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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark one]
[X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd., Hollywood, California 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 462-6266
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($.0001 par value)
Preferred Share Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 13, 2001 (based upon the closing price on the Nasdaq
National Market on that date) was $14,484,000.
Number of shares of Common Stock, $.0001 par value, outstanding as of
March 13, 2001: 7,751,295.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Notice of Annual Meeting of Shareholders and definitive Proxy
Statement, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the close of the
Registrant's fiscal year.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Part I Page
Item 1 Business 1
Item 2 Properties 3
Item 3 Legal Proceedings 3
Item 4 Submission of Matters to a Vote of Security Holders 3
Part II
Item 5 Market for Registrant's Common Stock and Related
Security Holder Matters 4
Item 6 Selected Financial Data 5
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7A Quantitative and Qualitative Disclosures about
Market Risk 13
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
Part III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners
and Management 36
Item 13 Certain Relationships and Related Transactions 36
Part IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 37
Signatures 39
PART I
ITEM 1. BUSINESS
Statements included within this document, other than statements of
historical facts, that address activities, events or developments that Laser
Pacific Media Corporation expects or anticipates will or may occur in the
future, including such things as business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the Company's
business and operations, plans, references to future success and other such
matters, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities and
Exchange Act of 1934, as amended, and fall under the safe harbor. The forward
looking statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, actual results and
financial position could differ materially in scope and nature from those
anticipated in the forward looking statements as a result of a number of
factors, including but not limited to, the Company's ability to successfully
expand capacity, general economic, market or business conditions; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other companies; changes in laws or regulations;
investments in new technologies; continuation of sales levels; the risks related
to the cost and availability of capital; and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this report are qualified by these cautionary statements and
there can be no assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business
operations. Readers are urged to carefully review and consider various
disclosures made by the Company in its filings with the Securities and Exchange
Commission to advise interested parties of certain risks and other factors that
may affect the Company's business and operating results.
General
Laser-Pacific Media Corporation ("Laser-Pacific" or the "Company")
was formed by a merger of Spectra Image, Inc. and Pacific Video, Inc. in
September, 1990. Both of the predecessor companies were organized in 1983.
Laser-Pacific is a leading provider of a broad range of post-production
services to the Hollywood motion picture film and television industry. These
post-production services include technical and creative services to the
producers of prime-time network television series and television movies,
services for the creation of digital masters for high definition and standard
definition television, home video, DVD as well as other master delivery formats.
In addition, the Company provides motion picture film processing, technical and
creative services for visual effects, digital sound editing and mixing and other
ancillary and related services that assist in the preparation of film,
television and digital content for a variety of distribution methods.
The Company is recognized as an industry leader and pioneer in the
development and introduction of new methods and technology in service of
television, motion pictures and digital multimedia. The Company led the
television industry in the move from film to electronic and digital based
techniques in post-production through the introduction of its proprietary
Electronic Laboratory(TM) and has received four Emmy Awards for Outstanding
Achievement in Engineering for its developments. The Company's new high
definition television and movie mastering capabilities are reinforcing the long
standing reputation for state-of-the-art services and facilities.
The Company offers a full range of post-production services to
television producers at its facilities in Hollywood, California. These services,
which begin immediately after completion of photography and end with the
delivery of a videotape master ready for television broadcasting, include film
processing, film to videotape transfer, electronic editing of the videotape
(including the addition of special effects and titles), color correction, sound
editing and mixing, and duplication.
The principal categories of services offered by the Company are:
Motion Picture Film Processing - The Company operates five negative processing
machines at its Pacific Film Laboratories facility, located in Hollywood,
California. These machines are used to develop customers' negatives after
photography, with the capacity to develop approximately 2 million feet of film
per week.
Telecine Transfer - The Company operates eight telecine suites that are used to
transfer customers' film to videotape for subsequent post-production processing.
These telecine suites are used for daily transfers for electronic
post-production as well as video masters of completed motion pictures. Currently
five telecine suites are used for digital standard definition and three are used
for both digital standard definition as well as digital high definition.
Editing - The Company operates nine editing suites, for preparing broadcast
quality videotape masters for its customers. These editing suites are primarily
used for assembly of television programs, visual effects, and adding titles and
graphics. Two of the rooms are equipped exclusively for high definition editing.
Additionally, the Company's Emmy Award winning Super-Computer Assembly system
provides the show assembly capability equivalent of four or five additional
conventional editing rooms.
Color Timing - The Company operates five timing suites that are used for the
final color balancing and image enhancement of customers' programs. Two of these
suites are equipped specifically for digital high definition programs.
Digital Graphics and Visual Effects - The Company's Visual Effects Department,
is equipped with several digital video effects systems specifically designed to
create graphical elements, special effects, titles and other specialized work
for television and motion pictures.
Sound Editing and Mixing - The Company's post-production sound department,
Pacific Sound Services, includes ten digital sound editing systems, a sound
effects and dialogue recording studio, and a re-recording studio for
accomplishing the final sound mix of customers' programs.
Digital Compression Services - Using an IBM SuperComputer and other specialized
computer systems, the Company provides digital compression and related services
which results in the creation of data recordings for use in CD-ROM, digital file
servers and video-on-demand applications. The Company also provides digital
compression and "authoring" services for the new DVD format. "Authoring" is the
industry term that describes the creation of disc navigation and interactivity
capability in a DVD replication master, including DVD menu design and
formatting.
Duplication and Other Services - The Company provides duplication, restoration,
digital file conversion, screening, and a variety of other services to fulfill
the production and delivery needs of its customers.
Employees
At December 31, 2000, the Company had approximately 225 employees.
Approximately 30 employees are represented by the International Alliance of
Theatrical and Stage Employees pursuant to a collective bargaining agreement,
which expires July 15, 2001. The Company has never experienced a work stoppage,
and considers its relations with its employees to be excellent.
Competition
The Company experiences competition in all phases of its business from a
number of companies. Some of the Company's competitors specialize in specific
service areas, such as sound, laboratory, or editing, and some are fully
integrated and offer a complete range of post-production services. Some of the
Company's competitors have financial resources that are materially greater than
the Company's. Some of the Company's customers have post-production
capabilities. Due to the nature of the Company's core business, post-production
for television programs, the majority of the Company's competitors are located
in the Southern California area.
ITEM 2. PROPERTIES
The Company owns a 29,000 square foot building located on a 39,000
square foot lot in Hollywood, California where it provides film processing and
sound editing and mixing services. In addition, the Company leases approximately
41,000 square feet in seven buildings in Hollywood, California, which contain
executive offices and the balance of its post-production facilities. Five of the
leases are on a month-to-month basis. Two of the larger facilities are on
five-year leases through the year 2006. One of the five-year leases was entered
into in March 2001 to provide the Company with additional space to relocate the
Company's Burbank, California facility and for future expansion. The Company has
notified the lessor of the Burbank, California facility, which the Company
leases on a month-to-month basis, that it will vacate the facility by June 2001.
The Company believes that its facilities are adequate for its operations as now
conducted. If operations continue to expand, the Company will acquire additional
space.
The Company believes that its facilities, some of which include the use
of chemical products, substantially comply with all applicable environmental and
other laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company may have certain contingent liabilities and claims incident
to the ordinary course of business. The Company is not involved in any material
litigation at this time and is not aware of any pending lawsuits. Management
believes that the probable resolution of such contingencies will not materially
affect the financial position, results of operations, or liquidity of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Markettm
under the symbol LPAC. The following table reflects the range of high and low
selling prices of the Company's common stock by quarter for 2000 and 1999. This
information is based on selling prices as reported by the Nasdaq National
Market.
High Low
2000
First Quarter $14.9375 $5.0000
Second Quarter $6.0000 $2.6250
Third Quarter $4.7500 $2.2500
Fourth Quarter $3.1250 $1.0000
1999
First Quarter $4.2500 $1.6875
Second Quarter $6.9375 $3.0000
Third Quarter $9.4375 $5.5625
Fourth Quarter $12.8750 $7.7500
The Company had approximately 3,000 stockholders on March 13, 2001.
