Leaders Doubt Breakup’s Impact on Business The Secession Question By JACQUELINE FOX Staff Reporter The results of a recent survey of Valley business leaders show a majority of those polled support a breakup of the city, but have doubts about whether it will help their own businesses. The findings of the most recent San Fernando Valley Leadership Survey are not that surprising, given that business leaders and secessionists alike have been saying for months in some cases, years that they feel shortchanged by City Hall when it comes to services, and are subject to what many have characterized as a “draconian” taxation system. What is surprising, however, is that a wide majority of the same respondents indicate they support a breakup for reasons unrelated to their own businesses, or may be apathetic about the issue, suggesting the effort to obtain business support for secession may not yet be as successful as once assumed. Of the 43 respondents who participated in the survey, 25, or 58 percent, said they believed secession would strengthen the overall business climate in the Valley; 13, or 30 percent, disagreed; and 5, or 12 percent either had no opinion or didn’t answer the question. Three-fifths of the respondent said they supported Valley secession in general. However, when asked if they thought their own business would improve if the Valley were to become its own city, 42 percent said “No,” while 30 percent said “Yes.” “That leads you to the conclusion that they are in favor of secession for reasons other than their business,” said Martin Cooper, president of Cooper Communications, which conducted the survey. “Or it could mean that they don’t understand the implications of secession or how a new city would operate, especially as it would relate to their own livelihood.” The responses to another question also could point to a disconnect among business leaders and their potential faith in a would-be Valley city government. Of the 43 respondents, a slim 53-percent majority said they believed a new Valley government would reform and reduce the gross receipts tax to their satisfaction. That’s likely to be a disappointment to advocates of tax reform who have waged a high-profile “ax the tax” campaign. “I would have thought that figure would have been much higher,” said Cooper. “Clearly they don’t see it as important, and I think that that doesn’t bode well for secessionists because it indicates that people are still very confused about the issue.” “These are business leaders and these issues are what proponents’ positions have been resting on,” said Cooper. “So it seems that maybe they don’t have the information they need to make a decision and they don’t have much time left to get that information, or the information they have been getting has been too overwhelming for them to pay attention to.” So what needs to be done? “I think secessionists need to reduce their message down to two or three easily memorable and clear ideas,” said Cooper. “It’s so complex, I think the results of the survey show that there’s still a lot of people who are still on the fence.” But Richard Leyner, co-chair of San Fernando Valley Independence Committee and a council candidate for what would be the Valley’s 13th District, said the real campaign for a breakup is days away from kicking into high gear. He pointed out that until recently the secession drive had been run by novices at the grassroots level, but is now in the hands of a high-powered public relations firm preparing to do exactly as Cooper suggested. “First of all, this was only amateurs running things until only a few months ago,” Leyner said. “We now have the power of an experienced public relations firm, Goddard Claussen Porter Novelli, working to get our message out and we expect that to begin in just a short while.” Leyner said Porter Novelli is preparing an extensive TV, radio and print campaign that will hinge upon the results of several focus groups polled citywide over the last two months. “We realize that we have to deliver a strong message to the business community, and we will broaden that through the campaign,” Leyner said. David Gurnick, a corporate attorney with Arter & Hadden in Woodland Hills, is among those who believe the gross receipts tax would be reformed under new leadership. He said he supports secession because it would allow voters to shine a brighter light on their elected officials because they would be geographically closer to their constituents. “The problem we have in L.A. is that the city is so large it is impossible for the government of the city to understand the needs of all the businesses,” said Gurnick. “And the focus of attention by City Hall is the downtown area. It’s not that I think they’re doing it intentionally. It’s just a natural incident of government that the attention and the benefits go to the capital area.” Respondents were also asked who they believe the best choice for mayor of a new Valley city would be. Former Assembly Speaker Robert Hertzberg was the top pick of 10 respondents, or about 24 percent. Assemblyman Keith Richman, who recently announced his candidacy for mayor took eight votes, as did former Assemblyman Richard Katz, who has previously denounced rumors he plans to run for office. State Sen. Richard Alarcon received two nominations. County Supervisor Zev Yaroslovsky, former Los Angeles Mayor Richard Riordan, local attorney David Fleming and City Councilman Dennis Zine all received one. Jody Here’s the information for the charts. I’d love it if the first two could be on page 1 and the second three on the jump page. I’d also like it if they could be pie charts, but anything close to that will do. 1. Would the business climate improve with secession? Yes 58% No 30% No opinion/answer 12% 2. Would your business improve with secession? Yes 30% No 42% No opinion/answer 28% 3. Would a new city reform the gross receipts tax? Yes 53% No 19% No opinion/answer 28% 4. How would the cost of doing business change? Increase 16% Decrease 40% Stay the same 33% No opinion/answer 11% 5. Do you support Valley secession Yes 60% No 23% No opinion/answer 17%

