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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, 1999
                                       OR
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the transition period from  _____ to _____
                      Commission File Number 0-23388

                           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's telephone number, including area code (201) 767-1000
                                ----------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                                    Name of Each Exchange
          Title of Each Class                        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 (ss.229.405) 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 27, 1999, was approximately $5,845,450.

                               ------------------
         The number of outstanding shares of the registrant's  common stock, par
value $.01 per share, as of August 27, 1999, was: 13,264,307.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None
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<PAGE>

                                     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-serviced. 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  divestiture  ultimately  resulted 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.

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). 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 technical and distribution
services to  distributors  of television  programming.  The Systems and Products
segment  designs,  engineers  and produces  advanced  video  facilities  for the
broadcast and cable  television,  post-production  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.

<PAGE>

     On January 2, 1997,  Old Video's  management,  which had the  authority  to
approve the action,  committed  Old Video to a formal  plan to  discontinue  the
operations of its Diversified  Products segment as a condition to the Merger. In
August 1997 and prior to the Merger, Old Video spun off the Diversified Products
segment to Old Video's stockholders. 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  anticipated
conversion of existing  television  and cable  facilities  to digital,  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,  syndicated,  cable or foreign  television;
(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;   (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  outsourced  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.   The  worldwide  market  penetration  of
distribution channels such as home video and digital satellite broadcast is also
anticipated  to  contribute  to a  growing  demand  for  original  and  reissued
programming.

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.  For
example,  AT&T's SKYNET Satellite Services  acknowledged the Company's satellite
uplink  performance  in 1998,  1997 and 1996 by presenting  the Company with the
prestigious  SKYNET  Uplinker  Award,  which is awarded to  companies  that have
accessed  AT&T  satellites  without any  interferences,  incidents  or procedure
violations over a period of one year. 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.

<PAGE>

     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 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.

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.

<PAGE>

     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  1"  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, multistandard 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 I3
(International  Image   Interpretation),   an  innovative  standards  conversion
technology, which achieves extremely high quality for film-originated material.

     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  National
Basketball Association.

     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 tenth year of worldwide  distribution for
the NBA and the  twelfth  year for  Hearst  Entertainment  supplying  movies and
series  programming.  Other programs include "Samurai - X",  "Baywatch",  "Ricki
Lake",  "Spin City",  "60 Minutes 1 and 2",  "Bewitched",  "South Park" and "Dr.
Katz".  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,  NBC  International,  ABC,  Buena  Vista  International,   Warner
Brothers,  Hearst  Entertainment,  Worldvision,  NBA,  Dream  Works,  Children's
Television Workshop and Discovery 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,  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  utilizing  computerized
design  programs and are assembled in AFA's  facility in Northvale,  New Jersey.
Assembly   includes  custom   fabrication  of  all  audio,   video  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  broadcast 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),  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:   new  network  operations
facilities for Turner  Entertainment;  a complete digital TV station for the PBS
flagship, WNET-13; and a major cable headend for Israel's largest cable operator
- "Golden  Channels".  Current  projects  include a new all  digital  television
station for NBC owned WTVJ-TV,  in Miami; a direct-to-home  satellite  broadcast
center in Argentina; and a major expansion of the Home and Garden cable network.

     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.  "Traxim",  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.

<PAGE>

     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 slo-mo  systems,  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 and Major League Baseball. 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  Tyco,  Air  Force,  Marine  Midland,
Gatorade, Fleet Bank, Folgers, Sprint, L'Oreal and Phillips, 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.

<PAGE>

     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:  the
Volkswagen Beetle Campaign,  Visa, Pepsi,  Pizza Hut, Macy's, US Navy,  Wendy's,
IBM, MCI,  Burger King,  Bell Atlantic and  Ameritech.  In addition to Manhattan
Transfer's commercial activities,  it provided  post-production services for the
Peabody Award winning episode network  television series  "Homicide",  for "Oz",
the episodic series on HBO and for the network situation comedy, "Cosby".

     Commercials  finished  this last year at MT-Miami  include  Pier 1 Imports,
McDonalds, Bell South, Burdines,  American Express, Huggies, and Florida Lottery
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,  Uniworld Group,  Ammirati Puris Lintas, Ogilvy & Mather, J. Walter
Thompson, Jordan McGrath Case, McCann Erickson and Young and Rubicam.

     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 focus of this advertising 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.

     The Company had sales to one Systems and Products  segment customer in 1997
in  excess  of 10% of  consolidated  1997  revenues.  Sales  to  such  customers
aggregated 15% of 1997 revenues.  Revenues from such customers were derived from
one-time contracts for services provided by AFA and do not necessarily represent
a recurring source of revenues.

<PAGE>

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,  BTS Broadcast  Television
Systems and Tektronix.  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,  The Systems Group, Communications Engineering
Inc.  and  National   TeleConsultants,   as  well  as  small,  regionally  based
integrators  and  dealers.   Competition  is  based  upon  technical  expertise,
experience and price. VRI's major competitors are Bexel  Corporation,  Duke City
and Charter (ABS Broadcast), which have 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
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.

<PAGE>

     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
                ---------                 -----------------------
                 E960405                   September 6, 2006

                 E910152                   March 22, 2001

                 E881160                   February 17, 2009

                 E4626                     September 10, 2002

                 E970418                   October 10, 2007

     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
                ---------                 -----------------------
                 WNEI382                   June 23, 2009

                 WMQ-537                   February 1, 2001

     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  493  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.

<PAGE>

     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,  1999  and  June  30,  1998,  the  Company  had  backlogs  of
approximately  $6,000,000 and $11,144,000  respectively.  All of such backlog is
attributable to AFA's video production systems projects.

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 leased a new 13,000  square foot facility in
Burbank, California during the fourth quarter of fiscal year 1998.

     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  agreements and business  acquisitions as well
as other legal proceeedings 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 27, 1999,  there were  approximately  212 holders of record of
the Common Stock.

     The  following  table  sets forth the high and low bid 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.


         Fiscal Year 1998                                 High            Low
         ----------------                                 ----            ---
         First Quarter.................................. 3 13/16         2 3/4
         (July 1 to September 30)
         Second Quarter................................. 3 3/4           2 15/16
         (October 1 to December 31)
         Third Quarter.................................. 3 1/2           2 13/16
         (January 1 to March 31)
         Fourth Quarter................................. 4 3/8           2 7/8
         (April 1 to June 30)


         Fiscal Year 1999                                High             Low
         -----------------                               -----            ----
         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)

     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.
<TABLE>
<CAPTION>

                                             Year Ended       Year Ended       Year Ended      Year Ended      Year Ended
                                              June 30,         June 30,         June 30,        June 30,        June 30,
                                                1995             1996           1997(1)         1998(3)           1999
                                             ------------     ------------    -------------   -------------    ------------
                                                               (in thousands, except per share amounts)
<S>                                          <C>              <C>             <C>             <C>              <C>
Statement of Operations Data: (3)

Revenues .................................   $    19,439      $     29,740    $      27,610   $      72,995    $    89,411

Depreciation and amortization ............         1,629             1,653            1,824           7,958          9,836

Operating income from continuing
    operations ...........................           490             2,387            1,750           6,692          2,138

Income (loss) before income taxes and
    discontinued operations ..............           223             1,999            1,825           3,290         (1,958)

Income before discontinued operations ....           223             1,212            1,638           1,699         (1,900)

Loss from discontinued operations,
    net of tax (2) (4) ...................           (74)             (388)          (1,688)         (1,860)          ---

Net income (loss) ........................   $       149      $        824    $         (50)  $        (161)   $    (1,900)

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

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

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


                                                As of            As of           As of            As of           As of
                                              June 30,         June 30,        June 30,         June 30,        June 30,
                                                1995             1996            1997            1998(3)          1999
                                             ------------     ------------    ------------     ------------    ------------
                                                                            (in thousands)
<S>                                          <C>                   <C>        <C>              <C>             <C>
Balance Sheet Data: (3)
Total assets...........................      $    16,005      $    17,672     $     20,801     $     81,860    $      85,318
Long-term debt, net of current portion.            2,388            2,140            5,330           30,968           36,760
Subordinated debt, net of
     current portion...................             ---             ---              ---              5,442            5,652
Stockholders' equity...................      $     1,812      $     2,655     $      2,733     $     20,725    $      18,847
</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, 1995,
     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.

<PAGE>

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, 1999 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, 1999 and 1998 and
Old  Video  for the year  ended  June 30,  1997,  and  include  the  results  of
operations and cash flows of IPL from the date of the Merger. Certain comparable
references to IPL's 1998 and 1997 figures include  pre-acquisition  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.

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). 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 technical and distribution
services to  distributors  of television  programming.  The Systems and Products
segment  designs,  engineers  and produces  advanced  video  facilities  for the
broadcast and cable  television,  post-production  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.

Discontinued Operations

     On January 2, 1997,  Old Video's  management,  which had the  authority  to
approve the action,  committed  Old Video to a formal  plan to  discontinue  the
operations of its Diversified  Products segment as a condition to the Merger. In
August 1997 and prior to the Merger, Old Video spun off the Diversified Products
segment to Old Video's stockholders. 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).

Results of Continuing Operations

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 over 25 years.

     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.

<PAGE>

Year Ended June 30,  1998  compared  to Year Ended  June 30,  1997  (dollars  in
thousands

     Total  revenues  increased  by $45,385  to $72,995 in 1998 from  $27,610 in
1997. Revenues from the Satellite and Distribution Services segment increased by
$11,405 to $21,384 in 1998 from  $9,979 in 1997.  $10,017 of the $21,384 of 1998
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 14.0% to $11,367 in 1998 from
$9,979 in 1997.  This increase was due primarily to an increase in the number of
customers  connected to the Company's  satellite and fiber optic network and the
receipt of additional  transmission  revenue from existing customers,  which was
partially  offset by a  decrease  in  syndication  revenues  due to  programming
cancellations.  Revenues from the Satellite and  Distribution  Services  segment
provided by IPL decreased by 19.0% from $12,360 in 1997 to $10,017 in 1998.  The
decrease is primarily due to reduced volume of standards conversion services and
duplication. Revenues from the Systems and Products segment increased by 5.7% to
$18,631  in 1998 from  $17,631  in 1997 due to  increased  demand for design and
installation of video systems;  however,  the amount of the increase was reduced
as a result of a change in the structure of certain contracts  pursuant to which
the Company now receives a commission  based upon  equipment  used in such video
systems  which  is  purchased  directly  by the  customer  from  third  parties.
Previously, the Company had recorded revenues from the sale of such equipment as
well as the cost related to the purchase thereof. The equipment rental division,
of the Systems and Products  segment,  revenue decreased 20.5% to $1,989 in 1998
from  $2,501 in 1997 as a result of strong  demand for video  equipment  in 1997
generated by the Atlanta  Olympics,  1996  presidential  election,  and the 1996
professional  baseball World Series. The Production Services segment revenues of
$32,980 in 1998 was solely attributable to post-Merger contributions provided by
IPL.  Revenues provided by IPL increased by 6.4% to $32,980 in 1998 from $31,004
in 1997. The increase is primarily due to a higher volume of creative  editorial
and visual effects services.