The Company has never paid a cash dividend on its shares of Common
Stock and currently intends to retain its earnings, if any, for use in its
operations and the expansion of its business. Consequently, it does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's Credit Agreement with the CIT Group prohibits the payment of cash
dividends on its Common Stock without bank approval.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data of the Company and its
consolidated subsidiaries for each of the last five fiscal years:
(In thousands except for per share data.)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations Data:
Revenues $33,058 $30,991 $30,699 $28,291 $28,878
Operating expenses:
Direct...................................... 19,721 19,753 19,183 18,343 18,847
Depreciation and amortization............... 4,161 3,258 3,572 4,207 5,318
--------------- ------------ ------------- -------------- --------------
23,882 23,012 22,755 22,550 24,165
--------------- ------------ ------------- -------------- --------------
Gross profit................................. 9,176 7,980 7,944 5,741 4,713
Selling, general and administrative expenses. 4,648 4,570 4,616 4,279 4,826
--------------- ------------ ------------- -------------- --------------
Income (loss) from operations................ 4,528 3,410 3,328 1,461 (113)
Interest expense............................. (1,241) (1,241) (1,288) (1,563) (1,563)
Gain on sale of subsidiary................... --- --- 875 --- ---
Other income................................. 253 2,382 114 41 42
Minority interest............................ --- --- --- (54) (53)
Income tax (expense) benefit................. (30) 285 (109) (232) (165)
--------------- ------------ ------------- -------------- --------------
Net income (loss)............................ 3,510 4,836 2,920 (347) (1,852)
=============== ============ ============= ============== ==============
Net income (loss) per share (basic) $0.45 $0.65 $0.41 ($0.05) ($0.26)
--------------- ------------ ------------- -------------- --------------
Net income (loss) per share (diluted) $0.44 $0.62 $0.39 ($0.05) ($0.26)
--------------- ------------ ------------- -------------- --------------
Weighted average shares outstanding (basic) 7,726 7,491 7,163 7,128 7,061
=============== ============ ============= ============== ==============
Weighted average shares outstanding (diluted) 8,003 7,838 7,510 7,128 7,061
=============== ============ ============= ============== ==============
Balance Sheet Data:
Working capital (deficiency)................. $5,854 $3,231 $2,769 ($2,332) ($2,498)
Total assets................................. 30,423 29,497 20,226 22,488 22,304
Current installments of notes payable,
notes payable to related parties, and
long-term debt............................. 3,490 3,718 2,462 5,894 5,278
Long-term debt, excluding current
installments............................... 7,934 10,303 7,629 8,139 7,959
Net stockholders' equity..................... $17,202 $13,676 $8,712 $5,772 $6,101
Quarterly Financial Information
The following table summarizes unaudited selected financial data of the Company
and its consolidated subsidiaries for each quarter of the last two fiscal years:
(In thousands except for per share data.)
2000
----------------------------------------------------------------------------------
December 31 September 30 June 30 March 31
----------------- ------------------ ----------------- ------------------
Revenues $ 10,721,000 $ 7,233,000 $ 5,858,000 $ 9,246,000
Income (loss) from operations 2,857,000 542,000 (677,000) 1,806,000
Net income (loss) 2,687,000 281,000 (909,000) 1,451,000
Net income (loss) per share basic $ 0.35 $ 0.04 $ (0.12) $ 0.19
================= ================== ================= ==================
Net income (loss) per share diluted $ 0.34 $ 0.04 $ (0.12) $ 0.18
================= ================== ================= ==================
1999
----------------------------------------------------------------------------------
December 31 September 30 June 30 March 31
----------------- ------------------ ----------------- ------------------
Revenues $ 9,684,000 $ 7,772,000 $ 5,594,000 $ 7,942,000
Income (loss) from operations 1,279,000 1,050,000 (386,000) 1,467,000
Net income (loss) 3,558,000 737,000 (614,000) 1,155,000
Net income (loss) per share basic $ 0.46 $ 0.10 $ (0.08) $ 0.16
================= ================== ================= ==================
Net income (loss) per share diluted $ 0.44 $ 0.09 $ (0.08) $ 0.15
================= ================== ================= ==================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
2000 Compared to 1999
Revenues for the year ended December 31, 2000 increased to $33.1
million from $31.0 million for 1999, an increase of $2.1 million or 6.7%. The
increase is primarily attributable to an increased demand for the Company's
services. Revenues from the majority of services that the Company provides
increased significantly while revenues from some services decreased. Revenue
increases in television post-production services, which includes high definition
services, digital compression services; including digital video discs, and
feature film mastering aggregated $3.1 million and were partially offset by
decreased revenue from the following services; 1) The elimination of the
Company's production rental services business in October, 1999 reduced revenue
by $68,000, 2) Revenues from laser disc services declined $203,000, 3) Revenues
from Graphic Services declined $605,000 as a result of a lower demand for
special effects from our customers and 4) a decrease of $124,000 in Film
Production Revenues reflects increased use by some customers of film formats
that require a lower volume of film processing.
For the year ended December 31, 2000, the Company recorded a gross
profit of $9.2 million compared with $8.0 million for the same year-ago period,
an increase of $1.2 million or 15.0%. The increase in gross profit is primarily
the result of the increased sales volume discussed above, partially offset by an
increase in depreciation expense as discussed below.
Operating costs, excluding depreciation for the year ended December 31,
2000 were $19.7 million versus $19.8 million for the year-ago period, a decrease
of less than 1%. The decrease in operating costs is the result of reduced bad
debt expense of $519,000 and reduced equipment maintenance and rental expense of
$254,000 offset by increased labor cost of $427,000 and increased stock cost of
$304,000. Depreciation expense for the year ended December 31, 2000 was $4.2
million compared to $3.3 million for the same year-ago period, an increase of
$902,000 or 27.7%. The increase in depreciation expense is due to significant
capital equipment expansion in the third and fourth quarters of 1999. Total
operating costs, including depreciation, as a percentage of revenues for the
year ended December 31, 2000 were 72.2% compared with 74.2% for the same
year-ago period.
Selling, general and administrative expenses (SG&A) for the year ended
December 31, 2000 were $4,648,000 as compared to $4,570,000 during the same
year-ago period, an increase of 1.7%. The small increase in SG&A is attributable
to increased wages for non-operations staff of $86,000 and increased
professional fees of $39,000, offset by a reduction in property tax expense
of $107,000.
Income from operations for the year ended December 31, 2000 was $4.5
million compared to $3.4 million for the same year-ago period, an increase of
$1.1 million or 32.8%. The increase in income from operations is primarily the
result of increased sales volume and decreased operating expenses, partially
offset by increased SG&A expenses, discussed above.
Interest expense for the year ended December 31, 2000 was $1.2 million
compared to $1.2 million for the same year-ago period. There was no significant
change in interest expense from last year. Interest expense was higher for the
first and second quarters and lower in the third and fourth quarters of the year
ended December 31, 2000 compared to the year ended December 31, 1999.
Other income for the year ended December 31, 2000 was $253,000 compared
to other income of $2.4 million in 1999. The other income for the year ended
December 31, 2000 is primarily interest income earned on higher cash balances.
The other income in 1999 was primarily the result of a technology development
agreement that the Company entered into with a major equipment manufacturer and
supplier. Under the agreement the Company provided research, development and
engineering services related to the development of technical equipment used in
connection with high definition post-production. In consideration for services
provided, the Company received replacement equipment, discounts on the purchase
of equipment and the cancellation of rental payments under a capital lease
obligation due to the equipment supplier. The Company recognized income of $2.2
million during the fourth quarter of 1999 pursuant to this agreement. Revenue
recognition was deferred until the end of the fourth quarter as the earnings
process was not complete until December 31, 1999 when the collaboration was
complete. Costs that the Company incurred in connection with the agreement were
expensed, primarily as operating costs, as incurred throughout the year ended
December 31, 1999. The Company does not anticipate future revenue recognition
from the technology development agreement.
The 2000 income tax expense is comprised of U.S. Federal Income Tax of
$57,000 and State Income Tax benefit in the amount of $27,000. The U.S. Federal
Income Tax is primarily composed of alternative minimum tax. The State Income
Tax benefit is primarily the result of utilization of State Tax Credits. The
income tax benefit of $285,000 during 1999 is comprised of a deferred income tax
benefit of $500,000 resulting from a reduction in the valuation allowance to
reflect the anticipated future benefit from operating loss carryforwards which
are likely to be utilized, partially offset by income tax expense of $215,000.
The 1999 income tax expense is comprised of U.S. Federal Income Tax of $70,000
and State Income Tax in the amount of $145,000. The U.S. Federal and State
Income Tax is primarily composed of alternative minimum tax. This occurred
because net operating loss carryforwards were utilized to offset taxable income.