Holding One L.A. Together Larry Levine says One Los Angeles will concentrate anti-secession campaign on the San Fernando Valley BY JACQUELINE FOX Staff Reporter Until last fall, pro-secessionists pretty much had the floor to themselves when it came to campaigning for a San Fernando Valley breakup. The anti-secession movement had yet to take shape, a development even opponents today say probably gave advocates of a breakup a sizable advantage. Then came the attacks of Sept. 11 and, along with them, calls for unity and patriotism began to dominate the collective thinking of many Americans. Perhaps it was this very phenomenon that led a group of 14 Valley residents and business leaders to gather in the back yard of one of their homes in late September and brainstorm a plan they believe will stop secessionists cold. That meeting gave birth to One Los Angeles. About the same time, Mayor James Hahn formed his own political action committee to raise funds for a “No” campaign. Larry Levine, a long-time political consultant and Valley resident, says he can’t remember who exactly made the first phone call to get the meeting organized. “Maybe it was me, I don’t know,” he said. Nonetheless, he has clearly emerged as the group’s leader and has essentially put all of his other work aside to devote his time to the cause to keep L.A. whole. He spoke to reporter Jacqueline Fox recently about the focus of One Los Angeles’ campaign and why he’s convinced it will persuade Valley voters to vote against the secession initiative on Nov. 5. Question: How did One Los Angeles come about? Answer: About 14 of us met in the back yard of a friend’s house in Tarzana to discuss the momentum of the secession campaign. We had two items on the agenda: First, we had to ask ourselves, was it time to begin an anti-secession campaign? And within a minute we all agreed the answer was yes. Secondly, we had to decide what form the organization would take and we established our first public meeting for October, sending out invitations asking people to join us. Q: How many people belong to the group? A: We have about 500 people now who have filled out forms and are ready to work on the effort. Frankly, it’s about three months since we’ve done anything really aggressive to recruit more people. Q: Polls show strong support in the Valley for secession. Don’t those numbers concern you? A: No, not at all. We figure that the numbers we are seeing now are the product of six years of a one-sided argument and we expect them to wilt over the next couple of months. What we are finding is that the people who are still in the middle of the road on the issue are the same people that think secession is going to break up the school district. The more they learn that it isn’t, the more interested they are in working on not supporting it. That’s just one example of why getting the facts out there is so important. Q: Your group and the mayor’s seem to have one consistent message, that a breakup will result in higher taxes. Secessionists call that a scare tactic. What proof do you have that taxes will go up? A: Even the Local Agency Formation Commission report put out by their executive director (Larry Calemine) says that the Valley would need to borrow $30 million, raise taxes and fees, or diminish services if it wanted to be on its own. And, in the State Controller’s report that came out earlier this year, she too said that, while they did a good job preparing their findings, the new city would be starting out dangerously low in terms of a surplus. So, we have absolutely no faith in the credibility of the LAFCO report. Q: What about city services? Do you agree the Valley hasn’t been getting its fair share and, if so, why isn’t secession the remedy for that? A: I’ve lived in the same house for 22 years and every time I put out my trash cans, someone comes along and empties them. Every time I turn my tap on, there’s water. All those people who are moaning about services, I don’t know who they are. This is what you would call a “pothole campaign.” Q: What about public safety? A: Policing in Los Angeles is loaded with problems, there’s no doubt about that. But others cities our size have similar problems, and secession isn’t going to solve them. Q: There could be as many as 200 candidates vying for mayoral and council seats for a new city who will also be campaigning for a breakup simultaneously. What’s the strategy for combating that kind of built-in support? A: What’s interesting is the pro-secession folks, the LAFCO board members and Valley VOTE needed to use consecutive elections as a crutch for their cause. What you do is you confront it head on with the facts. We know that water and electricity rates are going to go up, even though they say they won’t. They say they can contract with Los Angeles for police services, but what’s the point of breaking up if they do that? They say they can start their own police force, but I say I can show them that there’s no way they will be able to afford that with the numbers for an annual budget we are now talking about. Q: Should secession fail, what would you suggest the city do to appease those who believe they are being shortchanged? A: I would like to see secession defeated and something done to create a formal and broad-based debate on the future of our government. I don’t think we should walk away from a defeated secession initiative and say, “OK, we’ve done our job.” Q: Your group has raised roughly $34,000 so far. What is the money being spent on? A: Printing and staff. We have two consultants, one of whom is primarily working on fundraising. Q: Is there any co-mingling of funds between your PAC and the mayor’s? A: No, none whatsoever. We might share information and bodies at fundraisers and events, but not money. Q: What will be the focus of the One Los Angeles campaign from here on? A: Our focus is the Valley, not all of Los Angeles. We will leave that to the mayor’s campaign. We will remain a grassroots operation. We don’t have the budget for nor will we try to get the budget for a major TV, print or radio advertising campaign. The mayor will be doing that. But what we want to do is simply get more “no” votes than “yes” votes. Q: What do you think will be the key to convincing voters to reject secession? A: Two things. First, we need to get them to confront the fact that this “Nirvana” secessionists are advocating is not real, that the allure