................................................... $ 40,137 12.1% $ 46,051 13.6%
---------- ----- ---------- -----
---------- ----- ---------- -----
PRO FORMA ADJUSTMENTS:
HISTORICAL INCOME BEFORE INCOME TAXES............................... $ 40,937 12.3% $ 46,851 13.8%
PRO FORMA PROVISION FOR INCOME TAXES................................ 10,400 3.1 12,900 3.8
---------- ----- ---------- -----
PRO FORMA NET INCOME................................................ $ 30,537 9.2% $ 33,951 10.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
PRO FORMA EARNINGS PER SHARE........................................ $ .30 $ .34
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-11
<PAGE>

PACIFIC AUDIO RECORDING, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER OF TOTAL
SHARES RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT EARNINGS EQUITY
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1996........................................ 100,000 $ 1,000 $ 12,400 $ 13,400
Net income..................................................... 40,137 40,137
----------- --------- --------- -------------
BALANCES, June 30, 1996.......................................... 100,000 $ 1,000 $ 52,537 $ 53,537
----------- --------- --------- -------------
----------- --------- --------- -------------
BALANCES, January 1, 1997........................................ 100,000 $ 1,000 $ 51,448 $ 52,448
Net Income..................................................... 46,051 46,051
----------- --------- --------- -------------
BALANCES, June 30, 1997.......................................... 100,000 $ 1,000 $ 97,499 $ 98,499
----------- --------- --------- -------------
----------- --------- --------- -------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-12
<PAGE>

PACIFIC AUDIO RECORDING, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 40,137 $ 46,051
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 3,491 5,431
Decrease (increase) in accounts receivable............................................ (16,930) 22,192
Increase in receivables from officers................................................. (474) (5,941)
Decrease (increase) in inventories.................................................... (4,306) 2,767
Decrease in receivable from Pearl Financial Services, Inc............................. 13,043
Increase in deposits.................................................................. (557)
Decrease in accounts payable and accrued liabilities.................................. (8,353) (81,440)
Decrease in income taxes payable...................................................... 30
---------- ----------
Net cash provided by operating activities............................................. $ 13,008 $ 2,133
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................................................... $ (1,180) $ (16,295)
---------- ----------
Net cash used in investing activities................................................. $ (1,180) $ (16,295)
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of capital lease.................................................... (3,831) (5,861)
---------- ----------
Net cash used in financing activities................................................. $ (3,831) $ (5,861)
---------- ----------

NET (DECREASE) INCREASE IN CASH........................................................... $ 7,997 $ (20,023)
CASH, beginning of period................................................................. 4,536 35,390
---------- ----------

CASH, end of period....................................................................... $ 12,533 $ 15,367
---------- ----------
---------- ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON CASH FLOW INFORMATION:
Interest paid........................................................................... $ 2,402 $ 3,829
---------- ----------
---------- ----------
Income taxes paid....................................................................... $ 800 $ 800
---------- ----------
---------- ----------
Assets acquired under capital lease..................................................... $ 21,808 $
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-13
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(SEE ACCOUNTANTS' COMPILATION REPORT)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. NATURE OF BUSINESS

Pacific Audio Recording, Inc. (the "Company") was incorporated in California
in 1991. The Company provides duplication services to producers of audio and
video recordings throughout the United States.

b. INVENTORIES

Inventories are stated at lower cost or market on a first-in, first-out
basis.

c. PROPERTY AND EQUIPMENT

Depreciation expense for the six months ended June 30, 1996 and 1997
amounted to $3,491 and $5,431, respectively.

d. INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
under section 1362(a) of the Internal Revenue Code (S corporation) which
provides that, in lieu of corporation income taxes, the shareholders are taxed
on their proportionate share of the Corporation's taxable income. The Company
has also elected to be taxed as an S corporation under provisions of the
California Tax Code which require that the income or loss of the corporation be
partially passed through to the shareholders, while income is taxed at a reduced
rate at the corporate level. The Company accounts for income taxes using the
liability method as prescribed by Statement of Financial Accounting Standards
No. 109.

SFAS 109 uses the asset and liability method which requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between tax bases and financial reporting bases of
assets and liabilities. There were no material deferred tax items at June 30,
1996 and 1997 and, accordingly, no provision has been made for such items.

e. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

f. CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to customers located throughout the
United States. Credit is extended based on an evaluation of the customer's
financial condition. The Company estimates its

F-14
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

(SEE ACCOUNTANTS' COMPILATION REPORT)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

potential losses on trade receivables on an ongoing basis and provides for
anticipated losses in the period in which the revenues are recognized. Actual
losses may differ from the Company's estimates.

For the six months ended June 30, 1996 and 1997, the Company's five largest
customers accounted for approximately 73% and 64% of the Company's net sales,
respectively.

For the six months ended June 30, 1996, sales to two customers amounted to
approximately $141,000 and $37,800 representing 43% and 11% of the Company's net
sales, respectively. For the six months ended June 30, 1996, sales to two
customers amounted to approximately $92,400 and $75,700 representing 26% and 21%
of the Company's net sales, respectively.

Financial instruments potentially subject to concentration of credit risk
consist of trade receivables. At June, 1996 and 1997, five of the Company's
customers accounted for 76% and 50% of the total receivables, respectively.

g. REVENUE RECOGNITION

Revenue is recognized at the date of shipment or when services are
completed.

h. EARNINGS PER SHARE

Earnings per share is based on the weighted average number of common shares
outstanding in each period.

As stated in Note 1 item d, The Company has elected to be taxed under
section 1362(a) of the Internal Revenue Code (S Corporation) which provides
that, in lieu of corporation income taxes, the shareholders are taxed on their
proportionate-share of the Corporation's taxable income. A pro forma provision
for income taxes has been calculated for the six months ended June 30, 1996 and
1997 to reflect the income taxes which would have applied if the Company had
been taxed at C-corporation rates in effect for those years. The earnings per
share amounts are based on the pro-forma amounts using C-corporation rates.

(2) LEASE OBLIGATIONS

The Company is obligated under operating leases expiring in 1997 for its
office facility and automobiles.

The Company leases equipment under operating leases from related parties
which expire in 1997.

The Company leases equipment under capital leases which are included in
machinery and equipment in the accompanying balance sheet. The amount of
machinery and equipment under such arrangements in these financial statements
consisted of the following as of June 30:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Machinery and equipment................................................. $ 57,863 $ 60,616
Less accumulated depreciation........................................... 9,409 15,266
--------- ---------
Total............................................................... $ 48,454 $ 45,350
--------- ---------
--------- ---------
</TABLE>

F-15
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

(SEE ACCOUNTANTS' COMPILATION REPORT)

(2) LEASE OBLIGATIONS (CONTINUED)

Minimum lease commitments on all noncancelable capital leases for office
facility, equipment and vehicles as of June 30, 1997 are as follow:

<TABLE>
<CAPTION>
YEAR ENDING CAPITAL
JUNE 30, LEASES
------------ -----------
<S> <C>
1998............................................................................... $ 19,377
1999............................................................................... 13,006
2000............................................................................... 6,801
2001............................................................................... 6,133
Thereafter......................................................................... --
-----------
Totals......................................................................... $ 45,312
Less amount representing interest............................................ 10,810
-----------
Present value of minimum lease payments...................................... $ 34,507
-----------
-----------
</TABLE>

Total rental expense, including related party rental expenses of $11,034 in
each of the six months ended June 30, 1996 and 1997 amounted to $18,811 and
$21,064, respectively.

(3) RELATED PARTY TRANSACTIONS

Receivable from officers consist of salary advances to officers which are
due on demand. Officer receivable as of June 30, 1996 and 1997 amounted to
$19,431 and $26,671, respectively.

The Company leases certain equipment from officers under terms of a
noncancelable operating lease. Rental expense to related parties amounted to
$11,034 in each of the six months ended June 30, 1996 and 1997.

At June 30, 1997, the Company had a receivable in the amount of $15,065 from
Pearl Financial Services, Inc., a company currently negotiating with Pacific
Audio Recording, Inc. in connection with a proposed share exchange. The
receivable relates to the reimbursement of expenses incurred by Pacific Audio
Recording, Inc. in connection with a contemplated public offering of stock.

(4) THE OFFERING, PEARL SHARE EXCHANGE AND REINCORPORATION

(5) PRO FORMA INFORMATION

The following pro-forma combined balance sheets and income statements
reflect the consummation of the Reincorporation and the Pearl Share Exchange as
of June 30, 1997 and for the six month period

F-16
<PAGE>

PACIFIC AUDIO RECORDING, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

(SEE ACCOUNTANTS' COMPILATION REPORT)

(5) PRO FORMA INFORMATION (CONTINUED)

then ended reflecting the consummation of the Offering based on sale of both a
Minimum (750,000 shares) and Maximum (1,250,000 shares) number of shares offered
therein.

PRO-FORMA COMBINED BALANCE SHEETS
AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
MINIMUM MAXIMUM
SUBSCRIPTION SUBSCRIPTION
------------ ------------
<S> <C> <C>
ASSETS

Current assets:
Cash................................................................................ $ 2,216,922 $ 4,516,922
Other current assets................................................................ 57,007 57,007
------------ ------------
Total current assets.............................................................. $ 2,273,929 $ 4,573,929

Property and equipment, at cost, net.................................................. 72,713 72,713

Other assets.......................................................................... 3,852 3,852
------------ ------------
Total assets...................................................................... $ 2,350,494 $ 4,650,494
------------ ------------
------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities................................................................... $ 271,805 $ 271,805
------------ ------------
Long-term liabilities................................................................. $ 20,840 $ 20,840
------------ ------------
Shareholders' equity:
Capital............................................................................. $ 2,203,000 $ 4,503,000
Retained earnings (deficit)......................................................... (145,151) (145,151)
------------ ------------
Total shareholders' equity........................................................ $ 2,057,849 $ 4,357,849
------------ ------------
Total liabilities and shareholders' equity...................................... $ 2,350,494 $ 4,650,494
------------ ------------
------------ ------------
</TABLE>

PRO-FORMA COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>
MINIMUM MAXIMUM
SUBSCRIPTION SUBSCRIPTION
------------ ------------
<S> <C> <C>
ASSETS

Sales, net............................................................................ $ 338,275 $ 338,275

Cost of sales......................................................................... 185,524 185,524
------------ ------------
Gross profit on sales................................................................. $ 152,751 $ 152,751
------------ ------------
Selling, general and administrative expenses.......................................... $ 188,834 $ 188,834
------------ ------------
Net loss.............................................................................. $ (36,083) $ (36,083)
------------ ------------
------------ ------------
Earnings per share (4,500,000 and 5,000,000, shares respectively)..................... $ (.01) $ (.01)
------------ ------------
------------ ------------
</TABLE>

F-17
<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Shareholders
Pearl Financial Services, Inc.
Bellingham, Washington

We have audited the accompanying balance sheet of Pearl Financial Services,
Inc. (a Washington Corporation), as of December 31, 1996. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Pearl Financial Services, Inc., as
of December 31, 1996 in conformity with generally accepted accounting
principles.

The accompanying balance sheet has been prepared assuming that the Company
will continue as a going concern. As discussed in Note 4 to the financial
statements, the Company has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 4. The balance sheet does not
include any adjustments that might result from the outcome of this uncertainty.

/s/ MOORE STEPHENS FRAZER AND TORBET, LLP
Certified Public Accountants

August 25, 1997

F-18
<PAGE>

PEARL FINANCIAL SERVICES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash........................................................................... $ 2,382
Deposit........................................................................ 300
---------
Total assets............................................................... $ 2,682
---------
---------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Account payable................................................................ $ 28,108
Accrued liabilities............................................................ 16,490
Loan payable................................................................... 115,500
Loan payable, shareholder...................................................... 1,100
---------
Total current liabilities.................................................. $ 161,198
---------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 100,000,000 shares authorized,
12,451,433 shares issued and outstanding..................................... $ 2,000
Retained earnings (deficit).................................................... (160,516)
---------
Total shareholders' equity (deficit)....................................... $(158,516)
---------
Total liabilities and shareholders' equity (deficit)..................... $ 2,682
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-19
<PAGE>

PEARL FINANCIAL SERVICES, INC.

NOTES TO AUDITED FINANCIAL STATEMENT

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. ORGANIZATION

Pearl Financial Services, Inc. (the "Company") was incorporated under the
laws of the State of Washington on June 12, 1995.

The Company was formed to own the stock of AmeriNational Financial Services,
Inc. ("AmeriNational"). In July of 1996, AmeriNational filed for bankruptcy and
is in the process of being liquidated by the Securities Investor Protection
Corporation. Based on advice of legal counsel, management is of the opinion that
no additional liabilities will result to Pearl Financial Services, Inc. as a
result of this liquidation proceeding.

