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, 1997
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: (213) 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 ($.0001 par value)
Preferred Stock ($.0001 par value)
Series A Preferred Stock
(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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 31, 1998 (based upon the closing price on the NASDAQ
Small-Cap Market System on that date was $3,564,086).
Number of shares of Common Stock, $.0001 par value, outstanding as of March 31,
1998: 7,128,172.
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 Parts I and III
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Page
Item 1 Business 1
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
Item 5 Market for Registrant's Common Stock and Related Security
Holder Matters 5
Item 6 Selected Financial Data 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8 Financial Statements and Supplementary Data 10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
Item 10 Directors and Executive Officers of the Registrant 33
Item 11 Executive Compensation 33
Item 12 Security Ownership of Certain Beneficial Owner and
Management 33
Item 13 Certain Transactions 33
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 34
<PAGE>
PART I
ITEM 1. BUSINESS
A. General
Laser-Pacific Media Corporation ("Laser-Pacific" or the "Company")
primarily provides post-production services to producers of prime-time network
television series and television movies made in North America. The Company
believes it is a leading provider of these services. Through its Electronic
LaboratoryTM , and other related operations the Company provides all technical
aspects of processing picture and sound after principal photography has been
completed, known as post-production. The Electronic LaboratoryTM , for which the
Company received an Emmy award in 1989 for Outstanding Achievement in
Engineering Development was the first facility specifically designed to apply
electronic post-production technology to filmed television programs and its use
has led to significant savings of time and money for producers. The Company
believes that the Electronic LaboratoryTM , and the systems approach utilized in
its development, differentiates the Company from other film and videotape
post-production companies and has resulted in an industry model for merging
video and film technologies.
The Company offers a full range of post-production services to television
producers at its facilities in Hollywood and Burbank, California and Vancouver,
Canada. 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 Company also developed and leases a transportable computerized editing
systems called Spectra System, which uses proprietary laser disc technology for
editing filmed or videotaped programs. In 1988, the Company received an Emmy
Award for Outstanding Achievement in Engineering Development for the D220
dual-headed laser disc player, which is part of the Spectra System.
In addition to its primary business activities, the Company (i) provides
traditional post-production services to producers of videotaped shows, (ii)
leases mobile studio units for videotaped productions, (iii) offers film
processing and sound editing, mixing services to the producers of theatrical
motion pictures, and provides digital video compression.
Both Laser-Pacific Media Corporation (formerly Spectra Image) and Pacific
Video (which merged with the Company in September 1990) were organized in 1983.
Spectra Image began by building its post-production service capability and
facilities primarily focused on the post-production of filmed situation comedies
(sitcoms) produced for prime-time network television. In addition, it began
developing the Spectra System electronic editing system in 1985 and introduced
it in late 1986. Pacific Video, targeting the post-production market for filmed
dramatic television series, introduced the Electronic LaboratoryTM in 1985. Both
Pacific Video and Spectra Image focused on the post-production of filmed
television programs, as approximately 80% of prime-time network television
series are shot on film as opposed to videotape. In addition, it was believed,
and management still believes, that film will remain the medium of choice for
these television programs because of viewer preference for the look of
television programming shot on film and numerous other film advantages such as
lower equipment cost, greater availability of skilled camera operators working
on film and greater portability of film cameras. Beginning in the mid-1980's,
management recognized that the Company could obtain a significant customer base
and become the leader in the post-production of filmed prime-time network
television programs by offering producers the speed and cost advantages of
electronic post-production at a fully-integrated facility.
In January 1988, Pacific Video acquired a 75% equity interest in Pacific
Video Canada, Ltd., ("PVC"), formerly known as Tegra Industries, Inc., whose
film processing and post-production facilities are located in Vancouver, Canada.
Pacific Video sought a presence in the Vancouver market because an increasing
number of television producers shooting programs in Canada intended for United
States network television were having their post-production work performed in
Canada. The Company's Vancouver presence has generated additional business for
its Hollywood facilities. At the present time, the Company owns approximately
77% of the outstanding capital stock of PVC.
It is anticipated the future growth of the Company's business will be the
result of the expansion of its services offered to theatrical motion picture
producers, digital compression and digital video services, electronic graphics
and effects, and the continued development and enhancement of proprietary
post-production systems by its engineering staff.
B. Post-Production Services
Industry Background. Post-production services comprise all of the technical
functions and operations necessary to complete a television program or
commercial advertisement after the principal photography has been completed. The
photography is completed on film or videotape depending upon the desired
characteristics of the visual images needed for the program or commercial. In
general, movies, mini-series and dramatic shows produced for television are shot
on film. During the last 20 years, many producers of television programming have
chosen to contract for many post-production services rather than doing the work
themselves because of the high fixed overhead cost, high level of capital
investment and the expertise required to provide quality post-production
services.
Post-production services include film processing, film-to-videotape
transfer, film or videotape editing, addition of special effects, titles and
credits, addition of music and sound effects, sound mixing, color correction and
duplication of completed master videotapes. The Company provides a full range of
these post-production services to its clients.
Videotape Editing. The editing process at the Company begins with the
developed negative with respect to filmed programs and with the delivered
videotape as to shows shot on videotape, since videotape can be played back and
viewed immediately after recording without any processing.
Post production services with respect to filmed programming continue in the
Company's Electronic LaboratoryTM where the Company performs all of the
post-production services required after negative development of the film up to
the delivery of high-quality duplicates of the final color-corrected videotape
master for television broadcasting. The first step in the Electronic
LaboratoryTM process is to transfer the developed negative images to videotape,
a process called telecine, for subsequent electronic editing and processing. In
addition, the magnetic tape containing the sound, which is recorded as the
camera is capturing the images, is converted to digital information and
transferred to digital audio cassette for synchronization to the negative. The
digital audiotape is subsequently transferred onto a computer for sound editing
and mixing. See "Sound Editing and Mixing" below.
After completion of the film-to-tape transfer, the initial editing of the
videotape is usually performed at the customers' premises by their employees on
electronic editing machines rented from the Company or another manufacturer.
This editing is typically called "offline editing" and the process is performed
on lower-cost recordings, which are made from the high-quality videotapes
created in the film-to-tape transfer. The offline editing uses a time-code-based
computer control system to record all of the basic editing decisions.
After the completion of the offline editing process, the resultant edit
decision list is returned to the Company's facilities where the final "online
editing" is completed. The goal of online editing is to produce a finished
broadcast-quality videotape master, including all special optical effects,
titles and credits. The online editing rooms are equipped with all of the
broadcast-quality equipment needed to complete the visual elements of a
television program, and as such these rooms are expensive to build and equip and
result in a high hourly rental rate. The Company has four online editing rooms
at its Hollywood facility, four in Burbank, and two in Canada.
In November of 1993 the Company introduced its SuperComputer Assembly
system. Installed in its Hollywood facility, the SuperComputer Assembly system
enables the Company to online assemble television programs three to four times
faster than conventional techniques. The proprietary system has been used on
dozens of series and movies for television, reducing the Company's labor costs
and providing its clients with faster service at highest quality.
Feature Film Mastering. Utilizing the newly acquired Philips Data Cine film
scanner, the company entered the Feature Film Mastering business in November of
1997. Feature Film mastering is the process in which a videotape master is
created from film elements of a theatrical motion picture. Then the Company
typically creates several versions of each film so that it can be used in the
two common world standards - NTSC and PAL, as well as for the emerging digital
television High Definition standard.