of small, local government isn’t real. The idea that you are going to run into your city council representative down at the corner soda fountain is false. There is no corner soda fountain. Second, we will need to get voters to confront the fact that there are risks involved, that there are still no answers for how the new city will function financially without either cutting services or raising taxes. We have to promote the downside. Q: Your group has asked Valley VOTE to reveal its revenue sources. Should they do so, what impact do you believe it would have on voters? A: Until they release their figures and where they come from, I’m going to assume that the single, biggest beneficiaries of those funds are commercial developers and their lawyers. Take a look at the board of Valley VOTE and you’ll see they are all involved in commercial land development or real estate in some way. They are going to rake in millions if this passes and we are going to pay for it. Believe me, if the voters really knew where the money winds up and I don’t want to seem hysterical here but if the voters knew how it all worked, well, I’m thinking of something equivalent to public hangings. Snapshot: Larry Levine Age: 65 Title: Political consultant and co-founder of One Los Angeles Education: Some college Personal: Married, two grown children Most admired person: Wife Jennifer

Nearon Partners Take a Quick Profit in a Slow Market Real Estate by Shelly Garcia When Nearon Enterprises, a Danville, Calif.-based real estate partnership, acquired the former Litton facility in Agoura Hills last December, officials hoped for the best. The office market was softening, but Nearon execs figured they would make some renovations, take a few years to lease the property and then sell it. Six months later, the partnership has sold the property for nothing less than a monster profit. Nearon, whose managing partner in Southern California is former Trammell Crow Co. exec Mark Ossola, just sold the 165,000-square-foot office and R & D; property to Countrywide Credit Industries Inc. for an estimated $21 million, sources said. The partnership made more than $7 million on the deal. That’s close to a 50-percent return on its investment. “We were actively trying to lease it,” said Bob Scullin who, along with Cathy Scullin, Jim Orloff and Amber Guidara, all at NAI/Capital Commercial, represented Nearon in the deal. “However, we had two buyers who were actively interested in the acquisition and to preempt the second buyer, Countrywide stepped up and said, ‘We’ll take it.'” Scullin wouldn’t confirm the purchase price. Neither would Ossola. But there was no disguising the joy he took in the deal. “Nearon was able to realize the same profit as if we went through the renovation and re-lease without having the risk of re-leasing,” he said. “Countrywide was able to acquire a true Class A office building for less than replacement costs.” Litton sold the property, two buildings on 14 acres at 29851 Agoura Road, when the company was acquired by Northrop Grumman. Countrywide had expressed interest at the time, but a deal didn’t materialize. Much of the prior sizzle had gone out of the market by then, but Nearon officials figured they had two years to fill it up. “It was one of those buildings where you could get a tenant in a month or two years,” Ossola said. “We had anticipated a minimum of two years.” The sale closed June 21. Ossola is hoping lightning strikes twice. Nearon now is in the process of buying a 4.5-acre ball field adjacent to the Agoura property and plans to build a 115,000-square-foot office project on the site. The company is currently going through the entitlement process on that project. Meanwhile, Nearon is breaking ground on the second phase of the Airport Business Park, a 350,000-square-foot speculative industrial project in Van Nuys. The developer will construct eight buildings on the site, ranging in size from 30,000 square feet to 60,000 square feet. The complex will be ready for occupancy in May 2003. Move Over, Big Boy EMMIS Communications has found a solution to consolidating its L.A. radio operations, and it’s going to make a couple of odd neighbors. With a just-signed lease expansion, country station KZLA-FM will join KPWR-FM at 2600 W. Olive Ave. in Burbank, the facility that has housed KPWR for the past seven years. KPWR, or Power 106, perhaps best known for its morning show starring Big Boy, plays hip hop and rap. KZLA is strictly country. “I like to use the word interesting,” said Val Maki, senior vice president and market manager for EMMIS Communications Los Angeles. Don’t expect joint appearances by, say, Busta Rhymes and Faith Hill anytime soon. But since Indianapolis-based EMMIS acquired KZLA in 2000, the company has consolidated some of its engineering and sales functions and a number of operating executives oversee both stations. They’ve been shuttling back and forth between KZLA’s West Hollywood facility and Power’s Burbank location. EMMIS has owned KPWR since the 1980s. To solve the commuting problem, EMMIS has increased the space it leases in Burbank to 23,164 from 9,638 square feet it previously occupied. Power had been squeezed for space (no pun intended to Big Boy, who tips the scale at about 400 pounds) and KZLA, which was operating out of about 15,000 square feet in West Hollywood, had a little more space than it needed. The move will give KPWR, which has earned the No. 1 spot in ratings for the two most recent rating periods, some additional room and provide operating efficiencies for the station overall. EMMIS plans to put the West Hollywood facility, which it owns, up for sale. “Anytime you can get more people together under one roof sharing ideas, it promises to be even more innovative and perhaps will bring operational benefits I can’t even measure at this time,” Maki said. The radio stations will have separate studios but will share common space. To make it work, designers are creating a lobby that somehow conveys the KPWR image and the KZLA image in distinct, yet shared, space, Maki added. Rosey Miller and Jason Green, both with Julien J. Studley Inc., represented EMMIS in the $12 million lease deal. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14, or by e-mail at [email protected].

