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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 2002
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
(323) 462-6266
(Address, including zip code and telephone number, with area code,
of principal executive offices)
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
The number of shares outstanding of each of the registrant's classes of common
stock, as of July 31, 2002 was 7,101,295 shares of Common Stock, $.0001 par
value per share.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Part I. Financial Information Page
------
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets (Unaudited) 3
Condensed Consolidated Statements of Operations (Unaudited) 4
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2002 2001
--------------- ----------------
Assets
Current Assets:
Cash and cash equivalents $ 8,446,860 $ 6,989,781
Receivables, net of allowance for doubtful accounts 1,532,649 3,803,652
Other current assets 1,157,820 1,329,817
--------------- ----------------
Total Current Assets 11,137,329 12,123,250
Net property and equipment 18,594,989 19,204,407
Other assets, net 194,001 200,531
--------------- ----------------
Total Assets $ 29,926,319 $ 31,528,188
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of notes payable to bank and long-term debt $ 3,821,104 $ 3,738,680
Other current liabilities 1,775,307 2,275,160
--------------- ----------------
Total Current Liabilities 5,596,411 6,013,840
Notes payable to bank and long-term debt, less current installments 6,910,350 7,878,227
Stockholders' Equity:
Preferred stock, $.0001 par value. Authorized 3,500,000 shares; none issued -- --
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued
7,101,295 shares at June 30, 2002 and 8,004,795 at December 31, 2001 710 800
Additional paid-in capital 18,089,062 20,363,901
Accumulated deficit (670,214) (461,440)
Treasury stock, at cost: 900,200 shares at December 31, 2001 -- (2,267,140)
--------------- ----------------
Net Stockholders' Equity 17,419,558 17,636,121
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 29,926,319 $ 31,528,188
=============== ================
See accompanying notes to the condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- --------------------------------
2002 2001 2002 2001
--------------- --------------- -------------- --------------
Revenues $ 5,806,282 $ 7,580,568 $ 13,795,500 $ 17,507,758
Operating costs
Direct costs 4,333,980 4,855,102 9,131,423 10,654,412
Depreciation and amortization 1,153,984 1,105,222 2,296,239 2,103,455
--------------- --------------- -------------- --------------
Total operating costs 5,487,964 5,960,324 11,427,662 12,757,867
--------------- --------------- -------------- --------------
Gross profit 318,318 1,620,244 2,367,838 4,749,891
Selling, general and administrative
and other expenses 1,152,472 1,163,397 2,352,390 2,369,012
--------------- --------------- -------------- --------------
Income (loss) from operations (834,154) 456,847 15,448 2,380,879
Interest expense 206,984 276,872 432,514 544,790
Other income 38,740 104,496 69,728 181,287
--------------- --------------- -------------- --------------
Income (loss) before income tax expense (benefit) (1,002,398) 284,471 (347,338) 2,017,376
Income tax expense (benefit) (400,774) 183,709 (138,564) 545,118
--------------- --------------- -------------- --------------
Net income (loss) $ (601,624) $ 100,762 $ (208,774) $ 1,472,258
=============== =============== ============== ==============
Income (loss) per share (basic) $ (0.08) $ 0.01 $ (0.03) $ 0.19
--------------- --------------- -------------- --------------
Income (loss) per share (diluted) $ (0.08) $ 0.01 $ (0.03) $ 0.19
--------------- --------------- -------------- --------------
Weighted average shares outstanding (basic) 7,101,295 7,476,895 7,102,945 7,614,095
=============== =============== ============== ==============
Weighted average shares outstanding (diluted) 7,101,295 7,669,206 7,102,945 7,793,299
=============== =============== ============== ==============
See accompanying notes to the condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------------
2002 2001
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ (208,774) $ 1,472,258
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,296,239 2,103,455
Gain on sale of property and equipment (6,623) (24,800)
Provision (recovery) of doubtful accounts receivable (70,885) 99,272
Change in assets and liabilities:
Receivables 2,341,886 2,640,941
Other assets 178,527 192,103
Other current liabilities (499,853) 48,752
--------------- --------------
Net cash provided by operating activities 4,030,517 6,531,981
Cash flows from investing activities:
Purchases of property and equipment (1,686,820) (1,534,398)
Proceeds from disposal of property and equipment 6,623 94,489
--------------- --------------
Net cash used in investing activities (1,680,197) (1,439,909)
Cash flows from financing activities:
Proceeds borrowed under notes payable to bank and long-term debt 1,000,000 2,600,599
Repayment of notes payable to bank and long-term debt (1,885,453) (3,324,788)
Proceeds from issuance of common stock -- 440
Purchase of treasury stock (7,788) (2,063,000)
--------------- --------------
Net cash used in financing activities (893,241) (2,786,749)
Net increase in cash and cash equivalents 1,457,079 2,305,323
Cash and cash equivalents at beginning of period 6,989,781 4,527,042
--------------- --------------
Cash and cash equivalents at end of period $ 8,446,860 $ 6,832,365
=============== ==============
See accompanying notes to the condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring items) necessary to present fairly the financial position of
Laser-Pacific Media Corporation (the "Company") and its subsidiaries as of June
30, 2002 and December 31, 2001; the results of operations for the three and six
month periods ended June 30, 2002 and 2001; and the statements of cash flows for
the six month periods ended June 30, 2002 and 2001. The Company's business is
subject to the prime time television industry's typical seasonality.
