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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd., Hollywood, California 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 462-6266
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($.0001 par value)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 24, 2000 (based upon the closing price on the NASDQ National
Market on that date) was $51,627,000.
Number of shares of Common Stock, $.0001 par value, outstanding as of
March 24, 2000: 7,719,393.
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.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
<TABLE>
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<S> <C> <C>
Part I Page
Item 1 Business 1
Item 2 Properties 3
Item 3 Legal Proceedings 3
Item 4 Submission of Matters to a Vote of Security Holders 3
Part II
Item 5 Market for Registrant's Common Stock and Related Security Holder Matters 4
Item 6 Selected Financial Data 5
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 6
Item 7A Quantitative and Qualitative Disclosures about Market Risk 11
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11
Part III
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
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34
Signatures 35
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Statements included within this document, other than statements of
historical facts, that address activities, events or developments that Laser
Pacific Media Corporation expects or anticipates will or may occur in the
future, including such things as business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the Company's
business and operations, plans, references to future success and other such
matters, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities and
Exchange Act of 1934, as amended, and fall under the safe harbor. The forward
looking statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, actual results and
financial position could differ materially in scope and nature from those
anticipated in the forward looking statements as a result of a number of
factors, including but not limited to, the Company's ability to successfully
expand capacity, general economic, market or business conditions; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other companies; changes in laws or regulations;
investments in new technologies; continuation of sales levels; the risks related
to the cost and availability of capital; and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this report are qualified by these cautionary statements and
there can be no assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business
operations. Readers are urged to carefully review and consider various
disclosures made by the Company in its filings with the Securities and Exchange
Commission to advise interested parties of certain risks and other factors that
may affect the Company's business and operating results.
General
Laser-Pacific Media Corporation ("Laser-Pacific" or the "Company") was
formed by a merger of Spectra Image, Inc. and Pacific Video, Inc. in September,
1990. Both of the predecessor companies were organized in 1983.
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.
The Company's interest in PVC grew to 77% as of December 31, 1997. On May 15,
1998 the Company sold its interest in PVC and realized a net gain of $875,000.
Laser-Pacific is a leading provider of a broad range of post-production
services to the Hollywood motion picture film and television industry. These
post-production services include technical and creative services to the
producers of prime-time network television series and television movies,
services for the creation of digital masters for high definition and standard
definition television, home video, DVD as well as other master delivery formats.
In addition, the Company provides motion picture film processing, technical and
creative services for visual effects, digital sound editing and mixing and other
ancillary and related services that assist in the preparation of film,
television and digital content for a variety of distribution methods.
The Company is recognized as an industry leader and pioneer in the
development and introduction of new methods and technology in service of
television, motion pictures and digital multimedia. The Company led the
television industry in the move from film to electronic and digital based
techniques in post-production through the introduction of its proprietary
Electronic Laboratory(TM) and has received four Emmy Awards for Outstanding
Achievement in Engineering for its developments. The Company's new high
definition television and movie mastering capabilities are reinforcing the long
standing reputation for state-of-the-art services and facilities.
The Company offers a full range of post-production services to
television producers at its facilities in Hollywood, California and Burbank,
California. These services, which begin immediately after completion of
photography and end with the delivery of a videotape master ready for television
broadcasting, include film processing, film to videotape transfer, electronic
editing of the videotape (including the addition of special effects and titles),
color correction, sound editing and mixing, and duplication.
<PAGE>
The principal categories of services offered by the Company are:
Motion Picture Film Processing - The Company operates five negative processing
machines at its Pacific Film Laboratories facility, located in Hollywood,
California. These machines are used to develop customers' negatives after
photography, with the capacity to develop approximately 2 million feet of film
per week.
Telecine Transfer - The Company operates eight telecine suites that are used to
transfer customers' film to videotape for subsequent post-production processing.
These telecine suites are used for daily transfers for electronic
post-production as well as video masters of completed motion pictures. Currently
five telecine suites are used for digital standard definition and three are used
for both digital standard definition as well as digital high definition.
Editing - The Company operates nine editing suites, five in its Hollywood
facility and four in its Burbank facility, for preparing broadcast quality
videotape masters for its customers. These editing suites are primarily used for
assembly of television programs, visual effects, and adding titles and graphics.
Two of the rooms are equipped exclusively for high definition editing.
Additionally, the Company's Emmy Award winning Super-Computer Assembly system
provides the show assembly capability equivalent of four or five additional
conventional editing rooms.
Color Timing - The Company operates five timing suites that are used for the
final color balancing and image enhancement of customers' programs. Two of these
suites are equipped specifically for digital high definition programs.
Digital Graphics and Visual Effects - The Company's Visual Effects Department,
located at the Burbank facility, is equipped with several digital video effects
systems specifically designed to create graphical elements, special effects,
titles and other specialized work for television and motion pictures.
Sound Editing and Mixing - The Company's post-production sound department,
Pacific Sound Services, includes ten digital sound editing systems, a sound
effects and dialogue recording studio, and a re-recording studio for
accomplishing the final sound mix of customers' programs.
Digital Compression Services - Using an IBM SuperComputer and other specialized
computer systems, the Company provides digital compression and related services
which results in the creation of data recordings for use in CD-ROM, digital file
servers and video-on-demand applications. The Company also provides digital
compression and "authoring" services for the new DVD format. "Authoring" is the
industry term that describes the creation of disc navigation and interactivity
capability in a DVD replication master, including DVD menu design and
formatting.
Duplication and Other Services - The Company provides duplication, restoration,
digital file conversion, screening, and a variety of other services at its
Hollywood and Burbank locations to fulfill the production and delivery needs of
its customers.
Employees
At December 31, 1999, the Company had approximately 225 employees.
Approximately 35 employees are represented by the International Alliance of
Theatrical and Stage Employees pursuant to a collective bargaining agreement,
which expires July 15, 2001. The Company has never experienced a work stoppage,
and considers its relations with its employees to be excellent.
Competition
The Company experiences competition in all phases of its business from a
number of companies. Some of the Company's competitors specialize in specific
service areas, such as sound, laboratory, or editing, and some are fully
integrated and offer a complete range of post-production services. Some of the
Company's competitors have financial resources that are materially greater than
the Company's. Some of the Company's customers have post-production
capabilities. Due to the nature of the Company's core business, post-production
for television programs, the majority of the Company's competitors are located
in the Southern California area.
<PAGE>
ITEM 2. PROPERTIES
The Company owns a 29,000 square foot building located on a 39,000
square foot lot in Hollywood, California where it provides film processing and
sound editing and mixing services. In addition, the Company leases approximately
25,000 square feet in six buildings in Hollywood, California, which contain its
executive offices and the balance of its Hollywood post-production facilities,
primarily on a month-to-month basis. The Company also leases approximately
12,000 square feet at a location in Burbank, California on a month-to-month
basis. The Company believes that its facilities are adequate for its operations
as now conducted. If operations continue to expand the Company will acquire
additional space.
The Company believes that its facilities, some of which include the use
of chemical products, substantially comply with all applicable environmental and
other laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company may have certain contingent liabilities and claims incident
to the ordinary course of business. The Company is not involved in any material
litigation at this time and is not aware of any pending lawsuits. Management
believes that the probable resolution of such contingencies will not materially
affect the financial position, results of operations, or liquidity of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is traded on NASDAQ National Markettm under
the symbol LPAC. The following table reflects the range of high and low selling
prices of the Company's common stock by quarter for 1999 and 1998. This
information is based on selling prices as reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
1999
<S> <C> <C>
First Quarter $4.2500 $1.6875
Second Quarter $6.9375 $3.0000
Third Quarter $9.4375 $5.5625
Fourth Quarter $12.8750 $7.7500
1998
First Quarter $0.9375 $0.1250
Second Quarter $2.5000 $0.5000
Third Quarter $1.1875 $0.6875
Fourth Quarter $2.4062 $0.7500
</TABLE>
The Company had 183 stockholders of record on March 13, 2000. This
number does not include the several hundred stockholders holding their stock in
street name. On March 13, 2000, 6,585,117 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>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $30,991 $30,699 $28,291 $28,878 $28,693
Operating expenses:
Direct............................. 19,753 19,183 18,343 18,847 18,022
Depreciation and amortization...... 3,258 3,572 4,207 5,318 4,983
--------------- ------------ ------------- -------------- --------------
23,012 22,755 22,550 24,165 23,005
--------------- ------------ ------------- -------------- --------------
Gross profit........................... 7,980 7,944 5,741 4,713 5,688
Selling, general and administrative 4,570 4,616 4,279 4,678 4,978
expense.....
