<PAGE> 1
As filed with the Securities and Exchange Commission on January 29, 1998.
Registration Number 33-63662
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
ON FORM S-1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
J2 COMMUNICATIONS
Exact name of Registrant as specified in the charter
<TABLE>
<S> <C> <C>
California 3652 95-4053296
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
J2 COMMUNICATIONS
10850 Wilshire Boulevard, Suite 1000
Los Angeles, California 90024
(310) 474-5252
(Address, including Zip Code and Telephone Number,
including Area Code, of Registrant's Principal
Executive Offices.)
JAMES P. JIMIRRO
10850 Wilshire Boulevard, Suite 1000
Los Angeles, California 90024
(310) 474-5252
(Names, address, including zip code and telephone number,
including area code, of agent for service)
Copies to:
BRUCE P. VANN, ESQ.
Kelly Lytton Mintz & Vann LLP
1900 Avenue of the Stars, Suite 1450
Los Angeles, California 90067
(310) 282-7031
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form S-1 are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following line.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount
Amount Offering Aggregate of
Title of Each Class of to be Price Per Offering Registration
Securities to be registered Registered Share (1) Price (1) Fee
- - --------------------------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Common Stock, no par value(1)(2) 1,753,211 $2.00 $3,506,422 (3)
</TABLE>
(1) As required by Rule 757(g) of Regulation C, the offering price for the
shares with respect to the exercise of the outstanding warrants is $2.00 per
share.
(2) These shares of Common Stock are issuable upon exercise of the Warrants. An
indeterminate number of additional shares of Common Stock are registered
hereunder. Such shares may be issued, as provided in the Warrant Agreement, in
the event that provisions against dilution become operative.
(3) Previously paid pursuant to Registration Statement 33-63662.
The registrant hereby amends the 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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 3
J2 COMMUNICATIONS
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K, showing the
location in the Prospectus of the answers to the items
in Part 1 of Form S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
- - ----------------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page; Cross
Reference Sheet
2. Inside Front and Outside Back Cover
Page of Prospectus Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges Prospectus Summary, Risk Factors
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution *
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be Registered Description of Company's Securities
10. Interests of Named Experts and Counsel Experts
11. Information with Respect to the Registrant Outside Front and Inside Front Cover Pages;
Prospectus Summary
(a) Description of Business Business
(b) Description of Property Business - Properties
(c) Legal Proceedings Business - Legal Proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters Dividends; Description of Company's
Securities
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Information Consolidated Financial Statements
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations Management's Discussion and Analysis
of Financial Condition and Results of Operations
(i) Disagreements with Accountants on
Accounting and Financial Disclosure *
(j) Directors and Executive Officers Directors and Executive Officers
(k) Management Remuneration Executive Compensation
(l) Security Ownership of Certain Beneficial
Owners and Management Security Ownership of Certain
Beneficial Owners and Management
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities
</TABLE>
* Not applicable or answer thereto is negative.
<PAGE> 4
PRELIMINARY PROSPECTUS DATED JANUARY __, 1998
1,753,211 SHARES
J2 COMMUNICATIONS
This Prospectus relates to 1,753,211 shares of Common Stock, no par
value, (the "Warrant Shares"), which may be issued upon exercise of the Series A
Warrants (the "Warrants") of J2 Communications (the "Company"). The Warrants and
Warrant Shares were issued by the Company in 1990 in connection with the
Company's acquisition of National Lampoon, Inc. The expiration date for
exercising the Warrants has been extended until June 30, 1998.
Pursuant to the terms of the warrant agreement (the "Warrant
Agreement"), dated October 5, 1990, between the Company and U. S. Stock Transfer
Corp., each Warrantholder is entitled to purchase one share of the Company's
Common Stock at an exercise price of $3.00 per share (the "Exercise Price"). The
Company has notified all Warrantholders that the Exercise Price has been lowered
to $2.00 through the remaining period that the Warrants may be exercised.
The Warrant Shares may be offered to the public from time to time by
holders of Warrants who exercise such warrants (the "Selling Securityholders").
See "The Selling Securityholders". The Company will receive none of the proceeds
from the sale of the Common Stock by the Selling Securityholders. The Company
will receive certain amounts in connection with the exercise of the Warrants.
The Selling Securityholders will bear the commissions and discounts of any
underwriters, dealers and agents and the legal expenses of the Selling
Securityholders. The Common Stock may be sold directly or through underwriters,
dealers or agents in market transactions or privately-negotiated transaction.
See "Plan of Distribution."
The Company's Common Stock and Warrants are traded over-the-counter and
the Common Stock is quoted on The NASDAQ SmallCap Market. On January 15, 1998,
the last sale price of the Common Stock on The NASDAQ SmallCap Market was $3/4
per share and the last sale price for the Warrants was $5/32.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January __, 1998.
1
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in the Prospectus.
THE COMPANY
J2 Communications was originally formed primarily to engage in the
acquisition, development and production of entertainment feature film and
special-interest videocassette programs, and the marketing of these programs in
the home video sell-through market. In 1990, the Company acquired National
Lampoon, Inc., a publisher of a national satire and humor magazine and licensor
of feature films. The Company was founded in March, 1986 by its Chairman of the
Board and President, James P. Jimirro, the first President of both the Disney
Channel and Walt Disney Home Video.
Due to the increasing competitiveness of the videocassette market,
resulting in decreasing volume and profitability, the Company has de-emphasized
this segment of its business. The Company is now focusing on expanding the
licensing of the National Lampoon name to virtually every segment of the
entertainment business. The first significant result of this effort was achieved
with the release in February, 1993 of the feature film National Lampoon's Loaded
Weapon I. This film achieved approximately $28 million of theatrical revenue in
its United States theatrical release. The Company will participate in the film's
revenue as provided by the Company's licensing agreement with New Line Cinema,
the producer and distributor of the film. The second film produced under this
agreement, National Lampoon's Senior Trip was not a commercial success and is
not expected to generate any contingent income for the Company.
The Company expects that its videocassette business, which has been
declining in recent years, will continue to decline, and in the future will not
be a significant part of its operations.
THE OFFERING
Common Stock offered hereunder 1,753,211 shares
Common Stock to be outstanding after the Offering 5,353,201 shares
Use of Proceeds (1)
NASDAQ symbol JTWO
(1) The Company will receive no proceeds from the offering.
2
<PAGE> 6
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended July 31,
3 Mos. Ended 3 Mos. Ended ----------------------------
October 31, 1997 October 31, 1996 1997 1996
---------------- ---------------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS OF DATA:
Total revenues $ 311,000 $ 500,000 $ 1,356,000 $ 964,000
Cost and expenses: 13,000 27,000 262,000 259,000
Costs of revenue
Selling, general and administrative 180,000 175,000 792,000 725,000
Amortization of intangible assets 60,000 60,000 240,000 240,000
----------- ----------- ----------- -----------
Income (loss) from operations 58,000 238,000 62,000 (260,000)
Other income:
Settlement of IRS claims -- -- -- --
Settlement of royalty claims -- -- -- --
Interest income 17,000 12,000 59,000 77,000
Minority interest in income of
consolidated subsidiary (31,000) (82,000) (82,000) (46,000)
Interest expense -- -- -- --
----------- ----------- ----------- -----------
Income (loss) before provision for (benefit
from) income taxes and extra-ordinary
income 44,000 168,000 39,000 (229,000)
Provision for (benefit from)
income taxes 6,000 7,000 9,000 7,000
----------- ----------- ----------- -----------
Income (loss) before extraordinary item 38,000 161,000 30,000 (236,000)
Extraordinary item - troubled debt
restructuring -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 38,000 $ 161,000 $ 30,000 $ (236,000)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE
Income (Loss) before extraordinary income $ 0.01 $ 0.04 $ 0.01 $ (0.07)
Extraordinary income $ -- -- -- $ --
----------- ----------- ----------- -----------
Net income (loss) $ 0.01 $ 0.04 $ 0.01 $ (0.07)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
Total revenues $1,284,000 $ 1,848,000 $ 1,726,000
Cost and expenses: 193,000 203,000 1,078,000
Costs of revenue
Selling, general and administrative 818,000 1,129,000 2,234,000
Amortization of intangible assets 240,000 240,000 307,000
--------- ----------- -----------
Income (loss) from operations 33,000 276,000 (1,893,000)
Other income:
Settlement of IRS claims -- -- 181,000
Settlement of royalty claims -- 84,000 374,000
Interest income 49,000 15,000 19,000
Minority interest in income of
consolidated subsidiary (30,000) (30,000) (33,000)
Interest expense -- (18,000) (18,000)
--------- ----------- -----------
Income (loss) before provision for (benefit
from) income taxes and extra-ordinary
income 52,000 327,000 (1,370,000)
Provision for (benefit from)
income taxes (14,000) 22,000 9,000
--------- ----------- -----------
Income (loss) before extraordinary item 66,000 305,000 (1,379,000)
Extraordinary item - troubled debt
restructuring -- -- 69,000
--------- ----------- -----------
NET INCOME (LOSS) $ 66,000 $ 305,000 $(1,310,000)
========= =========== ===========
INCOME (LOSS) PER COMMON SHARE
Income (Loss) before extraordinary income $ 0.02 $ 0.09 $ (0.43)
Extraordinary income $ -- -- 0.02
--------- ----------- -----------
Net income (loss) $ 0.02 $ 0.09 $ (0.41)
========= =========== ===========
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended Year Ended July 31,
October 31, 1997 October 31, 1996 -------------------------------------------------------------------
(Unaudited) (Unaudited) 1997 1996 1995 1994 1993
----------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Intangible assets $3,836,000 $ 136,000 $3,896,000 $4,136,000 $4,376,000 $4,616,000 $4,855,000
Total assets $5,410,000 $5,367,000 $5,473,000 $5,367,000 $5,667,000 $5,801,000 $5,653,000
========== ========== ========== ========== ========== ========== ==========
Shareholders' equity $3,720,000 $3,652,000 $3,682,000 $3,652,000 $3,888,000 $3,814,000 $3,262,000
========== ========== ========== ========== ========== ========== ==========
</TABLE>
4
<PAGE> 8
RISK FACTORS
1. PUBLISHING
An agreement between NL and The Harvard Lampoon, Inc. provides that NL may use
the "Lampoon" name perpetually, subject to, among other things, publication of
the magazine at least once a year. Under the agreement, as amended, NL pays The
Harvard Lampoon, Inc. royalties of up to 2% of all revenues derived from sales
of publications using the name "National Lampoon," and royalties of up to 2% of
"pre-tax profits" (as defined in the agreement) derived from non-publishing
activities using such name. In 1994 and 1995, the National Lampoon magazine was
published through an arrangement with a third party. "See Business-Publishing".
Beginning with the 25th Anniversary issue published in May, 1996, the Company
again began publishing the magazine. Under the agreement with Harvard
University, the Company is obligated to publish the magazine once a year. The
Company is reviewing its options regarding further publication and is not yet
determined the number of issues it will directly publish.
2. DEPENDENCE OF LICENSING OPERATIONS
The Company anticipates that a majority of future revenue will be dependent on
exploiting the "National Lampoon" name. The Company is subject to several
licensing agreements, including a feature film agreement with New Line Cinema
which led to the production of National Lampoon's Loaded Weapon I and National
Lampoon's Senior Trip. The Company, as a profit participant in these ventures,
is substantially dependent on the performance of the parties to such agreement
and upon the commercial success of the licensed products. No assurance can be
given that any of these agreements will lead to significant revenue for the
Company.
On March 10, 1997 counsel for Harvard Lampoon, Inc. ("HLI") filed a demand for
arbitration to the American Arbitration Association, asserting that the Company
underpaid royalties under the HLI royalty agreement by approximately $226,000,
plus unspecified late charges, for the period from July 1, 1992, through June
30, 1995, based on HLI's interpretation of the agreement. By agreement of both
parties arbitration was stayed in order to submit the matter to a mediation
under the auspices of the Judicial Arbitration and Mediation Services, which
took place on May 8th and 9th, 1997. Settlement negotiations commenced at the
mediation and arbitration proceedings continue to be stayed while the settlement
negotiations continue. If settlement is not reached, J2 will vigorously contest
HLI's claims in arbitration.
3. DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent on the services of James P. Jimirro, who
serves as the Company's Chairman of the Board and President. Although Mr.
Jimirro is party to an employment agreement with the Company, the loss of his
services could have a material adverse effect on the Company.
4. NEW LISTING STANDARDS FOR NASDAQ
On August 22, 1997, the Securities and Exchange Commission approved new
standards for listing on The Nasdaq SmallCap Market. The changes increase the
quantitative criteria necessary to maintain a listing on Nasdaq, and, for the
first time, apply corporate governance requirements to the SmallCap Market.
Among the changes introduced by Nasdaq are a $1 minimum bid price for Common and
Preferred Stock; an increase in certain quantitative requirements, such as the
size and market value of public float, the number of market makers and
shareholders, and the amount of tangible assets; the adoption of a peer review
requirement for all independent auditors of Nasdaq listed companies, and the
adoption of various corporate governance requirements.
Companies on The Nasdaq SmallCap Market have until February 23, 1998 to comply
with the new requirements. If a company is unable to comply with one or more of
the new requirements, Nasdaq provides a cure period prior to a final
determination being made to delist a company's stock from The Nasdaq SmallCap
Market.
The Company, believes that at the present time, it can comply with the new
requirements on a going-forward basis, but no assurance can be given that the
Company will be able to meet and then maintain the new requirements.
5
<PAGE> 9
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Selling
Securityholder Warrant Shares.
PRICE RANGE OF COMMON STOCK AND WARRANTS
COMMON STOCK: The Company's Common Stock is traded on The NASDAQ SmallCap Market
under the symbol "JTWO."
The following table sets forth, for the periods indicated, the highest and
lowest last reported sale prices for the Common Stock, as reported on the
NASDAQ:
<TABLE>
<CAPTION>
Common Stock High Low
- - ------------ ---- ---
<S> <C> <C>
Fiscal 1998:
First Quarter............................................ $1 17/32 $ 7/8
Second Quarter (through January 15, 1998)................ $1 5/32 $ 19/32
Fiscal 1997:
First Quarter..................................... $1 5/16 $1 1/16
Second Quarter.................................... $1 3/16 $ 7/8
Third Quarter..................................... $1 5/16 $ 25/32
Fourth Quarter.................................... $1 7/32 $1 3/16
Fiscal 1996:
First Quarter..................................... $1 1/2 $1
Second Quarter.................................... $1 5/8 $1 3/16
Third Quarter..................................... $1 15/32 $1 1/32
Fourth Quarter.................................... $1 3/16 $1 1/16
</TABLE>
On January 15, 1998, the closing bid price for the Common Stock was $3/4
per share. The approximate number of holders of record of Common Stock on that
date was 553. The Company has never paid a dividend on its Common Stock and
presently intends to retain all earnings for use in its business.
6
<PAGE> 10
WARRANTS: The Company's Warrants were issued in connection with its acquisition
of National Lampoon, Inc. The Warrants began trading in the over-the-counter
market on October 26, 1990 under the symbol JTWOW. The following table sets
forth for the period indicated, the high and low bid prices reflect interdealer
prices without retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Warrants High Low
- - -------- ---- ---
<S> <C> <C>
Fiscal 1998:
First Quarter ................................... $ 11/32 $ 1/16
Second Quarter (through January 15, 1998)........ $ 7/32 $ 1/16
Fiscal 1997:
First Quarter.................................... $ 3/8 $ 5/16
Second Quarter................................... $ 9/32 $ 9/32
Third Quarter.................................... $ 7/32 $ 1/16
Fourth Quarter................................... $ 3/16 $ 1/16
Fiscal 1996:
First Quarter ................................... $ 3/8 $ 1/4
Second Quarter................................... $ 3/8 $ 5/16
Third Quarter.................................... $ 3/8 $ 7/32
Fourth Quarter................................... $ 7/32 $ 3/16
</TABLE>
On January 15, 1998, the closing price for the Warrants was $5/32. The
approximate number of holders of record of Warrants are 180 as of January 15,
1998, although management has been advised that the number of beneficial holders
exceeds 1,000.
SELECTED FINANCIAL DATA
The selected consolidated statements of operations data for the years
ended July 31, 1995, 1996 and 1997 and the consolidated balance sheet data at
July 31, 1996 and 1997 are derived from the Company's consolidated financial
statements included elsewhere in this Prospectus and have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report,
which is also included elsewhere in this Prospectus. Such selected consolidated
financial data should be read in conjunction with those consolidated financial
statements and the notes thereto. The selected consolidated income statement
data for the years ended July 31, 1993 and 1994 are derived from audited
consolidated financial statements of the Company which are not included herein.