Digital Graphics and Effects. Utilizing digital workstation technology, the
Company creates and designs graphical elements, special effects, titles and
other specialized work on television and motion pictures. The tools used have
the capability of very high quality film resolution for combining and
manipulation of images digitally.
Digital Compression Services. Using SuperComputer and other digital media
technology, the Company provides digital compression and other services which
results in the creation of recordings that can be used in CD-ROM, digital file
servers and Video-on Demand applications. The company also provides digital
compression services for the new Digital Video Disc (DVD) format. In addition to
compression, the company provides the services necessary to "author" DVD discs
which entail the creation of a master element including disc navigation and
interactivity, DVD menu design and formatting so that this element can be
replicated onto DVD discs.
Color Timing. Color timing is a post-production step, which is generally
required on dramatic programs whether the program editing is done on film or
videotape. The Company has designed and assembled a customized color timing
system for final balance of color contrast and brightness which produces
cost-effective color corrections on a basis significantly faster than the
traditional film laboratory equivalent. At the present time, the Company has
three rooms equipped with electronic color correction capabilities.
Sound Editing and Mixing. Sound editing and mixing is one of the last steps
in the post-production process. To be in a position to offer complete
post-production services and facilities to its customers, the Company
established Pacific Sound Services in September, 1989, which provides sound
editing and mixing services for both television and theatrical motion picture
producers. This is a unique all-digital, tapeless sound editing and mixing
facility includes sound studios for the original recording of sound effects and
dialogue and, for the final mixing of complex programs shot on film and for
mixing videotaped programs, plus digital sound editing systems.
Release Services. After the videotape master is in its final form for
delivery, including color correction, finished soundtrack and title and credits,
videotape copies are made in any format required for broadcast or archival
storage in limited quantities by the Company.
C. Film Production Services
Film Processing. After film photography is completed, the film negative
must be developed in a processing laboratory before it can be exposed to light.
Then, either the negative is electronically transferred to videotape or positive
film prints are struck from the developed negative for subsequent viewing daily.
Dailies are processed for delivery by early the following day for viewing by the
production staff. The acquisition of certain assets of United Color Laboratories
in 1988 enabled the Company to expand its services and increase its operating
hours and efficiency.
A subsidiary of the Company, Pacific Film Laboratories, has four negative
film developing machines with a capacity of approximately 210,000 feet of film
per day. The filming of an average one-hour dramatic television show results in
the exposure of approximately 5,000 to 6,000 feet of film daily. In addition,
the facility has two positive developing machines, several negative-to-positive
printers, preparation and color value machines and other support equipment
necessary to perform the tasks required for high-quality film processing.
Alpha Cine Service, PVC's processing laboratory division, has two negative
film developing machines with a capacity of approximately 100,000 feet of film
per day, In addition, the facility has one positive developing machine, several
negative-to-positive printers, preparation and color value machines and other
support equipment.
D. Production Services
A subsidiary of the Company, PDS Video Productions, Inc., leases complete
videotape production equipment to producers of television shows. The Company's
three mobile studios are typically used to record multiple-camera sitcom shows
and can be used in a studio or on location. The Company currently provides
production service to shows such as "Kelly, Kelly" and "Wayan's Brothers."
E. Employees
At December 31, 1997, the Company had approximately 235 employees
(including employees of PVC). Many of the Company's employees are skilled
technicians and the Company's future success will depend, in large part, on its
ability to continue to attract, retain and motivate highly qualified persons.
Approximately 30 employees are represented by the International Alliance of
Theatrical and Stage Employees pursuant to a collective bargaining agreement,
which expires in the year 2000 (which included a supplemental memorandum that
expired in February 1998). The Company has never experienced a work stoppage,
and considers its relations with its employees to be excellent.
F. Competition
The Company experiences competition in all phases of its business. Some of
the Company's competitors have been in one or more of the same lines of business
for a longer period of time, have established reputations and often have greater
financial resources than the Company. Moreover, the Company does have a few
competitors which are also fully integrated and offer a complete range of
post-production services. The Company believes it is distinguished from its
competition through the Electronic Laboratory, which combines proprietary
technology and software with the Company's marketing and organizational approach
to post-production. There can be no assurance that the Company will be able to
maintain its competitive advantage as rapid technological change takes place.
ITEM 2. PROPERTIES
The Company owns a 29,000 square foot building located on a 39,000 square
foot lot in Hollywood, California where its film processing and sound editing
and mixing services are provided. In addition, the Company leases approximately
24,700 square feet in six buildings in Hollywood, California, which contains its
executive offices and the balance of its Hollywood post-production facilities.
Lease terms expire in 1998, with renewal options in most instances. The Company
also leases approximately 23,000 square feet at two locations in Burbank,
California on a month-to-month basis. The Company believes that its facilities
are adequate for its operations as now conducted and for the foreseeable future.
Pacific Video Canada owns an 11,000 square foot building in Vancouver where its
processing services are located. In addition, PVC leases approximately 12,000
square feet which contains its post-production facilities.
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 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 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 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Common Stock trades on The NASDAQ SmallCap Market tier of the
NASDAQ Stock Market under the symbol LPAC.
High Low
1996
First Quarter $1.125 $0.625
Second Quarter $2.50 $0.6875
Third Quarter $1.625 $0.5625
Fourth Quarter $1.4375 $0.625
1997
First Quarter $0.90625 $0.53125
Second Quarter $0.8125 $0.375
Third Quarter $0.50 $0.3125
Fourth Quarter $0.4375 $0.125
1998
First Quarter $0.98 $0.125
The Company had 266 stockholders of record on April 1, 1998. This number
does not include the several hundred stockholders holding their stock in street
name. On April 1, 1998, 4,453,094 shares were held by CEDE & Company.
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. The Company does not anticipate that the
restriction on the payment of cash dividends will be eliminated in the
foreseeable future.
<PAGE>
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.)
<TABLE>
<S> <C> <C> <C> <C> <C>
1993(1) 1994(1) 1995 1996 1997
Statement of Operations Data:
Revenues $30,064 $30,244 $28,693 $28,878 $28,291
Operating expenses:
Direct 20,862 17,545 18,022 18,847 18,343
Depreciation and amortization 6,464 5,295 4,983 5,318 4,207
Loss on restructuring charge 2,550 0 0 0 0
------------- ------------ ------------ ------------ -------------
29,876 22,840 23,005 24,165 22,550
------------- ------------ ------------ ------------ -------------
Gross profit 188 7,404 5,688 4,713 5,741
Selling, general and administrative 6,210 4,874 4,978 4,678 4,279
expense
Severance costs 1,770 0 0 0 0
Write off property and equipment 2,168 0 0 148 0
------------- ------------ ------------ ------------ -------------
Income (loss) from operations (9,960) 2,530 710 (113) 1,461
Interest expense (1,949) (1,891) (1,813) (1,563) (1,563)
Other income 105 103 404 42 41
Minority interest income (loss 51 (119) (59) (53) (54)
Income tax expense 55 142 291 165 232
------------- ------------ ------------ ------------ -------------
Net income (loss) before litigation
settlement (11,808) 481 (1,049) (1,852) (347)
Litigation settlement 0 0 3,209 0 0
============= ============ ============ ============ =============
Net income (loss) (11,808) 481 2,160 (1,852) (347)
============= ============ ============ ============ =============
Basic net income (loss) before
litigation settlement per share ($1.84) $0.07 ($0.16) ($0.26) ($0.05)
Basic net income (loss) per share ($1.84) $0.07 $0.33 ($0.26) ($0.05)
------------- ------------ ------------ ------------ -------------
Weighted average common
shares outstanding 6,418 6,493 6,568 7,061 7,128
============= ============ ============ ============ =============
Balance Sheet Data:
Working capital (deficiency) ($13,951) ($6,720) ($2,099) (2,498) (2,332)
Total assets 28,776 26,009 28,172 22,304 22,488
Current installments of notes payable,
notes payable to related parties, and
and long-term debt 13,235 7,746 6,521 5,278 5,894
Long-term debt, excluding current
installments 2,284 5,794 7,893 7,959 8,139
Net stockholders' equity 4,789 5,298 7,458 6,101 5,772
</TABLE>
(1) Certain prior year balances have been reclassified to conform with the
current year's presentation.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
1997 Compared to 1996
Company revenues during 1997 were $28.3 million compared with $28.9 million
in 1996, a decrease of $587,000 or 2.0%. The decrease in revenue is comprised
primarily of a decrease in Film Production Services of $452,000, an increase of
$272,000 in Post Production Services, and a decrease of $407,000 in Production
Services. At our United States facilities revenues were down $703,000, a
decrease of 3.0% and revenues from International operations increased $116,000
or 2.3%. The decline in revenues at our United States facilities was brought
about by the continued decline in revenues associated with the use of the
Spectra Edit System, decline in production services and our elimination of
positive film services. These declines were offset by growth and significant
increases in other services offered by the company such as Digital Compression,
Special Effects and Graphics and Movie Mastering.