Adult Day Care Moves Quickly Into For-Profit Sector By SHELLY GARCIA Senior Reporter For years, senior services were viewed as charitable efforts offered through hospitals, community groups and philanthropic organizations. But more recently, a population growing old in record numbers, the escalating cost of nursing care and the promise of business opportunity are all combining to create a burgeoning cottage industry in the field of adult health day care. “They’re growing like mushrooms because we need it,” said Parvin Nazari, administrator at Great Days Adult Day Health Care Center. Great Days, which opened in Woodland Hills in April, is among the new breed of centers, large, privately owned facilities that provide services to 100 to 200 or more seniors each day. Great Days is among the largest with capacity for 275 seniors. Another new operator, Margente Inc., plans to open an adult health day care center in Granada Hills sometime in January, according to Sue Horowitz, a broker with NAI/Capital Commercial, and William Adelman of TOLD Partners, who represented the parties in leasing space for the facility. Adult health day care centers, which provide medical care and social activities for the elderly, have emerged from a growing awareness that keeping aging seniors in their communities instead of nursing homes helps fend off debilitating illness, improves quality of life and can even prolong life. Along with the services of health professionals such as social workers, physical and occupational therapists and nurses, these centers provide activities like picnics, museum trips, arts and crafts and musical programs, even computer training. “The idea is to help an individual maintain themselves in a community setting for as long as possible without having to consider institutionalization,” said Devorah Teyer, administrator at Valley Storefront Adult Day Care Center, one of the oldest centers in the local area, which is run by Jewish Family Services. Until 1995, adult health day care centers were run almost exclusively by philanthropic, health care and community organizations like Jewish Family Services because Medi-Cal, which foots the bill for participants, limited its funding to not-for-profits. But the complexity of managing adult health day care centers and the limited financing available forced many not-for-profit centers to close their doors, and the legislature revised ownership guidelines to include private enterprise. Since 1999, the number of adult health care centers in the state has nearly doubled to 262 from 135. Just under half of those operate in Los Angeles County, and 37 are in the San Fernando Valley. With the population of those 60 and over expected to double between 1990 and 2020, experts say the need for these centers will escalate even further in coming years. About 81 percent of adult health day care centers in Los Angeles County are now privately owned for-profit operations. Some say it is only a matter of time before corporate owners begin taking over the industry and building chains, as has been the case with childcare centers and senior living complexes. Nursing homes, even good ones, hasten the decline in health of the elderly because they restrict mobility and activity. The full-time, live-in services nursing homes provide can cost upwards of $200 a day. But adult health day care allows those who require some assistance, medical monitoring and therapies to get what they need while remaining in their communities. Medi-Cal, which pays adult health day care centers $66.51 per day per participant, determines the number of days each participant can attend based on their individual conditions. Participants typically attend a center about three days a week, for about five hours a day. State funding guarantees a steady source of income to center operators, but it does not always ensure profitability. The financing has to cover not only staff salaries and the upkeep of the facility but also meals, activities and transportation for participants to and from the center, a cost that can eat away much of the funding, operators say. Not-for-profits, which tend to be storefronts serving 40 or 50 seniors a day, have had an especially difficult time managing on the funding they receive. “I write grant (applications) until they’re coming out of my ears,” said Teyer. “Thank goodness we’re under the umbrella of the Jewish Family Services, and another JFS program that’s doing better than I am can lend some help.” Even the newer for-profit ventures are not insulated from the cost pressures of running these facilities. “We have a very beautiful center, so our expenses are very high,” said Nazari, who operates one of the largest centers, with a capacity to serve 275 people. “And we’re already scared we won’t be able to meet our expenses.” Newer centers like Great Days hope to avoid the pitfalls encountered by their not-for-profit predecessors by increasing the number of people they serve. “When I started 17 years ago, a good sized program was 35 people a day,” said Lydia Missaelides, executive director of the California Association for Adult Day Services. “Today it’s not unusual to see a program apply for 130 or 150 (participants). I heard of one for 200.” Capacities of 200 per day are becoming the norm for these centers because at those numbers operators can achieve the economies of scale they need to be profitable. “You need 40 (participants) to break even,” said Rica Burton, founder of Choice Professionals Inc., consultants to the adult day health care industry based in West Hollywood. Capacities of about 40 participants typically cover the cost of the skilled health care workers needed to operate the center, and while larger populations require more staffing, those workers tend to be less costly, Burton said. “As you increase the population, your expense line rises at a much lower angle because now you’re only adding lesser and lesser priced people,” said Burton. The National Adult Day Services Association is working to increase funding, but Burton believes that L.A. County, with one of the highest reimbursement rates in the state, offers a good business opportunity to entrepreneurs. “How many businesses can you open with less than $1 million and recoup it all in two years?” she asked. “If you have 100 people, that’s over $6,500 a day.” Apparently, a number of would-be operators agree. The Adult Day Health Care Program of the CDA, which licenses these centers, at any given time juggles about 120 to 130 applications for new facilities and has been doing so for several years, said Janet Roberts, manager of the administration team of the Adult Day Health Care Program. “We have such a volume of them so, just because of the sheer volume, we can’t process centers as quickly as they would like to be licensed,” Roberts said.