The full benefit of the net tax operating loss carryforwards is limited for
alternative minimum tax purposes. The benefit of the State net tax operating
loss was completely utilized as of December 31, 1999.
As of December 31, 2000 the Company has recorded gross deferred tax
assets of $3.8 million, a related valuation allowance of $879,000 and deferred
tax liabilities of $2.4 million (see note 6 to the consolidated financial
statements). In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management can not predict at this time that
the Company will realize all of the benefits of these deductible differences.
Based on these assessments, the valuation allowance was reduced in 2000 by $1.3
million and in 1999 by $2.2 million.
As a consequence of the above factors, the Company reported net income
of $3.5 million or $0.44 per diluted share in 2000 versus reported net income of
$4.8 million or $0.62 per diluted share in 1999.
Fourth Quarter 2000
The following table summarizes selected financial data of the Company and its
consolidated subsidiaries for the fourth quarters ended 2000 and 1999.
Three Months ended December 31, Increase (Decrease)
----------------------------------------- --------------------------------------
2000 1999 Dollars Percent
----------------- ------------------ ---------------- ----------------
Revenues $ 10,721,000 $ 9,684,000 $ 1,037,000 10.7%
Operating Expenses 6,604,000 7,034,000 (430,000) (6.1%)
----------------- ------------------
Gross Profit 4,117,000 2,650,000 1,467,000 55.3%
SG&A 1,260,000 1,372,000 (112,000) (8.2%)
----------------- ------------------
Income from Operations 2,857,000 1,278,000 1,579,000 123.5%
Interest Expense 246,000 360,000 (114,000) (31.7%)
Other Income 62,000 2,306,000 (2,244,000) (97.3%)
----------------- ------------------
Net Income 2,687,000 3,558,000 (871,000) (24.5%)
================= ==================
Revenues for the three months ended December 31, 2000 increased $1.0
million or 10.7% from the same period in 1999. The increase in the revenues is
attributable to an increased demand for the Company's services with increases in
high definition services and digital compression services; including digital
video discs, and revenues from feature film mastering.
For the three months ended December 31, 2000, the Company's gross
profit increased $1.5 million or 55.3%. The increase in gross profit is the
result of the increase in revenues discussed above and decreased operating
costs. The decrease in operating costs is the result of a decrease in labor cost
of $154,000, a reduction in bad debt expense of $448,000 and reduced equipment
maintenance and rental expense of $76,000 which were partially offset by an
increase in depreciation expense of $156,000. Total operating costs, including
depreciation, as a percentage of revenues for the three months ended December
31, 2000 were 61.6% compared with 72.6% for the same year-ago period.
Income from operations increased $1.6 million for the three months
ended December 31, 2000 compared to the same period in 1999. The increased
income from operations are the result of the sales increase and decreased
operating costs discussed above and improved margins.
Other income for the fourth quarter 2000 decreased $2.2 million or
97.3% from the fourth quarter 1999. The other income in 2000 is primarily
interest income earned on higher cash balances. The other income in 1999 was
primarily the result of a technology development agreement that the Company
entered into with a major equipment manufacturer and supplier. Under the
agreement, the Company provided research, development and engineering services
related to the development of technical equipment used in connection with high
definition post-production. The Company recognized income of $2.2 million during
the fourth quarter of 1999 pursuant to this agreement.
1999 Compared to 1998
Revenues for the year ended December 31, 1999 increased to $31.0
million from $30.7 million for 1998, an increase of $0.3 million or 1.0%.
Revenues at the Company's U.S. facilities increased significantly while revenues
from international operations were eliminated as the result of the sale of the
Company's Canadian subsidiary Pacific Video Canada Ltd. (PVC) on May 15, 1998.
All of Laser Pacific's international operations are attributable to PVC. The
revenues for the year ended December 31, 1999 at the Company's U.S. facilities
increased $3.2 million or 11.5% versus 1998, while revenues from international
operations decreased $2.9 million versus the year-ago period. The increase in
revenues at U.S. facilities is comprised of an increase of $3.7 million in
Post-Production Services, a decrease of $281,000 in Film Production Services and
a decrease of $236,000 in Production Services. The Company's Production Services
rental business has declined over the last four years and was discontinued in
October 1999. The increase in the Company's Post-Production Services at U.S.
facilities is attributable to an increased demand for the Company's services
with increases in high definition services, digital compression services;
including digital video discs, and revenues from feature film mastering.
Revenues from digital compression services, digital video discs, special effects
and feature film mastering increased $948,000. The revenue decrease in Film
Production Services reflects increased use by some customers of film formats
that require a lower volume of film processing.
For the year ended December 31, 1999, the Company recorded a gross
profit of $8.0 million compared with $7.9 million for the same year-ago period,
an increase of 0.4%. The gross profit for the year ended December 31, 1998
includes $815,000 attributable to Pacific Video Canada. The gross profit from
the Company's continuing operations increased $851,000 or 11.9% versus the
year-ago period. The increase in gross profit from continuing operations is
primarily the result of increased sales volume discussed above that was
partially offset by increased operating costs, as explained below.
Operating costs, excluding depreciation and amortization discussed
below, for the year ended December 31, 1999 were $19.8 million versus $19.2
million for the year-ago period, an increase of $570,000 or 3.0%. The increase
in operating costs at the Company's U.S. facilities was significantly offset by
the elimination of operating costs attributable to PVC. The operating costs for
the year ended December 31, 1999 at the Company's U.S. facilities increased $2.3
million or 13.1% versus 1998, while operating costs from Canada in 1998 amounted
to $1.7 million. The increase in operating costs at the Company's U.S. facility
is primarily due to an increase in wages and salaries of $1.6 million and an
increase in bad debt expense of $518,000. Depreciation expense for the year
ended December 31, 1999 was $3.3 million compared to $3.6 million for the same
year-ago period, a decrease of $314,000 or 8.8%. The depreciation expense
reduction is the result of the sale of PVC (discussed above). The reduction was
offset by an increase in depreciation expense on the equipment acquired
throughout 1999 with the majority being acquired in the third and fourth
quarters of 1999. Total operating costs, including depreciation and
amortization, as a percentage of revenues for the year ended December 31, 1999
were 74.2% compared with 74.1% for the same year-ago period.
Selling, general and administrative expenses (SG&A) for the year ended
December 31, 1999 were $4,570,000 as compared to $4,616,000 during the same
year-ago period, a decrease of 1.0%. There was an increase in SG&A of $560,000
at the Company's U.S. facilities while SG&A attributable to PVC of $606,000 was
eliminated. The increase of SG&A in the U.S. is primarily attributable to
increases in advertising and promotion and higher wages for non-operations
staff.
Income from operations for the year ended December 31, 1999 was $3.4
million compared to $3.3 million for the same year-ago period, an increase of
$82,000 or 2.5%. The increase in income from operations is primarily the result
of increased sales volume and decreased SG&A expenses, partially offset by
increased operating costs, which are discussed above.
Interest expense for the year ended December 31, 1999 was $1.2 million
compared to $1.3 million for the same year-ago period, a decrease of 3.6%. The
decrease in interest expense is the result of lower interest rates, elimination
of a real estate loan, decreased borrowing from CIT and the elimination of
interest expense related to PVC (discussed above). The reduction was offset by
an increase in interest expense on the additional borrowing for equipment
acquisitions in the third and fourth quarters of 1999.
Other income for the year ended December 31, 1999 was $2.4 million
compared to other income of $133,000 in 1998. The other income in 1999 is
primarily the result of a technology development agreement that the Company
entered into with a major equipment manufacturer and supplier. Under the
agreement the Company provided research, development and engineering services
related to the development of technical equipment used in connection with high
definition post-production. In consideration for services provided, the Company
received replacement equipment, discounts on the purchase of equipment and the
cancellation of rental payments under a capital lease obligation due to the
equipment supplier. The Company recognized income of $2.2 million during the
fourth quarter of 1999 pursuant to this agreement. Revenue recognition was
deferred until the end of the fourth quarter as the earnings process was not
complete until December 31, 1999 when the collaboration was complete. Costs that
the Company incurred in connection with the agreement were expensed, primarily
as operating costs, as incurred throughout the year ended December 31, 1999. The
Company does not anticipate future revenue recognition from the technology
development agreement. The 1998 other income was primarily from the sale of used
equipment.