Direct operating expenses excluding depreciation and amortization were
$18.3 million in 1997 as compared with $18.8 million in 1996, a decrease of
$504,000 or 2.7%. The decrease is the result of a decrease in the cost of
materials and lower bad debt expense which were partially offset by an increase
in health insurance costs and occupancy costs. The decrease in material cost is
the result of the changing mix of services provided by the company which require
lower material costs.
Depreciation and amortization expense was $4.2 million for the year ended
December 31, 1997, compared to $5.3 million for 1996, a decrease of $1,111,000
or 20.9% The decrease is the result of the Company purchasing less depreciable
capital equipment in 1996 and 1997, than the amount of equipment that became
fully depreciated during the same period.
Consolidated gross profit was $5.7 million in 1997 as compared with $4.7
million in 1996, a $1,027,000 increase or 21.8%. The Company's consolidated
total operating expenses for 1997 were $22.6 million, as compared with $24.2
million in 1996, a decrease of $1,615,000 or 6.7%. As a percentage of total
revenues, total operating expenses were 79.7% in 1997 versus 83.7% in 1996. The
increase in gross profit is due to the combined effects of decreased operating
costs and decreased depreciation expense, offset by lower sales as explained
above.
The Company's selling, general and administrative (SG&A) expenses were $4.3
million during 1997 as compared to $4.8 million in 1996, a decrease of $547,000
or 11.3%. The decrease in SG&A is attributable to cost savings in many
categories, including advertising, office supplies, accounting, legal, travel
and promotions. The cost savings are attributable to the Company's emphasis in
containing and reducing expenses. Also, there was a write-off of $148,000 in
equipment in 1996 with no corresponding write-offs in 1997.
In 1997, there was no provision for U.S. Federal Income Tax as a result of
the net operating loss incurred. The Income Tax expense of $232,000 in 1997 was
comprised of foreign income tax expense in the amount of $227,000 relating to
Canadian income tax imposed on the pre-tax income of the Canadian subsidiary in
the amount of $462,000 and State income tax expense in the amount of $5,000
composed of the minimum Franchise tax.
The Company had no significant change in interest expense in 1997, it was
$1.6 million versus $1.6 million in 1996. Although the borrowing in 1997 was
higher than 1996, the effective interest rate on the loans was lower.
As a consequence of the above factors, the Company reported a net loss of
$347,189 or a loss of $0.05 per share in 1997 versus a net loss of $1,852,550 or
a loss of $0.26 per share in 1996.
As of December 31, 1997, the Company has recorded net deferred tax assets
of $5.6 million and a related valuation allowance of $5.6 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 not 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
believes it is more likely than not the Company may not realize all of the
benefits of these deductible differences.
1996 Compared to 1995
Company revenues during 1996 were $28.9 million compared with $28.7 million
in 1995, an increase of $185,000 or 0.6%. The increase in revenue is comprised
of an increase in Film Production Services of $355,000 an increase of $42,000 in
Post Production Service, and a decrease of $212,000 in Production Services. The
increase in revenues is a consequence of higher levels of activity at our United
States facilities where revenues were up $420,000, an increase of 1.8%. The
revenues from International operations decreased $235,000 or 4.8%. The continued
decline in Spectra Edit System rentals was offset by increases in Film
Productions Services, Sound Services and revenues from Special Effects and
Graphics.
Direct operating expenses excluding depreciation and amortization were
$18.8 million in 1996 as compared with $18.0 million in 1995, an increase of
$825,000 or 4.6%. The Company's direct operating expenses for U.S. operations
increased by $533,000 while the direct operating expenses increased $292,000 in
our international operations. The increase for both U.S. and International
operations is the result of increased labor costs. In the U.S. the increase in
labor costs was partially offset by a reduction in health insurance costs.
Depreciation and amortization expense was $5.3 million for the year ended
December 31, 1996, compared to $5.0 million for 1995. The increase is primarily
the consequence of accelerated depreciation due to the obsolescence of the
Spectra Systems.
Consolidated gross profit was $4.7 million in 1996 as compared with $5.7
million in 1995, a $1.0 million decrease. The Company's consolidated total
operating expenses for 1996 were $24.2 million, as compared with $23.0 million
in 1995, an increase of $1.2 million or 5.2%. As a percentage of total revenues,
total operating expenses were 83.7% in 1996 versus 80.2% in 1995. The increase
is due to the combined effects of increased labor costs and accelerated
depreciation explained above.
The Company's selling, general and administrative (SG&A) expenses were $4.7
million during 1996 as compared to $5.0 million in 1995, a decrease of $300,000
or 6.0%.
Other income was $42,000 in 1996 versus $404,000 in 1995. The decrease is
the result of the settlement of obligations with an equipment supplier during
1995 where the supplier provided the Company with equipment valued at $300,000.
There was income resulting from a litigation settlement in 1995 of
approximately $3.2. There was no revenue from litigation settlement in 1996.
In 1996, there was no provision for U.S. Federal Income Tax as a result of
the net operating loss incurred. The Income Tax expense of $165,000 in 1996 was
comprised of foreign income tax expense in the amount of $160,000 relating to
Canadian income tax imposed on the pre-tax income of the Canadian subsidiary in
the amount of $369,000 and State income tax expense in the amount of $5,000
entirely composed of the minimum Franchise tax.
The Company's interest expense in 1996 was $1.6 million versus $1.8 million
in 1995.
As a consequence of the above factors, the Company reported a net loss of
$1,852,550 or a loss of $0.26 per share in 1996 versus a net loss before
litigation settlement of $1,049,000 or a loss of $0.16 per share in 1995. The
net profit for 1995 after taking into consideration income resulting from
litigation settlements was $2.16 million or $.33 per share in 1995.
As of December 31, 1996, the Company has recorded net deferred tax assets
of $5.6 million and a related valuation allowance of $5.6 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 not 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
believes it is more likely than not the Company may not realize all of the
benefits of these deductible differences.