7
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended July 31,
3 Mos. Ended 3 Mos. Ended --------------------------------------------------------------
October 31, 1997 October 31, 1996 1997 1996 1995 1994 1993
---------------- ---------------- ---------- --------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
OF DATA:
Total revenues $311,000 $500,000 $1,356,000 $ 964,000 $1,284,000 $1,848,000 $ 1,726,000
Cost and expenses: 13,000 27,000 262,000 259,000 193,000 203,000 1,078,000
Costs of revenue
Selling, general and
administrative 180,000 175,000 792,000 725,000 818,000 1,129,000 2,234,000
Amortization of intangible
assets 60,000 60,000 240,000 240,000 240,000 240,000 307,000
-------- -------- ---------- --------- ---------- ---------- -----------
Income (loss) from operations 58,000 238,000 62,000 (260,000) 33,000 276,000 (1,893,000)
Other income:
Settlement of IRS claims -- -- -- -- -- -- 181,000
Settlement of royalty claims -- -- -- -- -- 84,000 374,000
Interest income 17,000 12,000 59,000 77,000 49,000 15,000 19,000
Minority interest in income of
consolidated subsidiary (31,000) (82,000) (82,000) (46,000) (30,000) (30,000) (33,000)
Interest expense -- -- -- -- -- (18,000) (18,000)
-------- -------- ---------- --------- ---------- ---------- -----------
Income (loss) before provision
for (benefit from) income
taxes and extra-ordinary
income 44,000 168,000 39,000 (229,000) 52,000 327,000 (1,370,000)
Provision for (benefit from)
income taxes 6,000 7,000 9,000 7,000 (14,000) 22,000 9,000
-------- -------- ---------- --------- ---------- ---------- -----------
Income (loss) before
extraordinary item 38,000 161,000 30,000 (236,000) 66,000 305,000 (1,379,000)
Extraordinary item - troubled
debt restructuring -- -- -- -- -- -- 69,000
-------- -------- ---------- --------- ---------- ---------- -----------
NET INCOME (LOSS) $ 38,000 $161,000 $ 30,000 $(236,000) $ 66,000 $ 305,000 $(1,310,000)
======== ======== ========== ========= ========== ========== ===========
INCOME (LOSS) PER COMMON
SHARE
Income (Loss) before
extraordinary income $ 0.01 $ 0.04 $ 0.01 $ (0.07) $ 0.02 $ 0.09 $ (0.43)
Extraordinary income -- -- -- -- -- -- 0.02
-------- -------- ---------- --------- ---------- ---------- -----------
Net income (loss) $ 0.01 $ 0.04 $ 0.01 $ (0.07) $ 0.02 $ 0.09 $ (0.41)
======== ======== ========== ========= ========== =========== ===========
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
3 Mos. Ended 3 Mos. Ended Year ended July 31,
October 31, 1997 October 31, 1996 ---------------------------------------------------------------------
(Unaudited) (Unaudited) 1997 1996 1995 1994 1993
----------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Intangible assets $3,836,000 $ 136,000 $3,896,000 $4,136,000 $ 4,376,000 $4,616,000 $4,856,000
Total assets $5,410,000 $5,367,000 $5,473,000 $5,367,000 $ 5,667,000 $5,801,000 $5,653,000
========== ========== ========== ========== ============ ========== ==========
Shareholders' equity $3,720,000 $3,652,000 $3,682,000 $3,652,000 $ 3,888,000 $3,814,000 $3,262,000
========== ========== ========== ========== ============ ========== ==========
</TABLE>
9
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED OCTOBER 31, 1997 VERSUS OCTOBER 31, 1996
Total revenues for the period were $311,000 compared with $500,000 in the prior
year quarter. Movies, television and theatrical revenues were $149,000 compared
with $432,000 in the prior year period. The reduction was due primarily to a
decrease of $164,000 in the profit participation from the film National
Lampoon's Animal House that was originally released in 1978. National Lampoon's
Loaded Weapon I, originally released in 1993, produced income of $17,000 in the
current quarter compared with $102,000 in the prior year quarter. Video sales of
$1,000 were down $25,000 from the corresponding 1996 quarter. The Company has
substantially de-emphasized this segment of its business due to declining
profitability.
Royalty income increased $23,000 to $49,000 from $26,000 from the prior year
quarter, primarily due to the taking into income of the balance of an advance
license fee upon expiration of the Astral Video license agreement. Other income
increased $97,000 to $112,000 from $15,000 in the prior year quarter, primarily
due to the reversal of previous accruals related to potential royalties which
were extinguished at a reduced amount.
Cost of videocassettes sold represent duplication, shipping, and other costs
which were higher than sales, due to the reduced volume of sales net of returns
for this quarter.
Royalty expense decreased $2,000 to $10,000 compared to $12,000 in the prior
year quarter.
Selling, general and administrative expenses were $180,000 in the current
quarter, compared with $175,000 in the corresponding prior period. There was no
major change in any individual category of expense.
There was no significant provision for income taxes in either quarter because of
the utilization of tax loss carryforwards.
Net income for the current quarter was $38,000 equal to $0.01 per share compared
with a net income of $161,000 in the corresponding prior year quarter, equal to
$0.04 per share. The reduction is primarily due to the decrease in revenues from
movies.
YEAR ENDED JULY 31, 1997 VERSUS JULY 31, 1996
Total revenues for 1997 increased $392,000 to $1,356,000 compared to $964,000
for 1996. Movies, television and theatrical revenues increased $431,000
primarily due to increased movie licensing revenue of previously licensed movies
and payment of the license fees for two Showtime movies during fiscal year 1997.
Videocassette sales decreased $92,000 to $219,000 from $311,000 from the prior
year due to the company de-emphasizing the video segment of its business because
of declining profitability. Royalty income increased $20,000 to $65,000 from
$45,000 in the prior year, primarily due to increased revenue received from a
newly licensed distributor. Publishing revenue increased $48,000 to $56,000 from
$8,000 in the prior year due to a majority of revenue for the 25th anniversary
issue of the National Lampoon magazine, which went on sale late in fiscal 1996,
being recorded in fiscal 1997, along with the fiscal 1997 magazine issue. Other
income fell to $46,000 in 1997 from $61,000 in 1996.
Cost of videocassettes sold as a percentage of sales increased to 48% in fiscal
1997 compared to 45% in 1996, primarily due to reductions in the sales price of
certain videos as they are in the latter stages of their release pattern.
Costs of movies and television expenses increased $27,000 to $53,000 from
$26,000 in the prior fiscal year, due primarily to additional payments required
to be made on increased television revenue on the "GPEC" rights agreement.
Magazine editorial, production and distribution expense decreased $11,000 to
$41,000 from $55,000 due primarily to last fiscal year's expense having included
costs associated with prior editions of the magazine.
Royalty expenses increased $26,000 to $63,000 compared to $37,000 in 1996,
primarily due to an increase in royalty income.
10
<PAGE> 14
Selling, general and administrative expenses increased $67,000 to $792,000 in
the current year as compared with $725,000 in the prior year. The increase was
primarily due to an increase in salary expense, partially offset by a reduction
in legal and accounting expenses.
Interest and other income for the year decreased $18,000 to $59,000 from $77,000
in the prior fiscal year primarily due to a decrease in yields on short term
investment, as well as a reduction in the average short term investment balance
during 1997.
Net income for the current year was $30,000, equal to $0.01 per share compared
with a net loss of $236,000, equal to $0.07 per share. The increase in net
income was due primarily to increased television and theatrical revenues which
were partially offset by a reduction in video sales.
YEAR ENDED JULY 31, 1996 VERSUS JULY 31, 1995
Total revenues for the year were $964,000 compared with $1,284,000 in the prior
year. Movies, television and theatrical revenues were $539,000 compared with
$736,000 in the prior year. In the prior year, payments under a movie licensing
agreement of $430,000 were received which were significantly higher than the
$166,000 received in the current year. Video sales of $311,000 were reduced from
$336,000 recorded in 1995. Royalty income from video licensing fell from $83,000
in the prior year to $45,000 in the current year. In 1995, a payment from a
video license of $40,000 was received which related to revenues from prior
years. The Company has de-emphasized the video segment of its business due to
declining profitability. Other income fell to $61,000 from $129,000 in the prior
year. In 1995 there was a payment of $50,000 received from a National Lampoon
Audio product that did not recur in the current year.
Cost of videocassettes sold as a percentage of sales increased to 45% in fiscal
1996 compared with 31% in 1995 due primarily to reductions in the sales price of
certain films in the current period as they are in the latter stages of their
release period.
Cost of movies and television expenses remained unchanged between fiscal years
1996 versus 1995 primarily due to a fixed percentage payment made per agreement
on certain television revenues, which was received in the same amounts in the
current and prior fiscal years.
Cost of magazine primarily covers costs associated with prior editions of the
magazine.
Royalty expenses for fiscal 1996 decreased $25,000 to $37,000 compared to
$62,000 in 1995, primarily due to a settlement between the Company and a
producer of a certain video, which settlement reduced royalty expenses by
$20,000.
Selling, general and administrative expenses were $725,000 in the current year
as compared with $818,000 in the prior year. The decrease primarily reflects a
reduction in salary related costs of $179,000, offset in part by an increase in
legal expenses of $98,000.
The net loss for the current year was $236,000 equal to $0.07 per share compared
with net income of $66,000 in the prior year, equal to $0.02 per share. The loss
was due to sharply lower revenues, higher costs associated with publishing of
the magazine, and higher legal expenses offset in part by lower salary costs as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short term investments at October 31, 1997 total $1,497,000, a decrease
of $5,000 from the July 31, 1997 fiscal year end.
The Company has no current plans for any significant capital expenditures in its
current line of business and believes that its present level of cash and cash
equivalents, augmented by internally generated funds, will provide sufficient
cash resources through fiscal 1998.
The Company is considering establishing a restaurant chain to be called
"National Lampoon Cafe." Should it enter this new line of business, significant
capital would be required.
The Company has made a significant investment in the "National Lampoon" name and
other intangible assets through its acquisition of NLI. Realization of these
acquired assets ($3,896,000 at July 31, 1997) is dependent on the continued
licensing of the "National Lampoon" name for use in feature films, video,
television and audio distribution and merchandising of other appropriate
opportunities. The Company has received approximately $5,583,000 in licensing
revenues (including revenues received in connection with an agreement for the
licensing of the name for three feature films see Note 4) since the acquisition
of the "National Lampoon" name in 1990. The Company
11
<PAGE> 15
is in the process of negotiating other licensing agreements and the development
of other concepts, programs, etc. that could generate additional licensing fees
in the future. If these and other licensing agreements that the Company may
enter into in the future do not result in sufficient revenues to recover these
acquired intangible assets over a reasonable period of time, the Company's
future results of operations may be adversely affected by a write-off of or an
adjustment to these acquired intangible assets.
In evaluating if there has been an impairment in the value of its long-lived
assets, the Company follows the guidelines of SFAS No. 121. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. Management has determined that through the realization of future
licensing agreements, expected future cash flows relating to the intangible
assets will result in the recovery of the carrying amount of such assets.
In March 1997, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure" which are
effective for financial statements for periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of An Enterprise and Related
Information," which are effective for the financial statements for periods
ending after December 31, 1998.
Management does not believe adoption of SFAS No. 128, SFAS No. 129, SFAS No. 130
and SFAS No. 131 will have a material effect on the Company's consolidated
financial statements.
BUSINESS
The Company was founded in March, 1986 by its Chairman of the Board and
President, James P. Jimirro, the first President of both the Disney Channel and
Walt Disney Home Video. The Company was originally formed primarily to engage in
the acquisition, development and production of entertainment feature film and
special-interest videocassette programs, and the marketing of these programs in
the home video sell-through market. In 1990, the Company acquired National
Lampoon, Inc., a publisher of a national satire and humor magazine and licensor
of feature films.
Due to the increasing competitiveness of the videocassette market, resulting in
declining volume and profitability, the Company has de-emphasized this segment
of its business. The Company expects that its videocassette business, which has
been declining in recent years, will continue to decline, and in the future will
not be a significant part of its operations. The Company is now focusing on
expanding the licensing of the National Lampoon name to virtually every segment
of the entertainment business. The first significant result of this effort was
realized with the release in February, 1993 of the feature film "National
Lampoon's Loaded Weapon I". This film achieved approximately $28 million of
theatrical revenue in its United States theatrical release. The Company will
participate in the film's revenue as provided by the Company's licensing
agreement with New Line Cinema, the producer and distributor of the film. The
second picture under this licensed agreement, National Lampoon's Senior Trip,
was released in September of 1995. The initial theatrical revenue from this film
was disappointing and the Company does not expect any significant contingent
income based on the revenues from this film. In fiscal 1994, a licensing
agreement was entered into with Showtime Networks, Inc. which provides for the
production of seven (7) movies made for initial viewing on the Showtime
television channel over the next three (3) years. As per the contract, Showtime
has paid the producer fees due for five (5) movies as of July 31, 1997. The
producer fees due for the sixth (6) and seventh (7) movies will be paid in the
fiscal year ending July 31, 1998. The Company is currently seeking to replace
the Showtime license agreement with a comparable entity that produces
made-for-cable movies under a similar licensing arrangement.
CURRENT OPERATIONS AND BUSINESS STRATEGIES
The Company's current business strategy is to preserve, to the extent possible,
the Company's cash resources and focus on activities pursuant to which the
Company can license the name "National Lampoon" without investing sums in either
the development or production of any entertainment or related product. In this
regard, virtually all development activity taking place in respect of the
Company's feature films, made-for-videos, made-for-cable and interactive product
are done by third parties who license the name "National Lampoon" in return for
initial guaranties and royalty payments based on the profitability of the
particular venture.
12
<PAGE> 16
NATIONAL LAMPOON OPERATIONS
NLI and its subsidiaries were acquired by J2 effective October 24, 1990 upon
approval of the shareholders of both companies. In December 1992, J2 foreclosed
on all of the assets of NLI. Since that time, J2 has used the assets it acquired
in such foreclosure in a separate division. This division, together with the
prior NLI entity, is collectively referred to as "NL".
GENERAL
NL is engaged in various aspects of the entertainment business. It is the
publisher of National Lampoon, a magazine of contemporary humor and satire, and
until January, 1992 was the publisher of Heavy Metal, a bi-monthly magazine of
illustrated fantasy and science fiction. NL also creates, develops, and has
produced (but does not finance) motion pictures, television programs, and other
entertainment media products.
MOTION PICTURES, TELEVISION AND OTHER ENTERTAINMENT ACTIVITIES - LICENSING
MOTION PICTURES: NL's motion picture activities have consisted principally of
developing ideas for feature films, suggesting script writers, providing
supervision of the scripting, and providing producer services in connection with
the production of such films. NL has not financed the development, production or
distribution of movies; rather, NL has presented its film ideas to major movie
studios for consideration with regard to financing of development, production,
and distribution by such studios. NL has received production and other fees and
a participation in the profits, if any, of the movie which bears its name. After
NL's first movie, Animal House, NL's compensation arrangements for its comedy
film projects financed and distributed by studios traditionally fell into a
general pattern of cash fees for NL's producer services and for the use of the
name "National Lampoon" in the film title, and a small percentage of the
studio's "net profits" (after a certain level of revenues has been achieved)
from the film.
To date, NL has been involved in the production of eight feature films,
including the highly profitable 1978 film Animal House, co-produced by NL and
Ivan Reitman. This movie starred John Belushi and was financed and distributed
by Universal Studios. Through 1990, total revenues to NL from this picture have
aggregated in excess of ten million dollars. For the last five years, revenues
from this picture have consisted mainly of NL's share of fees derived from the
licensing of the picture by Universal for showing by various independent
television stations, and from the sale of videocassettes.
NL's other films have included National Lampoon's Vacation (released in 1983)
and its sequels, National Lampoon's European Vacation (released in 1985), and
National Lampoon's Christmas Vacation (released in 1989), all starring Chevy
Chase and Beverly D'Angelo.
NL and New Line Cinema Corporation ("New Line") entered into an agreement, dated
as of September 11, 1991, regarding the development and production, financing,
and distribution of three (3) National Lampoon motion pictures each at budgets
not greater than $10 million within four and one-half years of execution of the
agreement (the "New Line Agreement"). The New Line Agreement provides NL with an
advance fee for the use of the "National Lampoon" name in connection with each
of the theatrical motion pictures to be produced and additional contingent
compensation based on the revenues produced by the Picture.
New Line released the first film under this agreement, National Lampoon's Loaded
Weapon I, in February 1993. The film grossed in excess of $28 million at the
domestic box-office. The second film, National Lampoon's Senior Trip was
released in September, 1995 and was not a box office success. The New Line
agreement expired on May 10, 1996, and as such, the third motion picture was
never produced. Unless the Company licenses the rights and obtains a significant
advance, revenue from theatrical feature film rights for fiscal year ended July
31, 1998 will be dependent on contingent compensation from previously licensed
rights. The results will be lower feature film rights revenue for the fiscal
year ended July 31, 1998, than in prior years.
In March, 1994, the Company signed an agreement with Showtime Networks, Inc.
("Showtime") to produce seven (7) movies over a three (3) year period to be
aired initially on the Showtime Network or The Movie Channel. The agreement
provides for the payment of a license fee to National Lampoon upon the
commencement of principal photography of each film and contingent compensation
based on revenues the films may generate from all sources. The Showtime
agreement has now expired, with only four (4) made-for-cable movies produced,
and as such, the fifth through seventh movies will not be produced. As per the
contract, Showtime has paid the producer fees due for five (5) movies as of July
31, 1997. The producer fees due for the sixth (6) and seventh (7) movies were
paid in the quarter ended January 31, 1998. The Company is currently seeking to
replace the Showtime license agreement with a comparable entity that produces
made-for-cable movies under a similar licensing arrangement.