On May 15, 1998 the Company sold all of its investment in PVC to
Command Post and Transfer Corporation. The Company realized cash consideration
of $3.8 million and recognized a net gain on sale of $875,000. The total sales
price of $3.8 million was determined through arms-length negotiations. The
proceeds were used to reduce outstanding debt and to provide working capital.
The income tax benefit of $285,000 is comprised of a deferred income
tax benefit of $500,000 resulting from a reduction in the valuation allowance to
reflect the anticipated future benefit from operating loss carryforwards which
are likely to be utilized in 2000 partially offset by current income tax expense
of $215,000. The 1999 income tax expense is comprised of U.S. Federal Income Tax
of $70,000 and State Income Tax in the amount of $145,000. The U.S. Federal and
State Income Tax is primarily composed of alternative minimum tax. This occurred
because net operating loss carryforwards were utilized to offset taxable income.
The full benefit of the net tax operating loss carryforwards is limited for
alternative minimum tax purposes. The benefit of the State net tax operating
loss was completely utilized as of December 31, 1999. In 1998 Income Tax expense
of $109,000 was comprised of U.S. Federal and State Income Tax in the amount of
$55,000 and $54,000 in foreign tax. The U.S. Federal and State Income Tax in
1998 was primarily composed of alternative minimum tax. Foreign income tax
relates to Canadian income tax imposed on the pre-tax income of the Canadian
subsidiary through May 15, 1998.
As of December 31, 1999, the Company has recorded gross deferred tax
assets of $4.8 million, a related valuation allowance of $2.2 million and
deferred tax liabilities of $2.1 million (see note 6 to the consolidated
financial statements). In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income (losses) and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management can not predict at this
time that the Company will realize all of the benefits of these deductible
differences. Based on these assessments, the valuation allowance was reduced in
1999 by $2.2 million.
As a consequence of the above factors, the Company reported net income
of $4.8 million or $0.62 per diluted share in 1999 versus reported net income of
$2.9 million or $0.39 per diluted share in 1998.
Fourth Quarter 1999
The Company's financial performance and results of operations during
the fourth quarter of 1999 are not indicative of the Company's normal operating
performance on a comparative basis. Additional other income, bad debt expense
and income tax benefit were recognized in the fourth quarter 1999. The
additional income and expense were recorded in the fourth quarter 1999 because
the certainty of recognition and or dollar value of the adjustments were not
known or ascertainable prior to the year end.
Revenues for the three months ended December 31, 1999 increased
$192,000 or 2.0% from the same period in 1998. Revenues from Post-Production
Services related to the Company's core business on episodic television shows
increased $903,000. The increase was offset by decreased revenue from the
following services. 1) A decrease in revenues of $260,000 from film processing
as the result of increased use by some customers of film formats that require a
lower volume of film processing. 2) The elimination of the Company's production
rental services business in October 1999 and anticipated lower revenues from
laser disc services resulted in a $204,000 decrease in revenues. 3) Feature film
mastering revenues decreased $247,000 due to scheduling delays by our customers
and high definition capacity issues related to the expansion of our facilities.
For the three months ended December 31, 1999, the Company's gross
profit decreased $821,000 or 23.7%. The decrease in gross profit is the result
of the low growth of sales discussed above and increased operating costs. The
increase in operating costs is primarily the result of an increase in
depreciation expense of $197,000, an increase in labor cost of $300,000 and an
increase in bad debt expense of $463,000. The increase in depreciation expense
is the result of depreciation on new equipment acquired throughout 1999. The
majority of the equipment was acquired in the third and fourth quarters of 1999.
The increase in labor cost is the result of an increased number of employees,
compensation increases and other business reasons. The increase in bad debt
expense is the result of the Company increasing the reserve for bad debt due to
the possibility of certain customers not paying their outstanding debt timely.
The Company is pursuing various alternatives to collect these obligations. Total
operating costs, including depreciation and amortization, as a percentage of
revenues for the three months ended December 31, 1999 were 72.6% compared with
63.4% for the same year-ago period.
The increase in other income during the fourth quarter 1999 is
primarily the result of a technology development agreement that the Company
entered into with a major equipment manufacturer and supplier. This is discussed
in detail above. The Company recognized income of $2.2 million during the fourth
quarter of 1999 pursuant to this agreement. Revenue was not recognized until
December 31, 1999 when all contingencies were met on conclusion of the
agreement.
Deferred income tax benefit of $500,000 resulting from a reduction in
the valuation allowance to reflect the anticipated future benefit from operating
loss carryforwards that are likely to be utilized in 2000 was recognized during
the fourth quarter 1999. This is discussed in detail above.
Matters Affecting Operations
During the quarter ended June 30, 2000 the Company entered into a joint
venture agreement forming a new company, Composite Image Systems, LLC. This new
entity provides digital visual effects and graphic services to the motion
picture film and television industry. In addition to sharing equipment,
personnel, technical expertise and industry knowledge, the Company has certain
financial commitments to the joint venture. To date the Company has provided
working capital to the joint venture of approximately $346,000 and guaranteed
the financing of approximately $700,000 in equipment. The operating agreement of
the venture also provides that the Company will receive preferred distributions
from the venture until the working capital the Company contributed is repaid.
The Company is accounting for this investment under the equity method of
accounting. The Company's share of the net earnings (loss) for the year ended
December 31, 2000 was immaterial.
The collective bargaining agreement between the Writers Guild of America
and the Alliance of Motion Picture and Television Producers (a multi-employer
bargaining group) is due to expire on or about May 1, 2001. The collective
bargaining agreement between the Screen Actors Guild and the Alliance of Motion
Picture and Television Producers is due to expire on or about June 30, 2001.
Negotiations to renew those agreements are underway as of February 2001. There
have been a number of public reports indicating that strikes by the Writers
Guild of America and the Screen Actors Guild are a possibility in 2001. A strike
by one or both of the unions that provide personnel essential to the production
of motion pictures or television programs could delay or halt the Company's
ongoing post-production services to those productions. Such a halt or delay,
depending on the length of time, could adversely affect the Company's cash flow
and revenues.
Seasonality and Variation of Quarterly Results
The Company's business is subject to substantial quarterly variations as
a result of seasonality, which the Company believes is typical of the television
post-production industry. Historically, revenues and net income have been
highest during the first and fourth quarters, when the production of television
programs and consequently the demand for the Company's services is at its
highest. Revenues have been substantially lower during the second and third
quarters, when the Company historically has incurred operating losses.
Liquidity and Capital Resources
The Company and its subsidiaries are operating under a loan agreement
with The CIT Group/Credit Finance that expires August 3, 2001. The maximum
credit under the agreement is $9 million. The loan agreement contains automatic
renewal provisions for successive terms of two years thereafter unless
terminated as of August 3, 2001 or as of the end of any renewal term by either
party by giving the other party at least 60 days written notice. The outstanding
balance of all borrowings under this agreement was $1.9 million at December 31,
2000.
The Company has had discussions and received financing proposals from
The CIT Group/Credit Finance and other qualified lenders regarding increasing
the loan commitments available to the Company. The Company believes it will
obtain acceptable additional financing prior to the expiration of the current
CIT Group/Credit Finance loan agreement.
During the years ended December 31, 2000 and December 31, 1999 the
Company entered into capital lease obligations of approximately $2.1 million and
$8.0 million respectively with various lenders in connection with the
acquisition of equipment. The capital leases are for terms of up to 60 months,
at fixed interest rates ranging from 7.5% to 9.75%. The obligations are secured
by the equipment that was financed. The equipment was acquired to expand the
Company's capabilities and to support the increasing demand for the Company's
services. Projected cash flow and existing credit arrangements are adequate to
fund additional purchases and commitments
The Company's principal source of funds is cash generated by
operations. The Company anticipates that existing cash balances, availability
under existing loan agreements and cash generated from operations will be
sufficient to service existing debt and to meet the Company's capital
requirements for fiscal 2001. The possibility of the strikes discussed above may
impact the Company's cash flow.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133") which
establishes accounting and reporting standards for derivative instruments
and hedging activities. In July 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133
("SFAS No. 137"). As amended by SFAS No. 137, SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company does not have any
derivative instruments or hedging activities and accordingly, the adoption
of SFAS No. 133 will not have a significant effect on its consolidated financial
position or results of operations.
Revenue Recognition in Financial Statements
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The adoption of this
Bulletin did not have an effect on the Company's consolidated results of
operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. The Company does not invest, and during the
year ended December 31, 2000 did not invest, in market risk sensitive
instruments.