Write off property and equipment...... --- --- --- 148 ---
--------------- ------------ ------------- -------------- --------------
Income (loss) from 3,410 3,328 1,461 (113) 710
operations..........................
Interest expense.................... (1,241) (1,288) (1,563) (1,563) (1,813)
Gain on sale of subsidiary.......... --- 875 --- --- ---
Other income........................ 2,382 133 41 42 404
Minority interest income (loss)..... --- (19) (54) (53) (59)
Income tax (expense)benefit......... 285 (109) (232) (165) (291)
--------------- ------------ ------------- -------------- --------------
Net income (loss) before litigation 4,836 2,920 (347) (1,852) (1,049)
settlement...
Litigation settlement............. --- --- --- --- 3,209
--------------- ------------ ------------- -------------- --------------
Net income (loss).................. 4,836 2,920 (347) (1,852) 2,160
=============== ============ ============= ============== ==============
Basic net income (loss) before litigation
settlement per share............. $0.65 $0.41 ($0.05) ($0.26) ($0.16)
Net income (loss) per share (basic) $0.65 $0.41 ($0.05) ($0.26) $0.33
--------------- ------------ ------------- -------------- --------------
Net income (loss) per share (diluted) $0.62 $0.39 ($0.05) ($0.26) $0.32
--------------- ------------ ------------- -------------- --------------
Weighted average shares outstanding (basic) 7,491 7,163 7,128 7,061 6,568
=============== ============ ============= ============== ==============
Weighted average shares outstanding (diluted) 7,838 7,510 7,128 7,061 6,711
=============== ============ ============= ============== ==============
Balance Sheet Data:
Working capital (deficiency).... $3,231 $2,769 ($2,332) ($2,498) ($2,099)
Total assets.................... 29,497 20,226 22,488 22,304 28,172
Current installments of notes payable,
notes payable to related parties, and
long-term debt.................. 3,718 2,462 5,894 5,278 6,521
Long-term debt, excluding current
installments.................... 10,303 7,629 8,139 7,959 7,893
Net stockholders'equity......... $13,676 $8,712 $5,772 $6,101 $7,458
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
1999 Compared to 1998
Revenues for the year ended December 31, 1999 increased to $31.0
million from $30.7 million for 1998, an increase of $0.3 million or 1.0%.
Revenues at the Company's U.S. facilities increased significantly while revenues
from international operations were eliminated as the result of the sale of the
Company's Canadian subsidiary Pacific Video Canada Ltd. (PVC) on May 15, 1998.
All of Laser Pacific's international operations are attributable to PVC. The
revenues for the year ended December 31, 1999 at the Company's U.S. facilities
increased $3.2 million or 11.5% versus 1998, while revenues from international
operations decreased $2.9 million versus the year-ago period. The increase in
revenues at U.S. facilities is comprised of an increase of $3.7 million in
Post-Production Services, a decrease of $281,000 in Film Production Services and
a decrease of $236,000 in Production Services. The Company's Production Services
rental business has declined over the last four years and was discontinued in
October 1999. The increase in the Company's Post-Production Services at U.S.
facilities is attributable to an increased demand for the Company's services
with increases in high definition services, digital compression services;
including digital video discs, and revenues from feature film mastering.
Revenues from digital compression services, digital video discs, special effects
and feature film mastering increased $948,000. The revenue decrease in Film
Production Services reflects increased use by some customers of film formats
that require a lower volume of film processing.
For the year ended December 31, 1999, the Company recorded a gross
profit of $7,980,000 compared with $7,944,000 for the same year ago period, an
increase of $36,000 or 0.4%. The gross profit for the year ended December 31,
1998 includes $815,000 attributable to Pacific Video Canada. The gross profit
from the Company's continuing operations increased $851,000 or 11.9% versus the
year-ago period. The increase in gross profit from continuing operations is
primarily the result of increased sales volume discussed above that was
partially offset by increased operating costs, as explained below.
Operating costs, excluding depreciation and amortization discussed
below, for the year ended December 31, 1999 were $19,753,000 versus $19,183,000
for the year-ago period, an increase of $570,000 or 3.0%. The increase in
operating cost at the Company's U.S. facilities was significantly offset by the
elimination of operating costs attributable to PVC. The operating costs for the
year ended December 31, 1999 at the Company's U.S. facilities increased
$2,290,000 or 13.1% versus 1998, while operating costs from Canada in 1998
amounted to $1,720,000. The increase in operating costs at the Company's U.S.
facility is primarily due to an increase in wages and salaries of $1,600,000 and
an increase in bad debt expense of $518,000. Total operating costs, including
depreciation and amortization, as a percentage of revenues for the year ended
December 31, 1999 were 74.2% compared with 74.1% for the same year-ago period.
Selling, general and administrative (SG&A) for the year ended December
31, 1999 were $4,570,000 as compared to $4,616,000 during the same year-ago
period, a decrease of $46,000 or 1.0%. There was an increase in SG&A of $560,000
at the Company's U.S. facilities while SG&A attributable to PVC of $606,000 was
eliminated. The increase of SG&A in the U.S. is primarily attributable to
increases in advertising and promotion, and higher wages for non-operations
staff.
Interest expense for the year ended December 31, 1999 was $1,241,000
compared to $1,288,000 for the same year-ago period, a decrease of $47,000 or
3.6%. The decrease in interest expense is the result of lower interest rates,
elimination of a real estate loan, decreased borrowing from CIT and the
elimination of interest expense related to PVC (discussed above). The reduction
was offset by an increase in interest expense on the additional borrowing for
equipment acquisitions in the third and fourth quarters of 1999.
Depreciation expense for the year ended December 31, 1999 was
$3,258,000 compared to $3,572,000 for the same year-ago period, a decrease of
$314,000 or 8.8%. The depreciation expense reduction is the result of the sale
of PVC (discussed above). The reduction was offset by an increase in
depreciation expense on the equipment acquired throughout 1999 with the majority
being acquired in the third and fourth quarters of 1999.
<PAGE>
Other income for the year ended December 31, 1999 was $2,382,000
compared to other income of $133,000 in 1998. The other income in 1999 is
primarily the result of a technology development agreement that the Company
entered into with a major equipment manufacturer and supplier. Under the
agreement the Company provided research development and engineering services
related to the development of technical equipment used in connection with high
definition post-production. The Company also gave the other party all rights to
the patents and licenses related to the technology. In consideration for these
rights and the services provided, the Company received replacement equipment,
discounts on the purchase of equipment and the cancellation of rental payments
under a capital lease obligation due to the equipment supplier. The Company
recognized income of $2,187,000 during the fourth quarter of 1999 pursuant to
this agreement. Revenue recognition was deferred until the end of the fourth
quarter as the earnings process was not complete until December 31, 1999 when
the collaboration was complete. Costs that the Company incurred in connection
with the agreement were expensed, primarily as operating costs, as incurred
throughout the year ended December 31, 1999. The Company does not anticipate
future revenue recognition from the technology development agreement. The 1998
other income was primarily from the sale of used equipment.
On May 15, 1998 the Company sold all of its investment in PVC to
Command Post and Transfer Corporation. The Company realized cash consideration
of $3,830,000 and recognized a net gain on sale of $875,000. The total sales
price of $3,830,000 was determined through arms-length negotiations. The
proceeds were used to reduce outstanding debt and to provide working capital.
The income tax benefit of $285,000 is comprised of a deferred income
tax benefit of $500,000 resulting from a reduction in the valuation allowance to
reflect the anticipated future benefit from operating loss carryforwards which
are likely to be utilized in 2000 partially offset by current income tax expense
of $215,000. The 1999 income tax expense is comprised of U.S. Federal Income Tax
of $70,000 and State Income Tax in the amount of $145,000. The U.S. Federal and
State Income Tax is primarily composed of alternative minimum tax. This occurred
because net operating loss carryforwards were utilized to offset taxable income.
The full benefit of the net tax operating loss carryforwards is limited for
alternative minimum tax purposes. The benefit of the State net tax operating
loss was completely utilized as of December 31, 1999. In 1998 Income Tax expense
of $109,000 was comprised of U.S. Federal and State Income Tax in the amount of
$55,000 and $54,000 in foreign tax. The U.S. Federal and State Income Tax in
1998 was primarily composed of alternative minimum tax. Foreign income tax
relates to Canadian income tax imposed on the pre-tax income of the Canadian
subsidiary through May 15, 1998.
As of December 31, 1999, the Company has recorded gross deferred tax
assets of $4,804,000 a related valuation allowance of $2,194,000 and deferred
tax liabilities of $2,110,000 (see note 6 to the consolidated financial
statements). In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management can not predict at this time that
the Company will realize all of the benefits of these deductible differences.