     Total costs of sales,  services and rentals increased by $23,903 to $41,175
in 1998 from $17,272 in 1997. Costs of the Satellite and  Distribution  Services
segment increased by $4,689 to $9,511 in 1998 from $4,822 in 1997. This increase
was  primarily  attributable  to costs of Satellite  and  Distribution  Services
provided  by IPL of $4,283 and a $406  increase  in costs of  non-IPL  services.
Costs of IPL Satellite and  Distribution  Services  decreased  $760 to $4,283 in
1998 from $5,043 in 1997.  This  decrease  consisted  primarily  of reduced tape
stock usage, lower equipment repairs and reduced usage of part time and per diem
personnel.  Costs of the  Systems  and  Products  segment  increased  by $663 to
$13,113 in 1998 from  $12,450 in 1997.  The growth in costs of the  Systems  and
Products  segment was driven by the increased  volume of  installations of video
systems and additional salaries of engineers. These increases were offset by the
decrease in the cost of  equipment  rentals of $233 to $576 in 1998 from $809 in
1997 as a result of lower demand for video  equipment.  Costs of the  Production
Services  segment of $18,551 in 1998 was solely  attributed to costs provided by
IPL. Cost of Production Services provided by IPL increased by $152 to $18,551 in
1998 from $18,399 in 1997.

     The  Company's  overall  gross  profit  margin   (excluding   depreciation)
increased  to 43.6% in 1998 from 37.4% in 1997.  Gross  profit  margin  from the
Systems  and  Products  segment  increased  to 29.6% in 1998 from  29.4% in 1997
primarily as a result of the change in contract  structure  discussed  above and
from  reduced  amount  of  sub-rentals,  which  were  required  in  1997 to meet
increased demand for equipment  rentals in connection with the Atlanta Olympics.
Gross profit margin from the Satellite and  Distribution  Services segment other
than services provided by IPL increased to 54.0% in 1998 from 51.7% in 1997 as a
result of an increase in revenues combined with stable fixed costs for materials
and  equipment.  Gross profit margin from  Satellite and  Distribution  Services
provided by IPL  decreased  from 59.2% in 1997 to 57.2% in 1998 as a result of a
decrease in revenues  without a  corresponding  decrease in costs.  Since a high
proportion of costs  attributable  to the Satellite  and  Distribution  Services
segment  are  fixed,  decreases  in  revenues  do not  result  in  proportionate
decreases in costs.  Gross profit margin from Production  Services  increased to
43.8% in 1998 from 40.7% in 1997 as a result of an increase in revenues combined
with stable fixed costs.

     Selling,  general and administrative  expenses increased to $17,170 in 1998
from $6,764 in 1997, which primarily resulted from the additional administrative
salaries and occupancy costs  associated with IPL's  operations.  However,  as a
result of the Company's increased revenue,  selling,  general and administrative
expenses as a  percentage  of revenues  decreased to 23.5% in 1998 from 24.5% in
1997.

     Depreciation  expense  increased  to $7,109  in 1998  from  $1,807 in 1997,
primarily due to the  significant  amount of fixed assets of IPL acquired in the
Merger.  Amortization  expense  increased  to  $849  in  1998  from  $17 in 1997
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 over 25 years.

     Interest  expense  increased to $3,619 in 1998 from $517 in 1997  primarily
due to the assumption and refinancing by the Company of IPL's existing long-term
indebtedness as part of the Merger. See "Liquidity and Capital Resources."

     The effective tax rate applied against pre-tax income was 48.4% in 1998 and
10.2% in 1997.  The  effective  tax rate  for 1998 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  decreased by $258 in 1998
as a result of the use of net operating  losses.  The Federal net operating loss
valuation  allowance  decreased  by  approximately  $622 in 1997 as a result  of
revised  estimates  of  future  taxable  income   principally  as  a  result  of
discontinuing  the  Old  Video's  Diversified   Products  segment.  A  valuation
allowance  of $679 remains as of June 30, 1998 for state net  operating  losses.
The state  valuation  allowance is provided as a result of  estimates  regarding
future operations for certain subsidiaries.

     Income from  continuing  operations  increased  3.7% to $1,699 in 1998 from
$1,638 in 1997 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.

     In connection with the Merger, the Company refinanced  substantially all of
Old Video's and IPL's long-term indebtedness (excluding convertible subordinated
debt, Old Video's mortgage  payable,  note payable to Cognitive  Communications,
Inc. and obligations  under capital leases),  including lines of credit,  with a
$33,000  term  loan  and  a  $17,000  revolving  line  of  credit  (the  "Credit
Agreement").  The facility  bears  interest at: (i) the lenders prime rate minus
1.00% or (ii)  LIBOR  plus a number of basis  points  based  upon the  Company's
leverage  ratio  (funded debt divided by EBITDA  (defined as operating  earnings
before  interest,  taxes,  depreciation and  amortization).  The Company has the
option to choose the applicable interest rate.  Principal payments of $1,000 per
quarter in respect to the term loan portion of the facility  were due  beginning
December 31, 1997.  Such quarterly  principal  payments  increased to $1,250 per
quarter on December 31, 1998 and then increase to $1,750 per quarter on December
31, 1999 and then further  increase to $2,000 per quarter on September  30, 2001
with a balloon  payment  of $3,750 in  respect  of the term loan  portion of the
facility due on September 30, 2002. The facility is secured by all of the assets
of the Company and its  subsidiaries.  No significant gain or loss resulted from
the refinancing.  The facility contains covenants,  which require the Company to
maintain certain financial ratios,  prohibit  dividends and similar payments and
restrict the incurrence of other indebtedness. The facility is guaranteed by all
of the Company's subsidiaries.

     In July and May 1999, the lenders amended the credit agreement, pursuant to
which certain  covenants and levels were changed.  Without these  amendments the
Company would be in default of certain requirements of its Credit Agreement.

     At June 30, 1999, the Company's outstanding  indebtedness was approximately
$50,114 including $12,700 under the revolving credit facility. At June 30, 1999,
the weighted  average  interest  rate was  approximately  8.55% on the Company's
outstanding  indebtedness.  The remainder of the facility (approximately $3,509)
will be available for future working capital  requirements and general corporate
purposes.

     The 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 still remain outstanding after the refinancing described above. 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 July 1998, the Company opened an additional  13,000 square foot facility
in Burbank,  California.  The new facility  provides  technical and distribution
services to international television program originators and distributors;  such
services  will  include  standards  conversion  and  international  duplication.
Management  believes that the facility will give the Company an  opportunity  to
recapture business lost to those of its competitors operating in California,  as
well  as to  attract  additional  customers  located  on the  West  Coast.  This
expansion required approximately $5,200 in cumulative capital expenditures.  The
principle  source  of  the  capital  expenditures  and  operating  funds  was  a
combination of internally generated funds and secured equipment financing.


     Cash Flow from Operating Activities.  For the year ended June 30, 1999, net
cash  provided in  operating  activities  was $2,567  primarily  resulting  from
earnings before interest,  taxes,  depreciation  and amortization  ("EBITDA") of
$12,027 which was offset by increases in working capital  requirements.  At June
30, 1999, 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,  1998,  net cash  provided in operating  activities  was
$5,536 primarily  resulting from EBITDA of $14,867 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, 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.  Approximately  $2,200 of  additional
equipment was purchased for the new West Coast facility. For the year ended June
30, 1998, the Company used $6,669 for investing activities, consisting of $6,448
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, 1999, cash
provided by financing  activities,  net of repayments of borrowings 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.  The Company repaid $17,678 of borrowings primarily
in connection  with the revolving line of credit and the  refinancing  described
above. For the year ended June 30, 1998, cash provided by financing  activities,
net of repayment of long-term  indebtedness,  was $2,235.  Such amount primarily
consisted of $33,000 in proceeds from the senior secured term loan and $2,600 in
net borrowings  under the revolving line of credit  described above. The Company
repaid  $29,685 of  borrowings  primarily  in  connection  with the  refinancing
described above and $3,787 of scheduled repayments of long term debt.

     The  foregoing  activities  resulted  in a net  decrease in cash of $687 in
1999.  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.

 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;  and  the  loss  of key
personnel; and the loss of key customers.

Impact of Year 2000

     The Company is  currently  working to resolve the  potential  impact of the
year 2000 on the  processing  of  data-sensitive  information  by the  Company's
computerized  information  systems.  The year  2000  problem  is the  result  of
computer  programs  being written using two digits  (rather than four) to define
the  applicable  year.  Any of the Company's  programs that have  time-sensitive
software  may  recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations  or system failure.  The Company has
conducted a review of its  computer  information  systems and its  technological
operating  equipment  to identify the systems that could be affected by the year
2000 compliance issue.

     Below are summaries of the review areas:

     Business  Systems:   All  systems  supported  by  the  Company's  corporate
information  group and all programs used in operations have been  inventoried as
part of the year 2000  readiness.  Inventoried  programs  and systems  have been
reviewed and  modified to be year 2000  compliant.  The Company  uses  purchased
software programs for a variety of functions, including general ledger, accounts
payable,  and accounts  receivable  accounting packages as well as comprehensive
facility management  packages.  These programs are generally year 2000 compliant
or have been  repaired or  upgraded  and are now year 2000  compliant.  Software
and/or computer systems not currently compliant will be upgraded during calendar
1999  under  existing  maintenance  and  other  agreements  and  through  normal
replacement programs currently in place.

     The Company has moved to its fiscal 2000 accounting  calendar commencing on
July 1, 1999 without incident.

     Facilities:  The  scope  of  the  facilities  project  includes  facilities
management  systems (for  example,  temperature,  humidity,  automatic  toilets)
building access,  un-interruptable  power systems and elevators.  The facilities
review was  substantially  complete at June 1999, with no significant  year 2000
issues noted.