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 with a maturity date of August 3, 2000. The maximum
credit under the agreement is $9 million. The amended loan agreement provides
for borrowings up to $5.4 million under the term loan (limited to 85% of
eligible equipment appraisal value) and $3.6 million under the revolving loan
(limited to 85% of eligible accounts receivable) and at March 31, 1998,
$1,000,000 was available under the revolving loan. The outstanding balance of
the term loan was $3,281,000 at December 31, 1997. It is payable in monthly
installments of $106,000 plus interest at prime plus 2% through August 3, 2000.
Principal payments are not required in June, July or August. The revolving loan
had an outstanding balance of $1,905,000 at December 31, 1997. It bears interest
at prime plus 2%, which is payable monthly. The loan contains automatic renewal
provisions for successive terms of two years thereafter unless terminated as of
August 3, 2000 or as of the end of any renewal term by either party by giving
the other party at least 60 day written notice.
The Company has an outstanding real estate loan with Bank of America which
was amended February 29, 1996. The loan is secured by the building where the
Company provides film processing and sound services. The loan agreement matures
December 31, 1998 with an option to extend the maturity an additional year upon
payment to the Bank of America of a $25,000 loan extension fee prior to December
31, 1998. The outstanding balance as of December 31, 1997 was $1,294,000.
In July 1997, the Company issued $1,000,000 of short-term Installment
(Fixed Rate) Line of Credit Notes, Series 1997 to 35 Lake Avenue, a California
limited partnership. James R. Parks, the Company's, Chief Executive Officer, is
a partner in 35 Lake Avenue. The principal balance of the Notes bears interest
at the rate of fourteen percent (14%) per annum. The accrued interest on the
outstanding principal was payable on September 30, 1997, December 31, 1997,
January 30, 1998, February 28, 1998 and March 30, 1998. The outstanding
principal balance was to be paid in three equal installments on January 30,
1998, February 28, 1998 and March 31, 1998. The Company granted 35 Lake Avenue
warrants to purchase one (1) share of the Company's common stock at the exercise
price of $1.00 per share, for each $4.00 of original principal amount of debt
loaned. 250,000 warrants were issued. The warrants originally expired two years
from the date of grant. The Company's obligations under the Notes are secured by
a pledge of 2,424,488 shares of the Common Stock of Pacific Video Canada Ltd.
and a third deed of trust against the building where the Company provides film
processing and sound services. In January 1998 35 Lake Avenue agreed to amend
the terms of the short-term Installment Line of Credit Notes from March 30, 1998
until November 30, 1998. Under the amendment, principal payments reflect
approximately $400,000 due in the first quarter of 1998, $200,000 due at the end
of the third quarter of 1998 and remaining payments of $300,000 due throughout
the fourth quarter of 1998. In consideration for the extension of the principal
payments the expiration date of the warrants originally issued was extended for
two additional years. At March 31, 1998 the outstanding principal balance on the
notes was $500,000.
The Company's principal source of funds is cash generated by operations. On
an annual basis, the Company anticipates that existing cash balances and
availability under existing loan agreements and cash generated from operations
will be sufficient to service existing debt. The Company is currently in
negotiations with its principal lender to restructure its term loan to provide
additional financing for the remainder of 1998. Additionally, the Company is
attempting to secure other sources of financing and with the possibility of the
sale of certain assets. Management is of the opinion that the Company will be
able to meet its obligations on a timely basis and sustain operations by
obtaining such additional financing or by selling assets, and eventually
achieving profitable operations. There is no assurance that these uncertainties
will be settled or that management's plan will be achieved.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share". Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share and became effective for both interim and annual periods
ending after December 15, 1997. All earnings per share amounts for all periods
for all periods have been presented, and where necessary, restated to conform to
the Statement No. 128 requirements.. The Company does not anticipate that the
adoption of Statement No. 128 will have a material effect on the Company's
results of operations. However, the ultimate resolution of the implementation
issues referred to above, or additional issues not yet raised or addressed by
the AICPA, could change the Company's expectation.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" effective for fiscal years beginning after
December 15, 1997. Statement No. 130 established standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company will adopt Statement No. 130 effective January 1, 1998.
The Company does not anticipate that the adoption of Statement No. 130 will have
a material effect on the Company's results of operations. However, the ultimate
resolution of the implementation issues referred to above, or additional issues
not yet raised or addressed by the AICPA, could change the Company's
expectation.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
effective for financial statements for periods beginning after December 15,
1997. Statement No. 131 establishes standards for the way that public business
enterprises report financial and descriptive information about reportable
operating segments in annual financial statements and interim financial reports
issued to shareholders. Statement No. 131 supersedes Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." But retains the
requirement to report information about major customers. The Company will adopt
Statement No. 131 effective January 1, 1998. The Company does not anticipate
that the adoption of Statement No. 131 will have a material effect on the
Company's results of operations. However, the ultimate resolution of the
implementation issues referred to above, or additional issues not yet raised or
addressed by the AICPA, could change the Company's expectation.
Year 2000
The Company has reviewed its systems and communicated with all of its
significant suppliers and equipment and software providers. All of the systems
tested and the majority reviewed with third parties to date are year 2000
compliant. Year 2000 costs are not expected to have a material impact on the
Company's operations.
Subsequent Events
On April 10, 1998, the Company announced the sale of their 2,848,000 shares
of Pacific Video Canada, Ltd. (PVC). When the sale is completed, the Company
expects to realize cash consideration of approximately $3,900,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Page 11 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.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedule
Consolidated Financial Statements: Page
Independent Auditors' Report 12
Consolidated Balance Sheets - December 31, 1996 and 1997 13
Consolidated Statements of Operations - Years Ended December - 31, 1995,
1996 and 1997 15
Consolidated Statements of Stockholders Equity - Years Ended
December 31, 1995, 1996 and 1997 16
Consolidated Statements of Cash Flows - Years Ended December 31, 1995,
1996 and 1997 17
Notes to Consolidated Financial Statements 19
Consolidated Financial Statement Schedule - Valuation and Qualifying
Accounts - Years Ended December 31, 1995, 1996 and 1997 32
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.