Based on these assessments, the valuation allowance was reduced in 1999 by
$2,173,000.
As a consequence of the above factors, the Company reported net income
of $4,836,000 or $0.62 (diluted) per share in 1999 versus reported net income of
$2,920,000 or $0.39 (diluted) per share in 1998.
Fourth Quarter 1999
The Company's financial performance and results of operations during
the fourth quarter of 1999 are not indicative of the Company's normal operating
performance on a comparative basis. Additional other income, bad debt expense
and income tax benefit were recognized in the fourth quarter 1999. The
additional income and expense were recorded in the fourth quarter 1999 because
the certainty of recognition and or dollar value of the adjustments were not
known or ascertainable prior to the year end.
Revenues for the three months ended December 31, 1999 increased
$192,000 or 2.0% from the same period in 1998. Revenues from Post-Production
Services related to the Company's core business on episodic television shows
increased $903,000. The increase was offset by decreased revenue from the
following services. 1) A decrease in revenues of $260,000 from film processing
as the result of increased use by some customers of film formats that require a
lower volume of film processing. 2) The elimination of the Company's production
rental services business in October 1999 and anticipated lower revenues from
laser disc services resulted in a $204,000 decrease in revenues. 3) Feature film
mastering revenues decreased $247,000 due to scheduling delays by our customers
and high definition capacity issues related to the expansion of our facilities.
For the three months ended December 31, 1999, the Company's gross
profit decreased $821,000 or 23.7%. The decrease in gross profit is the result
of the low growth of sales discussed above and increased operating costs. The
increase in operating costs is primarily the result of an increase in
depreciation expense of $197,000, an increase in labor cost of $300,000 and an
increase in bad debt expense of $463,000. The increase in depreciation expense
is the result of depreciation on new equipment acquired throughout 1999. The
majority of the equipment was acquired in the third and fourth quarters of 1999.
The increase in labor cost is the result of an increased number of employees,
compensation increases and other business reasons. The increase in bad debt
expense is the result of the Company increasing the reserve for bad debt due to
the possibility of the customers not paying their outstanding debt timely. The
Company is pursuing various alternatives to collect these obligations. Total
operating costs, including depreciation and amortization, as a percentage of
revenues for the three months ended December 31, 1999 were 72.6% compared with
63.4% for the same year-ago period.
The increase in other income during the fourth quarter 1999 is
primarily the result of a technology development agreement that the Company
entered into with a major equipment manufacturer and supplier. This is discussed
in detail above. The Company recognized income of $2,187,000 during the fourth
quarter of 1999 pursuant to this agreement. Revenue was not recognized until
December 31, 1999 when all contingencies were met on conclusion of the
agreement.
Deferred income tax benefit of $500,000 resulting from a reduction in
the valuation allowance to reflect the anticipated future benefit from operating
loss carryforwards that are likely to be utilized in 2000 was recognized during
the fourth quarter 1999. This is discussed in detail above.
1998 Compared to 1997
On May 15, 1998 the Company sold all of its investment in PVC to
Command Post and Transfer Corporation. The Company realized cash consideration
of $3,830,000 and recognized a net gain on sale of $875,000. The total sales
price of $3,830,000 was determined through arms-length negotiations. The
proceeds were used to reduce outstanding debt and to provide working capital.
Revenues for the year ended December 31, 1998 increased to $30.7 million
from $28.3 million for 1997, an increase of $2.4 million or 8.5%. The overall
increase in revenues was offset by a decline in revenues from international
operations, which is the result of the sale of our Canadian subsidiary Pacific
Video Canada Ltd. (PVC) on May 15, 1998. All of Laser Pacific's international
operations are attributable to PVC. The revenues for the year ended December 31,
1998 at the Company's U.S. facilities increased $4.8 million or 20.9% versus
1997, while revenues from international operations decreased $2.4 million versus
the year-ago period.
The increase in revenues at U.S. facilities is comprised of an increase of
$4.7 million in Post-Production Services, an increase of $182,000 in Film
Production Services and a decrease of $95,000 in Production Services. The
Company's Production Services rental business has declined over the last four
years and is no longer material to the Company's sales or operating profits. The
increase in revenues at the Company's U.S. facilities for Post-Production
Services is attributable to an increased demand for the Company's
Post-Production Services with significant increases in digital compression
services; including digital video discs, and revenues from feature film
mastering, a service the Company began offering in November 1997. The increase
in revenues from compression services amounted to $1,183,000 for the period,
while revenues from high definition services increased $893,000 for the period.
The revenue increase in Film Production Services reflects an overall increased
demand for negative film services, offset by the elimination of positive film
services in 1998. Negative film services increased $531,000 or 18.9% during
1998.
Operating costs excluding depreciation for the year ended December 31,
1998 were $19,183,000 versus $18,343,000 for the year-ago period, an increase of
$840,000 or 4.6%. There was an increase in operating cost at the Company's U.S.
facilities in addition to the decline in operating costs from international
operations, which is the result of the sale of PVC. The operating costs for the
year ended December 31, 1998 at the Company's U.S. facilities increased
$1,828,000 or 11.3% versus 1997, while operating costs from Canada decreased
$1,088,000 versus the year-ago period. The increase in operating costs from the
Company's U.S. operations is attributable primarily to an increase in labor
costs of $2,043,000 which is a result of a higher number of employees. These
increases in labor costs were partially offset by a reduction in depreciation
expense at the U.S. facilities of $323,000. Operating costs as a percentage of
revenues for the year ended December 31, 1998 were 62.5% compared with 64.8% for
the same year-ago period.
<PAGE>
Depreciation expense for the year ended December 31, 1998 was
$3,572,000 compared to $4,207,000 for the same year-ago period, a decrease of
$635,000 or 15.1%. The depreciation expense reductions were the result of the
sale of PVC (discussed above), and a reduction in the net capital acquisitions
in 1998 from 1997. The decrease in depreciation expense in the U.S. was $323,000
for the period.
For the year ended December 31, 1998, the Company recorded a gross
profit of $7,944,000 compared with $5,741,000 for the same year ago period, an
increase of $2,203,000 or 38.4%. The gross profit for the year ended December
31, 1998 at the Company's U.S. facilities increased $3,174,000 or 80.3% versus
the year-ago period, while gross profit from Canada decreased $971,000 versus
the year-ago period. The increase in gross profit at U.S. facilities is the
result of increased sales volume, discussed above, offset by increased operating
costs, as explained below.
Selling, general and administrative (SG&A) for the year ended December
31, 1998 were $4,616,000 as compared to $4,279,000 during the same year-ago
period, an increase of $337,000 or 7.9%. There was an increase in SG&A of
$384,000 at the Company's U.S. facilities while SG&A for international
operations decreased $47,000 as the result of the sale of PVC discussed above.
The increase of SG&A in the U.S. is primarily attributable to increases in
advertising and promotion, and higher wages for non-operations staff.
Interest expense in 1998 was $1,288,000 versus $1,563,000 in 1997, a
decrease of $275,000. The decrease in interest expense is the result of lower
borrowing in the U.S., the elimination of related debt of PVC (discussed above)
and the negotiation of lower interest rates with the Company's lenders. Interest
expense decreased $232,000 in the U.S. Total U.S. debt was reduced significantly
after May 15, 1998 with the proceeds from the sale of PVC.
For the year ended December 31, 1998, the Company had other income of
$133,000 compared to other income of $41,000 in 1997. The increase of $92,000 in
1998 was comprised primarily of the proceeds from the sale of equipment.
The provision for income tax of $109,000 for 1998 is comprised of U.S.
Federal and State Income Tax in the amount of $55,000 and $54,000 in foreign
tax. The U.S. Federal and State Income Tax is primarily composed of alternative
minimum tax. This occurred because net operating loss carryforwards were
utilized against U.S. pre-tax income. The full benefit of the net tax operating
loss carryforwards is limited for alternative minimum tax purposes. Foreign
income tax relates to Canadian income tax imposed on the pre-tax income of the
Canadian subsidiary through May 15, 1998. 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.
As of December 31, 1998, the Company has recorded gross deferred tax
assets of $5,389,000, a related valuation allowance of $4,367,000 and deferred
tax liabilities of $1,022,000 (see note 6 to the consolidated financial
statements). In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believed it was more likely than
not the Company may not realize all of the benefits of these deductible
differences.
As a consequence of the above factors, the Company reported net income
of $2,920,000 or $0.39 (diluted) per share in 1998 versus a net loss of $347,000
or $0.05 per share in 1997.