13
<PAGE> 17
In the event that the Company does not replace the Showtime agreement with a
comparable arrangement, filmed entertainment revenues will be negatively
impacted.
TELEVISION: In July 1987 NL entered into an exclusive television agreement with
Barris Industries, Inc. ("Barris"), a Los Angeles-based television production
company. Barris is a predecessor of Guber-Peter Entertainment Company (GPEC),
which has been acquired by Sony Pictures (formerly Columbia Studios). Pursuant
to the Barris Agreement, NL granted Barris the exclusive right to produce
television programming of any kind utilizing the name "National Lampoon" for a
term of five years. NL had not previously been significantly active in creating
television programming, and this agreement did not produce any significant
television activity.
Concurrent with the acquisition of NL by J2 Communications, the exclusive right
to produce television programming under the name "National Lampoon" was
re-acquired by NL on October l, 1990 from GPEC ("GPEC Agreement"). The purpose
of this acquisition of rights was to ensure that NL had the ability to control
the use of its name in the valuable medium of television and to develop comedy
programs for broadcast in all areas of television distribution including
network, syndication and cable.
The GPEC Agreement required the re-payment of $1,000,000 to GPEC, which was the
consideration paid by GPEC to NL for the rights in 1987. This sum was payable by
NL, fifty-percent ($500,000) on execution of the contract, and fifty-percent
($500,000) payable out of seventeen and one- half percent (17 1/2%) of the gross
receipts received by NL as a result of the exploitation of any new television
programs bearing the National Lampoon name, with certain minimums due on
commencement of principal photography or taping of the applicable programs.
After this amount has been re-paid, NL shall have no further obligations to GPEC
with respect to television. To date, $131,000 has been paid under the gross
receipts provision of the agreement.
In 1997 NL entered into an agreement with Western International Syndication to
develop a television awards satire programs. In addition, NL is currently in
negotiation with a major supplier of children's television programming to
develop an animated children's television series.
MADE-FOR-VIDEO MOVIES: National Lampoon's Last Resort, a made-for-video movie
produced by Rose & Ruby Productions, completed filming in July, 1993. The
picture stars Corey Feldman & Corey Haim, and in 1994 was distributed
internationally by Moonstone Entertainment and domestically by Vidmark in early
1994.
MOTION PICTURE AND TELEVISION COMPETITION: Motion pictures and television
development activities are highly competitive. NL is in competition with the
major film studios as well as numerous independent motion picture and television
production companies for the acquisition of literary properties, the services of
creative and technical personnel, and available production financing. NL
believes it has been, and will continue to be, aided in these endeavors by the
recognition achieved by the "National Lampoon" magazine and by the success
achieved by its films, "National Lampoon's Animal House" and "National Lampoon's
Vacation," however, NL cannot guarantee that any project will actually be
produced or if produced, will yield the success of past projects.
OTHER LICENSING ACTIVITIES
As of October 1997, the Company entered into an agreement with On-Line
Entertainment Network, Inc. (a subsidiary of Global Net Systems, Ltd.) to
develop and distribute audio comedy programming over the Internet on a
pay-per-listen basis. The Company believes that the site can develop into a
multi-layered site featuring pre-recorded material (including the National
Lampoon Radio Hour archives), new serialized programming, live on-line comedy
performances, and general comedy merchandising.
BOOKS: NL continues the publication of various books, including National
Lampoon's Treasury of Humor with Simon and Schuster, and four "True Facts" books
with Contemporary Books. Other NL books published include the third edition of
National Lampoon's Cartoon Book, and National Lampoon White Bread Snaps.
COMPUTER GAMES: National Lampoon's Chess Meister 5 Billion and 1, a computer
game produced by Spectrum HoloByte, has been available nationwide. Also
available is The Personal Daily PlanIt, a daily planner featuring National
Lampoon's Joke of the Day, distributed by Media Vision. In 1995, Trimark
Interactive developed and distributed the CD-ROM title National Lampoon's Blind
Date. Other interactive titles being developed by National Lampoon include
National Lampoon Goes To Hell and National Lampoon I Can't Believe It's Not A
Game Show.
14
<PAGE> 18
NL has a number of merchandising arrangements, including a line of trading and
post cards based upon National Lampoon magazine art. In addition, NL is in
negotiations with At A Glance Landmark, which published the Company's 1998
calendar, to distribute the 1999 National Lampoon Life Sucks!
Page-A-Day Calendar And Horrorscope.
RECORDINGS: Rhino Records has released a commemorative box titled The Best of
The National Lampoon Radio Hour, a compilation of classic comedy from the 1970's
show.
THEME RESTAURANTS: National Lampoon is continuing to explore the possibility of
developing the National Lampoon Cafe, a chain of restaurants with a comedy
theme. Should the National Lampoon Cafe be funded, constructed and open to the
public, it will be operating in a very competitive environment, therefore, there
is no assurance that the Cafe would be successful.
PUBLISHING OPERATIONS
NATIONAL LAMPOON MAGAZINE: First published in March 1970, National Lampoon is
distributed at newsstands, bookstores, and other retail outlets. Its audience is
largely young, college educated, and affluent. Each issue of the magazine
contains original articles, artwork, and photographs treating various matters in
a satirical manner.
National Lampoon became a bi-monthly magazine in late 1986 with a $3.95 cover
price with approximately 112 pages per issue. Commencing with the March 1991
issue, National Lampoon increased to a ten (10) times per year frequency and
also reduced its cover price to $2.95 and lowered the page count to 84 pages.
However, the continued economic recession and the advent of the Gulf War
depressed all magazine circulation and related advertising revenues.
Consequently, beginning with the December 1991 issue, the Company reverted to
bi-monthly issues. In an effort to reverse the trend of NL losses over many
years, in March 1992, the Company relocated the principal offices of National
Lampoon, Inc. to Los Angeles, California, and closed the New York offices. After
the April 1992 issue, NL suspended publication of National Lampoon for several
months. NL recommenced publication of National Lampoon with the spring 1993
issue.
In August 1993, the Company entered into an agreement with CR Cooper
Publications, Inc., a magazine publisher, to print and distribute the magazine.
Editorial control of the magazine content remained with the Company. The
agreement called for the publication of a minimum of 4 issues during the first
year of the agreement, 6 issues the second year and 10 issues for the third and
subsequent years. The agreement was for a period of 3 years; however in February
1996, the agreement was terminated by the Company because certain minimum
performance targets were not met. Beginning with the 25th anniversary issue
published in May 1996, the Company again began publishing the magazine. The
Company published 55,000 copies of the 25th Anniversary 1996 issue and 62,000
copies of the 1997 issue. The Company's current agreement with Harvard Lampoon
obligates the Company to publish at least one issue of the magazine a year with
a minimum of 50,000 copies. The Company is complying with this obligation, but
has not determined when and if it would publish more than the minimum
requirement.
An agreement between NL and The Harvard Lampoon, Inc. provides that NL may use
the "Lampoon" name perpetually, subject to, among other things, publication of
the magazine at least once a year. Under the agreement, as amended, NL pays The
Harvard Lampoon, Inc. royalties of up to 2% of all revenues derived from sales
of publications using the name "National Lampoon," and royalties of up to 2% of
"pre-tax profits" (as defined in the agreement) derived from non-publishing
activities using such name. The name "National Lampoon" is a registered
trademark of the Company.
COMPETITION IN PUBLISHING: The magazine publishing industry is intensely
competitive with respect to both readership and advertising. National LAMPOON is
one of the few nationally circulated magazines directed to an adult audience
devoted exclusively to contemporary humor and satire. There are, however, a
number of nationally distributed magazines devoted to contemporary subjects and
events, some of which occasionally contain material similar to that contained in
National Lampoon.
VIDEO OPERATIONS
The Company, which through 1993 was engaged in significant operations in the
sell-through video market, has drastically diminished its video operations. The
Company was currently engaged in the exploitation of "Dorf on Golf", the rights
to which expired this year. After such time, the Company does not expect that
its video operations will generate any significant revenue.
15
<PAGE> 19
EMPLOYEES
As of January 15, 1998, the Company employed five (5) employees; two (2) full
time and three (3) part-time.
PROPERTIES
The Company leases office space of approximately 3,912 square feet at 10850
Wilshire Boulevard, Suite 1000, Los Angeles, California 90024 for a five (5)
year period commencing on October 1, 1995. The Company's rental obligation is
$6,846 per month. The space is utilized for office space, as well as storage of
video masters, cassettes and back issues of the National Lampoon Magazine and
other NL archival materials. In addition, it provides storage for legal,
accounting and contract files related to past years for National Lampoon and J2
Communications. Management considers the Company's corporate offices generally
suitable and adequate for their intended purposes.
LITIGATION
The Company, NLI and the officers and directors of NLI became the defendants in
a lawsuit filed in 1990 in the Superior Court of the Southern District of New
York in regard to the acquisition of NLI by the Company. The shareholders of NLI
(the "Plaintiffs") filed the claim with respect to the tax treatment of the
transaction with respect to the individual shareholders of NLI. The Company
entered into a settlement agreement in August 1991, which must still be approved
by the courts, under which the Company will issue an additional 125,000 shares
of its common stock to the Plaintiffs and provide for the payment of attorneys'
fees. The value of the shares to be issued is presented as a liability of
$203,000 as of July 31, 1997, and 1996, as the shares have not yet been issued
and the settlement has not been approved.
NLI had a motion picture development and consulting agreement with Matty
Simmons, a former officer of NLI. In November 1992, Matty Simmons Productions,
Inc. and Matty Simmons (collectively "Simmons") filed a complaint against the
Company alleging breach of contract. In December 1993, this litigation was
settled. The terms of the settlement agreement provide for the Company to pay
Simmons a percentage (not to exceed $240,000 in total) of any amounts earned by
the Company from certain previously released National Lampoon films. As of the
fiscal year ended July 31, 1997, the Company has paid Matty Simmons the total
amount owed under the terms of the settlement agreement.
On March 10, 1997 counsel for Harvard Lampoon, Inc. ("HLI") filed a demand for
arbitration to the American Arbitration Association, asserting that the Company
underpaid royalties under the HLI royalty agreement by approximately $226,000,
plus unspecified late charges, for the period from July 1, 1992, through June
30, 1995, based on HLI's interpretation of the agreement. By agreement of both
parties arbitration was stayed in order to submit the matter to a mediation
under the auspices of the Judicial Arbitration and Mediation Services, which
took place on May 8th and 9th, 1997. Settlement negotiations commenced at the
mediation and arbitration proceedings continue to be stayed while the settlement
negotiations continue. If settlement is not reached, J2 will vigorously contest
HLI's claims in arbitration.
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<PAGE> 20
DIRECTORS AND EXECUTIVE OFFICERS
The information set forth below, as of January 15, 1998, lists each director and
executive officer of the Company, the year in which he first became a director
or executive officer, and his principal occupation during the past five years.
All executive officers of the Company are by, and serve at the pleasure of, the
Board of Directors.
<TABLE>
<CAPTION>
First
Name and Office to which Elected Age Elected
- - -------------------------------- --- -------
<S> <C> <C>
James P. Jimirro 60 1986
Chairman of the Board of Directors,
President and Chief Executive Officer
James Fellows 62 1986
Director
Bruce P. Vann 41 1986
Director
Rudy P. Patino 49 1997
Chief Financial Officer
Duncan Murray 51 1986
Vice President-Marketing
</TABLE>
JAMES P. JIMIRRO has been employed by the Company since its inception.
From 1980 to 1985 he was the President of Walt Disney Telecommunications
Company, which included serving as President of Walt Disney Home Video, a
producer and distributor of family home video programming. While in this
position, he also served as Corporate Executive Vice President of Walt Disney
Productions. In addition, from 1983 until 1985, Mr. Jimirro served as the first
President of The Disney Channel, a national pay cable television channel, which
Mr. Jimirro conceived and implemented. Mr. Jimirro continued in a consulting
capacity for the Walt Disney Companies through July, 1986. From 1973 to 1980 he
served as Director of International Sales and then as Executive Vice President
of the Walt Disney Educational Media Company, a subsidiary of The Walt Disney
Company. Before his move to Disney, Mr. Jimirro directed international sales for
CBS, Inc. and later, for Viacom International.
JAMES FELLOWS has been a member of the Board of Directors and the
President of the Central Education Network, Inc., a Chicago, Illinois
association of public television and educational associations, since 1983. From
1962 through 1982, Mr. Fellows worked in a variety of positions for the National
Association of Educational Broadcasters (NAEB) in Washington, D.C., and became
its President and Chief Executive Officer in 1978. NAEB was a non-profit
organization concerned with educational and public telecommunications. Mr.
Fellows is a director of numerous non-profit corporations including the
Educational Development Center in Boston, Massachusetts, a producer of written
and filmed educational materials; the Maryland Public Broadcasting Foundation, a
corporate fund raiser for public television; and American Children's Television
Festival.
BRUCE P. VANN has been a partner in the law firm of Kelly Lytton Mintz &
Vann LLP since December, 1995, and from 1989 through December 1995 was a partner
in the law firm of Keck, Mahin & Cate and Meyer & Vann. In all firms (located in
Los Angeles, California), Mr. Vann has specialized in corporate and securities
matters. Mr. Vann also serves, on a non-exclusive basis, as Senior Vice
President of Largo Entertainment, Inc., a subsidiary of The Victor Company of
Japan.
RUDY R. PATINO joined the company on August 8, 1997 as Chief Financial
Officer. He is a Certified Public Accountant, licensed in the State of
California, and has worked as Chief Financial Officer and Controller for various
entertainment companies over the last 15 years. From 1995 to 1997 he was Chief
Financial Officer for Prism Entertainment Corporation, a producer and
distributor of feature motion pictures. Prior to that, from 1986 to 1995, he was
Vice President/Controller for Avalon Attractions, Inc. one of the largest live
concert promoters in Southern California.
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<PAGE> 21
DUNCAN MURRAY has been with the Company since August, 1986. Before that,
he worked with The Walt Disney Company for fourteen years in a variety of
capacities including Vice President-Sales Administration for The Disney Channel
and Director of Sales for Walt Disney Telecommunications Company.
EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years
ended July 31, 1997, 1996, and 1995 individual compensation for services to the
Company and its subsidiaries of the Chief Executive Officer (the "Named
Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary ($) Bonus ($)(5) ($)(1) ($) SARs (#) ($) ($)
- - -------- ---- ---------- ------------ ------ ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James P. Jimirro(2)
1997 190,750 (2) (3) 100,000 (3)
1996 190,750 (2) (3) 100,000 (3)
1995 190,750 100,000(4) (2) (3) 100,000 (3)
</TABLE>
- - --------------------
(1) Does not include amounts of $12,500 in 1997, $9,700 in 1996, and $9,800
in 1995 paid to Jim Jimirro who is entitled to be reimbursed for expenses
relating to entertainment, travel and living expenses when away from
home.
(2) Does not include $7,000 in 1997, $8,900 in 1996 and $12,500 in 1995 which
the Company paid for Mr. Jimirro's health plan. The Company also provides
Mr. Jimirro with a Company-owned vehicle for his use.
(3) Does not include SAR's granted to Mr. Jimirro pursuant to his employment
agreement. See the description of Mr. Jimirro's employment agreement
under "Employment Agreements and Stock Option Plans" below.
(4) The bonus for 1995 was accrued but not paid.
(5) Effective June 1, 1992, Mr. Jimirro reduced the amount of salary he
receives to $190,750. Mr. Jimirro does not expect to receive the unpaid
portion unless there is a change in the control of the Company as defined
by his employment agreement. The Company has not accrued any salary or
bonus for Mr. Jimirro in regards to the above for the fiscal year ended
July 31, 1996 and 1997.
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<PAGE> 22
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options pursuant to the 1994 Stock
Option Plan during the fiscal year ended July 31, 1997, to the Named Officer.
<TABLE>
<CAPTION>
Potential Realized Value at Assigned
Annual Rates of Stock Price
Individual Grants in 1997 Appreciation for 7 year Option Term
------------------------- ---------------------------------------------------
Percentage
of Total
Options/SARs Exercise 5% 10%
Options/ granted to or Base ---------------------- ----------------------
SARs Employees in Price Per Expiration Stock Dollar Stock Dollar
Name Granted(#) Fiscal Year Share($) Date Price($) Gains($) Price($) Gains($)
- - ---- ---------- ----------- -------- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Jimirro 100,000(1) 63.7 $1.066(2) 12-28-2003 $1.51 $44,400 $2.08 $108,400
</TABLE>
- - -------------------
(1) Options/SARs granted are immediately exercisable.