The Digest Shutdown: Magic Mountain’s newest thrill ride will be shut down indefinitely as ride engineers work on a design flaw on one of the 28 coach seats that twist, spin and flip riders while moving at 76 mph. The ride, which features 360-degree turns and 200-foot drops, was shut down three weeks ago after maintenance crews noticed one of the coach seats, which spin riders upside down, was not moving smoothly. Guitar Center Buys Georgia Chain Guitar Center Inc.’s band instruments division, American Music, has completed the acquisition of M & M; MUSIC, a five-store band instrument retailer headquartered in Valdosta, Ga. American Music has acquired the stock of M & M; MUSIC for $6.8 million. The M & M; MUSIC stores are to be immediately converted to the American Music brand. M & M; MUSIC serves more than 200 schools in the Southeast from four retail music stores, a service center in Georgia, and one retail store in Jacksonville, Fla. THQ Rejects Online Venture THQ Inc. of Calabasas is shutting down a venture that sold an online soccer game in Great Britain. The game, which put players in the role of managers rather than athletes, didn’t attract enough consumers who were willing to pay the monthly fee. THQ expects its net income to be reduced by $2.8 million, or 7 cents a share, to about 10 to 12 cents, in the quarter because of costs to close Network Interactive Sports Ltd., a venture started with HotGen Studios a year ago. Bank Buys Glendale Branch Jackson Federal Bank has purchased a branch office previously owned by Fremont Investment & Loan at 500 N. Brand Blvd. in Glendale. The office, with about $105 million in deposits, increases the number of Southern California retail branches operated by Jackson to 15. Jackson is a wholly owned affiliate of Jackson National Life Insurance Co. with total assets of $1.4 billion and capital of $165 million. Richman Runs for Valley Mayor State Assemblyman Keith Richman, R-Northridge, will run for mayor of the proposed San Fernando Valley city. He is the first candidate to officially announce he wants the office if a Nov. 5 secession vote is successful. The freshman lawmaker also is seeking reelection to the Legislature. Richman said, if he wins both offices and the Valley secedes, he will resign from the Assembly and a special election will be held to fill his seat. Richman might face state Sen. Richard Alarcon, D-Sylmar, who has said he is considering a run. Alarcon also is running for another term in the state Senate.

Small Business Profile: Infomercial Please Glendale Studios, cramped for space, fills a niche by providing facilities for infomercial productions as it plans for an expansion. Makhanian: Found technology upgrades made Glendale Studios more competitive among small facilities. By CARLOS MARTINEZ Staff Reporter Less than a year after threatened strikes brought film production in Hollywood to a near standstill, forcing Glendale Studios to lay off a quarter of its staff, the small, family-owned production facility may have carved out the niche it needs to be profitable. “It sounds kind of funny, but we’re having a great year,” said Steve Makhanian, the studio’s general manager and vice president. The company figures revenues will top $6 million this year, up from $4 million last year when production throughout Hollywood was stymied due to a dispute between writers and producers and later by the Sept. 11 terrorist attacks. “Nobody wanted to do anything and we had to lay 10 people off,” Makhanian said. But by January, production at the studio had resumed as Makhanian and his marketing team signed several deals for infomercials and commercials by touting the state-of-the-art digital video equipment it had recently installed. “We knew we had to bring people in or we’d be in a lot of trouble,” Makhanian said. So far the studio, which has only two soundstages, has nabbed more than a dozen productions this year, with more scheduled to begin later this fall. The studio is known for a long list of infomercials produced there, including “Billy Blanks’ Tae Bo,” “Buns of Steel,” “Body By Jake,” “AbSlider” and “Dynomop.” “It’s a great place for us, not only because their rates are so reasonable, but because they have great facilities,” said Paul Greenberg, line producer for Los Angeles-based production company Sylmark Inc. So far this year, the company has shot four infomercials at the facility with another slated, Greenberg said. While the studio struggled last year, Makhanian said he realized he needed to replace its aging video production equipment if it was going to survive. “We had older equipment and a lot of companies just didn’t want to use that, so we were losing business,” he said. So, the studio invested $1 million in digital video equipment that it installed earlier this year, giving it an advantage over other similar studios that had yet to make the changeover. By touting its low rental rates and new equipment, the studio’s fortunes quickly improved, Makhanian said. Mike Ramsey, line producer for Santa Ana-based Script to Screen Inc., said his company had stopped working at the studio because of its outdated equipment. “I’ve probably shot 20 infomercials in Glendale. We shot ‘Torso Track’ with Suzanne Somers there, but we stopped coming until they got that new equipment,” he said. But, as with many service-oriented businesses, it wasn’t just the equipment that appealed to Ramsey. “They just seem to try harder and to work with you,” he said. Makhanian’s brother and sister work at the studio, as does his father, who still oversees the entire operation. Started back in 1985, the studio had been a sports uniform business before Makhanian’s father, Al, acquired the property. Al Makhanian had sold his interest in a downtown Los Angeles auto parts manufacturer to build his own studio. “He just always wanted to get into the film business,” Steve Makhanian said. After purchasing the one-acre property along Glendale Avenue, the elder Makhanian made a deal to acquire more than a dozen truckloads of film, video and related equipment from the Osmond family, which had just sold