<PAGE>
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 which has been amended and extended to August
3, 2001. The maximum credit under the agreement is $9 million. The amended loan
agreement provides for borrowings of up to $5.4 million under the term loan
(limited to 100% of eligible equipment appraisal value) and $3.6 million under
the revolving loan (limited to 85% of eligible accounts receivable). The
outstanding balance of the term loan was $2,672,000 at December 31, 1999. It is
payable in monthly installments of $81,000 plus interest at prime plus 1%
amortizing through August 3, 2003. Principal payments are not required in June,
July or August. The revolving loan had an outstanding balance of $22,000 at
December 31, 1999, and at March 1, 2000, $3,600,000 was available under the
revolving loan. The revolving loan bears interest at prime plus 1%, which is
payable monthly. The loan agreement contains automatic renewal provisions for
successive terms of two years thereafter unless terminated as of August 3, 2001
or as of the end of any renewal term by either party by giving the other party
at least 60 days written notice.
During the year ended December 31, 1999 the Company entered into
capital lease obligations amounting to $8,060,000 with various lenders in
connection with the acquisition of equipment. The capital leases are for terms
of up to 60 months, at fixed interest rates ranging from 8% to 9%. The
obligations are secured by the equipment that was financed. The equipment was
acquired to expand the Company's capabilities and to support the increasing
demand for the Company's services. Projected cash flow and existing credit
arrangements are adequate to fund additional purchases and commitments.
The Company's principal source of funds is cash generated by
operations. On an annual basis, the Company anticipates that existing cash
balances, availability under existing loan agreements and cash generated from
operations will be sufficient to service existing debt and to meet the Company's
capital requirements for fiscal 2000.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. In
July 1999, the FASB issued Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 ("SFAS No. 137"). As amended by SFAS
No. 137, SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. The Company does not have any derivative instruments or hedging activities
and accordingly, believes that adoption of SFAS No. 133 will not have a
significant effect on its consolidated financial position or results of
operations.
Revenue Recognition in Financial Statements
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company believes
that adoption of this Bulletin will not have a significant effect on its
consolidated results of operations or financial position.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. The Company does not invest, and during the
year ended December 31, 1999 did not invest, in market risk sensitive
instruments.
Market Risk. The Company's market risk exposure with respect to
financial instruments is to changes in the "prime rate" in the United States.
The Company had borrowings of $2,672,000 at December 31, 1999 under a term loan
(discussed above) and may borrow up to $3.6 million under a revolving loan.
Amounts outstanding under the term loan and revolving credit facility bear
interest at the bank's prime rate plus 1%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements for the Company and independent
auditors' report therein are set forth on pages 12 through 32 incorporated
herein. See Page 12 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
<TABLE>
<CAPTION>
<S> <C>
Page
Consolidated Financial Statements:
Independent Auditors' Report 13
Consolidated Balance Sheets - December 31, 1999 and 1998 14
Consolidated Statements of Operations - Years Ended December 31, 1999, 1998 and 1997 16
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998 and 1997 17
Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 18
Notes to Consolidated Financial Statements 20
Consolidated Financial Statement Schedule - Valuation and Qualifying Accounts - Years Ended December 31,
1999, 1998 and 1997 32
</TABLE>
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 schedule 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, 1999 and 1998 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 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 LLP
Los Angeles, California
March 10, 2000
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 2,398,407 $ 1,159,206
Receivables:
Trade (note 5) 6,354,747 5,540,510
Other 156,653 250,905
----------------- ----------------
6,511,400 5,791,415
Less allowance for doubtful receivables 1,371,737 1,044,272
----------------- ----------------
5,139,663 4,747,143
----------------- ----------------
Inventory (note 5) 226,812 216,156
Prepaid expenses and other current assets 484,467 531,730
Deferred income tax asset (note 6) 500,000 --
----------------- ----------------
Total current assets 8,749,349 6,654,235
----------------- ----------------
Net property and equipment, at cost (notes 3 and 5) 20,333,846 13,219,739
Other assets, net 414,115 352,325
----------------- ----------------
$ 29,497,310 $ 20,226,299
================= ================
(Continued)
</TABLE>
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(Continued)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1999 1998
----------------- -----------------
<S> <C> <C>
Current liabilities:
Current installments of notes payable to bank and
long-term debt (note 5) $ 3,718,270 $ 2,462,324
Accounts payable 297,334 268,649
Accrued expenses 1,479,881 1,137,320
Income taxes payable (note 6) 22,820 17,230
----------------- -----------------
Total current liabilities 5,518,305 3,885,523
----------------- -----------------
Notes payable to bank and long-term debt, less current
installments (note 5) 10,303,320 7,628,588
Stockholders' equity (notes 7 and 8):
Preferred stock, $.0001 par value. Authorized
3,500,000 shares; none issued -- --
Common stock, $.0001 par value. Authorized 25,000,000
shares; issued and outstanding 7,654,646 and
7,222,575 shares at December 31, 1999 and 1998,
respectively 765 722
Additional paid-in capital 19,919,956 19,792,737
Accumulated deficit (6,245,036) (11,081,271)
----------------- -----------------
Net stockholders' equity 13,675,685 8,712,188
----------------- -----------------
$ 29,497,310 $ 20,226,299
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues $ 30,991,155 $ 30,699,137 $ 28,290,924
------------------ ------------------ ------------------
Operating expenses:
Direct 19,753,055 19,183,337 18,343,474
Depreciation and amortization 3,258,483 3,571,744 4,206,915
------------------ ------------------ ------------------
23,011,538 22,755,081 22,550,389
------------------ ------------------ ------------------
Gross profit 7,979,617 7,944,056 5,740,535
Selling, general and administrative expenses 4,569,665 4,616,364 4,279,026
------------------ ------------------ ------------------
Income from operations 3,409,952 3,327,692 1,461,509
Interest expense (1,241,356) (1,287,920) (1,563,316)
Gain on sale of subsidiary (note 4) -- 874,578 --
Other income (note 12) 2,382,639 133,325 40,688
Minority interest in net income of consolidated
subsidiary (note 4) -- (19,132) (54,070)
------------------ ------------------ ------------------
Income (loss) before income taxes 4,551,235 3,028,543 (115,189)
Income tax (benefit) expense (note 6) (285,000) 109,000 232,000
------------------ ------------------ ------------------
Net income (loss) $ 4,836,235 $ 2,919,543 $ (347,189)
================== ================== ==================
Net income (loss) per share (basic) $ .65 $ .41 $ (.05)
================== ================== ==================
Net income (loss) per share (diluted) $ .62 $ .39 $ (.05)
================== ================== ==================
Weighted average shares outstanding (basic) 7,491,148 7,163,047 7,128,172
================== ================== ==================
Weighted average shares outstanding (diluted) 7,837,551 7,510,300 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, 1999, 1998, and 1997
<TABLE>
Common Stock
-----------------
<CAPTION>
Additional Net
Preferred Number of paid-in Accumulated stockholders'
Stock shares Amount capital deficit equity
------------ ---------------- ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 --- 7,128,172 713 19,753,690 (13,653,625) 6,100,778
Warrant issuance --- --- 18,750 --- 18,750
Net loss --- --- --- (347,189) (347,189)
-------------- ------------------ ------------ --------------- ---------------- ---------------
Balance at December 31, 1997 --- 7,128,172 $ 713 19,772,440 (14,000,814) 5,772,339
-------------- ------------------ ------------ --------------- ---------------- ---------------
Stock issuances 94,403 9 20,297 --- 20,306
Net income 2,919,543 2,919,543
-------------- ------------------ ------------ --------------- ---------------- ---------------
Balance at December 31, 1998 --- 7,222,575 $ 722 19,792,737 (11,081,271) 8,712,188
-------------- ------------------ ------------ --------------- ---------------- ---------------
Stock issuances 432,071 43 127,219 --- 127,262
Net income 4,836,235 4,836,235
-------------- ------------------ ------------ --------------- ---------------- ---------------
Balance at December 31, 1999 --- 7,654,646 $ 765 19,919,956 (6,245,036) 13,675,685
============== ================== ============ =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 4,836,235 $ 2,919,543 $ (347,189)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 3,258,483 3,171,887 4,206,915
Cancellation of capital lease obligation (1,276,997) --- ---
Provision for doubtful accounts receivable 793,315 274,996 279,848
Deferred income tax benefit (500,000) --- ---
Write-off of property and equipment 264 39,911 ---
Gain on sale of subsidiary --- (874,578) ---
Gain on sale of plant, property and equipment (102,808) (152,592) (27,670)
Other 74,076 847 32,057
Change in assets and liabilities:
(Increase) decrease in:
Receivables (1,185,912) (1,229,644) (545,308)
Inventory (10,656) 33,977 24,541
Prepaid expenses and other current assets 47,263 (127,793) (118,836)
Other assets (61,790) 35,147 77,258
Increase (decrease) in:
Accounts payable 28,685 (47,684) (122,280)
Accrued expenses 342,562 153,124 (207,030)
Income taxes payable 5,590 12,689 (8,915)
--------------- --------------- -----------------
Net cash provided by operating activities $ 6,248,310 $ 4,209,830 $ 3,243,391
--------------- --------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (2,313,187) (1,502,736) (1,762,672)
Proceeds from disposal of property and equipment 102,808 160,422 33,946
Net effect of sale of subsidiary --- 3,402,091 ---
--------------- --------------- -----------------
Net cash (used in) provided by investing activities $ (2,210,379) $ 2,059,777 $ (1,728,726)
--------------- --------------- -----------------
(Continued)
</TABLE>
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Continued)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds borrowed under notes payable to bank and
long-term debt $ --- $ 1,013,477 $ 1,241,808
Net repayments of notes payable to bank and
long-term debt (2,851,992) (5,611,547) (3,572,192)
(Repayments) borrowings of notes payable to related
parties --- (900,000) 900,000
Net proceeds from stock issuance 53,262 20,306 ---
---------------- -------------- --------------
Net cash used in financing activities $ (2,798,730) $ (5,477,764) $ (1,430,384)
---------------- -------------- --------------
Net increase in cash 1,239,201 791,843 84,281
Cash at beginning of year 1,159,206 367,363 283,082
---------------- -------------- --------------
Cash at end of year $ 2,398,407 $ 1,159,206 $ 367,363
================ ============== ==============
Supplementary disclosure of cash flow information: Cash paid during the year
for:
Interest $ 1,241,000 $ 1,288,000 $ 1,600,000
State income taxes 145,000 25,000 1,200
================ ============== ==============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1999 the Company received cancellation of rental payments under a capital
lease obligation, equipment upgrades and equipment in the amount of $2,187,000
related to a technology development agreement (note 12).