2. ACCOUNT PAYABLE

At December 31, 1996 the Company had a payable in the amount of $28,108 to
Pacific Audio Recording, Inc., a company currently negotiating with Pearl
Financial Services, Inc. in connection with a proposed share exchange. The
payable relates to the reimbursement of expenses incurred by Pacific Audio
Recording, Inc. in connection with a contemplated public offering of stock.

3. LOANS PAYABLE

The Company has a loan payable for $115,500. The loan is unsecured,
non-interest bearing and payable on demand. The Company also has a loan payable
to one of its shareholders in the amount of $1,100. This loan is unsecured,
non-interest bearing and payable on demand.

4. LIQUIDITY

At December 31, 1996 the Company has a net capital deficiency and current
liabilities exceed current assets by $158,516. The Company is currently
negotiating with Pacific Audio Recording, Inc. in connection with a proposed
share exchange and a subsequent public offering of stock. The continuing
existence of the Company as a going concern is dependent on the execution of the
proposed share exchange and the infusion of capital through the public stock
offering.

F-20
<PAGE>

COMPILATION REPORT OF INDEPENDENT AUDITORS

To The Shareholders
Pearl Financial Services, Inc.
Bellingham, Washington

We have compiled the accompanying balance sheet of Pearl Financial Services,
Inc. (a Washington Corporation), as of June 30, 1997 and the related statement
of operations and retained earnings (deficit), and cash flows for the six months
ended June 30, 1997, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.

A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has operating losses and a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 4. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ MOORE STEPHENS FRAZER AND TORBET, LLP
Certified Public Accountants

September 22, 1997

F-21
<PAGE>

PEARL FINANCIAL SERVICES, INC.

BALANCE SHEET

AS OF JUNE 30, 1997

(SEE ACCOUNTANTS' COMPILATION REPORT)

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS:
Cash........................................................................... $ 1,405
Deposit........................................................................ 150
---------
Total assets................................................................. $ 1,555
---------
---------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................................... $ 19,958
Loan payable................................................................... 219,747
Loan payable, shareholder...................................................... 1,100
---------
Total current liabilities.................................................... $ 240,805
---------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 100,000,000 shares authorized, 12,451,433 shares
issued and outstanding....................................................... $ 2,000
Retained earnings (deficit).................................................... (241,250)
---------
Total shareholders' equity (deficit)......................................... $(239,250)
---------
Total liabilities and shareholders' equity (deficit)....................... $ 1,555
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-22
<PAGE>

PEARL FINANCIAL SERVICES, INC.

STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 1997

(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<S> <C>
INVESTMENT AND INTEREST INCOME:
Total investment and interest income......................................... $ 0
---------
OPERATING EXPENSES:
Accounting..................................................................... $ 5,236
Legal fees..................................................................... 49,802
Registration expenses.......................................................... 22,162
Consulting fees................................................................ 1,750
Office services................................................................ 214
Rent........................................................................... 900
Telephone...................................................................... 497
Government licensing fees...................................................... 59
Bank charges................................................................... 114
---------
Total operating expenses..................................................... $ 80,734
---------
NET LOSS......................................................................... $ (80,734)
RETAINED EARNINGS (DEFICIT), beginning of period................................. (160,516)
---------
RETAINED EARNINGS (DEFICIT), end of period....................................... $(241,250)
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-23
<PAGE>

PEARL FINANCIAL SERVICES, INC.

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1997

(SEE ACCOUNTANTS' COMPILATION REPORT)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss....................................................................... $ (80,734)
---------
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease in deposits......................................................... $ 150
Decrease in accounts payable and accrued liabilities......................... (24,640)
---------
Total adjustments............................................................ $ (24,490)
---------
Net cash used in operating activities........................................ $(105,224)
---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from loans............................................................ $ 104,247
---------
NET DECREASE IN CASH............................................................. $ (977)
Cash, beginning of period........................................................ 2,382
---------
Cash, end of period.............................................................. $ 1,405
---------
---------

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................................................. $ 0
---------
---------
Income taxes paid.............................................................. $ 0
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-24
<PAGE>

PEARL FINANCIAL SERVICES, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(SEE ACCOUNTANTS' COMPILATION REPORT)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. ORGANIZATION

Pearl Financial Services, Inc. (the "Company") was incorporated under the
laws of the State of Washington on June 12, 1995.

The Company was formed to own the stock of AmeriNational Financial Services,
Inc. ("AmeriNational"). In July of 1996 AmeriNational filed for bankruptcy and
is in the process of being liquidated by the Securities Investor Protection
Corporation. Based on advice of legal counsel, management is of the opinion that
no additional liabilities will result to Pearl Financial Services, Inc. as a
result of this liquidation proceeding.

b. USE OF ESTIMATES

2. ACCOUNTS PAYABLE

At June 30, 1997 the Company had a payable in the amount of $15,065 to
Pacific Audio Recording, Inc., a company currently negotiating with Pearl
Financial Services, Inc., in connection with a proposed share exchange. The
payable relates to the reimbursement of expenses incurred by Pacific Audio
Recording, Inc. in connection with a contemplated public offering of stock. This
payable is included in accounts payable and accrued liabilities.

3. LOANS PAYABLE

The company has a loan payable for $219,747. The loan is unsecured,
non-interest bearing and payable on demand. The Company also has a loan payable
to one of its shareholders in the amount of $1,100. This loan is unsecured,
non-interest bearing and payable on demand.

4. GOING CONCERN

At June 30, 1997 the Company has a net capital deficiency and current
liabilities exceed current assets by $239,250. The Company is currently
negotiating with Pacific Audio Recording, Inc. in connection with a proposed
share exchange and a subsequent public offering of stock. The continuing
existence of the Company as a going concern is dependent on the execution of the
proposed share exchange and the infusion of capital through the public stock
offering.

F-25
<PAGE>
[LOGO]

SUBSCRIPTION AGREEMENT

INSTRUCTIONS

In order to subscribe for shares of Common Stock of Pacific MultiMedia, Inc.
(the "Company"), please fully complete and sign the Subscription Agreement and
Form W-9 attached hereto. Please return your completed Subscription Agreement
and Form W-9 together with a check for the full subscription amount to either
the Company or the Underwriter at the address set forth below:

<TABLE>
<S> <C>
IF TO THE COMPANY: IF TO THE UNDERWRITER:

Pacific MultiMedia, Inc. Tradeway Securities Group, Inc.
2477 E. Orangethorpe Avenue 18401 Von Karman Avenue
Fullerton, CA 92631 Suite 400
Attention: James E. Campbell Irvine, CA 92715
Attention: Mark Riviello
</TABLE>

Checks should be made payable to "First Trust NA, as Escrow Agent for
Pacific MultiMedia, Inc." All subscriptions will be forwarded to the escrow
agent by noon of the next business day following their receipt.

Investors may also return their completed Subscription Agreement and Form
W-9 to the Company or the Underwriter at the address set forth above and wire
transfer the full subscription amount directly to the Escrow Agent in accordance
with the following instructions:

First Bank N.A.
ABA #091000022
Beneficiary: First Trust
Credit Account #180121167365
For further Credit to Account 47300029
Re: Pacific Multimedia, Inc.
[insert name of subscriber]
Attn: Seattle Office/(Shirley Young 461-4126)

(Detach and remove along perforation)

S-1
<PAGE>
PACIFIC MULTIMEDIA, INC.
SUBSCRIPTION AGREEMENT

1. The undersigned (the "Subscriber") hereby offers to purchase shares of
common stock (the "Shares") of Pacific MultiMedia, Inc., a Washington
corporation (the "Company"), under the terms of this agreement (the
"Subscription"). The Subscriber understands that the Shares are offered subject
to prior sales and to withdrawal, cancellation or modification of the offer and
subject to the right of the Company to reject this Subscription in whole or in
part.

2. NUMBER OF SHARES. The Subscriber hereby offers to purchase
_______________ Shares at a cash price of $5.00 per share, or $_______________
in the aggregate, which shall be payable by check, bank draft or money order to
the order of "First Trust NA, as Escrow Agent for Pacific MultiMedia, Inc" or by
wire transfer to the account set forth on the previous page.

3. SUBSCRIPTION IRREVOCABLE. This Subscription shall be irrevocable after
acceptance by the Company, shall survive the death or disability of the
Subscriber, and is subject to all the terms and provisions contained in the
Prospectus of the Company relating to the offering of the Shares (the
"Prospectus"). This Subscription may be accepted on behalf of the Company by one
of its officers executing this Subscription in the space provided below. In the
event the Subscription is not accepted by the Company, the Subscription funds
shall be returned and this Subscription shall be null and void.

4. REPRESENTATION BY SUBSCRIBER. The Subscriber hereby represents to the
Company that:

a) Subscriber, individually, is a resident of ________________________
[PRINT STATE OR TERRITORY] or if a partnership, limited liability
company, corporation, trust or other entity, is domiciled in
________________________ [PRINT STATE OR TERRITORY].

b) Subscriber has been furnished and has thoroughly read and understands
the Prospectus.

c) Subscriber has not relied upon any oral or written representation
statement, except those contained in the Prospectus.

d) Subscriber acknowledges that no oral or written statement or
inducement which is contrary to the information set forth in the
Prospectus has been made by or on behalf of the Company to the
Subscriber or his or her advisors, if any.

e) Subscriber (i) has adequate means of providing for his or her current
needs and possible personal contingencies, (ii) has no need for
liquidity in this investment, (iii) believes that the nature and
amount of such investment is suitable for him or her and consistent
with his or her overall investment program and financial position,
(iv) believes that his or her overall commitment to investments which
are not readily marketable is not disproportionate to his or her net
worth and the investment in the Shares will not cause such overall
investment to become excessive, (v) is under no present or
contemplated future need to dispose of any of the Shares to satisfy
any existing or contemplated undertaking, need or indebtedness, (vi)
is able to bear the economic risks of his or her investment in the
Shares, and (vii) at the present time, can afford a complete loss of
such investment.

5. ADDITIONAL REPRESENTATIONS.

a) If the Subscriber is an individual, the Subscriber hereby represents
to the Company that (i) he or she is at least 21 years old, and (ii)
he or she has the legal capacity to execute, deliver and perform this
Subscription.

b) If the Subscriber is a corporation, partnership, trust or other form
of legal entity, the Subscriber hereby represents to the Company that
(i) the Subscriber is duly organized and validly existing under the
laws of its jurisdiction of formation, (ii) it is authorized and
otherwise duly empowered

S-2
<PAGE>

to acquire and own the Shares subscribed hereby and to execute this
Subscription, (iii) it was not formed for the specific purpose of
acquiring an investment in the Company, and (iv) this Subscription is
a valid and binding obligation of Subscriber, enforceable against it
in accordance with its terms.

c) If Subscriber is an individual resident in the State of California,
Subscriber has either (i) a minimum annual gross income of $65,000
and a minimum net worth of at least $250,000 or (ii) a minimum net
worth of at least $500,000 regardless of annual gross income (net
worth is determined exclusive of equity in Subscriber's home,
furnishings or automobiles). In addition, a California resident's
investment in the shares offered hereby may not exceed 10% of his or
her net worth.

6. INDEMNIFICATION. The Subscriber agrees to indemnify and hold harmless
the Company, its officers, directors, employees, shareholders and affiliates,
and any person acting on behalf of the Company, from and against any and all
damage, loss, liability, cost and expense (including attorney's fees) which any
of them may incur by reason of the failure by the Subscriber to fulfill any of
the terms or conditions of this Subscription, or by reason of any breach of the
representations and warranties made by the Subscriber herein, or in any other
document provided by the Subscriber to the Company. All representations,
warranties and covenants contained in this Subscription and the indemnification
contained in this Section 6, shall survive the acceptance of this Subscription.

7. VERIFICATION. The Subscriber hereby authorizes the Company to verify any
of the information set forth in this Subscription. The Subscriber understands
that he or she may be required to furnish additional information.

8. APPLICABLE LAW. This Subscription shall be construed in accordance with
and governed by the laws of the State of Washington.

9. BINDING EFFECT. This Subscription shall be binding upon and inure to the
benefit of the parties hereto and their heirs, legal representatives,
successors, and permitted assigns.

10. ENTIRE AGREEMENT; MODIFICATION. This Subscription constitutes the entire
agreement among the parties pertaining to the purchase of the Shares, as set
forth herein, and supersedes any prior understanding, and neither this
Subscription or any provisions hereof shall be waived, modified or terminated
except by an instrument in writing signed by the party against whom any waiver,
modification or termination is sought.

11. ASSIGNABILITY. The Subscriber agrees not to transfer or assign this
Subscription or any of the Subscriber's interests herein.