     Equipment  used in  operations:  This review area  includes the audio video
equipment,  switching equipment, graphics and special effects equipment, film to
tape transfer and color correction  equipment,  standards conversion  equipment,
transmission and reception  equipment and computer added design  equipment.  The
operations  equipment project was  substantially  complete at June 1999, with no
significant  year  2000  issues  noted.  A  review  of the  Company's  equipment
containing  embedded  microprocessors  or other technology has not revealed year
2000   compliance   issues.   Operation  of  this  equipment  is  generally  not
time-sensitive  and, if necessary,  equipment  settings can be adjusted  without
posing any significant operational problems for the Company.

     Suppliers'  Products and Readiness:  The company has reviewed its suppliers
and identified key  suppliers.  The key suppliers have been contacted  regarding
their year 2000 readiness.  Based on responses,  cost and the critical nature of
the material involved contingency planning is being developed. More specifically
the inventory levels of blank tape and consumables may be increased. The Systems
and Products Group's  purchasing  department  along with the systems'  engineers
have been incorporating year 2000 readiness in their purchase orders.

     Company  Services  and  Products:  The Company  considers  it services  and
manufactured  products to be year 2000 ready. Most of the Company's services and
manufactured  products  have no date  function and  therefore  have no year 2000
compliance  issues. The Systems and Products Group is dependent on the year 2000
readiness of its suppliers and their products.

<PAGE>

     The Company's remediation efforts are substantially  complete and the focus
is now being directed toward  contingency  planning.  Management is confident in
the Company's  ability to transition to the year 2000 without  incident but will
establish  contingency  plans in the event of unforeseen  failures.  The Company
reasonably  believes  that its most likely  worst-case  year 2000  impact  would
relate to problems with systems of suppliers and customers  rather than with the
Company's  internal  systems or products.  The Company has less control over the
year 2000 assessment and  remediation  efforts of third parties and believes the
risks are greatest with infrastructure providers (power, water and communication
services),  logistics  elements  (transportation  and customs) and  suppliers of
materials and services.

     Based on these reviews,  costs of addressing remaining year 2000 compliance
issues are not  expected to exceed $25 and costs  incurred  to date  approximate
$50.

     To date,  the  Company  has not  identified  any  system  which  presents a
material  risk of not being year 2000  ready in a timely  fashion or for which a
suitable  alternative cannot be implemented.  As the Company progresses with its
year  2000  conversion,  however,  it may  identify  systems  that do  present a
material risk of year 2000 disruption.  Such disruption may include, among other
things, the inability to process transactions or information,  to record, access
data,  or engage in similar  normal  business  activities.  If the Company,  its
customers  or vendors are unable to resolve such  processing  issues in a timely
manner, it could result in a material financial risk.  Accordingly,  the Company
will devote the necessary  resources to resolve all significant year 2000 issues
in a timely manner.

     The discussion above contains certain forward-looking statements. The costs
of the year 2000 conversion, the date which the Company has set to complete such
conversion,  and possible risks associated with the year 2000 issue are based on
the Company's  current estimates and are subject to various  uncertainties  that
could  cause  the  actual  results  to  differ  materially  from  the  Company's
expectations.  Such  uncertainties  include,  among  others,  the success of the
Company in identifying systems that are not year 2000 compliant,  the nature and
amount of  programming  required  to  upgrade or  replace  each of the  affected
systems,  the  availability  of  qualified  personnel,   consultants  and  other
resources, and the success of the year 2000 conversion efforts of others.

<PAGE>

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, 1998 and 1999.

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 a five year interest
rate hedge agreement with a total notional principal amount of $33,000 to manage
interest costs associated with changing interest rates. This agreement  converts
underlying  variable rate debt based on LIBOR under the  Company's  term loan to
fixed rate debt with an  interest  rate of 7.58%  plus a number of basis  points
based upon the Company's leverage ratio.

     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>


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

            1998                                                                                                         Fair Value
   (dollars in thousands)           1999          2000           2001           2002          2003          Total           1998
----------------------------- -- ----------- -- ---------- --- ---------- -- ----------- -- ---------- -- ---------- --- -----------
<S>                              <C>            <C>            <C>           <C>            <C>           <C>            <C>
Long-term debt including
      current portion
   Fixed rate............        $   5,350       $  7,052       $   7,568     $  9,970       $   6,366      $  36,306     $  36,338
   Average interest rate.             8.30%          8.29%           8.26%        8.00%           8.00%

Subordinated Debt
   Fixed rate............        $   ---         $   ---        $   2,117     $  2,117       $   2,116      $   6,350     $   5,442
   Average interest rate.             8.34%          8.34%           8.34%        8.34%           8.34%

Interest rate swap
   Pay variable/receive
   fixed.................        $   4,750       $  6,500       $   7,000     $  8,000       $   3,750      $  30,000     $    (638)
   Average pay rate......             7.58%          7.58%           7.58%        7.58%           7.58%
   Average receive rate..             6.66%          6.66%           6.66%        6.66%           6.66%
</TABLE>

<PAGE>

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.


                                    PART III

ITEMS 10, 11, 12, AND 13

     The  information  called  for by Items 10,  11, 12 and 13 of this Form 10-K
will be included in the Company's 1999 Proxy  Statement  which will be filed not
later than October 28, 1999.

