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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 2000
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____
                         Commission File Number 0-23388

                           VIDEO SERVICES CORPORATION
                          (Exact name of registrant as
                            specified in its charter)

                  DELAWARE                                13-3735647
      (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                 Identification No.)

           240 Pegasus Avenue                   Northvale, New Jersey  07647
         (Address of principal                            (Zip Code)
           executive offices)


         Registrant telephone number, including area code (201) 767-1000
                                ----------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
          Title of Each Class Name of Each Exchange on Which Registered
         Common Stock, par value $.01 per share American Stock Exchange
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None
                                ----------------
     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 disclosure of delinquent  filers pursuant to Item
405 of  Regulation  S-K  (ss229.405)  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 registrant's common stock, par value $.01
per share,  held by persons other than affiliates of the registrant as of August
22, 2000, was approximately $12,827,425.

                               ------------------
     The number of  outstanding  shares of the  registrant's  common stock,  par
value $.01 per share, as of August 22, 2000, was: 13,311,307.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None

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                                  PART I

     Certain  statements  contained  in this  Annual  Report  on Form  10-K  are
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995 and are thus  prospective.  These  statements are
generally (but not necessarily)  preceded or followed by, or include, such words
as "believes", "expects",  "anticipates" or similar expressions. Such statements
reflect  management's  current views, are based on many assumptions,  including,
but not limited  to, that no  significant  changes  will occur in the  operating
environment of the Company,  and are subject to risks,  uncertainties  and other
factors  which could  cause  these  statements  to differ  materially  from what
actually  occurs.  The Company may execute new  agreements,  terminate  existing
agreements or enter into new financing arrangements that may affect the accuracy
of these statements.  Other important factors that could cause results to differ
materially  from  current  views  include,  but are not  limited to, the general
performance  of  the  economy,  specifically  as  it  affects  the  advertising,
entertainment   and   television  and  video  and  broadcast   industries;   the
international  economic  and  political  climate  which could impact the sale of
domestic  programming  overseas;  significant changes in video technology in the
post-production, video and communications industries; the loss of key personnel;
and the  loss of key  customers.  None of these  events  can be  predicted  with
certainty and,  accordingly,  are not taken into  consideration in the making of
the  forward-looking  statements  contained  herein.  Readers are  cautioned  to
carefully consider such factors. There is no assurance that the assumptions used
are  necessarily  the most  likely to occur.  The  Company  does not  assume any
obligation to update any  forward-looking  statement to reflect actual  results,
changes in assumptions or changes in other factors affecting such statement.

ITEM 1. BUSINESS

Background

     Video Services  Corporation,  a privately held New Jersey corporation ("Old
Video"),  was  incorporated  in 1979 to  service  select  segments  of the video
industry which its founders, Louis H. Siracusano,  Arnold P. Ferolito and Martin
Irwin, had identified as being under-served.  Originally,  Old Video focused its
efforts on building  advanced  video  systems and providing  professional  video
equipment  to  particular  segments of the  television  and  professional  video
services  industries.  Over the years,  Old Video identified  additional  market
segments  which it believed  presented  opportunities  for  significant  revenue
growth and its lines of business gradually  expanded to include  post-production
and  standards  conversion,  as well as satellite  and fiber optic  transmission
services.  In 1992, Old Video divested itself of its  post-production  business,
which business became an element in the formation of International Post Limited,
a Delaware  corporation  ("IPL"),  in October 1993. In February  1994, Old Video
sold its standards  conversion  business to IPL in connection with IPL's initial
public offering and used the sale proceeds to repay  indebtedness  and to expand
certain business segments,  particularly  satellite and fiber optic transmission
services. After such sale, Old Video owned approximately 3% of IPL's outstanding
Common Stock.

     On August 27, 1997,  Old Video merged with and into IPL, with IPL being the
surviving corporation,  and the separate corporate existence of Old Video ceased
(the "Merger").  The Merger was accounted for as a reverse  acquisition  whereby
the pre-Merger financial statements of Old Video became the historical financial
statements of the company after the Merger. At the effective time of the Merger,
IPL's name was changed to Video Services  Corporation.  References herein to the
"Company" refer to the combined Company after giving effect to the Merger.

     In August  1999,  the  Company  retained  Lazard  Freres & Co.  LLC. as its
investment banker and financial  advisor to explore strategic  opportunities for
the Company,  including but not limited to a sale,  merger or joint venture.  On
July 25, 2000, the Company,  entered into a definitive agreement with AT&T Corp.
and Liberty Media Corporation  ("Liberty Media") pursuant to which Liberty Media
will acquire 100% of the Company's issued and outstanding  common stock by means
of a merger. As contemplated by the merger agreement, each share of common stock
outstanding  immediately  prior  to the  effective  time of the  merger  will be
converted  into 0.104 of a share of Class A Liberty  Media Group Stock and $2.75
in cash.  The  Company's  stockholders  controlling  approximately  71.8% of the
Company's  outstanding  common stock have entered into a voting  agreement  with
Liberty  Media  under which  these  stockholders  agreed to vote in favor of the
merger agreement and the merger.

Overview

     The  Company is a leading  provider  of  value-added  video  services  to a
diverse base of customers  within the television  network,  cable and syndicated
programming  markets.  These  services  are  divided  into three  segments:  (i)
Satellite  and  Distribution  Services,  (ii)  Systems  and  Products  and (iii)
Production Services (see Note 11 to the consolidated financial statements).  The
Satellite and Distribution Services segment integrates and distributes broadcast
quality  video  content via a satellite  and fiber  optic  transmission  network
routed  through  its  digital/analog  switching  center and is an  international
provider of multi-format  technical and distribution services to distributors of
video  programming.  The Systems and Products  segment  designs,  engineers  and
produces  advanced  video  facilities  for the broadcast  and cable  television,
post-production,  Internet and corporate  markets.  This segment also  develops,
manufactures and markets advanced color correcting and manipulation  systems for
the film, post-production and multimedia industries and rents professional video
equipment to the sports,  entertainment  and other segments of the broadcast and
cable television and corporate  markets.  The Production  Services segment is an
international  provider  of  technical  and  creative  services  to  owners  and
producers  of  television   programming,   television   advertising   and  other
programming content and the emerging Internet graphics and video market.

     On November 30, 1997,  management,  which had the  authority to approve the
action,  committed  the  Company to a formal  plan to dispose of the  Consulting
Services  segment  providing  strategic  consulting  services  in  the  area  of
communications, design and implementation of intranets, extranets and internets.
Management closed the Consulting Services segment November 1998.

     The Company is a leading  single  source  provider of  satellite  and fiber
optic video  transmission  services in the New York Metropolitan area and one of
the largest  independent (i.e., not affiliated with, or related to, an equipment
manufacturer)  providers  of  technical  services  and  equipment  to its target
markets.  The Company  believes that it will  continue to experience  increasing
demand for its  engineering  services as a result of the ongoing  conversion  of
existing  television  and cable  facilities  to  digital,  a growing  demand for
internet-related  video applications,  emerging compression  technologies and an
increasing demand for programming  content  worldwide.  The Company provides (i)
producers of original programming with technical and creative services necessary
to  transform  original  film or video to final  product  for airing on network,
syndication,  cable,  foreign television or the Internet;  (ii) users of special
video effects with services required to digitally create or manipulate images in
high  resolution  formats  for  integration  into  television   commercials  and
programming and for Internet applications;  (iii) international programmers with
studio  facilities  and  multi-standard  post-production  services  necessary to
assemble  programming;   and  (iv)  international   programmers  and  owners  of
television and film libraries with standards conversion,  network playback,  and
duplication  and audio  services,  all in multiple  standards  and formats.  The
Company  believes that its principal  strengths in these areas include the depth
and  breadth  of its  client  relationships,  the  depth and  continuity  of its
creative talent, and its technologically advanced equipment and facilities.

     Demand  for  the  Company's  post-production  services  and  facilities  is
principally  derived from the production of new television  commercials  and the
distribution of previously  released motion pictures and television  programming
through international syndicators and programmers.  Historically,  the Company's
post-production   clients  have  out-sourced  their  post-  production  services
requirements,  and the  Company  expects  that such  clients  will  continue  to
outsource  many of the services  required for  production,  post-production  and
distribution  of film and  television  programming.  The Company  believes  that
demand will also be created by the continuing trend toward  globalization in the
entertainment   and  media  industries  and  the  increasing   worldwide  market
penetration  of  distribution  channels  such as home video,  digital  satellite
broadcasting  and Internet  video  streaming.  The Company also believes that in
addition to creating demand for its traditional  post-production services, these
factors will create demand for newer multi-format  services and creative graphic
and branding services offered by the Company.

Business Strategy

     The Company's  business strategy is to capitalize on opportunities  created
by changes in technology and markets,  as well as to become the leading supplier
of services to the market segments in which it currently  competes.  The Company
has  developed  good  customer  relationships  with all of the major  television
networks  and  many  of  the  established  and  developing   cable  networks  by
maintaining  high levels of technical  capabilities  and customer  service.  The
Company  believes  that it will be able to  continue to grow the  businesses  by
selling additional services to existing customers and by acquiring new customers
as  a  result  of  its  technological  capabilities,  superior  service,  strong
reputation and aggressive sales force.

     In August 1999, the Company and British Telecom  Broadcast  Services agreed
to jointly develop,  market and sell each other's video broadcasting services in
the United States.  The relationship  between British Telecom Broadcast Services
and  Waterfront/Atlantic  Satellite  will create one of the most  comprehensive,
efficient and flexible  international  broadcast  networks in the United States.
This agreement  also provides the ability for the future growth and  development
of new opportunities in the United States to further support this relationship.

     The Company is also focused on  capitalizing  on  opportunities  created by
emerging  industry  trends such as the emergence of digital  television  and its
more  advanced  variant,   high-definition   television;  the  proliferation  of
alternative  transmission/distribution  methods such as direct-to-home satellite
services  and  multipoint  microwave  systems;  and the  conversion  of existing
television facilities from analog to digital and from videotape-based to digital
server-based technologies. The Company believes that the continued proliferation
of new distribution  technologies,  as well as the  industry-wide  conversion of
equipment and systems from analog to digital,  will create an increasing  demand
for technical  expertise and resources  which can be outsourced by the end-user.
The  Company  believes  that  the  aggressive  timetable  associated  with  such
conversion,  which  has  resulted  both  from  recent  mandates  by the  Federal
Communications Commission (the "FCC") for digital television and high-definition
television  as well as  competitive  forces  in the  marketplace,  is  likely to
accelerate the rate of increase in the demand for these  services.  As a result,
the Company  believes  that  significant  opportunities  exist for it to provide
services  for  the  upgrading  and  conversion  of  the   industry's   technical
infrastructure.

     The Company has implemented  several  strategies for  capitalizing on these
growth  opportunities,  including the expansion of its engineering staff to meet
market  demand,  the  introduction  of additional  services,  such as repair and
maintenance  contracts,  and the  opening of West Coast  engineering  and rental
offices.

     In  addition,   the  Company  seeks  to  become  the  leading  full-service
post-production  house for the United  States and  international  markets and to
continue  to  seek  new  ways  to  enhance  its  ability  to  provide   one-stop
post-production  services while  maintaining  the high quality of such services.
The  Company  plans  for  further  growth  and the  expansion  of its  range  of
post-production  and other services through strategic  acquisitions and internal
growth.  In July 1998,  the  Company  opened an  additional  13,000  square foot
facility in Burbank,  California to provide technical and distribution  services
to international television program originators and distributors.  Historically,
the Company invested  significant sums in its infrastructure to ensure that each
of its divisions remained at the technological  forefront of the post-production
industry.

     In June 2000,  the Company  assigned its leasehold in its Miami studio to a
customer.  This customer outsources to the Company its engineering and technical
operations.

Principal Services

Satellite and Distribution Services

     This  segment,  which  includes  Atlantic  Satellite  Communications,  Inc.
("Atlantic Satellite"), Waterfront Communications Corporation ("Waterfront") and
Audio Plus Video International, Inc. ("Audio Plus Video"), provides a vertically
integrated array of satellite,  fiber optic and videotape worldwide distribution
of video and data.

     Through Atlantic Satellite and Waterfront,  the Company provides integrated
satellite and fiber optic video and data  transmission  services to a wide range
of customers  with whom it has enjoyed  long-term  relationships,  including the
major  television  broadcast  networks and several  cable  television  networks,
independent  national and  international  television  stations and  producers of
syndicated television shows. Satellite and fiber optic transmission services are
used by these customers  independently  and in combination to integrate  editing
and  transmission of video content as quickly as possible.  The Company's use of
fiber optic and satellite  technologies enables it to provide its customers with
rapid and reliable  transmission of broadcast  quality video content with a high
level of flexibility.  The Company  believes that, in the New York  Metropolitan
area,  Atlantic  Satellite is a leading single source  provider of satellite and
related  transmission  services and that  Waterfront is the leading  provider of
"first mile" and "last mile" fiber optic video and data  transmission  services.
"First mile"  transmission  services are services whereby content is transmitted
from an origination  point,  via local  transmission  means,  to a long distance
video network carrier (such as VYVX or AT&T) or satellite earth station (such as
Atlantic  Satellite) and "last mile" transmission  services are services whereby
content is received into, via local  transmission  means, the final  destination
point for the content (such as a television  network local  broadcaster or cable
channel). Atlantic Satellite's teleport facilities provide customers with access
to the full  complement  of  satellite  and fiber  optic  transmission  services
provided by Atlantic Satellite and Waterfront.


     Atlantic Satellite's teleport facility is located on contiguous  properties
in Northvale,  New Jersey and Tappan, New York. This facility contains broadcast
quality  satellite  dishes,  which  transmit and receive  domestic feeds in both
C-Band and KU Band  frequencies,  and  provides  international  transmission  to
PanAmSat  satellites.  At this facility,  Atlantic  Satellite  provides  primary
up-link and  down-link  services,  as well as  ancillary  services  such as tape
playback and recording,  tape duplication,  syndication services (including spot
insertion  and  editing),   and  digitally  compressed  satellite   transmission
expertise. Atlantic Satellite provides over 5,000 hours per year of playback and
uplink services for pre-taped,  syndicated  television programs produced by BKN,
Inc, Warner Brothers,  Hearst  Entertainment and KingWorld among others. It also
downlinks  and records  numerous  live  sporting  events for clients such as the
National Hockey League ("NHL") and the National  Basketball  Association ("NBA")
and provides satellite  transmission  services for clients such as Fox News, Fox
Sports, NHK, Court TV and ABC/Capitol Cities.

     Waterfront's  services  are  provided  through a video  switching  facility
located in New York City which is connected to all major news  organizations and
all  New  York  area  teleports  including  Atlantic  Satellite's.  Waterfront's
extensive  network of both analog and digital video fiber optic  connections and
multiple  paths  to  Atlantic   Satellite  enable  domestic  and   international
broadcasters  to take  advantage of the  Company's  single  source  transmission
services at competitive  rates.  The Company  believes that  Waterfront's  fully
manned  facility  provides  it  with a  competitive  advantage  over  its  major
competitors.  Waterfront's  fiber optic  connections are located in local venues
such as the New York Stock  Exchange and the United Nations in New York City, as
well as Giants Stadium and the Continental  Airlines Arena in New Jersey.  These
fiber optic connections enable Waterfront's  customers to transmit video content
directly  from those  venues to their  studios  or,  alternatively,  to Atlantic
Satellite  for national  and  international  distribution.  In addition to local
fiber optic  transmission and connections to Atlantic  Satellite's  transmission
facility, Waterfront provides its customers with access to several long-distance
fiber optic carriers through its remote facility located in downtown  Manhattan.
Waterfront  also  provides  transportable  services,   including  point-to-point
microwave transmission,  transportable up-link and down-link  transmission,  and
broadcast quality  teleconference  services, as well as access to other teleport
facilities.  The Company believes that  Waterfront's  switching  facility is the
largest such facility in the New York  metropolitan  area and that  Waterfront's
connections  to major events and sports venues within the New York  metropolitan
area provide clients with extensive and essential coverage.

     The Company  believes  that its ability to combine  "first  mile" and "last
mile" fiber optic transmission and satellite  transmission  services provides it
with a  competitive  advantage  over  providers of  satellite-only  transmission
services.  These integrated  capabilities offer  broadcasters,  cable television
networks and others the ability to edit news,  sports and other video content in
their Manhattan  studios (which are linked to Waterfront) and, after alteration,
to transmit that content  anywhere in the world almost  instantaneously  through
the  Waterfront/Atlantic  Satellite fiber optic link. The Company  believes that
the  combined  services  provided  by Atlantic  Satellite  and  Waterfront  have
achieved a reputation  for quality and  reliability  in the industry,  which has
resulted in  contracts  with Fox News,  Fox Sports,  Court TV,  PanAmSat,  CNBC,
MS/NBC, the NHL, Teleglobe USA, Inc. and Enron Communications.

     Through Audio Plus Video, the Company provides the following broad range of
technical and distribution services to distributors of television programming to
the  international  market and, to a lessor extent,  a variety of  international
television program originators,  including standards  conversion,  international
duplication and specialized video services.

     Standards  Conversion:  Throughout the world, video signals are recorded in
four principal  standards:  NTSC-used in several countries,  including the U.S.,
Canada,  Mexico and Japan;  PAL-used in numerous  countries,  including England,
Italy,  Australia  and  China;  PAL-Modified-used  exclusively  in  Brazil;  and
SECAM-used  in  France,  Russia  and the  Middle  East.  A program  recorded  in
one-standard  cannot be  broadcast or played back  through  equipment  employing
another standard unless the program is first  "converted" to the other standard.
If, for example, RTL, a German television broadcaster, wants to air "60 Minutes"
(a program produced in the U.S. and, therefore, in the NTSC standard), the video
signal  must first be  converted  to PAL to make it  compatible  with the German
standard.  The  Company  provides  conversion  services  to and  from all of the
standards currently available.

     International Duplication: Duplication services are required to accommodate
multiple  broadcast  locations  receiving the same product in the same standard,
but utilizing a variety of videotape  formats.  Using the same analogy as above,
the German  broadcaster  received a PAL tape for his digital betacam  equipment,
but a  Scandinavian  broadcaster  needs to  receive  a PAL tape of that same "60
Minutes"  episode  for  his  D2  equipment.   Accordingly,   the  Company  would
"duplicate" the tape to the different format in the same standard.

     Specialized Video Services: The Company is meeting an increasing demand for
specialized  services  using  state-of-the  art,  high-definition  film-to-tape,
editing and audio suites. Audio capabilities  include restoration,  layback, ADR
(automatic dialogue replacement),  audio-for-video  editing, and the recreation,
or enhancement of music and sound effects tracks.  Additional  services  include
screen-by-screen color correction of film or tape, video restoration and digital
encoding to MPEG 1/2 and streaming of program content via the Internet.


     The  Company's  services that are provided to the  television  industry and
program  originators,  and the  specialized  video services that are provided to
television  program  distributors  to the  international  market,  are generally
offered on an hourly or daily rate basis.  Standards  conversion and duplication
services provided to television program distributors to the international market
are offered at rates that are based on program length.  The Company maintains an
in-house  engineering  staff to facilitate the modification of equipment to meet
client requirements.

     Through  fiber  optic  connections,  Audio Plus Video is linked to Atlantic
Satellite giving them the ability to send and receive signals both  domestically
and  internationally.  This service is especially  essential with time sensitive
material such as sporting  events.  For example,  satellite  services aid in the
rapid international distribution the Company provides for the NBA.

     In the fourth  quarter  of fiscal  year  1998,  Audio  Plus Video  began an
expansion  to the West  Coast  with the  leasing  of a new  13,000  square  foot
facility in Burbank, California. That business became operational in July 1998.

     Audio Plus Video is beginning  its twelfth  year of worldwide  distribution
for the NBA and the fourteenth year for Hearst  Entertainment  supplying  movies
and series programming.  Other programs include,  "Ricki Lake", "Spin City", "60
Minutes 1 and 2", "South Park",  "Dr. Katz",  "Family Law", "As the World Turns"
and many more.  Specials  during the year  included  The  Academy  Awards,  NCAA
Basketball Tournament, The Oscars, The Golden Globe Awards and The Grammy's.

     Audio  Plus  Video  clients  include:  Sony  Pictures  Entertainment,   CBS
International,  Buena Vista International,  Hearst Entertainment, NBA, NFL, NHL,
Dream Works, Sesame Workshop, Discovery Channel and The History Channel.

Systems and Products

     Through  A.F.  Associates,  Inc.  ("AFA"),  the  Company  designs,  builds,
installs and services  advanced  video  systems  worldwide for the broadcast and
cable  television  industries,   Internet  "broadcasters"  and  video  streaming
facilities and for  professional and corporate  markets.  AFA's services include
project  management;  design and engineering;  consultation  with architects and
building  contractors;  drafting  and  technical  documentation,  equipment  and
materials   specification  and  procurement;   pre-wiring  and  assembly;   site
installation;  system  testing  and  commissioning;  and  training.  The Company
believes that AFA is one of the leading  independent  providers of such services
in the world.

     Systems are designed by AFA's in-house engineers using computerized  design
programs and are assembled in AFA's facility in Northvale,  New Jersey. Assembly
includes custom fabrication of all audio,  video,  networking,  data and control
interconnect  wiring,  mounting of  equipment  into rack  enclosures  and custom
operating  consoles,  pre-wiring  of all  interconnecting  cabling and subsystem
testing. The entire system is then shipped to the customer's location,  where it
is installed and tested by AFA's technicians and engineers. The end product is a
professionally  designed  and  built  system,   utilizing  advanced  design  and
construction concepts and incorporating  state-of-the-art equipment. Through the
use of AFA's  systems  integration  services,  the client  need only set overall
system and  operational  requirements.  AFA engineers and  constructs the entire
system and manages all aspects of technical construction.

     AFA's clients include the four (4) major  networks,  numerous cable channel
networks (e.g.,Turner  Entertainment,  Cable News Network,  Inc., CNBC, Fox News
Channel,  Lifetime  Television,  USA  Networks,  Inc.  and Home and Garden Cable
Network),  Internet  companies (e.g.,  Microcast,  Inc.) satellite  broadcasters
(e.g.,  Direct TV and SKY Latin America),  corporate  television networks (e.g.,
Merrill Lynch & Co., Inc., Pfizer,  AT&T and Toys R Us), and numerous production
and  post-production  facilities.  Over 50% of AFA's business is repeat business
from clients who seek AFA's  technical and  engineering  expertise.  The Company
believes that increases in cable, direct satellite and independent  broadcasting
made possible by emerging compression technologies,  as well as the migration of
broadcasting   standards  from  analog  to  digital,  will  provide  significant
opportunities for AFA to expand its customer base.

     Projects recently completed by AFA include:  technical facilities for a new
sports network,  PSN, for Latin America;  a new digital TV station for NBC-owned
WTVJ in Miami, Florida; a major expansion for Scripps Howard's cable networks in
Knoxville;  and a state-of-the-art  training complex for a major  pharmaceutical
manufacturer.   Current  projects  include  a  major  Internet  video  streaming
operation for Microcast;  a complete rebuild of USA Networks' technical plant; a
large  expansion of the PSN sports network;  and several new digital  television
stations.