<PAGE>
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 schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles. 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 Peat Marwick LLP
Los Angeles, California
March 20, 1997
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1997
<TABLE>
<S> <C> <C>
Assets 1996 1997
------------------ ----------------
Current assets:
Cash $ 283,082 367,363
Receivables (note 5):
Trade 4,854,214 5,303,582
Other 289,384 382,403
------------------ ----------------
5,143,598 5,685,985
Less allowance for doubtful receivables 810,130 1,087,058
------------------ ----------------
4,333,468 4,598,927
------------------ ----------------
Inventory (note 5) 325,073 300,532
Prepaid expenses and other current assets 337,163 455,999
------------------ ----------------
Total current assets 5,278,786 5,722,821
------------------ ----------------
Property and equipment, at cost (notes 3 and 5) 41,082,754 44,399,036
Less accumulated depreciation and amortization 24,708,192 28,204,538
------------------ ----------------
Net property and equipment 16,374,562 16,194,498
------------------ ----------------
Other assets, net 650,580 570,472
------------------ ----------------
$ 22,303,928 22,487,791
================== ================
</TABLE>
(Continued)
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1997
(Continued)
<TABLE>
<S> <C> <C>
Liabilities and Stockholders' Equity 1996 1997
------------------ -----------------
Current liabilities:
Current installments of notes payable to bank and $
long-term debt (note 5) 5,278,339 4,994,308
Notes payable to related parties (note 4) 0 900,000
Accounts payable 1,150,661 1,028,381
Accrued expenses 1,195,766 988,736
Income taxes payable 152,460 143,545
------------------ -----------------
Total current liabilities 7,777,226 8,054,970
------------------ -----------------
Notes payable to bank and long-term debt, less current
installments (note 5) 7,958,554 8,139,042
Minority interest (note 10) 467,370 521,440
Commitments and contingencies (notes 5 and 9)
Stockholders' equity (notes 7 and 8):
Preferred stock, $.0001 par value. Authorized
3,500,000 shares; none issued 0 0
Common stock, $.0001 par value. Authorized 25,000,000
shares; issued and outstanding 7,128,172 shares at
December 31, 1996 and 1997 713 713
Additional paid-in capital 19,753,690 19,772,440
Accumulated deficit (13,653,625) (14,000,814)
------------------ -----------------
Net stockholders' equity 6,100,778 5,772,339
------------------ -----------------
$ 22,303,928 22,487,791
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<S> <C> <C> <C>
1995 1996 1997
------------------ ------------------ ------------------
Revenues $ 28,693,047 28,878,422 28,290,924
------------------ ------------------ ------------------
Operating expenses:
Direct 18,022,097 18,847,361 18,343,474
Depreciation and amortization 4,983,001 5,317,862 4,206,915
------------------ ------------------ ------------------
23,005,098 24,165,223 22,550,389
------------------ ------------------ ------------------
Gross profit 5,687,949 4,713,199 5,740,535
Selling, general and administrative expenses 4,977,824 4,826,155 4,279,026
------------------ ------------------ ------------------
Income from operations 710,125 (112,956) 1,461,509
Interest expense (1,813,428) (1,563,559) (1,563,316)
Litigation settlement (note 11) 3,208,830 0 0
Other income 404,258 41,952 40,688
Minority interest in net income of consolidated
subsidiary (note 10) (58,850) (52,987) (54,070)
------------------ ------------------ ------------------
Income (loss) before income taxes 2,450,935 (1,687,550) (115,189)
Income tax expense 291,000 165,000 232,000
------------------ ------------------ ------------------
Net income (loss) $ 2,159,935 (1,852,550) (347,189)
================== ================== ==================
Basic and diluted net income (loss) per share $ .33 (.26) (.05)
================== ================== ==================
Weighted average shares outstanding 6,568,172 7,061,061 7,128,172
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996, and 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock
-----------------------------------
Additional Net
Number of paid-in Accumulated stockholders'
shares Amount capital deficit equity
---------------- ---------------- ----------------- --------------- ---------------
Balance at December 31, 1994 6,568,172 $ 657 19,258,746 (13,961,010) 5,298,393
Net income 0 0 0 2,159,935 2,159,935
---------------- ---------------- ----------------- --------------- ---------------
Balance at December 31, 1995 6,568,172 657 19,258,746 (11,801,075) 7,458,328
Stock issuances and warrants 560,000 56 494,944 0 495,000
Net loss 0 0 0 (1,852,550) (1,852,550)
---------------- ---------------- ----------------- --------------- ---------------
Balance at December 31, 1996 7,128,172 713 19,753,690 (13,653,625) 6,100,778
Warrant issuance 0 0 18,750 0 18,750
Net loss 0 0 0 (347,189) (347,189)
---------------- ---------------- ----------------- --------------- ---------------
Balance at December 31, 1997 7,128,172 $ 713 19,772,440 (14,000,814) 5,772,339
================ ================ ================= =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<S> <C> <C> <C>
1995 1996 1997
---------------- ----------------- --------------
Cash flows from operating activities:
Net income (loss) $ 2,159,935 (1,852,550) (347,189)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 4,983,001 5,317,862 4,206,915
Provision for doubtful accounts receivable 539,000 447,354 279,848
Write-off of property and equipment 0 148,569 0
Gain on Sale of plant, property and equipment 0 0 (27,670)
Other 71,751 76,334 32,057
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (3,076,993) 3,045,103 (545,308)
Inventory 15,023 15,005 24,541
Prepaid expenses and other current assets 2,864 (3,943) (118,836)
Other assets 719,818 38,456 77,258
Increase (decrease) in:
Accounts payable (2,257,842) 90,896 (122,280)
Accrued expenses 1,662,804 (1,862,245) (207,030)
Accrued severance (461,803) (391,451) 0
Deferred revenue 2,000 (160,123) 0
Income taxes payable 318,616 (228,798) (8,915)
---------------- ----------------- --------------
Net cash provided by operating activities $ 4,678,174 4,680,469 3,243,391
---------------- ----------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (2,114,185) (4,470,045) (3,989,513)
Proceeds from disposal of property and equipment 44,000 31,500 33,946
Purchase of subsidiary common stock (114,495) 0 0
---------------- ----------------- --------------
Net cash used in investing activities $ (2,184,680) (4,438,545) (3,955,567)
---------------- ----------------- --------------
</TABLE>
(Continued)
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<S> <C> <C> <C>
1995 1996 1997
---------------- -------------- ---------------
Cash flows from financing activities:
Net (repayment) and proceeds of notes payable to bank
and Long-term debt $ (1,908,985) (856,831) (103,543)
(Repayments) borrowings of notes payable to related
Parties (55,000) (320,000) 900,000
Proceeds from stock issuance 0 405,000 0
---------------- -------------- ---------------
Net cash provided by (used in)
financing activities $ (1,963,985) (771,831) 796,457
---------------- -------------- ---------------
Net increase (decrease) in cash 529,509 (529,907) 84,281
Cash at beginning of year 283,480 812,989 283,082
---------------- -------------- ---------------
Cash at end of year $ 812,989 283,082 367,363
================ ============== ===============
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,800,000 1,600,000 1,600,000
State income taxes 1,200 1,200 1,200
================ ============== ===============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
The Company purchased property and equipment of $1,722,000, $2,112,535 and
$2,226,841 during 1995, 1996 and 1997, respectively, financed through capital
lease obligations.
In 1995, the Company received equipment valued at $300,000 as settlement
from an equipment supplier.
In May 1996, the Company converted a promissory note receivable and related
accrued interest due from PVC totaling approximately $579,000 in exchange for
526,000 shares of common stock. This transaction increased the Company's
ownership of PVC from 72% to 77%.
In 1996 the Company issued 75,000 warrants in connection with the renewal
of its credit facility. Accordingly, such warrants were accounted for as debt
issuance costs of $90,000 and will be amortized to interest expense over the
term of the related credit facility.
In 1997, the Company issued 250,000 warrants in connection with the
issuance of $1,000,000 in short-term notes to 35 Lake Avenue. Accordingly, such
warrants were accounted for as debt issuance costs of $18,750 and will be
amortized to interest expense over the term of the related credit facility.
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Laser-Pacific Media Corporation and subsidiaries (altogether, the Company). All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Liquidity
The Company's financial statements for the year ended December 31, 1997
have been prepared on a going-concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. The
Company incurred a net loss of $347,189 for the year ended December 31, 1997 and
as of December 31, 1997 had an accumulated deficit of $14,000,814, and a working
capital deficiency of $2,332,149. The Company's working capital at December 31,
1997 plus other sources of revenue generated by operations may not be sufficient
to meet its business objectives as presently structured. Therefore, management
arranged financing with a related party lender to provide the Company with a
lending commitment, in addition to pursuing other sources of financing, which
will enable the Company to continue as a going concern through December 31,
1998.