12. TYPE OF OWNERSHIP. The Subscriber wishes to own his or her Shares as
follows (initial one):

[ ] Individually

[ ] Trust (include name of trust, name(s) of trustee, and include a
copy of the trust instrument);

[ ] Limited liability company (include copy of limited liability
company or operating agreement);

[ ] Partnership (include a copy of the partnership agreement and
written consent of all general partners authorizing signature);

[ ] Corporation (include a copy of articles of incorporation and
certified corporate resolution authorizing subscription); or

[ ] Other (indicate):

S-3
<PAGE>
The name(s) in which the Shares are to be held is:

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

The undersigned hereby represents that he or she has read this Subscription
Agreement in its entirety and has duly executed and delivered this Subscription
Agreement as of the date set forth below.

<TABLE>
<S> <C>
Dated: , 1997.

- ------------------------------------------ ------------------------------------------
Signature ** Signature **

- ------------------------------------------ ------------------------------------------
Print or Type Name Print or Type Name

- ------------------------------------------ ------------------------------------------
Social Security or Tax ID No. Social Security or Tax ID No.

- ------------------------------------------ ------------------------------------------
Street Address Street Address

- ------------------------------------------ ------------------------------------------
City State Zip City State Zip

- ------------------------------------------ ------------------------------------------
Telephone Number Telephone Number
</TABLE>

** If a partnership, limited liability company, corporation or other entity, the
signature should be in the name of the entity followed by the authorized
signature and title of the signature.

S-4
<PAGE>
ACCEPTANCE OF SUBSCRIPTION

This Subscription Agreement is hereby accepted by and on behalf of the
Company as of the date set forth below.

Dated: ________________________, 1997

PACIFIC MULTIMEDIA, INC.

By: _________________________________

James E. Campbell, III
President and Chief Executive Officer

S-5
<PAGE>

<TABLE>
<S> <C> <C>
Form W-9 REQUEST FOR TAXPAYER GIVE FORM TO THE
(Rev. December 1996) IDENTIFICATION NUMBER AND REQUESTER. DO NOT
Department of the Treasury CERTIFICATION SEND TO THE IRS.
Internal Revenue Service
</TABLE>

PLEASE PRINT OR TYPE
Name (If a joint account or you changed your name, see SPECIFIC INSTRUCTIONS
on page 2.)

-----------------------------------------------------------------------------
Business name, if different from above. (See SPECIFIC INSTRUCTIONS on page
2.)

-----------------------------------------------------------------------------
Check appropriate box: / / Individual/Sole proprietor
/ / Corporation / / Partnership / / Other ...............

<TABLE>
<S> <C> <C>
Address (number, street, and apt. or suite no.) Requester's name and address (optional)
- --------------------------------------------------------------------------------
City, state, and ZIP code
- --------------------------------------------------------------------------------
- ---------
PART I TAXPAYER IDENTIFICATION NUMBER (TIN) List account number(s) here (optional)
- --------------------------------------------------------------------------------

Enter your TIN in the appropriate box. For individuals,
this is your social security number (SSN). However,
if you are a resident alien OR a sole proprietor, see
the instructions on Page 2.
For other entities, it is your employer identification
number (EIN). If you do not have a number, see HOW
TO GET A TIN on Page 2.
NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE
THE CHART ON PAGE 2 FOR GUIDELINES ON WHOSE NUMBER
TO ENTER.
Social security number
- ----------------
OR
Employment identification number
- --------------
------------ FOR PAYEES EXEMPT FROM BACKUP
PART II WITHHOLDING (See the
Instructions on page 2.)
- ------------
PART III CERTIFICATION
</TABLE>

Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return. For
real estate transactions, item 2 does not apply. For mortgage interest paid,
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally,
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (See the instructions on
page 2.)

<TABLE>
<S> <C>
SIGN
HERE SIGNATURE DATE
</TABLE>

PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must get your correct taxpayer identification number (TIN) to report,
for example, income paid to you, real estate transactions, mortgage interest you
paid, acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the person requesting it (the
requester) and, when applicable to:
1. Certify the TIN you are giving is correct (or you are waiting for a number
to be issued),
2. Certify you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are an exempt payee.
NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN A W-9 TO REQUEST YOUR TIN, YOU
MUST USE THE REQUESTER'S FORM IF IT IS SUBSTANTIALLY SIMILAR TO THIS FORM W-9.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that may be subject to
backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requestor your correct TIN, make the proper certifications,
and report all your taxable interest and dividends on your tax return, payments
you receive will not be subject to backup withholding. Payments you receive WILL
be subject to backup withholding if:
1. You do not furnish your TIN to the requestor, or
2. The IRS tells the requestor that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because you
did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
4. You do not certify to the requestor that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN when required. See the Part III Instructions on
page 2 for details.
Certain payees and payments are exempt from backup withholding. See the Part
II Instructions and the separate INSTRUCTIONS FOR THE REQUESTER OF FORM W-9.
PENALTIES
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a requestor,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal
law, the requester may be subject to civil and criminal penalties.

- --------------------------------------------------------------------------------
Cat. No. 10231X Form W-9 (Rev. 12-96)
<PAGE>
Form W-9 (Rev. 12-96) Page 2
- --------------------------------------------------------------------------------

SPECIFIC INSTRUCTIONS

NAME.--If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for instance,
due to marriage, without informing the Social Security Administration of the
name change, enter your first name, the last name shown on your social security
card and your new last name.

If the account is in joint names, list first and then circle the name of the
person or entity whose number you enter in Part I of the form.

SOLE PROPRIETOR.--You must enter your INDIVIDUAL name as shown on your
social security card. You may enter your business, trade, or "doing business as"
name on the BUSINESS NAME line.

OTHER ENTITIES.--Enter the business name as shown on required Federal tax
documents. This name should match the name shown on the charter or other legal
document creating the entity. You may enter any business, trade, or "doing
business as" name on the business name line.

PART I--TAXPAYER IDENTIFICATION NUMBER
(TIN)

You must enter your TIN in the appropriate box. If you are a resident alien and
you do not have and are not eligible to get an SSN, your TIN is your IRS
individual taxpayer identification number (ITIN). Enter it in the social
security number box. If you do not have an ITIN, see HOW TO GET A TIN BELOW.
If you are a sole proprietor and you have an EIN, you may enter either your
SSN or EIN. However, using your EIN may result in unnecessary notices to the
requester.

NOTE: SEE THE CHART ON THIS PAGE FOR FURTHER CLARIFICATION OF NAME AND TIN
COMBINATIONS.

HOW TO GET A TIN.--If you do not have TIN, apply for one immediately. To apply
for an SSN, get FORM SS-5 from your local Social Security Administration office.
Get FORM W-7 to apply for an ITIN or FORM SS-4 to apply for an EIN. You can get
Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676).

If you do not have a TIN, write "Applied For" in the space for the TIN, sign
and date the form, and give it to the requester. For interest and dividend
payments, and certain payments made with respect to readily tradable
instruments, you will generally have 60 days to get a TIN and give it to the
requester. Other payments are subject to backup withholding.

NOTE. WRITING "APPLIED FOR" MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR
THAT YOU INTEND TO APPLY FOR ONE SOON.

PART II--FOR PAYEES EXEMPT FROM
BACKUP WITHHOLDING

Individuals (including sole proprietors) are NOT exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest end dividends. For more information on exempt payees, see the separate
instructions for the Requester of Form W-9.

If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form.

If you are a nonresident alien or a foreign entity not subject to backup
withholding give the requester a completed FORM W-8, Certificate of Foreign
Status.

PART III--CERTIFICATION

For a joint account, only the person whose TIN is shown in Part I should sign
(when required).

1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.

2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out Item 2 in the certification before signing the form.

3. REAL ESTATE TRANSACTIONS. You must sign the certification. You must
cross out Item 2 of the certification.

4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified that you have previously
given an incorrect TIN, "Other payments" include payments made in the course of
the requester's trade or business for rents, royalties, goods (other than bills
for merchandise), medical and health care services (including payments to
corporations), payments to a nonemployee for services (including attorney and
accounting fees), and payments to certain fishing boat crew members.

5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your
correct TIN, but you do not have to sign the certification.

PRIVACY ACT NOTICE

Section 6109 of the Internal Revenue Code requires you to give your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends,

and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws.

You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties may also apply.

WHAT NAME AND NUMBER TO GIVE THE REQUESTER

<TABLE>
<S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
1. Individual The individual
2. Two or more The actual owner of the account or, if
individuals (joint combined funds, the first individual
account) on the account
3. Custodian account of The minor (2)
a minor (Uniform Gift
to Minors Act)
4. a. The usual The grantor-trustee (1)
revocable savings
trust (grantor is
also trustee)
b. So-called trust The actual owner (1)
account that is not
a legal or valid trust
under state law
5. Sole proprietorship The owner (2)
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
6. Sole proprietorship The owner (3)
7. A valid trust, estate, or Legal entity (4)
pension trust
8. Corporation The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a state or local
government, school
district, or prison) that
receives agricultural
program payments
</TABLE>

(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.

(2) Circle the minor's name and furnish the minor's SSN.

(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN (if you have one).

(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)

NOTE: IF NO NAME IS CIRCLED WHEN MORE THAN ONE NAME IS LISTED, THE NUMBER WILL
BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.

[PRINTED ON RECYCLED PAPER]
*U.S. Government Printing Office. 1997 -- 417-677/60044
<PAGE>

Form W-9 REQUEST FOR TAXPAYER GIVE FORM TO THE
Rev. December 1996) IDENTIFICATION NUMBER REQUESTER. DO NOT
Department of the AND CERTIFICATION SEND TO THE IRS.
Treasury
Internal Revenue
Service

PLEASE PRINT OR TYPE

- --------------------------------------------------------------------------------
Name (if a joint account or you changed your name, see SPECIFIC INSTRUCTIONS on
page 2).

- --------------------------------------------------------------------------------
Business name, if different from above. (See SPECIFIC INSTRUCTIONS on page 2.)

- --------------------------------------------------------------------------------
Check appropriate box: / / Individual/Sole proprietor / / Corporation
/ / Partnership / / Other > ...............
- --------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.) Requester's name
and address
(optional)
- ----------------------------------------------
City, state, and ZIP code

- --------------------------------------------------------------------------------
PART I. TAXPAYER IDENTIFICATION NUMBER (TIN) List account
- ---------------------------------------------- number(s)
Enter your TIN in the appropriate box. For here
individuals, this is your social security (optional)
number (SSN). However, if you are a resident
alien OR a sole proprietor, see the -----------------------
instructions on page 2. Social security number
For other entities, it is your employer - -
identification number (EIN). If you do -----------------------
not have a number, see HOW TO GET A TIN OR
on page 2. -----------------------
Employee identification
number
-
-----------------------
NOTE: IF THE ACCOUNT IS IN MORE THAN ONE PART II. FOR PAYEES EXEMPT FROM
NAME, SEE THE CHART ON PAGE 2 FOR BACKUP WITHHOLDING (see
GUIDELINES ON WHOSE NUMBER TO ENTER. the instructions on
page 2.)
----------------------------------
>
- --------------------------------------------------------------------------------
PART III. CERTIFICATION
- --------------------------------------------------------------------------------
Under penalties of perjury, I certify that:

1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and

2. I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding.

CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding
because you have failed to report all interest and dividends on your tax
return. For real estate transactions, item 2 does not apply. For mortgage
interest paid, acquisition or abandonment of secured property, cancellation
of debt, contributions to an individual retirement arrangement (IRA), and
generally, payments other than interest and dividends, you are not required
to sign the Certification, but you must provide your correct TIN. (See the
instructions on page 2.)
- --------------------------------------------------------------------------------
SIGN
HERE SIGNATURE > DATE >
- --------------------------------------------------------------------------------
Cat. No. 10231X Form W-9 (Rev. 12-96)

<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 3
The Reorganization............................. 8
Use of Proceeds................................ 9
Dividend Policy................................ 9
S Corporation Matters.......................... 9
Dilution....................................... 10
Capitalization................................. 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12
Business....................................... 15
Management..................................... 20
Certain Transactions........................... 23
Principal Shareholders......................... 24
Description of Capital Stock................... 25
Shares Eligible for Future Sale................ 26
Underwriting................................... 28
Subscription Procedure......................... 28
Legal Matters.................................. 29
Experts........................................ 29
Additional Information......................... 29
Index to Financial Statements.................. F-1
Subscription Agreement......................... S-1
</TABLE>

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

UNTIL 90 DAYS AFTER THE OFFERING DATE (AS DETERMINED UNDER RULE 174 OF THE
SECURITIES ACT OF 1933), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT 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.

1,250,000 SHARES

[LOGO]

COMMON STOCK
(NO PAR VALUE)

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

PROSPECTUS
---------------------

TRADEWAY SECURITIES
GROUP, INC.

, 1997

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Company's Articles of Incorporation and Bylaws require
indemnification of the Company's officers and directors to the fullest extent
permitted by Washington law. The Company also maintains director's and officer's
liability insurance.