<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  public  accountants  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 Form of  Services  and Option  Agreement  between  Holdings  and Kenneth F.
     Gorman.  (incorporated  by  reference  to the exhibit  10.25  contained  in
     Amendment No. 3 to Video's  (formerly IPL's)  Registration  Statement filed
     with the SEC on January 10, 1994.)
10.7 Form of Services  and Option  Agreement  between  Holdings  and Terrence A.
     Elkes.  (incorporated  by  reference  to the  exhibit  10.26  contained  in
     Amendment No. 3 to Video's  (formerly IPL's)  Registration  Statement filed
     with the SEC on January 10, 1994.)
10.8 Form  of  Stock  Option  Agreement  between  VSC  and  Kenneth  F.  Gorman.
     (incorporated  by reference to the exhibit 10.27 contained in Amendment No.
     3 to Video's (formerly IPL's) Registration  Statement filed with the SEC on
     January 10, 1994.)
10.9 Form  of  Stock  Option  Agreement  between  VSC  and  Terrence  A.  Elkes.
     (incorporated  by reference to the exhibit 10.28 contained in Amendment No.
     3 to Video's (formerly IPL's) Registration  Statement filed with the SEC on
     January 10, 1994.)
10.10(M) Form of Stock  Option  Agreement  between  the  Company  and Kenneth F.
     Gorman.  (incorporated  by  reference  to the exhibit  10.29  contained  in
     Amendment No. 3 to Video's  (formerly IPL's)  Registration  Statement filed
     with the SEC on January 10, 1994.)
10.11(M) Form of Stock  Option  Agreement  between the  Company and  Terrence A.
     Elkes.  (incorporated  by  reference  to the  exhibit  10.30  contained  in
     Amendment No. 3 to Video's  (formerly IPL's)  Registration  Statement filed
     with the SEC on January 10, 1994.)
10.12(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.)
10.13(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.)
10.14(M) Employment  Agreement dated as of May 4, 1995,  among Big  Picture/Even
     Time Limited, the Company and Barbara D'Ambrogio (incorporated by reference
     to exhibit  number 10.2  contained in the Company's  Current Report on Form
     8-K, dated May 18, 1995).
10.15(M) Employment  Agreement dated as of May 4, 1995,  among Big  Picture/Even
     Time Limited,  the Company and David D'Ambrogio  (incorporated by reference
     to exhibit  number 10.3  contained in the Company's  Current Report on Form
     8-K, dated May 18, 1995).
10.16(M) Employment  Agreement  dated as of May 4,1995,  among Big  Picture/Even
     Time Limited,  the Company and Gregory Letson (incorporated by reference to
     exhibit number 10.4 contained in the Company's  Current Report on Form 8-K,
     dated May 18, 1995).
10.17(M) Employment  Agreement dated as of May 4, 1995,  among Big  Picture/Even
     Time Limited, the Company and Michael Schenkein  (incorporated by reference
     to exhibit number 10.5 contained in the Company's  Current Report Form 8-K,
     dated May 18, 1995).
10.18(M) Employment  Agreement dated as of May 4, 1995,  among Big  Picture/Even
     Time Limited, the Company and Leonard Smalheiser (incorporated by reference
     to exhibit  number 10.6  contained in the Company's  Current Report on Form
     8-K, dated May 18, 1995).
10.19(M) Employment  Agreement dated as of May 4, 1995,  among Big  Picture/Even
     Time  Limited,  the Company and Jane Stuart  (incorporated  by reference to
     exhibit number 10.7 contained in the Company's  Current Report on Form 8-K,
     dated May 18, 1995).
10.20Put/Call  Agreement dated as of May 4, 1995, between Gregory Letson and the
     Company  (incorporated by reference to exhibit number 10.8 contained in the
     Company's Current Report on Form 8-K, dated May 18,1995).
10.21Pledge Agreement, dated as of May 4, 1995, by and among BP Partnership,  ET
     Partnership,  Barbara  D'Ambrogio,  David  D'Ambrogio,  Michael  Schenkein,
     Leonard Smalheiser,  Jane Stuart and the Company (incorporated by reference
     to exhibit  number 10.9  contained in the Company's  Current Report on Form
     8-K, dated May 18, 1995).
10.22Pledge  Agreement,  dated as of May 4, 1995, by and between  Gregory Letson
     and  the  Company  (incorporated  by  reference  to  exhibit  number  10.10
     contained in the Company's Current Report on Form 8-K, dated May 18, 1995).
10.23Escrow  Agreement  dated as of May  4,1995,  by and  among ET  Partnership,
     David D'Ambrogio, Barbara D'Ambrogio, the Company and Cowan, Gold, DeBaets,
     Abrahams & Sheppard,  as Escrow Agent (incorporated by reference to exhibit
     number 10.11  contained in the Company's  Current Report on Form 8-K, dated
     May 18, 1995).
10.24Escrow  Agreement  dated as of May 4,  1995,  by and among BP  Partnership,
     Michael Schenkein,  Leonard  Smalheiser,  Jane Stuart,  Gregory Letson, the
     Company and Cowan,  Gold,  DeBaets,  Abrahams & Sheppard,  as Escrow  Agent
     (incorporated  by  reference  to  exhibit  number  10.12  contained  in the
     Company's Current Report on Form 8-K, dated May 18,1995).
10.25Agreement dated as of June 7,1993,  by and between MTV Latin America,  Inc.
     and The Post Edge,  Inc.  (incorporated  by reference to the exhibit  10.51
     contained in Video's  (formerly  IPL's)  Annual Report on Form 10-K for the
     fiscal year ended July 31, 1995.)
10.26Agreement,  dated  as  of  December  9,  1993,  by  and  between  Discovery
     Communications,  Inc. and The Post Edge, Inc., and Amendment No. 1 thereto.
     (incorporated  by  reference  to the  exhibit  10.52  contained  in Video's
     (formerly  IPL's) Annual Report on Form 10-K for the fiscal year ended July
     31, 1995.)
10.27Amendment No. 1, dated as of September 15, 1995,  to the  Agreement,  dated
     as of June 7, 1993,  by and between MTV Latin  America,  Inc.  and The Post
     Edge,  Inc.  (incorporated  by reference to the exhibit 10.55  contained in
     Video's  (formerly  IPL's)  Annual  Report on Form 10-K for the fiscal year
     ended July 31, 1996.)
10.28Voting  Agreement,  dated as of June 27, 1997,  by and among  International
     Post Limited, Video Services Corporation,  Terrence A. Elkes, The Equitable
     Life  Assurance  Society of the United  States,  Equitable  Deal Flow Fund,
     L.P.,  Louis  H.  Siracusano,   Arnold  P.  Ferolito  and  Donald  H.  Buck
     (incorporated  by  reference  to  exhibit  number  10.58  contained  in the
     Company's Current Report on Form 8-K, dated July 7, 1997).
10.29Asset  Purchase  Agreement  dated as of  January  22,  1997,  by and  among
     Cognitive Communications, Inc., Susan Wiener, Michael Rudnick and Cognitive
     Communications,  LLC  (incorporated  by  reference  to exhibit  number 10.1
     contained in the Company's  Quarterly Report on Form 10-Q for the quarterly
     period ended January 31, 1997).
10.30Agreement,  dated as of January  22,1997,  by and among the Company,  Susan
     Wiener, Michael Rudnick,  Cognitive  Communications,  Inc. and David Leveen
     (incorporated  by  reference  to  exhibit  number  10.2  contained  in  the
     Company's  Quarterly  Report on Form 10-Q for the  quarterly  period  ended
     January 31, 1997).
10.31(M)  Employment  Agreement,  dated as of  January  22,  1997,  by and among
     Cognitive  Communications,  LLC and Susan Wiener (incorporated by reference
     to exhibit number 10.3 contained in the Company's  Quarterly Report on Form
     10-Q for the quarterly period ended January 31, 1997).
10.32(M)  Employment  Agreement,  dated as of  January  22,  1997,  by and among
     Cognitive   Communications,   LLC  and  Michael  Rudnick  (incorporated  by
     reference  to exhibit  number 10.4  contained  in the  Company's  Quarterly
     Report on Form 10-Q for the quarterly period ended January 31, 1997).
10.33(M)  Employment  Agreement,  dated  as of  January  22,1997,  by and  among
     Cognitive  Communications,  LLC and David Leveen (incorporated by reference
     to exhibit number 10.5 contained in the Company's  Quarterly Report on Form
     10-Q for the quarterly period ended January 31, 1997).
10.34Put  Agreement,  dated as of  January  22,  1997,  by and  among  Cognitive
     Communications,  LLC, the Company,  Susan Wiener, Michael Rudnick and David
     Leveen  (incorporated  by reference to exhibit number 10.6 contained in the
     Company's  Quarterly  Report on Form 10-Q for the  quarterly  period  ended
     January 31, 1997).
10.35Sale  Option  Agreement,  dated  as of  January  22,  1997,  by  and  among
     Cognitive  Communications,  LLC and Susan Wiener (incorporated by reference
     to exhibit number 10.7 contained in the Company's  Quarterly Report on Form
     10-Q for the quarterly period ended January 31, 1997).
10.36Sale  Option  Agreement,  dated  as of  January  22,  1997,  by  and  among
     Cognitive   Communications,   LLC  and  Michael  Rudnick  (incorporated  by
     reference  to exhibit  number 10.8  contained  in the  Company's  Quarterly
     Report on Form 10-Q for the quarterly period ended January 31, 1997).
10.37Sale  Option  Agreement,  dated  as of  January  22,  1997,  by  and  among
     Cognitive  Communications,  LLC and David Leveen (incorporated by reference
     to exhibit number 10.9 contained in the Company's  Quarterly Report on Form
     10-Q for the quarterly period ended January 31, 1997).
10.38(M) Incentive Compensation Agreement,  dated as of January 22, 1997, by and
     among  Cognitive  Communications,  LLC, Susan Wiener,  Michael  Rudnick and
     David Leveen (incorporated by reference to exhibit number 10.10.  contained
     in the Company's  Quarterly  Report on Form 10-Q for the  quarterly  period
     ended January 31, 1997).
10.39(M) Form of Incentive Option Agreement,  undated,  by and between Cognitive
     Communications,  LLC and  Optionee  (incorporated  by  reference to exhibit
     number 10.11 contained in the Company's  Quarterly Report on Form I O-Q for
     the quarterly period ended January 31, 1997).
10.40(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).
10.41Stock  Resale  Agreement,  dated as of  August  27,  1997 by and  among the
     Company.  Louis H.  Siracusano,  Donald  H.  Buck and  Arnold  P.  Ferolito
     (incorporated  by reference  to exhibit  10.70  contained in the  Company's
     Annual Report on Form 10-K for the fiscal year ended July 31, 1997.)
10.42Registration  Rights Agreements,  dated as of August 26, 1997, by and among
     the Company,  Louis H.  Siracusano,  Donald H. Buck and Arnold P.  Ferolito
     (incorporated  by reference  to exhibit  10.71  contained in the  Company's
     Annual Report on Form 10-K for the fiscal year ended July 31, 1997).
10.43(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).
10.44(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).
10.45Losses  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).
10.46(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).
10.47(M)  Agreement,  dated of August 26,  1997,  by and between the Company and
     Arnold P. Ferolito (incorporated by reference to exhibit 10.76 contained in
     the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
     1997).
10.48(M) Agreement  dated as of October 17, 1997, by and between the Company and
     Steven G. Crane.  (incorporated  by reference to exhibit 10.78 contained in
     the Company's  Quarterly Report on Form 10-Q for the quarterly period ended
     September 30, 1997.)
10.49Credit Agreement,  dated as of August 27, 1997, by and among Video Services
     Corporation,  VSC MAL Corp., the Lenders party thereto and KeyBank National
     Association.  (incorporated  by reference to exhibit 10.79 contained in the
     Company's  Quarterly  Report on Form 10-Q for the  quarterly  period  ended
     September 30, 1997.)
10.50Security Agreement dated as of August 27, 1997, by and among Video Services
     Corporation  and  KeyBank  National  Association.   Guaranty  and  Security
     Agreement,  dated as of August  27,  1997 by and among the  Lender's  party
     thereto and KeyBank  National  Association.  (incorporated  by reference to
     exhibit 10.80 contained in the Company's  Quarterly Report on Form 10-Q for
     the quarterly period ended September 30, 1997.)
10.51Amendment  No.1  and  Waiver  No.1,  dated  July  21,  1998  to the  Credit
     Agreement,  dated as of  August  27,  1997 by and among  the  Company,  the
     Lenders party thereto and KeyBank National  Association,  as the Issuer and
     as Agent.  (incorporated  by  reference to exhibit  10.59  contained in the
     Company's  Annual  Report on Form 10-K for the  fiscal  year ended June 30,
     1998.)
10.61Amendment  No. 2, dated May 12, 1999 to the Credit  Agreement,  dated as of
     August 27, 1997 by and among the  Company,  the Lenders  party  thereto and
     KeyBank National Association, as the Issuer and as Agent.
10.62Engagement  letter,  dated August 13, 1999,  by and between the Company and
     Lazard Freres & Co. LLC.
10.63(M)Form  of Video  Services  Corporation  1997  Long Term  Incentive  Plan.
     (incorporated  by  reference  to exhibit  number 4.1  contained  in the the
     Company's current report on Form S-8, dated July 27, 1999.)
10.64(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.)
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.

-----------------
+    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: September 24, 1999            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          9/24/99
Louis H. Siracusano          and Director (Principal Executive
                             Officer)

/s/ Steven G. Crane          Vice President and                          9/24/99
Steven G. Crane              Chief Financial Officer
                            (Principal Financial Officer)

/s/ Michael E. Fairbourne    Vice President-Administration               9/24/99
Michael E. Fairbourne       (Principal Accounting Officer)


/s/ Terrence A. Elkes        Chairman of the Board of Directors          9/24/99
Terrence A. Elkes


/s/ Robert H. Alter          Director                                    9/24/99
Robert H. Alter


/s/ Martin Irwin             Director                                    9/24/99
Martin Irwin


/s/ Frank Stillo             Director                                    9/24/99
Frank Stillo


/s/ Raymond L. Steele        Director                                    9/24/99
Raymond L. Steele

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE






                                                                 Page Number

REPORTS OF INDEPENDENT AUDITORS .....................................F-2

FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of
June 30, 1998 and 1999 ..............................................F-3

Consolidated Statements of Operations for the
years ended June 30, 1997, 1998 and 1999 ............................F-4

Consolidated Statements of Stockholders'
Equity for the years ended June 30, 1997,
1998 and 1999 .......................................................F-5

Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1998 and 1999 ............................F-6

Notes to Consolidated Financial Statements ..........................F-7 to F-26





SUPPLEMENTAL SCHEDULE:

II. Valuation and Qualifying Accounts ..............................F-27

















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, 1998 and 1999,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended June 30, 1999.  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  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Video Services  Corporation  and  subsidiaries as of June 30, 1998 and 1999, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period ended June 30, 1999, in conformity  with generally
accepted  accounting  principles.  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

White Plains, New York
September 10, 1999
















                                       F-2

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      As of June 30, 1998 and June 30, 1999
                             (dollars in thousands)

<TABLE>
<CAPTION>


                                                                     June 30,                     June 30,
ASSETS                                                                 1998                         1999
                                                                   --------------              ---------------
Current assets:
<S>                                                                <C>                         <C>
       Cash and cash equivalents                                   $       1,492               $          805
       Accounts receivable, net                                           14,169                       14,876
       Inventories                                                         1,083                          694
       Costs and estimated earnings in excess of billings on
          uncompleted contracts                                              187                          934
       Deferred income taxes                                               1,535                        1,300
       Prepaid expenses and other current assets                             907                          685
                                                                   --------------              ---------------
               Total current assets                                       19,373                       19,294