(2) Options/SARs granted with an exercise price (or initial valuation in the
case of SARs) equal to the closing sale price of the Common Stock as quoted
on the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on December 28, 1996, the date of grant for Mr. Jimirro.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to (i) options exercised by the Named
Officer pursuant to the 1994 Plan during fiscal 1997 (of which there were none);
and (ii) unexercised options granted in fiscal 1997 and prior years under the
1994 Plan to the Named Officer and held by him at July 31, 1997.
<TABLE>
<CAPTION>
Value of
Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
7/31/97 7/31/97(1)
Shares Acquired Value Exercisable/ Exercisable;
Name on Exercise (#) Realized($) Unexercisable(#) Unexercisable($)
- - ---- --------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
James Jimirro -0- -0- 800,000/0 $73,400/0
</TABLE>
(1) Based on the closing sale price as quoted on NASDAQ on that date.
DIRECTOR COMPENSATION
Directors, with the exception of Mr. Jimirro, receive 4,000 stock options per
year exercisable at the then market price as compensation for their services as
a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, all matters concerning executive officer compensation were
addressed by the entire Board of Directors as the Company did not have a
compensation committee. Jim Jimirro, James Fellows, Gary Cowan and Bruce Vann
were each directors of the Company during fiscal 1997.
19
<PAGE> 23
EMPLOYMENT AGREEMENTS AND STOCK OPTIONS
In 1994, the Company entered into a new employment agreement with James P.
Jimirro, effective July 1, 1994 (the "1994 Agreement"). Under the 1994
Agreement, which has a term of seven years, Mr. Jimirro will receive a base
salary plus an incentive bonus following the end of each fiscal year during
which Mr. Jimirro is employed by the Company. Mr. Jimirro's base salary for the
first year will be $475,000 and will be adjusted annually by the greater of (i)
9% or (ii) 5% plus the percentage increase in the CPI Index. Effective June 1,
1992, the Mr. Jimirro reduced the amount of salary he receives to $190,750. Mr.
Jimirro does not expect to receive the unpaid portion unless there is a change
in the control of the Company as defined by the agreement.
Mr. Jimirro's bonus is to be an amount equal to 5% of the Company's earnings in
excess of $500,000 and up to $1 million; plus 6% of the next $1 million of
earnings; plus 7% of the next $1 million of earnings; plus 8% of the next $2
million of earnings; and plus 9% of the next $2 million of earnings. If earnings
exceed $7 million, then Mr. Jimirro shall, in addition to foregoing
compensation, be entitled to such additional incentive compensation as may be
determined by the Board based upon Mr. Jimirro's services and performance on
behalf of the Company and the profitability of the Company.
The 1994 Agreement also provides that, on the date of each annual meeting of
shareholders during its term, Mr. Jimirro will be granted stock options with
respect to 50,000 shares of Common Stock and stock appreciation rights (SARs)
with respect to 50,000 shares of Common Stock. The exercise price of each option
and the initial valuation of each SAR will be equal to the fair market value of
the Common Stock of the Company at the date of the grant. The options and SARs
will be immediately exercisable non-statutory stock options, will have a term of
seven years, and will be subject to all other terms identical to those contained
in the Company's 1991 Employee Stock Option Incentive Plan (the "1991 Plan").
The 1991 Plan specifically provides for the grant of stock options and SARs to
Mr. Jimirro in accordance with his employment agreement. The 1994 Agreement
provides that if Mr. Jimirro's employment is terminated without cause, or is
terminated by Mr. Jimirro for cause or under certain other circumstances,
including a change in control of the Company (as defined below), then Mr.
Jimirro generally is entitled to receive all payments and other benefits which
would be due under the 1994 Agreement during its entire term; provided, that
such payments would be reduced to the extent that such payments would constitute
an "excess parachute payment" under the Internal Revenue Code of 1986, or any
successor law applicable to payments of severance compensation to Mr. Jimirro. A
"change in control" would be deemed to occur if (a) any person or group becomes
the direct or indirect owner of securities with 25% or more of the combined
voting power of the Company's then outstanding securities, (b) if there is a
significant change in the composition of the Board of Directors of the Company,
(c) upon the sale of all or substantially all of the assets of the Company, (d)
upon the merger of the Company with any other corporations if the shareholders
of the Company prior to the merger owned less than 75% of the voting stock of
the corporation surviving the merger or (e) in certain other events. In addition
to the foregoing benefits, Mr. Jimirro has the right, if he terminates his
employment under certain circumstances (including following a change in control
or a breach of the 1994 Agreement by the Company) to serve as a consultant to
the Company for a period of five years (the "Consulting Period"). During the
Consulting Period, Mr. Jimirro would be required to devote no more than 600
hours per year to the affairs of the Company, and would receive 50% of his
salary as in effect on the date of termination of his employment. As a result of
the foregoing, the Company would incur substantial expenses if Mr. Jimirro
terminates his employment with the Company following a change in control of the
Company, which may make the Company a less attractive acquisition candidate. The
1994 Agreement also provides Mr. Jimirro with certain registration rights
pursuant to which, beginning in 1992, the Company will be required upon the
request of Mr. Jimirro to register the sale of shares of the Company's Common
Stock owned by Mr. Jimirro under the Securities Act of 1933. The 1994 Agreement
is terminable by the Company only "for cause" as defined therein.
Any employee may participate in any bonus plan which may be established, as well
as all Employee Stock Option Plans.
20
<PAGE> 24
STOCK OPTION PLANS
In 1994, the Board of Directors approved an Employee Stock Option Plan and a
Stock Option Plan for Non-Employee Directors. Both Plans were approved by
Shareholders at the Shareholders' Meeting held March 2, 1995.
The Employee Stock Option Plan is to be administered by a Committee consisting
of at least two members of the Board of Directors. All prior options granted
under previous stock option plans are to be replaced by options granted under
the 1994 Plan.
The 1994 Plan provides for a maximum number of options to be granted to be the
greater of 1,075,000 or 30% of the Company's outstanding shares less 125,000
shares reserved for issuance under the Non-Employee Director Plan.
The term of the options granted shall not exceed 10 years and the exercise price
shall be equal to 100% of the fair market value of the common stock on the date
of grant.
The Non-Employee Directors Stock Option Plan is to be administered by a
Committee consisting of at least two members of the Board of Directors. All
prior options granted under previous stock option plans have been replaced by
options granted under the 1994 Plan.
The 1994 Plan provided for a maximum number of 125,000 options to be granted and
further provides for the granting of 4,000 option shares per year to each
Non-Employee Director as compensation for his services.
A maximum of 125,000 shares may be issued under the Plan at an exercise price
equal to the fair market value of the stock on the date of grant. All options
are to be immediately exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bruce P. Vann and the law firm of Kelly Lytton Mintz & Vann LLP, of which he is
a partner, performed services as attorneys for the Company. For the fiscal year
ended July 31, 1997, Kelly Lytton Mintz & Vann LLP earned approximately $3,000.
Mr. Vann is a director of the Company and, as such, he (or his law firm) may
receive additional compensation for services rendered to the Company.
21
<PAGE> 25
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Stock as of
January 15, 1998. The table shows the beneficial ownership to each person known
to J2 who beneficially own more than 5% of the shares of J2 Common Stock, each
current director, and all directors and officers as a group. Except as otherwise
indicated, J2 believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Shares
Owned Prior to Being
Offering Offered
-------------------- -------
Number Percent
------ -------
<S> <C> <C>
James P. Jimirro(2)(3) 1,136,000 26.9%
James Fellows(2)(4) 35,000 (1)
Bruce P. Vann(2)(5) 30,000 (1)
All Warrantholders(7) 1,753,211 (1)
All Directors and Officers
as a group (4 persons)(6) 1,237,500 29.4%
</TABLE>
- - ------------------------------
(1) Less than 1 percent.
(2) The address for each shareholder listed is 10850 Wilshire Boulevard, Suite
1000, Los Angeles, California 90024.
(3) Includes 450,000 stock options (See "Stock Option" section) as well as
60,000 Warrants purchased in the open market.
(4) Includes 35,000 shares of Common Stock purchasable under the Company's
Stock Option Plan.
(5) Includes 30,000 shares of Common Stock purchasable under the Company's
Stock Option Plan.
(6) Includes 36,500 options granted to officers not listed on stock table.
(7) Attached as Exhibit A hereto is a list of all warrantholders of the Company
as of November 26, 1997. Such holders are Selling Securityholders
hereunder.
DESCRIPTION OF THE COMPANY'S SECURITIES
COMMON STOCK
The Company is authorized to issue 8,000,000 shares of Common Stock, no par
value, and 2,000,000 shares of Preferred Stock, no par value. As of January 15,
1998, the Company has issued and outstanding 3,600,000 shares of its Common
Stock. Holders of Common Stock have full voting rights, one vote for each shares
held of record, and in the election of directors they are entitled to cumulate
their votes; however, cumulative voting may occur only if a stockholder
announces his intention to cumulate his votes prior to the voting, in which case
all stockholders may cumulate their votes. Holders of Common Stock are entitled
to receive such dividends, if any, as may be declared by the Board of Directors
out of funds legally available therefore, and they are entitled to share equally
and ratably in the assets, if any, remaining after payment of all debts and
liabilities and after any liquidation preference which is established with
respect to any outstanding shares of Preferred Stock. The stockholders have no
preemptive or other rights to subscribe for or to purchase additional shares of
any class, and they have no right to convert shares of Common Stock into other
securities.
22
<PAGE> 26
PREFERRED STOCK
Preferred Stock can be issued in one or more series, with such designations,
voting powers, preferences and relative, participating, optional or other
special rights, qualifications, limitations and restrictions thereof as the
Company's Board of Directors may determine. These would include (a) the
distinctive designation of each series and the number of shares that will
constitute such series; (b) the dividend rate for such service; (c) the price at
which, and the terms and conditions on which, the shares of such series may be
redeemed, if such shares are redeemable; (d) the purchase of sinking fund
provisions, if any, for the purchase or redemption of shares of such series; (e)
any preferential amount payable upon each share of such series in the event of
the liquidation, dissolution or winding up of the Company; (f) the voting
rights, if any, of shares of such series; (g) the terms and conditions, if any,
upon which shares of such series may be converted into shares of other classes
or series of shares of the Company or other securities; and (h) the relative
rights of priority of each series of series preferred stock as to dividends and
assets. The issuance of Preferred Stock could be used, under certain
circumstances, as a method of preventing a takeover of the Company and could
permit the Board of Directors, without any action by the holders of Common
Stock, to issue Preferred Stock which could have a detrimental effect on the
rights of the holders of Common Stock, including loss of voting control.
There are currently no shares of any class of Preferred Stock outstanding and
the Company currently has no plans to designate or issue any additional shares
of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U. S. Stock Transfer
Corp., Glendale, California.
DESCRIPTION OF SERIES A WARRANTS
The Series A Warrants were issued under a Warrant Agreement dated as of October
15, 1990 (the "Warrant Agreement") between the Company and U. S. Stock Transfer
Corp., as Warrant Agent. The statements under this caption are summaries that do
not purport to be complete. They are qualified by reference to the various
documents mentioned, all of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. Whenever defined
terms of the Warrant Agreement are referred to, such defined terms are
incorporated by reference as part of the statement made, and the statement is
qualified in its entirety by such reference.
RIGHTS TO PURCHASE COMMON STOCK
Each Series A Warrant entitles the registered owner ("Warrantholder") to
purchase one share of the Company's Common Stock at $2.00 per share, subject to
adjustment at any time on or after October 15, 1990 and before 5:00 p.m., New
York time, on June 30, 1998. (That exercise price was established by the
agreement between the Company and the Warrant Agent lowering the exercise price
from $3.00 to $2.00. The price at which a Warrantholder may purchase one share
of J2 Common Stock on exercise of a Series A Warrant as well as the number of
shares of J2 Common Stock purchasable on exercise of a Series A Warrant, or at
the Company's option, the number of Series A Warrants outstanding, are subject
to adjustment in certain events referred to below (see "Adjustments"). The price
per share at which a Warrantholder may purchase one share of J2 Common Stock on
exercise of a Series A Warrant, as so adjusted from time to time, is referred to
in the Warrant Agreement as the "Warrant Price." If the last day for the
exercise of the Series A Warrants is not a Business Day, then the Series A
Warrants may be exercised on the next succeeding Business Day.
The certificates evidencing the Series A Warrants are to be issued in temporary
or definitive fully registered form. Each Warrantholder may exercise such Series
A Warrants by surrendering to the Warrant Agent the certificate evidencing such
Series A Warrants, with the form of election to exercise all or a portion of the
Series A Warrants evidenced thereby on the reverse side of such certificate duly
filled in and signed, together with payment of the Warrant Price, and any
applicable transfer tax.
Payment of the Warrant Price may be made, at the holder's option, in the form of
cash or a certified or official bank check.
23
<PAGE> 27
As soon as practicable after the exercise of any Series A Warrants and payment
of the Warrant Price therefor and any applicable transfer tax, the Warrant Agent
shall deliver, to or upon the order of the exercising Warrantholder,
certificates representing the number of shares of J2 Common Stock so purchased.
If fewer than all of the Series A Warrants evidenced by a Series A Warrant
certificate are exercised, a new certificate will be issued for the remaining
number of Series A Warrants. The Company is not required to issue fractional
shares of J2 Common Stock or a Warrant Certificate representing a fractional
Series A Warrant upon exercise of the Series A Warrants, and in lieu of
fractional shares of J2 Common Stock or a Warrant Certificate representing a
fractional Series A Warrant, the Company shall make a cash adjustment for such
fractional shares on the basis of the then-current market value (as defined) of
a share of J2 Common Stock.
The Company has agreed to endeavor to cause the shares of J2 Common Stock
issuable on exercise of the Series A Warrants to be duly registered, approved
and listed with any federal or state governmental authority or national
securities exchange, as the case may be, requiring such registration, approval
or listing.
CALL
On or after October 15, 1992, all or any portion of the Series A Warrants are
callable at the option of the Company at a Call Price of $2.00 per Series A
Warrant, in the event that the reported last sale price of the Company's Common
Stock on its principal trading market was at least 175% of the then effective
Warrant Price during a period of at least 20 of 30 successive trading days
ending within 15 calendar days prior to the date notice of redemption shall have
been given to the Warrant Agent by the Company. If less than all Series A
Warrants are to be redeemed, selection of Series A Warrants to be redeemed will
be made by the Warrant Agent in such manner as it deems to be fair and
appropriate. Notice of redemption will be mailed to the registered
Warrantholders by the Warrant Agent not more than 60 days nor less than 30 days
before the date scheduled for redemption (the "Call Date"). Any Series A
Warrants so called for redemption may be exercised until 5:00 p.m., California
time, on the fifth business day preceding the Call Date. The Call Price set
forth above is subject to proportionate adjustment upon changes in the Warrant
Price in the event that the Company elects to adjust the number of Series A
Warrants rather than to change the number of shares of J2 Common Stock issuable
upon exercise of outstanding Series A Warrants. See "Adjustments" below. The
Company shall not be required (i) to issue, transfer, exchange or permit to be
exercised any Series A Warrants for a period of 15 days immediately preceding
any selection of Series A Warrants to be redeemed or thereafter until after the
mailing of the notice of redemption or (ii) transfer or exchange any Series A
Warrants called or being called for redemption.
ADJUSTMENTS
The Warrant Price and, at the Company's option, either the number of shares of
J2 Common Stock purchasable on the exercise of each Series A Warrant or the
number of Series A Warrants outstanding, are subject to adjustment in certain
events, including (a)(i) the subdivision or combination of outstanding shares of
J2 Common Stock, (ii) the payment of any dividend or distribution on J2 Common
Stock in shares of J2 Common Stock; (iii) the combination of outstanding shares
of J2 Common Stock into a smaller number of shares, or (iv) the issuance by
reclassification of its shares of J2 Common Stock other securities of the
Company (b) the issuance of rights or warrants to all holders of J2 Common Stock
entitling them (for a period expiring within 45 days after the record date for
determining shareholders entitled to receive them) to acquire shares of J2
Common Stock at less than the then-current market price per share (as defined)
of J2 Common Stock; or (c) the distribution to all holders of J2 Common Stock of
evidences of indebtedness or assets (excluding cash dividends or distributions)
or shares of capital stock of the Company of any class other than J2 Common
Stock or grant rights to subscribe for securities (other than those referred to
above): provided, however, that no adjustment described in clause (c) or (d)
will be made (y) if the Company issues or distributes to each holder of Series A
Warrants would have been entitled to receive had the Series A Warrants been
exercised prior to the record date for the determination of stockholders
entitled to receive such rights or warrants or (z) if the Company grants to each
holder of Series A Warrants the right to receive, upon the exercise thereof at
any time after the distribution of the evidences of indebtedness or assets or
shares of capital stock of the Company of any class other than J2 Common Stock
referred to in clause (d) above, the evidences of indebtedness or assets or
shares of capital stock of the Company of any class other than J2 Common Stock
that such holder would have been entitled to receive had the Series A Warrants
been exercised prior to the record date for determination of stockholders
entitled to receive such distribution. The Closing Price for each trading day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such trading day, the average of the closing bid and asked
prices regular way for such day, in each case on the principal national
securities exchange on which the Series A Warrants are listed or admitted to
trading as designated by the Board of Directors of the Company or, if not listed
or admitted to trading, the last sale price regular way for the Series A
Warrants as published by NASDAQ. If the prices of the Series A Warrants were not
so reported on any such market, the price of the Series A Warrants shall be the
average of the closing bid and ask prices as furnished by any member of the New
York Stock Exchange selected from time to time by the Company for that purpose.