     In May 1998, AFA acquired a product group with the objective of developing,
manufacturing and marketing  advanced color correcting and manipulation  systems
for the film,  post-production and multimedia  industries.  Its products enhance
any visual representation medium that requires a true color image where a better
picture is essential.  The AFA Products  Group has  developed an advanced  image
processing  and  manipulation  software  tool.  "Trax'Im",  based on  artificial
intelligence algorithms, automates the time-consuming task of creating "windows"
or  "mattes"  for  special  effects  applications  in  video,  film and  desktop
publishing.

     Through Video Rentals,  Inc.  ("VRI"),  the Company supplies  broadcast and
industrial  video equipment for rental to the broadcast and  professional  video
industries and provides support and maintenance services for such equipment. VRI
rents  cameras,   super  slow-motion  systems,   high-definition  TV  equipment,
interformat portable editing systems,  character  generators,  graphic equipment
and specialized  equipment for sports  production.  Equipment  rentals may range
from a  period  of one  (1) day to as  long  as a  year.  Specialized  equipment
packages, such as editing systems, are also rented for longer periods by certain
customers,  including  Fox Sports.  VRI's  purchases of equipment to be held for
rental are made both on the basis of  anticipated  rental demand and in response
to specific  customer  orders and  commitments  from such  customers for minimum
rental terms (in the case of more specialized equipment).

     VRI specializes in network sports  production.  As the exclusive field shop
for Fox  Sports,  VRI is  responsible  for  storing,  shipping  and  maintaining
equipment  owned by the  network and used for their  coverage of major  sporting
events,  including the NFL, Major League Baseball and Nascar. VRI also serves as
a  rental  agent  for the  rental  of this  equipment  to third  parties.  Major
customers of VRI include all the major  networks,  as well as major mobile truck
operators.

Production Services

     The  production  of  every  commercial,  television  program  or  corporate
communications  video  involves the recording of the image on film or videotape.
This is done on  location  or in a  studio  by a  production  company.  Once the
footage  has been  recorded,  the  post-production  process  begins  in order to
transform  the raw recorded  footage into a final usable  product.  Creative and
technical input, which includes the transfer of film-to-tape,  color correction,
editing,  addition  of  special  effects  utilizing  3D  and  computer-generated
graphics  and audio,  is needed to complete the process and generate a videotape
master for duplication and  distribution  to  broadcasters.  The master tape may
need  additional   post-production   services,   such  as  standards  or  format
conversion, audio layback of a foreign language track, or the enhancement of the
music and effects tracks to facilitate international distribution.

     Through CABANA corp.  ("CABANA"),  the Company provides creative  editorial
services to the television  advertising industry.  The creative editing process,
or the first stage of post  production,  for a television  commercial  generally
involves the  selection of the best footage from several  thousand  feet of film
and the  combination  of that footage  through  editing along with special video
effects to create a cohesive message with audience  appeal.  The creative editor
typically is involved with all facets of the post-production process and usually
selects  the   post-production   facilities  (such  as  Manhattan  Transfer  and
MT-Miami),   in  which  the  remaining  and  final  stages  of  the   television
commercial's  post-production  takes place.  Television  commercials  created by
CABANA  during the year include ads for Paine Webber,  Cobra Golf,  Stop N Shop,
Fleet Bank, Folgers, Sprint, Ocean Spray and Nabisco, among others.

     Through two of its operating  subsidiaries  Manhattan  Transfer/Edit,  Inc.
("Manhattan Transfer") and Manhattan Transfer - Miami ("MT-Miami"), formerly The
Post Edge, Inc., the Company provides the art and science of completing high-end
television  commercials  and programs with the finest  quality to the television
advertising industry. Their services include the following:

     Film-to-Videotape  Transfer:  The  Company has  film-to-videotape  transfer
suites for the  transferring  of images and sound from  film-to-videotape.  This
process can be used for either  positive or negative,  16 or 35 millimeter  film
and for both composite and multi-track  systems. The Company's skilled colorists
operate state-of-the-art  electronic equipment,  which provides color correction
and  expansion or  repositioning  of film images.  In addition,  the Company can
correct and enhance the color of projects originated on videotape. The videotape
element masters  resulting from the transfer process can be edited to create the
final product which can then be  duplicated  for a variety of markets  including
television advertising,  corporate video cassettes, home video cassettes,  cable
television,  television program  syndication,  airline in-flight  entertainment,
foreign distribution and ancillary applications.  Transfers are made in both the
PAL (Europe and South America) and NTSC (North America and Japan) standards.

     Computer-Generated     Visual     Effects:     Company    artists    create
computer-generated   television  imagery  working  with  sophisticated  computer
software for applications such as main titles for television shows,  credits and
various  electronic  special visual  effects  including  computer  animation and
electronic graphics in both two and three dimensions.

     Electronic  Video  Editing:  The  Company  operates  digital  edit  suites;
traditional  and non-linear  computer work stations.  The editing process ranges
from simple cuts and assembly with dissolves,  wipes and titles,  to complicated
layering of images and special effects. Videotape is edited in many tape formats
(sizes) for use in  commercials,  shows,  corporate and  educational  videos and
other presentations.

     Videotape  Duplication:  The Company  offers  videotape  duplication in all
professional  broadcast  formats,  including D1, D2, BetaCam SP, 1" and 3/4", to
meet the needs of the commercial  advertising,  corporate video, motion picture,
television production and syndicated television program distribution industries.
The Company also creates  duplication  masters  with closed  captioning  for the
hearing impaired.

     Commercials   finished  this  past  year  at  Manhattan  Transfer  include:
Volkswagen's  Beetle and 2000 Cabrio Campaigns,  Visa, Pepsi, Pizza Hut, Macy's,
US Navy, Wendy's,  IBM, MCI, Burger King, Bell Atlantic Sprint,  Urban Fetch and
ChemConnection.com.  In addition to Manhattan Transfer's commercial  activities,
it provided  post-production  services  for the network  television  series "The
Beat",  for the HBO episodic series "Oz", and for the network  situation  comedy
"Cosby".

     Commercials  finished  this last year at MT-Miami  include  Pier 1 Imports,
Huggies, Kodak Latin America, Eureka U.S. and U.K. and Eritmo.com among others.

     The Company's major  post-production  clients include advertising agencies,
film editors and video production  companies.  Among the advertising agencies to
which the Company provides services are BBDO New York,  Saatchi & Saatchi,  Grey
Advertising,  Ogilvy, J. Walter Thompson,  Jordan McGrath Case, McCann Erickson,
Young and Rubicam, Arnold Communications, Deutsch and Grey Entertainment.

     The Company's  post-production  business is dependent on the success of the
television  programming  and  advertising  industries,  which success in turn is
highly  dependent  upon a number of  factors,  including  the quality of content
produced,  the availability of alternative  forms of  entertainment  and leisure
activities,  general economic  conditions and  international  demand for content
originated  in the United  States.  The  Company's  business  also is subject to
downturns in the television,  programming and advertising  industries.  Although
the Company  generally does not have long-term or exclusive  agreements with its
post-production  clients,  the Company has long-term  relationships with many of
such clients. Because post-production clients generally do not make arrangements
with the Company  until shortly  before its services are  required,  the Company
usually does not have any significant backlog of service orders.

Sales and Marketing

     Historically,  the Company  markets its services  through its  management's
efforts to exploit its industry contacts and attendance at industry trade shows,
as  well as  advertisements  in  trade  journals  and  referrals  from  existing
customers and suppliers.  Atlantic Satellite and Waterfront jointly market their
services  through the efforts of  management  and a full-time  sales force which
emphasizes  quality and the range of their offered  services.  In addition,  AFA
maintains a full-time  sales force which  emphasizes to potential  customers the
extensive  experience of its  professional  engineers,  AFA's leadership role in
systems  technology  and its  comprehensive  project  management  services.  VRI
focuses on its market  leadership  position,  round-the-clock  customer service,
diversity  and  reliability  of  its  inventory  and  its  competitive   pricing
structure,  as  well as the  value-added  services  it  provides  to its  larger
customers, such as logistics and inventory management.

     In August 1999, the Company and British Telecom  Broadcast  Services agreed
to jointly develop,  market and sell each other's video broadcasting services in
the United States.  British Telecom Broadcast  Services and  Waterfront/Atlantic
Satellite  will market and sell each other's  products and  services.  Customers
will be  better  served  through  enhanced,  more  flexible  offerings  and cost
benefits resulting from economies of scale.

     A full-time sales force, together with editors,  graphic artists and senior
management,  actively  market the  Company's  post-production  services  through
industry contacts and through  advertising in the major industry trade magazines
such as  Shoot,  Ad  Week  and  Post.  The  post-production  group  also  use an
aggressive direct mail program. The focus of this advertising and direct mail is
to promote the Company's image for quality services,  its technical capabilities
and its state-of-the-art facilities.

     The Company's marketing strategy,  with respect to the services it provides
for television program  distributors to the international  market is to focus on
the needs of the  end-users as well as on the needs of the clients.  The Company
actively  develops  relationships  with  overseas  facilities  and  broadcasters
through visits and  multi-lingual  communication,  to learn and respond to their
individual technical and operational requirements. This strategy has resulted in
end-users  requesting that their international  television program  distributors
utilize the Company's  services and has  alleviated  many  problems  between the
distributors and the  broadcasters.  Sales and marketing  efforts  emphasize the
needs of the client and the end-user,  technical proficiency,  and the Company's
global perspective.


Supply of Services and Equipment

     In most situations where Atlantic Satellite is providing  satellite up-link
services,  the customer has secured the transponder time and instructs  Atlantic
Satellite as to which satellite and transponder to transmit the signal. In those
situations where Atlantic  Satellite is providing  transponder time as part of a
service package to a customer,  Atlantic Satellite obtains transponder time from
third-party  re-sellers  of  transponder  time.  Satellite  owners  do not  sell
occasional transponder time directly to end-users or service providers.  Rather,
they sell or lease  transponders on a full-time basis for a minimum of one year.
However,  the success of Atlantic  Satellite's business depends in part upon the
price and availability of satellite transponders. A shortage of transponders can
be caused by several factors,  including the malfunctioning or expiration of the
useful lives of existing  satellites or the unsuccessful launch of additional or
replacement  satellites,  all of  which  are  beyond  the  control  of  Atlantic
Satellite or its customers. A shortage of satellite transponders would be likely
to increase  the price of  available  transponders,  which would have an adverse
impact upon Atlantic  Satellite's,  and thus the  Company's,  ability to operate
profitably.  Waterfront  may either  order  fiber  optic  lines from third party
providers to be installed between Waterfront's  facility and the customer or the
customer  may order  these items  directly  from a third  party  provider,  with
Waterfront  providing  only the connection  with its switch.  AFA and VRI obtain
their  equipment  from a variety  of  sources,  including  the  major  equipment
manufacturers  such as Sony  Corporation  of America,  Phillips and Grass Valley
Group.  AFA orders  equipment  used in the production of its video systems based
upon  customer  purchase  orders after receipt of deposits.  Larger  systems are
funded through periodic customer  payments,  which relate closely to the capital
needs of the project.  Although the Company did not experience  any  significant
difficulty in obtaining equipment, there can be no assurance that shortages will
not arise in the future. The loss of any one or more manufacturing sources could
have an adverse effect on the Company until  alternative  arrangements  could be
secured.  The Company  believes that there are alternative  adequate  sources of
components of sufficient quality and quantity.
Competition

     The competitive video services industry is both specialized and fragmented.
Major  competitors for Atlantic  Satellite's  transmission  services include ATC
Teleport (a subsidiary of American Tower Corporation),  Group W (a subsidiary of
CBS),  Globecast  (a  subsidiary  of French  Telecom)  and  National  Gateway (a
subsidiary of Williams  Communications,  Inc.).  Some of these  competitors have
significantly  greater resources than the Company.  Atlantic  Satellite competes
primarily based upon customer service and its large and valued  subscriber base,
which  permits  a high  degree of  inter-subscriber  connections.  Although  the
Company believes that  Waterfront's  video switching  facility is the largest in
the New York metropolitan  area, "The Switch" (operated by Globecast) has "first
mile" and "last mile"  capabilities  and  competes  with  Waterfront.  AT&T also
competes in the switching business to some extent. However, the Company believes
that  its  fully  manned  facility  provides  it  with  an  advantage  over  its
competitors,  which do not  provide  the same level of  service.  AFA's  primary
competitors  are Sony  Corporation,  Communications  Engineering  Inc.  National
TeleConsultants  and The  Systems  Group,  as well as  small,  regionally  based
integrators  and  dealers.   Competition  is  based  upon  technical  expertise,
experience and price.  VRI's major  competitor is Bexel  Corporation,  which has
locations in several metropolitan areas, as well as smaller companies,  which do
not offer the variety of services  provided  by VRI.  Competition  is based upon
price, diversity and availability of inventory and customer service. The Company
believes  that the ability of its  operating  subsidiaries  to  cross-market  to
existing   customers  using  other  services  offered  by  the  Company's  other
subsidiaries  provides  the  Company  with a  competitive  advantage  over  many
competitors who lack the full complement of services provided by the Company.

     Certain post-production services businesses (both independent companies and
divisions of diversified  companies)  provide most of the same services provided
by the Company,  while others  specialize  in one or several of these  services.
Certain film production companies also provide post-production services. Many of
the Company's  competitors for post-production  services are located in New York
City, one of the principal domestic markets for such services. Certain of these,
as well as other competitors of the Company,  have greater  financial  resources
than the Company.

     With regard to its  post-production  services,  the Company competes on the
basis of  customer  satisfaction  with the  range,  quality  and  pricing of its
offered  services.  The Company  also  competes in this area on the basis of its
ability to attract and retain qualified,  highly skilled personnel.  The Company
believes that prices for its post-production services are competitive within its
industry, although some competitors may offer certain of their services at lower
rates than the Company.  The  post-production  services industry has been and is
likely to  continue to be subject to  technological  change to which the Company
must  respond in order to remain  competitive.  The Company has no  long-term or
exclusive  agreements  with  customers  for  which it  provides  post-production
services; however, the Company has had long-term relationships with many of such
customers.

     Major competitors of the Company in providing standards conversion services
include  Devlin Video  Services,  Magno Sound & Video,  Four Media  Corporation,
Vidfilms,  Intercontinental  Televideo and International Image based in Toronto,
Canada.  Major  competitors  of the  Company  in  providing  creative  editorial
services include Crew Cuts Film & Tape, Red Car, Blue Rock Editing Company,  Mad
River Post and  Progressive  Image Group.  Major  competitors  of the Company in
providing   film-to-videotape    transfer,    electronic   video   editing   and
computer-generated  graphic  services  include Post Perfect (a subsidiary of The
New York Media Group), The Tape House Editorial Co., PrinczCo Productions,  Nice
Shoes, L.L.C., Click 3X and Broadcast Video, Inc.

Government Regulation

     The Communications Act of 1934, as amended by the Telecommunications Act of
1996,  prohibits the operation of satellite  earth  station  facilities  such as
those operated by Atlantic  Satellite,  except under licenses issued by the FCC.
Atlantic  Satellite  holds  the  following  five  satellite  earth  station  FCC
licenses:

                          Call Sign                 License Expiration Date
                          ---------                 -----------------------
                           E910152                   March 22, 2001

                           E4626                     September 10, 2002

                           E960405                   September 6, 2006

                           E970418                   October 10, 2007

                           E881160                   February 17, 2009

     No FCC  authorization  is  required  for  reception  of  transmission  from
domestic  satellites to points within the United States.  When  applicable,  the
Company will continue to rely on third party FCC licenses or authorizations when
it transmits certain domestic  satellite traffic through earth stations operated
by such third parties.

     The  FCC  establishes   technical  standards  for  satellite   transmission
equipment,  which change from time to time, and it also requires coordination of
earth  stations with  land-based  microwave  systems at certain  frequencies  to
assure  non-interference.  Transmission  equipment  must also be  installed  and
operated  in  a  manner  that  avoids  exposing  humans  to  harmful  levels  of
radio-frequency  radiation. The placement of earth stations or other antennae is
typically  subject to  regulation  under local  zoning  ordinances.  The Company
believes that Atlantic  Satellite's  equipment meets and is operated in material
compliance with all applicable laws, regulations and industry standards.

     Waterfront holds two point-to-point microwave licenses from the FCC for the
transmission of signals from a single point to temporary fixed locations  within
25 miles of the license coordinates. There are two microwave licenses:

                          Call Sign                License Expiration Date
                          ---------                -----------------------
                           WMQ-537                   February 1, 2001

                           WNEI382                   June 23, 2009

     While the FCC generally renews  satellite earth station and  point-to-point
microwave  licenses on a routine basis,  there can be no assurance that Atlantic
Satellite's and Waterfront's licenses will be renewed at their expiration dates.
Failure to obtain renewal of such licenses would have a material  adverse effect
on the Company.

Employees

     The  Company  and  its  subsidiaries   have   approximately  509  full-time
employees.  None of the Company's  employees are represented by a labor union or
are  subject  to a  collective  bargaining  agreement.  The  Company  has  never
experienced  a work  stoppage  and  believes  that its  employee  relations  are
satisfactory.

     The Company's success depends in large part on the continued service of its
executive officers, key creative artists and skilled technicians,  and other key
personnel.   The  Company  has  employment  agreements  containing   non-compete
provisions  with most of its  current  key  executive  officers,  including  the
president and chief executive  officer.  However,  the Company does not have any
long-term employment agreements and/or any covenants not to compete with most of
its key artists and  technicians.  A  significant  percentage  of the  Company's
revenues can be attributed to services  requiring  highly  compensated  creative
technicians.  Competition  for highly  qualified  employees  is intense  and the
process of acquiring key technical,  creative and management  personnel with the
requisite combination of skills and attributes is often lengthy. There can be no
assurance  that the Company  will  continue to attract,  motivate and retain key
personnel.  Failure by the Company to attract and retain qualified key personnel
could have a material adverse effect on the Company.

Backlog

     At  June  30,  2000  and  June  30,  1999,  the  Company  had  backlogs  of
approximately  $8,600,000  and $6,000,000  respectively.  All of such backlog is
attributable to AFA's video  production  systems  projects and will be completed
within the coming year.


ITEM 2. PROPERTIES

     The Company's  corporate  headquarters (which are owned by the Company) are
located at 240 Pegasus  Avenue,  Northvale,  New Jersey  ("240  Pegasus")  where
Atlantic  Satellite  also occupies an aggregate of  approximately  15,000 square
feet plus outdoor  antenna  pads.  The Company owns another  facility at 183 Oak
Tree Road in Tappan,  New York ("183 Oak  Tree"),  which is  adjacent to the 240
Pegasus property in which Atlantic  Satellite and VRI also occupy  approximately
13,000 and 7,000 square feet, respectively. Atlantic Satellite has leased 10,000
square  feet at 183 Oak Tree  Road to the  NHL.  Atlantic  Satellite's  teleport
facility is located at 240 Pegasus and 183 Oak Tree.  In  addition,  the Company
subleases approximately 50,000 square feet at 235 Pegasus Avenue, Northvale, New
Jersey from an unaffiliated  entity,  which in turn leases such property from an
unaffiliated  third  party.  The  terms  of  the  lease  and  the  sublease  are
substantially  identical.  Approximately  38,000 square feet of such facility is
used by Audio Plus Video for production purposes and approximately 12,000 square
feet is used for general and warehouse purposes.  In addition,  the Company also
owns approximately 8 acres of vacant land in Northvale, New Jersey.

     The Company leases five principal production facilities, two located in New
York City,  two located in South  Florida and one in  Burbank,  California.  The
Company's  two New York City  production  facilities  consist  of  approximately
68,000  square feet in midtown  Manhattan  where CABANA leases one 18,000 square
foot facility and Manhattan  Transfer leases  approximately  50,000 square feet.
MT-Miami leases two South Florida production  facilities of approximately 21,000
square feet.  MT-Miami moved and  consolidated  its 9,000 square foot Hollywood,
Florida  facility  to the South Beach  Miami  facility  in the first  quarter of
fiscal year 1999. Audio Plus Video/West  leases a 13,000 square foot facility in
Burbank, California.

     Waterfront  leases  approximately  7,200  square feet in midtown  Manhattan
which houses  Waterfront's  Technical Operation Center and executive offices and
approximately  2,600  square  feet in  downtown  Manhattan  which  is  used  for
Waterfront's  remote  switching  hub. AFA leases from an entity owned by Messrs.
Siracusano  and Ferolito  approximately  30,000 square feet at another  facility
located in Northvale, New Jersey, which facility serves as its executive offices
and its engineering and fabrication facility.

ITEM 3. LEGAL PROCEEDINGS

     The Company and its  subsidiaries  are involved in various claims and legal
proceedings related to employment matters, as well as other legal proceedings of
a nature considered normal to its business.  While it is not possible to predict
or determine the outcome of these claims and  proceedings,  it is the opinion of
management  that their  outcomes will not have a material  adverse effect on the
financial position, liquidity or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

     The  Company's  common  stock is  listed  on the  American  Stock  Exchange
("AMEX")  under the symbol "VS".  The common stock began  trading on February 8,
1994 at the  effective  time of IPL's  initial  public  offering  on the  NASDAQ
National Market under the symbol "POST". Prior to such time, there was no public
market for the common stock.  Following the merger and until  February 11, 1998,
the common stock traded on the NASDAQ National Market under the symbol "VSCX".

     As of August 22, 2000,  there were  approximately  625 holders of record of
the Common Stock.

     The  following  table  sets  forth the high and low  closing  prices of the
Common Stock on the American Stock Exchange/Nasdaq National Market for each full
quarterly period within the two most recent fiscal years.

<TABLE>
<CAPTION>


         Fiscal Year 1999                              High             Low
         ----------------                              ----             ---
         <S>                                           <C>              <C>
         First Quarter.................................3 15/16          2 5/8
         (July 1 to September 30)
         Second Quarter................................3 11/16          1 7/8
         (October 1 to December 31)
         Third Quarter.................................3 1/2            2 1/4
         (January 1 to March 31)
         Fourth Quarter................................2 5/8            1 5/8
         (April 1 to June 30)

         Fiscal Year 2000                              High             Low
         ----------------                              ----             ---
         First Quarter.................................3 1/4            1 7/8
         (July 1 to September 30)
         Second Quarter................................4 1/2            1 5/8
         (October 1 to December 31)
         Third Quarter.................................5 13/16          2 3/8
         (January 1 to March 31)
         Fourth Quarter................................6                3
         (April 1 to June 30)

</TABLE>

     No cash  dividends  have ever been  declared  by the  Company on the Common
Stock.  The Company  intends to retain  earnings to finance the  development and
growth of its business.  Accordingly,  the Company does not anticipate  that any
dividends  will be  declared  on the Common  Stock for the  foreseeable  future.
Future payment of cash dividends, if any, will depend on the Company's financial
condition,  results of operations,  business conditions,  capital  requirements,
restrictions contained in agreements,  future prospects and other factors deemed
relevant  by  the  Company's  Board  of  Directors.  Presently  the  Company  is
prohibited from paying any dividends per the Credit Agreement.