the Utah television studios where it produced the “Donny & Marie Show” from 1975 to 1979. “We didn’t really know that much about the business, but we wanted to make a go of it,” Steve Makhanian said. They struggled the first three years, attracting the syndicated sitcom “What’s Happening Now!” and a handful of commercials and infomercials, but revenues never went much over $1 million. “What’s Happening” was canceled in 1987 and the studio strung together a series of commercials and independent low-budget features to make ends meet. Then in 1989, “The Judge,” a syndicated courtroom series similar to “The People’s Court,” gave the studio much-needed steady revenue over the next three years, before it was canceled in 1991. That led to a steadier clientele that included news teams from NBC, CNN and others that wanted to take advantage of the studio’s satellite linkup. Among the films shot at the studio were 2000’s “Ring Master” with Jerry Springer and 1997’s “Mad City,” starring Dustin Hoffman and John Travolta. But the studio doesn’t attract major motion pictures often, due to the small size of its soundstages, Makhanian said. “Big pictures want big soundstages and we just don’t have that,” he said. Today, the studio employs 30 people and plans to expand into a newly acquired lot with a 10,000-square-foot stage set to be built later this year. Spotlight: Glendale Studios Year Founded: 1985 Core Business: Film and video production Revenue in 1985: $1 million Revenue in 2001: $4 million Employees in 1985: 10 Employees in 2001: 30 Goal: To secure contracts for film and video productions Driving Force: The need for affordable production facilities

BioSource Maintains Low Profile During Expansion Corporate Focus By SHELLY GARCIA Senior Reporter For the past few quarters, BioSource International Inc. has been doing everything it said it would increasing sales, improving profit margins, beefing up research and development. But none of that has been reflected in the company’s recent stock price, which has hovered around $6 for three months now, down from a 52-week high of $8.46 and an all-time high of $25 two years ago. On Friday, July 5, the stock closed at $5.36. Part of the problem lies with the sector in which BioSource, a Camarillo-based developer of biomedical research products, operates. The health care sector is down by about 15 percent and the biotechnology component has fared even worse, losing about 35 percent of its value in the past three months. Another problem is the company’s low profile. “I think it’s a combination of it’s an unknown story, it’s in the health care sector and its transition is unrecognized,” said Paul R. Knight, an analyst with Thomas Weisel Partners, a New York-based investment firm. Strides aside, BioSource officials say they won’t be tooting their horn anytime soon. “We don’t want to go out and promise too early,” said CFO Charles Best. “We’ve under-performed and we’ve had some management issues. We accepted that and we had to get to work.” Shares in BioSource soared several years ago on news that scientists had mapped the human genome sequence. The company’s product lines, test kits to assist research into DNA, rode a wave of enthusiasm for the sector that lifted the company’s own share price to $25 in mid-2000. The company poured money into R & D; and pounded out products but, without any strong direction, its earnings and revenues fluctuated wildly. “We’ve been building products, but nothing that was exciting to the industry,” Best said. In September, BioSource appointed a new president and CEO and embarked on a strategy focused on the signal transduction market. Instead of testing products that would help explain how two cells interact, BioSource began to concentrate on products researchers could use to explore how a single cell reacts. BioSource has hired about 25 new researchers since the beginning of the year and opened a new facility dedicated to signal transduction. The new focus hit a nerve with the researchers, universities and laboratories that BioSource sells to. For the first quarter of 2002, the company reported sales increases of 13 percent to $9.8 million. Because of recent changes in accounting rules, BioSource had to take a one-time goodwill charge of $2.87 million in the period, an expense that resulted in a net loss of $2.5 million or $0.03 per diluted share for the quarter. But without the charge, attributed to the acquisition of its new signal transduction facility, BioSource would have recorded net income of $371,000, or $0.03 cents a share for the quarter ended March 30, 2002. (Under FAS 142, companies must take certain goodwill charges in one lump sum instead of spreading them out over several quarters, as had been the practice previously.) The company kept its selling, marketing and administrative expenses level with last year at $3.7 million while increasing R & D; as a percentage of its sales. Gross margin profit increased to 57 percent from 54 percent for the comparable period last year. “They have exceeded guidance for the last two quarters,” said Knight. “The other thing is their management team has done a nice job of getting the company’s costs under control and focusing on the signaling market.” But officials say they don’t want to hang their hat on their first-quarter performance. “What we would like to see is a couple of good, solid quarters of results, both from our own expectations and also from the two analysts we have out there,” Best said. “We didn’t want to do that with the first quarter because we didn’t have enough solid results.” Analysts are not ready to jump solidly behind the stock either. Knight downgraded the stock from a “buy” to “attractive,” which means buy on weakness, after the company downgraded its quarterly guidance earlier in the year, but he said the company’s long-term prospects remain strong. “It looks like they’re going to be able to increase their growth rate,” he said. “They’re going to increase because the signaling market is definitely accelerating their growth. That, along with cost controls, should drive better earnings.”