The Company purchased property and equipment, financed through capital lease
obligations, of $8,059,667, $3,065,945 and $2,226,841 during 1999, 1998 and
1997, respectively.
See accompanying notes to consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Nature of Business and Basis of Presentation
Laser-Pacific Media Corporation, a Delaware corporation, is a result of a
business combination transaction between Spectra Image and Pacific Video,
Inc. consummated in September 1990. Both of these entities were organized
in 1983. Laser-Pacific provides of a broad range of post-production
services to the Hollywood motion picture film and television industry.
Per the Company's 8-K Filing as of June 1, 1998, the Company sold their
equity interest in their majority owned (77%) subsidiary Pacific Video
Canada (PVC). Proceeds from the sale were approximately $3.8 million net
of transaction costs. The Company recorded a gain on the transaction of
approximately $875,000. See note (4)
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Laser-Pacific and subsidiaries. Accordingly, all significant
inter-company accounts and transactions have been eliminated in
consolidation.
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).
Other Assets
Other assets at December 31, 1999 and 1998 consist primarily of security
and utility deposits.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
Revenue Recognition and Credit Risk
Revenue is recognized as services are performed. The Company sells
services to customers in the entertainment industry, principally located
in Southern California. Management performs regular evaluations
concerning the ability of its customers to satisfy their obligations and
records a provision for doubtful accounts based upon these evaluations.
The Company had one significant customer in 1999, 1998 and 1997, which
accounted for approximately 15%, 17% 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. Revenues and expenses have
been translated at the weighted average rate of exchange during the
period. Foreign currency translation adjustments were immaterial to the
accompanying consolidated financial statements. The only foreign
subsidiary was sold in 1998 (note 4).
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by comparing the carrying amount of the assets to their fair
value. The Company did not record any impairment charges during 1999,
1998 or 1997.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with 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 to the
current year's presentation.
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations,
in accounting for stock options issued to employees and directors of the
Company. As such, compensation expense would be recorded on the date of
grant only if the current market price of underlying stock exceeded the
exercise price.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
Comprehensive Income
The Company adopted the SFAS No. 130, "Reporting Comprehensive Income" on
January 1, 1998. SFAS No. 130 establishes standards to measure all
changes in equity that result from transactions and other economic events
other than transaction with owners. Comprehensive income is the total of
net earnings (loss) and all other non-owner changes in equity. The
Company does not have any transactions or other economic events that
qualify as comprehensive income as defined under SFAS No. 130. As such,
net earnings (loss) represented comprehensive income for each of the
years in the three year period ended December 31, 1999.
Disclosures about Segments of an Enterprise
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise." This statement establishes standards for
reporting and disclosures of certain information about operating
segments in complete sets of financial statements. The Company adopted
SFAS No. 131 effective January 1, 1998. Under the management approach of
SFAS No. 131, the Company operates in certain geographic segments.
See note 10.
Income (Loss) per Share
Basic earnings (loss) per share (EPS) is computed by dividing income
(loss) 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. For the year
ended December 31, 1997, stock options issued under the Company's Stock
Option Plans and warrants were not included in the computation of diluted
EPS because to do so would have been antidilutive. As of December 31,
1998, the dilutive effect on the weighted average shares outstanding,
assuming dilution, was an increase of 305,644 and 41,609 shares relating
to options and warrants, respectively. As of December 31, 1999, the
dilutive effect on the weighted average shares outstanding, assuming
dilution, was an increase of 133,598 and 212,805 shares relating to
options and warrants, respectively.
(3) Property and Equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------------ ---------------------
<S> <C> <C>
Land $ 400,000 400,000
Buildings and improvements 2,861,028 2,835,990
Technical equipment 34,411,566 25,200,556
Furniture and fixtures 807,636 557,685
Automobiles 57,242 23,907
Leasehold improvements 877,144 828,835
------------------ ---------------------
39,414,616 29,846,972
Less accumulated depreciation and amortization 19,080,770 16,627,233
------------------ ---------------------
$ 20,333,846 13,219,739
================== =====================
</TABLE>
The Company leases technical equipment under capital leases expiring through
2004. Equipment under capital leases aggregated $15,664,116 and $9,235,818 and
related accumulated amortization aggregated $3,597,760 and $2,076,562 at
December 31, 1999 and 1998, respectively.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(4) Sale of Subsidiary
On May 15, 1998 the Company sold all of its investment in PVC to Command Post
and Transfer Corporation. The Company realized cash consideration of $3,830,000
and a gain on sale of $875,000.
PACIFIC VIDEO CANADA, Ltd.
Condensed Balance Sheet
April 30, 1998
Assets
Current Assets $ 1,225,429
Capital Assets 4,052,391
--------------------
Total Assets 5,277,820
====================
Liabilities
Current Liabilities 1,395,072
Long Term Debt and other liabilities 1,576,666
Equity
Share Capital 1,706,996
Retained Earnings 599,086
--------------------
Total Liabilities & Equity $ 5,277,820
====================
The statement of operations for PVC presented below reflects the amounts
attributable to PVC which are included in the condensed consolidated financial
statements of the Company, for the portion of year ended December 31, 1998,
prior to the sale.
PACIFIC VIDEO CANADA, Ltd.
Condensed Statement of Operations
Year ended
December 31, 1998
--------------------
Sales $ 2,894,972
Direct expenses 2,079,822
--------------------
Gross Profit 815,151
SG&A expenses 606,257
--------------------
Earnings from Operations 208,893
Interest and Other expenses 71,166
--------------------
Earnings before income taxes 137,727
Income taxes 54,544
--------------------
Net earnings before minority interest $ 83,183
====================
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(5) Notes Payable to Bank and Long-Term Debt
Notes payable to bank and long-term debt are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- -------------------
Term notes payable to bank under a $9,000,000 credit agreement,
secured by eligible accounts receivable, inventory, and property and
equipment, as defined, payable in nine monthly installments per year of
$81,000 plus interest at 9.75% through August 3, 2003. The loan contains
automatic renewal provisions for successive terms of two years thereafter
unless terminated as of August 3, 2001 or as of the end of a renewal term
by either party in which case the loan would become due and payable.