Company's Bylaws and Articles of Incorporation provide that the Company
shall, to the full extent permitted by the Business Corporation Act of the State
of Washington, as amended from time to time, indemnify all directors and
officers of the Company. In addition, the Company's Articles of Incorporation
contains a provision eliminating the personal liability of directors to the
Company or its shareholders for monetary damages arising out of a breach of
fiduciary duty. Under Washington law, this provision eliminates the liability of
a director for breach of fiduciary duty but does not eliminate the personal
liability of any director for (i) acts or omissions of a director that involve
intentional misconduct or a knowing violation of law, (ii) conduct in violation
of Section 23B.08.310 of the Revised Code of Washington (which section relates
to unlawful distributions) or (iii) any transaction from which a director
personally received a benefit in money, property or services to which the
director was not legally entitled.

Company's Articles of Incorporation also gives the Company the ability to
enter into indemnification agreements with each of its directors and officers.
The Company has entered into indemnification agreements with each of its
directors and officers (Exhibit 10.3 hereto), which provide for the
indemnification of directors an officers of the Company against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Pacific Stock Exchange entry fee.

<TABLE>
<CAPTION>
TO BE PAID
BY THE
COMPANY
------------
<S> <C>
SEC registration fee...................................................................... $ 1,894
NASD filing fee........................................................................... 1,125
Pacific Stock Exchange entry fee.......................................................... 5,000
Printing expenses......................................................................... 40,000
Legal fees and expenses................................................................... 100,000
Accounting fees and expenses.............................................................. 20,000
Blue sky fees and expenses................................................................ 5,000
Transfer agent and escrow fees............................................................ 3,000
Director and officer liability insurance.................................................. 50,000
Miscellaneous............................................................................. 23,981
------------
Total................................................................................. $ 250,000
------------
------------
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The Company has not issued any shares of its capital stock during the three
years preceding the date of filing of this Registration Statement.

II-1
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement

+2.1 Agreement and Plan of Merger between the Company and Pacific MultiMedia, Inc., a California corporation

2.2 Form of Share Exchange Agreement between the Company and certain shareholders of Pearl Financial

+3.1 Articles of Incorporation of the Company

+3.2 Bylaws of the Company

+5.1 Opinion of Preston Gates & Ellis LLP

+10.1 Employment Agreement between the Company and James E. Campbell, III

+10.2 Employment Agreement between the Company and Craig D. Patterson

+10.3 Form of Indemnification Agreement between the Company and its officers and directors

+10.4 Form of Convention Recording Contract

+10.5 Escrow Agreement between the Company and First Trust N.A.

10.6 Redemption Agreement between the Company and Craig D. Patterson

+23.1 Consent of Preston Gates & Ellis LLP (contained in Exhibit 5.1)

23.2 Consent of Moore Stephens Frazer & Torbet, LLP, Independent Auditors

24.1 Power of Attorney (see signature page)
</TABLE>

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

+ Previously filed.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

ITEM 28. UNDERTAKINGS

The Company hereby undertakes to provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.

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

In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company 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
Company 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 of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The Company hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and

II-2
<PAGE>
contained in the form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the 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-3
<PAGE>
SIGNATURES

Pursuant to 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 of filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Fullerton, State of California, on the 26th day
of September, 1997.

PACIFIC MULTIMEDIA, INC.

By: /s/ JAMES E. CAMPBELL
------------------------------------------
James E. Campbell
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

We, the undersigned directors and officers of Pacific MultiMedia, Inc., do
hereby constitute and appoint James E. Campbell, III our true and lawful
attorney and agent, to do any and all acts and things in our name and behalf in
our capacities as directors and officers and to execute any and all instruments
for us and in our names in the capacities indicated below, which said attorney
and agent may deem necessary or advisable to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names and in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto or any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended; and we do
hereby ratify and confirm all that the said attorney and agent shall do or cause
to be done by virtue hereof. By execution below, the undersigned hereby revoke
and terminate the Power of Attorney dated April 30, 1997 as set forth on the
original signature page to this Registration Statement filed with the SEC on
April 30, 1997.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities indicated below on September 26, 1997.

SIGNATURE TITLE
- ------------------------------ --------------------------

President, Chief Financial
Officer and Director
/s/ JAMES E. CAMPBELL (Principal Executive,
- ------------------------------ Financial and Accounting
Officer)

Director
- ------------------------------

/s/ ROBERT W. MCMICHAEL Director
- ------------------------------

II-4

<PAGE>

UNDERWRITING AGREEMENT

BETWEEN

PACIFIC MULTIMEDIA, INC.

AND

TRADEWAY SECURITIES GROUP, INC.

DATED

SEPTEMBER , 1997

<PAGE>

UNDERWRITING AGREEMENT

TABLE OF CONTENTS
Page
----

Section 1. Representations and Warranties
of the Company . . . . . . . . . . . . . . . . . . . . . 1

Section 2. Offering and Sale of Shares . . . . . . . . . . . . . . . . . . 4

Section 3. Compliance with Conduct Rules. . . . . . . . . . . . . . . . . . 5

Section 4. Blue Sky Survey. . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 5. Covenants of the Company . . . . . . . . . . . . . . . . . . . . 6

Section 6. Payment of Expenses and Fees . . . . . . . . . . . . . . . . . . 7

Section 7. Conditions of Closing. . . . . . . . . . . . . . . . . . . . . . 8

Section 8. Prospectus Terms and Descriptions
Controlling . . . . . . . . . . . . . . . . . . . . . . .10

Section 9. Indemnification and Exculpation. . . . . . . . . . . . . . . . .10

Section 10. Status of Parties . . . . . . . . . . . . . . . . . . . . . . .11

Section 11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . .11

Section 12. Notices and Authority to Act. . . . . . . . . . . . . . . . . .12

Section 13. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Section 14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . .12

Section 15. Requirements of Law . . . . . . . . . . . . . . . . . . . . . .12

Section 16. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . .12

<PAGE>

Pacific MultiMedia, Inc.
(A Washington Corporation)

1,250,000 Shares of Common Stock
$5.00 per Share

UNDERWRITING AGREEMENT

September , 1997

Tradeway Securities Group, Inc.
630 Alta Vista Drive, Suite 201
Vista, CA 92084,
as Underwriter

Dear Sirs:

This Underwriting Agreement is made by and between Pacific MultiMedia,
Inc., a Washington corporation (the "Company"), and Tradeway Securities Group,
Inc., a California corporation (the "Underwriter"), as of the date set forth
above.

The Company proposes to issue and sell a minimum of 750,000 shares
(the "Minimum") and up to a maximum of 1,250,000 shares (the "Maximum") of
its authorized and unissued Common Stock as contemplated by the Prospectus
(as defined below). The shares of Common Stock to be sold by the
Company as described in the prospectus are hereafter referred to as the
"Shares." All shares of the Common Stock of the Company, including the
Shares, are hereinafter referred to as the "Common Stock."

Section 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Underwriter as follows:

(a) A registration statement on Form SB-2 (File No. 333-26245) with
respect to the Shares, including a preliminary form of prospectus, has been
prepared by the Company in conformity with the Securities Act of 1933, as
amended (the "Securities Act"), and the applicable rules and regulations ("SEC
Regulations") of the Securities and Exchange Commission (the "SEC") under the
Securities Act and has been filed with the SEC; such amendments to such
registration statement and such amended preliminary prospectuses as may have
been required prior to the date hereof have been similarly prepared and filed
with the SEC; and the Company will file such additional amendments to such
registration statement and such amended prospectuses as may hereafter be
required. Copies of such registration statement and amendments and of each
related preliminary prospectus (the "Preliminary Prospectuses") have been
delivered to the Underwriter. If the registration statement has been declared
effective under

<PAGE>

the Securities Act by the SEC, the Company has prepared and will promptly
file with the SEC the information, if any, omitted from the registration
statement pursuant to Rule 430(A) of the SEC Regulations as part of an
amendment or supplement to the prospectus pursuant to subparagraph (1) or (4)
of Rule 424(b) of the SEC Regulations or as part of a post-effective
amendment to the registration statement (including an amended prospectus);
otherwise the Company has prepared and will promptly file an amendment to the
registration statement (including an amended prospectus). The term
"Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and
exhibits in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) of the SEC Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) of the SEC Regulations) and, in the
event of any amendment thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended. The term "Prospectus"
as used in this Agreement shall mean the prospectus relating to the Shares as
included in such registration statement at the time it becomes effective,
except that if any revised prospectus shall thereafter be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the Prospectus on file with the SEC at the time the
registration statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the SEC
pursuant to Rule 424(b)(3) of the SEC Regulations), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use.

(b) The SEC has not issued any order preventing or suspending the use
of any Preliminary Prospectus and each such Preliminary Prospectus, at the time
of filing thereof, has conformed in all material respects to the requirements of
the Securities Act and the SEC Regulations; when the Registration Statement
became or becomes, as the case may be, effective (the "Effective Date") and when
the Prospectus is first filed (if required) in accordance with Rule 424(b) and
at all times subsequent thereto up to and at the Closing Time (as hereinafter
defined ) and any later date on which Option Shares are to be purchased, as the
case may be, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will in all material respects conform to the
requirements of the Securities Act and the SEC Regulations, on the Effective
Date, the Registration Statement did not or will not 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 under which they were made not misleading; provided, however, that
none of the representations and warranties contained in this subparagraph shall
apply to information contained in or omitted from the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by the Underwriter
specifically for inclusion therein.

(c) The Company is a corporation duly organized pursuant to the
Washington Business Corporations Act and is validly existing under the laws
of the State of Washington with full power and authority to engage in the
business to be conducted by it, as described in the Prospectus. The Company
is in good standing and qualified to do business in each jurisdiction in

<PAGE>

which such qualification is necessary in which the nature or conduct of its
business as described in the Registration Statement requires such
qualification and the failure to be so qualified would materially adversely
affect the Company.

(d) The Company has full corporate power and authority, under
applicable law to perform its obligations under this Agreement, and to act as
described in the Registration Statement and Prospectus.

(e) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable; the
capital stock of the Company conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Shares to be purchased from the Company
hereunder have been duly authorized for issuance and sale as contemplated by the
Prospectus and, when issued and delivered by the Company against payment
therefor in accordance with the terms of the Prospectus, will be duly and
validly issued and fully paid and nonassessable; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of shareholders exists with respect to any of the Shares or the issue and sale
thereof other than those that have been expressly waived prior to the date
hereof or those that will automatically expire upon the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any shareholder, the Board of Directors or others is required
for the issuance and sale or transfer of the Shares except as may be required
under the Securities Act or under state or other securities or "Blue Sky" laws.

(f) The accountants who certified the financial statements filed with
the SEC as part of the Registration Statement are, with respect to the Company,
independent public accountants as required by the Securities Act and the SEC
Regulations.

(g) The financial statements filed as part of the Registration
Statement and those included in the Prospectus present fairly the financial
position of the Company as of the dates indicated and said financial statements
have been prepared in conformity with generally accepted accounting principles
(as described therein), or, in the case of unaudited financial statements, in
substantial conformity with generally accepted accounting principles, applied on
a basis which is consistent in all material respects for each balance sheet date
presented.

(h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as may otherwise be stated
in or contemplated by the Registration Statement and the Prospectus, there has
not been any material adverse change in the condition (financial or otherwise),
business or prospects of the Company, whether or not arising in the ordinary
course of business.

(i) This Agreement has been duly and validly authorized, executed and
delivered by the Company, and constitutes a valid, binding and enforceable
agreement of the Company, in accordance with its terms.

<PAGE>

(j) The execution and delivery of this Agreement, the incurrence of
the obligations as set forth herein and the consummation of the transactions
contemplated herein and in the Prospectus will not constitute a breach of, or
default under, any instrument or agreement by which the Company is bound, or any
order, rule or regulation applicable to the Company of any court or any
governmental body or administrative agency having jurisdiction over the Company.

(k) Except as otherwise disclosed in the Registration Statement or
the Prospectus, there is not pending or, to the best of the Company's knowledge,
threatened any action, suit or proceeding before or by any court or other
governmental body to which the Company is a party, or to which any of the assets
of the Company are subject, which might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise), business or
prospects of the Company or is required to be disclosed in the Prospectus
pursuant to the Securities Act and the SEC Regulations.

Section 2. OFFERING AND SALE OF SHARES.