<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

     The following table sets forth selected historical  consolidated  financial
data for Video and its  subsidiaries for the periods and at the dates indicated,
dollars in thousands except share amounts.

<TABLE>
<CAPTION>
                                                 Year Ended      Year Ended      Year Ended       Year Ended       Year Ended
                                                  June 30,        June 30,        June 30,         June 30,         June 30,
                                                    1996           1997(1)         1998(3)           1999             2000
                                                 ------------    ------------    ------------     ------------    -------------
<S>                                              <C>             <C>             <C>              <C>             <C>
Statement of Operations Data: (3)

Revenues .................................         $  29,740       $  27,610       $  72,995        $  89,411       $   96,148

Depreciation and amortization ............             1,653           1,824           7,958            9,836           10,465

Operating income from continuing .........             2,387           1,750           6,692            2,138            3,989
   operations

Income (loss) before income taxes,
   discontinued operations and
   extraordinary gain ....................             1,999           1,825           3,290           (1,958)            (268)

Income (loss) before discontinued
   operations and extraordinary gain......             1,212           1,638           1,699           (1,900)          (1,111)

Loss from discontinued operations, .......              (388)         (1,688)         (1,860)             --               --
   net of tax (2) (4)

Extraordinary gain (5) ...................                                                                                 382

Net income (loss) ........................         $     824       $     (50)      $    (161)       $  (1,900)      $     (729)


Pro forma income (loss) per share before
    discontinued operations and ..........         $    0.17       $    0.23       $    0.14        $   (0.14)      $     (.08)
extraordinary ............................
    gain - basic (3)

Pro forma net income (loss) per share - ..         $    0.12       $   (0.01)      $   (0.01)       $   (0.14)      $     (.05)
     basic (3) ...........................

Weighted average number of shares ........             6,961           7,011          12,276           13,264           13,292
    outstanding (3)
</TABLE>

<TABLE>
<CAPTION>
                                                    As of           As of            As of           As of            As of
                                                  June 30,        June 30,         June 30,        June 30,         June 30,
                                                    1996            1997            1998(3)          1999             2000
                                                 ------------    ------------     ------------    ------------    -------------
<S>                                              <C>             <C>              <C>             <C>             <C>
Balance Sheet Data: (3)
Total assets..............................         $  17,672       $  20,801       $   81,860        $  85,318       $   86,032
Long-term debt, net of current portion....             2,140           5,330           30,968           36,760           40,752
Subordinated debt, net of
     current portion......................               ---             ---            5,442            5,652            2,924
Stockholders' equity......................         $   2,655       $   2,733       $   20,725        $  18,847       $   18,251
</TABLE>
 ...........................
(1)  Included in the year ended June 30, 1997 is approximately $500 of other
     income  pertaining to the payment of a note  receivable for which Old Video
     had established a full valuation allowance. The note receivable was partial
     consideration for the sale of a radio station in fiscal 1991.

(2)  The operating results of Old Video's Diversified Products segment have been
     reflected as discontinued operations for the years ended June 30, 1996, and
     1997.

(3)  Reflects the Merger with and into IPL as of August 27, 1997. The Merger was
     accounted for as a reverse  acquisition  whereby the  pre-Merger  financial
     statements of Old Video became the historical  financial  statements of the
     Company  after the Merger.  Pro forma  income  (loss)  before  discontinued
     operations  and  extraordinary  item per share and pro forma net income per
     share gave effect to the  conversion  of Old Video Common Stock into common
     stock (i.e., shares of the combined company) in the merger.

(4)  The  operating  results  of  the  Consulting   Services  segment  providing
     strategic   consulting   services  have  been  reflected  as   discontinued
     operations for the year ended June 30, 1998.

(5)  Extraordinary gain of $382,  net of income tax  expense of $254,  in fiscal
     2000 is  attributable  to the  settlement  and  replacement  of a $2,540 4%
     convertible note.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.

     On August 27, 1997,  Video Services  Corporation  ("Old Video") merged with
and into  International  Post  Limited  ("IPL")  with IPL  being  the  surviving
corporation (the "Merger"). At the effective time of the Merger, IPL changed its
name to Video Services Corporation.  References herein to the "Company" refer to
the combined company after giving effect to the Merger. The Merger was accounted
for as a reverse acquisition whereby the pre-Merger  financial statements of Old
Video became the historical  financial statements of the Company. As a result of
the Merger,  the results of operations  and cash flows  reported for the Company
for the year ended June 30, 2000 are not necessarily comparable to those periods
prior to the  Merger.  The  results of  operations  and cash  flows as  reported
represent those of the Company for the years ended June 30, 2000, 1999 and 1998,
and include the results of operations and cash flows of IPL from the date of the
Merger.  Certain  comparable  references to IPL's 1999 and 1998 figures  include
pre-merger  amounts that are not included in the financial  statements,  but are
included  in  the  following  discussions  for  comparative  purposes  only.  In
addition, in August 1997 and prior to the Merger: (i) Old Video discontinued the
operations  of its  Diversified  Products  segment  through  a  spin-off  of the
Diversified  Products segment to Old Video's stockholders and (ii) the principal
stockholders of Old Video contributed by merger (the  "Contribution")  the stock
of two S  corporations  holding  all  of the  general  and  limited  partnership
interests in MAL Partners and L.I.M.A.  Partners,  which partnerships owned real
estate  and  equipment  which  was  leased  solely  to Old  Video  and IPL.  The
Contribution, which represents a transfer between entities under common control,
has been recorded at the lower of historical  amortized cost or fair value.  See
Note 1 to the Company's  consolidated  financial statements included herein. The
following  discussion  and  analysis  should  be read in  conjunction  with such
historical consolidated financial statements and the notes thereto.

     In August  1999,  the  Company  retained  Lazard  Freres & Co.  LLC. as its
investment banker and financial  advisor to explore strategic  opportunities for
the Company,  including but not limited to a sale,  merger or joint venture.  On
July 25, 2000, the Company,  entered into a definitive agreement with AT&T Corp.
and Liberty Media Corporation  ("Liberty Media") pursuant to which Liberty Media
will acquire 100% of the Company's issued and outstanding  common stock by means
of a merger. As contemplated by the merger agreement, each share of common stock
outstanding  immediately  prior  to the  effective  time of the  merger  will be
converted  into 0.104 of a share of Class A Liberty  Media Group Stock and $2.75
in cash.  The  Company's  stockholders  controlling  approximately  71.8% of the
Company's  outstanding  common stock have entered into a voting  agreement  with
Liberty  Media  under which  these  stockholders  agreed to vote in favor of the
merger agreement and the merger.

Overview

     The  Company's  business is  currently  divided  into three  segments:  (i)
Satellite  and  Distribution  Services,  (ii)  Systems  and  Products  and (iii)
Production Services (see Note 11 to the consolidated financial statements).  The
Satellite and Distribution Services segment integrates and distributes broadcast
quality  video  content via a satellite  and fiber  optic  transmission  network
routed  through  its  digital/analog  switching  center and is an  international
provider of multi-format  technical and distribution services to distributors of
video  programming.  The Systems and Products  segment  designs,  engineers  and
produces  advanced  video  facilities  for the broadcast  and cable  television,
post-production,  Internet and corporate  markets.  This segment also  develops,
manufactures and markets advanced color correcting and manipulation  systems for
the film, post-production and multimedia industries and rents professional video
equipment to the sports,  entertainment  and other segments of the broadcast and
cable television and corporate  markets.  The Production  Services segment is an
international  provider  of  technical  and  creative  services  to  owners  and
producers  of  television   programming,   television   advertising   and  other
programming content and the emerging Internet graphics and video market.

Discontinued Operations

     On November 30, 1997,  management,  which had the  authority to approve the
action,  committed  the  Company to a formal  plan to dispose of the  Consulting
Services  segment  providing  strategic  consulting  services  in  the  area  of
communications, design and implementation of intranets, extranets and internets.
The Consulting  Services segment was acquired in the Merger.  Management  closed
the Consulting  Services  segment November 1998 (See Note 16 to the consolidated
financial statements).

Results of Continuing Operations

     Year Ended June 30, 2000  compared to Year Ended June 30, 1999  (dollars in
thousands)

     Total revenues increased by $6,737 to $96,148 in 2000 from $89,411 in 1999.
Revenues from the Satellite and Distribution  Services segment increased by 9.1%
to $34,130 in 2000 from $31,280 in 1999.  This increase was primarily due to the
West Coast facility being fully operational, an increase in syndicated satellite
services,  video  transmissions  and a  continued  increase  in  the  number  of
customers connected to the Company's satellite and fiber optic network. Revenues
from the Systems and Products segment increased by 19.2% to $30,540 in 2000 from
$25,615 in 1999. This increase was primarily due to increased  demand for design
and  installation  of turnkey video  systems.  The Production  Services  segment
decreased  by 3.2% from  $32,516  in 1999 to $31,478 in 2000.  The  decrease  is
primarily  due to the loss of  certain  network  operations  contracts,  a lower
volume of  creative  editorial  services  and lower film to  videotape  transfer
services offset by increased visual effects and broadcast design services.

     Total costs  increased  by $4,592 to $61,493 in 2000 from  $56,901 in 1999.
Costs of the Satellite and Distribution  Services  segment  increased by $822 to
$16,908 in 2000 from $16,086 in 1999. This increase consisted primarily of costs
associated with the ramp up of the fully  operational West Coast facility offset
by lower syndication  costs. Costs of the Systems and Products segment increased
by $3,926 to $24,576 in 2000 from $20,650 in 1999.  This  increase was primarily
driven  by  the  equipment  costs   associated  with  the  increased  volume  in
installations of turnkey video systems. Costs of the Production Services segment
decreased  by $156 from  $20,165 in 1999 to $20,009 in 2000.  The  decrease  was
primarily a result of a reduction in fixed salaries and costs.

     The  Company's  overall  gross  profit  margin   (excluding   depreciation)
decreased  from 36.4% in 1999 to 36.0% in 2000.  Gross  profit  margin  from the
Satellite  and  Distribution  Services  segment  increased to 50.5% in 2000 from
48.6% in 1999. This increase was a result of greater use of existing capacities,
the new West Coast  facility being fully  operational  and higher margins on the
syndication revenues.  Gross profit margin from the Systems and Products segment
was basically  unchanged,  19.5% in 2000 from 19.4% in 1999. Gross profit margin
from Production  Services segment  decreased from 38.0% in 1999 to 36.4% in 2000
as a result of a decrease in revenues combined with stable fixed costs

     Selling,  general and  administrative  expenses  was  basically  unchanged,
decreasing  from  $20,205  in 1999 to  $20,201  in 2000.  Selling,  general  and
administrative expenses as a percentage of revenues decreased by 1.6% from 22.6%
in 1999 to 21.0% in 2000. The ratio decrease was primarily  attributable  to the
increased revenues of the Company.

     Depreciation  expense  increased  to $9,265  in 2000  from  $8,743 in 1999,
primarily  due to the new West Coast  facility as well as other  investments  in
capital  equipment.  Amortization  expense was $1,200 in 2000 and $1,093 in 1999
reflecting the  amortization of the goodwill (excess of cost over the fair value
of net assets acquired), which is being amortized principally over 25 years.

     Merger related costs were incurred during the 1999 fiscal year. The Company
received unsolicited expressions of interest in acquiring the Company from third
parties. The Company incurred $331 of advisory and legal fees in connection with
its  evaluation  of  these  expressions  of  interest.  Since  discussions  were
terminated, these costs were expensed in fiscal year 1999.

     Interest  expense  increased  to $4,814 in 2000 from  $4,149 in 1999,  as a
result of higher interest rates  associated with the term loan and the revolving
loan and increased  equipment  capital lease  obligations.  See  "Liquidity  and
Capital Resources."

     The effective tax rate applied  against pre-tax loss was 314.5% in 2000 and
(3.0)% in 1999.  The  effective  tax rate for 2000 as  compared  to the  federal
statutory  tax rate of 34% was  primarily  the result of state  income taxes and
goodwill  amortization  created by the Merger which is not deductible for income
tax purposes.  In addition,  the state net operating loss valuation increased by
$1,341  and  $2,600 in 1999 and  2000,  respectively  as a result  of  continued
operating  losses in certain  subsidiaries.  The Company  has a state  valuation
allowance  of  $4,620 as of June 30,  2000.  The state  valuation  allowance  is
provided  as a result of  estimates  regarding  future  operations  for  certain
subsidiaries in certain states.

     Loss from continuing  operations decreased from $1,900 in 1999 to $1,111 in
2000 primarily as a result of the factors discussed above.

     Extraordinary  gain of $382 (net of income tax  expense of $254) in 2000 is
attributable  to the  settlement  and  replacement  of the $2,540 4% convertible
subordinated note due May 4, 2003, more fully discussed in Liquidity and Capital
Resources.

     Year Ended June 30, 1999  compared to Year Ended June 30, 1998  (dollars in
thousands)

     Total  revenues  increased  by $16,416  to $89,411 in 1999 from  $72,995 in
1998, of which $7,391 was  attributable to a full year of IPL operating  results
in 1999,  compared  to ten  months  in 1998.  Revenues  from the  Satellite  and
Distribution Services segment increased by 46.3% to $31,280 in 1999 from $21,384
in 1998.  $16,372 of the $31,280 of 1999  Satellite  and  Distribution  Services
segment revenue was  attributable  to post-Merger  contribution to revenues from
Satellite and Distribution Services provided by IPL. Revenues from the Satellite
and Distribution  Services segment other than those provided by IPL increased by
31.2% to  $14,908 in 1999 from  $11,367 in 1998.  This  increase  was  primarily
generated by the Goodwill  Games, an increase in syndicated  satellite  services
and an increase in the number of customers  connected to the Company's satellite
and fiber optic network.  Revenues from the Satellite and Distribution  Services
segment  provided by IPL  increased  by 34.5% to $16,372 in 1999 from $12,171 in
1998 (includes $2,154 of pre-Merger revenues).  The increase is primarily due to
the  opening of the new  facility  in  Burbank,  California.  Revenues  from the
Systems and Products segment  increased by 37.5% to $25,615 in 1999 from $18,631
in 1998 due to increased  demand for design and  installation  of video systems.
The amount of the increase  was greater as a result of a prior year  significant
contract  pursuant to which the Company received a commission based on equipment
used in such video  systems which were  purchased  directly by the customer from
third parties.  The Production  Services segment revenues of $32,516 and $32,980
in  1999  and  1998,  respectively,   was  solely  attributable  to  post-Merger
contributions  provided by IPL. Revenues provided by IPL decreased by 15.0% from
$38,265 in 1998 (includes $5,285 of pre-Merger revenues) to $32,516 in 1999. The
decrease is primarily due to a lower volume of creative  editorial  services and
the loss of Discovery Channel's network operations.

     Total costs of sales,  services and rentals increased by $15,726 to $56,901
in 1999 from $41,175 in 1998, of which $3,721 was attributable to a full year of
IPL  operating  results in 1999,  compared  to ten months in 1998.  Costs of the
Satellite and Distribution  Services  segment  increased by $6,575 to $16,086 in
1999 from $9,511 in 1998.  This increase was primarily  attributable to costs of
Satellite  and  Distribution  Services  provided  by IPL of $4,557  and a $2,019
increase in costs of non-IPL services associated with the Goodwill Games, higher
syndication  costs and fiber  usage.  Costs of IPL  Satellite  and  Distribution
Services  increased  $3,729 to $8,840 in 1999 from $5,111 in 1998 (includes $828
of pre-Merger costs). This increase consisted primarily of costs associated with
the new West Coast facility. Costs of the Systems and Products segment increased
by $7,537 to  $20,650 in 1999 from  $13,113 in 1998.  The growth in costs of the
Systems and Products segment was driven by the increased volume of installations
of video systems as well as the effects of the significant  contract pursuant to
which the  Company  received  a  commission  as  discussed  above.  Costs of the
Production  Services  segment of $20,165 in 1999 and  $18,551 in 1998 was solely
attributed to costs provided by IPL. Cost of Production Services provided by IPL
decreased by $1,326 from $21,491 in 1998 (includes  $2,940 of pre-Merger  costs)
to $20,165 in 1999.

     The  Company's  overall  gross  profit  margin   (excluding   depreciation)
decreased  to 36.4% in 1999 from 43.6% in 1998.  Gross  profit  margin  from the
Satellite and  Distribution  Services  segment  decreased  from 55.5% in 1998 to
48.6% in 1999. Gross profit margin from the Satellite and Distribution  Services
segment  other than  services  provided by IPL  decreased  from 54.0% in 1998 to
51.4% in 1999 as a result of a greater  proportion  of  syndication  revenues as
well as  incremental  costs  associated  with the Goodwill  Games.  Gross profit
margin from Satellite and Distribution  Services  provided by IPL decreased from
57.2% in 1998 to 46.0% in 1999 as a result of the  opening of the new West Coast
facility.  Gross profit margin from the Systems and Products  segment  decreased
from  29.6% in 1998 to 19.4% in 1998  primarily  as a result  of the  change  in
contract  structure  discussed  above and from a lower  proportion  of  revenues
contributed by the equipment  rental division in 1999.  Gross profit margin from
Production Services decreased from 43.8% in 1998 to 38.0% in 1999 as a result of
a decrease in revenues combined with stable fixed costs. Since a high proportion
of costs attributable to the Production Service segment are fixed,  decreases in
revenues do not result in proportionate decreases in costs.

     Selling,  general and administrative  expenses increased to $20,205 in 1999
from $17,170 in 1998, which primarily resulted from a full year of IPL operating
results  in  1999,   compared   to  ten  months  in  1998  and  the   additional
administrative  salaries and occupancy costs  associated with the opening of the
new West  Coast  facility.  However,  as a  result  of the  Company's  increased
revenue,  selling,  general  and  administrative  expenses  as a  percentage  of
revenues decreased to 22.6% in 1999 from 23.5% in 1998.

     Depreciation  expense  increased  to $8,743  in 1999  from  $7,109 in 1998,
primarily due to a full year of IPL operating  results in 1999,  compared to ten
months in 1998 and the new West Coast facility.  Amortization  expense increased
to $1,093 in 1999 from $849 in 1998 reflecting the  amortization of the goodwill
(excess  of cost  over  the fair  value  of net  assets  acquired)  recorded  in
connection with the Merger, which is being amortized principally over 25 years.

     Merger related costs were incurred during the 1999 fiscal year. The Company
received unsolicited expressions of interest in acquiring the Company from third
parties. The Company incurred $331 of advisory and legal fees in connection with
its  evaluation  of  these  expressions  of  interest.  Since  discussions  were
terminated, these costs were expensed in fiscal year 1999.

     Interest expense  increased to $4,149 in 1999 from $3,619 in 1998 primarily
due to the assumption and refinancing by the Company of IPL's existing long-term
indebtedness as part of the Merger and the increased borrowings  associated with
the new West Coast facility. See "Liquidity and Capital Resources."

     The effective tax rate applied  against pre-tax income (loss) was (3.0)% in
1999 and  48.4% in 1998.  The  effective  tax rate for 1999 as  compared  to the
federal statutory tax rate of 34% was primarily the result of state income taxes
and  goodwill  amortization  created by the Merger which is not  deductible  for
income tax purposes.  The state net operating loss valuation increased by $1,341
in 1999, as a result of additional operating losses in certain subsidiaries. The
state net operating loss valuation  decreased by $258 in 1998 as a result of the
use of net operating losses. A valuation  allowance of $2,020 remains as of June
30,  1999 for state net  operating  losses.  The state  valuation  allowance  is
provided  as a result of  estimates  regarding  future  operations  for  certain
subsidiaries.

     Income (loss) from continuing  operations  decreased from $1,699 in 1998 to
$(1,900) in 1999 primarily as a result of the factors discussed above.

Liquidity and Capital Resources (dollars in thousands)

     The Company meets its liquidity needs and capital expenditures requirements
with  internally  generated  funds,  borrowing  under its bank  credit  facility
(including line of credit),  equipment  financing and capital leases. Such funds
are used for  capital  expenditures,  working  capital  needs and  repayment  of
outstanding indebtedness.

     The Company  refinanced  its  long-term  indebtedness,  including  mortgage
payables and lines of credit  (excluding  existing  capital lease  obligations),
with a $55,000 credit facility  comprised of a $15,000 revolving line of credit,
term  loans  totaling  $30,000  and  Secondary  Collateral  Institutional  Loans
("SCIL") totaling $10,000.  General Electric Capital Corporation ("GE Capital"),
is Term Agent and  Administrative  Agent under the credit  agreement and KeyBank
National  Association  ("KeyBank"),  is revolver  agent.  The revolving  line of
credit bears interest at LIBOR (London  Interbank  Offered Rate) plus 3.25 basis
points.  Term Loan A bears  interest  at the  lenders'  prime rate plus 1.25% or
LIBOR plus 3.25%. The Term Loan B bears interest at the lenders' prime rate plus
1.50% or LIBOR plus 3.50%.  The SCIL loans bear  interest at the lenders'  prime
rate plus 2.0% or LIBOR plus 4.0%, commencing November 2001 both rates will bear
an  additional  4.0%  that  will  be  accrued  but  payable  on  the  commitment
termination date. Commitment termination date, in the case of the revolving line
and Term Loan A is July 1, 2003,  Term Loan B is July 1, 2005 and the SCIL loans
termination date is April 1, 2007. The Company had outstanding direct borrowings
of $3,642  under the  revolving  line at June 30,  2000.  The  Company  also has
outstanding under the revolving line letters of credit of approximately  $686 at
June 30, 2000. The Company's  revolving line weighted  average interest rate was
9.89% at June 30, 2000. The facility  contains  various  covenants that require
the Company to maintain certain financial ratios,  limits capital  expenditures,
prohibit  dividends and similar  payments and restrict the Company's  ability to
incur other  indebtedness.  The facility is  guaranteed  by all of the Company's
subsidiaries.

     The Company has borrowed $5,000 of the SCIL facility, the remaining balance
of $5,000 is reserved for retiring the Company's existing Subordinated Debt.

     Subordinated Debt consists of 4% convertible  subordinated notes due May 4,
2003 in the principal  amount of $6,350  issued by IPL, in  connection  with the
CABANA acquisition in May 1995. These notes are convertible into Common Stock at
a conversion  price of $14.00 per share after May 2000 and are redeemable  after
May 2001. In February 2000, the Company entered into an agreement to replace and
supersede $2,540 principal amount of the obligations. Accordingly, $2,540 of the
principal  payment was reduced to $1,980,  these  obligations  are  subordinated
debt, and do not have conversion features. An extraordinary gain of $382, net of
tax, has been recognized.  Periodic  payments will be made and fully paid by May
15, 2003.