24
<PAGE> 28
In the event that the Company elects to adjust the number of Series A Warrants
outstanding rather than the number of shares of J2 Common Stock purchasable on
the exercise of each Series A Warrant in connection with a change of the Warrant
Price, as described above the Company will not be required to issue fractional
Series A Warrants or Warrant Certificates evidencing fractional Series A
Warrants; and, in lieu of fractional Series A Warrants, the Company shall make a
cash adjustment for such fractional Series A Warrant on the basis of the
then-current market value (as defined) of one Series A Warrant.
Notwithstanding the foregoing, in case of any consolidation, merger (other than
a merger or consolidation in which the Company is the continuing corporation),
sale or lease of the property or the Company as an entirety or substantially as
an entirety, or certain reclassifications of changes of the shares of J2 Common
Stock, the successor, leasing or purchasing corporation, as the case may be,
shall execute a supplemental agreement providing that the holder of each Series
A Warrant upon exercise thereof shall have the right to receive, in lieu of each
share of J2 Common Stock deliverable upon exercise prior thereto, only the kind
and amount of shares and/or other securities and/or property and/or cash
receivable upon such consolidation, merger, lease, sale, conveyance,
reclassification or change by a holder of one share of J2 Common Stock.
MODIFICATION OF THE WARRANT AGREEMENT
The Warrant Agreement and the rights of Warrantholders thereunder may be
modified by the Company and Warrant Agent with the consent of the holders of not
less than a majority in number of the Series A Warrants then outstanding.
However, no modification that adversely affects the terms upon which the Series
A Warrants are exercisable or may be redeemed or reduces the percentage required
for modification will be effective against any Warrantholder without his
consent. The Warrant Agreement contains provisions permitting the Company and
the Warrant Agent, without the consent or concurrence of any Warrantholder, to
supplement or amend the Warrant Agreement in order to cure any ambiguity, to
correct or supplement any provision contained therein that may be defective or
inconsistent with any other provision therein or to correct any clerical
omission or mistake or manifest error contained therein.
TRANSFER AGENT
The transfer agent for the Company's Series A Warrants is U.S. Stock Transfer
Corporation, which also is responsible for record keeping functions in
connection with the same.
PLAN OF DISTRIBUTION
The Common Stock offered hereby will be sold in one or more market transactions
effected by the individual holders thereof. The Company will not be involved in
any such transaction.
The Common Shares may be offered from time to time by the Selling
Securityholders. Any sales may be made on one or more exchanges or in the
over-the-counter market or otherwise at prices and at terms then prevailing or
at prices related to the then market prices, or in negotiated transactions. The
Common Shares may be sold by one or more of the following: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) an
exchange distribution in accordance with the rules of such exchange; and (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers.
In effecting sales, brokers or dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Securityholders in amounts to
be negotiated immediately prior to the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act, in connection with such sales. In addition,
any Common Shares covered by this Prospectus that qualifies for sale pursuant to
Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus.
At the time a particular offer of Common Shares is made, to the extent required,
a supplement to this Prospectus will be distributed that will set forth the
aggregate number of Common Shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
25
<PAGE> 29
The Selling Securityholders will be subject to applicable provisions of the
Exchange Act and rules and regulations thereunder, including without limitation,
Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing of purchases
and sales of any of the Common Shares by the Selling Securityholders.
EXPERTS
The consolidated financial statements as of July 31, 1997, 1996 and 1995, and
for the years then ended, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
Certain legal matters in connection with the validity of the shares of Common
Stock being offered hereby will be passed upon for the Company by Kelly Lytton
Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California
90067. Bruce P. Vann, a member of Kelly Lytton Mintz & Vann LLP, is a director
of the Company.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, if such contract or document is filed as an exhibit, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the principal office of the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., and at the Commission's Regional Offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials may be obtained from such offices after payment of fees
prescribed by the Commission. The Registration Statement, including the exhibits
and schedules thereto, can be assessed through the EDGAR terminals in the
Commission's Public Reference Rooms in Washington, Chicago and New York or
through the World Wide Web at http://www.sec.gov.
26
<PAGE> 30
J2 COMMUNICATIONS
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
JULY 31, 1997
<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of October 31, 1997 (Unaudited), July 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the three months ended October 31, F-5
1997 and 1996 (Unaudited) and for each of the three years in the period
ended July 31, 1997
Consolidated Statements of Shareholders' Equity for each of the three years in F-6
the period ended July 31, 1997 and for the three months ended October 31,
1997 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended October 31,
1997 and 1996 (Unaudited) and for each of the three years in the period F-7
ended July 31, 1997
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J2 Communications:
We have audited the accompanying consolidated balance sheets of J2
Communications and subsidiaries, (a California corporation), as of July 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended July 31,
1997. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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.
As discussed in Note 1 to the consolidated financial statements, a significant
portion of the Company's assets is composed of certain intangible assets.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J2 Communications and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
September 29, 1997
Los Angeles, California
F-2
<PAGE> 32
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, July 31, July 31,
1997 1997 1996
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 732,000 $ 641,000 $ 120,000
Short-term investments at, cost 765,000 861,000 1,014,000
Other current assets 77,000 75,000 97,000
---------- ---------- ----------
Total current assets 1,574,000 1,577,000 1,231,000
---------- ---------- ----------
NONCURRENT ASSETS:
Intangible assets, less accumulated
amortization of $2,069,000 and
$1,829,000 in 1997 and 1996, respectively 3,836,000 3,896,000 4,136,000
---------- ---------- ----------
Total noncurrent assets 3,836,000 3,896,000 4,136,000
---------- ---------- ----------
TOTAL ASSETS $5,410,000 $5,473,000 $5,367,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 33
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, July 31, July 31,
1997 1997 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 133,000 $ 130,000 $ 112,000
Accrued expenses 650,000 629,000 681,000
Accrued royalties 388,000 499,000 466,000
Deferred revenues 163,000 208,000 213,000
Income taxes payable 38,000 38,000 38,000
Common stock payable 203,000 203,000 203,000
Minority interest 115,000 84,000 2,000
----------- ----------- -----------
Total current liabilities 1,690,000 1,791,000 1,715,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized--2,000,000 shares,
none issued and outstanding-
Common stock, no par value:
Authorized--8,000,000 shares,
issued and outstanding--
3,600,000 shares in 1997
and 1996 8,656,000 8,654,000 8,648,000
Note receivable on common stock (123,000) (121,000) (115,000)
Deficit (4,813,000) (4,851,000) (4,881,000)
----------- ----------- -----------
Total shareholders' equity 3,720,000 3,682,000 3,652,000
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,410,000 $ 5,473,000 $ 5,367,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 34
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year in the period ended July 31,
3 Mos. Ended 3 Mos. Ended ---------------------------------------------
October 31, 1997 October 31, 1996 1997 1996 1995
---------------- ---------------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Movies, television and theatrical $ 149,000 $ 432,000 $ 970,000 $ 539,000 $ 736,000
Videocassette sales 1,000 26,000 219,000 311,000 336,000
Royalty income 49,000 26,000 65,000 45,000 83,000
Publishing -- 1,000 56,000 8,000 --
Other 112,000 15,000 46,000 61,000 129,000
------------- ------------- ----------- ----------- -----------
Total revenues 311,000 500,000 130,000 964,000 1,284,000
------------- ------------- ----------- ----------- -----------
EXPENSES:
Costs of movies and television -- -- 53,000 26,000 26,000
Cost of videocassettes sold 3,000 15,000 105,000 141,000 105,000
Royalty expense 10,000 12,000 63,000 37,000 62,000
Magazine editorial, production and
distribution -- -- 41,000 55,000 --
Selling, general and administrative 180,000 175,000 792,000 725,000 818,000
Amortization of intangible assets 60,000 60,000 240,000 240,000 240,000
------------- ------------- ----------- ----------- -----------
Total expenses 253,000 262,000 1,294,000 1,224,000 1,251,000
------------- ------------- ----------- ----------- -----------
Income (loss) from
consolidated operations 58,000 238,000 62,000 (260,000) 33,000
------------- ------------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and other 17,000 12,000 59,000 77,000 49,000
Minority interest in income of
consolidated subsidiary (31,000) (82,000) (82,000) (46,000) (30,000)
------------- ------------- ----------- ----------- -----------
Income (loss) before provision
for income taxes 44,000 168,000 39,000 (229,000) 52,000
PROVISION FOR (BENEFIT FROM)
INCOME TAXES 6,000 7,000 9,000 7,000 (14,000)
------------- ------------- ----------- ----------- -----------
NET INCOME (LOSS) $ 38,000 $ 161,000 $ 30,000 $ (236,000) $ 66,000
============= ============= =========== =========== ===========
INCOME (LOSS) PER COMMON SHARE $ 0.01 $ 0.04 $ 0.01 $ (0.07) $ 0.02
============= ============= =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,600,000 3,600,000 3,600,000 3,600,000 3,597,000
============= ============= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 35
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Common Stock Receivable
----------------------------- on Common
Shares Amount Stock Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, July 31, 1994 3,602,000 $ 8,630,000 $ (105,000) $(4,711,000) $ 3,814,000
Shares issued 8,000 8,000 -- -- 8,000
Shares retired (10,000) -- -- -- --
Accrued interest on note receivable
on common stock -- 5,000 (5,000) -- --
Net income -- -- -- 66,000 66,000
----------- ----------- ----------- ----------- -----------
BALANCES, July 31, 1995 3,600,000 8,643,000 (110,000) (4,645,000) 3,888,000
Accrued interest on note receivable
on common stock -- 5,000 (5,000) -- --
Net loss -- -- -- (236,000) (236,000)
----------- ----------- ----------- ----------- -----------
BALANCES, July 31, 1996 3,600,000 8,648,000 (115,000) (4,881,000) 3,652,000
Accrued interest on note receivable
on common stock -- 6,000 (6,000) -- --
Net income -- -- -- 30,000 30,000
----------- ----------- ----------- ----------- -----------
BALANCES, July 31, 1997 3,600,000 8,654,000 (121,000) (4,851,000) 3,682,000
Accrued interest on note receivable
on common stock -- 2,000 (2,000) -- --
Net income -- -- -- 38,000 38,000
----------- ----------- ----------- ----------- -----------
BALANCES, October 31, 1997 3,600,000 $ 8,656,000 $ (123,000) $(4,813,000) $ 3,720,000
(Unaudited) =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 36
2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year in the period ended July 31,
3 Mos. Ended 3 Mos. Ended ---------------------------------------------
October 31, 1997 October 31, 1996 1997 1996 1995
---------------- ---------------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 38,000 $ 161,000 $ 30,000 $ (236,000) $ 66,000
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Amortization of intangible assets 60,000 60,000 240,000 240,000 240,000
Minority interest in income of
Consolidated subsidiary 31,000 82,000 82,000 46,000 30,000
Changes in assets and liabilities
Accounts payable 3,000 15,000 18,000 3,000 (103,000)
Accrued expenses 21,000 (35,000) (52,000) 8,000 (33,000)
Accrued royalties (111,000) 6,000 33,000 (41,000) 28,000
Accrued income taxes -- -- -- 7,000 (78,000)
Deferred revenues (45,000) 2,000 (5,000) 4,000 (10,000)
Other (2,000) -- 22,000 (61,000) 8,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (5,000) 291,000 368,000 (30,000) 148,000
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (192,000) (192,000) (1,053,000) (1,349,000) (1,492,000)
Sale of short-term investments 288,000 290,000 1,206,000 1,289,000 1,368,000
Distribution to minority shareholders -- -- -- (91,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 96,000 98,000 153,000 (151,000) (124,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable -- -- -- -- (42,000)
Proceeds from exercise of stock options -- -- -- -- 8,000
----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities -- -- -- -- (34,000)
----------- ----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 91,000 389,000 521,000 (181,000) (10,000)
CASH AND CASH EQUIVALENTS,
beginning of year 641,000 120,000 20,000 301,000 311,000
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
end of year $ 732,000 $ 509,000 $ 641,000 $ 120,000 $ 301,000
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for
income taxes $ 6,000 $ 6,000 $ 9,000 $ 2,000 $ 9,000
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statement.
F-8
<PAGE> 38
J2 COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(Information as of October 31, 1997 and for the three months ended October 31,
1997 and 1996 are unaudited)
1. Summary of Significant Accounting Policies
Unaudited Information as of October 31, 1997 and 1996
The accompanying consolidated financial statements as of October 31, 1997 and
1996 reflect all adjustments which are, in the opinion of management, necessary
for the fair presentation of the financial statements for such interim periods.
Such adjustments consist only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
Organization and Principles of Consolidation
J2 Communications (the "Company"), a California Corporation, was formed in March
1986, and was primarily engaged in the acquisition, development and production
of entertainment and special-interest videocassette programs and the marketing,
distribution and licensing of these programs for retail sale in the home video
market. In fiscal 1991, the Company acquired all of the outstanding shares of
National Lampoon, Inc. ("NLI"). NLI was incorporated in 1967 and was primarily
engaged in various aspects of the publishing and entertainment industries. In
December 1992, in consideration for the default of certain intercompany notes
from NLI to the Company, NLI assigned the rights to the majority of its assets
in full satisfaction of the notes. Included in these assets was NLI's 100
percent ownership interest in NL Communications, Inc., and Heavy Metal, Inc.,
which, upon this assignment, became subsidiaries of the Company.
Currently, the Company is primarily engaged in the licensing of the name
"National Lampoon" in a variety of areas including motion pictures, home video,
television, publishing and other entertainment media. The Company's revenues and
income have and will continue to fluctuate based on the size, nature and timing
of transactions whereby its names and trademarks are licensed. Despite the
existence of a working capital deficit of $214,000 as of July 31, 1997,
management of the Company believes that its cash and short-term investments at
July 31, 1997, and projected cash flows in fiscal 1998 will be adequate to pay
its liabilities as they become due.
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
Cash equivalents include certificates of deposit with original maturity dates of
three months or less.
Short-Term Investments
In accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation at each
balance sheet date. Marketable securities have been classified as
held-to-maturity and are carried at cost.
F-9
<PAGE> 39
Revenue Recognition
The Company recognizes licensing revenues based upon information provided by the
licensee, with the exception of non-refundable advances from the licensing of
the "National Lampoon" name, which are recognized when received. Revenues from
the sale of videocassettes, net of estimated provisions for sales returns (which
are not material for any period presented), are recognized when the units are
shipped. Advances for future sales of videocassettes are deferred until the
units are shipped. Publishing revenues include magazine sales and revenue from
advertising included in the magazines. Single copy magazine sales are recognized
as income in the month the issue becomes available for sale at the newsstand.
Subscription revenues are apportioned equally over the subscription period.
Advertising revenues are recognized concurrently with the recognition of
magazine sales.
Intangible Assets
Intangible assets consist primarily of the right to license the "National
Lampoon" name and are being amortized straight-line over a twenty-five year
period. Management continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of intangible assets
may warrant revision or that the remaining balance of intangible assets may not
be recoverable. Factors that would indicate the occurrence of such events or
circumstances include current period operating or cash flow losses combined with
a history of operating or cash flow losses, a projection or forecast that
demonstrates continuing losses, or the inability of the Company to renew, extend
or replace existing contracts as they expire including licensing of the
"National Lampoon" name. When factors indicate that intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the related
business's undiscounted net income over the remaining life of the intangible
assets in measuring whether the intangible assets are recoverable.
The Company has made a significant investment in the "National Lampoon" name and
other intangible assets through its acquisition of NLI. Realization of these
acquired assets is dependent on the continued licensing of the "National
Lampoon" name for use in feature films, video, television and audio distribution
and merchandising or other appropriate opportunities. The Company has received
approximately $5,583,000 in licensing revenues (including revenues received in
connection with an agreement for the licensing of the name for three feature
films - see Note 5) since the acquisition of the "National Lampoon" name in
fiscal 1991. The Company is in the process of negotiating other licensing
agreements and the development of concepts, programs, and other opportunities
that could generate additional licensing fees in the future. If these and other
licensing agreements that the Company may enter into in the future do not result
in sufficient revenues to recover these acquired intangible assets over a
reasonable period of time, the Company's future results of operations may be
adversely affected by a write-off of or an adjustment to these acquired
intangible assets.
In evaluating if there has been an impairment in the value of its long-lived
assets, the Company follows the guidelines of SFAS No. 121. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. Management has determined that through the realization of future
licensing agreements, expected future cash flows relating to the intangible
assets will result in the recovery of the carrying amount of such assets.
Per Share Information
Primary earnings per share are computed by dividing net earnings by the weighted
average common shares outstanding and common share equivalents during the
period. Common stock equivalents include, if dilutive, the number of shares
issuable on exercise of the outstanding options less the number of shares that
could have been purchased with the proceeds from the exercise of the options
based on the average price of common stock during the year. The assumed exercise
of all options and warrants during the years ended July 31, 1997, 1996 and 1995
was not dilutive and, therefore, was not included in the computation of weighted
average shares outstanding.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred income
tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
F-10
<PAGE> 40
Stock-Based Compensation
During the current year the Company adopted SFAS No. 123. This statement
establishes accounting standards for stock-based employee compensation plans.