(a) The Underwriter is hereby appointed the exclusive Underwriter
of the Company during the offering period specified in the Prospectus (the
"Offering Period") for the purpose of finding acceptable subscribers for up
to the Maximum number of Shares through a public offering. Subject to the
performance by the Company of its obligations to be performed hereunder and
to the completeness and accuracy in all material respects of all the
representations and warranties of the Company contained herein, the
Underwriter hereby accepts such agency and agrees on the terms and conditions
herein set forth to use its best efforts during the Offering Period to find
acceptable subscribers for the Shares at a public offering price of $5.00 per
Share. It is understood that the Underwriter's agreement to use its best
efforts to find acceptable subscribers for the Shares shall not prevent it
from acting as a Underwriter or underwriter for the securities of other
issuers which may be offered or sold during the Offering Period. The agency
of the Underwriter hereunder shall continue until the close of business on
the later of the Offering Termination Date (as defined below) and the Closing
Date, or such later date as the Underwriter and the Company shall agree upon
(the date on which the Offering Period terminates being hereinafter referred
to as the "Offering Termination Date"), including such additional period as
may be required to effect the closing of the sale of the Shares.

The Company will pay the Underwriter at Closing Time compensation
in an amount equal to eight percent (8%) of the gross sales price of each
Share sold. In addition, in the event the Minimum Shares are sold, the
Company will pay to the Underwriter at Closing Time a Common Stock Purchase
Warrant, in the form attached hereto as Annex A (the "Warrant"), for the
purchase of shares of Common Stock at a purchase price of $5.00 per share.
The number of shares of Common Stock purchasable under the Warrant (the
"Warrant Shares") shall equal one (1) Warrant Share for every ten (10) Shares
sold in the offering, up to a maximum of 100,000 Warrant Shares (assuming
sale of the Maximum Shares). The Warrant shall be exercisable for a period of
5 years from the date of issuance.

(b) In the event the offering is commenced and acceptable
subscriptions for at least the "Minimum Shares" shall not have been received
prior to the end

<PAGE>

of the Offering Period (unless extended by the Company as contemplated by the
Prospectus), all funds received from subscribers shall be returned in full,
with any interest payable thereon (except as otherwise described in the
Prospectus) and without deduction for any escrow or other fee or expense; and
thereupon the Underwriter's duties as agent and this Agreement shall
terminate without further obligation hereunder on the part of the Underwriter
or the Company.

(c) On the Offering Termination Date or at such earlier time as
(i) subscriptions for the Shares shall have been received, or (ii) as the
Company may determine to terminate the offering, or at such later date should
the Company extend the offering as contemplated by the Prospectus, the Company
shall notify the Underwriter of the aggregate number of Shares for which the
Company has received acceptable subscriptions and, if at least the Minimum
Shares shall have been so subscribed for, then payment of the purchase price for
the Shares shall be made at the office of Preston Gates & Ellis LLP, 5000
Columbia Center, 701 Fifth Avenue, Seattle, WA 98104, or at such other place as
shall be agreed upon between the Underwriter and the Company, at 10:00 A.M.,
Pacific Standard Time ("PST"), on such day (the "Closing Date") and time (the
"Closing Time") as shall be agreed upon between the Underwriter and the Company
(not later than three (3) business days after the end of the Offering Period).

(d) Except as set forth herein, the Company shall not be in any
respect responsible for any commissions.

Section 3. COMPLIANCE WITH CONDUCT RULES.

(a) The Underwriter will use its best efforts to find eligible
persons to purchase the Shares on the terms stated herein and in the
Registration Statement and Prospectus. It is understood that the Underwriter
has no commitment with regard to the sale of the Shares other than to use its
best efforts. In connection with the offer and sale of the Shares, the
Underwriter represents that it will comply fully with all applicable laws,
and the rules of the NASD, the SEC, state securities administrators and any
other regulatory body. In particular, and not by way of limitation, the
Underwriter represents and warrants that it is aware of the Conduct Rules of
the NASD Rules and that it will comply fully with all the applicable terms
thereof in connection with the offering and sale of the Shares. The
Underwriter shall not execute any sales of Shares from a discretionary
account over which it has control without prior written approval of the
customer in whose name such discretionary account is maintained.

(b) The Underwriter agrees not to recommend the purchase of Shares to
any subscriber unless the Underwriter shall have reasonable grounds to believe,
on the basis of information obtained from the subscriber concerning, among other
things, the subscriber's investment objectives, other investments, financial
situation and needs; the subscriber has a fair market net worth sufficient to
sustain the risks inherent in participating in the Company, including loss of
investment and lack of liquidity (which, as described in the Prospectus, may be
significant); and the Shares are otherwise a suitable investment for the
subscriber.

<PAGE>

The Underwriter represents and warrants that it has reasonable grounds to
believe, based on information in the Prospectus, that all material facts
relating to an investment in the Shares are adequately and accurately
disclosed in the Prospectus.

In connection with making the representations and warranties set forth in
this paragraph, the Underwriter has not relied on inquiries made by or on behalf
of any other parties.

(c) None of the Underwriter or the Company shall, directly or
indirectly, pay or award any finder's fees, commissions or other compensation to
any person engaged by a potential investor for investment advice as an
inducement to such advisor to advise the purchase of Shares; PROVIDED, HOWEVER,
the normal sales commissions payable to a registered broker-dealer or other
properly licensed person for selling Shares shall not be prohibited hereby.

(d) All payments for subscriptions shall be made by subscriber
check payable to First Trust NA, as Escrow Agent for Pacific MultiMedia
maintained at First National NA, Seattle, Washington (the "Escrow Agent").
All such payments received by the Underwriters will be transmitted to the
Escrow Agent by Noon, PST, on the business day following receipt thereof by
the Underwriter in accordance with the procedures set forth in the Prospectus
and the Subscription Agreement attached thereto.

Section 4. BLUE SKY SURVEY. The Company has caused counsel to
prepare and deliver to the Underwriter a Blue Sky Survey which sets forth, for
the guidance of such persons or entities, the United States jurisdictions in
which the Shares may be offered and sold. It is understood and agreed that the
Underwriter may rely, in connection with the offering and sale of Shares in any
United States jurisdiction, on advice given by such counsel as to the legality
of the offer or sale of the Shares in such jurisdiction; PROVIDED, HOWEVER, that
the Underwriter shall be responsible for compliance with all applicable laws,
rules and regulations with respect to the actions of its employees, acting as
such, in connection with the sales of Shares in any jurisdiction.

Section 5. COVENANTS OF THE COMPANY.

(a) The Company will notify the Underwriter immediately and confirm
such notification in writing (i) when any amendment to the Registration
Statement shall have become effective, (ii) of the receipt of any further
comments from the SEC or any other Federal or state regulatory or
self-regulatory body with respect to the Registration Statement, (iii) of any
request by the SEC or any other Federal or state regulatory or self-regulatory
body for any further amendment to the Registration Statement or any amendment or
further supplement to the Prospectus or for additional information relating
thereto, (iv) of any material criminal, civil or administrative proceedings
against or involving the Company, and (v) of the issuance by the SEC or any
other Federal or state regulatory or self-regulatory body of any order
suspending the effectiveness of the Registration Statement under the Securities
Act, or the registration of Shares under the "Blue Sky" or securities laws of
any state or other jurisdiction or any order or decree

<PAGE>

enjoining the offering or the use of the then current Prospectus or of the
institution, or notice of the intended institution, of any action or
proceeding for that purpose.

(b) The Company will deliver to the Underwriter such number of
conformed copies of the Registration Statement as originally filed and of
each amendment thereto (without exhibits) as the Underwriter shall reasonably
require.

(c) The Company will deliver to the Underwriter as promptly as
practicable from time to time during the period when the Prospectus is required
to be delivered under the Securities Act, such number of copies of the
Prospectus (as amended or supplemented) as the Underwriter may reasonably
request for the purposes contemplated by the Securities Act or the SEC
Regulations.

(d) During the period when the Prospectus is required to be delivered
pursuant to the Securities Act, the Company will comply with all requirements
imposed upon it by the Securities Act as now and hereafter amended, and by any
SEC Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of the Shares during such period in accordance with the
provisions hereof and as set forth in the Prospectus.

(e) If any event relating to or affecting the Company shall occur as
a result of which it is necessary, in the reasonable opinion of the Company, to
amend or supplement the Prospectus in order to make the Prospectus not
materially misleading in the light of the circumstances existing at the time it
is delivered to a subscriber, the Company shall forthwith prepare and furnish to
the Underwriter, at the expense of the Company, a reasonable number of copies of
an amendment or amendments of, or a supplement or supplements to, the Prospectus
which will amend or supplement the Prospectus so that as amended or supplemented
it will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances existing at the time the Prospectus is delivered to a
subscriber, not misleading. No such amendment or supplement shall be filed
without the approval of the Underwriter which approval will not be unreasonably
withheld.

Section 6. PAYMENT OF EXPENSES AND FEES. The Company will pay all
expenses incident to the performance of the obligations of the Company
hereunder, including: (i) the printing and delivery to the Underwriter in
quantities as hereinabove stated of copies of the Registration Statement and all
amendments thereto, of the Prospectus and any supplements or amendments thereto,
and of any supplemental sales materials; (ii) the printing and filing of the
Registration Statement and the Prospectus (and, in certain cases, the exhibits
thereto) with the SEC; (iii) the qualification of the Shares under the
securities or "Blue Sky" laws in the various jurisdictions, including filing
fees and the fees and disbursements of the Company's counsel incurred in
connection therewith; and (iv) the services of counsel and accountants for the
Company. Other than as set forth above, each party hereto shall bear its own
expenses relating hereto and to the offering of the Shares.

<PAGE>

Section 7. CONDITIONS OF CLOSING. The obligations of each of the
parties hereunder are subject to the accuracy of the representations and
warranties of the other parties hereto, to the performance by such other parties
of their respective obligations hereunder and to the following further
conditions:

(a) The Registration Statement shall have become effective and at
Closing Time no order suspending the effectiveness thereof shall have been
issued under the Securities Act or proceeding therefor initiated or threatened
by the SEC.

(b) At Closing Time, Preston Gates & Ellis LLP, counsel to the
Company and the Company, shall deliver its opinion, in form and substance
reasonably satisfactory to the parties hereto, to the effect that:

(i) The Company is duly organized and validly existing as a
corporation under the laws of the State of Washington and is in good standing
and qualified to do business in each other jurisdiction in which the failure to
so qualify might reasonably be expected to result in material adverse
consequences to the Company. The Company has full corporate power and authority
to perform its obligations as described in the Registration Statement, the
Prospectus and herein.

(ii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
as of the dates stated therein; the issued and outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued, are fully
paid and nonassessable.

(iii) The Shares to be issued and sold by the Company as
contemplated by the Prospectus will be, upon issuance and delivery against
payment therefor in accordance with the terms hereof, duly authorized and
validly issued and fully paid and nonassessable.

(iv) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Company, and assuming that this Agreement is
binding on the Underwriter, this Agreement constitutes a valid, binding and
enforceable agreement of the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws at the time
in effect affecting the enforceability generally of rights of creditors and
except as enforceability of indemnification provisions may be limited by
applicable law and the enforcement of any specific terms or remedies may be
unavailable.

<PAGE>

(v) The execution and delivery of this Agreement and the
incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein and in the Prospectus will not be in
contravention of any of the provisions of the Company's Articles of
Incorporation or Bylaws and, to their knowledge, will not constitute a breach
of, or default under, any instrument by which the Company is bound or any
order, rule or regulation applicable to the Company of any court or any
governmental body or administrative agency having jurisdiction over the
Company.

(vi) To their knowledge, there are no actions, claims or
proceedings pending or threatened in any court or before or by any governmental
or administrative agency or body to which the Company is a party, or to which
any of its assets is subject, which are required to be, but are not, disclosed
in the Registration Statement or Prospectus.

(vii) No authorization, approval or consent of any
governmental authority or agency is necessary in connection with the
subscription for and sale of the Shares, except such as may be required under
the Securities Act, NASD rules or applicable securities or "Blue Sky" laws.

(viii) The Registration Statement is effective under the
Securities Act and no proceedings for a stop order are pending or, to their
knowledge, threatened under Section 8(d) or Section 8(e) of the Securities Act
or any applicable state "Blue Sky" laws.

(ix) At the time the Registration Statement initially became
effective and at the time any post-effective amendment thereto became effective,
the Registration Statement, and at the time the Prospectus and any amendments or
supplements thereto were first issued, the Prospectus, complied as to form in
all material respects with the requirements of the Securities Act and SEC
Regulations.

Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the Company and of
governmental officials, in which case their opinion is to state that they are so
relying.

(c) At Closing Time, the Company shall deliver a certificate to the
effect that: (i) no order suspending the effectiveness of the Registration
Statement has been issued and no proceedings therefor have been instituted or to
the best of their knowledge threatened by the SEC or other regulatory or
self-regulatory body; (ii) the representations and warranties of the Company
contained herein are true and correct with the same effect as though expressly
made at Closing Time and in respect of the Registration Statement as in effect
at Closing Time; and (iii) the Company has performed all covenants and
agreements herein contained which are required to be performed on their part at
or prior to Closing Time.