     At June 30, 2000, the Company's outstanding  indebtedness was approximately
$51,272,  including the above mentioned  revolving credit facility.  At June 30,
2000,  the  weighted  average  interest  rate  was  approximately  9.92%  on the
Company's outstanding indebtedness.

     In June 2000,  the Company  assigned its  leasehold in its Miami studio and
sold other  assets,  cash  proceeds  from these  transactions  were $1,295,  the
Company recorded a gain of $367 included in other income.

     The Company has incurred $79 of advisory and legal fees in connection  with
the merger agreement among the Company, AT&T Corp. and Liberty Media Corporation
(see Note 21 to the consolidated financial statements).

     Cash Flow from Operating Activities.  For the year ended June 30, 2000, net
cash  provided by  operating  activities  was $4,125  primarily  resulting  from
earnings before interest,  taxes,  depreciation  and amortization  ("EBITDA") of
$15,011 which was offset by increases in working capital  requirements.  At June
30, 2000, the net deferred tax asset includes the benefit for net operating loss
carryforwards. Realization is not assured, however, the Company believes it will
generate sufficient taxable income to realize the entire deferred tax asset. For
the year ended June 30,  1999,  net cash  provided by operating  activities  was
$2,567 primarily  resulting from EBITDA of $12,027 which was offset by increases
in working  capital  requirements,  primarily the payment of  transaction  costs
associated with the Merger.

     Cash Flows from Investing Activities. For the year ended June 30, 2000, the
Company  used  $2,976 for  investing  activities,  consisting  of $4,459 for the
purchase of  additional  equipment,  which was offset by a sales of fixed assets
and repayment of an advance to an  affiliate.  For the year ended June 30, 1999,
the Company used $11,355 for investing activities, consisting of $11,619 for the
purchase of additional equipment, which was offset by a sale of fixed assets and
repayment of an advance to an affiliate.

     Cash Flow from Financing Activities. For the year ended June 30, 2000, cash
provided by financing  activities,  net of repayments of borrowings of long-term
indebtedness,  was $1,659.  Proceeds from long-term  borrowings  include $38,642
attributed  to the  refinancing  with GE  Capital  discussed  above,  $9,400  of
borrowings  under our  previous  revolving  line of credit and $5,240 of secured
equipment financing.  Repayments of borrowings include $37,411 attributed to the
refinancing with GE Capital,  $7,200 repaid under our previous revolving line of
credit and $6,847 of principal  payment on mortgages,  senior  secured term loan
and secured equipment financing. For the year ended June 30, 1999, cash provided
by financing activities, net of repayment of long-term indebtedness, was $8,101.
Such amount  primarily  consisted of $22,025 in  borrowings  under the revolving
line of credit  described  above  and  $3,544 of  secured  equipment  financing.
Repayments of borrowings  include  $11,925  repaid under our previous  revolving
line of credit and $5,753 of principal payment on mortgages, senior secured term
loan and secured equipment financing.

     The  foregoing  activities  resulted in a net increase in cash of $2,808 in
2000.  It is  the  Company's  belief  that  annual  cash  flows  from  operating
activities, along with the flexibility provided by the Credit Agreement, will be
sufficient to fund, for the foreseeable future, operating requirements,  capital
investments and commitments.

     At June 30, 2000, the Company has approximately  $3,480 of net deferred tax
assets.  The Company  believes that it will generate  sufficient  future taxable
income which coupled with the  availability  of certain prudent and feasible tax
planning  strategies,  will enable the Company to realize its net  deferred  tax
asset.

Forward-Looking Statements

     The above discussion contains forward-looking statements. There are certain
important  factors  that could  cause  results to differ  materially  from those
anticipated by the statements  made above.  These factors  include,  but are not
limited to: general  performance of the economy,  specifically as it affects the
advertising industry, entertainment, television, video and broadcast industries;
the international  economic and political climate which could impact the sale of
domestic  programming  overseas:  significant changes in video technology in the
post-production,  video and communication industries, the loss of key personnel,
and the loss of key customers.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Market risks  relating to the Company's  operations  result  primarily from
changes in  interest  rates as well as credit  risk  concentrations.  To address
these risks the Company  entered into an interest rate swap as described  below.
The Company does not use financial instruments for trading purposes.

Credit Risks

     The  Company's  customer  base is composed of companies  in the  television
network,   cable  and  advertising  industries  which  are  located  principally
throughout the United States. No single customer  accounted for more than 10% of
the Company's sales during the fiscal year ended June 30, 1999 and 2000.

Interest Rate Risks

     The Company  hedges its exposure to changes in interest rates on its senior
secured term loan.  In August 1997,  the Company  entered into an interest  rate
swap agreement with KeyBank to reduce the impact of changes in interest rates on
its Term Loan.  Pursuant to the refinancing at June 30, 2000, the swap agreement
was cancelled resulting in a gain of $9, which has been included as an offset to
interest  expense,  to the  Company.  The new credit  agreement  with GE Capital
requires  that 50% of the Term Loan  liabilities  be  converted  to a fixed rate
obligation by December 1, 2000.
<PAGE>

     The following tables provides  information  about the Company's  derivative
financial  instruments  and other  financial  instruments  that are sensitive to
changes in interest  rate. For debt  obligations,  the table presents cash flows
and related  weighted-average  interest rates by expected  maturity  dates.  For
interest  swaps,  the  table  presents  notional  amounts  and  weighted-average
interest  rates by  contractual  maturity  dates.  Notional  amounts are used to
calculate the contractual cash flows to be exchanged under the contract.

<TABLE>
<CAPTION>

            2000                                                                                                         Fair Value
   (dollars in thousands)           2000          2001           2002           2003        Thereafter      Total           2000
----------------------------- -- ----------- -- ---------- --- ---------- -- ----------- -- ---------- --- --------- --- -----------
<S>                              <C>            <C>            <C>           <C>            <C>            <C>           <C>

Long-term debt including
      current portion
   Fixed rate............        $   5,666      $  6,875       $  6,866      $   6,962      $ 19,917       $ 46,286      $   46,286
   Average interest rate.           10.02%        10.05%         10.10%         10.14%        10.40%

Subordinated Debt
   Fixed rate............        $   2,062      $  1,602       $  1,605      $      -       $       -      $  5,269      $    4,986
Average interest rate....            8.96%         8.80%          8.80%

            1999                                                                                                         Fair Value
   (dollars in thousands)           2000          2001           2002           2003          2004          Total           1999
----------------------------- -- ----------- -- ---------- --- ---------- -- ----------- -- ---------- -- ---------- --- -----------
<S>                              <C>            <C>            <C>           <C>            <C>            <C>

Long-term debt including
      current portion
   Fixed rate............        $   7,737      $  8,311       $ 10,747      $  17,317      $    350      $  44,462      $   44,476
   Average interest rate.            8.51%         8.39%          8.06%          7.74%         7.74%

Subordinated Debt
   Fixed rate............        $    ---       $  2,117       $  2,117      $   2,116      $    ---      $   6,350      $    5,652
   Average interest rate.            8.34%         8.34%          8.34%          8.34%         8.34%

Interest rate swap
   Pay variable/receive
   fixed.................        $  6,500       $  7,000       $  8,000      $   3,750      $    ---      $  25,250      $     (398)
   Average pay rate......            7.58%         7.58%          7.58%          7.58%         7.58%
   Average receive rate..            6.18%         6.18%          6.18%          6.18%         6.18%

</TABLE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The response to this item appears in Item 14(a) of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

None.


<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Directors and Executive Officers

     The  following  table sets forth  certain  information  with respect to the
Directors and certain executive officers of the Company at August 22, 2000:

     Name..................   Age     Position

     Robert H. Alter(l)(2).   71      Director

     Terrence A. Elkes.....   66      Director and Chairman of the Board

     Martin Irwin..........   64      Director and Vice Chairman of the Board

     Louis H. Siracusano...   58      Director, President and Chief Executive
                                      Officer

     Raymond L. Steele (l)(2) 65      Director

     Frank Stillo (1) (2)..   66      Director

     Donald H. Buck........   61      Vice President

     Michael E. Fairbourne.   47      Vice President - Administration,
                                      Chief Accounting Officer and Secretary

     Daniel Rosen..........   63       Vice President - Post Production

     (1) Member of  the Compensation Committee.
     (2) Member of the Audit Committee.

     Robert H. Alter, has been a director of the Company since October 1993. Mr.
Alter is a director of Source  Media,  Inc. and the Vice Chairman and a director
of  the   Cabletelevision   Advertising  Bureau  ("CAB"),   the  national  trade
association  of  the  cable   television   industry  devoted  to  marketing  and
advertising, a position he has held since October 1991.

     Terrence A. Elkes, has been a director and the Chairman of the Board of the
Company since October 1993. Mr. Elkes is a Managing Director of Apollo Partners,
Ltd.  ("Apollo"),  a private  investment  firm  involved in the  acquisition  of
companies in the media,  communications,  entertainment and broadcasting fields,
which he co-founded in 1987. Prior to forming Apollo,  Mr. Elkes was employed by
Viacom International, Inc. where he served as President from 1978-1982 and Chief
Executive Officer from 1983-1987.

     Martin Irwin, has been a director and the Vice-Chairman of the Board of the
Company since August 1997 and prior thereto, had been a director,  President and
Chief  Executive  Officer of the Company.  Mr.  Irwin,  co-founded  with Messrs.
Siracusano and Ferolito Video  Services  Corporation  ("Old Video") which merged
into  International  Post  Limited  ("IPL") on August 27,  1997 (the  "Merger"),
served in  various  capacities  with Old Video  since  its  formation.  Prior to
co-founding Old Video,  Mr. Irwin was employed by EUE/Screen Gems, a division of
Columbia  Pictures  Industries,  Inc.,  where  he last  served  as  Senior  Vice
President and General Manager.

     Louis H. Siracusano,  has been President and Chief Executive Officer of the
Company  since August 1997 and had been a director of the Company  since October
1993.  Prior to  August  1997,  Mr.  Siracusano  served as the  Chairman,  Chief
Executive  Officer and a director of Old Video  since 1986 and  President  since
1989. Mr. Siracusano also served as President of Audio Plus Video International,
Inc., a Company subsidiary,  from July 1989 to February 1994. Mr. Siracusano was
a founder of Old Video and served in various capacities with Old Video since its
formation.   Mr.   Siracusano  was  with  Ampex  Corporation  and  the  American
Broadcasting Company in various sales and engineering management positions prior
to Old Video's formation in 1979.

     Raymond L. Steele, has been a director of the Company since August 1997 and
currently serves as Chairman of the Compensation  Committee.  Prior thereto, Mr.
Steele had been a Principal  of Pacholder  Associates,  Inc.,  an  institutional
money  manager and  workout  specialist,  until his  retirement  in 1991.  Since
November  1993,  he has been  retained as a consultant  for Emerson Radio Corp.,
NUWAVE  Technologies  Inc.,  a  distributor  of video  enhancement  chips,  Home
Holdings,  Inc.,  an insurance  holding  company,  and GFTA,  a German  software
developer.  He has served as a director of numerous  companies,  including Orion
Pictures Corporation and Webcraft Technologies,  Inc., and currently serves as a
director of Emerson Radio Corp., ICH Corp., Modernfold,  Inc., a manufacturer of
movable walls, and GFTA.

     Frank  Stillo,  has been a director  of the Company  since  August 1997 and
currently serves as Chairman of the Audit  Committee.  He has been active in the
printing  industry since 1950 and  co-founded his own printing  company in 1968.
Since 1989,  Mr.  Stillo has been the  Chairman and Chief  Executive  Officer of
Sandy  Alexander,  Inc., a printing  company and Chief Executive  Officer of MGA
Printing  Co.,  a  subsidiary  of Sandy  Alexander,  Inc.  and has served as its
President  since 1981. Mr. Stillo also currently  serves as the President of The
Metropolitan  Lithographers  Association, a director of Web Offset ASS-PIA and a
trustee of ALA-S&A Fund and Pension Fund.

     Donald Buck became the Company's Vice President and President of Audio Plus
Video  International,  Inc. upon consummation of the Merger.  Prior thereto, Mr.
Buck  served as a Senior Vice  President  of Old Video since  August  1987,  the
President of Atlantic Satellite  Communications,  Inc. since August 1992 and the
President of Waterfront  Communications  Corporation  since April 1993. Mr. Buck
served as President of Video Dub,  Inc.  (formerly,  a subsidiary  of Old Video)
from 1980.  During  1975-1980,  he was an Executive  Vice President of Sales for
E.U.E. Screen Gems Video Division of Columbia Pictures Industries.

     Michael E. Fairbourne  became the Company's Vice  President-Administration,
Chief Accounting  Officer and Secretary upon  consummation of the Merger.  Prior
thereto,  Mr. Fairbourne served as the Senior Vice  President-Administration  of
Old  Video  since  March  1994.   Previously,   Mr.   Fairbourne  was  the  Vice
President-Controller  of Old  Video  from  July  1987  to  March  1994  and  the
Controller of Old Video from September  1983 to July 1987.  Prior to joining Old
Video, from 1976 to 1983, Mr. Fairbourne, a certified public accountant,  was in
private practice.

     Daniel Rosen was elected the Company's  Vice  President-Post  Production in
May 1998 and was elected  President  of  Manhattan  Transfer in May 1994.  Prior
thereto,  Mr.  Rosen  served as the Vice  President  of IPL from May 1994  until
August 1997. Prior to that time, Mr. Rosen was President of Editel NY for twelve
years. During 1991-1992, Mr. Rosen also served as President of Editel LA and was
named  President of the New York  divisions of Unitel  Video,  namely Unitel NY,
Editel NY and Windsor Digital, which were acquired by Unitel Video in May 1992.

     There are no family  relationships  among the above directors and executive
officers.

     Board of Directors

     The Board of  Directors of the Company  consists of six members.  Directors
serve for terms of one year and until their successors are duly elected and have
qualified.

     Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the Company's  directors and executive officers and persons who beneficially own
more than ten percent (10%) of the Company's  common stock (the "Common  Stock")
(collectively, the "Reporting Persons") to file with the Securities and Exchange
Commission  initial  reports of  beneficial  ownership and reports of changes in
beneficial  ownership  of the Common  Stock.  Reporting  Persons are required to
furnish the Company with copies of all such reports. To the Company's knowledge,
based solely on a review of copies of such reports  furnished to the Company and
certain  representations  of the Reporting  Persons,  the Company  believes that
during the 2000  fiscal  year all of the  Reporting  Persons  complied  with all
applicable Section 16(a) reporting requirements.
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

     The  following  table  sets forth all  compensation  paid or accrued by the
Company  for the 2000  fiscal  year  with  respect  to (a) the  Company's  Chief
Executive  Officer  and (b) each of the four most highly  compensated  executive
officers,  other than the Chief  Executive  Officer,  of the Company at June 30,
2000,  whose salary and bonus from the Company in the 2000 fiscal year  exceeded
$100,000 (collectively, the "Named Executive Officers"):

<TABLE>
<CAPTION>

                                                                                       Long Term
                                        Annual Compensation                          Compensation
                                -------------------------------------    --------------------------------------

                                                                                                Number of
                                                                           Other Annual         Securities
     Name and Principal                                                    Compensation         Underlying           All Other
     Position                    Year        Salary           Bonus           (1)(2)           Options (3)         Compensation
----------------------------    -------     ----------      ----------    ----------------    ---------------     ----------------
<S>                             <C>         <C>             <C>           <C>                 <C>                 <C>

Louis H. Siracusano
   Chief Executive Officer,     2000         $200,018          ---                 $2,200          ---            $     28,934(6)
   President and Director       1999          200,018          ---                  2,038          ---            $     27,209(6)
                                1998          191,775         $60,000               3,095          ---            $     26,261(6)

Donald H. Buck
    Vice President              2000         $175,000          ---                 $2,275         25,000                ---
    Transmission and            1999          173,394         $40,000               2,190          ---                  ---
    Distribution Services       1998          173,394          40,000               2,190          ---                  ---

Michael E. Fairbourne
  Vice President -              2000         $110,000          ---                 $1,650         25,000                ---
  Administration , Chief        1999          110,000          ---                  1,809          ---                  ---
  Accounting Officer and        1998          110,000         $27,500               1,913         10,000(5)             ---
  Secretary

Daniel Rosen (4)
  Vice President -              2000         $256,770          ---                 $2,497         40,000                ---
  Post Production,              1999          249,808          ---                  2,883         25,000                ---
  President of Manhattan        1998          190,385         $25,000               1,606          ---                  ---
  Transfer/Edit, Inc.

(1)      The amounts set forth in this column represent  matching  contributions by the  Company  on behalf of the Named  Executive
         Officers  under the Company's 401(k) plan.

(2)      Excludes items, which are, in the aggregate, the lesser of either $50,000 or 10% of the executive's total annual salary and
         bonus.

(3)      All  options  granted  to the Named  Executive  Officers  represent  options granted under the 1997 Long Term Incentive
         Plan ("1997 Plan").

(4)      Represents compensation from August 27, 1997 to June 30, 1998.

(5)      Does not include  options to acquire 60,000 shares of Common Stock from Messrs.  Siracusano,  Ferolito and Buck at an
         exercise price of $2.00 per share.

(6)      Includes life and disability insurance paid by the Company.
</TABLE>
<PAGE>

     Option Grants in Last Fiscal Year

     The following table provides information with respect to the grant of stock
options  during  the 2000  fiscal  year to the Named  Executive  Officers.  Only
information concerning those Named Executive Officers who received option grants
in fiscal 2000 is provided:

<TABLE>
<CAPTION>
                                                                                                          Potential
                                                                                                         Realizable
                                                                                                      Value at Assumed
                              Number of                                                                Annual Rates of
                              Securities         % of Total                                              Stock Price
                              Underlying       Options Granted        Exercise                         Appreciation for
                               Options         to Employees in        Price Per       Expiration        Option Term (2)
Name                          Granted (1)      Fiscal Year 2000       Share ($)          Date            5%($)     10%($)
-------------------------    -------------    ------------------    -------------    ------------    --------------------
<S>                          <C>              <C>                   <C>              <C>             <C>         <C>

Donald H. Buck                 25,000 (3)                 13.33            1.625        10/19/09       $25,550   $64,750

Michael E. Fairbourne          25,000 (4)                 13.33             2.00        11/02/09        31,450    79,675

Daniel Rosen                   40,000 (5)                 21.33            2.625        03/06/00        66,040   167,360
</TABLE>

(1)  All options granted to the named Executive Officers in the 2000 fiscal year
     represent options granted under the 1997 plan.

(2)  Valuation is based upon the potential realizable dollar value of the option
     grants with assumed rates of  appreciation of 5% and 10% per annum from the
     date of grant to the end of the  option  term.  These  rates are set by the
     Securities  and  Exchange  Commission  and are  not  intended  to  forecast
     possible future appreciation of this Company's stock price.

(3)  Vests on October 20, 2002.

(4)  Vests on November 3, 2002.

(5)  Vests on March 7, 2002.

       Aggregated Option Exercises and Fiscal Year-End Option Value Table

     The following  table provides  information  with respect to the exercise of
stock options  during the 2000 fiscal year by the Named  Executive  Officers and
the value of unexercised  options owned by the Named Executive  Officers at June
30, 2000:
<TABLE>
<CAPTION>

                                                                Number of Securities
                               Number of                       Underlying Unexercised          Value of Unexercised
                                Shares                               Options at               In-the-Money Options at
                              Acquired on         Value             June 30, 2000              June 30, 2000(1) (2)
Name                           Exercise          Realized      Exercisable/Unexercisable      Exercisable/Unexercisable
-------------------------    --------------     ----------    --------------------------     --------------------------
<S>                          <C>                <C>           <C>                            <C>

Louis H. Siracusano               ---              ---                 0/0                             0/0
Donald H. Buck                    ---              ---                 0/25,000                        0/$84,375
Michael E. Fairbourne             ---              ---            6,666/28,334(3)                $13,732/81,868
Daniel Rosen                      ---              ---           83,333/56,667                    41,149/127,301
</TABLE>

(1) The value is based on the excess of the market price of the Common Stock at
    June 30, 2000 over the exercise price of the unexercised options.

(2) At June 30, 2000,  the closing bid price of the Common Stock on the American
    Stock Exchange was $5.00 per share.

(3) Does not  include  options to acquire  60,000  shares of Common  Stock from
    Messrs.  Siracusano,  Ferolito  and Buck at an exercise  price of $2.00 per
    share.

Long-Term Incentive Plans - Awards in the Last Fiscal Year

     The following table provides information with respect to each award made to
the Named Executive Officers under the Company's long-term incentive plan during
the last fiscal year. Only information concerning those Named Executive Officers
who received such awards in fiscal 2000 is provided.
<TABLE>
<CAPTION>
                                                                          Number of Shares
                                                                             Underlying
     Name                                                               Options Granted (1)              Vesting Period
---------------------------------------------------------------    ---------------------------    ------------------------
<S>                                                                <C>                            <C>

     Donald H. Buck                                                            25,000                  10/19/99-10/20/02
     Michael E. Fairbourne                                                     25,000                  11/02/99-11/03/02
     Daniel Rosen                                                              40,000                  03/06/00-03/07/02

</TABLE>

     All options granted to the Named Executive Officers in the 2000 fiscal year
represent options granted under the 1997 plan.

Compensation of Directors

     Each  member of the Board who is not an  officer  of the  Company  receives
4,000 shares of the  Company's  Common  Stock  (6,000  shares in the case of the
Chairman of the Board) for serving on the Board plus $750 ($1,500 in the case of
the  Chairman  of the Board) and  reimbursement  of  expenses  for each Board or
committee meeting attended.  Directors who chair committees  receive $1,000 plus
reimbursement of expenses for each committee meeting attended.

     The  stockholders  and directors of the Company adopted a restricted  share
plan for directors who are not employees of the Company (the "Director Plan"). A
total of 50,000  shares of Common  Stock is available  for  issuance  under such
plan.  During  fiscal year 2000,  44,000  shares of common  stock were  awarded;
12,000 to Mr. Elkes and 8,000 each to Mr. Alter,  Mr. Irwin,  Mr. Steele and Mr.
Stillo.

     Employment  Contracts,  Termination  of  Employment  and  Change-of-Control
Arrangements

     At the time of the Merger,  the Company entered into employment  agreements
with Messrs.  Louis H.  Siracusano  and Donald H. Buck.  Under Mr.  Siracusano's
employment  agreement  with the Company,  he serves as the  President  and Chief
Executive  Officer of the Company for a four (4) year period or twenty four (24)
months  following  notice of  termination  by the Company or by Mr.  Siracusano,
whichever is later. Under Mr. Buck's employment  agreement with the Company,  he
serves as the Vice  President  of the  Company  for a three  (3) year  period or
twelve (12) months following notice of termination by either party, whichever is
later.