Andersen Has Shut Down Its Valley Office By SHELLY GARCIA Senior Reporter Arthur Andersen LLP’s Woodland Hills office has closed as a result of the firm’s conviction last month on charges of destroying evidence in the investigation of its client, Enron Corp. The closure follows several rounds of layoffs and client defections at the San Fernando Valley office of Andersen, which had been the smallest of the Big Five accounting firms. One of the office’s founding partners, Anthony E. Radaich, has moved to Ernst & Young’s Woodland Hills office as audit partner along with another partner, Bob Grimes, and about 14 former Andersen employees from its Valley technology practice. Two other partners, Gil Green and Todd Smith, have joined Deloitte & Touche and Scott Sachs has moved to Good Swartz Brown & Berns LLP. Radaich said the Andersen office had begun laying off workers in mid-May, beginning with six employees. “Then every two weeks until June 17, additional people were laid off,” Radaich said. Radaich in March had told the Business Journal that the Andersen Woodland Hills office employed 70 people, but corrected himself in a telephone interview on July 3, saying 61 workers had been “permanently assigned” to the Woodland Hills office. “My understanding is that most of these people have jobs,” he added. Calls to Andersen’s Woodland Hills office were answered by a recording announcing that the phone number was no longer in service. Andersen’s Woodland Hills office serviced about 100 clients as of March, most of them privately held companies. With the addition of the Andersen technology practice workers, Ernst & Young has picked up the accounts of MRV Communications Inc., Semtech Corp., Earl Scheib Inc., Affinity Group Holdings and Stamps.com Inc. and Qiagen, former Andersen clients that had been served out of the Valley location, which housed the firm’s technology practice. Ernst & Young offices in the Pacific Southwest have added about 120 Andersen workers, and 176 public company clients have defected to the company from Andersen nationwide, said Nicole M. Thomas, an Ernst & Young spokeswoman. An undisclosed number of private companies have come over to Ernst & Young as well, she said. Across Southern California, the employee additions have boosted the Ernst & Young media and entertainment practice as well as its technology group. In an interview in March, Radaich insisted he wanted to keep the company together. He said that for the most part, Andersen’s Woodland Hills clients had not been concerned about the charges against the firm because the problems were isolated to the company’s Houston office. With the company’s conviction in federal court in June, however, Andersen said it would stop auditing public companies by Aug. 31, effectively closing the door on Andersen. Securities and Exchange Commission rules bar a firm convicted of a felony from auditing publicly traded companies. Even before the verdict, however, more than 780 Andersen clients had bolted nationwide, and the accounting firm had announced plans to lay off about 7,000 workers. Sherman Oaks-based Worldwide Restaurant Concepts Inc., which operates Sizzler, was one of those that defected from Arthur Andersen several months ago. Next to Ernst & Young, KPMG Consulting was the largest recipient of Andersen’s losses, picking up more than 140 clients nationally.

Panavision Chairman Perelman Retires Company Debt Media & Technology by Carlos Martinez Woodland Hills-based motion picture camera-maker Panavision Inc. has sold a 20-percent stake in Efilm LLC, a wholly owned subsidiary of the company, to Deluxe Laboratories Inc. of Los Angeles for an undisclosed sum. A Panavision spokesman said the deal with Deluxe will help the company better position itself in the digital cinema market because it will free up more capital. Efilm provides high resolution scanning of film, digital color timing, laser film recording of digital video and high definition images for film and digital mastering to film studios. The debt-burdened Panavision also announced last week that it had retired $37.7 million of debt to Mafco Holdings Inc. in exchange for $10 million in cash. Mafco had earlier loaned the money to Panavision to start up Efilm. Mafco also received 49,199 shares in preferred stock with a value of $1,000 per share. The stock has an annual dividend rate of 10 percent and is redeemable at any time by Panavision. Mafco is owned by Ronald O. Perelman, who is also Panavision’s chairman and its majority shareholder. Panavision’s primary revenue comes from the rental of its sophisticated Panaflex cameras and related camera equipment. The company manufactures but does not sell its equipment. It also operates Lee Filters, a lighting equipment rental firm. Mafco is a New York-based holding company that operates a number of tobacco products businesses. In an unrelated deal, Mafco also agreed to purchase $78.4 million of Panavision’s notes in exchange for $50.9 million. In May, Panavision planned a tender offer for $193 million in bonds to reduce its debt, but was forced to cancel when Moody’s Investors Service Inc. lowered the company’s rating to high risk. Last year, Panavision lost $14 million on $190.8 million in revenue, compared to a year earlier when it lost $23 million on $204.6 million in revenue. The company last saw an annual profit in 1997 the same year Perelman acquired the firm. Panavision’s debt has grown from $176 million in 1996 to $533.4 million as of March 31. Image Extends Credit Agreement Image Entertainment Inc., a distributor of DVDs and videocassettes based in Chatsworth, has amended its credit agreement for a $5 million note with Image Investors Co., extending its maturity date from October 2002 to October 2005. The pact allows the note to convert into Image common stock at any time during the term of the agreement. Image Entertainment’s main business is acquiring rights to film and video titles and distributing them as DVDs and videocassettes at large retailers like Sears, Best Buy and Amazon.com. “This will significantly assist in our ongoing efforts to improve the company’s liquidity position as we continue to execute our growth strategy,” said Image CEO Martin W. Greenwald. Image Investors is Image’s largest shareholder and is controlled by John W. Kluge and Stuart Subotnick, who hold 40 percent of Image’s stock. The company was hit hard last year by the loss of its exclusive agreement with Universal Entertainment Group and Orion Pictures to distribute DVDs of their films. For the quarter ending March 31, the company reported a net income of $553,000 on revenues of $26.7 million, compared to net income of $678,000 on revenues of $25.8 million a year earlier. Metro Studios West Lays Off Workers Metro Studios West, a Chatsworth-based unit of adult video producer Metro Global Media Inc. of Rhode Island, has eliminated its publicity department and laid off six other workers. Sam Nelson, Metro Studios general manager, said the layoff was part of a company-wide restructuring meant to reduce the company’s costs. Last year, Metro Global lost $5.2 million on revenues of $25.4 million, compared to a year earlier when it lost nearly $1 million on revenues of $27.8 million. The company cut its publicity department and laid off publicity director Harry Weiss and an assistant. Other cuts came from postproduction, editing and warehouse operations. Metro Global produces and distributes adult videos on videocassettes and DVDs, with distribution rights to more than 4,000 video titles. Biotech Encouraged by Trial Results Advanced Biotherapy Inc., of Woodland Hills, said early results of clinical test trials of its new treatment using antibodies to gamma interferon have shown it can halt the body’s rejection of corneal transplant on eye patients. Dr. Simon Skurkovich, vice president of research and development for the company, said the treatment on 13 patients who were experiencing rejection of their transplanted corneas showed that all but three had improved their visual acuity without signs of rejection. “These encouraging results open the door to treating, in my view, rejection of other transplanted organs and tissue, including bone marrow using antibodies to gamma interferon,” Skurkovich said. Company CEO Edmond Buccellato said the study gives hope to corneal transplant patients who experience organ rejection. According to studies, about 10 percent of 50,000 corneal transplants conducted in the U.S. are rejected. Although more studies are needed over the next few years, Buccellato said he was encouraged by these results. The three-year-old company has no products, but it is researching and developing therapies in the treatment of autoimmune diseases in humans such as multiple sclerosis and rheumatoid arthritis. With a market cap of $14.9 million and no revenue, the company reported a net loss of $176,203 for the quarter ending March 31. Its stock is listed on Nasdaq’s bulletin board, with a value last week hovering around the 35-cent mark. The stock was last valued over $1 in February 2000. It’s 52-week high was 65 cents and its 52-week low was 16 cents. Business Journal reporter Carlos Martinez may be reached at (818) 676-1750 ext. 17 or by e-mail at [email protected].