Fixed assets, net                                                         36,590                       39,589
Excess of cost over fair value of net assets acquired, net                22,289                       21,858
Receivable from affiliates                                                    42                            -
Deferred income taxes                                                      1,667                        2,950
Other assets                                                               1,899                        1,627
                                                                   --------------              ---------------
               Total assets                                        $      81,860               $       85,318
                                                                   ==============              ===============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable and accrued expenses                       $       8,443               $        9,248
       Billings in excess of costs and estimated
         earnings on uncompleted contracts                                 3,290                          985
       Current portion of long-term debt                                   5,338                        7,702
       Income taxes payable                                                  708                          691
       Other current liabilities                                           3,881                        3,105
                                                                   --------------              ---------------
               Total current liabilities                                  21,660                       21,731

Long-term debt                                                            30,968                       36,760
Subordinated debt                                                          5,442                        5,652
Other liabilities                                                          3,065                        2,282
Payable to affiliates                                                          -                           46
                                                                   --------------              ---------------
               Total liabilities                                          61,135                       66,471
                                                                   --------------              ---------------

Commitments and contingencies

Stockholders' equity:
       Preferred stock:   $.01 par value - 3,000,000 shares
              authorized;  no shares outstanding at June 30, 1998
              and June 30, 1999                                                -                            -
       Common stock: $.01 par value, 25,000,000 share authorized,
              and 13,264,307 shares issued  and outstanding
              at June 30, 1998 and June 30, 1999                             132                          132
       Additional paid-in-capital                                         21,196                       21,218
       Retained deficit                                                     (603)                      (2,503)
                                                                   --------------              ---------------
               Total stockholders' equity                                 20,725                       18,847
                                                                   --------------              ---------------
               Total liabilities and stockholders' equity          $      81,860               $       85,318
                                                                   ==============              ===============
</TABLE>













                             See accompanying notes





                                       F-3

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                For the Years Ended June 30, 1997, 1998 and 1999
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>


                                                                            1997                  1998                  1999
                                                                       -------------          ------------          -------------
<S>                                                                    <C>                    <C>                   <C>
Revenues:
     Sales                                                             $    15,130            $    16,642           $     23,965
     Services                                                                9,979                 54,364                 63,796
     Rentals                                                                 2,501                  1,989                  1,650
                                                                       -------------          ------------          -------------
                                                                            27,610                 72,995                 89,411

Costs:
     Costs of sales                                                         11,641                 12,537                 20,060
     Costs of services                                                       4,822                 28,062                 36,251
     Costs of rentals                                                          809                    576                    590
                                                                       -------------          ------------          -------------
                                                                            17,272                 41,175                 56,901

Depreciation                                                                 1,807                  7,109                  8,743
                                                                       -------------          ------------          -------------
Gross profit                                                                 8,531                 24,711                 23,767

Selling, general and administrative expenses                                 6,764                 17,170                 20,205

Merger related costs                                                           -                      -                      331

Amortization                                                                    17                    849                  1,093
                                                                       -------------          ------------          -------------

Operating income from continuing operations                                  1,750                  6,692                  2,138

Other (expense) income:

        Interest expense                                                      (517)                (3,619)                (4,149)

        Interest and other income                                              592                    217                     53
                                                                       -------------          ------------          -------------

Income (loss) before income taxes and discontinued operations                1,825                  3,290                 (1,958)

Income tax expense (benefit)                                                   187                  1,591                    (58)
                                                                       -------------          ------------          -------------

Income (loss) from continuing operations                                     1,638                  1,699                 (1,900)

Discontinued operations:
        Loss from operations of the Consulting Services segment
        (less applicable income tax benefit of $380, $73 and $--)             (776)                  (140)                  -

        Estimated loss on disposal of Diversified Products and
         Consulting Services segments (less applicable income tax
         benefit of $447, $1,147 and $--)                                     (912)                (1,720)                  -
                                                                       -------------          ------------          -------------
Net loss                                                               $       (50)           $      (161)          $     (1,900)
                                                                       =============          ============          =============
Earnings per share:
   Basic:
       Income (loss) from continuing operations                        $      0.23            $      0.14           $      (0.14)
       Loss from discontinued operations                                     (0.24)                 (0.15)                  -
                                                                       -------------          ------------          -------------
       Net loss                                                        $     (0.01)           $     (0.01)          $      (0.14)
                                                                       =============          ============          =============
   Diluted:
       Income (loss) from continuing operations                        $      0.23            $      0.14           $      (0.14)
       Loss from discontinued operations                                     (0.24)                 (0.15)                  -
                                                                       -------------          ============          =============
       Net loss                                                        $     (0.01)           $     (0.01)          $      (0.14)
                                                                       =============          ============          =============
Non cash dividend per share                                            $       -              $      0.22           $       -
                                                                       =============          ============          =============
Weighted average number of shares outstanding for basic and diluted
  earnings per share                                                     7,011,349             12,276,278             13,264,307
                                                                       =============          ============          =============
</TABLE>



                             See accompanying notes

                                       F-4

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                For the Years Ended June 30, 1997, 1998 and 1999
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                 Common       Common                 Retained
                                                  Stock        Stock     Paid-In     Earnings
                                                 Shares       Amount     Capital     (Deficit)     Total
                                              ---------------------------------------------------------------

<S>             <C> <C>                        <C>            <C>       <C>         <C>         <C>
Balance at June 30, 1996                        2,678,162     $ 103     $    291    $ 2,261     $ 2,655

Issuance of consultant compensatory
  stock options                                         0         0          128          0         128

Net loss                                                0         0            0        (50)        (50)
                                              ---------------------------------------------------------------
Balance at June 30, 1997                        2,678,162       103          419      2,211       2,733

Merger with IPL                                10,560,145        29       21,766          0      21,795

Contribution of real estate affiliates                  0         0       (1,263)         0      (1,263)

Issuance of stock options                               0         0          199          0         199

Non cash dividend to shareholders                       0         0            0     (2,653)     (2,653)

Stock related compensation                         26,000         0           75          0          75

Net loss                                                0         0            0       (161)       (161)
                                              ---------------------------------------------------------------
Balance at June 30, 1998                       13,264,307       132       21,196       (603)     20,725

Issuance of independent contractors

  compensatory stock options                            0         0           22          0          22

Net loss                                                0         0            0     (1,900)     (1,900)

                                              ---------------------------------------------------------------
Balance at June 30, 1999                       13,264,307     $ 132     $ 21,218    $(2,503)    $18,847
                                              ===============================================================
</TABLE>























                             See accompanying notes




                                       F-5

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Years Ended June 30, 1997, 1998 and 1999
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                                             1997                   1998                  1999
                                                                         ------------           ------------          ------------

Operating Activities
<S>                                                                      <C>                   <C>                   <C>
Net loss                                                                 $       (50)          $       (161)          $    (1,900)
Adjustments to reconcile net income to net cash provided
  by continuing operations:
     Depreciation                                                              2,015                  7,109                 8,743
     Amortization                                                                 18                    849                 1,093
     Issuance of independent contractor compensatory stock options               128                    -                      22
     Loss on disposal of discontinued operations                                 823                    481                     0
     Loss (gain) on sale of equipment                                             27                   (164)                 (112)
     Deferred income taxes                                                      (103)                   537                (1,048)
     Provision for bad debts                                                      76                    166                    67
     (Increase) decrease in operating assets:
       Accounts receivable                                                    (1,057)                 1,156                  (751)
       Inventories                                                              (404)                   107                   389
       Costs and estimated earnings in excess of billings on
         uncompleted contracts                                                    53                    176                  (747)
       Prepaid expenses and other assets                                      (1,663)                   (42)                  169
     Increase (decrease) in operating liabilities:
       Accounts payable and accrued expenses                                   2,674                 (7,581)                  805
       Billings in excess of costs and estimated earnings on
         uncompleted contracts                                                  (459)                 2,828                (2,305)
       Income taxes payable                                                       -                      -                    (17)
       Other liabilities                                                      (1,007)                    75                (1,841)
                                                                         ------------          -------------          ------------
Net cash provided by continuing operations                                     1,071                  5,536                 2,567


Investing Activities
Additions to fixed assets                                                     (3,053)                (6,448)              (11,619)
Proceeds from sale of fixed assets                                                99                    168                   280
(Increase) decrease in receivable from affiliates                                562                   (389)                  (16)
                                                                         ------------          -------------          ------------
Net cash used in investing actvities                                          (2,392)                (6,669)              (11,355)


Financing Activities
Proceeds from subordinated debt                                                  -                      158                   210
Proceeds from long-term borrowing                                              4,159                 54,561                25,569
Repayments of borrowings                                                      (2,968)               (52,484)              (17,678)
                                                                         ------------          -------------          ------------
Net cash provided by financing activites                                       1,191                  2,235                 8,101


Net increase (decrease) in cash                                                 (130)                 1,102                  (687)
Cash and cash equivalents, beginning of year                                     520                    390                 1,492
                                                                         ------------          ------------          -------------
Cash and cash equivalents, end of year                                   $       390           $      1,492           $       805
                                                                         ============          ============          =============
</TABLE>





                             See accompanying notes






                                       F-6

<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          As of June 30, 1998 and 1999
              and for the years ended June 30, 1997, 1998 and 1999
                (dollars in thousands, except for 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.  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 technical and distribution services to distributors
of television programming.  The Systems and Products segment designs,  engineers
and produces  advanced video facilities for the broadcast and cable  television,
post-production 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,  producers
of television programming, television advertising and other programming content.

     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 $1,805 and $915
at June 30, 1998 and June 30, 1999, respectively.  The Company has made payments
of $614 and $890 against reserve in fiscal 1998 and 1999, respectively.  At June
30, 1999 it was estimated that  approximately $591 of such expenditures would be
made in fiscal  2000,  $196 in fiscal  2001,  $128 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
years  ended  June 30,  1997 and 1998,  as if the Merger  and  Contribution  had
occurred  as of July 1,  1996  and July 1,  1997,  respectively.  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>

                                                                   1997               1998
                                                              ---------------    ---------------
<S>                                                           <C>                         <C>
     Revenues......................................           $        78,430    $        80,386
     Income from continuing operations.............                     1,955              1,743
     Income from continuing operations per share...                      0.15               0.13
     Net loss......................................                      (182)              (176)
     Net loss per share............................           $         (0.01)   $         (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,  1997 is
approximately  $1,688 of loss from discontinued  operations  relating to certain
subsidiaries (Diversified Products segment) of Old Video which were discontinued
in  connection  with  the  Merger  and  approximately  $449  of  loss  from  the
discontinued  operations  relating to the Consulting  Services segment which was
previously  owned by IPL.  Also  included  in the year  ended  June 30,  1997 is
approximately  $500 of other income pertaining to partial  consideration for the
sale of a radio  station in fiscal  1991.  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 at  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.....................3-10 years
                  Equipment held for rental...................3- 7 years
                  Furniture and fixtures......................3-10 years
                  Leasehold improvements......................3-14 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.