Historically, revenues and income from operations have been highest during the
first and fourth quarters, when production of television programs and demand for
the Company's services is at its highest. The net income or loss of any interim
quarter is seasonally disproportionate to revenues because selling, general and
administrative expenses and certain operating expenses remain relatively
constant during the year. Therefore, interim results are not indicative of
results to be expected for the entire fiscal year.
In accordance with the directives of the Securities and Exchange Commission
under Rule 10-01 of Regulation S-X, the accompanying consolidated financial
statements and footnotes have been condensed and do not contain certain
information included in the Company's annual consolidated financial statements
and notes thereto.
(2) Income per Common Share
The Company presents basic and diluted earnings per share ("EPS"). Basic
EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from securities that are issuable and that could
share in the earnings of the Company, unless those securities are anti-dilutive.
The reconciliation of basic and diluted weighted average shares is as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2002 2001 2002 2001
------------- ------------ ------------- -------------
Net income (loss) $ (601,624) $ 100,762 $ (208,774) $ 1,472,258
============= ============ ============= =============
Weighted average shares used in basic computation 7,101,295 7,476,895 7,102,945 7,614,095
Dilutive stock options and warrants -- 192,311 -- 179,204
------------- ------------ ------------- -------------
Weighted average shares used in diluted computation 7,101,295 7,669,206 7,102,945 7,793,299
============= ============ ============= =============
Net income (loss) per common share:
Basic $ (0.08) $ 0.01 $ (0.03) $ 0.19
Diluted $ (0.08) $ 0.01 $ (0.03) $ 0.19
Options to purchase shares of common stock at exercise prices ranging from
$0.22 to $5.25 per share were outstanding for the three and six month periods at
June 30, 2002 and 2001, in the amounts of 506,050 and 207,000, respectively, but
were not included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of a
common share, or the options were anti-dilutive.
(3) Income Taxes
Income tax expense (benefit) was computed using the estimated effective tax
rate to apply for all of 2002. The rate is subject to ongoing review and
evaluation by management.
(4) Treasury Stock
In March 2002, the Company retired 900,200 shares of common stock held in
treasury.
In April 2002, the Company purchased 3,300 shares of its common stock for
$7,788 and subsequently retired the shares.
Recent Accounting Pronouncements
Accounting for Business Combinations and Goodwill and Other Intangible Assets
In July 2001, the Financial Accounting Standards Board issued FASB
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets. Statement No. 141 requires that the purchase method be
used for all business combinations initiated after June 30, 2001. Statement No.
142 requires that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment on an annual basis. The Company adopted Statement No.
142 effective January 1, 2002. The adoption of this pronouncement did not have a
material impact on the Company's financial position or results of operations.
Accounting for the Impairment or Disposal of Long-Lived Assets
In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Statement No.
144 retains the fundamental provisions in Statement No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving certain implementation
issues associated with Statement No. 121. The Company adopted Statement No. 144
effective January 1, 2002. The adoption of Statement No. 144 did not have a
material impact on the Company's financial statements.
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections
The Financial Accounting Standards Board (FASB) issued Statement No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections, on April 30, 2002. Statement No. 145 rescinds
Statement No. 4, which required all gains and losses from extinguishment of debt
to be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. Upon adoption of Statement No. 145, companies will be
required to apply the criteria in APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("Opinion No. 30"), in determining the classification of gains and losses
resulting from extinguishments of debt.