<PAGE>

(d) The parties hereto shall have been furnished with such
additional information, opinions and documents, including supporting
documents relating to parties described in the Prospectus and certificates
signed by such parties with regard to information relating to them and
included in the Prospectus as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Shares as herein contemplated and
related proceedings, in order to evidence the accuracy or completeness of any
of the representations or warranties or the fulfillment of any of the
conditions herein contained; and all actions taken by the parties hereto in
connection with the sale of the Shares as herein contemplated shall be
reasonably satisfactory in form and substance to Preston Gates & Ellis LLP.

If the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as required by this Agreement to be
fulfilled, this Agreement and all obligations hereunder may be cancelled by any
party hereto by notifying the other parties hereto of such cancellation in
writing or by telegram at any time at or prior to Closing Time, and any such
cancellation or termination shall be without liability of any party to any other
party except as otherwise provided in Section 9 of this Agreement.

Section 8. PROSPECTUS TERMS AND DESCRIPTIONS CONTROLLING. All
parties hereto expressly agree that the description of this Agreement contained
in the Registration Statement and Prospectus shall control against the terms and
conditions contained herein.

Section 9. INDEMNIFICATION AND EXCULPATION.

(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Underwriter, its officers, directors, and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act against any and all loss, liability, claim, damage and expense
whatsoever arising from any (i) breach by the Company of this Agreement or (ii)
untrue statement of a material fact or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto) or any
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary in order to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
for any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information relating to the
Underwriter and furnished by the Underwriter for use in the Prospectus.

In no case shall the Company be liable under this indemnity agreement with
respect to any claim made against any indemnified party unless the Company shall
be notified in writing of the nature of the claim within a reasonable time after
the assertion thereof, but failure to so notify the Company shall not relieve
the Company from any liability which it may have otherwise than on account of
this indemnity agreement. The Company shall be entitled to participate at its
own expense in the defense or, if either so elects within a reasonable time
after receipt of such notice,

<PAGE>

to assume the defense of any suit so brought, which defense shall be
conducted by counsel chosen by it and satisfactory to the indemnified party
or parties, defendant or defendants therein.

The Company agrees to notify the Underwriter within a reasonable time of
the assertion of any claim in connection with the sale of the Shares against it
or any of its officers or directors or any person who controls the Company
within the meaning of Section 15 of the Securities Act.

(b) INDEMNIFICATION BY THE UNDERWRITER. The Underwriter agrees to
indemnify and hold harmless the Company, its officers, directors, and each
person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act against any and all loss, liability, claim, damage and
expense whatsoever arising from any (i) breach by the Underwriter of this
Agreement or (ii) untrue statement of a material fact or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto) or any omission or alleged omission therefrom of a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that any such untrue statement or omission or
alleged untrue statement or omission was made in reliance upon and in conformity
with information relating to the Underwriter and furnished by the Underwriter
for use in the Prospectus.

In no case shall the Underwriter be liable under this indemnity agreement
with respect to any claim made against any indemnified party unless the
Underwriter shall be notified in writing of the nature of the claim within a
reasonable time after the assertion thereof, but failure to so notify the
Underwriter shall not relieve the Underwriter from any liability which it may
have otherwise than on account of this indemnity agreement. The Underwriter
shall be entitled to participate at its own expense in the defense or, if either
so elects within a reasonable time after receipt of such notice, to assume the
defense of any suit so brought, which defense shall be conducted by counsel
chosen by it and satisfactory to the indemnified party or parties, defendant or
defendants therein.

The Underwriter agrees to notify the Company within a reasonable time of
the assertion of any claim in connection with the sale of the Shares against it
or any of its officers or directors or any person who controls the Underwriter
within the meaning of Section 15 of the Securities Act.

Section 10. STATUS OF PARTIES. In selling the Shares for the
Company, the Underwriter is acting solely as agent for the Company, and not as
principal. The Underwriter will use its best efforts to assist the Company in
obtaining performance by each purchaser whose offer to purchase Shares from the
Company has been accepted on behalf of the Company, but the Underwriter shall
not have any liability to the Company in the event that Subscription Agreements
are improperly completed or any such purchase is not consummated for any reason.
Except as specifically provided herein, the Underwriter shall in no respect be
deemed to be an agent of the Company.

<PAGE>

Section 11. TERMINATION. The Company shall have the right to
terminate this Agreement at any time prior to Closing Time by giving written
notice of such termination to the Underwriter.

Section 12. NOTICES AND AUTHORITY TO ACT. All communications
hereunder shall be in writing and, if sent to the Company, shall be mailed,
delivered or telecopied and confirmed to the Company at: 2477 East Orangethorpe
Avenue, Fullerton, CA 92631, Attention: James E. Campbell, III, with a copy to
Preston Gates & Ellis LLP, 5000 Columbia Center, 701 Fifth Avenue, Seattle, WA
98104, Attention: Gary Kocher. If sent to Tradeway Securities Group, Inc.,
shall be mailed, delivered or telecopied and confirmed to it at: 630 Alta Vista
Drive, Suite 201, Vista, CA 92084, Attention: Mark Riviello. Notices shall be
effective when actually received.

Section 13. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Underwriter, the Company and such parties' respective
successors to the extent provided herein. This Agreement and the conditions and
provisions hereof are intended to be and are for the sole and exclusive benefit
of the parties hereto and their respective successors, assigns and controlling
persons and parties indemnified hereunder, and for the benefit of no other
person, firm or corporation. No purchaser of a Share shall be considered to be
a successor or an assignee solely on the basis of such purchase.

Section 14. GOVERNING LAW. This Agreement and the rights and
obligations of the parties created hereby shall be governed by the laws of the
State of Washington.

Section 15. REQUIREMENTS OF LAW. Whenever in this Agreement it is
stated that a party will take or refrain from taking a particular action, such
party may nevertheless refrain from taking or take such action if advised by
counsel that doing so is required by law or advisable to ensure compliance with
law, and shall not be subject to any liability hereunder for doing so, although
such action shall permit termination of the Agreement by the other parties
hereto.

Section 16. CONSENT TO JURISDICTION. The parties hereto agree that
any action or proceeding arising directly, indirectly, or otherwise in
connection with, out of, related to, or from this Agreement, any breach hereof,
or any transaction covered hereby, shall be resolved, whether by arbitration or
otherwise, within the County of King, City of Seattle, and State of Washington.
Accordingly, the parties hereto consent and submit to the jurisdiction of the
federal and state courts and applicable arbitral body located within the County
of King, City of Seattle, and State of Washington. The parties further agree
that any such action or proceeding brought by any party to enforce any right,
assert any claim, or obtain any relief whatsoever in connection with this
Agreement shall be brought by such party exclusively in the federal or state
courts, or if appropriate, before any applicable arbitral body, located within
the County of King, City of Seattle, and State of Washington.

[remainder of page intentionally blank]

<PAGE>

If the foregoing is in accordance with each party's understanding of
their agreement, each party is requested to sign and return to the Company a
counterpart hereof, whereupon this instrument along with all counterparts will
become a binding agreement among them in accordance with its terms.

Very truly yours,

PACIFIC MULTIMEDIA, INC.

By:___________________________
James E. Campbell, III
President and Chief Executive Officer

Confirmed and accepted as of
the date first above written:

TRADEWAY SECURITIES GROUP, INC.

By:___________________________
Name: Mark Riviello
Title:

<PAGE>

ANNEX A

FORM OF WARRANT

<PAGE>

No. 1

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.

PACIFIC MULTIMEDIA, INC.
COMMON STOCK WARRANT

Issue Date: ___________, 1997 [ ] Shares of Common Stock

For good and valuable consideration, Tradeway Securities Group, Inc. (the
"Holder") is entitled to subscribe for and purchase from Pacific MultiMedia,
Inc. (the "Company"), [ ] shares of the Company's Common Stock, having no
par value (the "Warrant Shares"). The Exercise Price per Warrant Share shall be
$5.00 per Warrant Share.

1. EXERCISE OF WARRANT.

1.1 EXERCISE OF WARRANT. Subject to the provisions of Sections 1.2 and
1.3 hereof, the Holder may exercise this Warrant in whole, or in part, at any
time prior to _________, 2002 being the fifth (5th) anniversary of the date
of closing of the Company's offering of Common Stock (the "Effective Date")
as contemplated by the Company's Registration Statement on Form SB-2 (Reg.
No. 333-26245), at which time this Warrant shall expire. Notwithstanding
anything to the contrary herein, the Warrant Shares may not be sold,
transferred, assigned or hypothecated until one year from the Effective Date
(except as otherwise permitted under Rule 2710(c)(7)(A) of the NASD Conduct
Rules).

1.2 METHOD OF EXERCISE.

(a) Subject to Section 1.1, the Holder shall exercise this Warrant by
surrendering it at the offices of the Company at the address designated for
notice purposes under Section 4.2 below, together with (i) a duly executed
subscription in substantially the form of the Subscription Notice appearing at
the end of this Warrant, and (ii) cash or a certified check payable to the
Company in the amount equal to the aggregate Exercise Price for the number of
Warrant Shares being purchased.

(b) Within three (3) business days after the Warrant has been
exercised, the Company at its expense shall issue and deliver, in such name or
names as Holder may direct, a certificate or certificates for the number of
Warrant Shares for which Holder subscribed and is entitled. A surrendered
Warrant shall be canceled by or on behalf of the Company, except that if

<PAGE>

the Warrant is exercised in part, the Company shall execute and deliver a new
Warrant evidencing the right of Holder to purchase the balance of the Warrant
Shares. The Holder shall for all purposes be deemed to become the holder of
Warrant Shares on the date this Warrant is duly exercised for such Warrant
Shares.

1.3 NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall round up the number of shares to the nearest whole
share.

1.4 REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver in lieu of this Warrant, a
Warrant of like tenor and amount.

1.5 RIGHTS OF HOLDER. The Holder shall not be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company that may at any time be issuable on the exercise hereof for any purpose,
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a shareholder of the Company until the Warrant shall
have been exercised as provided herein.

2. TRANSFER OF THE WARRANT.

This Warrant may not be transferred without the prior written consent of
the Company, in its sole and absolute discretion. With the prior written
consent of the Company, this Warrant may be transferred, in whole or in part, to
any person by presentation of the Warrant to the Company with written
instructions for transfer; provided, however, that Holder agrees to comply with
Section 3.2 below.

3. PROVISIONS FOR PROTECTION OF THE HOLDER.

3.1 RESERVATION OF SHARES. The Company shall at all times reserve such
number of shares of its authorized but unissued Common Stock as necessary to
permit the exercise of the Warrant for of all of the Warrant Shares. If at any
time an insufficient number of shares is authorized for such purpose, the
Company will take such action as, in the opinion of its counsel, may be
necessary to increase its authorized but unissued Common Stock to such number of
shares as shall be sufficient for such purpose.

3.2 COMPLIANCE WITH SECURITIES LAWS. Neither this Warrant nor the Warrant
Shares have been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws. This Warrant has been acquired
for investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold or otherwise transferred without an effective
registration statement for such Warrant under the Securities Act or any

<PAGE>

applicable state securities laws or an opinion of counsel or other evidence
reasonably satisfactory to the Company that registration is not required
thereunder. Certificates representing the Warrant Shares shall bear a legend
substantially in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

3.3 ADJUSTMENT FOR DIVIDENDS, STOCK SPLITS, OR RECLASSIFICATION. In case
the Company shall:

(a) declare a dividend of Common Stock (or other securities of the
Company) on its Common Stock (or any other class of securities issuable upon
exercise of this Warrant),

(b) subdivide outstanding Common Stock (or any other class of
securities issuable upon exercise of this Warrant) into a larger number of
shares of Common Stock (or such other securities) by reclassification or
otherwise, or

(c) combine outstanding Common Stock (or any other class of
securities issuable upon exercise of this Warrant) into a smaller number of
shares of Common Stock (or such other securities) by reclassification or
otherwise,

the number of shares of Common Stock (or other securities) issuable upon
exercise of this Warrant immediately prior to any such event shall be adjusted
proportionately, and the Exercise Price shall be equitably adjusted, so that
thereafter the Holder shall be entitled to receive upon exercise of this Warrant
the number of shares of Common Stock (or other securities) which such Holder
would have owned after the happening of any of the events described above had
this Warrant been exercised immediately prior to the happening of such event.
An adjustment made pursuant to this paragraph shall become effective immediately
after the record date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision or
combination. The determination of an adjustment that is made by the Board of
Directors in good faith and absent error shall be final, conclusive and binding.