Market Risk. The Company's market risk exposure with respect to
financial instruments is to changes in the "prime rate" in the United States.
The Company had borrowings of $1.9 million at December 31, 2000 under a term
loan (discussed above) and may borrow up to $3.6 million under a revolving loan.
Amounts outstanding under the term loan and revolving credit facility bear
interest at the bank's prime rate plus 1%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements for the Company and independent
auditors' report therein are set forth on pages 14 through 35 incorporated
herein. See Page 14 for an index to all the consolidated financial statements
and supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
Consolidated Financial Statements:
Independent Auditors' Report 15
Consolidated Balance Sheets - December 31, 2000 and 1999 16
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998 18
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 2000, 1999 and 1998 19
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998 20
Notes to Consolidated Financial Statements 22
Consolidated Financial Statement Schedule - Valuation
and Qualifying Accounts - Years Ended
December 31, 2000, 1999 and 1998 35
All other schedules are omitted because they are not applicable or the required
information is shown in the Company's consolidated financial statements or the
related notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Laser-Pacific Media Corporation:
We have audited the accompanying consolidated financial statements of
Laser-Pacific Media Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Laser-Pacific Media
Corporation and subsidiaries as of December 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/KPMG LLP
Los Angeles, California
March 2, 2001
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets (note 5) 2000 1999
----------------- ----------------
Current assets:
Cash and cash equivalents $ 4,527,042 $ 2,398,407
Receivables:
Trade 6,440,675 6,354,747
Other 186,150 156,653
----------------- ----------------
6,626,825 6,511,400
Less allowance for doubtful receivables 1,286,995 1,371,737
----------------- ----------------
5,339,830 5,139,663
----------------- ----------------
Inventory 274,635 226,812
Prepaid expenses and other current assets 499,911 484,467
Deferred income tax asset, net (note 6) 500,000 500,000
----------------- ----------------
Total current assets 11,141,418 8,749,349
----------------- ----------------
Net property and equipment, at cost (note 3) 18,457,816 20,333,846
Other assets, net 824,082 414,115
----------------- ----------------
$ 30,423,316 $ 29,497,310
================= ================
(Continued)
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(Continued)
Liabilities and Stockholders' Equity 2000 1999
----------------- -----------------
Current liabilities:
Current installments of notes payable to bank and
long-term debt (note 5) $ 3,489,618 $ 3,718,270
Accounts payable 316,449 297,334
Accrued compensation expense 915,542 891,661
Accrued expenses 565,378 588,220
Income taxes payable (note 6) -- 22,820
----------------- -----------------
Total current liabilities 5,286,987 5,518,305
----------------- -----------------
Notes payable to bank and long-term debt, less current
installments (note 5) 7,934,387 10,303,320
Commitments and contingencies (note 9)
Stockholders' equity (notes 7 and 8):
Preferred stock, $.0001 par value. Authorized
3,500,000 shares; none issued -- --
Common stock, $.0001 par value. Authorized 25,000,000
shares; issued and outstanding 7,751,295 and
7,654,646 shares at December 31, 2000 and 1999,
respectively 775 765
Additional paid-in capital 19,936,156 19,919,956
Accumulated deficit (2,734,989) (6,245,036)
----------------- -----------------
Net stockholders' equity 17,201,942 13,675,685
----------------- -----------------
$ 30,423,316 $ 29,497,310
================= =================
See accompanying notes to consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------------ ------------------ ------------------
Revenues $ 33,058,293 $ 30,991,155 $ 30,699,137
------------------ ------------------ ------------------
Direct operating costs and expenses:
Direct 19,721,320 19,753,055 19,183,337
Depreciation 4,160,784 3,258,483 3,571,744
------------------ ------------------ ------------------
Total operating expenses 23,882,104 23,011,538 22,755,081
------------------ ------------------ ------------------
Gross profit 9,176,189 7,979,617 7,944,056
Selling, general and administrative expenses 4,648,189 4,569,665 4,616,364
------------------ ------------------ ------------------
Income from operations 4,528,000 3,409,952 3,327,692
Interest expense (1,240,562) (1,241,356) (1,287,920)
Gain on sale of subsidiary (note 4) -- -- 874,578
Other income (notes 4 and 12) 252,532 2,382,639 114,193
------------------ ------------------ ------------------
Income before income taxes 3,539,970 4,551,235 3,028,543
Income tax (expense) benefit (note 6) (29,923) 285,000 (109,000)
------------------ ------------------ ------------------
Net income $ 3,510,047 $ 4,836,235 $ 2,919,543
================== ================== ==================
Net income per share (basic) $ .45 $ .65 $ .41
================== ================== ==================
Net income per share (diluted) $ .44 $ .62 $ .39
================== ================== ==================
Weighted average shares outstanding (basic) 7,725,693 7,491,148 7,163,047
================== ================== ==================
Weighted average shares outstanding (diluted) 8,003,353 7,837,551 7,510,300
================== ================== ==================
See accompanying notes to consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
Common Stock
--------------------------------
Additional Net
Number of paid-in Accumulated stockholders'
shares Amount capital deficit equity
---------------- ------------ --------------- --------------- ---------------
Balance at December 31, 1997 7,128,172 $ 713 19,772,440 (14,000,814) 5,772,339
Stock issuances 94,403 9 20,297 -- 20,306
Net income -- -- -- 2,919,543 2,919,543
---------------- ------------ --------------- --------------- ---------------
Balance at December 31, 1998 7,222,575 $ 722 19,792,737 (11,081,271) 8,712,188
---------------- ------------ --------------- --------------- ---------------
Stock issuances 432,071 43 53,219 -- 127,262
Tax deduction for non-qualified
stock options and warrants -- -- 74,000 -- --
Net income -- -- -- 4,836,235 4,836,235
---------------- ------------ --------------- --------------- ---------------
Balance at December 31, 1999 7,654,646 $ 765 19,919,956 (6,245,036) 13,675,685
---------------- ------------ --------------- --------------- ---------------
Stock issuances 96,649 10 16,200 -- 16,210
Net income -- -- -- 3,510,047 3,510,047
---------------- ------------ --------------- --------------- ---------------
Balance at December 31, 2000 7,751,295 $ 775 19,936,156 (2,734,989) 17,201,942
================ ============ =============== =============== ===============
See accompanying notes to consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
--------------- --------------- -----------------
Cash flows from operating activities:
Net income $ 3,510,047 $ 4,836,235 $ 2,919,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment 4,160,784 3,258,483 3,171,887
Cancellation of capital lease obligation -- (1,276,997) --
Provision for doubtful accounts receivable 274,392 793,315 274,996
Deferred income tax benefit -- (500,000) --
Write-off of property and equipment 99,764 264 39,911
Gain on sale of subsidiary -- -- (874,578)
Gain on sale of plant, property and equipment (79,784) (102,808) (152,592)
Other -- 74,076 847
Change in assets and liabilities:
Receivables (474,559) (1,185,912) (1,229,644)
Inventory (47,823) (10,656) 33,977
Prepaid expenses and other current assets (15,444) 47,263 (127,793)
Other assets (64,055) (61,790) 35,147
Accounts payable 19,115 28,685 (47,684)
Accrued expenses 1,039 342,562 153,124
Income taxes payable (22,820) 5,590 12,689
--------------- ---------------
-----------------
Net cash provided by operating activities $ 7,360,656 $ 6,248,310 $ 4,209,830
--------------- --------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (601,648) (2,313,187) (1,502,736)
Proceeds from disposal of property and equipment (605,084) 102,808 160,422
Contribution to Composite Image Systems, LLC (345,912) -- --
Net effect of sale of subsidiary -- -- 3,402,091
--------------- --------------- -----------------
Net cash provided by (used in) investing activities $ (1,552,644) $ (2,210,379) $ 2,059,777
--------------- --------------- -----------------
(Continued)
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(Continued)
2000 1999 1998
---------------- -------------- --------------
Cash flows from financing activities:
Proceeds borrowed under notes payable to bank and
long-term debt $ -- $ -- $ 1,013,477
Repayments of notes payable to bank and
long-term debt (3,695,587) (2,851,992) (5,611,547)
Repayments of notes payable to related parties -- -- (900,000)
Net proceeds from stock issuance 16,210 53,262 20,306
---------------- -------------- --------------
Net cash used in financing activities $ (3,679,377) $ (2,798,730) $ (5,477,764)
---------------- -------------- --------------
Net increase in cash and cash equivalents 2,128,635 1,239,201 791,843
Cash and cash equivalents at beginning of year 2,398,407 1,159,206 367,363
---------------- -------------- --------------
Cash and cash equivalents at end of year $ 4,527,042 $ 2,398,407 $ 1,159,206
================ ============== ==============
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,241,000 $ 1,241,000 $ 1,288,000
Income taxes 71,000 182,000 87,000
================ ============== ==============
Supplemental disclosure of noncash investing and financing activities:
The Company purchased property and equipment, financed through capital lease
obligations, of $2,060,079, $8,059,667 and $3,065,945 during 2000, 1999 and
1998, respectively.