Additionally, Statement No. 145 amends Statement No. 13 to require that
certain lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
Statement No. 145 will be effective for fiscal years beginning after May
15, 2002 (e.g., January 1, 2003 for calendar-year companies), with early
adoption of the provisions related to the rescission of Statement No. 4
encouraged. Upon adoption, companies must reclassify prior period items that do
not meet the extraordinary item classification criteria in Opinion No. 30. The
Company has not yet determined the effect that Statement No. 145 will have on
its consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements included within this report, other than statements of historical
facts, that address activities, events or developments that the Company 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 respective safe harbors. 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.
Critical Accounting Policies
Laser Pacific Media Corporation's critical accounting policies are as
follows:
Depreciation and amortization of property and equipment,
Valuation of long-lived assets, and
Accounting for income taxes.
Depreciation and Amortization of Property and Equipment
The Company, a capital-intensive enterprise, depreciates and amortizes
property and equipment on a straight-line basis over the estimated useful lives
of the related assets. Significant management judgment is required to determine
the useful lives of the assets. Should the useful lives of the assets be
revised, the impact on the Company's results of operations could be material.
Valuation of Long-Lived Assets
The Company periodically assesses the impairment of its long-lived assets,
which requires it to make assumptions and judgments regarding the carrying value
of these assets. The assets are considered to be impaired if the Company
determines that the carrying value may not be recoverable based upon its
assessment of the following events or changes in circumstances:
The asset's ability to continue to generate income from operations
and positive cash flow in future periods;
Significant changes in strategic business objectives and utilization
of the assets; or
The impact of significant negative industry or economic trends.
If the assets are considered to be impaired, the impairment that is
recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets. If a change were to occur in any of the above
mentioned factors or estimates, the likelihood of a material change in the
reported results would increase.
Accounting for Income Taxes
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount management believes is more likely than not to be
realized. The likelihood of a material change in the Company's expected
realization of these assets depends on future taxable income, the ability to
deduct tax loss carryforwards against future taxable income, the effectiveness
of the tax planning and strategies among the various tax jurisdictions in which
the Company operated, and any significant changes in the tax laws. For the years
ended December 31, 2001, 2000 and 1999, valuation allowances of $879,000,
$1,315,000 and $2,173,000 were eliminated since management determined that it
was more likely than not that the related deferred tax assets would be realized.
In the event that the actual results differ from the estimates or the Company
adjusts the estimates in future periods, it may need to establish an additional
valuation allowance which could materially impact the financial position and
results of operations.
The Company's effective tax rate in 2001 was 18.6%, principally resulting
from the elimination of valuation allowances of $879,000. The Company's
estimated tax rate for 2002 is 40%. This rate is subject to ongoing review and
evaluation by management.
Results of Operations
Revenues for the six months ended June 30, 2002 decreased to $13,796,000
from $17,508,000 for the same year-ago period, a decrease of $3,712,000 or
21.2%. The decrease in revenues is attributable to a decrease in demand for the
Company's services throughout all areas of service that the Company provides.
Factors contributing to this decrease in demand were: the overall economic
downturn in the entertainment and advertising sectors and resulting corporate
cost cutting; the continuing trend of reality programming which uses little of
the Company's services; fewer movies for television and fewer theatrical
releases; and clients utilizing formats that require a lower volume of film
processing.
Revenues for the quarter ended June 30, 2002 decreased to $5,806,000 from
$7,581,000 for the same year-ago period, a decrease of $1,775,000 or 23.4%. The
decrease in revenues is attributable to a decrease in demand for the Company's
services throughout all areas of service that the Company provides. Factors
contributing to this decrease in demand were: the overall economic downturn in
the entertainment and advertising sectors and resulting corporate cost cutting;
the continuing trend of reality programming which uses little of the Company's
services; fewer movies for television and fewer theatrical releases; and clients
utilizing formats that require a lower volume of film processing.
Operating costs for the six months ended June 30, 2002 were $11,428,000
versus $12,758,000 for the same year-ago period, a decrease of $1,330,000 or
10.4%. The decrease in operating costs is primarily the result of a decrease in
labor costs of $851,000, a decrease in tape stock expense of $257,000 and a
decrease in bad debt expense of $170,000. The decrease in operating costs was
partially offset by an increase in depreciation expense of $193,000. Lower labor
costs were the result of fewer hours worked as a result of decreased revenues.