     Mr.  Siracusano's  employment  agreement  provides for base compensation of
$200,000  per annum,  and annual  bonuses  and a  long-term  bonus  based on the
Company's  achievement  of  certain  cash  flow  and net  income  targets  to be
determined by Mr. Siracusano and the Compensation  Committee of the Board. Under
the terms of the employment agreement,  Mr. Siracusano is entitled to receive an
annual bonus of between 5% and 40% of his base salary for the relevant year upon
the  Company's  achievement  of a  percentage  (ranging  from 90% to  109.9%  or
greater)  of the  agreed  upon cash flow and net income  targets  for such year,
which bonus is payable  within  thirty (30) days of delivery to the Board of the
Company's audited financial  statements.  In addition,  the employment agreement
provides that Mr. Siracusano is entitled to receive a long-term bonus of between
12.5% and 100% of his cumulative  base salary for the entire  contract period if
the Company achieves a percentage (ranging from 90% to 109.9% or greater) of the
agreed upon cash flow and net income  targets  for such  period.  The  long-term
bonus is payable in a single  installment  within thirty (30) days following the
delivery of the Company's audited financial statements for the period ended June
30, 2001 and is to be reduced by amounts  previously  paid to Mr.  Siracusano as
annual bonuses.  The employment agreement further provides that the Compensation
Committee  of the Board may award Mr.  Siracusano  other  bonus  payments in its
discretion.

     Mr. Buck's employment  agreement provides for base compensation of $175,000
per annum and a bonus to be negotiated and agreed upon by the parties.

     Each of Messrs. Siracusano's and Buck's employment agreements provides that
(i) the  Compensation  Committee  may award a  discretionary  bonus to him on an
annual basis, (ii) each is entitled to participate in such  compensation  plans,
incentive plans, group life, health,  accident,  disability and  hospitalization
insurance  plans,  pension  plans and  retirement  plans as the Company may make
available to its other executive  employees,  and (iii) upon termination without
cause, he is entitled to receive his annual base  compensation and any incentive
compensation  for  the  remainder  of  the  originally  scheduled  term  of  the
employment  agreement.  Termination  for cause includes  termination for breach,
nonperformance,  fraud  or  conviction  of a  felony.  Additionally,  each  such
employment  agreement  provides  that the employee is entitled to terminate  his
employment  at any time during the  six-month  period  following  any "Change in
Control" (as defined in the 1997 plan) that results in a material  diminution in
the capacity and terms of his employment.  Any such termination is to be treated
as a termination without cause.

     IPL entered into an employment  agreement  with Daniel  Rosen,  with a term
commencing on May 23, 1994 and ending on May 22, 1997 or twelve months following
a notice of  termination  by either  party,  whichever  is  later.  Mr.  Rosen's
contract  provided for base compensation of $200,000 per annum and a bonus equal
to two percent (2%) of his base salary for each one percent (1%) increase in the
profitability  of MTE and its  subsidiaries  compared  to the prior year or base
year,  whichever  is higher.  Effective  as of May 1,  1995,  Mr.  Rosen's  base
compensation  was increased to $225,000 per annum.  Effective as of July 1,1998,
Mr.  Rosen's  base  compensation  was  increased to $250,000 per annum and as of
March 16, 2000,  Mr.  Rosen's base  compensation  was  increased to $270,000 per
annum. The agreement  further  provides that (i) the Compensation  Committee may
award a discretionary bonus to Mr. Rosen under certain circumstances, (ii) he is
entitled to participate in such compensation plans, incentive plans, group life,
health, accident,  disability and hospitalization insurance plans, pension plans
and retirement  plans as the Company may make  available to its other  executive
employees,  and (iii) upon  termination  without cause, Mr. Rosen is entitled to
receive his annual base  compensation  and any  incentive  compensation  for the
remainder of the originally  scheduled term of the  agreement.  Termination  for
cause includes termination for breach, nonperformance,  fraud or conviction of a
felony.  Additionally,  the  agreement  provides  that Mr.  Rosen is entitled to
terminate his employment at any time during the six-month  period  following any
"change in  control"  (as  defined in the 1993  Long-Term  Incentive  Plan) that
results in a material  diminution  in the capacity and terms of his  employment.
Any such termination will be treated as a termination without cause.

     The Company and Martin Irwin entered into a severance agreement dated as of
August 26, 1997.  The agreement  provides for Mr. Irwin to be paid severance of:
(i)  $150,000  per year for one year,  (ii)  $100,000  per year for the one year
period thereafter and (iii) $75,000 per year for the one year period thereafter.
Mr.  Irwin is also  entitled,  for a period of three  years from the date of the
agreement,  to participate in and receive such  benefits,  services,  equipment,
compensation and incentive plans and group life,  health,  accident,  disability
and hospitalization  insurance plans,  pension plans and retirement plans as the
Company may make  available  to  employees  of the Company at the expense of the
Company.  In  addition,   as  part  of  such  severance  package,   Old  Video's
stockholders  agreed to grant to Mr.  Irwin,  on a pro rata  basis,  options  to
purchase an aggregate of 75,000  shares of the Common Stock they received in the
Merger at an exercise price of $0.75 per share. Such options are fully vested.

     The 1993 Long-Term  Incentive Plan ("1993 Plan") provides that in the event
of a  "change  in  control"  (as  defined  in the  1993  Plan),  (i)  all  stock
appreciation  rights  outstanding  for at least six (6) months  and all  options
awarded  under  the  1993  Plan  not  previously  vested  and  exercisable  will
immediately  become  fully  vested and  exercisable,  and (ii) the  restrictions
applicable to any  restricted  shares awarded under the 1993 Plan will lapse and
such shares will be deemed fully vested. Consummation of the Merger was deemed a
change in  control  under the 1993 Plan,  and,  as a result of the  Merger,  the
50,000 stock  options  held by Daniel  Rosen,  who was the only Named  Executive
Officer under the 1993 Plan,  immediately vested and became  exercisable.  If an
employee's  employment  is  terminated  due to a Change  in  Control,  his stock
options under the 1993 Plan remain exercisable for the shorter of five (5) years
or the remainder of the original term and shall thereafter terminate.

     The 1997 Long Term  Incentive  Plan ("1997  Plan") was adopted by the Board
and approved by the  Stockholders  in connection  with the  consummation  of the
Merger to replace IPL's 1993 Plan which would have expired in 2004.  These plans
are similar in their terms except that, among other things, the aggregate number
of shares of Common  Stock  issuable  under the 1997 Plan has been  increased to
735,000 from the 84,200 which  remained  available  for issuance  under the 1993
Plan, stock options (other than incentive stock options) may be issued under the
1997 Plan below the fair market value of the underlying Common Stock on the date
of  grant,  awards  may be  granted  under  the  1997  Plan to  consultants  and
independent  contractors  performing services for the Company, and certain other
revisions  in  respect  of recent  changes  in  federal  securities  regulations
affecting equity  compensation plans, as well as revisions in respect of Section
162(m) of the Internal  Revenue Code of 1986, as amended,  have been made to the
1997 Plan. The 1997 Plan shall continue in effect until July 9, 2007.

     Compensation Committee Interlocks and Insider Participation

     During fiscal year 2000, the members of the  Compensation  Committee of the
Board were Messrs.  Steele (Chairman),  Stillo and Alter. During such time, none
of Messrs. Steele, Stillo and Alter were employees of the Company.

Performance Graph

     The following graph compares the cumulative total stockholder return of the
Company's  Common Stock with the cumulative total return of the Russell 2000 and
a selected  peer group  index for the period  from June 30,  1995 until June 30,
2000,  the end of the  Company's  fiscal year.  The selected  peer group,  which
includes  companies  that are  engaged in  providing  services  related to those
provided by the Company and have  similar  market  capitalizations,  consists of
Laser-Pacific Media Corp.,  Broadview Media, and VDI Multimedia.  The peer group
has changed since the last proxy due to consolidation in the industry. The graph
assumes  that the value of the  investment  in the Common Stock was $100 on June
30, 1995 and that all dividends were reinvested.

                           Video Services Corporation

                           Relative Performance Graph

<TABLE>
<CAPTION>
                        June 30,        June 30,        June 30,        June 30,        June 30,        June 30,
                          1995            1996            1997            1998            1999            2000
                       ---------       ---------       ---------       ---------       ---------       ---------
<S>                     <C>             <C>             <C>             <C>             <C>             <C>
Video Services Corp.    $ 100.00        $  69.57        $  59.65        $  60.87        $  37.04        $  53.22
Peer Group              $ 100.00        $  90.18        $ 114.11        $  60.20        $ 149.56        $ 127.96
Russell 2000            $ 100.00        $ 133.14        $ 141.27        $ 166.19        $ 161.14        $ 181.40

</TABLE>

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at August 22, 2000 by (a) all persons known by the
Company who own  beneficially  more than five  percent  (5%) of the  outstanding
Common Stock, (b) each Director of the Company,  (c) each of the Named Executive
Officers and (d) all Directors and Named Executive  Officers of the Company as a
group. Unless otherwise indicated,  each of the persons or entities listed below
exercises  sole  voting and  investment  power over the shares that each of them
beneficially owns:
<TABLE>
<CAPTION>
Name                                                                          Common Stock            Percent of Class
----------------------------------------------------------------------    ----------------------    ---------------------
<S>                                                                       <C>                       <C>

5% Beneficial Owners:

Liberty Media Corporation                                                   9,534,269 (1)             71.80%

The Equitable Companies Incorporated, The Equitable Life
Assurance Society of the United States, Equitable Deal Flow Fund,
L.P. and Equitable Capital Management Corporation................           2,263,081 (2)             17.00%

Sandler Capital Management, Sandler
Associates and J.K. Media L.P....................................           2,270,500 (3)             17.06%

Arnold P. Ferolito...............................................           2,959,582 (4)(14)         22.23%

Directors:

Robert H. Alter..................................................           21,000                        *

Terrence A. Elkes................................................           470,012 (5)                3.53%

Martin Irwin.....................................................           276,417 (6)                2.08%

Louis H. Siracusano..............................................           3,152,982 (4)(11(12)      23.69%

Raymond L. Steele................................................           25,000                        *

Frank Stillo.....................................................           37,000 (8)                    *

Named Executive Officers:

Donald H. Buck...................................................           548,681 (4)(12)(13)        4.12%

Michael E. Fairbourne............................................           95,000 (9)                    *

Daniel Rosen.....................................................           155,000 (10)                  *


All Directors and Named Executive Officers as a group,
consisting of 9 persons..........................................           4,711,864                 35.40%

     * Less than 1%.
</TABLE>
(1)  By virtue of the  execution  of the  voting  agreement,  described  herein,
     Liberty  Media  Corporation  is deemed to be the  beneficial  owner of each
     share of the Company's common stock controlled by Arnold P. Ferolito, Louis
     H.  Siracusano,   Sandler  Capital  Management,   Donald  H  Buck,  Sandler
     Associates, Theresa  Siracusano,  Terrence A. Elkes,  Kenneth Gorman,  J.K.
     Media L.P. and Carole Buck.  In the voting  agreement,  these  stockholders
     agreed with Liberty to vote their shares of the  Company's  common stock in
     favor of the merger agreement,  among the Company,  AT&T Corp., and Liberty
     Media Corporation,  the merger and the other  transactions  contemplated by
     the merger  agreement for which a stockholder  vote is required and against
     any alternative  acquisition of the Company. Their shares consist of shares
     personally  owned by them and shares contained in certain trusts over which
     they act as trustees. However, these stockholders do not have to vote their
     shares  in  favor  of the  merger  agreement,  the  merger  and  the  other
     transactions   contemplated  by  the  merger   agreement  and  against  any
     alternative transaction (a) if without the consent of the stockholder,  the
     merger  agreement  is amended  and such  amendment  materially  changes the
     consideration to be received by the Company's stockholders in the merger or
     (b) at any time  following  90 days  after the  termination  of the  merger
     agreement for any reason.

(2)  Based on  Amendment  No.2  dated  March 6,  2000 to  Schedule  13D filed on
     November 8, 1996,  and  Amendment  No. 1 to the Schedule 13D filed with the
     Securities and Exchange Commission on July 8, 1997. The business address of
     AXA Financial,  Inc.  ("AXF"),  The Equitable Life Assurance Society of the
     United States ("ELAS"),  Equitable Deal Flow Fund, L.P.  ("EDFF") and ECMC,
     LLC ("ECMC") is 1290 Avenue of the Americas, New York, New York. ELAS is an
     indirect  wholly owned  subsidiary of AXF and is the general partner of the
     general  partner of EDFF.  ECMC is the investment  manager of EDFF. EDFF is
     the holder of record of  1,443,082  shares of Common  Stock and ELAS is the
     holder of record of 819,999 shares of Common Stock.  ELAS also beneficially
     owns  indirectly  the 1,443,082  shares held by EDFF through its control of
     EDFF.  Because  of its  indirect  ownership  of ELAS,  AXF may be deemed to
     beneficially  own indirectly  the 2,263,081  shares of Common Stock held by
     ELAS and EDFF. Certain other persons and entities (AXA Assurances  I.A.R.D.
     Mutuelle;  AXA Assurances Vie Mutuelle; AXA Conseil Vie Assurance Mutuelle;
     AXA Courtage  Assurance  Mutuelle;  Finaxa;  AXA;  Claude  Bebear,  Patrice
     Garnier and Henri de Clermont-Tonnerre)  may also be deemed to beneficially
     own indirectly such 2,263,081 shares because of their relationships to AXF;
     however,  all of these parties expressly disclaim any beneficial  ownership
     of these shares.  As of March 1, 2000, 60.3% of the common stock of AXF was
     owned by AXA,  a  French  holding  company  for an  international  group of
     insurance and related financial services companies.

(3)  Based on Form 4 filed  October 15,  1999.  The  Reporting  Persons  include
     Sandler Capital Management,  a registered investment adviser and a New York
     general partnership  ("SCM"), and Harvey Sandler,  John Kornreich,  Michael
     Marocco, Andrew Sandler, Hannah Stone, Douglas Schimmel and David Lee (each
     an "Individual", and collectively,  the "Individuals").  Includes 1,150,000
     shares  of  Common  Stock,   in  the  aggregate,   owned  by  21st  Century
     Communications  Partners,  L.P., 21st Century  Communications T-E Partners,
     L.P. and 21st Century Communications Foreign Partners,  L.P., each of which
     is a Delaware limited partnership (collectively, the "Partnerships").  Each
     Individual  controls a corporation that serves as a general partner of SCM,
     which is a general  partner of one of the  general  partners of each of the
     Partnerships.  Includes  569,000  shares of Common  Stock held by  accounts
     managed  by SCM,  and  411,000  shares of  Common  Stock  owned by  Sandler
     Associates,  a New York limited  partnership  (each Individual is a general
     partner of Sandler Associates).  For John Kornreich,  also includes 140,500
     shares  of  Common  Stock  owned by J.K.  Media  L.P.,  a New York  limited
     partnership,  controlled by Mr.  Kornreich.  The business  address of these
     entities is 767 Fifth  Avenue,  New York,  New York 10153.  Each  Reporting
     Person  disclaims  beneficial  ownership  of the  shares  held by SCM,  the
     Partnerships and Sandler Associates,  except to the extent of the Reporting
     Person's   pecuniary   interest  therein.   Mr.  Kornreich  also  disclaims
     beneficial  ownership of the shares held by J.K. Media L.P.,  except to the
     extent of his pecuniary interest therein.

(4)  Mr.  Irwin has an option to  purchase  36,540,  36,540 and 1,920 of Messrs.
     Siracusano's, Ferolito's and Buck's shares, respectively. See footnote (7).
     Mr.  Fairbourne  has an  option to  purchase  29,232,  29,232  and 1,536 of
     Messrs.  Siracusano's,  Ferolito's  and Buck's  shares,  respectively.  See
     footnote (9).

(5)  Includes  10,000 shares owned by Mr. Elkes'  children.  Mr. Elkes disclaims
     beneficial ownership of all such shares.

(6)  Includes  options to purchase 120,000 shares of Common Stock granted to Mr.
     Irwin  under  the  1993   Long-Term   Incentive  Plan  (the  "1993  Plan"),
     exercisable at prices ranging from $4.00 to $6.00 per share.

(7)  Includes  options to purchase an aggregate of 75,000 shares of Common Stock
     at an  exercise  price of $0.75 per share  granted by  Messrs.  Siracusano,
     Ferolito and Buck.

(8)  Includes 24,000 shares of Common Stock owned by the Frank Stillo Children's
     Trust,  of which Mr.  Stillo's wife is the trustee.  Mr.  Stillo  disclaims
     beneficial ownership of such shares.

(9)  Includes  options  granted in June 1997 to purchase 60,000 shares of Common
     Stock from Messrs.  Siracusano,  Ferolito and Buck at an exercise  price of
     $2.00 per share. Includes options to purchase 35,000 shares of Common Stock
     granted  to Mr.  Fairbourne  under  the 1997  Plan,  exercisable  at prices
     ranging from $2.00 to $2.94 per share.

(10) Includes (i) options to purchase  75,000  shares of Common Stock granted to
     Mr. Rosen under the 1993 Plan,  exercisable at prices ranging from $4.00 to
     $6.00 per share,  and (ii) shares of Common Stock owned by Mr.  Rosen's son
     and the Ned Rosen Trust, of which Mr. Rosen is the trustee,  in the amounts
     of 5,000 and 5,000, respectively.  Mr. Rosen disclaims beneficial ownership
     of all shares of Common Stock owned by his son and the Ned Rosen Trust also
     includes  options to purchase  65,000 shares of Common Stock granted to Mr.
     Rosen under the 1997 Plan,  exercisable  at prices  ranging  from  $2.625to
     $3.0625 per share.

(11) Includes (i) 39,990 shares of Common Stock transferred by Mr. Siracusano to
     seven trusts for the benefit of his family  members on September  25, 1998,
     (ii) 5,000  shares of Common Stock  transferred  by Mr.  Siracusano  to two
     trusts for the  benefit of his family  members on December  28,1998,  (iii)
     300,000 shares of Common Stock transferred by Mr. Siracusano to his wife on
     March 2,  1999,  (iv)  39,500  shares of Common  Stock  transferred  by Mr.
     Siracusano to five trusts for the benefit of his family members on November
     1, 1999, (v) 22,000 shares of Common Stock transferred by Mr. Siracusano to
     six trusts for the benefit of his family members on December 6, 1999,  (vi)
     32,600 shares of Common Stock  transferred by Mr.  Siracusano to six trusts
     for the benefit of his family members on February 10, 2000 and (iv) 300,000
     shares of Common Stock transferred by Mr. Siracusano to the Sano Foundation
     [a charitable  foundation] on July 5, 2000.  Mr.  Siracusano did not retain
     voting  power,  investment  power or other  control of or  interest  in the
     439,090 shares of Common Stock, but is a trustee of the Sano Foundation.

(12) Includes  options  to  various   employees,   directors,   consultants  and
     independent contractors to purchase 248,472,  248,472 and 13,056 of Messrs.
     Siracusano's,  Ferolito's and Buck's shares,  respectively,  exercisable at
     prices ranging from $0.25 to $6.00 per share.

(13) Includes 85,000 shares of Common Stock  transferred by Mr. Buck to his wife
     on March 22, 1999. Mr. Buck did not retain voting power,  investment  power
     or other  control of or interest in the 85,000  shares of Common Stock also
     includes  options  granted in October  1999 to  purchase  25,000  shares of
     Common Stock granted to Mr. Buck under the 1997  Long-Term  Incentive  Plan
     Exercisable at $1.625 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others

     The Company  leases a building  from an entity  owned by certain  principal
stockholders  of the  Company,  one of  whom  is Mr.  Siracusano,  under a lease
accounted for as an operating  lease. The rental expense under the lease for the
fiscal year 2000 amounted to $238,000.

     The  Company   agreed  to  provide   office   services  to  certain  former
subsidiaries  of Old Video which are owned by Messrs.  Siracusano,  Ferolito and
Buck  following  the Merger for a monthly fee of $1,000.  The fee for the fiscal
year 2000 amounted to $12,000.
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  (1) The consolidated financial statements, related notes thereto and report
         of independent auditors required by Item 8 begin at page F-1 herein.

     (2) The financial statement schedule appears on page F-27 herein.