This statement encourages, but does not require, a fair-value based method of
accounting for employee stock options or similar equity instruments. The
adoption of the statement did not have a material effect on the consolidated
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Financial Accounting Pronouncements
The Company has adopted the requirements of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
issued in October 1995 and the pro-forma disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation," issued in October 1995. The
effect of the new financial accounting pronouncements was not material to the
Company's consolidated financial statements.
In March 1997, the Financial Accounting Standard Board ("FASB")issued SFAS No.
128, "Earnings per Share" and SFAS No. 129, "Disclosure of Information about
Capital Structure" which are effective for financial statements for periods
ending after December 15, 1997.
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of An Enterprise and Related
Information," which are effective for the financial statements for periods
ending after December 31, 1998.
Management does not believe adoption of SFAS No. 128, SFAS No. 129, SFAS No. 130
and SFAS No. 131 will have a material effect on the Company's consolidated
financial statements.
Reclassifications
Certain items in the 1996 and 1995 financial statements have been reclassified
to conform with the 1997 presentation.
2. Short-Term Investments
Short-term investments consist of United States Treasury bills and notes with
original maturities of between three and twelve months. The following is an
analysis of short-term investments:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
U.S. Government obligations, cost $ 861,000 $1,014,000
Gross unrealized holding gains 26,000 15,000
---------- ----------
U.S. Government obligations, fair value $ 887,000 $1,029,000
========== ==========
</TABLE>
No provision has been made for the change in market value for these investments
as the Company intends to hold them until maturity. In determining realized net
gains, the cost of the securities sold is based on specific identification.
F-11
<PAGE> 41
3. Deferred Revenues
Deferred revenues consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred videocassette revenues $126,000 $131,000
Unearned subscription revenues 82,000 82,000
-------- --------
$208,000 $213,000
-------- --------
</TABLE>
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Reserve for contingent payment on
sale of stock $ 158,000 $ 158,000
Deferred salary 189,000 199,000
Legal expenses 100,000 121,000
Stock appreciation rights 37,000 --
Other 145,000 203,000
---------- ----------
$ 629,000 $ 681,000
========== ==========
</TABLE>
5. Commitments and Contingencies
Made-For-Cable Agreement
In March, 1994, the Company signed an agreement with Showtime Networks
Inc.("Showtime") to produce seven movies over a three year period to be aired
initially on the Showtime Network or The Movie Channel. The agreement provides
for the payment of a license fee to National Lampoon upon the commencement of
principal photography of each film and contingent compensation based on revenues
the films may generate from all sources. The Showtime agreement has now expired,
with only four made-for-cable movies produced, and as such, the fifth through
seventh movies will not be produced. Pursuant to the contract terms, Showtime
has paid the producer fees due for five movies as of July 31, 1997. The producer
fees due for the sixth and seventh movies of $300,000 were paid in the fiscal
quarter ending January 31, 1998. The Company is currently seeking to replace the
Showtime license agreement. In the event that the Company is unable to replace
the Showtime agreement with a comparable arrangement, movies, television, and
theatrical revenues could be adversely impacted.
Revenue recognized under this agreement totaled $300,000, $150,000, and $150,000
for the years ended July 31, 1997, 1996, and 1995, respectively.
Motion Picture Agreement
NLI and New Line Cinema Corporation ("New Line") entered into an agreement,
effective September 11, 1991, regarding the development, production, financing
and distribution of three "National Lampoon" motion pictures, each at a budget
not greater than $10 million, within four and one-half years of execution of the
agreement. The agreement provided NLI with a non-refundable advance of $375,000
upon the execution of the agreement. The agreement was subsequently amended to
extend its term through April 1, 1996.
The compensation to be received by NLI as a result of the use of its name is
$250,000 for each of three motion pictures (payable on commencement of principal
photography of the applicable film) plus 2-1/2 percent of distributors' gross
receipts, as defined from all media in connection with the motion pictures.
Revenues recognized under this agreement totaled $118,000, $166,000 and $430,000
for the years ended July 31, 1997, 1996 and 1995, respectively.
F-12
<PAGE> 42
As of April 1, 1996, New Line had failed to produce the third motion picture due
under the agreement, which was not extended further.
Reserve for Contract Payment on Sale of Stock
The Company has its videocassettes for the domestic market duplicated primarily
by an independent duplication company, Technicolor Videocassette, Inc.
("Technicolor"), which warehouses the videocassettes and fulfills and ships
orders for the Company. In April 1993, pursuant to a settlement agreement
regarding an outstanding balance, the Company issued to Technicolor 157,000
shares of its common stock valued at $176,000, and a note in the amount of
$87,000 to satisfy obligations owed to Technicolor. The Company paid the balance
of the note in full during fiscal 1995. The agreement provides for an additional
cash payment in the event that such common stock is sold, within a specified
time period, for less than $2 per share. The Company has recorded a liability,
included in accrued expenses, at July 31, 1997 and 1996, in the amount of
$158,000 as a reserve against such contingent payments.
Joint Venture
As part of the acquisition of NLI, the Company acquired a 75 percent interest in
a joint venture whose only operations consist of revenues received from the
licensing of a certain "National Lampoon" motion picture. The minority
interest's share in the joint venture's revenue is deducted from movies,
television and theatrical revenue. Total revenues received by the joint venture
related to this motion picture were $287,000, $117,000, and $78,000 for each of
the three years in the period ended July 31, 1997. Of this revenue the minority
interest's share totaled $82,000, $46,000 and $30,000, respectively.
Leases
The Company is obligated under an operating lease expiring on September 30,
2001, for its office facility in Los Angeles, California. The facility lease
includes certain provisions for rent adjustments based upon changes in the
lessor's operating costs and increases in the Consumer Price Index.
The Company is obligated under an operating lease expiring in September 2003 for
equipment located at its office facility.
The Company is also obligated under an operating lease expiring in November 1999
for an automobile leased on behalf of an employee of the Company.
The Company is committed to future minimum lease payments for the following
years:
<TABLE>
<CAPTION>
Building Equipment Total
-------- --------- --------
<S> <C> <C> <C>
1998 $ 82,000 $ 20,000 $102,000
1999 86,000 8,000 94,000
2000 89,000 2,000 91,000
2001 15,000 2,000 17,000
2002 -- 2,000 2,000
-------- -------- --------
Total $272,000 $ 34,000 $306,000
======== ======== ========
</TABLE>
Rent expense totaled $79,000 for the year ended July 31, 1997, and $79,000 and
$86,000, net of sublease income of $5,000 and $30,000 for the years ended July
31, 1996 and 1995, respectively.
Equipment lease expense totaled $8,000, $18,000 and $31,000 for the years ended
July 31, 1997, 1996 and 1995, respectively.
F-13
<PAGE> 43
Royalty Agreements
Pursuant to a royalty agreement between NLI and The Harvard Lampoon, Inc.
("HLI") NLI is required to pay HLI a royalty of up to 2 percent on all revenues
derived from sales of any magazine or other publication using the name "Lampoon"
as part of its title and a royalty of up to 2 percent of pretax profits, as
defined in the agreement, on non-publishing activities using such name.
Royalties payable under this agreement totaled $19,000, $11,000, and $15,000 for
the years ended July 31, 1997, 1996, and 1995, respectively.
The Company has entered into various royalty agreements with the producers of
videocassettes distributed by the Company. The Company is required to pay a
royalty, according to each individual agreement, of a percentage of gross
receipts, less certain expenses. Royalties payable under these agreements
totaled $45,000, $26,000 and $47,000 for the years ended July 31, 1997, 1996,
and 1995, respectively.
GPEC Agreement
In 1987, NLI sold the exclusive rights to produce television programming
utilizing the name "National Lampoon" to Guber-Peter Entertainment Company
("GPEC"). In 1991, under agreement with GPEC, NLI reacquired this right for
$1,000,000, of which $500,000 was paid on execution of the agreement. The
remaining $500,000 was payable out of the gross receipts of television
programming, if any. To date, $131,000 has been paid under the gross receipts
provision of the agreement.
Employment Agreement
The Company has entered into an employment agreement dated July 1, 1994, with
its President and Chief Executive Officer. The agreement is for seven years and
provides for annual base compensation of $475,000, with annual increases of the
greater of 9 percent or 5 percent plus the percentage increase in the Consumer
Price Index. Previously, the President had reduced the amount of salary he
receives to $190,750. The President does not expect to receive the difference
between the amount received and the amount provided for under the agreement
unless there is a change in control of the Company, as defined by the agreement.
In addition, an annual bonus is payable to the President if the Company's pretax
income exceeds specified levels. The amount is based on pretax earnings of the
Company ranging from 5 percent to 9 percent over certain minimums. If earnings
exceed $7,000,000, the President shall be entitled to such incentive
compensation, as may be determined by the Board of Directors based upon the
President's service and performance on behalf of the Company and the
profitability of the Company. A bonus of $100,000 was earned during the year
ended July 31, 1995. No bonus was earned in 1997 or 1996. Deferred bonuses for
the President, included in accrued expenses, totaled $100,000 and $100,000 as of
July 31, 1997 and 1996. In addition, certain officers have deferred salary of
$89,000 and $99,000 as of July 31, 1997 and 1996, respectively, also included in
accrued expenses.
The Company has also granted the President options to purchase 50,000 shares of
its common stock and 50,000 stock appreciation rights (see Note 7) for each year
of his employment contract. The price for each will be based on the fair value
of the stock at the date of issuance.
Management Contract of Magazine
In August 1993, the Company entered into an agreement for a magazine publisher
to print and distribute the National Lampoon magazine. In accordance with the
terms of this agreement, the Company retained editorial control of the
magazine's content and received a fee equal to 5 percent of all revenues
generated by the magazine in its first year of publication, 6 percent in the
second year and 7 percent for each year thereafter. In February 1996, the
agreement was terminated by the Company because certain minimum performance
targets had not been met by the publisher. The Company resumed publishing the
magazine in May 1996. The Company earned revenues of $8,000 under this agreement
during the year ended July 31, 1995. No revenues were earned related to this
agreement in fiscal 1996 prior to termination of the agreement.
As part of this agreement, the publisher had agreed to assume the Company's
liabilities relating to the magazine, including unearned subscription revenues
and accrued retail display allowances of $79,000, included in accrued expenses
as of July 31, 1997 and 1996, owed to various vendors for magazine shelf space.
Because the Company holds title to the "National Lampoon" name, the Company
continued to record liabilities for these amounts after termination of the
agreement.
F-14
<PAGE> 44
Litigation
The Company, NLI and the officers and directors of NLI became the defendants in
a lawsuit in regard to the acquisition of NLI by the Company. The shareholders
of NLI (the "Plaintiffs") filed the claim in respect to the tax treatment of the
transaction to the individual shareholders of NLI. The Company entered into a
settlement agreement in August 1991, which must still be approved by the courts,
under which the Company will issue an additional 125,000 shares of its common
stock to the Plaintiffs and for the payment of attorneys' fees. The value of the
shares to be paid is presented as a liability of $203,000 as of July 31, 1997,
and 1996, as the shares have not yet been issued and the settlement has not been
approved.
NLI had a motion picture development and consulting agreement with Matty
Simmons, a former officer of NLI. In November 1992, Matty Simmons Productions,
Inc. and Matty Simmons (collectively "Simmons") filed a complaint against the
Company alleging breach of contract. In December 1993, this litigation was
settled. The terms of the settlement agreement provide for the Company to pay
Simmons a percentage (not to exceed $240,000 in total) of any amounts earned by
the Company from certain previously released National Lampoon films. A total of
$42,000, $66,000 and $62,000 was paid to Simmons during the years ended July 31,
1997, 1996 and 1995, respectively.
On August 20, 1996, counsel for HLI filed a demand for arbitration with the
American Arbitration Association, asserting that the Company underpaid royalties
payable under the HLI royalty agreement by approximately $226,000, plus
unspecified late charges, for the period from July 1, 1992, through June 30,
1995, based upon HLI's interpretation of the agreement. By agreement of both
parties arbitration has been stayed and the dispute is currently under
mediation. Settlement discussions are continuing. Management believes that this
claim will not have a material effect on the consolidated financial statements.
6. Notes Receivable on Common Stock
In 1986, the Company issued 800,000 shares of common stock to certain of its
officers and directors pursuant to its Restated Stock Purchase Plan. The shares
were issued with 50 percent of the purchase price payable at the time of
issuance and the remainder due in five years. The unpaid balance is due from the
Company's President and Chief Executive Officer and bears interest at the rate
of 10 percent, under promissory notes secured by the stock in favor of the
Company.
7. Stock Options and Stock Appreciation Rights
Stock Option Plans
In March 1995, shareholders approved the 1994 Employee Stock Option Plan and the
1994 Option Plan for Non-Employee Directors. These plans replaced the 1991 Stock
Option Plan. All stock options subject to these plans are granted with an
exercise price equivalent to the fair market value of the common stock at the
time of the grant, except that in the case of the incentive stock options
granted to a holder of 10 percent or more of the outstanding shares of common
stock, such exercise price may not be less than 110 percent of the fair market
value and may not be exercisable after the expiration of five years, versus ten
years for regular stock options.
F-15
<PAGE> 45
A summary of the stock options outstanding is below:
<TABLE>
<CAPTION>
Number of Option Weighted Average
Options Price Exercise Price
Outstanding Range Per Share
----------- ----- ---------
<S> <C> <C> <C>
Balance, July 31, 1994 559,000 $0.56 - $2.63 $1.43
Granted 174,000 $1.06 - $1.37 $1.18
Exercised (8,000) $0.72 - $1.10 $0.91
Canceled (193,000) $0.69 - $2.63 $2.30
--------- ------------- -----
Balance, July 31, 1995 532,000 $0.56 - $1.48 $1.09
Granted 62,000 $1.08 - $1.19 $1.10
--------- ------------- -----
Balance, July 31, 1996 594,000 $0.56 - $1.48 $1.10
Granted 115,000 $0.88 - $1.13 $1.00
Canceled (70,000) $1.06 - $1.19 $1.13
Balance, July 31, 1997 639,000 $0.56 - $1.19 $1.08
========= ============= =====
</TABLE>
Of the options outstanding as of July 31, 1997, 1996, and 1995, 577,000,
564,000, and 481,000, respectively, were exercisable with a weighted average
exercise price of $1.09, $1.1, and $1.1, respectively. The weighted average
remaining contractual life of the options outstanding as of July 31, 1997 was
3.4 years.
F-16
<PAGE> 46
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" issued October 1995. In accordance
with provisions of SFAS No. 123, the Company applies APB opinion 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income and earnings per share would have been
reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net income (loss)-as reported $ 30,000 $ (236,000)
Net loss-pro-forma $ (11,000) $ (243,000)
Earnings (loss) per share-as reported $ .01 $ (.07)
Loss per share-pro-forma $ .00 $ (.07)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to August 1, 1995, the resulting pro-forma compensation cost may
not be representative of the cost to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
<S> <C>
Expected dividend yield 0.00%
Expected stock price volatility 52.9%
Risk free interest rate 5.68%
Expected life of options 2 years
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and 1996
is $.36 and $.1, respectively.
Warrants
In connection with its acquisition of NLI in 1990, the Company issued 1,753,000
Series A warrants (including 148,000 warrants issued to certain creditors). The
warrants expire on June 30, 1998, and entitle each holder to exchange one
warrant for a share of the Company's common stock at a price of $2.00 per share.
The Series A warrants are callable at a price of $2.00 per warrant on or after
October 15, 1992, at the option of the Company if the closing price per share of
common stock equals or exceeds 175% for a period of 20 trading days. There were
1,737,000 Series A warrants outstanding at July 31, 1997.
Stock Appreciation Rights
As of July 31, 1997, the President and Chief Executive Officer of the Company
had stock appreciation rights which entitle the officer to receive cash equal to
the difference between the fair market value and the appreciation base of the
rights when they are exercised. As of July 31, 1997, appreciation in these
rights amounted to approximately $37,000. This amount has been included as an
accrued liability on the accompanying consolidated balance sheet.
As of July 31, 1997, a total of 350,000 rights were outstanding with
appreciation basis of between $0.56 and $1.48 per share.
8. Related Party Transactions
Legal fees of $3,000, $12,000 and $16,000, included in selling, general and
administrative expenses, were incurred during fiscal 1997, 1996 and 1995,
respectively, for services from legal firms, one of whose partners is a director
of the Company.
See Note 6 for discussion of notes receivable from the Company's President and
Chief Executive Officer.