The increase in depreciation is due to equipment purchases in prior years for
business expansion. Tape stock expense decreased as a result of reduced sales
volume. Total operating costs, including depreciation, as a percentage of
revenues for the six months ended June 30, 2002 were 82.8% compared with 72.9%
for the same year-ago period.
Operating costs for the quarter ended June 30, 2002 were $5,488,000 versus
$5,960,000 for the same year-ago period, a decrease of $472,000 or 7.9%. The
decrease in operating costs was primarily the result of a decrease in labor
costs of $342,000 and a decrease in tape stock expense of $104,000. Operating
costs decreased in most areas due to lower revenues. Lower labor costs were the
result of fewer hours worked. The decrease in tape stock expense is due to
decreased sales volume. The decrease in operating costs was partially offset by
an increase in depreciation of $49,000. The increase in depreciation expense is
the result of equipment purchases in prior years for business expansion. Total
operating costs, including depreciation, as a percentage of revenues for the
three months ended June 30, 2002 were 94.5% compared with 78.6% for the same
year-ago period.
For the six months ended June 30, 2002, the Company recorded a gross profit
of $2,368,000 compared with $4,750,000 for the same year-ago period, a decrease
of $2,382,000 or 50.1%. The decrease in gross profit is the result of the
decrease in revenues partially offset by the decrease in operating costs
explained above. Revenues decreased 21.2% while operating costs decreased 10.4%
as compared to the same year-ago period.
For the quarter ended June 30, 2002 the Company recorded a gross profit of
$318,000 compared with $1,620,000 for the same year-ago period, a decrease of
$1,302,000 or 80.4%. The decrease in gross profit is the result of the decrease
in revenues partially offset by the decrease in operating costs explained above.
Revenues decreased 23.4% while operating costs decreased 7.9% as compared to the
same year-ago period.
Selling, general and administrative and other expenses ("SG&A expenses")
for the six months ended June 30, 2002 were $2,352,000 compared to $2,369,000
during the same year-ago period, a decrease of $17,000 or less than one percent.
The most significant decreases in SG&A expenses were in professional services
and advertising costs of $119,000 and $62,000 respectively, which were partially
offset by increases in labor costs and property taxes of $90,000 and $66,000
respectively. The decrease in professional services is due to a decrease in
investor advisory services, legal fees and consulting fees. The increase in
property taxes for the second quarter of 2002 is attributable to a property tax
refund recorded in the second quarter of 2001.
SG&A expenses for the quarter ended June 30, 2002 were $1,152,000 compared
to $1,163,000 during the same year-ago period, a decrease of $11,000 or less
than one percent. The decrease in SG&A expenses was primarily due to decreases
in professional services and advertising costs of $70,000 and $43,000
respectively, which were partially offset by an increase in property taxes of
$68,000. The decrease in professional services is due to a decrease in investor
advisory services, legal fees and consulting fees. The increase in property
taxes for the second quarter of 2002 is attributable to a property tax refund
recorded in the second quarter of 2001.
Interest expense for the six months ended June 30, 2002 was $433,000
compared to $545,000 for the same year-ago period, a decrease of $112,000 or
20.6%. The decrease in interest expense is the result of lower interest rates on
borrowings.
Interest expense for the quarter ended June 30, 2002 was $207,000 compared
to $277,000 for the same year-ago period, a decrease of $70,000 or 25.2%. The
decrease in interest expense is a result of lower interest rates on borrowings.
Other income for the six months ended June 30, 2002 was $70,000 compared to
$181,000 for the same year-ago period, a decrease of $111,000 or 61.5%. Other
income is primarily interest income. The decrease in other income is principally
due to lower interest earned on cash balances.
Other income for the quarter ended June 30, 2002 was $39,000 compared to
$104,000 for the same year-ago period, a decrease of $65,000 or 62.5%. Other
income is primarily interest income. The decrease in other income is principally
due to lower interest earned on cash balances.
Income tax benefit for the six months ended June 30, 2002 was $139,000
compared to income tax expense of $545,000 for the same period last year, a
decrease of $684,000 or 125.4%. The decrease in income tax expense is
principally due to lower income before income tax expense and/or benefit.