     (3) Exhibits:

                                    Exhibits
Exhibit Number

3.1  Certificate of incorporation  of the Company  (incorporated by reference to
     the exhibit of the same number  contained in the Company's annual report on
     form 10-K for the fiscal year ended July 31, 1997).
3.2+ By-Laws of the Company.
4.1  Form of 4% Convertible  Subordinated  Note of the Company  (incorporated by
     reference  to the exhibit of the same  number  contained  in the  Company's
     Current Report on Form 8-K, dated May 18, 1995).
10.1(M)Form of International Post Group Inc. Long-term  Incentive Plan, together
     with  form  of  International  Post  Group  Inc.  Stock  Option  Agreement.
     (incorporated by reference to the exhibit 10.4 contained in Amendment No. 4
     of  Video's  (formerly  IPL's)  Registration  Statement  on Form  S-1  (the
     "Registration Statement,  filed with the Securities and Exchange Commission
     (the "SEC") on February 4, 1994.)
10.2(M)  Form of  International  Post  Group  Inc.  Restricted  Share  Plan  for
     Directors, together with form of Restricted Share Agreement.  (incorporated
     by reference to the exhibit  10.5  contained in Amendment  No. 4 of Video's
     (formerly  IPL's)  Registration  Statement  on Form S-1 (the  "Registration
     Statement"),  filed with the Securities and Exchange Commission (the "SEC")
     on February 4, 1994.)
10.3 Form of Lease Agreements between Audio Plus Video and L.I.M.A.  Partners. (
     incorporated  by reference to the exhibit 10.7 contained in Amendment No. 3
     to Video's  (formerly IPL's)  Registration  Statement filed with the SEC on
     January 10, 1994.)
10.4 Lease Agreements,  dated as of June 30, 1993,  between MTE Co. and Nineteen
     New York  Properties  Limited  Partnership.  (incorporated  by reference to
     exhibit  10.9  contained  in Amendment  No. 1 to Video's  (formerly  IPL's)
     Registration Statement filed with the SEC on October 21, 1993.)
10.5(M) Form of Stock  Option  Agreement  between  the  Company  and  Jeffrey J.
     Kaplan.  (incorporated  by  reference  to the exhibit  10.23  contained  in
     Amendment No. 3 to Video's  (formerly IPL's)  Registration  Statement filed
     with the SEC on January 10, 1994.)
10.6(M) Employment Agreement dated as of April 21, 1994, between the Company and
     Daniel Rosen.  (incorporated by reference to the exhibit 10.32 contained in
     Video's  (formerly  IPL's)  Annual  Report on Form 10-K for the fiscal year
     ended July 31, 1994.)
10.7(M) Stock Option Agreement,  dated as of April 21, 1994, between the Company
     and Daniel Rosen. (incorporated by reference to the exhibit 10.33 contained
     in Video's  (formerly IPL's) Annual report on Form 10-K for the fiscal year
     ended July 31, 1994.)
10.8(M) Consulting Agreement,  dated February 15, 1997, by and among the Company
     and Jeffrey J. Kaplan  (incorporated  by reference to exhibit number 10. 12
     contained in the Company's  Quarterly Report on Form 10-Q for the quarterly
     period ended January 31, 1997).
10.09(M) Employment  Agreement,  dated as of August 26, 1997, by and between the
     Company and Louis H. Siracusano (incorporated by reference to exhibit 10.72
     contained in the  Company's  Annual Report on Form 10-K for the fiscal year
     ended July 31, 1997).
10.10(M) Employment  Agreement,  dated as of August 26, 1997, by and between the
     Company and Donald H. Buck  (incorporated  by  reference  to exhibit  10.73
     contained in the  Company's  Annual Report on Form 10-K for the fiscal year
     ended July 31, 1997).
10.11Losses  Escrow  Agreement,  dated as of  August  26,  1997 by and among the
     company,  Louis H. Siracusano,  Donald H. Buck,  Arnold P. Ferolito and IBJ
     Schroder Bank & Trust Company  (incorporated  by reference to exhibit 10.74
     contained in the  Company's  Annual Report on Form 10-K for the fiscal year
     July 31, 1997).
10.12(M) Agreement,  dated as of August 26, 1997, by and between the Company and
     Martin Irwin  (incorporated  by reference to exhibit 10.75 contained in the
     Company's  Annual  Report on Form 10-K for the  fiscal  year ended July 31,
     1997).
10.13Engagement  Letter,  dated August 13, 1999,  by and between the Company and
     Lazard  Freres & Co.,  LLC  (incorporated  by  reference  to exhibit  10.62
     contained in the  Company's  Annual Report on Form 10-K for the fiscal year
     ended June 30, 1999).
10.14(M) Form of Video  Services  Corporation  1997  Long  Term  Incentive  Plan
     (incorporated by reference to exhibit number 4.1 contained in the Company's
     current report on Form S-8, dated July 27, 1999).
10.15(M) Form of Video Services  Corporation  1999  Non-Employee  Director Stock
     Plan  (incorporated  by reference to exhibit 4.2 contained in the Company's
     current report on Form S-8, dated July 27, 1999).
10.16Credit  Agreement  dated  June  30,  2000,  by  and  among  Video  Services
     Corporation  and General  Electric  Capital  Corporation  as Term Agent and
     Administrative Agent and KeyBank National Association as Revolver Agent.
10.17Amendment No.1 dated June 30, 2000 to the Credit  Agreement  dated June 30,
     2000 by and among the  Company,  the  Lenders  party  thereto  and  General
     Electric Capital Corporation, as the Term Agent and Administrative Agent.
21.1 Subsidiaries of the Company.
23   Consent of Ernst & Young LLP.
27   Financial  Data  Schedule,   which  is  submitted   electronically  to  the
     Securities and Exchange  Commission for  information  purposes only and not
     filed.
99.1 Merger  Agreement  dated  July 25,  2000 by and among AT&T  Corp.,  E-Group
     Merger Corp.,  Liberty Media  Corporation  and Video  Services  Corporation
     (incorporated  by reference to exhibit 99.1 contained in the Company's Form
     8-K, dated August 4, 2000).
99.2 Voting   Agreement   dated  July  25,  2000  by  and  among  Liberty  Media
     Corporation,  Arnold P. Ferolito, Louis H. Siracusano,  Theresa Siracusano,
     Donald H. Buck,  Carole Buck,  Terrence A. Elkes,  Kenneth Gorman,  Sandler
     Associates, Sandler Capital Management and J.K. Media L.P. (incorporated by
     reference to exhibit 99.1 contained in the Company's Form 8-K, dated August
     4, 2000).
-----------------
+        Incorporated  by reference to the exhibit of the same number  contained
         in Amendment No. 1 to IPL's  Registration  Statement filed with the SEC
         on October 21, 1993.

(M)      Management contract or compensatory plan or arrangement.


-----------------

(b)      None.

(c)      See Item 14(a)(3) above.

(d)      Financial Statement Schedule.

Schedule II - Valuation and Qualifying Accounts.


<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.

Date: August 25, 2000            VIDEO SERVICES CORPORATION,

                                 By: /s/ Louis H. Siracusano

                                 Name: Louis H. Siracusano

                                 Title:   President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the dates indicated.

Name and Signature           Title                                       Date

/s/ Louis H. Siracusano      President, Chief Executive Officer          8/25/00
Louis H. Siracusano          and Director (Principal Executive
                             Officer)

/s/ Michael E. Fairbourne    Vice President-Administration               8/25/00
Michael E. Fairbourne        (Chief Accounting Officer)


/s/ Terrence A. Elkes        Chairman of the Board of Directors          8/25/00
Terrence A. Elkes


/s/ Robert H. Alter          Director                                    8/25/00
Robert H. Alter


/s/ Martin Irwin             Director                                    8/25/00
Martin Irwin


/s/ Frank Stillo             Director                                    8/25/00
Frank Stillo


/s/ Raymond L. Steele        Director                                    8/25/00
Raymond L. Steele


<PAGE>



                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

                                                                 Page Number

REPORT OF INDEPENDENT AUDITORS.......................................F-2

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of
June 30, 1999 and 2000...............................................F-3

Consolidated Statements of Operations for the
years ended June 30, 1998, 1999 and 2000.............................F-4

Consolidated Statements of Stockholders'
Equity for the years ended June 30, 1998,
1999 and 2000....................................................... F-5

Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1999 and 2000.............................F-6

Notes to Consolidated Financial Statements...........................F-7 to F-25





SUPPLEMENTAL SCHEDULE:

II. Valuation and Qualifying Accounts................................F-26









NOTE:

         Schedules  other than  those  referred  to above  have been  omitted as
         inapplicable  or not  required  under  the  instructions  contained  in
         Regulation  S-X  or  the  information  is  included  elsewhere  in  the
         financial statements or the notes thereto.

                                 F-1

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
   of Video Services Corporation:

     We have  audited  the  accompanying  consolidated  balance  sheets of Video
Services  Corporation  and  subsidiaries  as of June 30, 1999 and 2000,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended June 30, 2000.  Our audits
also  included  the  financial  statement  schedule  listed in the index at item
14(a).  These financial  statements and schedule are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  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 consolidated financial position of
Video Services  Corporation  and  subsidiaries as of June 30, 1999 and 2000, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period ended June 30, 2000, in conformity with accounting
principles  generally accepted in the United States.  Also, in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.




                                                       /s/ERNST & YOUNG LLP

Stamford, Connecticut
August 18, 2000

                                F-2

<PAGE>


                           VIDEO SERVICES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      As of June 30, 1999 and June 30, 2000
                 (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                                            June 30,                     June 30,
ASSETS                                                                        1999                         2000

                                                                        -----------------             ----------------
<S>                                                                     <C>                           <C>
Current Assets:
   Cash and cash equivalents                                              $          805                $       3,613
   Accounts receivable, net                                                       14,876                       17,738
   Inventories                                                                       694                        1,290
   Costs and estimated earnings in excess of billings on
      uncompleted contracts                                                          934                        1,034
   Deferred income taxes                                                           1,300                        1,206
   Prepaid expenses and other current assets                                         685                          994
                                                                        -----------------             ----------------
         Total current assets                                                     19,294                       25,875

Fixed assets, net                                                                 39,589                       34,014
Excess of cost over fair value of net assets acquired, net                        21,858                       20,878
Deferred income taxes                                                              2,950                        2,274
Other assets                                                                       1,627                        2,991
                                                                        -----------------             ----------------
         Total assets                                                     $       85,318                $      86,032
                                                                        =================             ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses                                  $        9,248                $       8,192
   Billings in excess of costs and estimated
      earnings on uncompleted contracts                                              985                        3,692
   Current portion of long-term debt                                               7,702                        5,534
   Current portion of subordinated debt                                                -                        2,062
   Income taxes payable                                                              691                          193
   Other current liabilities                                                       3,105                        2,964
                                                                        -----------------             ----------------
         Total current liabilities                                                21,731                       22,637

Long-term debt                                                                    36,760                       40,752
Subordinated debt                                                                  5,652                        2,924
Other liabilities                                                                  2,328                        1,468
                                                                        -----------------             ----------------
         Total liabilities                                                        66,471                       67,781
                                                                        -----------------             ----------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock:  $.01 par value - 3,000,000 shares
      authorized; no shares outstanding at June 30, 1999
      and June 30, 2000                                                                -
   Common stock:  $.01 par value, 25,000,000 shares authorized,
      and 13,264,307 and 13,311,307 shares issued and
      outstanding at June 30, 1999 and June 30, 2000                                 132                          133
   Additional paid-in-capital                                                     21,218                       21,350
   Accumulated deficit                                                            (2,503)                      (3,232)
                                                                        -----------------             ----------------
         Total stockholders' equity                                               18,847                       18,251
                                                                        -----------------             ----------------
         Total liabilities and stockholders' equity                       $       85,318                $      86,032
                                                                        =================             ================
</TABLE>
                             See accompanying notes
                                        F-3
<PAGE>

                           VIDEO SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                For the years ended June 30, 1998, 1999 and 2000
                (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                   1998                  1999                   2000
                                                              ---------------        --------------        ---------------
<S>                                                           <C>                    <C>                   <C>
Revenues:
   Sales                                                        $     16,642           $    23,965           $     28,327
   Services                                                           56,353                65,446                 67,821
                                                              ---------------        --------------        ---------------
                                                                      72,995                89,411                 96,148
Costs:
   Sales                                                              12,537                20,060                 23,891
   Services                                                           28,638                36,841                 37,602
                                                              ---------------        --------------        ---------------
                                                                      41,175                56,901                 61,493
Depreciation                                                           7,109                 8,743                  9,265
                                                              ---------------        --------------        ---------------
Gross profit                                                          24,711                23,767                 25,390

Selling, general and administrative expenses                          17,170                20,205                 20,201
Merger related costs                                                       -                   331                      -
Amortization                                                             849                 1,093                  1,200
                                                              ---------------        --------------        ---------------
Operating income                                                       6,692                 2,138                  3,989

Other income (expense):
      Interest expense                                                (3,619)               (4,149)                (4,814)

      Interest and other income                                          217                    53                    557
                                                              ---------------        --------------        ---------------
Income (loss) before income taxes, discontinued
      operations and extraordinary gain                                3,290                (1,958)                  (268)
Income tax expense (benefit)                                           1,591                   (58)                   843
                                                              ---------------        --------------        ---------------
Income (loss) before discontinued operations and
      extraordinary gain                                               1,699                (1,900)                (1,111)

Discontinued operations:
      Loss from operations of the Consulting Services
      segment (less applicable income tax benefit of $73)              (140)                     -                      -
      Estimated loss on disposal of Consulting Services
      segment (less applicable income tax benefit of $1,147)          (1,720)                    -                      -

Extraordinary gain (less applicable income tax
      expense of $254)                                                     -                     -                    382
                                                              ---------------        --------------        ---------------
Net loss                                                        $       (161)          $    (1,900)          $       (729)
                                                              ===============        ==============        ===============
Earnings per share:
   Basic and Diluted:
      Income (loss) before discontinued operations and
       extraordinary gain                                       $       0.14           $     (0.14)                 (0.08)
      Loss from discontinued operations                                (0.15)                    -                      -
      Extraordinary gain                                                   -                     -                   0.03
                                                              ---------------        --------------        ---------------
      Net loss                                                  $      (0.01)          $     (0.14)          $      (0.05)
                                                              ===============        ==============        ===============
Weighted average number of shares outstanding for basic
   and diluted earnings per share                                 12,276,278            13,264,307             13,291,649
                                                              ===============        ==============        ===============
</TABLE>
                             See accompanying notes
                                        F-4
<PAGE>


                           VIDEO SERVICES CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                For the years ended June 30, 1998, 1999 and 2000
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                            Common             Common
                                             Stock             Stock             Paid-In         Accumulated
                                            Shares             Amount            Capital           Deficit              Total
                                         --------------     -------------     --------------    ---------------     --------------
<S>                                      <C>                <C>               <C>               <C>                 <C>


Balance at June 30, 1997                     2,678,162        $      103        $       419       $      2,211        $     2,733

Merger with IPL                             10,560,145                29             21,766                  -             21,795

Contribution of real estate affiliates               -                 -             (1,263)                 -             (1,263)

Issuance of stock options                            -                 -                199                  -                199

Non cash dividend to shareholders                    -                 -                  -             (2,653)            (2,653)

Stock related compensation                      26,000                 -                 75                  -                 75

Net loss                                             -                 -                  -               (161)              (161)
                                         --------------     -------------     --------------    ---------------     --------------
Balance at June 30, 1998                    13,264,307               132             21,196               (603)            20,725

Issuance of independent contractors                  -                 -                 22                  -                 22

Net loss                                             -                 -                  -             (1,900)            (1,900)
                                         --------------     -------------     --------------    ---------------     --------------
Balance at June 30, 1999                    13,264,307               132             21,218             (2,503)            18,847

Stock related compensation                      44,000                 1                123                  -                124

Exercised stock options                          3,000                 -                  9                                     9
                                                                                                             -
Net loss                                             -                 -                  -               (729)              (729)
                                         --------------     -------------     --------------    ---------------     --------------
Balance at June 30, 2000                    13,311,307        $      133        $    21,350       $     (3,232)       $     18,251
                                         ==============     =============     ==============    ===============     ==============
</TABLE>







                             See accompanying notes

                                        F-5

<PAGE>


                           VIDEO SERVICES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the years ended June 30, 1998, 1999 and 2000
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                             1998                   1999                   2000
                                                                        ---------------        ---------------       ---------------

Operating Activities
<S>                                                                       <C>                    <C>                   <C>
Net loss                                                                  $       (161)          $     (1,900)         $       (729)
Adjustments to reconcile net loss to net cash provided
 by continuing operations:
    Depreciation                                                                 7,109                  8,743                 9,265
    Amortization                                                                   849                  1,093                 1,200
    Issuance of compensatory stock and options                                      75                     22                   124
    Loss on disposal of discontinued operations                                    481                      -                     -
    Gain on settlement of subordinated debt                                          -                      -                 (636)
    Loss (gain) on sale of fixed assets                                           (164)                  (112)                 (471)
    Deferred income taxes                                                          537                 (1,048)                  770
    Provision for bad debts                                                        166                     67                   371
    (Increase) decrease in operating assets:
      Accounts receivable                                                        1,156                   (751)               (3,233)
      Inventories                                                                  107                    389                  (596)
      Costs and estimated earnings in excess of billings on
       uncompleted contracts                                                       176                   (747)                 (100)
      Prepaid expenses and other assets                                            (42)                   169                (1,406)
    Increase (decrease) in operating liabilities:
      Accounts payable and accrued expenses                                     (7,656)                   805                (1,777)
      Billings in excess of costs and estimated earnings on
       uncompleted contracts                                                     2,828                 (2,305)                2,707
      Income taxes payable                                                           -                    (17)                 (498)
      Other liabilities                                                           (314)                (1,857)                 (866)
                                                                        ---------------        ---------------       ---------------
Net cash provided by operating activities                                        5,147                  2,551                 4,125


Investing Activities
Additions to fixed assets                                                       (6,448)               (11,619)               (4,459)
Proceeds from sales of fixed assets                                                168                    280                 1,483
                                                                        ---------------        ---------------       ---------------
Net cash used for investing activities                                          (6,280)               (11,339)               (2,976)


Financing Activities
Increase in subordinated debt                                                      158                    210                   136
Repayments of subordinated debt                                                      -                      -                  (310)
Proceeds from long-term borrowings                                              54,561                 25,569                53,282
Repayment of borrowings                                                        (52,484)               (17,678)              (51,458)
Proceeds from exercised stock options                                                -                      -                     9
                                                                        ---------------        ---------------       ---------------
Net cash provided by financing activities                                        2,235                  8,101                 1,659

Net increase (decrease) in cash                                                  1,102                   (687)                2,808
Cash and cash equivalents, beginning of period                                     390                  1,492                   805
                                                                        ---------------        ---------------       ---------------
Cash and cash equivalents, end of period                                  $      1,492           $        805         $       3,613
                                                                        ===============        ===============       ===============


</TABLE>


                             See accompanying notes

                                        F-6

<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          As of June 30, 1999 and 2000
              and for the years ended June 30, 1998, 1999 and 2000
                (dollars in thousands, except per share amounts)

Note 1 - Basis of and Presentation
     Video  Services  Corporation  and  its  subsidiaries   (collectively,   the
"Company"),  is a leading  provider of  value-added  video services to a diverse
base  of  customers  within  the  television   network,   cable  and  syndicated
programming  markets.  These  services  are  divided  into three  segments:  (i)
Satellite  and  Distribution  Services,  (ii)  Systems  and  Products  and (iii)
Production Services (see Note 11 to the consolidated financial statements).  The
Satellite and Distribution Services segment integrates and distributes broadcast
quality  video  content via a satellite  and fiber  optic  transmission  network
routed  through  its  digital/analog  switching  center and is an  international
provider of multi-format  technical and distribution services to distributors of
video  programming.  The Systems and Products  segment  designs,  engineers  and
produces  advanced  video  facilities  for the broadcast  and cable  television,
post-production,  Internet and corporate  markets.  This segment also  develops,
manufactures and markets advanced color correcting and manipulation  systems for
the film, post-production and multimedia industries and rents professional video
equipment to the sports,  entertainment  and other segments of the broadcast and
cable television and corporate  markets.  The Production  Services segment is an
international  provider  of  technical  and  creative  services  to  owners  and
producers  of  television   programming,   television   advertising   and  other
programming content and the emerging Internet graphics and video market.

     On August 27, 1997,  Video Services  Corporation  ("Old Video") merged with
and  into   International  Post  Limited  ("IPL")  with  IPL  as  the  surviving
corporation (the "Merger"). At the effective time of the Merger, IPL changed its
name to Video  Services  Corporation.  The  "Company"  refers  to the  surviving
corporation  after  the  Merger.  The  Merger  was  accounted  for as a  reverse
acquisition  whereby  pre-Merger  financial  statements  of Old Video became the
historical  financial  statements of the Company. As such, the net assets of IPL
have been recorded at fair value and Old Video's pre-Merger stockholders' equity
has been  retroactively  restated for the equivalent  number of shares of common
stock of the Company,  with differences  between the par value of the IPL common
stock  and the Old Video  common  stock  recorded  as an  adjustment  to paid in
capital. An aggregate of 7,011,349 shares of Company common stock were issued to
the  stockholders of Old Video in the Merger (plus an additional  212,096 shares
of common  stock which were  issued to replace an equal  number of shares of IPL
common stock owned by Old Video which were canceled upon the Merger). Such newly
issued  shares  in  the  aggregate   represented   approximately  54.6%  of  the
outstanding shares of common stock immediately after the Merger.

     As  part  of the  Merger,  the  Company  made  a  strategic  evaluation  of
facilities and personnel requirements and determined that certain IPL facilities
would be closed with the equipment being  consolidated into other facilities and
determined  that certain IPL  personnel  would be  redundant.  Accordingly,  the
Company recorded a reserve for severance costs of $1,426 and lease related costs
of $993 as of August 27, 1997. The balance of the liability was $915 and $418 at
June 30, 1999 and June 30, 2000, respectively.  The Company has made payments of
$890 and $497 against the reserve in fiscal 1999 and 2000, respectively. At June
30, 2000 it was estimated that  approximately $80 of such expenditures  would be
made in fiscal  2001,  and $338 in fiscal  2002.  The Company  anticipates  that
funding for these amounts will be provided by operations.

     At the time of the Merger, IPL had combined assets of $43,677, net accounts
receivable ($9,966), prepaid and other current assets ($1,348), net fixed assets
($29,259),  net deferred tax assets ($2,324), and other long-term assets ($780).
The  combined  liabilities  consisted of accounts  payable and accrued  payables
($6,707),  long-term  debt  ($30,464),  income taxes payable  ($298),  and other
liabilities  ($1,463).  Consideration  in applying  purchase  accounting  to the
Merger is based  upon the IPL  shares of common  stock  outstanding  immediately
prior to the Merger of 6,226,958 at a per share value of $3.50.

     The Company  recorded  goodwill of $22,483 in  connection  with the Merger,
which is being amortized over 25 years.
                                   F-7
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

     In connection with, and as a condition to the Merger,  immediately prior to
the Merger,  the Diversified  Products  segment and certain assets of Old Video,
including cash surrender value of officers life insurance,  were spun-off to the
stockholders  of Old  Video in a  non-cash  dividend  of  approximately  $2,653.
Immediately  prior  to the  Merger,  the  principal  stockholders  of Old  Video
contributed (the  "Contribution") the stock of two S corporations holding all of
the general and limited  partnership  interests  in MAL  Partners  and  L.I.M.A.
Partners,  which  partnerships  owned real estate and equipment which was leased
solely to Old Video and IPL.  The  Contribution,  which  represents  a  transfer
between  entities  under  common  control,  has been  recorded  at the  lower of
historical amortized cost or fair value.

     The S  corporations,  through their  ownership of MAL Partners and L.I.M.A.
Partners,  at the time of the  Contribution  had combined assets of $3,801,  net
accounts  receivable  ($9),  prepaid  expenses and other  current  assets ($74),
buildings,  satellite  equipment and land ($3,198),  and other long-term  assets
($520).  The  combined  liabilities  consisted  of accounts  payable and accrued
expenses ($62), mortgage obligations ($3,588),  deferred taxes ($19), payable to
the Company ($1,314),  payable to affiliates ($52) and other current liabilities
($29).

     The following presents the combined pro forma results of operations for the
year ended June 30, 1998, as if the Merger and  Contribution  had occurred as of
July 1, 1997.  The unaudited  combined pro forma  results of operations  are not
necessarily indicative of the results of operations that would have occurred had
IPL and Old Video actually  combined  during the periods  presented or of future
results of operations of the combined operations.

                (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                    1998
                                                              ---------------
<S>                                                           <C>
     Revenues......................................               $  80,386
     Income from continuing operations.............                   1,743
     Income from continuing operations per share...                    0.13
     Net loss......................................                    (176)
     Net loss per share............................               $   (0.01)
</TABLE>

     Pro forma  income  from  continuing  operations  and net loss per share are
based on the weighted average number of shares  outstanding  after the Merger of
13,238,307.  Included  in the net  loss  for the year  ended  June  30,  1998 is
approximately  $1,919 of loss from the discontinued  operations  relating to the
Consulting Services segment (see Note 16).

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

      The  consolidated  financial  statements  include  the  accounts  of Video
Services  Corporation  and  its  subsidiaries.   All  significant  inter-company
balances and transactions have been eliminated in consolidation.

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 amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

                                   F-8

<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Reclassification

     Certain  prior year  amounts  have been  reclassified  to conform  with the
current year presentation.

Revenue Recognition

     Revenue from services (except editorial) is recorded upon the completion of
services  for the  customer.  Revenue  for  editorial  services  is  recorded as
services are provided to customers on a percentage-of-completion method. Revenue
from the sales of  equipment  is recorded at the time of shipment of  equipment.
Revenue    from     long-term     contracts    is    recognized     under    the
percentage-of-completion  method,  under  which  method the  Company  recognizes
revenues  based  on the  ratio  that  incurred  costs  bear to  estimated  total
completion  costs.  Provision is made currently for estimated losses, if any, on
uncompleted contracts.