3.4 ADJUSTMENTS FOR MERGERS AND REORGANIZATIONS. If, prior to exercise of
this Warrant, the Company shall at any time consolidate or merge with another
corporation (other than a merger or consolidation in which the Company is the
surviving corporation), the Holder hereof will thereafter be entitled to
receive, upon the exercise hereof, the securities or property to which a holder
of the number of shares of Common Stock (or other securities) then deliverable
upon the exercise hereof would have been entitled upon such consolidation or
merger, and the Company shall take such steps in connection with such
consolidation or merger as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as

<PAGE>

reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of this Warrant.

3.5 NOTICE OF ADJUSTMENT. The Company shall provide the Holder notice
within three (3) business days after any adjustment under Sections 3.3 or 3.4,
together with reasonable details of the manner and effect of the adjustment.

4. MISCELLANEOUS PROVISIONS.

4.1 APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Washington.

4.2 NOTICES. Any notice or other document required or permitted to be
given in connection with this Warrant shall be sufficiently given if sent by
first class mail, postage prepaid, addressed to the Company at its executive
offices and to the Holder at the last address shown on the books of the Company
or its transfer agent maintained for the registry and transfer of Warrants.

4.3 SUCCESSORS. All covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its respective
successors and assigns.

4.4 BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed
to give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or claim under this Warrant. This Warrant
shall be for the sole and exclusive benefit of the Company and the Holder.

PACIFIC MULTIMEDIA, INC.

___________________________________________
James E. Campbell, III, President

<PAGE>

(FORM OF SUBSCRIPTION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)

SUBSCRIPTION NOTICE

The undersigned, the registered holder of Warrant __ (the "Warrant"),
issued by Pacific MultiMedia, Inc. hereby (i) irrevocably subscribes for
_________ shares of Common Stock which the undersigned is entitled to purchase
under the terms and conditions of the Warrant, (ii) makes payment of
$___________ in full [in cash/by certified check] therefor as called for by the
Warrant, and (iii) directs that the certificates for such shares of Common Stock
issuable upon exercise of the Warrant be issued in the name of and delivered to
________________ whose address is _______________________________.

__________________________________
(Name)

__________________________________
(Address)

SIGNATURE: __________________________________

Dated: _________________, 199___

________________________________________________________________

NOTICE: The signature on this Subscription Notice must correspond with the
name as written upon the face of the Warrant, or upon an assignment form
attached hereto.

<PAGE>

PACIFIC MULTIMEDIA, INC.

SHAREHOLDERS OF PEARL FINANCIAL SERVICES,
INC.

AGREEMENT AND PLAN OF EXCHANGE

Dated as of _________, 1997

<PAGE>

AGREEMENT AND PLAN OF EXCHANGE

This Agreement and Plan of Exchange, dated _______, 1997 (this "AGREEMENT")
is between Pacific MultiMedia, Inc., a Washington corporation ("COMPANY"), and
each of the shareholders of Pearl Financial Services, Inc., a Washington
corporation ("PEARL") (collectively, "SHAREHOLDERS").

RECITALS

A. The board of directors and shareholders of PEARL have consented to a
transaction whereby all of the shares of common stock of PEARL, no par value per
share (the "PEARL SHARES"), will be exchanged for shares of common stock of the
COMPANY, no par value per share (the "COMPANY SHARES"), and up to One Million
Dollars ($1,000,000.00) in cash, as provided for in this Agreement;

B. The board of directors and shareholders of the COMPANY have consented
to the transactions contemplated by Recital A, as further described in this
Agreement.

INTENDING TO BE LEGALLY BOUND, and in consideration of the promises and the
mutual representations, warranties, covenants and agreements contained herein,
COMPANY and the Shareholders hereby agree as follows:

AGREEMENT

ARTICLE 1

THE EXCHANGE

1.1 EFFECTIVE TIME OF THE EXCHANGE. Subject to the provisions of this
Agreement, shareholders of PEARL will exchange all of their PEARL Shares for
COMPANY Shares (the "EXCHANGE"). The Exchange shall become effective pursuant
to Section 23B.01.230 of the Washington Business Corporation Act as of
5:00 p.m., Pacific time on the date (the "EFFECTIVE TIME") the requisite
Articles of Exchange pursuant to RCW 23B.11.050 and a Plan of Exchange are filed
with the Secretary of State of the State of Washington.

1.2 EFFECTS OF THE EXCHANGE. At the Effective Time: (i) all issued and
outstanding PEARL Shares shall become the property of the COMPANY, and all PEARL
shareholders shall become shareholders of the COMPANY. The Exchange shall have
the effects set forth in RCW 23B.11.060 and all other applicable laws.

1.3 CONVERSION OF PEARL SHARES. At the Effective Time: holders of common
stock of PEARL will be entitled to receive either (i) one share of Common Stock
of COMPANY for every 3.4274 shares of common stock of PEARL so exchanged, or
(ii) One Dollar ($1.00) in

<PAGE>

cash for each share of common stock of PEARL so exchanged up to a maximum
aggregate cash payment by COMPANY of One Million Dollars ($1,000,000.00), or
(iii) a combination of cash and shares of Common Stock of COMPANY based on the
foregoing exchange rates (collectively referred to herein as the "Exchange
Consideration"). Based on the number of shares of common stock of PEARL
currently outstanding and assuming holders of such stock elect to receive the
maximum cash consideration in connection with the Exchange, the COMPANY will
issue 3,350,000 shares of its Common Stock as Exchange Consideration (in
addition to One Million Dollars ($1,000,000.00) cash consideration). In the
event that holders of more than one million (1,000,000) shares of PEARL elect to
receive cash rather than shares of Common Stock of the COMPANY, such holders
will receive a pro rata allocation of the maximum One Million Dollars
($1,000,000.00) cash proceeds based on their relative ownership interest in
PEARL

1.4 DISSENTER'S RIGHTS. Any holder of PEARL Shares that are outstanding
on the record date for the determination of the PEARL shareholders entitled to
vote for or against the Exchange who did not vote such shares in favor of the
Exchange, or sign and deliver a written consent thereto with respect to such
shares (the PEARL Shares then outstanding that are not thus voted or as to which
such consents are not signed and delivered are referred to as "ELIGIBLE
DISSENTING SHARES"), will be entitled to exercise dissenters' rights pursuant to
RCW 23B.13.010 through 23B.13.280 ("CHAPTER 13") with respect to such Eligible
Dissenting Shares, provided that such holder meets all the requirements of
Chapter 13 with respect to such shares.

1.5 FRACTIONAL SHARES. No fractional COMPANY Shares will be issued in the
Exchange. In lieu of such issuance, all COMPANY Shares issued to the PEARL
shareholders pursuant to the terms of this Agreement shall be rounded to the
closest whole COMPANY Share.

1.6 DELIVERY OF CERTIFICATES. Each holder of a certificate or
certificates representing PEARL Shares shall surrender such certificates to
COMPANY together with such duly executed documentation as may be reasonably
required by COMPANY to effect a transfer of such shares, and upon such surrender
each holder shall be entitled to receive a certificate or certificates for the
applicable number of COMPANY Shares calculated pursuant to Section 1.3.

1.7 TAX-FREE REORGANIZATION. The Exchange is intended to be a
"REORGANIZATION" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE"), and this Agreement is intended to constitute a
"PLAN OF REORGANIZATION" within the meaning of the regulations promulgated under
Section 368 of the Code.

ARTICLE 2
CLOSING

The closing of the Exchange (the "CLOSING") will take place at 10:00 a.m.,
Pacific time, as soon as practicable after satisfaction or waiver of the last to
be fulfilled of the conditions set forth in Article 5 that by their terms are
not to occur at the Closing (the "CLOSING DATE"), at the offices of Preston
Gates & Ellis LLP, Seattle, Washington, unless another date or place is agreed
to by the parties to this Agreement.

<PAGE>

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

3.1 REPRESENTATIONS AND WARRANTIES OF COMPANY. COMPANY represents and
warrants to the Shareholders as follows:

3.1.1 ORGANIZATION, STANDING AND POWER. COMPANY is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Washington, has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
and is duly qualified and in good standing to do business in the State of
Washington and each jurisdiction in which a failure to so qualify would have a
material adverse effect on COMPANY.

3.1.2 CAPITAL STRUCTURE. The authorized capital stock of COMPANY
consists of twenty-five million (25,000,000) COMPANY Shares. As of the date
hereof: five million (5,000,000) COMPANY Shares are issued and outstanding.
All outstanding COMPANY Shares are validly issued, fully paid, nonassessable and
not subject to any preemptive rights, or to any agreement to which COMPANY is a
party or by which COMPANY may be bound. There are not any options, warrants,
calls, conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which COMPANY is a
party or by which COMPANY may be bound obligating COMPANY to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of COMPANY, or obligating COMPANY to grant, extend or enter into any such
option, warrant, call, conversion right, commitment, agreement, contract,
understanding, restriction, arrangement or right. COMPANY does not have
outstanding indebtedness the holders of which have the right to vote (or
convertible or exercisable into securities having the right to vote) with
holders of COMPANY Shares on any matter.

3.1.3 AUTHORITY. The execution, delivery, and performance of this
Agreement by COMPANY has been duly authorized by all necessary corporate action
on the part of COMPANY and no other corporate proceedings on the part of COMPANY
are necessary to authorize this Agreement or to consummate the transactions so
contemplated.

3.1.4 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. COMPANY holds all
licenses, permits, and authorizations from all governmental entities (as defined
below) necessary for the lawful conduct of its business pursuant to, and COMPANY
is in compliance with all applicable statutes, laws, ordinances, rules, and
regulations of all such authorities having jurisdiction over it or any part of
its assets and operations, excepting, however, when such failure to hold would
not have a material adverse effect on COMPANY. There are no violations or
claimed violations known by COMPANY of any such license, permit, or
authorization or any such statute, law, ordinance, rule or regulation that would
have a material adverse effect on COMPANY. Neither the execution and delivery
of this Agreement by COMPANY nor the performance by COMPANY of its obligations
under this Agreement will violate any provision of laws applicable to COMPANY,
or will conflict with, result in the breach of any of the terms or conditions
of, constitute a breach of any of the terms or conditions of, constitute a
default under, permit any party to accelerate any right under, renegotiate, or
terminate, require consent,

<PAGE>

approval, or waiver by any party under, or result in the creation of any lien,
charge, encumbrance, or restriction upon any of the properties or assets of
COMPANY pursuant to any agreement, indenture, mortgage, license, permit, or
other instrument of any kind to which COMPANY is a party or by which COMPANY or
any of its assets is bound or affected.

3.1.5 RELIANCE. The foregoing representations and warranties are
made by COMPANY with the knowledge and expectation that the Shareholders are
placing reliance thereon.

3.2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the
Shareholders represents and warrants to COMPANY as follows:

3.2.1 AUTHORITY. The execution, delivery, and performance of this
Agreement by the Shareholders has been duly authorized by all necessary action
on the part of PEARL and, pursuant to the Articles of Incorporation and Bylaws
of PEARL and Washington law, no other proceedings on the part of PEARL are
necessary to authorize this Agreement or to consummate the transactions
contemplated herein. Each of the Shareholders has duly and validly executed and
delivered this Agreement, and, assuming the due authorization, execution and
delivery by COMPANY, this Agreement constitutes a valid, binding, and
enforceable obligation of each of the Shareholders in accordance with its terms.
Each of the Shareholders has the full power and authority to enter into this
Agreement and the transactions contemplated herein.

3.2.2 OWNERSHIP OF INTEREST. Each of the Shareholders owns his
shareholder interest in PEARL, and such ownership is not subject to any lien,
pledge, encumbrance or other restriction on ownership under applicable laws.

3.2.3 RELIANCE. The foregoing representations and warranties are
made by the Shareholders with the knowledge and expectation that COMPANY is
placing reliance thereon.

ARTICLE 4
COVENANTS

4.1 COVENANTS OF COMPANY. During the period from the date of this
Agreement (except as otherwise indicated) and continuing until the earlier of
the termination of this Agreement or the Effective Time (or later where so
indicated), COMPANY agrees that:

4.1.1 ORDINARY COURSE. COMPANY will carry on its business in the
ordinary course and will use reasonable efforts consistent with past practice
and policies to: (i) preserve intact its business and (ii) keep available the
services of its present officers, consultants, and employees and preserve its
relationships with customers, suppliers, distributors and others having business
dealings with it.

4.1.2 BREACH OF REPRESENTATIONS AND WARRANTIES. COMPANY will not
take any action that would cause or constitute a breach of any of the
representations and warranties set forth in Section 3.1 or that would cause any
of such representations and warranties to be inaccurate in any material respect.

<PAGE>

4.1.3 CONSENTS. COMPANY will promptly apply for or otherwise seek,
and use its best efforts to obtain, all consents and approvals, and make all
filings, required with respect to the consummation of the Exchange.

4.1.4 BEST EFFORTS. COMPANY will use its best efforts to complete
the transactions contemplated by this Agreement and to fulfill and cause to be
fulfilled the conditions to Closing under this Agreement.