F-17
<PAGE> 47
9. Income Taxes
The provision for income taxes is comprised as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
State $ 9,000 $ 7,000 $ 11,000
Federal -- -- 1,000
Adjustment to valuation
allowance:
State -- -- (26,000)
-------- -------- --------
$ 9,000 $ 7,000 $(14,000)
======== ======== ========
</TABLE>
A reconciliation between the statutory federal rate and the Company's effective
rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal
income tax rate (benefit) 34% (34%) 34%
State income taxes 19 3 19
Amortization of intangible
assets 173 36 158
Recognition of previously
unrecognized deferred tax asset,
Including net operating losses,
net (213) (4) (244)
Other 6 2 6
---- ---- ----
Effective rate (benefit) 19% 3% (27%)
==== ==== ====
</TABLE>
As of July 31, 1997, the tax effect of deductible timing differences and
carryforwards is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 987,000 $ 1,283,000
Accrued liabilities and contingencies 146,000 171,000
Royalty reserves 199,000 186,000
Deferred income 83,000 85,000
----------- -----------
1,415,000 1,725,000
Valuation allowance (1,415,000) (1,725,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
F-18
<PAGE> 48
As of July 31, 1997, the Company had available for federal and state income tax
purposes net operating loss carryforwards of approximately $1,721,000 and
$747,000, respectively, expiring at various dates through 2011. Certain of the
state net operating losses may be limited through statutory provisions.
10. Major Customers
During the year ended July 31, 1997, the Company received $300,000 in revenues
from a motion picture licensee representing 24 percent of total revenues. During
the year ended July 31, 1996, the Company received $166,000 and $150,000 in
revenues from two motion picture licensees representing 17 percent and 15
percent of total revenues, respectively. During the year ended July 31, 1995,
the Company received $430,000 and $188,000 from two motion picture licensees
representing 34 percent and 15 percent of total revenues.
F-19
<PAGE> 49
J2 WARRANTHOLDERS
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
GEORGE S AGOGLIA 3575 Brokenwoods Dr, Apt. 701 170
&, JEANETTE AGOGLIA Coral Springs, FL 33065-1659
GEORGE S AGOGLIA 3575 Brokenwoods Dr, Apt 701 120
Coral Springs, FL 33065-1659
SALVATORE AGOGLIA 522 W Colfax Ave, 300
Roselle Park, NY 07204
NORMA K ALLEE 830 Threadneedle 258
&,ROBERT J ALLEE Houston, TX 77079
TEN COM
MATTHEW S ALPER 826 President St. 400
Brooklyn, NY 11215
CAROLYN V ARNOLD 700 N Water St. 1
Milwaukee, WI 53202
DAVID F BAKER C/O Coldwell Banker 1
Third Financial Center
Ste. 1500
Nashville, TN 37219
FRANK C BANYS JR. 2803 E 2nd St. 50
Sioux City,IA 51105
ARTHUR R BAUER &, 13215 Pineview Dr. 700
PHYLLIS ANN BAUER Des Moines, IA 50325-8825
JT TEN
MICHAEL P BERMAN 29391 Candlewood 200
Southfield, MI 48076
KATHLEEN BIGGS &, 302 Jamestown Ct 200
LOUIS BIGGS Collinsville, IL 62234
JT TEN
LEE J BOELTER &, 910 West Ave. 200
BARBARA A BOELTER Gibbon, NE 68840
JT TEN
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
DONALD BOICO &, 11 Nassau Road 2500
HANNA BOICO & Great Neck, NY 11021
JEFF H & FARA &,
ANDREW SCOTT BOICO
TEN COM
DONALD BOICO &, 11 Nassau Road 2500
HANNA BOICO Great Neck, NY 11021
JT TEN
HUGHBY WILSON BONDS III 804 Bankhead Blvd. 100
&, HUGHBY WILSON BONDS II Talladega, AL 35160
&, EMERALD D BONDS
JT TEN
LELAND M CAMPBELL &, 3401 E Sunnyside Dr. 20
MARY JANE CAMPBELL Phoenix, AZ 85028
JT TEN
CEDE & CO, P.O. Box 20 1596667
Bowling Green Station
New York, NY 10274
JOHN CICIONE 839 W Plantation Circle 100
Plantation, FL 33324
ALEXANDER D CLARKSON 76 Shoreham Terrace 30
Fairfield, CT 06430
PETER V CUCINOTTA JR. 700 SE 6th Ave., Apt 217 100
Deerfield Beach, FL 33441-4802
PETER V CUCINOTTA 7317 Powhatan St. 200
Lanham, MD 20801
D P B ENTERPRISES INC. 3059 Zane Circle 1000
Las Vegas, NV 89121
JOHN T DALTON &, 3374 NE 19th Ave. 100
ROBERTA J DALTON Ft. Lauderdale, FL 33306-1029
JT TEN
BILL DANIELS 15723 Plummer 1
Sepulveda, CA 91343
WILLIAM H DAVIS &, Ten Ent. RD 1 BOX 156 104
BESSIE DAVIS Imler, PA 16655
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
NED DAVIS CUST P.O. Box 1287 15
EVAN FRANCIS DAVIS Nokomis, FL 34274
UNIF GIFT MIN ACT FL
CRAIG E DAWSON N104W14643 Heritage Hills Pkwy 100
Germantown, WI 53022-4378
JERRY R DEMPSEY 60 Silver Lake Drive 53
Summit, NJ 07901
ROBERT W DEMPSEY 60 Silver Lake Drive 53
Summit, NJ 07901
ANTHONY M DEVILBISS 9602 River Rd. 1400
Richmond, VA 23229
DENVER D DILLARD 405 S 3RD St. West 1000
&, CAROL H DILLARD Mt. Vernon, IA 52314
TEN COM
PATRICK T DILULLO 716 Ecton Rd. 200
Akron, OH 44303
LEOBA DONAHUE 50 Templar Way 52
Summit, NJ 07901
PATRICIA DOWLING CUST 1133 70th St. 10
DANA MARIE DOWLING Brooklyn, NY 11228
UNIF GIFT, MIN ACT NY
JOHN DRAPAS 555 Memorial Pkwy. 500
Niagara Falls, NY 14301
NORMAN R EASON Box 26 100
&, BERTHA J EASON Alton, IA 51003
JT TEN
DENISE ELLIOTT 8140 Hollyridge Rd. 100
Jacksonville, FL 32256-7104
MIRIAM EMMERICH 2881 NW 47th Terr. 100
Ft. Lauderdale, FL 33313
ANTHONY ESPOSITO 124 Manila Avenue 25
Staten Island, NY 10306
MERLE K EVEY 401-03 Allegheny Street 10
P.O. Box 415
Hollidaysburg, PA 16648-0415
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
NORMA J FAGAN TR 717 Courtside Dr. 100
UA DTD MAR 06 90 Naples, FL 33999
FBO NORMA J FAGAN
NICHOLAS J FEDAK &, 7297 Pearl Rd. 5
A JEAN FEDAK Cleveland, OH 44130
JT TEN
ALLEN FEINBERG CUST 3303 Garrison Farms Rd. 5
ERIC FEINBERG Baltimore, MD 21208
UNIF GIFT,MIN ACT MD
JOHN FERRY 1025 E Bowman 100
South Bend, IN 46613
MIKE FOISTER 1516 Aztec Circle 580
Sioux City, IA 51104
FRANK O FREDRICKS 14 Dewart Rd. 20
Greenwich, CT 06830
WALTER K GARIBALDI 2414 150th St. 100
Whitestone, NY 11357
SEYMOUR GAYLINN 79 W Fenimore St. 220
Valley Stream, NY 11580
PAUL J GAYNOR 3732 Jo Ann Dr. 100
Sacramento, CA 95821
LOUISE GIKOW 321 2 78th St., 7C 4
New York, NY 10024
NANCY GIROSKI CUST 516 Baldwin Ave. 50
EMILY MICHELE BERMAN Sharon, PA 16146
UNIF GIFT MIN ACT PA
ANNE GLUCK 138 Birchwood rd. 20
Coram, NY 11727
RICHARD GOLDIE 768 Pico 1000
San Mateo, CA 94403
GERTRUDE C GOLLA 2117 Woodburn Loop South 500
Lakeland, FL 33813
RONALD GORR Rd. 1 Box 32 200
Callicoon, NY 12723
AMY B GREENBERG P.O. Box 1114 500
Sioux City, IA 51102
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
LOUISE B GREENBERG P.O. Box 1114 500
Sioux city, IA 51102
RAYMOND I GREENBERG TR P.O. Box 1114 2000
UA DTD OCT 15 92 Sioux City, IA 51102
RAYMOND I GREENBERG REV TR
MARGARET ANN GUSTAFSON 515 S Cedar St. 2100
Boone, IA 50036
WILLIAM C HAASE 119 Galland Lane 200
Salix, IA 51052
STEPHEN HALPERN PO Drawer 5 4800
Hilton Head Is., SC 29938-0005
MARK O HALVERSON &, 11014 Alcott Dr. 900
MARGE N HALVERSON Denver, CO 80234-3131
JT TEN
GAYLIN R HARMES &, Box 61 600
GRETA S HARMES Moville, IA 51039
JT TEN
HARVARD LAMPOON PROJECT FUND 48 E 13th St. 100
DTD SEP 22 80 New york, NY 10003
C/O ERIC RAYMAN
DAVID G HAST 210 Grant St, 4th Floor 1500
Pittsburgh, PA 15219
HEADACHE & PAIN CONTROL CENTER 700 Jennings St. 3750
PC PENSION PLAN Sioux City, IA 51105
HINDMAN-STEELE Post 492 440
AMERICAN LEGION
C/O Leonard Muller
Hornick, IA 51026
ROBERT K HOFFMAN Coca-Cola Bottling Group 100
1999 Bryan St. Ste. 3300
Dallas, TX 75201
DONALD W HUBBARD &, 136 Amherston Dr. 100
HELEN M HUBBARD Williamsville, NY 14221
JT TEN
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
VERNON HUSEMAN &, 1162 N 26th St. 500
JOYCE HUSEMAN Fort Dodge, IA 50501
JT TEN
MARJORIE G INMAN 27478 Orsini Ave. 700
Canyon Country, CA 91351-3718
DAVID JABLIN 2222 The Ter. 600
Los Angeles, CA 90049-1171
RUTH A JACOBS 5225 NE 96th St. 150
Altoona, IA 50009
JAMES P JIMIRRO 10787 Wilshire Blvd. 60000
Ste. 1702
Los Angeles, CA 90024-4466
S MEREDITH JOHNSON JR CUST 1802 Cherokee Rd. 10
MATTHEW T JOHNSON UNIF GIFT Louisville, KY 40205
MIN ACT KY
NORBERT P KAZINSKI 12 Maple St. 20
&, JANET C KAZINSKI Hollidays Burg, PA 16648
TEN ENT
KIDDER PEABODY & CO INC. 2 B Way 4
New York, NY 10004
HUGH E KIRKWOOD III 4262 Mac Duff Place 15
Dublin, OH 43017
RON KLEIN &, KARL KLEIN &, 353 W Terry 200
MARLENE DAVIS &,GERTRUDE KLEIN Pocatello, ID 83204-3407
JT TEN
BENNETT J KLEINBERG 34 Mountain Rd. 75
Verona, NJ 07044
ROBERT C KNAPP &, 14206 London Lane 50
ROSE M KNAPP Rockville, MD 20853-2026
JT TEN
ADAM ROSS KOLODNY 21 Hereford Rd. 10
Great neck, NY 11020-1712
CARL N KOSEFF 15427 Talbot Drive 250
La Mirada, CA 90638
LARRY E KRAKAU Box 38 1000
Boxholm, IA 50040-0038
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
JAMES R KRAUSE &, 230 North Adams St. 100
GLORIA P KRAUSE Allentown, PA 18104
JT TEN
ROBERT KRUMWIEDE P.O. Box 764 200
North Sioux City, SD 57049-0764
LORETTA LANTING CUST 59 Morse Ave. 100
THEODORE T LANTING Staten Island, NY 10314
UNIF GIFT MIN ACT NY
HARRY G LARTZ &, 1201 NW 13th St., 422 100
MARY K LARTZ Boca Raton, FL 33486
JT TEN
NELSON LEVINE 1305 E 18th Street 100
Brooklyn, NY 11230
ANNE MACENZZAK 60 Silver Lake Rd. 210
Summit, NJ 07901
STANLEY MACK 708 Greenwich, St. 6-A 104
New York, NY 10014
GERALD V MAHER &, 26 Oxford Lane 10
LORNA D MAHER Palm Coast, FL 32137
JT TEN
GREGORY P MAKUCH CUST 184 Hubbard St. 50
NICHOLAS MAKUCH UNIF GIFT Middlefield, CT 06455
MIN ACT CT
GREGORY P MAKUCH CUST 184 Hubbard St. 50
BRIAN J MAKUCH UNIF GIFT Middlefield, CT 06455
MIN ACT CT
STEVEN H MALACH CUST 6224 Bromley Ct. 10
DANIEL SCOTT MALACH UNIF GIFT W Bloomfield, MI 48322
MIN ACT MI
MARY C MALOY P.O. Box 576 200
Manilla, IA 51454
CHARLES A MAMONE &, 128 Sherman Ave. 20
BARBARA A MAMONE Troy, NY 12180
JT TEN
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
CESAR MANTEIGA &, 212 W 22nd St. 400
PILAR MANTEIGA Deer Park, NY 11729
JT TEN
NANCY M MANTEIGA 212 W 22nd St. 700
Deer Park, NY 11729
MATTHEW MARGOLIS 3265 W Market St. 2000
Akron, OH 44333-3337
DANIEL J MARRO 5866 Boecraft St. 200
Los Angeles, CA 90016
THOMAS P McBRIDE P.O. Box 152 400
Danbury, IA 51019
ANTHONY MIAN &, 1181 Neill Ave. 200
AMALIA MIAN Bronx, NY 10461
JT TEN
SUSAN T MILLER 1641 Third Ave., NBR 29A 2
New York, NY 10128-3632
LINDA MORGAN 650 Palm Ave. 10
Los Altos, CA 94022-3954
LINDSAY LEE NAYTHONS 1850 N Harvard Bl., #1 5
Hollywood, CA 90027-3634
MORTIMER NIDETCH Winston Towers, Apt. 520 630
301 174th St.