<S> <C> <C>
$ 2,694,296 3,404,631
Capital lease obligations (note 9) 11,327,294 6,686,281
---------------- -------------------
14,021,590 10,090,912
Less current installments 3,718,270 2,462,324
---------------- -------------------
$ 10,303,320 7,628,588
================ ===================
</TABLE>
The aggregate future maturities of notes payable to bank and long-term
debt exclusive of capital lease obligations are summarized as follows:
December 31:
2000 755,113
2001 732,724
2002 732,724
2003 473,735
------------------
$ 2,694,296
==================
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(6) Income Taxes
A summary of income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Current:
Federal $ 70,000 36,000 --
State 145,000 19,000 5,000
Foreign -- 54,000 204,000
----------------- ----------------- ----------------
Total 215,000 109,000 209,000
Deferred:
Federal (425,000) -- --
State (75,000) -- --
Foreign -- -- 23,000
----------------- ----------------- ----------------
Total (500,000) -- 23,000
Total expense (benefit) $ (285,000) 109,000 232,000
================= ================= ================
</TABLE>
The provision for income taxes at the Company's effective tax rate
differed from the U.S. Federal tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Federal income tax expense (benefit) at
"expected rate" $ 1,547,000 1,036,000 (41,000)
Expiration of net operating loss
carryforward -- -- 54,000
Nondeductible expenses 37,000 11,000 --
Other 26,000 21,000 19,000
State taxes, net of Federal effect 278,000 178,000 4,000
Impact of foreign taxation at different
rates -- 114,000 150,000
Minority interest -- 6,000 18,000
Change in valuation allowance for deferred
tax assets (2,173,000) (1,257,000) 28,000
------------------ ----------------- -----------------
Income tax expense (benefit) $ (285,000) 109,000 232,000
================== ================= =================
</TABLE>
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(6) Income Taxes (continued)
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999 and
1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carryforwards $ 3,370,000 3,952,000
Income tax credit carryforwards 658,000 877,000
Vacation pay 164,000 141,000
Reserve for bad debts 550,000 419,000
Other 62,000 ---
----------------- -----------------
Total gross deferred tax assets 4,804,000 5,389,000
Less valuation allowance 2,194,000 4,367,000
----------------- -----------------
Deferred tax assets $ 2,610,000 1,022,000
Deferred tax liabilities - property and
equipment (2,110,000) (1,022,000)
----------------- -----------------
Net deferred tax assets $ 500,000 ---
================= =================
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $9,910,000 that expire
principally from 2004 through 2012. The Company also has approximately
$658,000 of tax credits carryforwards, expiring through 2004.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable income
(losses) and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management currently does
not believe it is more likely than not the Company will realize all of
the benefits of these deductible differences, accordingly, a valuation
allowance has been recorded for net deferred tax assets. Based upon these
assessments, the valuation allowance was reduced in 1999 by $2,173,000.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(7) Stockholders' Equity
Common Stock
During 1999, the Company issued 294,487 shares of the Company's common
stock through the exercise of options granted to employees under the
Company's incentive stock option plan (see footnote 8). Additionally,
during 1999 the Company issued 137,584 shares of common stock to its
principal lender through the exercise of warrants previously granted. The
related warrants were issued in connection with a loan initiation and
renewal and were valued and recorded as debt issuance costs at the time
of issuance.
Warrants
In June 1997, the Company issued warrants to purchase 250,000 shares of
common stock to a related party, 35 Lake Avenue, in connection with a
short-term debt financing arrangement. The fair value of the warrants was
determined using the Black-Scholes option pricing model and was recorded
as debt issuance costs. Subsequent to December 31, 1997, the expiration
date of the warrants was extended to July 2001 at an exercise price of
$1.00. On the date of extension, the market value of the stock was less
than the exercise price.
(8) Stock-based Compensation and Other Option Grants
The Company's 1997 incentive stock option plan which provides for grants
of 500,000 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 plan are fully vested at December 31, 1999.
This plan was amended during 1999 increasing the number of stock options
by 500,000. Under a prior stock option plan, which has expired, 97,781
stock options remain outstanding and are exercisable at December 31,
1999.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
Activity under the plans for the years ended December 31, 1999, 1998 and
1997 follows:
<TABLE>
<CAPTION>
Weighted average
Number of shares exercise price Options exercisable
-------------------- --------------------- --------------------
<S> <C> <C> <C>
Shares under option at December 31, 1996 198,739 $ 3.97 198,736
Granted 459,400 0.22
Exercised -- --
Expired and terminated (40,220) 5.94
-------------------- --------------------- --------------------
Shares under option at December 31, 1997 617,919 1.05 617,916
Granted -- --
Exercised (94,403) 0.22
Expired and terminated (62,135) 5.88
-------------------- --------------------- --------------------
Shares under option at December 31, 1998 461,381 0.57 461,381
Granted 325,000 9.94
Exercised (294,487) 0.22
Expired and terminated (3,713) 0.22
-------------------- --------------------- --------------------
Shares under option at December 31, 1999 488,181 $ 7.02 488,181
==================== ===================== ====================
</TABLE>
The following table summarizes information about options outstanding under
the Plans at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------------------------------
Remaining
weighted average Weighted average
Shares outstanding contractual life exercise
and exercisable (in years) price
-------------------- --------------------- --------------------
<S> <C> <C> <C>
Range of Exercisable prices:
$0.22 65,400 8.00 $ 0.22
$0.50 30,000 0.80 0.50
$2.50 67,781 2.80 2.50
$9.94 325,000 10.00 9.94
-------------------- --------------------- --------------------
Total 488,181 8.20 $ 7.02
==================== ===================== ====================
</TABLE>
At December 31, 1999, under all plans, all options are exercisable, and 219,200
shares remained available for future grant.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
Pro Forma Information
The Company has adopted the disclosure-only provisions of Statement No.
123. Accordingly, for the stock options granted to employees no
compensation cost has been recognized in the accompanying consolidated
statements of operations because the exercise price equaled or exceeded
the fair value of the underlying common stock at the date of grant. Had
compensation cost for the Company's stock options granted to employees
been determined based upon the fair value at the grant date for awards
consistent with Statement No. 123, the Company's recorded and pro forma
net income (loss) and earnings (loss) per share for the years ended
December 31, 1999, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------------
1999 1998 1997
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 4,836,235 2,919,543 (347,189)
Pro forma 4,738,735 2,919,543 (416,100)
==================== ================== ==================
Basic net income (loss) per share:
As reported $ .65 .41 (.05)
Pro forma .63 .41 (.06)
Diluted net income (loss) per share:
As reported $ .62 .39 (.05)
Pro forma .60 .39 (.06)
==================== ================== ==================
</TABLE>
Pro Forma income reflects only options granted in 1999, 1998 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.
Fair value of common stock options is estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Expected life (in years) 10.00 -- 10.00
Risk-free interest rate 6.25 -- 5.87
Volatility .60 -- .50
Dividend yield -- -- --
Fair value - grant date .30 -- .15
</TABLE>
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
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
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. No options were granted in 1998.
(9) Commitments and Contingencies
Leases
The Company leases certain technical equipment under capital leases that
expire through 2004.
The Company also leases corporate offices, certain operating facilities
and equipment under non-cancelable operating leases that expire through
2000.
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:
<TABLE>
<CAPTION>
Capital leases Operating leases
------------------ ---------------------
<S> <C> <C>
Year ending December 31:
2000 4,036,184 53,410
2001 3,677,328 --
2002 3,074,744 --
2003 2,249,465 --
2004 1,248,498 --
------------------ ---------------------
Total minimum lease payments 14,286,219 53,410
=====================
Less amount representing interest 2,958,925
------------------
Present value of minimum lease payments $ 11,327,294
==================
</TABLE>
Rent expense amounted to $884,209, $842,320 and $1,029,329 for the years
ended December 31, 1999, 1998 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 Company's financial statements taken as a
whole.
Employment Agreements
The Company has employment agreements with certain officers that require
written notices of termination ranging from one to five years.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(continued)
(10) Business Segment Data
The following table shows revenues, operating earnings (loss) and
identifiable assets by geographic segment for the years 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenues:
U.S. $ 30,991,155 27,804,165 23,025,270
International (1) -- 2,894,972 5,265,654
------------------ ------------------ -------------------
$ 30,991,155 30,669,137 28,290,924
================== ================== ===================
Income from operations:
U.S. $ 3,409,952 3,040,096 747,150
International (1) -- 287,596 714,359
------------------ ------------------ -------------------
$ 3,409,952 3,327,692 1,461,509
================== ================== ===================
Identifiable assets:
U.S. $ 29,497,310 20,226,299 16,667,222
International (1) -- -- 5,820,569
------------------ ------------------ -------------------
$ 29,497,310 20,226,299 22,487,791
================== ================== ===================
(1) Consists of the Company's subsidiary, Pacific Video Canada, which was sold on May 15, 1998, see note (4).
</TABLE>
(11) Pension Plan
The Company has a defined contribution Profit Sharing 401(k) Savings Plan
that covers substantially all of its employees. The plan became effective
on March 1, 1996. Under the terms of the plan, employees can elect to
defer up to 15% of their wages, subject to certain Internal Revenue
Service (IRS) limitations, by making voluntary contributions to the plan.