4.2 COVENANTS OF THE SHAREHOLDERS. During the period from the date of
this Agreement (except as otherwise indicated) and continuing until the earlier
of the termination of this Agreement or the Effective Time (or later where so
indicated), each of the Shareholders agrees that:

4.2.1 ORDINARY COURSE. The Shareholders will use best efforts to
cause PEARL to carry on its business in the ordinary course and use reasonable
efforts consistent with past practice and policies to: (i) preserve intact its
business and (ii) keep available the services of its present employees and
consultants and preserve its relationships with customers, suppliers,
distributors and others having business dealings with it.]

4.2.2 BREACH OF REPRESENTATIONS AND WARRANTIES. None of the
Shareholders will take any action that would cause or constitute a breach of any
of the representations and warranties set forth in Section 3.2 or that would
cause any of such representations and warranties to be inaccurate in any
material respect.

4.2.3 BEST EFFORTS. The Shareholders will use their best efforts to
complete the transactions contemplated by this Agreement and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement.

ARTICLE 5
CONDITIONS PRECEDENT

The respective obligation of each party to complete the Exchange shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:

5.1 CONSENT OF BOARD OF DIRECTORS AND SHAREHOLDERS. The obligations of
the COMPANY and the Shareholders under this Agreement are subject to the
delivery by the COMPANY and PEARL of all necessary consents (or certified
minutes of meetings) of the Board of Directors and Shareholders of the COMPANY
and PEARL that authorize the transactions contemplated by this Agreement
("ENTITY CONSENTS"). A list of the required Entity Consents is set forth at
Schedule ____ attached.

5.2 NO RESTRAINTS. No statute, rule, regulation, executive order, decree
or injunction shall have been enacted, entered, promulgated or enforced by any
United States court or governmental entity of competent jurisdiction which
enjoins or prohibits the consummation of the Exchange shall be in effect.

<PAGE>

5.3 CONSENTS. The COMPANY shall have received duly executed copies of all
third-party consents, approvals, assignments, waivers, authorizations or other
certificates (collectively, the "THIRD PARTY CONSENTS")" reasonably deemed
necessary to provide for the continuation in full force and effect of any and
all material contracts and leases of PEARL and for the COMPANY to consummate the
transactions contemplated hereby in form and substance reasonably satisfactory
to the COMPANY, except for such thereof as the COMPANY and PEARL shall have
agreed in writing shall not be obtained. A list of the required Third-Party
Consents is set forth on Schedule ____ attached.

ARTICLE 6
MISCELLANEOUS

6.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the schedules and
exhibits attached and incorporated by reference herein collectively embody the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, than
may have related to the subject matter hereof in any way. This Agreement may be
amended only by an instrument executed by each of the parties.

6.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

6.3 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.

6.4 GOVERNING LAW. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Washington.

6.5 CAPTIONS. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.

6.6 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.

<PAGE>

SIGNATURE PAGE - AGREEMENT AND PLAN OF EXCHANGE

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

Pacific MultiMedia, Inc., a Washington
corporation

By
------------------------

Shareholders of Pearl Financial
Services, Inc., a Washington
corporation

Exhibits and Schedules:

Schedule ___List of Entity Consents
Schedule ___List of Third Party Consents

<PAGE>

REDEMPTION AGREEMENT

THIS REDEMPTION AGREEMENT is entered into this _____ day of September,
1997 by and between PACIFIC AUDIO RECORDING, INC., a California corporation
(the "Company"), and CRAIG DAVID PATTERSON ("Shareholder").

R E C I T A L S

This Agreement is being executed on the basis of the following facts which
all parties hereto acknowledge:

A. The Company has issued an outstanding One Hundred Thousand (100,000)
shares of its Common Stock, no par value ("Common Stock"), Forty Thousand
(40,000) shares of Common Stock are held by the Shareholder.

B. The Shareholder desires to sell 37,000 Shares of Common Stock (the
"Shares") to the Company and the Company desires to redeem and repurchase the
Shares for the aggregate sum of Thirty-Seven Thousand Dollars ($37,000) (the
"Redemption Price").

C. In connection with the redemption of the Shares, the Company will on
or about the same time effect a reorganization by merger ("Merger") with
Pacific Multimedia, Inc., a Washington corporation ("PMI"). As a result of the
Merger, the Company will go out of existence and PMI will be the surviving
corporation and the 3,000 shares of Common Stock to be retained by Shareholder
(the "Retained Shares") will be converted into 20,000 shares of common stock of
PMI ("PMI Common Stock").

D. The Company will have, or will be deemed to have (because it will
have gone out of existence upon the closing of the Merger) sufficient retained
earnings (after provision for all applicable state and federal income taxes) or
assets sufficient to meet the requirements of Section 500 of the California
Corporations Code to redeem and repurchase said Shares for the Redemption
Price.

E. In addition to the Redemption Price, Shareholder will receive an
employment agreement ("Employment Agreement") with PMI providing for a base
salary of $40,000 per annum and Shareholder shall receive options ("Options")
to purchase 20,000 shares of PMI Common Stock under PMI's 1997 Stock Option
Plan. The Redemption Price, the Employment Agreement and Options are
hereinafter collectively referred to as the "Redemption Consideration."

F. PMI has prepared and delivered to Shareholder PMI's Registration
Statement on Form SB-2 for the public offering (the "Offering") of up to
1,250,000 shares of PMI Common Stock ("Registration Statement"), and
Shareholder acknowledges that he has read the Registration Statement and has
had the opportunity to ask the officers and directors of PMI questions
concerning the Registration Statement.

<PAGE>

NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements herein contained, the parties agree as follows:

1. INCORPORATION OF RECITALS.

The provisions and recitals set forth hereinabove are hereby referred
to, incorporated herein and made a part of this Agreement by reference. Each
of the parties hereto agrees that this Agreement has been entered into for and
in consideration of the inducements contained in said provisions and recitals,
as well as those contained in the balance of this Agreement.

2. REDEMPTION OF THE SHARES; CLOSING DATE.

2.1 Subject to the representations and warranties contained herein,
and for the Redemption Price, the Shareholder does hereby agree to sell,
assign, transfer and deliver to the Company on the Closing Date (as hereinafter
defined), and the Company does hereby agree to redeem and purchase from the
Shareholder, the Shares.

2.2 As consideration for the Shares on the Closing Date, the Company
or PMI, as the survivor in the Merger, shall deliver to the Shareholder a
cashier's check for the Redemption Price.

2.3 The Closing Date shall be the date which the Merger is
consummated. The closing of this Agreement shall take place just prior to the
"effective time" of the Merger. In the event the Closing Date shall not have
occurred on or before March 31, 1998, by reason of the abandonment of the
Merger or otherwise, this Agreement shall automatically terminate and be of no
further force or effect.

2.4 The parties understand that the Company's obligation to complete
the redemption is further conditioned upon the closing by PMI of the Offering
which Offering is intended to close immediately subsequent to the Merger.
There can be no assurance, however, that the Company will successfully raise
the Minimum amount required to close the Offering.

3. REPRESENTATIONS OF SHAREHOLDER.

Shareholder represents and warrants that:

3.l He is the sole owner of the Shares, free and clear of any lien,
pledge, security interest or encumbrance of any kind other than the legends
imposed under the Securities Act of 1933, as amended, and Section 25102(f) of
the California Corporations Code, and that upon the delivery of the Shares, the
Company will be revested with good and marketable title thereto (for
cancellation by the Company) free of all liens, claims and encumbrances
whatsoever.

-2-
<PAGE>

3.2 Other than the Retained Shares, Shareholder has no other shares
of Common Stock, nor any right, contract, agreement, understanding or
arrangement with the Company to acquire or sell any other shares of Common
Stock or securities exchangeable for or convertible into shares of the Common
Stock.

3.3 All proceedings required to be taken by or on the part of
Shareholder to authorize and execute this Agreement and to carry out the terms
of the transactions contemplated hereby have been taken by Shareholder. No
consent of any person, other than the consent of Marijane Patterson is or will
be required as a condition to the validity of this Agreement and performance
hereunder. This Agreement is a valid and binding obligation of Shareholder,
enforceable upon Shareholder in accordance with its terms.

3.4 Shareholder has had the opportunity to consult with
Shareholder's own legal counsel regarding this Agreement and the effect of the
transactions described in the Registration Statement and has not relied on the
advice of any officer or director of PMI in connection with Shareholder's
decision to enter into this Agreement.

3.5 The representations and warranties of Shareholder shall survive
the execution hereof and shall remain in full force and effect for a period of
two years after the Closing Date regardless of any investigation by any party
hereto.

4. SUCCESSORS, ASSIGNS, BENEFIT.

The provisions of this Agreement shall inure to the benefit of and be
binding upon the Company and each Shareholder, their successors and assigns,
including, without limitation, any corporation, including, but not limited to
PMI, which may acquire all or substantially all of the Company's assets and
business or with or into which the Company may be consolidated, merged or
hereafter reorganized.

5. ENTIRE UNDERSTANDING.

This Agreement, together with the Redemption Consideration and the
agreements related thereto, sets forth the entire understanding of the parties
hereto with respect to the subject matter thereof and no other representations,
warranties or agreements whatsoever have been made which are not herein
contained. This Agreement shall not be modified, amended or terminated except
by another instrument in writing executed by the parties hereto.

6. SEVERABILITY.

In case one or more of the provisions contained in this Agreement (or
any portion of any such provision) shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement (or any
portion of any such provision), but this Agreement shall be construed as if
such invalid, illegal or unenforceable provision (or portion thereof) had never
been contained herein.

-3-
<PAGE>

7. ARBITRATION.

Any controversy or claim arising out of or relating to this
Agreement, shall be settled by arbitration in the City of Seattle, State of
Washington. Such arbitration shall be made in accordance with the laws, rules,
procedures and regulations of the American Arbitration Association, which laws,
rules, procedures and regulations are incorporated herein by reference, and
judgment upon the award rendered in such arbitration may be entered in any
court having jurisdiction thereof.

8. GOVERNING LAW.

This Agreement and all rights, obligations and liabilities arising
hereunder shall be construed and enforced in accordance with the laws of the
State of California.

9. ATTORNEYS' FEES.

In the event it becomes necessary to commence any proceeding or
actions to enforce the provisions of this Agreement, the Court and/or American
Arbitration Association, as the case may be, before whom the same shall be
tried or brought, may award to the prevailing party all costs and expenses
thereof, including but not limited to, a reasonable attorney's fee, the usual,
customary and lawfully recoverable costs, and all other expenses in connection
therewith.

10. ADDITIONAL DOCUMENTS.

Parties hereto agree to execute any additional agreements,
assignments, or documents that may be deemed necessary or advisable to
effectuate the purposes of this Agreement.

[remainder of page intentionally blank]

-4-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.

"COMPANY"

PACIFIC AUDIO RECORDING, INC.

By:
------------------------------------------
James Edward Campbell, III, President

"SHAREHOLDER"

---------------------------------------------
CRAIG DAVID PATTERSON

-5-
<PAGE>

SPOUSAL CONSENT

The undersigned, MARIJANE PATTERSON, does hereby certify that she is the
wife of CRAIG DAVID PATTERSON, that she hereby consents to the terms of the
Redemption Agreement between Craig David Patterson and Pacific Audio Recording,
Inc., a California corporation, (the "Agreement") pertaining to the sale of
37,000 shares of Common Stock of Pacific Audio Recording, Inc., a California
corporation, held in the name of her spouse (the "Shares"); and that she
understands and agrees that any interest that she may now or hereafter have in
the Shares without determining at this time whether any such interest exists
and the extent thereof, will cease upon the transfer/sale of the Shares upon
the closing of the Agreement.

Dated: September ___, 1997 ----------------------------------------
MARIJANE PATTERSON

-6-
<PAGE>

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, CRAIG DAVID PATTERSON, hereby sells, assigns and
transfers to PACIFIC AUDIO RECORDING, INC. 37,000 shares of Common Stock of
PACIFIC AUDIO RECORDING, INC. standing in my name on the books of said
corporation and represented by Certificate No. 1 herewith and does hereby
irrevocably constitute and appoint GARY J. KOCHER or JAMES E. CAMPBELL,
attorney-in-fact, to transfer said stock on the books of said corporation with
full power of substitution.

DATED: September ___, 1997.

-----------------------------------------------
CRAIG DAVID PATTERSON

-7-

<PAGE>
EXHIBIT 23.2

CONSENT OF MOORE STEPHENS FRAZER & TORBET, LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 11, 1997 and August 25, 1997, in the
Registration Statement (Form SB-2) and the related Prospectus of Pacific
MultiMedia, Inc. for the registration of shares of its Common Stock.

/s/ MOORE STEPHENS FRAZER & TORBET, LLP

Walnut, California

September 26, 1997