Inventories

      Inventories  consist of system components and equipment which is valued at
the lower of specific cost or market and tape stock which is valued at the lower
of cost or market on a FIFO basis.

Fixed Assets

     Property and equipment are carried at cost and depreciated predominantly by
the   straight-line   method  over  their  estimated  useful  lives.   Leasehold
improvements  are amortized over the shorter of their estimated  useful lives or
the term of the underlying lease.  Estimated useful lives by class of assets are
as follows:

                  Machinery and equipment.....................3-12 years
                  Equipment held for rental...................3- 7 years
                  Furniture and fixtures......................3-10 years
                  Leasehold improvements......................1-14 years
                  Transportation equipment....................3- 5 years

     Repairs and  maintenance  are charged to expense as incurred.  Expenditures
that  result in the  enhancement  of the value of the  facilities  involved  are
treated as additions to property and  equipment.  Cost of property and equipment
disposed of and  accumulated  depreciation  thereon are removed from the related
accounts, and gain or loss, if any, is recognized.

Excess Of Cost Over Net Assets Acquired

      The  excess  of  cost  over  net  assets   acquired  is   amortized  on  a
straight-line  basis  principally  over 25 years.  Amortization  expense for the
years ended June 30, 1998, 1999 and 2000 was $742, $984 and $980,  respectively.
Accumulated  amortization  at June 30,  1999 and 2000  was  $1,843  and  $2,823,
respectively.   The  Company  periodically   evaluates  the  carrying  value  of
intangible  assets  by  relating  the  estimated  cash  flows of the  underlying
businesses.  An  impairment  loss may be recognized if the expected cash flow is
less than book value.

Advertising

      The Company expenses  advertising costs as incurred.  Advertising  expense
was $310,  $406,  and $319 for the years  ended  June 30,  1998,  1999 and 2000,
respectively.

                                   F-9
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Long-Lived Assets
      Long-lived  assets,  including the excess of cost over net assets acquired
are reviewed for impairment  whenever events or circumstances  indicate that the
assets  undiscounted  expected  cash flows are not  sufficient  to  recover  its
carrying  amount.  The Company measures an impairment loss by comparing the fair
value of the asset to its carrying amount.  Fair value of an asset is calculated
based upon the present value of expected future cash flows.

Cash and Cash Equivalents

      The  Company  considers  cash and cash  equivalents  to include all highly
liquid  investments  with a  maturity  of  three  months  or less at the date of
purchase.

     Cash  equivalents  of $35 at June 30,  1999  were used to  collateralize  a
standby letter of credit, related to an operating lease.

Financial Instruments

      The  carrying  amounts  reported in the balance  sheet for cash,  accounts
receivable,  accounts  payable and other accrued  liabilities  approximate  fair
value due to the short  maturity  of these  items.  The  carrying  amount of the
amounts due under the senior  secured  term loan,  line of credit and  secondary
collateral institutional loans approximate fair value because the interest rates
vary with market  interest  rates.  The carrying  amount of long-term debt which
have no quoted market price, is estimated by discounting  projected  future cash
flows using the Company's incremental borrowing rate.

     In August 1997, the Company entered into an interest-rate swap agreement to
modify  the  interest   characteristics  of  its  outstanding  debt,  which  has
subsequently been cancelled pursuant to a refinancing in June 2000 (see Note 9).
The  interest-rate  swap agreement was  designated  with all or a portion of the
principal  balance  and  term of a  specific  debt  obligation.  This  agreement
involved the exchange of amounts  based on a variable  interest rate for amounts
based on fixed interest rate over the life of the agreement  without an exchange
of the notional amount upon which the payments were based.  The  differential to
be paid or received as interest  rates change was accrued and  recognized  as an
adjustment  of  interest  expense  related to the debt (the  accrual  accounting
method).  The related amount payable to or receivable from the  counterparty was
included in other  liabilities  or assets.  The fair value of the swap agreement
and  changes in the fair value as a result of changes in market  interest  rates
were not recognized in the financial  statements.  The fair value was the amount
at which the swap  agreement  could be settled  based on quotes  provided by the
counterparty.

     Gains and losses on  terminations  of  interest-rate  swap  agreements were
deferred as an adjustment  to the carrying  amount of the  outstanding  debt and
amortized  as an  adjustment  to interest  expense  related to the debt over the
remaining term of the original  contract life of the terminated  swap agreement.
Upon the early  extinguishment  of the designated debt obligation,  the realized
gain from the swap was recognized in income.

     The following table presents the carrying amounts and estimated fair values
of material  financial  instruments  used by the Company in the normal course of
its business.
<TABLE>
<CAPTION>                                                                     1999                              2000
                                                           Carrying           Fair          Carrying           Fair
                                                            Amount           Value           Amount           Value
                                                        ---------------- ---------------- --------------- ----------------
<S>                                                     <C>              <C>              <C>             <C>
             Long-term debt.........................        $   44,462       $   44,476       $  46,286       $   46,286
             Off - balance sheet financial instruments:
                Unrealized loss on swap agreement...        $      ---       $     (398)      $     ---       $      ---
</TABLE>
                                   F-10
<PAGE>



                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Customer Concentrations

      Financial   instruments,   which   potentially   subject  the  Company  to
concentration of credit risk, consist principally of trade accounts  receivable.
The Company conducts most of its operations in the television network, cable and
advertising  industries.  The Company performs ongoing credit evaluations of its
customers'  financial  condition and generally  requires no collateral  from its
customers.   Management  believes  it  has  reasonably   estimated  losses  from
uncollectible  receivables.  Concentration  of credit risk with respect to trade
receivables  is limited  due to the large  number of  customers  included in the
Company's customer base.

Income Taxes

     The Company  accounts for income taxes  pursuant to the  provisions  of the
Statement of Financial  Accounting  Standards  ("SFAS") No. 109  "Accounting for
Income Taxes."

     The Company uses different  methods of accounting  for financial  reporting
and  tax  purposes,   principally   through  the   utilization   of  accelerated
depreciation  methods for income tax purposes,  certain valuation allowances and
net operating loss  carryforwards;  accordingly,  deferred taxes are provided on
the basis of such differences.

Supplemental Statement of Cash Flow Information
<TABLE>
<CAPTION>

                                                                   1998            1999          2000
                                                               -----------     -----------   -----------
Amounts paid for:

<S>                                                            <C>             <C>           <C>

     Interest.....................................              $    3,325      $    3,733    $    4,649
                                                               -----------     -----------    -----------
     Income taxes.................................              $      420      $      746    $    1,172
                                                               -----------     -----------    -----------
Non-cash transactions:
Investing-
     Contribution of real estate affiliates
     Asset acquired...............................              $    3,801
                                                               -----------
     Liabilities assumed..........................              $    5,064
                                                               -----------
     Merger with and into International Post Limited
     Asset acquired...............................              $  43,677
                                                               -----------
     Liabilities assumed..........................              $  38,932
                                                               -----------
Financing-
    Non cash dividend to shareholders.............              $    2,653
                                                               -----------
    Equipment acquired under capital lease obligations                          $      265
                                                                               -----------
</TABLE>

                                   F-11
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

New Accounting Standards

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative  Instruments and Hedging  Activities",  which is
required to be adopted in years  beginning  after June 15, 2000.  The  Statement
permits early  adoption as of the beginning of any fiscal  quarter.  The Company
expects to adopt the new Statement  effective  July 1, 2000.  The Statement will
require the Company to recognize  all  derivatives  on the balance sheet at fair
value through income.  If the derivative is a hedge,  depending on the nature of
the  hedge,  changes  in the fair  value of  derivatives  will  either be offset
against  the  change in fair value of the hedged  assets,  liabilities,  or firm
commitments through earnings or recognized in other  comprehensive  income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's  change in fair value will be  immediately  recognized in earnings.
The Company at June 30, 2000, does not have any  derivatives,  accordingly  this
Statement would have no effect.  However, the current debt agreements do require
the  Company  to fix a portion  of its term  debt  interest  rate no later  than
December 1, 2000.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  ("SAB")  101,  "Revenue  Recognition  in  Financial
Statements,"  which  provides  guidance on the  recognition,  presentation,  and
disclosure  of  revenue in  financial  statements  filed  with the SEC.  SAB 101
outlines the basic  criteria that must be met to recognize  revenue and provides
guidance for the disclosure  related to revenue  recognition  policies.  In June
2000, the SEC delayed the implementation of this Staff Accounting Bulletin until
no later than the fourth  quarter of 2000.  At this time,  the  Company is still
assessing  the  impact  of SAB 101 on its  financial  position  and  results  of
operations.

Note 3 - Accounts Receivable
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Accounts receivable, trade..................................           $       13,750         $       13,812
Contracts receivable billed:
     Uncompleted contracts..................................                      702                  4,217
     Completed contracts....................................                    1,453                    643
                                                                     -------------------    -------------------
                                                                               15,905                 18,672
Less:  Allowance for doubtful accounts
           and volume discounts ............................                    1,029                    934
                                                                     -------------------    -------------------
                                                                       $       14,876         $       17,738
                                                                     ===================    ===================
</TABLE>


Note 4 - Inventories

Inventories are summarized as follows:
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
System components and equipment, net of
  obsolescence allowance of $676 and $612...................           $          355         $          823
Tape stock..................................................                      339                    467
                                                                     -------------------    -------------------
                                                                       $          694         $        1,290
                                                                     ===================    ===================
</TABLE>
                                   F-12

<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 5 - Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Costs incurred on uncompleted contracts to date.............           $        7,808         $       13,678
Estimated earnings to date..................................                    1,483                  2,314
                                                                     -------------------    -------------------
                                                                                9,291                 15,992
Less:  billings to date.....................................                    9,342                 18,650
                                                                     -------------------    -------------------
Billings in excess of costs and estimated
  earnings on uncompleted contracts.........................           $          (51)        $       (2,658)
                                                                     ===================    ===================
</TABLE>
Included in accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Costs and estimated earnings in excess of
  billings on uncompleted contracts.........................           $          934         $        1,034
Billings in excess of costs and estimated
  earnings on uncompleted contracts.........................                     (985)                (3,692)
                                                                     -------------------    -------------------
                                                                       $          (51)        $      ( 2,658)
                                                                     ===================    ===================
</TABLE>
Note 6 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Prepaid expenses............................................           $          413         $          705
Other.......................................................                      272                    289
                                                                     -------------------    -------------------
                                                                       $          685         $          994
                                                                   ===================    ===================
</TABLE>
Note 7 - Fixed Assets
Fixed assets, at cost, summarized by major categories consist of the following:
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                <C>                        <C>
Machinery and equipment.....................................           $       44,482         $       39,426
Leasehold improvements......................................                   12,389                 12,021
Furniture and fixtures......................................                    2,222                  2,207
Transportation equipment....................................                      270                    254
Building....................................................                    2,199                  2,199
Land........................................................                    1,967                  1,967
Equipment under capital lease...............................                    5,256                 10,639
                                                                     -------------------    -------------------
                                                                               68,785                 68,713
Less:  accumulated depreciation, including
           accumulated amortization for
           equipment under capital lease................                       29,196                 34,699
                                                                     -------------------    -------------------
                                                                       $       39,589         $       34,014
                                                                     ===================    ===================
</TABLE>
                                   F-13
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 8 - Other Current Liabilities

Other current liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Wages payable...............................................           $        1,883         $        1,698
Other.......................................................                    1,222                  1,266
                                                                     -------------------    -------------------
                                                                       $        3,105         $        2,964
                                                                     ===================    ===================
</TABLE>
Note 9 - Long-Term Debt
<TABLE>
<CAPTION>
                                                                          June 30,               June 30,
                                                                            1999                   2000
                                                                     -------------------    -------------------
<S>                                                                  <C>                    <C>
Senior secured term loan ...................................           $       25,250         $          ---
Senior secured Term Loan A..................................                                          15,000
Senior secured Term Loan B..................................                                          15,000
Secondary Collateral Institutional Loan                                           ---                  5,000
Senior secured revolving credit loan........................                   12,700                  3,642
Mortgages payable to credit institution bearing interest at
 8.95% - prime (7.75% at June 30, 1999) plus 1%,
 collateralized by fixed assets with net book value at $2,395                   2,209                    ---
Capitalized lease obligations...............................                    4,303                  7,644
                                                                     -------------------    -------------------
                                                                               44,462                 46,286
Less:  current maturities...................................                    7,702                  5,534
                                                                     -------------------    -------------------
                                                                       $       36,760         $       40,752
                                                                     ===================    ===================
</TABLE>
     Senior  Secured  Long-Term  Debt - The  Company  refinanced  its  long-term
indebtedness,  including  mortgage  payables  and  lines  of  credit  (excluding
existing capital lease obligations), with a $55,000 credit facility comprised of
a $15,000  revolving line of credit,  term loans totaling  $30,000 and Secondary
Collateral  Institutional  Loans ("SCIL")  totaling  $10,000.  General  Electric
Capital Corporation ("GE Capital"), is Term Agent and Administrative Agent under
the credit agreement and KeyBank National Association  ("KeyBank"),  is revolver
agent.  The revolving line of credit bears  interest at LIBOR (London  Interbank
Offered Rate) plus 3.25 basis points. Term Loan A bears interest at the lenders'
prime rate plus 1.25% or LIBOR plus 3.25%. The Term Loan B bears interest at the
lenders' prime rate plus 1.50% or LIBOR plus 3.50%. The SCIL loans bear interest
at the  lenders'  prime rate plus 2.0% or LIBOR plus 4.0%,  commencing  November
2001 both rates will bear an additional 4.0% that will be accrued but payable on
the commitment termination date. Commitment termination date, in the case of the
revolving line and Term Loan A is July 1, 2003,  Term Loan B is July 1, 2005 and
the SCIL loans termination date is April 1, 2007. As additional compensation for
the revolving line commitments and SCIL Loan commitments, the Company will pay a
 .5% fee on the unused  portion of the  facilities.  The Company had  outstanding
direct  borrowings  of $3,642 under the  revolving  line at June 30,  2000.  The
Company  also has  outstanding  under the  revolving  line  letters of credit of
approximately  $686 at June 30, 2000.  The  Company's  revolving  line  weighted
average interest rate was 9.89% at June 30, 2000. The facility  contains various
convenants that require the Company to maintain certain financial ratios, limits
capital  expenditures,  prohibit dividends and similar payments and restrict the
Company's ability to incur other indebtedness. The facility is guaranteed by all
of the Company's subsidiaries.

     The Company has borrowed $5,000 of the SCIL facility, the remaining balance
of $5,000 is reserved for retiring the Company's existing Subordinated Debt.
                                   F-14
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 9 - Long Term Debt (continued)
     In August 1997,  the Company  entered into an interest rate swap  agreement
with KeyBank to reduce the impact of changes in interest rates on its Term Loan.
Pursuant to the  refinancing,  the swap agreement was cancelled  resulting in an
immaterial  gain  to the  Company.  The new  credit  agreement  with GE  Capital
requires  that 50% of the Term Loan  liabilities  be  converted  to a fixed rate
obligation by December 1, 2000.

     Subordinated  Debt - At June 30,  1999,  the Company  had $6,350  principal
amount of eight year  convertible  subordinated  notes, due May 4, 2003, with an
interest  rate  of 4%,  convertible  at $14  per  share  after  five  years  and
redeemable  after six years.  The debt was valued at $4,890 at May 5, 1995 using
an effective rate of 8.34%.  The valuation  discount is being amortized over the
life of the notes.  The Company  entered in to an agreement in February 2000, to
replace and supersede the obligations set forth in the $2,540 principal  amount,
4% convertible  subordinated  note due May 4, 2003. The Company's new obligation
continues to be subordinated to senior  indebtedness.  Periodic payments will be
made and paid in full by May 2003,  with an  imputed  interest  rate of 10%.  An
extraordinary  gain  has  been  recognized  in the year  ended  June  30,  2000,
amounting  to $382,  less  applicable  income tax expense of $254,  and is shown
separately in the consolidated statements of operations.

     Required  payments of principal on senior and  subordinated  debt including
accreted  interest of  approximately  $283,  exclusive  of  capitalized  leases,
outstanding at June 30, 2000, are summarized as follows:
<TABLE>
<CAPTION>
                  Fiscal Year                                                    Amount
                  -----------                                                ---------------
<S>               <C>                                                        <C>
                  2001..........................................              $   5,474
                  2002..........................................                  6,152
                  2003..........................................                  6,155
                  2004..........................................                  6,213
                  2005..........................................                  5,100
                  Thereafter....................................                 14,817
                                                                             ---------------
                                                                              $  43,911
                                                                             ===============
</TABLE>
     The Company leases certain  equipment from unaffiliated  entities.  Further
minimum lease payments under capital leases as of June 30, 2000 are:
<TABLE>
<CAPTION>
                  Fiscal Year                                                    Amount
                  -----------                                                ---------------
<S>               <C>                                                         <C>
                  2001..........................................              $   2,739
                  2002..........................................                  2,781
                  2003..........................................                  2,515
                  2004..........................................                    899
                                                                             ---------------
                  Total minimum lease payments..................                  8,934
                  Less:  Amount representing interest...........                  1,290
                                                                             ---------------
                  Present value of minimum lease payments.......              $   7,644
                                                                             ===============
</TABLE>
     Leased  property  under  capital  leases are  classified in fixed assets as
follows:
<TABLE>
<CAPTION>
                                                                         June 30,           June 30,
                                                                           1999               2000
                                                                     ---------------     ---------------
<S>                                                                  <C>                 <C>
                  Equipment under capital leases................          $   5,256          $  10,639
                  Less:  Accumulated amortization...............              1,092              2,536
                                                                     ---------------     --------------
                                                                          $   4,164          $   8,103
                                                                     ===============     ==============
</TABLE>
                                   F-15
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 10 - Related Parties

     The Company leases a building in Northvale, New Jersey from an entity owned
by certain principal stockholders of the Company, under a lease accounted for as
an operating  lease,  which facility  serves as its  engineering and fabrication
facility. Such rental expenses of the Company for the years ended June 30, 1998,
1999 and 2000 amounted to $270, $272 and $238, respectively.

     The Company has its  corporate  headquarters  as well as its  Satellite and
Distribution  facilities  in  Northvale,  New Jersey  that was  leased  from two
partnerships,  whose partners then owned a majority interest in Old Video, under
a lease accounted for as an operating lease. In August 1997,  immediately  prior
to the Merger, the principal  stockholders of Old Video contributed the stock of
two S Corporations  holding all of the general and limited partnership  interest
in the two partnerships (see Note 1). Such rental expense of the Company for the
year ended June 30, 1998 amounted to $130. At June 30, 1999 and 2000 the Company
also had accounts receivable of $130 and $158 and accounts payable of ($176) and
($120), respectively from (to) other affiliated entities.

     At June 30, 2000,  future  minimum  rental  payments  under  non-cancelable
leases with affiliated entities are as follows: (see Note 18).

<TABLE>
<CAPTION>
                                          Fiscal Year                         Amount
                          ----------------------------------------     --------------
<S>                            <C>                                          <C>
                               2001.............................            $    231
                               2002.............................                 231
                                                                       --------------
                                                                            $    462
                                                                       ==============
</TABLE>
     The Company has receivables  from certain officers of the Company which are
non  interest  bearing  and  are  without  specified   repayment  terms.   These
receivables are collateralized by split-dollar-life insurance policies which the
Company  funds on behalf of the officers.  Included in other current  assets are
$303 and $356 due from the officers at June 30, 1999 and 2000, respectively.

Note 11 - Business Segment Information

     The Company's  continuing  operations are classified into three  reportable
business  segments that provide different  products and services:  (i) Satellite
and  Distribution  Services,  (ii)  Systems and  Products  and (iii)  Production
Services (See Note 1). Separate  management of each segment is required  because
each  segment is subject to  different  marketing,  production,  and  technology
strategies.  The Consulting Services segment is shown as discontinued operations
for 1998 (see Note 16).

     The  Company  evaluates   performance  and  allocates  resources  based  on
operating  income from  continuing  operations.  The Company  does not  allocate
income and expenses that are of a general  corporate nature to industry segments
in computing operating income. These include corporate expenses, interest income
and expenses, and certain other income and expenses not directly attributable to
a specific segment.

     Inter-segment sales are accounted for on the same basis used to price sales
to similar non-affiliated customers and such sales are eliminated in arriving at
consolidated amounts.

     The  accounting  policies  applied by each of the  segments are the same as
those used by the company in general (see Note 1).

     Assets  by  segment  include  assets  directly   identifiable   with  those
operations.   Other  assets  primarily   consist  of  corporate  cash  and  cash
equivalents and fixed assets associated with nonsegment activities.