Additionally, the Company, at the discretion of management, can elect to
match up to 100% of the voluntary contributions made by its employees.
For the years ended December 31, 1999, 1998 and 1997 the Company did not
contribute to the plan on behalf of its employees.
(12) Other Income
During 1999, the Company entered into a collaboration agreement (the
Agreement) with a major equipment manufacturer and supplier. Under the
agreement, the Company provided research development and engineering
services related to the development of technical equipment used in
connection with high definition post-production. The Company also gave
the other party all rights to the patents and licenses related to the
technology. In consideration for these rights and services, the Company
received replacement equipment, discounts on the purchase of equipment
and the cancellation of rental payments under a capital lease obligation
due to the supplier. During the fourth quarter, the Company recorded
other income of $2,187,000 pursuant to this agreement. Revenue
recognition was deferred until the end of the fourth quarter as the
earnings process on the items above was not completed until December 31,
1999.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------- -------------------- -------------------- ------------------- ---------------------
Balance at
beginning of Charged to costs Deductions Balance at end
Description period and expenses write-offs (1) of period
- ------------------------------- -------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C>
Allowance for bad debts:
1997 $ 810,000 280,000 (3,000) 1,087,000
==================== ==================== =================== =====================
1998 $ 1,087,000 275,000 (318,000) 1,044,000
==================== ==================== =================== =====================
1999 $ 1,044,000 793,000 (465,000) 1,372,000
==================== ==================== =================== =====================
(1) Uncollectible accounts written off, net of recoveries.
</TABLE>
<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 2000 Annual Meeting of
Stockholders, to be filed on or before April 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2000 Annual Meeting of
Stockholders, to be filed on or before April 30, 2000.
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 2000 Annual Meeting of
Stockholders, to be filed on or before April 30, 2000.
Item 13. CERTAIN TRANSACTIONS
The response to this Item is incorporated by reference to the
Registrant's definitive proxy statement for its 2000 Annual Meeting of
Stockholders, to be filed on or before April 30, 2000.
<PAGE>
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:
The financial statements and financial statement schedules are
listed in the accompanying index to the Consolidated Financial
Statements on page 12 on Form 10-K. The financial statements
indicated on the index appearing on page 12 hereof are
incorporated herein by reference.
3. Exhibits: The exhibits are listed on the accompanying index
to exhibits and are incorporated herein by reference or are
filed as part of this Form 10-K.
3.1 Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 29, 1990. (2)
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company filed August 14, 1991. (4)
3.4 By-Laws of the Company. (1)
4.1 Form of Common Stock Certificate. (2)
10.1 1990 Stock Option Plan. (1)
10.2 1997 Stock Option Plan (10)
10.3 Amended 1997 Stock Option Plan (13)
10.5 Employment Agreement dated as of May 15, 1990 between the
Company and Emory Cohen. (1).
10.8 CIT Credit Agreement signed on August 3, 1992. (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. (8)
10.8C Amended Loan Agreement between CIT and the Company dated
June 15, 1998. (12)
10.8D Amended Loan Agreement between CIT and the Company dated
June 7, 1999. (14)
10.14 Bank of America Amended Loan Agreement dated February 29,
1996. (7)
10.14A Bank of America Settlement Agreement dated December 22,
1998. (12)
10.15 Employment Agreement dated as of July 24, 1995 between the
Company and Randolph Blim. (7)
10.18 Sale of Subsidiary (PVC) (11)
10.19 Employment Agreement dated August 1, 1999 between the
Company and Robert McClain. (14)
22.1 List of Subsidiaries. (4)
24.1 Consent of incorporation by reference from KPMG LLP. (10)
(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.
(9) Previously filed on April 14, 1998 with the Company's Form 10-K.
(10) Previously filed on December 16, 1997 with the Company's
Form S-8.
(11) Previously filed on June 1, 1998 with the Company's Form 8-K.
(12) Previously filed on March 26, 1999 with the Company's Form 10-K.
(13) Previously filed on October 1, 1999 with the Company's Form S-8.
(14) Filed herewith.
(b) Reports on Form 8-K
During the second quarter ended June 30, 1998, the Registrant filed
a Current Report on Form 8-K dated May 14, 1998 reporting the sale of
the Registrant's investment in Pacific Video Canada Ltd.
<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 March 30, 2000.
LASER-PACIFIC MEDIA CORPORATION
By: /s/ James R. Parks
James R. Parks
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James R. Parks
James R. Parks Chairman of the Board and March 30, 2000
Chief Executive Officer
(Principal Executive Officer)
/s/ Emory M. Cohen
Emory M. Cohen President, Chief Operating Officer March 30, 2000
and Director
/s/ Robert McClain
Robert McClain Vice President and March 30, 2000
Chief Financial Officer
/s/ Thomas D. Gordon
Thomas D. Gordon Director March 30, 2000
/s/ Craig A. Jacobson
Craig A. Jacobson Director March 30, 2000
/s/ Ronald Zimmerman
Ronald Zimmerman Director March 30, 2000
The CIT Group/
Credit Finance
3rd Floor
300 S Grand Avenue
Los Angeles, CA 90071
Tel: 213 613-2500
Fax: 213 613-2501
THE
CIT
GROUP
June 7, 1999
Laser-Pacific Media Corporation
Laser Edit Inc.
PDS Video Productions, Inc.
Spectra Systems, Inc.
Pacific Film Laboratories Inc.
Pacific Video, Inc.
809 North Cahuenga Blvd.
Los Angeles, CA 90038
Attention: James Parks, Chief Executive Officer
Re: Loan and Security Agreements with The CIT Group/Credit Finance, Inc.
- AMENDMENT NO. 8-
Gentlemen:
Reference is made to your respective Loan and Security Agreements wherein each
of you is a "Borrower" and The CIT Group/Credit Finance, Inc. is the "Lender",
all of which Loan and Security Agreements are dated August 3, 1992 (the
"Agreements"). Lender and each Borrower have agreed to amend the Agreements as
follows effective immediately. Except as amended herein, the Agreements shall
remain unchanged and in full force and effect.
1. Accounts Receivable.
Notwithstanding any language in Section 5.1 of the Agreements, and
provided Borrower is not in Default to Lender, Borrower shall not be
obligated to remit proceeds of its accounts to Lender provided Lender is
not lending against said accounts.
If Borrower subsequently desired to request advances against the
accounts, Borrower must provide Lender with at least 30 days prior
written notice of its intention to request such advances to allow Lender
sufficient time to conduct a field examination of Borrower's facilities,
update its reporting and conduct any other due diligence.
2. Field Examination Fees.
Notwithstanding any language in Section 6.13(d) of the Agreements,
provided Lender is not lending against accounts and provided Borrower is
not in Default to Lender, the aggregate Per Diem Charges for field
examinations shall be limited to $5,000.00 per contract year.
3. Minimum Borrowing Reduction.
Section 10.1(e) of each of the Agreements is hereby amended to provide
that the Minimum Borrowing shall equal the Term Loan balance, provided
Lender is not lending against accounts. If Lender is lending against
accounts, the Minimum Borrowing shall be $2,000,000.00.
5. Interest Rate Reduction.
Section 10.4(a) of each of the Agreements is hereby amended to read as
follows:
"(a)(1) Interest Rate for Revolving Loans: Prime Rate plus 1.0% over
a 360-day year
(a)(2) Interest Rate for Term Loans: Prime Rate plus 1.0% over
a 360-day year"
6. Facility Fee Reduction.
Section 10.4(b) of each of the Agreements is hereby amended to eliminate
the Facility Fee requirement.
EMPLOYMENT AGREEMENT
Dated August 1, 1999
Between
LASER-PACIFIC MEDIA CORPORATION
And
ROBERT McCLAIN
1. Parties; Date.......................................................1
2. Recitals............................................................1
3. Executive's Authorities and Duties..................................2
4. Term of Employment..................................................2
5. Termination of Agreement............................................3
6. Ownership of Intangibles............................................5
7. Confidential Information............................................5
8. Compensation and Benefits...........................................5
9. Indemnification.....................................................8
10. Entire Agreement............................... ....................8
11. Applicable Law......................................................8
12. Legal Fees..........................................................8
13. Notices.............................................................9
<PAGE>
ROBERT MCCLAIN
EMPLOYMENT AGREEMENT
1. PARTIES; DATE
This employment agreement (this "Agreement") is effective as of August
1, 1999 between LASER-PACIFIC MEDIA CORPORATION, INC., a Delaware Corporation
(the "Employer"), and ROBERT McCLAIN (the "Executive")
2. RECITALS
a. ......Executive has acquired special skills and abilities, and an
extensive background in and knowledge of the Employer's business and the
industry in which it is engaged .
b. ......Employer desires assurance of the continued association and
services of Executive in order to retain his experience, skills, abilities,
background, and knowledge and is therefore willing to engage his services on the
terms set forth below.
c. ......Executive desires to continue in the employ of Employer and
is willing to do so on these terms.