Goodwill

     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,  1997,  1998  and 1999 was $14,  $742 and  $984,  respectively.  Accumulated
amortization  at June 30, 1998 and 1999 was $847 and $1,843,  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
$128,  $310,  and  $406  for the  years  ended  June 30,  1997,  1998 and  1999,
respectively.








                                       F-9


<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Asset Impairment

     In March 1995, the Financial  Accounting  Standards Board issued  Statement
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which  addresses the accounting and reporting for the
impairment of long-lived assets, certain identifiable intangibles,  and goodwill
related  to those  assets  to be held and used  and for  long-lived  assets  and
certain  identifiable  intangibles  to be disposed  of. The Company  adopted the
provisions of this new standard effective August 1, 1996. The effect of adoption
was not material to the Company's financial condition,  results of operations or
cash flow.

Long-Lived Assets

     Long-lived  assets,  including  intangibles,  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, 1998 and 1999 are 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 line of credit 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.

     The Company  entered  into an  interest-rate  swap  agreement to modify the
interest characteristics of its outstanding debt (see Note 9). The interest-rate
swap agreement is designated with all or a portion of the principal  balance and
term of a specific  debt  obligation.  This  agreement  involves 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 are based.  The  differential  to be paid or received as
interest  rates change is 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 is 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 are not recognized in the financial
statements.  The fair value is the amount at which the swap  agreement  could be
settled based on quotes provided by counterparty.

     Gains and losses on  terminations  of  interest-rate  swap  agreements  are
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.
In the event of the early  extinguishment  of a designated debt obligation,  any
realized or unrealized  gain or loss from the swap would be recognized in income
coincident with the extinguishment gain or loss.






                                      F-10


<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



     The following table presents the carrying amounts and estimated fair values
of material financial instruments used by the Company in the normal cause of its
business.
<TABLE>
<CAPTION>

                                                                      1998                              1999

                                                           Carrying            Fair           Carrying           Fair
                                                            Amount            Value            Amount           Value
                                                        ----------------- ---------------- ---------------- ----------------
<S>                                                         <C>              <C>               <C>             <C>
             Long-term debt.........................        $    36,306      $   36,338          $  44,462        $  44,476
             Off - balance sheet financial instruments:
                Unrealized loss on swap agreement...        $      ---       $     (638)         $   ---          $    (398)
</TABLE>

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.  The Company  had sales to one  Systems and  Products
segment  customer in 1997 in excess of 10% of  consolidated  revenues.  Sales to
such customers aggregated 15% of 1997 revenues.

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.
























                                      F-11
<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


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

                                                                            (In Thousands)
                                                              -------------------------------------------

                                                                 1997            1998           1999
                                                              -----------     -----------    -----------
Amounts paid for:

<S>                                                             <C>             <C>            <C>
     Interest.....................................            $      517      $    3,325     $    3,733
                                                              -----------     -----------    -----------
     Income taxes.................................            $    1,300      $      420     $      746
                                                              -----------     -----------    -----------

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>

New Accounting Standards

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 128,  Earnings  per Share.  Statement  128
replaced the previously  reported  primary and fully diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible  securities.  Diluted  earnings  per share are very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented,  and where  necessary,  restated to
conform to the Statement 128 requirements.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  131  "Disclosures  about  Segments  of an
Enterprise and Related  Information"  which is required to be adopted for fiscal
years beginning after December 15, 1997.  Statement No. 131 requires the Company
to disclose revenues, earnings and other financial information pertaining to the
business  segments  by which the  Company is  managed,  as well as what  factors
management used to determine these segments.  The Company has adopted  Statement
131 for all periods presented.

     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, 1999.  The  Statement
permits early  adoption as of the beginning of any fiscal  quarter.  The Company
expects to adopt the new Statement  effective  July 1, 1999.  The Statement will
require the company to recognize all derivatives,  which currently consist of an
interest  rate swap 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 has not yet determined what the
effect of Statement  133 will be on their  results of  operations  and financial
position of the Company.


                                      F-12

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


Note 3 - Accounts Receivable
<TABLE>
<CAPTION>

                                                                          June 30,               June 30,
                                                                            1998                   1999
                                                                     -------------------    -------------------

<S>                                                                   <C>                    <C>
Accounts receivable, trade..................................          $        12,579        $        13,750
Contracts receivable billed:
     Uncompleted contracts..................................                    2,031                    702
     Completed contracts....................................                      738                  1,453
                                                                     -------------------    -------------------
                                                                               15,348                 15,905
Less:  Allowance for doubtful accounts
           and volume discounts ............................                    1,179                  1,029
                                                                     -------------------    -------------------
                                                                      $        14,169        $        14,876
                                                                     ===================    ===================
</TABLE>

Note 4 - Inventories

Inventories are summarized as follows:
<TABLE>
<CAPTION>

                                                                         June 30,               June 30,
                                                                           1998                   1999
                                                                    -------------------    -------------------
<S>                                                                  <C>                   <C>
System components and equipment, net of
  obsolescence allowance of $671 and $676...................          $           569       $            355
Tape stock..................................................                      514                    339
                                                                    -------------------    -------------------
                                                                      $         1,083       $            694
                                                                    ===================    ===================
</TABLE>

Note 5 - Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>

                                                                          June 30,               June 30,
                                                                            1998                   1999
                                                                    -------------------    -------------------

<S>                                                                   <C>                    <C>
Costs incurred on uncompleted contracts to date.............          $         8,702        $         7,808
Estimated earnings to date..................................                    2,380                  1,483
                                                                    -------------------    -------------------
                                                                               11,082                  9,291
Less:  billings to date.....................................                   14,185                  9,342
                                                                    -------------------    -------------------
Billings in excess of costs and estimated
  earnings on uncompleted contracts.........................          $        (3,103)       $           (51)
                                                                    ===================    ===================
</TABLE>


Included in accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>

                                                                          June 30,               June 30,
                                                                            1998                   1999
                                                                    -------------------    -------------------
<S>                                                                   <C>                    <C>
Costs and estimated earnings in excess of
  billings on uncompleted contracts.........................          $           187        $           934
Billings in excess of costs and estimated
  earnings on uncompleted contracts.........................                   (3,290)                  (985)
                                                                    -------------------    -------------------
                                                                      $        (3,103)       $           (51)
                                                                    ===================    ===================
</TABLE>


                                      F-13


<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)




Note 6 - Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>

                                                                         June 30,               June 30,
                                                                           1998                   1999
                                                                     ------------------     ------------------

<S>                                                                   <C>                    <C>
Prepaid expenses............................................          $           612        $           413
Other.......................................................                      295                    272
                                                                     ------------------     ------------------
                                                                      $           907        $           685
                                                                     ==================     ==================
</TABLE>

Note 7 - Fixed Assets

Fixed assets, at cost, summarized by major categories consist of the following:
<TABLE>
<CAPTION>

                                                                        June 30,               June 30,
                                                                          1998                   1999
                                                                     -------------------    -------------------
<S>                                                                   <C>                    <C>
Machinery and equipment.....................................          $        38,868        $        44,482
Leasehold improvements......................................                   11,195                 12,389
Furniture and fixtures......................................                    2,028                  2,222
Transportation equipment....................................                      281                    270
Building....................................................                    2,199                  2,199
Land........................................................                    1,967                  1,967
Equipment under capital lease...............................                    1,440                  5,256
                                                                     -------------------    -------------------
                                                                               57,978                 68,785
Less:  accumulated depreciation, including
           accumulated amortization for
           equipment under capital lease....................                   21,388                 29,196
                                                                     -------------------    -------------------
                                                                      $        36,590        $        39,589
                                                                     ===================    ===================
</TABLE>


Note 8 - Other Current Liabilities

Other current liabilities consist of the following:
<TABLE>
<CAPTION>

                                                                         June 30,               June 30,
                                                                           1998                   1999
                                                                    -------------------    -------------------
<S>                                                                   <C>                    <C>
Wages payable...............................................          $         1,874        $         1,883
Other.......................................................                    2,007                  1,222
                                                                    -------------------    -------------------
                                                                      $         3,881        $         3,105
                                                                    ===================    ===================
</TABLE>








                                      F-14


<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Note 9 - Long-Term Debt
<TABLE>
<CAPTION>

                                                                         June 30,               June 30,
                                                                           1998                   1999
                                                                    -------------------    -------------------
<S>                                                                 <C>                    <C>
Senior secured term loan....................................        $          30,000      $          25,250
Senior secured revolving credit loan........................                    2,600                 12,700
Mortgages payable to credit institution
  bearing interest at 8.95% - prime (8.50% and 7.75% at
  June30, 1998 and June 30, 1999, respectively) plus 1%,
  collateralized by fixed assets with net book value at $2,446
  and $2,395................................................                     2,426                  2,209
Capitalized lease obligations...............................                     1,280                  4,303
                                                                    -------------------    -------------------
                                                                                36,306                 44,462
Less:  current maturities...................................                     5,338                  7,702
                                                                    -------------------    -------------------
                                                                    $           30,968     $           36,760
                                                                    ===================    ===================
</TABLE>

     In connection  with the Merger,  the Company  refinanced  all IPL's and Old
Video's long-term indebtedness (excluding capital lease obligations, Old Video's
mortgage  payable,  IPL's  subordinated debt and IPL's note payable to Cognitive
Communications,  Inc.) including lines of credit, with a $33,000 term loan and a
$17,000 revolving line of credit.

     Senior Secured  Long-Term  Debt - The Company  established a $33,000 senior
secured term loan (the "Term Loan") and the Revolving Loan (as defined  herein),
with  a  five-year  facility  provided  by  KeyBank,  as  the  agent  bank  (the
"Facility")  which are secured by all assets of the Company and its existing and
future  directly and  indirectly  owned  subsidiaries.  The Revolving Loan bears
interest  at the  lenders'  prime  rate minus  1.0% or LIBOR  (London  Interbank
Offered  Rate) plus a number of basis points based upon the  Company's  leverage
ratio  (funded  debt divided by EBITDA).  The Term Loan bears  interest at LIBOR
plus a number of basis  points  based upon the  Company's  leverage  ratio.  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.
During May 1999,  the lenders  amended  the credit  agreement.  The  Facility is
guaranteed by all of the Company's subsidiaries.

     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.
The  agreement,  which  matures in five years,  has a total  beginning  notional
principal  amount of $33,000,  which  decreases  in  accordance  with  scheduled
principal  payments on the Company's Term Loan.  The swap agreement  effectively
converts  the  Company's  borrowings  under its Term Loan to a fixed  rate.  The
company  pays the  counterparty  a fixed  rate of 7.58% per  annum and  receives
payments based upon the floating one month LIBOR rate. The Company is exposed to
credit loss in the event of  nonperformance by the  counterparty;  however,  the
Company does not anticipate nonperformance by the counterparty.