Income tax benefit for the quarter ended June 30, 2002 was $401,000
compared to income tax expense of $184,000 for the same period last year, a
decrease of $585,000 or 318.2%. The decrease in income tax expense is
principally due to lower income before income tax expense and/or benefit.
Liquidity and Capital Resources
As of June 30, 2002, the Company and its subsidiaries are operating under a
credit facility with Merrill Lynch Business Financial Services. The maximum
credit available under the facility is $12.0 million. The facility provides for
borrowings of up to $6.0 million under a revolving loan and $6.0 million in
equipment term loans. There was no outstanding balance under the revolving loan
at June 30, 2002. The equipment term loans had a combined outstanding balance of
$5.4 million at June 30, 2002. The revolving loan and equipment term loans are
payable monthly and bear interest at both fixed and variable rates ranging from
the 30-day dealer commercial paper rate plus 2.20% to 2.65% to a fixed rate of
6.04%. The revolving loan expires in June 2003 and can be renewed annually. The
equipment term loans expire from June 2006 to July 2007. As of June 30, 2002,
the Company had outstanding equipment loans and capital lease obligations of
approximately $10.7 million with various lenders (including the $5.4 million in
equipment term loans discussed above) in connection with the acquisition of
equipment. The capital leases are for terms of up to 60 months, at fixed
interest rates ranging from 6.04% to 12.75% and the equipment term loans,
discussed above, at variable interest rates. The Company's term note credit
agreements contain covenants, including financial covenants related to leverage
and fixed charge ratios. The Company was in compliance with these covenants at
June 30, 2002. The obligations are secured by the equipment financed. The
equipment was acquired to expand the Company's capabilities and to support the
demand for the Company's services. In addition, the Company has obligations
under operating leases of $2.4 million at June 30, 2002.
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 operating and capital requirements for
the next twelve months.
In April 2002, the company purchased 3,300 shares of its common stock for
$7,788 and subsequently retired the shares held in treasury.
Matters Affecting Operations
Some producers of television shows have begun to shoot their programs on
videotape instead of film. If this practice continues and becomes more
widespread, the Company's revenue from film developing and film to tape transfer
will decrease.
On July 9, 2001, the Company entered into an agreement with its joint
venture partner in Composite Image Systems, LLC ("CIS"), to sell its interest in
CIS to its joint venture partner. Under the terms of the agreement, the Company
transferred to its joint venture partner the Company's 50% interest in CIS and
certain equipment previously leased to CIS in exchange for a cash payment of
$575,000. The Company has given corporate guarantees regarding a lease
obligation of the joint venture, CIS and the joint venture partner have agreed
to indemnify the Company for up to the amount of the principal obligation for
any claims that might arise under the guarantee should CIS default on the lease
obligation. The lease obligation is also secured by the equipment purchased
under the lease.
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. The Company historically has incurred operating losses during the
second quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments. The Company does not invest, and during the six
months ended June 30, 2002 did not invest, in market risk sensitive instruments.
Market Risk. The Company's market risk exposure with respect to financial
instruments is subject to changes in the "30-day dealer commercial paper" rate
in the United States. The Company had borrowings of $5.4 million at June 30,
2002 under equipment term loans (discussed above) and may borrow up to $6.0
million under a revolving loan. Amounts outstanding under the variable rate
equipment term loans and the revolving credit facility bear interest at the
30-day dealer commercial paper rate plus 2.20% to 2.65%.
If, under the existing credit facility, the "30-day dealer commercial
paper" rate were to change by 1%, the amortized interest expense would change by
approximately $39,000 on an annual basis.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on June 18, 2002, the
following individuals were elected to the Company's Board of Directors:
Votes For Votes Withheld
Emory M. Cohen 6,668,170 27,507
Thomas D. Gordon 6,670,570 25,107
Craig A. Jacobson 6,676,470 19,207
David C. Merritt 6,672,670 23,007
James R. Parks 6,661,330 34,347
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Certification of James R. Parks, Chief Executive
Officer of the Company, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of Robert McClain, Chief Financial
Officer of the Company, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER-PACIFIC MEDIA CORPORATION
Dated: August 13, 2002 /s/James R. Parks
-----------------
James R. Parks
Chief Executive Officer
Dated: August 13, 2002 /s/Robert McClain
-----------------
Robert McClain
Chief Financial Officer
(Principal Financial and Accounting Officer)