Miami Beach, FL 33160
THOMAS C NODDINGS C/O John Noddings 10
Two Mid America Plaza
Ste. 920
Oakbrook Terrace, IL 60181-4719
RICHARD A ORLAND 2706 Woodlawn Dr. 1
Nashville, TN 37212-5224
MARTIN L OTTERSON 5052 North Melvina 200
Chicago, IL 60630
DANIEL M PALENSKY 5616 Grant St. 330
Omaha, NE 68104-4150
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
LYNETTE PALIOBEIS 623 Brook Lane 500
Bay Village, OH 44140
STEFANIE PASHMAN CUST 27 Evergreen Dr. 100
DAVID PASHMAN UNIF GIFT Lincoln Park, NJ 07035
MIN ACT NY
EVELYN PERKINS 2035 Norhardt Drive, #11B 300
Brookfield, WI 53045
CHRIS B PETERSON 6024 Country Club Paks Pl. 1000
Omaha, NE 68152
LINDA JOY PICCIRILLO 607 Carrol St. 500
Brooklyn, NY 11215
DOLORES PICK &, 601 Dodge 65
MAURICE PICK Evanston, IL 60202
JT TEN
RALPH F PIGNATARO 696 Fisher Rd. 500
West Seneca, NY 14224
MAURICE PIKOWSKY 601 Dodge 35
Evanston, IL 60202
RANDALL ENTERPRISES P.O. Box 511 1000
Platte, SD 57369-0511
SAM REBOTSKY 2500 Johnson Ave, Apt. 16-K 10
Riverdale, NY 10463-4925
GARY REIERSON &, 1810 Valley Curve Road 100
GEORGANNE REIERSON Mendota Heights, MN 54118-4330
JT TEN
LOIS K RIEGER & 745 Lynkaylee 200
JOHN D RIEGER, Waterloo, IA 50701
RICKY A RIEGER &
STEVEN L,RIEGER
TR UA DTD JAN 06 1986
THE LOIS K RIEGER FAMILY TR
SYLVAN ROSENSWEIG &, 46B Sterling St. 314
RUTH ROSENSWEIG Lakehurst, NJ 08733-5535
JT TEN
STEPHEN ROSSI 572 Coventry Lane 60
W Chester, PA 19382
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
RICHARD G RYPKEMA &, 158 Louise Drive 400
ELAINE C RYPKEMA Mandeville, LA 70448
JT TEN
GERTRUDE M SAMORE 712 32nd Street 250
Sioux City, IA 51104
GARY SCHAUNAMAN Rte. 1 Box 6 300
Warner, SD 57479
LEE A SCHAUNAMAN Rte. 1 Box 5 100
Warner, SD 57479
STEPHEN SCHEFFER CUST 923 Fifth Avenue, Apt. 12-A 15
ANDREW W SCHEFFER New York, NY 10021
UNIF GIFT MIN ACT NY
JOHN P SCHIRRA 384 Wyoga Lake Blvd. 200
Stow, OH 44224-1110
SCOTT G SEMPLE 2050 150th St. 100
Lawton, IA 51030-8042
FRED B SENDIK &, 8530 N Greenvale Road 200
ELEANOR A SENDIK Milwaukee, WI 53217
JT TEN
WILLIAM SENKEL III CUST P.O. Box 62 75
TARA LYNN SENKEL Bay Head, NJ 08742
UNIF GIFT MIN ACT NJ
ESTHER SLOVAK 145-78 9th Ave. 4
Whitestone, NY 11357
MERLE C SNODGRASS CUST 10505 Bunch Berry Lane 4
JAMES STEVPHEN THOMPSON Upper Marlboro, MD 20772-6320
UNIF GIFT MIN ACT MD
RICHARD P STARK CUST 7433 Farmington Way 2000
MEGAN M STARK UNIF Madison, WI 53717
GIFT MIN ACT WI
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
RICHARD P STARK CUST 7433 Farmington Way 2000
COLIN P STARK UNIF GIFT Madison, WI 53717
MIN ACT WI
DAVID F STARK 166 Siesta Circle 2000
Evergreen, CO 80439
JANET C STIFFLER 308 Boyle St. 104
Bellwood, PA 16617
JOANNE STIGNA 1875 E 2nd St. 150
Brooklyn, NY 11223-2822
LAVERN L STODDEN 1700 S Hennepin St. 200
Sioux City, IA 51106
ROBERT G STRANGE P.O. Box 2070 310
Jesup, GA 31598
JAMES STRAUSS JR. 18 Pearson Dr. 30
Newark, DE 19713-2835
JERROLD STRICKLAND 1907 Sunset Dr. 100
Ontario, OR 97914
ROBINA LISE SUWOL Box 2123 25
Toluca Lake, CA 91602
PETER JORDAN SWAN 2220 S 66th 50
Fort Smith, AR 72903-3927
JOHN R THOMPSON 80 Haku Pl. 1
Lahaina Maui, HI 96761
THEODORE J TINGELHOFF CUST 126 Golden Dr. 125
SCOTT R TINGELHOFF Sergeant Bluff, IA 51054
UNIF GIFT MIN ACT IA
THEODORE J TINGELHOFF CUST 126 Golden Dr. 125
HEATHER L TINGELHOFF Sergeant Bluff, IA 51054
UNIF GIFT MIN ACT IA
ALFRED V TJARKS JR. 3625 Ter View Drive 2000
TR UA DTD FEB 18 85 Encino, CA 91436
FBO ALFRED V TJARKS
RETIREMENT PLAN
CARMELO TORRANO 413 Santa Barbara 300
Daly City, CA 94014
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
NAME ADDRESS #OF SHARES
- - ---- ------- ----------
<S> <C> <C>
REBECCA DI VIRGILIO 324 Seaber Avenue 25
Staten Island, NY 10305
JAMES VANDE WERKEN 9412 South Tulley Ave. 100
Oak Lawn, IL 60453
ROBERT M WALLACE &, 7012 Burnside Dr. 500
CAROL A WALLACE San Jose, CA 95120-3218
JT TEN
DONALD P WARREN 7 Thomas Dr. 2500
Cumberland, RI 02864
STEVEN W WESTLIE W296 N 3026 Franciscan Road 5
Pewaukee, WI 53072
BETTY JEAN WETTERMARK 410 Pierce St., #404 60
Sioux City, IA 51101
THOMAS C WICK 232 S Dellwood 60
St. Louis, MO 63135
GARY J WOLF CUST 1731 Vestal Drive 100
LAURA WOLF Coral Springs, FL 33071
UNIF GIFT MIN ACT NY
GARY J WOLF CUST 1731 Vestal Drive 100
KENNETH WOLF Coral Springs, FL 33071
UNIF GIFT MIN ACT NY
ELLIOTT W WOOLDRIDGE &, P.O. Box 1048 500
NANCY L WOOLDRIDGE Sioux City, IA 51102
JT TEN
ROBERT B ZEIGLER Rte. 220 50
Claysburg, PA 16625
MICHAEL E ZIARKO &, 515 Marquardt NE 190
JACQUELINE R ZIARKO N Canton, OH 44720
JT TEN
</TABLE>
<PAGE> 61
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of any offer to buy any security other than the shares of
Common Stock offered by this Prospectus, nor does it constitute an offer to sell
or a solicitation of an offer to buy the shares of Common Stock by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any impression that the information herein is correct as
of any time subsequent to the date hereof.
1,753,211 Shares
J2 Communications
Common Stock
--------------------
PROSPECTUS
--------------------
January __, 1998
<PAGE> 62
PART II
EXHIBITS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are as follows (estimated except as noted):
<TABLE>
<S> <C>
SEC registration fee (actual) .................... N/A
NASD filing fee (actual) ......................... N/A
Printing and engraving expenses .................. $ 2,500
Legal fees and expenses .......................... $ 5,000
Accounting fees and expenses ..................... $ 5,000
Blue sky qualification fees and expenses ......... N/A
Miscellaneous .................................... N/A
Total ..................................... $12,500
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors of the Company are presently entitled to indemnification as
expressly authorized under Section 317 of the California General Corporation Law
("Section 317") and the Bylaws of the Company (which generally authorize the
Company to indemnify its Agents where such indemnification is authorized by
Section 317). Section 317 provides a detailed statutory framework covering
indemnification of any agent of a corporation who is threatened to be made a
party to any legal proceeding by reason of his or her actions on behalf of the
corporation.
Article V ("Article V") of the Company's Articles of Incorporation,
which was adopted and approved by the Company's Shareholders in 1989, provides
that a director will not be liable for monetary damages arising out of the
director's breach of his or her fiduciary duties to the Company and the
Shareholders to the fullest extent permissible under the California Law.
Liability for breach of a director's fiduciary duty arises when the director has
failed to exercise sufficient care in reaching decisions or otherwise attending
to his responsibilities as a director and in other circumstances. Article V does
not eliminate these duties; it only eliminates monetary damage awards occasioned
by a breach of these duties. Accordingly, a breach of fiduciary duty is still a
valid basis for a suit seeking to stop a proposed transaction from occurring.
However, after a transaction has occurred, the Shareholders do not have a claim
against directors for monetary damages based on a breach of fiduciary duty, even
if that breach involves negligence on the part of the directors. Additionally,
as a practical matter, equitable remedies such as rescission may not be
available after a transaction has already been consummated or in other
circumstances. The Directors are parties to Indemnification Agreements with the
Company that attempt to provide the maximum indemnification allowed under the
California Law. The Indemnification Agreements make mandatory indemnification
which is permitted by California Law in situations in which the Indemnitee would
otherwise be entitled to indemnification only if the Board of Directors, the
Shareholders, independent legal counsel retained by the Company or a court in
which an action was or is pending made a discretionary determination in a
specific case to award such indemnification. However, in part because the
California Law was only recently enacted, the extent to which the
indemnification permitted by the California Law may be expanded by
indemnification agreements is unsettled and has yet to be the subject of any
judicial interpretation.
The Indemnification Agreement provides that the Company will be
obligated to indemnify an Indemnitee in the following circumstances:
II-1
<PAGE> 63
Third Party Actions. In case of any action other than one by or in the
right of the Company, an Indemnitee will be entitled to indemnity if the
Indemnitee's actions were of a type for which the Indemnitee would not have
monetary liability as a result of the Article V of the Articles of Incorporation
of the Company, or if the Indemnitee acted in good faith and in a manner he or
she reasonably believed to be in the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. Indemnification would include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee. Absent an agreement or
success on the merits of a case, an Indemnitee would be entitled to
indemnification only if it is determined in a specific case by the Board of
Directors, the shareholders, independent legal counsel retained by the Company
or a court in which an action is or was pending that the Indemnitee has met the
applicable standard of care.
Derivative Actions. With respect to actions by or in the right of the
Company an Indemnity will be entitled to indemnification if the Indemnitee acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the Company and the Shareholders, and, whether or not the act is
one in the Indemnitee's capacity as a director, to the extent that an action
concerns the breach of an Indemnitee's duty to the Company and the Shareholders
in circumstances under which a director's monetary liability has been
eliminated. However, indemnification may not be made where such indemnification
is expressly prohibited by Section 317. Section 317 currently prohibits
indemnification in respect of (a) any claim, issue or matter as to which the
Agent has been adjudged to be liable to the Company in the performance of the
Agent's duty to the Company and the Shareholders, unless and only to the extent
that the court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, the Agent is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine (b) amounts paid in settling or otherwise
disposing of a pending action without court approval; or (c) expenses incurred
in defending a pending action which is settled or otherwise disposed of without
court approval. Absent an agreement or success on the merits of a case, an
Indemnitee would be entitled to indemnification only if it is determined in a
specific case by the Board of Directors, the Shareholders, independent legal
counsel retained by the Company or a court in which an action is or was pending
that the Indemnitee has met the applicable standard of care.
Mandatory Payment of Expenses. To the extent that an Indemnitee has been
successful on the merits or otherwise in defense of any action or the defense of
any claim, issue or matter therein, the Indemnitee will be entitled to
indemnification against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the matter, Section 317 requires
indemnification in such circumstances.
Advances of Expenses. The Indemnification Agreement provides that the
Company must advance all reasonable expenses incurred by an Indemnitee in
connection with any proceeding (but not any amounts actually paid in settlement
of any proceeding). The Indemnitee undertakes to repay the amounts advanced only
if, and to the extent that, it is ultimately determined that the Indemnitee is
not entitled to be indemnified for those expenses pursuant to the
Indemnification Agreement. Absent an agreement, the Company would not be
required, but would be allowed to advance expenses upon receipt of such an
undertaking by Indemnitee.
Procedure for Enforcement of Rights. If an Indemnitee is not paid any
indemnification or advance within forty-five (45) days after requesting payment,
the Indemnitee may bring an action to recover the payments. The Company may
defend an action to recover indemnification (but not expenses) on the basis that
the Indemnitee is not entitled to indemnification under the Indemnification
Agreement. To the extent allowed by law the question of whether an Indemnitee is
entitled to indemnification will be determined by a court, and not by the
Company, the Board of Directors, independent legal counsel or the Shareholders.
Partial Indemnification. The Indemnification Agreement provides for
partial indemnification of costs and expenses if any Indemnitee is entitled to
indemnification only with respect to certain aspects of a pending or threatened
action. The California Law does not specifically address this issue. It does
however, provide that to the extent that an indemnified party has been
successful on the merits he is entitled to indemnification.
Future Changes in the Law. The Indemnification Agreement automatically
incorporates future changes in the law which increase the protection available
to the Indemnitee. These changes will apply to the Company without future
Shareholders' approval and, in the absence of liability insurance, may further
impair Shareholders' rights or subject the Company's assets to risk of loss in
the event of large indemnification claims.
II-2
<PAGE> 64
Exceptions. The Indemnification Agreement provides that the Company will
not be obligated: (a) to indemnify or advance expenses to the Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by the
Indemnitee and not be way of defense, except with respect to proceedings brought
to establish or enforce a right to indemnification (but indemnification or
advancement of expenses may be provided in specific cases); (b) to indemnify the
Indemnitee for any expenses incurred by the Indemnitee with respect to any
proceeding instituted by the Indemnitee to enforce or interpret the
Indemnification Agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the Indemnitee in such proceeding was
not made in good faith or was frivolous; (c) to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to Indemnitee by an insurance carrier
under a policy or officers' and directors' liability insurance maintained by the
Company; or (d) to indemnify the Indemnitee for expenses and the payment of
profits arising from the purchase and sale by the Indemnitee of securities in
violation of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
<TABLE>
<CAPTION>
ITEM 16. (a) EXHIBITS
<S> <C> <C>
1.1 Settlement Agreement between J2 Communications, Inc.
and National Lampoon, Inc., and FilmAccord Corp.
dated September 11, 1991. (1)
1.2 "National Lampoon" License Agreement Termination
between National Lampoon, Inc. and Guber-Peters
Entertainment Company, previously named Barris
Industries, Inc., dated October 1, 1990. (1)
2.1 Acquisition Agreement, dated as of July 31, 1990 between
the Company, J2 Acquisition Corp., National Lampoon, Inc.,
Daniel L. Grodnik, and Tim Matheson, and related Agreement
and Plan of Merger. (2)
3.1 Restated Articles of Incorporation. (3)
3.2 By-laws of the Company. (3)
4.1 Warrant Agreement dated as of October 15, 1990
between the Company and U.S. Stock Transfer
Corp. (2)
5.0 Opinion and Consent of Kelly & Lytton regarding legality of
securities (to be filed by amendment).
10.1 Employment Agreement, dated as of July 16, 1986,
between the Company and James P. Jimirro. (2)
10.2 Amendment to Employment Agreement between the Company
and James P. Jimirro, dated as of May 26, 1983. (3)
10.3 Agreement between National Lampoon, Inc. and New Line
Cinema Corporation, dated as of April 20, 1990. (2)
</TABLE>
II-3
<PAGE> 65
<TABLE>
<S> <C> <C>
10.4 Lease between the Company and Pacific Properties. (5)
10.5 Amended lease between the Company and Pacific
Properties. (4)
10.6 Second amended lease between the Company and Pacific
Properties. (1)
10.7 Severance Agreement and General Release by and
between National Lampoon, Inc., Tim Matheson, the
Grodnik/Matheson Limited Partnership and the
Grodnik/Matheson Company. (2)
10.8 J2 Communications Stock Option Agreement, dated as of
July 13, 1990, by and between the Company and Tim
Matheson. (2)
10.9 Severance Agreement and General Release by and
between National Lampoon, Inc., Dan Grodnik, the
Grodnik/Matheson Limited Partnership, and the
Grodnik/Matheson Company. (2)
10.10 Stock Option Agreement, dated as of July 13, 1990, by
and between J2 and Dan Grodnik. (2)
10.11 Restated Employment Agreement between J2 Communications and
James P. Jimirro dated as of December 1, 1990.
10.12 Settlement and Release between J2 Communications and
Larry Finley dated as of June 14, 1991. (1)
10.13 Agreement with Technicolor Video Services, Inc. (6)
10.14 Settlement and Shareholders Agreement with (7)
(a) Jeffer, Mangels, Butler & Marmaro
(b) Hill, Wynne, Troop & Meisinger
(c) Stroock & Stroock & Lavan
(d) Lavely & Singer
(e) Chrystie & Berle.
10.15 Agreement with CR Cooper Publications, Inc. (8)
23.1 Consent of Arthur Andersen LLP.(9)
(1) Filed as exhibit to the Company's Annual Report on Form
10-K for the Fiscal Year ended July 31, 1991.
(2) Filed as an exhibit to Company Registration Statement
on Form S-4, File No. 33-36203
</TABLE>
II-4
<PAGE> 66
<TABLE>
<S> <C> <C>
(3) Filed as an exhibit to that certain Form S-1 Registration
Statement of the Company as filed with the Securities and
Exchange Commission on July 28, 1986, September 22, 1986
and October 2, 1986 (The "S-1 Registration Statement").
(4) Filed as an exhibit to the Company's Annual Report on Form
10-K for the Fiscal Year Ended July 31, 1988.
(5) Filed as an exhibit to the Company's Annual Report of Form
10-K for the Fiscal Year Ended as of July 31, 1989.
(6) File as an exhibit to that certain Form S-1 Registration
Statement of the Company filed with the Securities and
Exchange Commission on May 28, 1993.
(7) Filed as an exhibit to that certain Form S-1 Registration
Statement of the Company filed with the Securities and
Exchange Commission on October 28, 1993.
(8) Filed as an exhibit to that certain Form S-1 Registration
Statement of the Company filed with the Securities and
Exchange Commission on August 21, 1996.
(9) Included herewith.
</TABLE>
ITEM 16(b) FINANCIAL STATEMENTS SCHEDULES
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions of the Bylaws cited in Item 13, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by its duly
authorized officers.
Date: January 29, 1998 By: /s/ JAMES P. JIMIRRO
-------------------------------------
JAMES P. JIMIRRO
Chairman of the Board
President, and Chief
Executive Officer
(Principal Executive Officer
and Director)
Date: January 29, 1998 By: /s/ Rudy R. Patino
-------------------------------------
Rudy R. Patino
Chief Financial Officer
(Principal Financial Officer)
Date: January 29, 1998 By: /s/ James Fellows
-------------------------------------
James Fellows
Director
Date: January 29, 1998 By: /s/ Bruce P. Vann
-------------------------------------
Bruce P. Vann
Director
II-6
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Los Angeles, State of California, on this 29th day of January, 1998.
J2 COMMUNICATIONS
BY: /s/ JAMES P. JIMIRRO
-------------------------------------
JAMES P. JIMIRRO
CHAIRMAN OF THE BOARD,
PRESIDENT, AND CHIEF
EXECUTIVE OFFICER
II-7
<PAGE> 69
POWER OF ATTORNEY
KNOW ALL MAY BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James P. Jimirro, as true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ JAMES P. JIMIRRO Chairman of the Board, January 29, 1998
- - --------------------------- President, Chief Executive
JAMES P. JIMIRRO Officer and Director
(Principal Executive Officer
And Director)
/s/ JAMES FELLOWS Director January 29, 1998
- - ---------------------------
JAMES FELLOWS
/s/ BRUCE P. VANN Director January 29, 1998
- - ---------------------------
BRUCE P. VANN
/s/ RUDY R. PATINO Chief Financial Officer January 29, 1998
- - --------------------------- (Principal Financial
RUDY R. PATINO Officer)
</TABLE>
II-8
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Los Angeles, California
January 27, 1998