     Revolving  Credit  Facility  - The  Company  established  a $17,000  senior
secured  revolving  credit  facility (the  "Revolving  Loan") with KeyBank.  The
Company had outstanding direct borrowings of $12,700 under the Revolving Loan at
June 30, 1999. The Company also has outstanding under the Revolving Loan letters
of credit of approximately  $791 at June 30, 1999. The Company's  Revolving Loan
weighted average interest rate was 7.79% at June 30, 1999.

     Subordinated  Debt - The Company,  in connection  with the Merger,  assumed
IPL's $6,350 principal amount of eight year convertible  subordinated notes, due
May 4, 2003,  with an interest rate of 4.0%,  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.



                                      F-15

<PAGE>

                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Note 9 - Long Term Debt (continued)


     Also, in connection with the Merger and  Contribution,  the Company assumed
additional  long-term  indebtedness  of $3,842,  consisting of a note payable to
Cognitive  Communications,  Inc.  ($196),  mortgage payable ($2,103) and capital
lease obligations ($1,543).


     Required  payments of principal on senior and  subordinated  debt including
accreted  interest of  approximately  $698,  exclusive  of  capitalized  leases,
outstanding at June 30, 1999, are summarized as follows:
<TABLE>
<CAPTION>

                  Fiscal Year                                                Amount
                                                                         ---------------
<S>               <C>                                                         <C>
                  2000..........................................              $   6,716
                  2001..........................................                  9,350
                  2002..........................................                 11,852
                  2003..........................................                 18,591
                                                                         ---------------
                                                                              $  46,509
                                                                         ===============
</TABLE>



     The Company leases certain  equipment from unaffiliated  entities.  Further
minimum lease payments under capital leases as of June 30, 1999 are:
<TABLE>
<CAPTION>

                  Fiscal Year                                                Amount
                                                                         ---------------
<S>               <C>                                                         <C>
                  2000..........................................              $   1,290
                  2001..........................................                  1,303
                  2002..........................................                  1,180
                  2003..........................................                    915
                  2004..........................................                    357
                                                                         ---------------
                  Total minimum lease payments..................                  5,045
                  Less:  Amount representing interest...........                    742
                                                                         ---------------
                  Present value of minimum lease payments.......              $   4,303
                                                                         ===============
</TABLE>




     Leased property under capital leases are classified in fixed assets as
follows:
<TABLE>
<CAPTION>

                                                                        June 30,            June 30,
                                                                          1998                1999
                                                                     ---------------     --------------

<S>                                                                  <C>                 <C>
                  Equipment under capital leases................     $        1,440      $       5,256
                  Less:  Accumulated amortization...............                281              1,092
                                                                     ---------------     --------------
                                                                     $        1,159      $       4,164
                                                                     ===============     ==============
</TABLE>










                                      F-16


<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, 1997,
1998 and 1999 amounted to $241, $270 and $272, 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
years ended June 30, 1997 and 1998 amounted to $826 and $130,  respectively.  At
June 30, 1998 and 1999 the Company also had accounts receivable of $148 and $130
and  (accounts  payable)  of ($106)  and  ($176),  respectively  from (to) other
affiliated entities.


     At June 30, 1999,  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>
                               2000...........................             $        231
                               2001...........................                      231
                               2002...........................                      231
                                                                       ------------------
                                                                           $        693
                                                                       ==================
</TABLE>

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 business unit is subject to different marketing, production, and technology
strategies. The Diversified Products segment is shown as discontinued operations
for 1997 and 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-17


<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 1997, 1998 and
1999 is as follows:

<TABLE>
<CAPTION>

                                                                         1997                 1998                       1999
                                                                   -----------------    -----------------    -----------------
<S>                                                                 <C>                  <C>                  <C>
Net revenues from unaffiliated customers:
Systems and Products......................................          $        17,631      $       18,631       $        25,615
Satellite and Distribution Services.......................                    9,979              21,384                31,280
Production Services.......................................                       --              32,980                32,516
                                                                   -----------------    -----------------    -----------------
Net revenues..............................................          $        27,610      $       72,995       $        89,411
                                                                   =================    =================    =================

Intersegment revenues:
Systems and Products......................................          $           290      $        1,386       $         2,067
Satellite and Distribution Services.......................                      705               1,160                 1,125
Production Services.......................................                       --               1,010                   492
                                                                   -----------------    -----------------    -----------------
Total intersegment revenues...............................          $           995      $        3,556       $         3,684
                                                                   =================    =================    =================

Operating income:
Systems and Products......................................          $         2,341      $        2,490       $         1,372
Satellite and Distribution Services.......................                    2,239               5,830                 6,075
Production Services.......................................                       --               3,542                   170
Corporate ................................................                   (2,830)             (5,170)               (5,479)
                                                                   -----------------    -----------------    -----------------
Operating income from continuing operations...............                    1,750               6,692                 2,138

Interest expense, net.....................................                     (517)              (3,619)              (4,149)
Other income..............................................                      592                  217                   53
                                                                   -----------------    -----------------    -----------------
Income (loss) before income taxes and discontinued operations       $         1,825      $         3,290      $       (1,958)
                                                                   =================    =================    =================

Depreciation and amortization:
Systems and Products......................................          $           740      $           650      $           754
Satellite and Distribution Services.......................                      995                2,076                2,957
Production Services.......................................                       --                4,035                4,568
Corporate ................................................                       89                1,197                1,557
                                                                   -----------------    -----------------    -----------------
Total depreciation and amortization ......................          $         1,824      $         7,958      $         9,836
                                                                   =================    =================    =================

Assets:
Systems and Products......................................          $         6,650      $         5,971      $         6,427
Satellite and Distribution Services.......................                    5,447               16,460               20,691
Production Services.......................................                       --               29,787               25,698
Discontinued operations...................................                      634                  ---                  ---
Corporate ................................................                    8,070               29,642               32,502
                                                                   -----------------    -----------------    -----------------
Total assets..............................................          $        20,801      $        81,860      $        85,318
                                                                   =================    =================    =================

Additions to fixed assets:
Systems and Products......................................          $           461      $           653      $         1,349
Satellite and Distribution Services.......................                      953                4,591                5,332
Production Services.......................................                       --                  634                4,575
Discontinued operations...................................                      418                  119                  ---
Corporate ................................................                    1,221                  451                  628
                                                                   -----------------    -----------------    -----------------
Total additions to fixed assets...........................          $         3,053      $         6,448      $        11,884
                                                                   =================    =================    =================
</TABLE>





                                      F-18


<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,
                                                                   1997                   1998                  1999
                                                             ------------------    -------------------    ------------------
<S>                                                          <C>                   <C>                    <C>
Numerator:
  Income (loss) from continuing operations...........        $           1,638     $            1,699     $          (1,900)
                                                             ------------------    -------------------    ------------------

  Numerator for basic earnings per share-
    Income (loss) available to common stockholders...                    1,638                  1,699                (1,900)
  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...................................   $           1,638     $            1,699     $          (1,900)
                                                             ==================    ===================    ==================
Denominator:
  Denominator for basic earnings per share-
    weighted-average shares..........................                7,011,349             12,276,278            13,264,307
  Effect of dilutive securities:
    4% convertible subordinated notes and stock
    options .........................................                       --                     --                    --
                                                             ------------------    -------------------    ------------------
  Denominator for dilutive earnings per share-
    adjusted weighted-average shares and assumed
    conversions......................................                7,011,349             12,276,278            13,264,307
                                                             ===================   ===================    ==================

Basic earnings (loss)per share from continuing
   operations........................................        $            0.23     $             0.14     $           (0.14)
                                                             ==================    ===================    ==================

Diluted earnings (loss) per share from continuing
   operations........................................        $            0.23     $             0.14     $           (0.14)
                                                             ==================    ===================    ==================
</TABLE>

     Earnings  (loss) per share from  continuing  operations  has 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 and stock options have 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  the  options'
excercise prices were greater than the average market price of the common shares
and due to the  Company's  current year  operating  loss,  therefore,  having an
antidilutive  effect,  were  498,900  and  549,529  for  fiscal  1998 and  1999,
respectively.







                                      F-19


<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 is as follows:
<TABLE>
<CAPTION>

                                                                     1997               1998               1999
                                                                 --------------     --------------    ---------------

<S>                                                                      <C>                <C>              <C>
Statutory tax rate.......................................                34.0%              34.0%            (34.0)%
Change in valuation allowance............................               (34.0)              (5.2)             45.2
Non-deductible intangible amortization...................                 ---                8.8              16.9
State & local taxes, net of federal benefit..............                 7.0                9.6             (34.7)
Non-deductible meals and entertainment...................                 1.0                0.9               2.1
Stock options granted by shareholders....................                 1.6                ---               ---
Other....................................................                 0.6                0.3               1.5
                                                                 --------------     --------------    ---------------
                                                                         10.2%              48.4%             (3.0)%
                                                                 ==============     ==============    ===============
</TABLE>

     The provision for income taxes for the Company is as follows:
<TABLE>
<CAPTION>

                                                                       1997               1998              1999
                                                                  ---------------    ---------------    --------------

<S>                                                               <C>                <C>                <C>
Current
     Federal.............................................         $       556        $       ---        $      ---
     State and local.....................................                 202                439               550
Deferred
     Federal.............................................                  55              1,372              (369)
     State and local.....................................                  (4)                38            (1,580)
     Adjustment to valuation allowance...................                (622)              (258)            1,341
                                                                  ---------------    ---------------    --------------
                                                                  $       187        $     1,591        $      (58)
                                                                  ===============    ===============    ==============
</TABLE>


     The   components  of  net  deferred  tax  assets   arising  from  temporary
differences as of June 30, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>

                                                                               June 30,                 June 30,
                                                                                 1998                     1999
                                                                         ---------------------     --------------------

<S>                                                                       <C>                       <C>
Receivable allowance............................................          $               492       $              542
Inventory reserves..............................................                          318                      379
Compensation payable............................................                          479                      353
Other...........................................................                          246                       26
                                                                         ---------------------     --------------------
                                                                                        1,535                    1,300

Federal and state net operating loss
  carryforwards.................................................                        2,310                    5,602
Valuation allowance.............................................                         (679)                  (2,020)
Purchase accounting reserves....................................                          720                      355
Straight lined rent.............................................                          475                      698
Other...........................................................                          267                      ---
Accelerated depreciation........................................                          ---                     (259)
                                                                         ---------------------     --------------------
Deferred tax asset..............................................          $             4,628       $            5,676
                                                                         =====================     ====================
</TABLE>

                                      F-20


<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, 1998 and 1999, respectively.