CHAD Hitches Star to Smaller Portable Oxygen Tank By CARLOS MARTINEZ Staff Reporter The salvation of struggling companies comes in all shapes and sizes. For CHAD Therapeutics Inc., it came in the form of a smaller oxygen tank. After several quarters of dismal numbers to report, the Chatsworth-based oxygen device-maker finally is ramping up sales and improving its profit margin, thanks largely to a new oxygen conserver unit. Oxygen conservers deliver oxygen to patients only during inhalation, rather than through a continuous flow, allowing them to carry smaller oxygen tanks that last longer. Last year, CHAD introduced its Oxymatic 400 Series electronic oxygen conserver. It took a while to see results, but it finally spurred improved sales last quarter over the same period last year. “Our sales are driven by the 400 series conserver, especially in the domestic market,” said CHAD CFO Earl Yager. “We were the first one in the market with conservers in the 1980s, but in the late 1990s we lost that position for technological reasons,” Yager said. “Now we’re right back in front.” For the quarter ending March 31, the company reported $996,000 in net income on revenues of $4.1 million, compared to a loss of $750,000 on revenues of $3.3 million a year earlier. In anticipation of the quarterly earnings statement, CHAD’s stock hit its 52-week high on March 11 of $4.35. However, it fell back to $2.51 on April 26 when the entire industry took a hit as one of its biggest competitors, Tyco Inc., announced a $1.9 billion loss for the quarter. Tyco, whose health care unit makes respiratory devices, has been under scrutiny since its chief executive, Dennis Kozlowski, was charged with sales tax evasion and forced to resign June 3. CHAD was trading at around $2.90 last week, with a 52-week high of $4.35 and a 52-week low of $1.90. The company’s market share was decimated by competitors who improved upon CHAD’s oxygen conserver technology just as the Balanced Budget Act of 1997 reduced Medicare reimbursements. The measure effectively cut 30 percent of all Medicare reimbursements to health care providers, many of whom also cut back on spending on such things as portable oxygen systems and other medical devices. Although the company was able to rebound last year with new products and new oxygen conservers, it was still unable to recapture its onetime dominant position in the industry. “But once we had this state-of-the-art device, they again came back to us and the marketplace is now responding,” Yager said. The new conserver, coupled with the company’s Total O2 Delivery System, is driving domestic sales, which have increased 46 percent over the same period last year, Yager said. The new delivery system permits patients to refill their tanks themselves when they are low, thus reducing suppliers’ costs. CHAD’s customers are mainly medical supply companies who sell or lease the equipment and supply oxygen to patients and health care providers. The company was founded in 1982 by the late Charles R. Adams who named the firm after the first two letters of his first and last names. Adams developed the oxygen conservers as a way to reduce the costs and improve the efficiency of providing oxygen to patients. Tony Ramos, publisher of Home Health Care Dealer Provider magazine in Los Angeles, said the recent downturn in the economy has trimmed the competition for CHAD. “At one time they were the only game in town, but that wasn’t going to last forever and they were hurt,” Ramos said. “They played it smart and now, with new products and the industry on the rebound, they’ve improved their sales against less competition.” Thomas E. Jones, CHAD CEO, said the company is looking for sales to continue to improve in the current quarter, despite a decline in international sales which account for about 15 percent of the company’s revenue. “That (drop) was caused by a change in distributors in two of the company’s more important international markets, Canada and Japan,” said Jones. “This process is now essentially complete and we believe the new distribution relationships will provide an improved atmosphere for sales of CHAD’s products in these countries.” Overall, the company expects sales to improve overseas and an increase in domestic sales of between 15 and 20 percent for the fiscal year. CHAD projects net revenue in the range of $1.3 million to $1.5 million for the fiscal year ending March 31, 2003. For the 2002 fiscal year, the company reported $1.1 million net profit on sales of $18.7 million, compared to a $3 million net loss on sales of $12.2 million in 2001.