During 1999 the Company received cancellation of rental payments under a capital
lease obligation, equipment upgrades and equipment in the amount of $2,187,000
related to a technology development agreement (note 12).
See accompanying notes to consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(1) Nature of Business and Basis of Presentation
Laser-Pacific Media Corporation, a Delaware corporation, was created
through a business combination between Spectra Image and Pacific Video,
Inc. consummated in September 1990. Both of these entities were organized
in 1983. Laser-Pacific provides a broad range of post-production services
to the Hollywood motion picture film and television industry.
During 1998, the Company sold its equity interest in its majority owned
(77%) subsidiary Pacific Video Canada (PVC). Proceeds from the sale were
approximately $3.8 million net of transaction costs. The Company recorded
a gain on the transaction of approximately $875,000. See note (4).
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Laser-Pacific and subsidiaries (the Company). Accordingly, all
significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments, primarily money
market funds, purchased with original maturities of three months or less
to be cash equivalents.
Depreciation and Amortization
Depreciation and amortization of property and equipment is provided by
use of the straight-line method over the estimated useful lives of the
related assets as follows:
Buildings 30 years
Building improvements 10 years
Technical equipment 4 to 7 years
Furniture and fixtures 5 to 6 years
Automobiles 3 to 5 years
Leasehold improvements Remaining life of the lease or
the estimated useful life,
whichever is shorter
Inventory
Inventory consisting primarily of tape stock is valued at the lower of
cost (determined on the first-in, first-out basis) or market (net
realizable value).
Other Assets
Other assets at December 31, 2000 consist primarily of security and
utility deposits and the Company's investment in Composite Image Systems,
LLC. Other assets at December 31, 1999 consist primarily of security and
utility deposits.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
Revenue Recognition and Credit Risk
Revenue is recognized as services are performed. The Company sells
services to customers in the entertainment industry, principally located
in Southern California. Management performs regular evaluations
concerning the ability of its customers to satisfy their obligations and
records a provision for doubtful accounts based upon these evaluations.
The Company had a significant customer in 2000 which accounted for
approximately 10% of revenues. In 1999 and 1998, the Company had another
significant customer which accounted for approximately 15% and 17% of
revenues, respectively. See also note 9.
Foreign Currency Translation
Assets and liabilities of the foreign operations are translated at the
rate of exchange at the balance sheet date. Revenues and expenses have
been translated at the weighted average rate of exchange during the
period. Foreign currency translation adjustments were immaterial to the
accompanying consolidated financial statements. The only foreign
subsidiary was sold in 1998 (note 4).
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by comparing the carrying amount of the assets to their fair
value. The Company did not record any impairment charges during 2000,
1999 or 1998.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for stock based compensation in accordance with SFAS
No. 123, "Accounting for Stock Based Compensation." Under the provisions
of SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, in accounting for stock options
issued to employees and directors of the Company and provide the pro
forma disclosure provision of SFAS No. 123. As such, compensation expense
would be recorded on the date of grant only if the current market price
of underlying stock exceeded the exercise price.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
Comprehensive Income
Comprehensive income is the total of net earnings (loss) and all other
non-owner changes in equity. The Company does not have any transactions
or other economic events that qualify as comprehensive income. As such,
net income represented comprehensive income for each of the years in the
three year period ended December 31, 2000.
Disclosures about Segments of an Enterprise
Under the management approach of SFAS No. 131, the Company operates in
one business segment - post-production services. Prior to and including
1998, the Company operated in two geographic segments. See note 10.
Income (Loss) per Share
Basic earnings (loss) per share (EPS) is computed by dividing net income
by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company. As of December 31, 1998, the
dilutive effect on the weighted average shares outstanding, assuming
dilution, was an increase of 305,644 and 41,609 shares relating to
options and warrants, respectively. As of December 31, 1999, the dilutive
effect on the weighted average shares outstanding, assuming dilution, was
an increase of 133,598 and 212,805 shares relating to options and
warrants, respectively. As of December 31, 2000, the dilutive effect on
the weighted average shares outstanding, assuming dilution, was an
increase of 79,024 and 198,636 shares relating to options and warrants,
respectively.
Accounting for Certain Transactions Involving Stock Compensation
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation #44 "Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation". This interpretation provides guidance
for issues which have arisen in applying APB No. 25 "Accounting for Stock
Issued to Employees". Interpretation #44 applies prospectively to new
awards, exchanges of awards in a business combination, modifications to
outstanding awards, and changes in grantee status which occur on or after
July 1, 2000, except for the provisions related to repricing and the
definition of an employee which apply to awards issued after December 15,
1998. The provisions related to modifications to fixed stock option
awards to add a reload feature are effective for awards modified after
January 12, 2000. The new interpretation did not have an impact upon the
consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(3) Property and Equipment
Property and equipment is comprised of the following:
2000 1999
------------------ ---------------------
Land $ 400,000 $ 400,000
Buildings and improvements 2,879,961 2,861,028
Technical equipment 33,997,661 34,411,566
Furniture and fixtures 872,088 807,636
Automobiles 102,832 57,242
Leasehold improvements 881,379 877,144
------------------ ---------------------
39,133,921 39,414,616
Less accumulated depreciation 20,676,105 19,080,770
------------------ ---------------------
$ 18,457,816 $ 20,333,846
================== =====================
The Company leases technical equipment under capital leases expiring through
2005. Equipment under capital leases aggregated $14,768,007 and $15,664,116 and
related accumulated depreciation aggregated $4,025,341 and $3,597,760 at
December 31, 2000 and 1999, respectively.
(4) Sale of Subsidiary
On May 15, 1998 the Company sold all of its investment in PVC to Command Post
and Transfer Corporation. The Company realized cash consideration of $3,830,000
and a gain on sale of $875,000.
The statement of operations for PVC presented below reflects the amounts
attributable to PVC which are included in the consolidated financial statements
of the Company, for the portion of year ended December 31, 1998, prior to the
sale.
PACIFIC VIDEO CANADA, Ltd.
Condensed Statement of Operations
Year ended
December 31, 1998
-----------------------
Sales $ 2,894,972
Direct expenses 2,079,821
-----------------------
Gross Profit 815,151
SG&A expenses 606,257
-----------------------
Earnings from Operations 208,893
Interest and Other expenses 71,166
-----------------------
Earnings before income taxes 137,727
Income taxes 54,544
-----------------------
Net earnings before minority interest $ 83,183
=======================
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(5) Notes Payable to Bank and Long-Term Debt
Notes payable to bank and long-term debt are summarized as follows:
2000 1999
---------------- -------------------
Term notes payable to bank under a $9,000,000 credit agreement, $ 1,939,183 2,694,296
secured by eligible accounts receivable, inventory, and property and
equipment, as defined, payable in nine monthly installments per year
of $81,000 plus interest at 9.5% through August 3, 2003. The loan
contains automatic renewal provisions for successive terms of two years
thereafter unless terminated as of August 3, 2001 or as of the end of a
renewal term by either party in which case the loan would become due
and payable.