     The  Federal  net  operating   loss   valuation   allowance   decreased  by
approximately  $622 in 1997 as a result of revised  estimates of future  taxable
income principally as a result of discontinuing Old Video's Diversified Products
segment.

     The state net operating loss carryforward  valuation allowance increased by
$1,341  in  1999,  as  a  result  of  additional  operating  losses  in  certain
subsidiaries.  The state net operating  loss  carryforward  valuation  allowance
decreased by $258 in 1998, as a result of the use of certain state net operating
losses.  The Company  has a state  valuation  allowance  of $2,020 as of June 30
1999.  The state  valuation  allowance  is  provided  as a result  of  estimates
regarding future operations of certain subsidiaries in certain states.

     At June 30, 1999, the Company has potential tax benefits from net operating
loss  carryforwards  for federal  income tax purposes of  approximately  $2,205,
which begin to expire in 2007.  The Company also has potential tax benefits from
net operating loss carryforwards for state income tax purposes of $3,473,  which
begin to expire in 2002, 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,  1997,  1998 and  1999,  the  matching  employer
contributions amounted to $57, $191 and $275, 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 1998 and 1999,  368,000 and 115,000  shares of common
stock options were granted,  respectively.  At June 30, 1999,  there are 258,000
shares of common stock available for granting.


                                      F-21

<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
Option  did not  impact  the  aggregate  intrinsic  value,  reduce  the ratio of
exercise  price per  option to the  market  value per  share,  or alter  vesting
provision of the Stockholder  Option.  As a result,  no expense under APB 25 was
recognized.

     The Black-Scholes  option pricing model used the following  assumptions for
grants in 1997, 1998 and 1999, respectively: expected volatility of 0.4, 0.4 and
0.5,  dividend  yield  of 0% for all  years,  five  year,  ten year and ten year
expected lives, and risk free interest rates of 5.52%, 6.38% and 6.09%.

     The following  table shows the pro forma impact of options on the Company's
net loss for the years ended June 30, 1998 and 1999 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>
                                                                          1997               1998               1999
                                                                      ---------------    ---------------    ---------------

<S>                                                                   <C>                <C>                <C>
Net loss:                                       As Reported           $          (50)    $         (161)    $       (1,900)
                                                Pro Forma                       (250)              (265)            (2,071)
Net loss per common share - Basic:              As Reported                     (.01)              (.01)              (.14)
                                                Pro Forma                       (.04)              (.02)              (.16)
Net loss per common share - Diluted:            As Reported                     (.01)              (.01)              (.14)
                                                Pro Forma             $         (.04)    $         (.02)    $         (.16)
</TABLE>

     A summary of the status of the Stock  Plan at June 30,  1998 and 1999,  and
changes during the years then ended is presented in the table below.
<TABLE>
<CAPTION>
                                                                        1998                                      1999
                                                        --------------------------------------    ----------------------------------
                                                                                 Weighted                                 Weighted
                                                             Number              Average               Number              Average
                                                               Of                Exercise                Of               Exercise
                                                             Shares               Price                Shares               Price
                                                        -----------------    -----------------    -----------------    -------------
<S>                                                              <C>                     <C>
Outstanding at beginning of year..................                   ---     $            ---              857,800     $       4.16
IPL vested options assumed in Merger...............              508,800                 5.00                  ---              ---
Granted...........................................               368,000                 3.05              115,000             2.95
Exercised.........................................                   ---                  ---                  ---              ---
Forfeited.........................................              (19,000)                 5.00               (7,200)            3.28
Canceled or Expired...............................                   ---                  ---                  ---              ---
                                                        -----------------    -----------------    -----------------    -------------
Outstanding at end of year........................               857,800     $           4.16              965,600     $       4.02
                                                        =================    =================    =================    =============
Exercisable at end of year........................               489,800     $           5.00              609,257     $       4.61
                                                        =================    =================    =================    =============
Weighted average fair value of options granted....      $           1.85                          $           2.10
                                                        =================                         =================
</TABLE>



                                      F-23

<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, 1999
is $2.00 - $5.00 with a weighted  average  contractual life of 7.6 years. Of the
965,600  options  outstanding at June 30, 1999,  162,867 have exercise prices of
$4.00, 162,867 have exercise prices of $5.00 and 162,866 have exercise prices of
$6.00 all with a remaining  contractual  life of 6.8 years. All of these options
are  exercisable.  Of the remaining  477,000 options  outstanding,  262,000 have
exercise prices of $2.94 with a remaining  contractual life of 8.2 years; 75,000
have exercise prices of $3.375 with a remaining  contractual  life of 8.3 years;
25,000 have exercise  prices of $3.25 with a remaining  contractual  life of 8.6
years;  95,000 have exercise prices of $3.062 with a remaining  contractual life
of 9.2 years; 10,000 have exercise prices of $2.00 with a remaining  contractual
life of 9.9  years;  5,000  have a  exercise  prices of $2.50  with a  remaining
contractual  life of 9.7 years; and 5,000 have exercise prices of $3.0625 with a
remaining  contractual life of 9.5 years.  Approximately  159,000 options become
exercisable in fiscal 2000,  159,009  options become  exercisable in fiscal 2001
and 38,334 options become exercisable in fiscal 2002.

     Upon the Merger,  the Company  assumed  508,800  fully  vested IPL options,
which had previously been granted to former employees and directors of IPL.

     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.

     In February  1994, IPL and Old Video each granted  five-year  non-qualified
options to purchase an aggregate of 60,000 shares of the Company's  common stock
to the two  directors  of IPL.  The  exercise  price of such options is equal to
IPL's initial pubic offering  price of $11 per share.  Such options vested three
months after the consummation of the public offering.


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
income.  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 is a
reserve of $249  principally  for  remaining  lease  commitments  and  severance
arrangements.

                                      F-24

<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Note 16 - Discontinued Operations (continued)

     On January 2, 1997,  management,  which had the  authority  to approve  the
action, committed Old Video Services Corporation to a formal plan to discontinue
the operations of its Diversified  Products segment as a condition to the Merger
(see Note 1). In August  1997,  immediately  prior to the Merger,  the Old Video
Services Corporation spun-off the operations of its Diversified Products segment
to the shareholders of Old Video Services Corporation.  The Diversified Products
segment principally provided  professional and industrial videotape  duplication
and blank videotape distribution.

     Losses from the operations of the discontinued Diversified Products segment
amounted to $1,688 for the year ended June 30, 1997,  net of  applicable  income
tax benefit of $827, and is shown separately in the  consolidated  statements of
income.  Revenues of the  discontinued  operations of the  Diversified  Products
segment  were  $11,404  and $1,421 for the years  ended June 30,  1997 and 1998,
respectively.


Note 17 - Other Income

     Included in 1997 other income is $500  pertaining  to the payment of a note
receivable for which the Company had established a full valuation allowance. The
note  receivable  was partial  consideration  for the sale of a radio station in
fiscal 1991.

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,
1999,  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>
                 2000..............................................             $   4,445
                 2001..............................................                 4,326
                 2002..............................................                 3,484
                 2003..............................................                 2,805
                 2004..............................................                 2,595
                 Thereafter........................................                11,274
                                                                           ---------------
                                                                                $  28,929
                                                                           ===============
</TABLE>

     Rental expense for the years ended June 30, 1997, 1998 and 1999 amounted to
$1,203,  $3,719 and $4,302,  respectively.  The Company also has  non-cancelable
subleases of approximately $1,232.

     Employment  Agreements - At June 30, 1999,  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>
                 2000..............................................             $  2,260
                 2001..............................................                  900
                 2002..............................................                  168
                                                                           --------------
                                                                                $  3,328
                                                                           ==============

</TABLE>



                                      F-25

<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   agreements  and  business  acquisitions  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- Dividend Policy

     The board of  directors  of the  Company  does not  intend to  declare  any
dividends  in the  foreseeable  future and intends to retain all earnings in the
Company to finance  the growth of  operations,  including  acquisitions.  Future
dividend  policy  will be  based  upon  the  Company's  results  of  operations,
financial condition, capital requirements and other circumstances.

























                                      F-26

<PAGE>


                   VIDEO SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Note 21 - Unaudited Quarterly Results

     Unaudited quarterly financial  information for fiscal year 1998 and 1999 is
set forth below. All dollar amounts are in thousands except per share data.
<TABLE>
<CAPTION>

                                                                            Quarter Ended

                                            ------------------------------------------------------------------------------
                                            -----------------    ----------------    -----------------    ----------------
                                             September 30,        December 31,          March 31,            June 30,
                                                  1997                1997                 1998               1998(a)
                                            -----------------    ----------------    -----------------    ----------------
Fiscal 1998
<S>                                         <C>                  <C>                 <C>                  <C>
    Revenues........................        $         11,418     $        19,219     $         20,456     $        21,902
    Gross profit....................        $          4,227     $         6,647     $          6,702     $         7,135
    Income from continuing
       operations...................        $            554     $           392     $            317     $           436
    Income from continuing
        operations per share - basic        $            .06     $           .03     $            .02     $           .03
    Net income (loss)...............        $            433     $           373     $            317     $        (1,284)


                                                                            Quarter Ended

                                            ------------------------------------------------------------------------------
                                            -----------------    ----------------    -----------------    ----------------
                                             September 30,        December 31,          March 31,            June 30,
                                                  1998                1998                 1999                1999
                                            -----------------    ----------------    -----------------    ----------------
Fiscal 1999
    Revenues........................        $         21,906     $        21,562     $         22,700     $        23,243
    Gross profit....................        $          5,962     $         6,032     $          5,917     $         5,856
    Loss from continuing
       operations...................        $           (286)    $          (450)    $           (821)    $          (343)
    Loss from continuing
       operations per share - basic.        $           (.02)    $          (.03)    $           (.06)    $          (.03)
    Net loss........................        $           (286)    $          (450)    $           (821)    $          (343)

</TABLE>

(a) During the fourth  quarter of 1998,  the Company  recorded an  adjustment of
$1,720 to increase  the reserve for the  estimated  loss on disposal  associated
with the divestiture of the Consulting Services segment.




















                                      F-27

<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, 1997:
 Allowance for doubtful
 accounts and volume
 discounts.................            $   180                 $    131                  $     9                 $     302
                                  ====================    ====================     ====================    ====================

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
                                  ====================    ====================     ====================    ====================
</TABLE>



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





























                                      F-28