     The Company operates primarily in the United States.  Revenues from foreign
countries are not significant.
                                   F-16
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 11 - Business Segment Information (continued)

     Summarized  financial  information by business  segment for 1998,  1999 and
2000 is as follows:
<TABLE>
<CAPTION>
                                                                         1998                  1999                   2000
                                                                   ------------------    ------------------     ------------------
<S>                                                                <C>                   <C>                    <C>
Net revenues from unaffiliated customers:
Systems and Products......................................           $        18,631       $        25,615        $        30,540
Satellite and Distribution Services.......................                    21,384                31,280                 34,130
Production Services.......................................                    32,980                32,516                 31,478
                                                                   ------------------    ------------------     ------------------
Net revenues..............................................           $        72,995       $        89,411        $        96,148
                                                                   ==================    ==================     ==================
Intersegment revenues:
Systems and Products......................................           $         1,386       $         2,067        $           667
Satellite and Distribution Services.......................                     1,160                 1,125                  1,058
Production Services.......................................                     1,010                   492                    239
                                                                   ------------------    ------------------     ------------------
Total intersegment revenues...............................           $         3,556       $         3,684        $         1,964
                                                                   ==================    ==================     ==================
Operating income:
Systems and Products......................................           $         2,490       $         1,372        $         2,327
Satellite and Distribution Services.......................                     5,830                 6,075                  7,234
Production Services.......................................                     3,542                   170                   (400)
Corporate ................................................                    (5,170)               (5,479)                (5,172)
                                                                   ------------------    ------------------     ------------------
Operating income from continuing operations...............                     6,692                 2,138                  3,989
Interest expense, net.....................................                    (3,619)               (4,149)                (4,814)
Other income..............................................                       217                    53                    557
                                                                   ------------------    ------------------     ------------------
Income (loss) before income taxes and discontinued operations
  and extraordinary gain..................................           $         3,290       $        (1,958)       $          (268)
                                                                   ==================    ==================     ==================
Depreciation and amortization:
Systems and Products......................................                       650                   754                    685
Satellite and Distribution Services.......................                     2,076                 2,957                  3,293
Production Services.......................................                     4,035                 4,568                  4,702
Corporate ................................................                     1,197                 1,557                  1,785
                                                                   ------------------    ------------------     ------------------
Total depreciation and amortization ......................           $         7,958       $         9,836        $        10,465
                                                                   ==================    ==================     ==================
Assets:
Systems and Products......................................                     5,971                 6,427                  9,270
Satellite and Distribution Services.......................                    16,460                20,691                 21,062
Production Services.......................................                    29,787                25,698                 20,654
Corporate ................................................                    29,642                32,502                 35,046
                                                                   ------------------    ------------------     ------------------
Total assets..............................................           $        81,860       $        85,318        $        86,032
                                                                   ==================    ==================     ==================
Additions to fixed assets:
Systems and Products......................................           $           653       $         1,349        $           347
Satellite and Distribution Services.......................                     4,591                 5,332                  3,180
Production Services.......................................                       634                 4,575                    758
Discontinued operations...................................                       119                   ---                    ---
Corporate ................................................                       451                   628                    174
                                                                   ------------------    ------------------     ------------------
Total additions to fixed assets...........................           $         6,448       $        11,884        $         4,459
                                                                   ==================    ==================     ==================
</TABLE>
                                   F-17
<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 12 - Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings (loss) per share:
<TABLE>
<CAPTION>

                                                                Year Ending           Year Ending           Year Ending
                                                                 June 30,              June 30,              June 30,
                                                                   1998                  1999                  2000
                                                             ------------------    ------------------    ------------------
<S>                                                          <C>                   <C>                   <C>
Numerator:
  Income (loss) before discontinued operations and
    extraordinary gain...............................          $         1,699       $        (1,900)      $        (1,111)
                                                             ------------------    ------------------    ------------------
  Numerator for basic earnings per share-
    income (loss) available to common stockholders...                    1,699                (1,900)               (1,111)
  Effect of dilutive securities:
    4% convertible subordinated notes and stock
    options..........................................                       --                    --                    --
                                                             ------------------    ------------------    ------------------
  Numerator for  dilutive  earnings  per share-
  income  (loss) from  continuing operations
  available to common stockholders after
  assumed conversions................................          $         1,699       $        (1,900)      $        (1,111)
                                                             ==================    ==================    ==================
Denominator:
  Denominator for basic earnings per share-
    weighted-average shares..........................               12,276,278            13,264,307            13,291,649
  Effect of dilutive securities:
    4% convertible subordinated notes and stock
    options .........................................                       --                    --                    --
                                                             ------------------    ------------------    ------------------
  Denominator for dilutive earnings per share-
    adjusted weighted-average shares and assumed
    conversions......................................               12,276,278            13,264,307            13,291,649
                                                             ==================    ==================    ==================

Basic earnings (loss) per share before discontinued
   operations and extraordinary gain.................          $          0.14       $         (0.14)      $         (0.08)
                                                             ==================    ==================    ==================

Diluted earnings (loss) per share before discontinued
   operations and extraordinary gain.................          $          0.14       $         (0.14)      $         (0.08)
                                                             ==================    ===================   ==================
</TABLE>


     Earnings  (loss) per share from  continuing  operations  have been computed
using the  weighted  average  number of shares  outstanding  during each period.
Pre-Merger  weighted average number of shares outstanding has been retroactively
restated for the equivalent number of shares of common stock of the Company.

     The effect of 4%  convertible  subordinated  notes,  convertible to 272,143
shares of common  stock at June 30,  2000,  has been  excluded  from the diluted
earnings per share calculation, because they are anti-dilutive.

     The average  number of options to purchase  shares of common stock excluded
from the  computation  of diluted  earnings per share  because of the  Company's
current year operating  loss,  therefore,  having an antidilutive  effect,  were
498,900, 549,529 and 604,703 for fiscal 1998, 1999 and 2000, respectively.

                                   F-18
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 13 - Income Taxes

     The  reconciliation  between the statutory tax rate and those  reflected in
the Company's income tax provision for continuing operations is as follows:
<TABLE>
<CAPTION>
                                                                         1998                   1999                  2000
                                                                    ---------------       ---------------       ---------------
<S>                                                                 <C>                   <C>                   <C>
Statutory tax rate.......................................                    34.0%               (34.0)%               (34.0)%
Change in valuation allowance............................                    (5.2)                 45.2                 640.8
Non-deductible intangible amortization...................                     8.8                  16.9                 124.5
State and local taxes, net of federal benefit............                     9.6                (34.7)                (331.3)
Non-deductible meals and entertainment...................                     0.9                   2.1                  21.7
Other....................................................                     0.3                   1.5                (107.2)
                                                                    ---------------       ---------------       ---------------
                                                                             48.4%                (3.0)%                314.5%
                                                                    ===============       ===============       ===============
</TABLE>
     The provision for income taxes from  continuing  operations for the Company
 is as follows:
<TABLE>
<CAPTION>
                                                                         1998                   1999                  2000
                                                                    ---------------       ---------------       ---------------

<S>                                                                 <C>                   <C>                   <C>
Current
     Federal.............................................           $         ---         $         ---          $        ---
     State and local.....................................                     439                   550                   270
Deferred
     Federal.............................................                   1,372                   (369)                (415)
     State and local.....................................                      38                 (1,580)              (1,612)
     Adjustment to valuation allowance...................                    (258)                 1,341                2,600
                                                                   ----------------      ----------------       ---------------
                                                                    $       1,591         $          (58)        $         843
                                                                   ================      ================       ===============
</TABLE>
     The components of net deferred tax assets arising from temporary
differences as of June 30, 1999 and 2000 were as follows:
<TABLE>
<CAPTION>
                                                                                June 30,                     June 30,
                                                                                  1999                         2000
                                                                         ------------------------    ------------------------
<S>                                                                      <C>                         <C>
Receivable allowance............................................           $                 542       $                 469
Inventory reserves..............................................                             379                         443
Compensation payable............................................                             353                         294
Other...........................................................                              26                         ---
                                                                         ------------------------    ------------------------
    Current deferred tax asset..................................                           1,300                       1,206
Federal and state net operating loss and credit carryforwards...                           5,602                       8,182
Valuation allowance.............................................                          (2,020)                     (4,620)
Purchase accounting reserves....................................                             355                         230
Straight lined rent.............................................                             698                         647
Accelerated depreciation........................................                            (259)                       (739)
                                                                         ------------------------    ------------------------
    Non-current deferred tax asset..............................                           4,376                       3,700
                                                                         ------------------------    ------------------------
    Total deferred tax asset....................................         $                 5,676      $                4,906
                                                                         ========================    ========================
</TABLE>

                                   F-19
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 13 - Income Taxes (continued)

     Included in deferred  income taxes are accrued  income tax  liabilities  of
$1,426 as of June 30, 1999 and 2000.

     The state net operating loss carryforward  valuation allowance increased by
$1,341  and  $2,600 in 1999 and 2000,  respectively,  as a result of  additional
operating  losses in certain  subsidiaries.  The Company  has a state  valuation
allowance  of  $4,620 as of June 30,  2000.  The state  valuation  allowance  is
provided  as a result  of  estimates  regarding  future  operations  of  certain
subsidiaries in certain states.

     At June 30, 2000, the Company has potential tax benefits from net operating
loss  carryforwards  for federal  income tax  purposes of $2,739,  which  expire
between 2007 and 2020. Use of the net operating  losses may be restricted due to
the change in  ownership  provisions  of the Internal  Revenue Code of 1986,  as
amended.  The Company also has potential  tax benefits  from net operating  loss
carryforwards for state income tax purposes of $5,025, which expire between 2002
and 2020, and an AMT credit of $418.

Note 14- Retirement Plans

     The  Company  provides  retirement  benefits  through  a  qualified  salary
reduction  plan for  eligible  employees  under  Section  401(k) of the Internal
Revenue Code (the "Retirement  Plans").  The Retirement Plan is funded by salary
reduction contributions by the participants thereof. The Company's contributions
to the retirement plan are based on participant contributions (which are limited
to a  fixed  percentage  of  participant  compensation)  and  matching  employer
contributions.  Additionally, the Company may contribute a discretionary amount.
For the  years  ended  June 30,  1998,  1999 and  2000,  the  matching  employer
contributions amounted to $191, $275 and $200, respectively.

Note 15 - Stock Based Compensation Plans

     The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25,  "Accounting for Stock Issued to Employees" and related  interpretations
in accounting for its employee stock options. Under APB No. 25, the Company does
not recognize compensation expense since the exercise price of the stock options
granted is equal to the market value of the  Company's  common stock at the date
of grant.  Statement of Financial  Accounting Standard No. 123,  "Accounting for
Stock Based  Compensation"  (SFAS 123)  requires the Company to disclose the pro
forma impact on net income (loss) as if  compensation  expense  associated  with
employee stock options had been calculated under the fair value method.

     The  stockholders  and  directors of the Company have  approved a long-term
incentive plan (the "Stock Plan") under which eligible  employees,  consultants,
and independent  contractors may receive grants of options,  stock  appreciation
rights and  restricted  stock awards and to replace  IPL's  long-term  incentive
plan. An aggregate of 735,000  shares of common stock were reserved for issuance
under the Stock Plan and  options or other  grants with  respect  thereto may be
made over a ten-year term. Options may be either incentive  options,  within the
meaning of the Internal Revenue Code or non-qualified options. The Stock Plan is
administered  by the  compensation  committee  of the board of  directors of the
Company who determine the employees,  consultants,  and independent  contractors
entitled  to grants,  the  exercise  price,  which may not be less than the fair
market value of the Company's  common stock on the date of grant,  and the other
terms of options or grants.

     During  fiscal  years 1999 and 2000,  115,000 and 187,500  shares of common
stock options were granted,  respectively.  At June 30, 2000,  there are 185,500
shares of common stock available for granting.

                                   F-20

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 15 - Stock Based Compensation Plans (continued)

     On June 13, 1997, the principal  stockholders of the Old Video entered into
stock option  agreements (the  "Stockholder  Options") with various employees of
the Old Video,  granting such  employees the right to purchase  87,128 shares of
the Company's common stock from such stockholders.  The Stockholder Options were
fully vested at June 30, 1997,  became  exercisable  June 1998 and expire on the
fifth  anniversary of the vesting date. The exercise  prices of the  Stockholder
Options upon grant were in excess of the estimated  fair market value of the Old
Video's common stock. In conjunction  with the Merger,  changes were made to the
Stockholder  Options  to restore  the option  holder's  economic  position.  The
Stockholder  Options  converted into options to purchase from such  stockholders
235,000  shares of the Company's  common stock.  The changes to the  Stockholder
Options  did not  impact  the  aggregate  intrinsic  value,  reduce the ratio of
exercise  price per option to the market  value per share,  or alter the vesting
provision of the Stockholder  Options.  As a result, no expense under APB 25 was
recognized.

     The Black-Scholes  option pricing model used the following  assumptions for
grants in 1998, 1999 and 2000, respectively: expected volatility of 0.4, 0.5 and
0.92,  dividend yield of 0% and expected  lives of ten years for all years,  and
risk free interest rates of 6.38%, 6.09% and 6.21%.

     The following  table shows the pro forma impact of options on the Company's
net loss for the years ended June 30,  1998,  1999 and 2000 in  accordance  with
SFAS 123.  The pro forma impact may not be  representative  of the effect on the
future  years  because  of the  subjective  assumptions  used in the fair  value
estimate  calculated  under the  Black-Scholes  model and because new grants are
generally made each year.

<TABLE>
<CAPTION>
                                                                          1998               1999               2000
                                                                      ---------------    ---------------    ---------------
<S>                                                                   <C>                <C>                <C>
Net loss:                                       As Reported           $         (161)    $       (1,900)    $         (729)
                                                Pro Forma                       (265)            (2,071)              (826)
Net loss per common share - Basic:              As Reported                     (.01)              (.14)              (.05)
                                                Pro Forma                       (.02)              (.16)              (.06)
Net loss per common share - Diluted:            As Reported                     (.01)              (.14)              (.05)
                                                Pro Forma             $         (.02)    $         (.16)    $         (.06)
</TABLE>
     A summary of the status of the Stock  Plan at June 30,  1999 and 2000,  and
changes during the years then ended is presented in the table below.
<TABLE>
<CAPTION>
                                                                     1999                              2000
                                                        -------------------------------    ------------------------------
                                                                            Weighted                          Weighted
                                                           Number           Average           Number          Average
                                                             Of             Exercise            Of            Exercise
                                                           Shares            Price            Shares           Price
                                                        -------------     -------------    -------------    -------------
<S>                                                     <C>               <C>              <C>              <C>
Outstanding at beginning of year..................           857,800      $       4.16     $    965,600     $       4.02
Granted...........................................           115,000              2.95          187,500             2.16
Exercised.........................................               ---               ---           (3,000)            2.94
Forfeited.........................................            (7,200)             3.28         (210,100)            4.05
Canceled or Expired...............................               ---               ---              ---              ---
                                                        -------------     -------------    -------------    -------------
Outstanding at end of year........................           965,600      $       4.02          940,000     $       3.65
                                                        =============     =============    =============    =============
Exercisable at end of year........................           609,257      $       4.61          600,148     $       3.30
                                                        =============     =============    =============    =============
Weighted average fair value of options granted....      $       2.10                       $       1.93
                                                        =============                      =============
</TABLE>
                                   F-21
<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 15 - Stock Based Compensation Plans (continued)

     The range of exercise  prices for the options  outstanding at June 30, 2000
is $1.625 - $6.00 with a weighted  average  remaining  contractual  life of 7.11
years. Approximately,  183,178 options become exercisable in fiscal 2001, 90,834
options become  exercisable in fiscal 2002 and 65,840 options become exercisable
in fiscal 2003.
<TABLE>
<CAPTION>

                               Options              Exercise             Weighted             Options
                             Outstanding          Price Range          Average Life         Exercisable
                           -----------------    -----------------    -----------------    -----------------
<S>                        <C>                  <C>                  <C>                  <C>
                                    192,500       $1.625 - 2.625                 9.61                1,666
                                    354,000        2.940 - 3.250                 7.47              204,982
                                    393,500        4.000 - 6.000                 5.55              393,500
                           -----------------    -----------------    -----------------    -----------------
                                    940,000       $1.625 - 6.000                 7.11              600,148
                           =================    =================    =================    =================
</TABLE>


     Upon the Merger,  the Company  assumed  508,800  fully  vested IPL options,
which had  previously  been granted to former  employees  and  directors of IPL,
393,500 of these options are outstanding at June 30, 2000.

     In May 1999, the directors of the Company have approved a 1999 non-employee
director stock plan for directors who are not employees of the Company.  A total
of 120,000  shares of common stock are available  for issuance  under such plan.
Upon grant, these shares shall be immediately vested and nonforfeitable.

     The  stockholders  and  directors  of the  Company  have  also  approved  a
restricted  share plan for  directors  who are not  employees of the Company.  A
total of 50,000  shares of common stock are  available  for issuance  under such
plan.  Upon grant,  these  options  will vest upon the  earliest to occur of two
consecutive years of board service,  the death or disability of the recipient or
a "change of control date" (as defined in the Company's  restricted share plan).
During  fiscal  year 1998,  6,000  shares of common  stock  were  awarded to the
directors of the Company.  All such shares are currently  vested. At the date of
grant, the share price was $2.88.  Compensation expense charged to operations in
fiscal year 1998 was $17.

     In August  1997,  in  connection  with the Merger as part of his  severance
agreement,  Old Video's  stockholders granted the former chief executive officer
of IPL options to purchase an aggregate of 75,000 shares at an exercise price of
$0.75 per share.  Such options are fully  vested.  Given that these  options are
below market value, the Company recorded additional paid in capital of $199.

     In February 1994, in connection with the acquisition of Audio Plus Video by
IPL, the then chief financial officer of IPL was granted ten-year, non-qualified
stock options to purchase  181,818  shares of the  Company's  common stock at an
exercise  price of $9.35  per  share.  Such  options  are fully  vested  and are
presently exercisable until February 2002.

                                   F-22

<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Note 16 - Discontinued Operations

     On November 30, 1997,  management,  which had the  authority to approve the
action, committed the Company to a formal plan to dispose of its interest in the
Consulting  Services segment,  acquired in the Merger,  which provided strategic
consulting services in the area of communications,  design and implementation of
intranets,  extranets and internets.  Management closed the Consulting  Services
segment November 1998.

     Losses from the discontinued  Consulting  Services segment amounted to $140
from the date of the Merger through November 30, 1997, net of applicable  income
tax benefit of $73, and are shown separately in the  consolidated  statements of
operations. Revenues of the discontinued Consulting Services segment were $1,407
from the date of the Merger  through  June 30, 1998 and $686 for the nine months
ended June 30, 1999.  Included in other current liabilities at June 30, 1999 and
2000 is a reserve of $249 and $65, respectively, principally for remaining lease
commitments and severance arrangements.

Note 17 - Other Income

     Included in 2000 other income is $367  pertaining to the  assignment of the
Company's leasehold in its Miami studio and the sale of other assets.

Note 18 - Commitments and Contingencies

Lease  Commitments - The Company leases  property under leases  accounted for as
operating leases.  Certain leases include escalation  clauses. At June 30, 2000,
future minimum rental  payments,  including  related party leases (see Note 10),
under non-cancelable leases for buildings and equipment are as follows:
<TABLE>
<CAPTION>

                 Fiscal Year                                                   Amount
                 -----------                                               ---------------
<S>              <C>                                                       <C>
                 2001..............................................             $   4,167
                 2002..............................................                 3,570
                 2003..............................................                 3,068
                 2004..............................................                 2,870
                 2005..............................................                 2,598
                 Thereafter........................................                 9,674
                                                                           ---------------
                                                                                $  25,947
                                                                           ===============
</TABLE>

     Rental expense for the years ended June 30, 1998, 1999 and 2000 amounted to
$3,719,  $4,302 and $4,137,  respectively.  The Company also has  non-cancelable
subleases of approximately $837.

Employment  Agreements  - At June 30,  2000,  the  Company  is  obligated  under
employment  contracts  with certain key employees  providing for base salary and
incentive  bonuses  based upon the results of  operations.  Minimum  amounts due
under these contracts are as follows:
<TABLE>
<CAPTION>
                 Fiscal Year                                                  Amount
                 -----------                                               --------------
<S>              <C>                                                            <C>
                 2001..............................................             $  3,641
                 2002..............................................                1,050
                 2003..............................................                   64
                 2004..............................................                   61
                                                                           --------------
                                                                                $  4,816
                                                                           ==============
</TABLE>
                                   F-23
<PAGE>
                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 18 - Commitments and Contingencies (continued)

Litigation

     The Company is involved in various claims and legal proceedings  related to
employment  matters,  as well as other legal  proceedings of a nature considered
normal to its  business.  While it is not possible to predict or  determine  the
outcome of these proceedings, it is the opinion of management that their outcome
will have no material  adverse  effect on the financial  position,  liquidity or
results of operations of the Company.

Note 19 - Preferred Stock

     The  Company's  certificate  of  incorporation   authorizes  the  board  of
directors to issue from time to time, in one or more series, shares of preferred
stock with such  designations  and  preferences,  relative voting rights (except
that voting  rights,  if any, in respect of the election of  directors  shall be
limited to voting with the holders of common  stock,  with no more than one vote
per share of preferred stock), redemption,  conversion,  participation and other
rights and qualifications, limitations and restrictions as permitted by law. The
board of directors by its  approval of certain  series of preferred  stock could
adversely  affect  the voting  power of the  holders of common  stock,  and,  by
issuing shares of preferred  stock with certain voting,  conversion,  redemption
rights or other terms, could delay, discourage or make more difficult changes of
control or management of the Company.

Note 20 - Unaudited Quarterly Results

     Unaudited quarterly financial  information for fiscal year 1999 and 2000 is
set forth below.
<TABLE>
<CAPTION>

                                                                            Quarter Ended

                                            ------------------------------------------------------------------------------
                                             September 30,        December 31,          March 31,            June 30,
                                                  1998                1998                 1999                1999
                                            -----------------    ----------------    -----------------    ----------------
<S>                                                <C>                 <C>                  <C>
Fiscal 1999
    Revenues........................        $         21,906     $        21,562     $         22,700     $        23,243
    Gross profit....................        $          5,962     $         6,032     $          5,917     $         5,856
    Income from continuing
       operations...................        $           (286)    $          (450)    $           (821)    $          (343)
    Income from continuing
        operations per share - basic        $          (0.02)    $         (0.03)    $          (0.06)    $         (0.03)
    Net income (loss)...............        $           (286)    $          (450)    $           (821)    $          (343)

                                                                            Quarter Ended

                                            ------------------------------------------------------------------------------
                                             September 30,        December 31,          March 31,            June 30,
                                                  1999                1999                 2000                2000
                                            -----------------    ----------------    -----------------    ----------------
Fiscal 2000
    Revenues........................        $         20,804     $        22,552     $         26,981     $        25,811
    Gross profit....................        $          6,437     $         6,284     $          6,749     $         5,920
    Income (loss) from continuing
       operations...................        $           (215)    $          (111)    $             10     $          (795)
    Income (loss) from continuing
       operations per share - basic.        $          (0.02)    $         (0.01)    $           0.00     $         (0.05)
    Net income (loss)...............        $           (215)    $          (111)    $            392     $          (795)

</TABLE>

                                   F-24
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued

Note 21 - Subsequent Events

     On July 25, 2000,  the Company,  entered into a definitive  agreement  with
AT&T Corp. and Liberty Media  Corporation  ("Liberty  Media")  pursuant to which
Liberty Media will acquire 100% of the Company's  issued and outstanding  common
stock by means of a merger. As contemplated by the merger agreement,  each share
of common  stock  outstanding  immediately  prior to the  effective  time of the
merger will be  converted  into 0.104 of a share of Class A Liberty  Media Group
Stock and $2.75 in cash. The Company's  stockholders  controlling  approximately
71.8% of the  Company's  outstanding  common  stock have  entered  into a voting
agreement  with Liberty Media under which these  stockholders  agreed to vote in
favor of the merger agreement and the merger.

                                   F-25
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

                              SUPPLEMENTAL SCHEDULE

Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>



                                                          Additions
                                     Balance at          Charged to                                Balance at
                                    Beginning of          Costs and           Deductions             End of
                                        Year              Expenses            Write-Offs              Year
                                  -----------------    ----------------     ----------------    -----------------
<S>                                 <C>                  <C>                  <C>                 <C>

For the year ended June 30, 1998:
 Allowance for doubtful
 accounts and volume
 discounts.................         $     1,354(a)       $         214        $         389       $        1,179
                                  =================    ================     ================    =================

June 30, 1999:
 Allowance for doubtful
 accounts and volume
 discounts.................         $        1,179       $          67        $         217       $        1,029
                                  =================    ================     ================    =================

June 30, 2000:
 Allowance for doubtful
 accounts and volume
 discounts.................         $        1,029       $         371        $         466       $          934
                                  =================    ================     ================    =================

</TABLE>


(a)The  balance at  beginning  of year gives effect to the Merger with and
into International Post Limited of $1,052.










                                   F-26