Capital lease obligations (note 9) 9,484,822 11,327,294
---------------- -------------------
11,424,005 14,021,590
Less current installments 3,489,618 3,718,270
---------------- -------------------
$ 7,934,387 10,303,320
================ ===================
The aggregate future maturities of notes payable to bank and long-term
debt exclusive of capital lease obligations are summarized as follows:
December 31:
2001 732,724
2002 732,724
2003 473,735
------------------
$ 1,939,183
==================
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(6) Income Taxes
A summary of income tax expense (benefit) is as follows:
2000 1999 1998
----------------- ----------------- ----------------
Current:
Federal $ 57,000 70,000 36,000
State (27,000) 145,000 19,000
Foreign -- -- 54,000
----------------- ----------------- ----------------
Total 30,000 215,000 109,000
Deferred:
Federal -- (425,000) --
State -- (75,000) --
Foreign -- -- --
----------------- ----------------- ----------------
Total -- (500,000) --
Total expense (benefit) $ 30,000 (285,000) 109,000
================= ================= ================
The provision for income taxes at the Company's effective tax rate
differed from the U.S. Federal tax rate as follows:
2000 1999 1998
------------------ ----------------- -----------------
Federal income tax expense at "expected
rate" $ 1,203,000 1,547,000 1,036,000
Nondeductible expenses 12,000 37,000 11,000
Other (14,000) 26,000 21,000
Expiration of business tax credits (72,000) -- --
State taxes, net of Federal effect 216,000 278,000 178,000
Impact of foreign taxation at different
rates -- -- 114,000
Minority interest -- -- 6,000
Change in valuation allowance for deferred
tax assets (1,315,000) (2,173,000) (1,257,000)
------------------ ----------------- -----------------
Income tax expense (benefit) $ 30,000 (285,000) 109,000
================== ================= =================
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(6) Income Taxes (continued)
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 2000 and
1999 is presented below:
2000 1999
----------------- -----------------
Deferred tax assets and liabilities:
Net operating loss carryforwards $ 2,451,000 3,370,000
Income tax credit carryforwards 536,000 658,000
Vacation pay 169,000 164,000
Reserve for bad debts 516,000 550,000
Other 80,000 62,000
----------------- -----------------
Total gross deferred tax assets 3,752,000 4,804,000
Less valuation allowance 879,000 2,194,000
----------------- -----------------
Deferred tax assets $ 2,873,000 2,610,000
Deferred tax liabilities - property and
equipment (2,373,000) (2,110,000)
----------------- -----------------
Net deferred tax assets $ 500,000 500,000
================= =================
At December 31, 2000, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $7,210,000 that expire
principally from 2004 through 2012. The Company also has approximately
$536,000 of tax credits carryforwards, expiring through 2004.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management currently does
not believe it is more likely than not the Company will realize all of
the benefits of these deductible differences, accordingly, a valuation
allowance has been recorded for net deferred tax assets. Based upon these
assessments, the valuation allowance was reduced in 2000 by $1,315,000
and by $2,173,000 in 1999.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(7) Stockholders' Equity
Warrants
In June 1997, the Company issued warrants to purchase 250,000 shares of
common stock to a related party, 35 Lake Avenue, in connection with a
short-term debt financing arrangement. The fair value of the warrants was
determined using the Black-Scholes option pricing model and was recorded
as debt issuance costs. On January 28, 1998 the expiration date of the
warrants was extended to July 2001 at an exercise price of $1.00.
During 1999, the Company issued 137,584 shares of common stock to its
principal lender through the exercise of warrants previously granted. The
related warrants were issued in connection with a loan initiation and
renewal and were valued and recorded as debt issuance costs at the time
of issuance.
Preferred Stock Purchase Rights
On January 9, 2001, the Board of Directors of the Company authorized and
declared a dividend of one preferred stock purchase right for each share
of common stock, par value $.0001 per share, of the Company (the "Common
Shares"). The dividend is payable on January 24, 2001 (the "Record Date")
to the holders of record of Common Shares as of the close of business on
such date.
These Rights only become exercisable on the Distribution Date, as defined
in the underlying agreement. Any outstanding Rights shall expire on
January 9, 2011, unless earlier redeemed or exchanged. The Rights may be
exercised through the purchase of Preferred Shares, purchase of Common
Shares or the right to purchase common stock of a successor Company, all
as defined in the underlying agreement.
(8) Stock-based Compensation and Other Option Grants
The Company's 1997 incentive stock option plan provides for grants of
500,000 of incentive or nonqualified stock options to officers, directors
and key employees at exercise prices equal to or greater than the fair
value of the Company's common stock at the date of grant. This plan was
amended during 1999 increasing the number of stock options available to
be granted by 500,000. Options currently expire no later than 10 years
from the grant date and are generally vested at date of grant. All
options outstanding under the plan are vested at December 31, 2000. Under
a prior stock option plan, which has expired, 36,150 stock options remain
outstanding and are exercisable at December 31, 2000.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(8) Stock-based Compensation and Other Option Grants (continued)
Activity under the plans for the years ended December 31, 2000, 1999 and
1998 follows:
Number of Weighted average Options
shares exercise price exercisable
-------------------- --------------------- --------------------
Shares under option at December 31, 1997 617,919 $ 1.05 617,916
Granted -- --
Exercised (94,403) 0.22
Expired and terminated (62,135) 5.88
-------------------- --------------------- --------------------
Shares under option at December 31, 1998 461,381 $ 0.57 461,381
Granted 325,000 9.94
Exercised (294,487) 0.22
Expired and terminated (3,713) 0.22
-------------------- --------------------- --------------------
Shares under option at December 31, 1999 488,181 $ 7.02 488,181
Granted 187,000 4.01
Exercised (96,649) 1.90
Expired and terminated (313,982) 9.81
-------------------- --------------------- --------------------
Shares under option at December 31, 2000 264,550 $ 3.41 264,550
==================== ===================== ====================
The following table summarizes information about options outstanding
under the Plans at December 31, 2000:
Outstanding Options
----------------------------------------------------------------------
Remaining
weighted average
Shares outstanding contractual life Weighted average
and exercisable (in years) exercise price
-------------------- --------------------- --------------------
Range of Exercisable prices:
$0.22 21,400 7.00 $ 0.22
$1.78 20,000 6.80 1.78
$2.50 36,150 1.80 2.50
$4.13 20,000 6.30 4.13
$4.13 167,000 9.30 4.13
-------------------- --------------------- --------------------
Total 264,550 7.70 $ 3.41
==================== ===================== ====================
At December 31, 2000, under all plans, all options are exercisable, and
338,100 shares remained available for future grant.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
Pro Forma Information
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, for the stock options granted to employees no compensation
cost has been recognized in the accompanying consolidated statements of
operations because the exercise price equaled or exceeded the fair value
of the underlying common stock at the date of grant. Had compensation
cost for the Company's stock options granted to employees been determined
based upon the fair value at the grant date for awards consistent with
SFAS No. 123, the Company's recorded and pro forma net income and
earnings per share for the years ended December 31, 2000, 1999 and 1998
would have been as follows:
Year ended December 31,
----------------------------------------------------------------
2000 1999 1998
-------------------- ------------------ ------------------
Net income:
As reported $ 3,510,047 4,836,235 2,919,543
Pro forma 2,820,997 4,738,735 2,919,543
==================== ================== ==================
Basic net income per share:
As reported $ .45 .65 .41
Pro forma .37 .63 .41
Diluted net income per share:
As reported $ .44 .62 .39
Pro forma .35 .60 .39
==================== ================== ==================
Pro Forma income reflects only options granted in 2000, 1999 and 1998.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options vesting period and compensation cost for options granted prior to
January 1, 1995 is not considered.
Fair value of common stock options is estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions:
2000 1999 1998
----------------- ----------------- -----------------
Expected life (in years) 10.00 10.00 --
Risk-free interest rate 4.50 6.25 --
Volatility .78-1.22 .60 --
Dividend yield -- -- --
Fair value - grant date 1.47-3.95 .30 --
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair
value of its options. No options were granted in 1998.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(9) Commitments and Contingencies
Leases
The Company leases certain technical equipment under capital leases that
expire through 2005.
The Company also leases corporate offices, certain operating facilities
and equipment under non-cancelable operating leases that expire through
2006.
The present value of future minimum capital lease payments and future
minimum lease payments under non-cancelable operating leases, principally
facility leases, are as follows:
Capital leases Operating leases
------------------ ---------------------
Year ending December 31:
2001 3,529,940 544,400
2002 3,224,152 610,560
2003 2,558,872 620,865
2004 1,620,778 628,806
2005 326,994 638,769
Thereafter -- 106,916
------------------ ---------------------
Total minimum lease payments 11,260,736 3,150,316
=====================
Less amount representing interest 1,775,914
------------------
Present value of minimum lease payments $ 9,484,822
==================
Rent expense amounted to $834,759, $884,209 and $842,320 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Legal Matters
The Company may have certain contingent liabilities resulting from
litigation and claims incident to the ordinary course of business.
Management believes that the probable resolution of such contingencies
will not materially affect the Company's financial statements taken as a
whole.