(2) Summary of Significant Accounting Policies
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 the 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).
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
Income (Loss) per Share
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 replaces Accounting Principles Board Opinion (APB)
No. 15 and simplifies the computation of earnings per share (EPS) by replacing
the presentation of primary EPS with a presentation of basic EPS. Basic EPS
includes no dilution and is computed by dividing income available to common
shareholders 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, similar to fully diluted EPS under APB No.
15. The statement requires dual presentation on basic and diluted EPS by
entities with complex capital structures. The Company adopted SFAS No. 128 for
the financial statements ended December 31, 1997. All years presented have been
restated to reflect basic and diluted net income (loss) per share. Stock options
issued under the Company's Stock Option Plans were not included in the
computation of diluted EPS because to do so would have been antidilutive.
Revenue Recognition
Revenues are recognized as services are performed.
The Company had one significant customer in 1995, 1996 and 1997, which
accounted for approximately 11%, 16% and 14% of revenues, respectively.
Foreign Currency Translation
Assets and liabilities of the foreign operations are translated at the rate
of exchange at the balance sheet date. 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.
Credit Risk
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.
Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
during 1995. This Statement requires that Long-Lived assets be reviewed 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
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year's presentation.
Accounting for Stock Options
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provision of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995,
and 1996 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement which establishes standards for reporting and disclosure
of comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS 130. As this statement only requires
additional disclosure in the Company's consolidated financial statements, its
adoption will not have any impact on the Company's consolidated financial
position or result of operations. The Company expects to adopt SFAS No. 130
effective January 1, 1998.
Disclosures about Segments of an Enterprise
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise. This statement, which establishes standards for reporting and
disclosures of certain information about operating segments in complete sets of
financial statements, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted.
Reclassifications of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 131 if it is practical to do so.
The Company expects to adopt SFAS No. 131 effective January 1, 1998.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
(3) Property and Equipment
Property and equipment is comprised of the following:
1996 1997
----------------- ------------------
Land $ 1,135,123 1,237,690
Buildings and improvements 4,226,630 4,330,064
Technical equipment 33,875,483 36,835,628
Furniture and fixtures 545,372 634,146
Automobiles 39,283 25,092
Leasehold improvements 1,260,863 1,336,416
----------------- ------------------
$ 41,082,754 44,399,036
================= ==================
The Company leases technical equipment under capital leases expiring
through 2003. Equipment under capital leases aggregated $7,950,354 and
$7,199,619, and related accumulated amortization aggregated $2,024,833 and
$1,537,697 at December 31, 1996 and 1997, respectively.
(4) Notes Payable to Related Parties
The Company has a note payable to a related party, 35 Lake Avenue, secured
by a third Trust Deed on the land, buildings, and the capital stock of Pacific
Video Canada, Ltd. (PVC), a majority-owned subsidiary of the Company. The note
bears interest at 14%, with scheduled interest payments due on September 30, and
December 31, 1997, January 30, February 28 and March 30, 1998. The principal
payments are due in three equal installments at month-end for January through
March 1998. The remaining outstanding balance at December 31, 1997 was $900,000.
On January 28, 1998, the notes payable to a related party, 35 Lake Avenue,
were amended extending the term of the notes from March 30, 1998 to November 30,
1998. Under the amendment, principal payments reflect approximately $400,000 due
in the first quarter of 1998, $200,000 due at the end of the third quarter of
1998 and remaining payments of $300,000 due throughout the fourth quarter of
1998. Interest is payable monthly. Concurrent with the extension of the notes,
the expiration date of the warrants issued in connection with the debt was
extended for a two-year period.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
(5) Notes Payable to Bank and Long-Term Debt
Notes payable to bank and long-term debt are summarized as follows:
<TABLE>
<S> <C> <C>
1996 1997
---------------- ---------------
Advances under a $9,000,000 credit agreement, secured by eligible $ 1,672,926 1,905,610
accounts receivable, inventory and property and equipment, as
defined, bearing interest at the bank's prime rate (8.5% at
December 31, 1997) plus 2.0%, expiring August 3, 2000, (1)
Term notes payable to bank of up to $5,400,000 under the $9,000,000 4,320,894 3,281,210
credit agreement, secured by eligible accounts receivable,
inventory, and property and equipment, as defined, and guarantees
of certain stockholders, payable in nine monthly installments per
year of $106,000 plus interest at prime (8. 5% at December 31,
1997) plus 2% through August 3, 2000 (1)
Note payable to bank, secured by a first Trust Deed on land and 1,507,490 1,294,154
buildings, bearing interest at 11.71%, interest and principal
payable in nine monthly installments per year of $26,667 through
December 31, 1998.
Term notes payable to bank, secured by certain property and equipment 508,941 1,510,313
as defined, bearing interest at 8%, payable monthly, in arrears,
with installments of $8,700 through March 31, 2004
Capital lease obligations (note 9) 5,140,129 5,102,412
Other 86,513 39,651
---------------- ---------------
13,236,893 13,133,350
Less current installments 5,278,339 4,994,308
---------------- ---------------
$ 7,958,554 8,139,042
================ ===============
</TABLE>
(1) This agreement provides for a facility fee of $90,000 per year, to be
paid by the Company on each anniversary of the closing.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
The aggregate future maturities of notes payable to bank and long-term debt
are summarized as follows:
December 31:
1998 4,994,308
1999 3,576,240
2000 2,330,341
2001 1,257,032
2002 540,605
Thereafter 434,824
------------------
$ 13,133,350
==================
(6) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards Board No. 109, "Accounting for Income Taxes," which
requires the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes 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. 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. Under
Statement 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
A summary of income tax expense is as follows:
1995 1996 1997
----------------- ----------------- ----------------
Current:
Federal $ 35,000 0 0
State 13,000 5,000 5,000
Foreign 348,000 166,000 204,000
----------------- ----------------- ----------------
396,000 171,000 209,000
----------------- ----------------- ----------------
Deferred:
Federal 0 0 0
State 0 0 0
Foreign (105,000) (6,000) 23,000
----------------- ----------------- ----------------
(105,000) (6,000) 23,000
----------------- ----------------- ----------------
$ 291,000 165,000 232,000
================= ================= ================
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the U.S. Federal tax rate as follows:
1995 1996 1997
---------- ------------ -----------
Federal income tax expense (benefit) at
"expected rate" $ 833,000 (574,000) (41,000)
(Utilization) expiration of net operating
loss carryforward (618,000) 0 54,000
Deductile expenses 580,000 58,000 0
Other (88,000) (21,000) 19,000
State taxes, net of Federal effect 13,000 2,000 4,000
Impact of foreign taxation at different
rates 43,000 35,000 150,000
Minority interest 20,000 24,000 18,000
Valuation allowance for deferred tax
assets (492,000) 641,000 28,000
---------- ------------ -----------
$ 291,000 165,000 232,000
========== ============ ===========
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1996 and 1997 is
presented below:
1996 1997
----------------- -----------------
Deferred tax assets and liabilities:
Net operating loss carryforwards $ 5,378,000 5,334,000
Income tax credit carryforwards 773,000 803,000
Vacation pay 0 135,000
Reserve for bad debts 231,000 349,000
Property and equipment (786,000) (997,000)
Less valuation allowance (5,596,000) (5,624,000)
----------------- -----------------
Net deferred tax assets $ 0 0
================= =================
At December 31, 1997, the Company had net operating loss carryforwards for
Federal and state income tax purposes of approximately $14,800,000 and
$4,800,000, respectively, which expire principally from 2004 through 2012. The
Company also has approximately $240,000 and $500,000 of unused research and
development tax credits and investment tax credit carryforwards, respectively,
expiring through 2004.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
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 believes it is more likely than not the Company will not realize all
of the benefits of these deductible differences.