THEREFORE, in consideration of these recitals and of the promises and conditions
in this Agreement it is agreed:
3. EXECUTIVE'S AUTHORITY AND DUTIES
Employer shall continue to employ the Executive as the Chief Financial
Officer and Secretary during the term of this agreement. Executive shall devote
his full time and best efforts as may be necessary to adequately perform his
duties under the Agreement. Executive shall perform such duties as assigned to
him by the Chief Executive Officer, Chief Operating Officer or Employer's Board
of Directors. Executive's services shall be primarily performed in Los Angeles,
California, though Executive may be required to travel from time to time in the
ordinary course of business.
4. TERM OF EMPLOYMENT
Subject to the provisions of Paragraph 5 below, Employer shall employ
Executive for a term of at least three (3) years, commencing as of August 1,
1999. Upon expiration of the three year term, Executive's term of employment
shall be renewed for one additional year unless either party has given the other
party one hundred (120) days prior written notice of the termination of this
Agreement. For all subsequent years, the term of employment shall be renewed for
one additional year unless Employer has given Executive one hundred (120) days
prior written notice of termination. In the event Employer terminates this
Agreement, Executive shall receive one year's compensation, as provided by
Section 8 of the Agreement, at the current rate at the time of termination of
this Agreement to be paid as follows:
(a) In the event of termination of employment, said one year's
compensation shall be paid on termination.
(b) In the event of termination of the Agreement, and Executive
continues in the employment of Employer, said one year's compensation
shall be paid in four (4) installments paid quarterly during the next
twelve (12) months.
5. TERMINATION OF AGREEMENT
a. ......Employer may terminate this Agreement at any time upon thirty
(30) days prior written notice if Executive (1) is convicted of a felony which
in the unanimous opinion of Employer's Board of Directors substantially and
materially impairs his capacity to perform his duties under this Agreement, or
(2) is guilty of intentional misconduct which has a material adverse effect upon
Employer. (3) discloses confidential information in violation of the Agreement.
(4) willfully breaches this agreement.
Provided, however, that prior to Executive's termination under
subsection 5(a)(2) or 5(a)(4) hereof, Executive shall have 60 days from receipt
of written notice from Employer that it proposes to terminate his employment
pursuant to subsections 5(a)(2) or 5(a)(4) to (A) cure the alleged breach of his
duties or (B) show cause as to why he should not be so terminated.
b. ......Employers chooses to not renew this Agreement pursuant to
Section 4.
c. ......If Executive dies during the term of this Agreement, then this
Agreement shall terminate on the last day of the month in which the Executive's
death occurs.
d. ......If Employee is disabled for a period of six (6) consecutive
months during the term hereof, then Employer may terminate this Agreement upon
written notice given at the expiration of such six month period provided that
the disability insurance provided by Section 8(b) of this Agreement is in full
force and effect. The definition of "disability" shall be the same as that which
qualifies Executive for full disability insurance benefits pursuant to Section
8(b).
e. ......This Agreement shall not be terminated by the voluntary or
involuntary dissolution of Employer or by any merger after which Employer is not
the surviving or resulting corporation, or upon any transfer of all or
substantially all of the assets of Employer. In the event of any such merger or
transfer of assets, or any similar corporate reorganization, whatever may be its
form, the provisions or this Agreement shall be binding on and inure to the
benefit, and the obligations of Employer shall be assumed by, the surviving
business entity or the business entity to which such assets shall be
transferred.
f. If Executive's employment is terminated by the Company for "cause",
the Company shall have no further obligation to the Executive other than the
obligation of the Company to pay to the Executive the Base Salary earned by the
Executive through the date of termination and not previously paid to Executive,
accrued expenses not previously reimbursed and all accrued but unused vacation
time.
6. OWNERSHIP OF INTANGIBLES
All proceeds, inventions, patents, copyrights, and the like relating in
any way to Employer's business, which are conceived or developed by Executive,
either alone or with others, during the term of this Agreement (except those not
related to the Company's business and developed entirely during Employee's own
time and without the use of any equipment, supplies, facility or trade secret
information of Employer), shall be the sole property of the Employer.
7. CONFIDENTIAL INFORMATION
In the course of his employment, Executive may have access to
confidential information and trade secrets relating to Employer's business and
may be required to sign nondisclosures, nonuse or similar agreements. Any such
agreements that are current during the term of this Agreement are herein
incorporated by reference. Executive shall not materially breach any such
agreement.
8. COMPENSATION AND BENEFITS
As the total consideration for the services which Executive agrees to
render, Executive shall receive the following:
a. An initial base salary of one hundred eighty-five thousand dollars
($185,000) for the first year of his employment , with such increases in the
base salary for subsequent years as may be determined by the Board of Directors
of Employer, less income tax and other applicable withholdings, in weekly
installments or in accordance with Employer's regular payroll policies.
b. A disability insurance policy (and pay all premiums therefore during
the Employment Term). Calling for the payment of a benefit amount, for not less
than sixty-six and sixty-seven hundredths of a percent (66.67%) of Executive's
Compensation set forth in Section 7(a) if Executive becomes disabled for a
period of six (6) consecutive months. The policy shall entitle Executive to full
benefits if he is unable to perform his duties under this Agreement, regardless
of his ability to engage in other employment
c. Reimbursement of any and all ordinary, necessary, and documented
expenses incurred by Employee in the performance of his duties, including,
without limitation, entertainment expenses and air fare, taxi, automobile, and
other traveling expenses and participation in all company wide executive benefit
plans or programs sponsored by Employer including, without limitation,
participation in any group health plan and the key executive medical
reimbursement plan.
d. A minimum four week paid vacation per year at such time or times as
may be approved by Employer, in accordance with Employer's vacation policy.
e. An automobile allowance of $16,800 per year to be paid in accordance
with Employer's establisher policy, less income tax and other applicable
withholdings, which is intended to reimbursement Executive for all cost of
operating an automobile including , without limitation, maintenance, repairs,
insurance and gasoline. Employer shall not decrease Executives automobile
allowance during the term of this Agreement
f. Reimburse for any otherwise unreimbursed documented medical or
dental expenses of Executive or his immediate family, but such reimbursement
shall not exceed $ 5,000 for any calendar year during which Executive is
employed hereunder.
g. Any other fringe benefits granted by Employer's Board of Directors
in its discretion, which shall include Health Insurance program sponsored by the
Employer and a $500,000 term life insurance policy insuring Executives life with
the beneficiary of the policy to be determined by Executive.
h. If Executive shall be absent because of personal injuries or
physical or mental illness, Executive shall continue to receive all compensation
provided for in this Agreement. Any such compensation may, at Employer's option,
be reduced by any amount that Executive receives under 1) disability insurance
policies maintained by Employer or 2) governmental programs.
9. INDEMNIFICATION
Employer shall, to the maximum extent permitted by law and by
Employer's Bylaws, indemnify Executive against all expenses, including
reasonable attorneys' fees, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of Executive's employment by Employer. Employer shall, to the maximum
extent permitted by law and by Employer's bylaws, advance to Executive any
expenses incurred in defending any such proceeding.
10. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties and supersedes
all prior oral and written agreements, understandings, commitments, and
practices between the parties, including all prior employment agreements,
whether or not fully performed by Executive before the date of this Agreement.
No amendments to this Agreement may be made except by a writing signed by both
parties.
11. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of California.
12. LEGAL FEES
Employer agrees to reimburse Executive for reasonable legal fees and expenses
incurred by Executive in connection with the legal or equitable enforcement of
this Agreement.
13. NOTICES
Any notice to Employer shall be given in writing, either by personal service or
by registered or certified mail, postage prepaid, duly addressed to the Chief
Executive Officer of Employer at its principal place of business, currently 809
N. Cahuenga, Los Angeles, California 90038. Any such notice to Executive shall
be given in a like manner, and if mailed, shall be addressed to Executive at his
home address then shown in the files of Employer or other such address as
Executive shall provide to Employer from time to time.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed
as of the date first above written.
DATED: August 1, 1999
LASER-PACIFIC MEDIA CORPORATION, INC.
("Employer")
By: ______________________________
James R. Parks
Chief Executive Officer
By: ______________________________
Robert McClain ("Executive")
Chief Financial Officer and Secretary
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