Employment Agreements
The Company has employment agreements with certain officers that require
written notices of termination ranging from one to five years.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(9) Commitments and Contingencies (continued)
Contingencies
During the quarter ended June 30, 2000 the Company entered into a joint
venture agreement forming a new company, Composite Image Systems, LLC.
This new entity provides digital visual effects and graphic services to
the motion picture film and television industry. In addition to sharing
equipment, personnel, technical expertise and industry knowledge, the
Company has certain financial commitments to the joint venture. To date
the Company has provided working capital to the joint venture of
approximately $346,000 and guaranteed the financing of approximately
$700,000 in equipment. The operating agreement of the venture also
provides that the Company will receive preferred distributions from the
venture until the working capital the Company contributed is repaid. The
Company is accounting for this investment under the equity method of
accounting. The Company's share of the net earnings (loss) for the year
ended December 31, 2000 was immaterial.
The collective bargaining agreement between the Writers Guild of America
and the Alliance of Motion Picture and Television Producers (a
multi-employer bargaining group) is due to expire on or about May 1,
2001. The collective bargaining agreement between the Screen Actors Guild
and the Alliance of Motion Picture and Television Producers is due to
expire on or about June 30, 2001. Negotiations to renew those agreements
are underway as of February 2001. There have been a number of public
reports indicating that strikes by the Writers Guild of America and the
Screen Actors Guild are a possibility in 2001. A strike by one or both of
the unions that provide personnel essential to the production of motion
pictures or television programs could delay or halt the Company's ongoing
post-production services to those productions. Such a halt or delay,
depending on the length of time, could adversely affect the Company's
cash flow and revenues.
(10) Business Segment Data
The following table shows revenues and income from operations by
geographic segment for 1998:
1998
-------------------
Revenues:
U.S. $ 27,804,165
International (1) 2,894,972
-------------------
$ 30,669,137
===================
Income from operations:
U.S. $ 3,040,096
International (1) 287,596
-------------------
$ 3,327,692
===================
(1) Consists of the Company's former subsidiary, Pacific Video Canada,
which was sold on May 15, 1998, see note (4).
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999 (continued)
(11) Pension Plan
The Company has a defined contribution Profit Sharing 401(k) Savings Plan
that covers substantially all of its employees. The plan became effective
on March 1, 1996. Under the terms of the plan, employees can elect to
defer up to 15% of their wages, subject to certain Internal Revenue
Service (IRS) limitations, by making voluntary contributions to the plan.
Additionally, the Company, at the discretion of management, can elect to
match up to 100% of the voluntary contributions made by its employees,
but may not exceed 4% of an employee's compensation. For the years ended
December 31, 2000, 1999 and 1998 the Company did not contribute to the
plan on behalf of its employees.
(12) Other Income
During 1999, the Company entered into a collaboration agreement (the
Agreement) with a major equipment manufacturer and supplier. Under the
agreement, the Company provided research, development and engineering
services related to the development of technical equipment used in
connection with high definition post-production. In consideration for
services provided, the Company received replacement equipment, discounts
on the purchase of equipment and the cancellation of rental payments
under a capital lease obligation due to the supplier. During the fourth
quarter, the Company recorded other income of $2,187,000 pursuant to this
agreement. Revenue recognition was deferred until the fourth quarter as
the earnings process on the items above was not completed until December
31, 1999.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 and 1998
Column A Column B Column C Column D Column E
- ------------------------------- -------------------- -------------------- ------------------- ---------------------
Balance at
beginning of Charged to costs Deductions Balance at end
Description period and expenses write-offs (1) of period
- ------------------------------- -------------------- -------------------- ------------------- ---------------------
Allowance for bad debts:
1998 $ 1,087,000 275,000 (318,000) 1,044,000
==================== ==================== =================== =====================
1999 $ 1,044,000 793,000 (465,000) 1,372,000
==================== ==================== =================== =====================
2000 $ 1,372,000 274,000 (359,000) 1,287,000
==================== ==================== =================== =====================
(1) Uncollectible accounts written off, net of recoveries.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2001 Annual Meeting of
Stockholders, to be filed on or before April 30, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2001 Annual Meeting of
Stockholders, to be filed on or before April 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners AND MANAGEMENT
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2001 Annual Meeting of
Stockholders, to be filed on or before April 30, 2001.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2001 Annual Meeting of
Stockholders, to be filed on or before April 30, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedule:
The financial statements and financial statement schedule are
listed in the accompanying index to the Consolidated Financial
Statements on page 14 on Form 10-K. The financial statements
indicated on the index appearing on page 14 hereof are
incorporated herein by reference.
3. Exhibits: The exhibits are listed on the accompanying index
to exhibits and are incorporated herein by reference are filed
as part of this Form 10-K.
3.1 Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 29, 1990. (2)
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 14, 1991. (3)
3.4 Amended and Restated By-Laws of the Company. (13)
4.1 Form of Common Stock Certificate. (2)
4.2 Rights Agreement, dated as of January 12, 2001, between the
Company and U.S. Stock Transfer Corporation, as Rights
Agent. (12)
4.3 Certificate of Designations of Series B Junior Participating
Cumulative Preferred Stock. (12)
10.1 1990 Stock Option Plan. (1)
10.2 1997 Stock Option Plan (7)
10.3 Amended 1997 Stock Option Plan. (10)
10.5 Employment Agreement dated as of May 15, 1990 between the
Company and Emory Cohen. (1).
10.8 CIT Credit Agreement signed on August 3, 1992. (4)
10.8A Amended Loan Agreement between CIT and the Company dated
April 12, 1995. (5)
10.8B Amended Loan Agreement between CIT and the Company dated
June 6, 1996. (6)
10.8C Amended Loan Agreement between CIT and the Company dated
June 15, 1998. (9)
10.8D Amended Loan Agreement between CIT and the Company dated
June 7, 1999. (11)
10.14 Bank of America Amended Loan Agreement dated February
29, 1996. (5)
10.14A Bank of America Settlement Agreement dated December
22, 1998. (9)
10.15 Employment Agreement dated as of July 24, 1995 between the
Company and Randolph Blim. (5)
10.18 Sale of Subsidiary (PVC). (8)
10.19 Employment Agreement dated August 1, 1999 between the Company
and Robert McClain. (11)
10.20 Lease Agreement dated January 19, 2001 by and between the
Company and Morton La Kretz, Trustee of the Crossroads Trust,
UTD April 28, 1982. (13)
10.21 Lease Agreement dated March 1, 2001 by and between the Company
and NTA Partners. (13)
21.1 List of Subsidiaries. (3)
23.1 Consent of KPMG LLP. (13)
(1) Previously filed on June 7, 1991, with the Company's Registration
Statement on Form S-1 (File No. 33-41085)
(2) Previously filed on July 23, 1991, with the Company's Registration
Statement on Form S-1 (File No. 33-41085)
(3) Previously filed on April 10, 1992 with the Company's Form 10-K.
(4) Previously filed on August 12, 1992 with the Company's Form 10-Q.
(5) Previously filed on April 14, 1996 with the Company's Form 10-K.
(6) Previously filed on April 11, 1997 with the Company's Form 10-K.
(7) Previously filed on December 16, 1997 with the Company's Form S-8.
(8) Previously filed on June 1, 1998 with the Company's Form 8-K.
(9) Previously filed on March 26, 1999 with the Company's Form 10-K.
(10) Previously filed on October 1, 1999 with the Company's Form S-8.
(11) Previously filed on March 30, 2000 with the Company's Form 10-K.
(12) Previously filed on January 19, 2001 with the Company's Form 8-K.
(13) Filed herewith.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
(b) Reports on Form 8-K
During the first quarter ended March 31, 2001, the Registrant
filed a Current Report on Form 8-K dated January 19, 2001
reporting authorized and declared dividends by the Registrant
of preferred share purchase rights.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on March 28, 2001.
LASER-PACIFIC MEDIA CORPORATION
By: /s/ James R. Parks
James R. Parks
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James R. Parks
James R. Parks Chairman of the Board and March 21, 2001
Chief Executive Officer
(Principal Executive Officer)
/s/ Emory M. Cohen
Emory M. Cohen President, Chief Operating Officer March 21, 2001
and Director
/s/ Robert McClain
Robert McClain Vice President and March 21, 2001
Chief Financial Officer
/s/ Thomas D. Gordon
Thomas D. Gordon Director March 21, 2001
/s/ Craig A. Jacobson
Craig A. Jacobson Director March 21, 2001
/s/ David C. Merritt
David C. Merritt Director March 21, 2001