(7) Stockholders' Equity
The Company has authorized 3,500,000 shares of $.0001 par value preferred
stock, and designated 1,400,000 shares as Series A preferred stock. As of
December 31, 1996 and 1997, no preferred stock was outstanding.
Warrants to purchase 100,000 shares of common stock at amount approximating
the closing bid price for the Company's common stock on the grant date of $0.563
per share are outstanding at December 31, 1996 and 1997. The warrants are
exercisable through August 2004.
Warrants to purchase 80,000 shares of common stock at $0.50, and 80,000
shares of common stock at $1.13, amounts that approximate the closing bid prices
of the Company's common stock on grant date, were outstanding at December 31,
1996. The warrants for 80,000 shares of common stock at $0.50 expired on March
31, 1997. The warrants for the remaining 80,000 shares of common stock at $1.13
expire on August 31, 1998.
In January 1996, in connection with the settlement of additional lease
commitments related to the closure of its facilities the Company issued 500,000
shares of common stock valued at $.75 per share. In November 1996, the Company
issued 60,000 shares of common stock valued at $0.50 to related parties in
exchange for $30,000.
In June 1996 the Company issued warrants to purchase 75,000 shares of
common stock to its principal lender in connection with a loan renewal. The fair
value of the warrants was determined in accordance with SFAS No. 123 and was
recorded as debt issuance costs.
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
Black-Scholes option pricing model and was recorded as debt issuance. Subsequent
to December 31, 1997, the expiration date of the warrants issued during 1997 was
extended to July 2001.
(8) Stock Option Plans and Other Option Grants
The Company has four stock option plans (the Stock Option Plans) which
provide for 1,115,029 of incentive or nonqualified stock options to officers,
directors and key employees at prices equal to or greater than the fair market
value at the date of grant. Options currently expire no later than 10 years from
the grant date and generally vest at date of grant. All options outstanding
under the four plans are fully vested at December 31, 1997.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
Activity under the Plans for the years ended December 31, 1995, 1996 and
1997 follows:
Shares Weighted Options
average exercisable
price
----------- ---------------- ----------------
Outstanding options at 12/31/94 373,908 $ 4.12 373,908
Options issued 0
Options exercised 0
Options expired and terminated (134,257) 4.72
----------- ---------------- ----------------
Outstanding Options at 12/31/95 239,651 3.78 239,651
Options issued 0
Options exercised 0
Options expired and terminated (40,915) 2.86
----------- ---------------- ----------------
Outstanding Options at 12/31/96 198,736 3.97 198,736
Options issued 459,400 .22
Options exercised 0
Options expired and terminated (40,220) 5.94
----------- ---------------- ----------------
Outstanding Options at 12/31/97 617,916 $ 1.05 617,916
=========== ================ ================
The following table summarizes information about options outstanding under
the Plans at December 31, 1997:
Outstanding Options
---------------------------------------------------------------
Shares Remaining Weighted
outstanding and weighted average
exercisable average exercisable
contractual price
life (in years)
----------------- ----------------- -----------------
Range of Exercisable prices:
$0.22 459,400 10.00 $ .22
$0.50 30,000 0.80 .50
$2.50 67,781 4.80 2.50
$5.16 to $12.00 60,735 .08 6.01
================= ================= =================
Total 617,916 6.20 $ 1.05
================= ================= =================
Under all plans, all options are exercisable and 40,600 shares remained
available for future grant, at December 31, 1997.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
Activity of non-qualified stock options for the years ended December 31,
1995, 1996 and 1997 follows:
Shares Weighted Options
average price exercisable
--------- -------------- -----------------
Outstanding options at 12/31/94 222,222 $ 1.22 222,222
Options issued 222,222 1.22
Options exercised 0
Options expired and terminated (222,222) 1.22
--------- -------------- -----------------
Outstanding Options at 12/31/95 222,222 1.22 222,222
Options issued 20,000 .50
Options exercised 0
Options expired and terminated 0
--------- -------------- -----------------
Outstanding Options at 12/31/96 242,222 1.16 242,222
Options issued 0
Options exercised 0
Options expired and terminated (242,222) 1.16
--------- -------------- -----------------
Outstanding Options at 12/31/97 0 $ 0 0
========= ============== =================
Pro Forma Information
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for its employee stock options. Under APB No.
25, if the exercise price of the Company's employee stock option equals the
market price of the underlying stock on the date of grant, no compensation is
recognized in the Company's financial statements.
Pro Forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as if
the Company had accounted for its employee stock options (including employee and
director shares issued under the Plan collectively called options) granted
during fiscal years 1995, 1996 and 1997 reported below has been estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
1995 1996 1997
----------------- ----------------- -----------------
Expected life (in years) 2.00 3.00 10.00
Risk-free interest rate 5.22 6.04 5.87
Volatility .50 .50 .50
Dividend yield 0.00 0.00 0.00
Fair value - grant date .63 .30 .15
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
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 trade 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.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share would have been as indicated below:
Year ended December 31
--------------------------------------------------------------
1995 1996 1997
----------------- ------------------- -------------------
Net Income (loss):
As reported $ 2,159,935 (1,852,550) (347,189)
Pro Forma 2,067,627 (1,858,550) (416,100)
================= =================== ===================
Basic and diluted net income (loss) per share:
As reported $ .33 (.26) (.05)
Pro Forma .32 (.26) (.06)
================= =================== ===================
Pro Forma income reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income (loss) 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.
Further, the effects of applying SFAS No. 123 for disclosing compensation
costs may not be representative of the effects on reported net income for future
years.
(9) Commitments and Contingencies
Leases
The Company leases certain technical equipment under capital leases that
expire through 2003.
The Company also leases corporate offices, certain operating facilities and
equipment under non-cancelable operating leases that expire through 2002.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
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:
1998 $ 1,838,962 229,164
1999 1,535,995 172,089
2000 1,389,989 164,408
2001 1,008,964 148,344
2002 526,913 145,245
Thereafter 77,295
------------------ ------------------
Total minimum lease payments 6,378,118 $ 859,250
==================
Less amount representing interest 1,275,706
------------------
Present value of minimum lease payments $ 5,102,412
==================
Rent expense amounted to $1,127,162, $924,747 and $1,029,329 for the years
ended December 31, 1995, 1996 and 1997, 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 financial position, results of operations, or liquidity of the
Company.
Employment Agreements
The Company has employment agreements with certain officers that require
written notices of termination ranging from one to five years.
(10) Minority Interest in Subsidiary
In January 1988, Pacific Video acquired a 75% equity interest in Pacific
Video Canada, Ltd., ("PVC"), formerly known as Tegra Industries, Inc., whose
film processing and post-production facilities are located in Vancouver, Canada.
In 1990, PVC issued common stock to a third party in connection with a
three-party licensing agreement with the Company. This reduced the Company's
holdings to approximately 58% of the common shares outstanding. In December
1995, the Company purchased 350,000 additional shares of common stock of Pacific
Video Canada Ltd. (PVC), in exchange for approximately $114,000, thereby
increasing the Company's ownership of PVC from 58% to 72%. In May 1996, the
Company converted a promissory note receivable and related accrued interest due
from PVC totaling approximately $579,000 in exchange for 526,000 shares of
common stock of Pacific Video, Inc. (PVC). This transaction increased the
Company's ownership of PVC from 72% to 77%. The amounts in minority interest at
December 31, 1997 represent the 23% ownership of PVC's outstanding capital stock
held by the minority stockholders of PVC.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1997 (continued)
(11) Litigation Settlement
The Company was involved in a lawsuit against its former patent lawyer and
insurance carrier in connection with prior settlements of lawsuits relating to
the Company's patent for high-resolution transfer of images. This matter was
settled during the year ended December 31, 1995 resulting in a net recovery of
$3,208,830.
(12) Business Segment Data
The following table shows revenues, operating earnings (loss) and
identifiable assets by geographic segment for the years 1995, 1996 and 1997:
1995 1996 1997
------------------ ------------------ -------------------
Revenues:
U.S. $ 23,309,444 23,729,024 23,025,270
International 5,383,603 5,149,398 5,265,654
------------------ ------------------ -------------------
$ 28,693,047 28,878,422 28,290,924
================== ================== ===================
Operating earnings (loss):
U.S. $ (640,750) (569,068) 747,150
International 1,350,875 456,112 714,359
------------------ ------------------ -------------------
$ 710,125 (112,956) 1,461,509
================== ================== ===================
Identifiable assets:
U.S. $ 21,954,986 17,188,781 16,667,222
International 6,217,233 5,115,147 5,820,569
------------------ ------------------ -------------------
$ 28,172,219 22,303,928 22,487,791
================== ================== ===================
(13) 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.
For the years ended December 31, 1996 and 1997 the Company did not
contribute to the plan on behalf of its employees.
(14) Subsequent Events (Unaudited)
On April 10, 1998, the Company announced the sale of their 2,848,000 shares
of Pacific Video Canada, Ltd. (PVC). When the sale is completed, the Company
expects to realize a cash consideration of approximately $3,900,000.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- ---------------------------- -------------------- ------------------- -------------------- ---------------------
Description Balance at Charged to costs Deductions Balance at end
beginning of and expenses write-offs (1) of period
period
- ---------------------------- -------------------- ------------------- -------------------- ---------------------
Allowance for bad debts:
1995 $ 687,000 539,000 (373,000) 853,000
==================== =================== ==================== =====================
1996 $ 853,000 448,000 (491,000) 810,000
==================== =================== ==================== =====================
1997 $ 810,000 280,000 (3,000) 1,087,000
==================== =================== ==================== =====================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
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 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998.
Item 11. EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to the Registrant's
definitive proxy statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The response to this Item is incorporated by reference to the Registrant's
definitive proxy statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998.
ITEM 13. CERTAIN TRANSACTIONS
The response to this Item is incorporated by reference to the Registrant's
definitive proxy statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998.
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 Schedules: These
documents are listed in the Index to the Consolidated Financial Statements and
Financial Statement Schedules.
3. Exhibits:
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. (4)
3.4 By-Laws of the Company. (1)
4.1 Form of Common Stock Certificate. (2)
10.1 1990 Stock Option Plan. (1)
10.5 Employment Agreement dated as of May 15, 1990 between the Company and Emory
Cohen. (1).
10.7 Credit Agreement dated as of September 28, 1990 between the Company and The
Bank of California, N.A., as amended by the First Amendment to Credit Agreement
dated as of October 12, 1990 and as further amended by the Second Amendment to
Credit Agreement dated as of June 3, 1991. (1)
10.7A Letter of Agreement dated August 7, 1991 between the Company and The Bank
of California, N.A., further amending the Credit Agreement filed as Exhibit
10.7. (3)
10.7B Commitment Letter dated April 8, 1992 from The Bank of California, N.A.
(4)
10.7C Fourth Amendment to Credit Agreement Signed on June 18, 1992. (5)
10.7D Fifth Amendment to Credit Agreement Signed July 31, 1992. (5)
10.7E Amended and Restated Credit Agreement between the Company and The Bank of
California dated March 1, 1995. (Filed herewith)
10.8 CIT Credit Agreement signed on August 3, 1992. (5)
10.8A Amended Loan Agreement between CIT and the Company dated April 12, 1995.
(7)
10.8B Amended Loan Agreement between CIT and the Company dated June 6, 1996.
(Filed herewith)
10.9 Opinions of Cooper & Dunham, patent counsel to the Company, dated June 4,
1991 and June 6, 1991. (2)
10.10 Lease Agreement dated as of May 14, 1987 by and between the Company and
Morton La Kretz, Trustee, Cross Roads Trust, UTD April 28, 1982. (2)
10.11 Lease Agreement dated as of July 18, 1983 by and between the Company and
Title House. (2)
10.12 Lease Agreement dated as of February 13, 1984 by and between the Company
and Morton La Kretz, Trustee, Cross Roads Trust, UTD April 28, 1982. (2)
10.13 Robert E. Seidenglanz Employment Severance Agreement signed October 20,
1993. (6)
10.14 Bank of America Amended Loan Agreement dated February 29, 1996. (7)
10.15 Employment Agreement dated as of July 24, 1995 between the Company and
Randolph Blim. (7)
10.16 Settlement Agreement between 305 E. 45th Associates and the Company dated
January 12, 1996. (7)
10.17 Settlement Agreement between the Company and Gregory L. Biller dated March
31, 1996. (8)
22.1 List of Subsidiaries. (4)
24.4 Consent of Cooper & Dunham, patent counsel (4).
(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 August 8, 1991, with the Company's Registration
Statement on Form S-1 (File No. 33-41085)
(4) Previously filed on April 10, 1992 with the Company's Form 10-K.
(5) Previously filed on August 12, 1992 with the Company's Form 10-Q.
(6) Previously filed on May 13, 1994 with the Company's Form 10-Q.
(7) Previously filed on April 14, 1996 with the Company's Form 10-K.
(8) Previously filed on April 11, 1997 with the Company's Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the last
quarter of the period covered by this report.
<PAGE>
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 April 10, 1997.
LASER-PACIFIC MEDIA CORPORATION
By: /s/ 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 April 10, 1998
Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
/s/ Emory M. Cohen
Emory M. Cohen April 10, 1998
President, Chief Operating Officer and Director
/s/ Robert McClain
Robert McClain April 10, 1998
Vice President and Chief Financial Officer
/s/ Ronald Zimmerman
Ronald Zimmerman April 10, 1998
Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 367
<SECURITIES> 0
<RECEIVABLES> 5,686
<ALLOWANCES> (1,087)
<INVENTORY> 301
<CURRENT-ASSETS> 5,723
<PP&E> 44,399
<DEPRECIATION> (28,205)
<TOTAL-ASSETS> 22,488
<CURRENT-LIABILITIES> 8,055
<BONDS> 8,139
0
0
<COMMON> 1
<OTHER-SE> 5,772
<TOTAL-LIABILITY-AND-EQUITY> 22,488
<SALES> 28,291
<TOTAL-REVENUES> 28,291
<CGS> 18,343
<TOTAL-COSTS> 22,550
<OTHER-EXPENSES> 4,279
<LOSS-PROVISION> 277
<INTEREST-EXPENSE> 1,563
<INCOME-PRETAX> (115)
<INCOME-TAX> 232
<INCOME-CONTINUING> (347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
