Peace Arch Entertainment Group Inc. announces second quarter
results TORONTO, April 27 /PRNewswire-FirstCall/ -- Peace Arch
Entertainment Group Inc. (AMEX and TSX: PAE) is pleased to announce
its results for the three and six months ended February 29, 2004.
The Company delivered the feature films "Direct Action" and "The
Keeper" and 8 episodes of a 13 episode television series "Campus
Vets" in the quarter. The Company also closed a marketing and film
enhancement deal for two of its films, "The Keeper" and "Hollywood
Flies". During the quarter, the Company was in production of 7 new
feature films. This compares to the delivery of 3 feature films, 5
episodes of a 13 episode prime-time television series and 2
documentary specials for the same period in the prior year. The
Company's revenue totaled $7.7 million for the quarter, compared
with $10.1 million for the second quarter of FY2003. The decrease
in revenue reflects the Company's delivery of an additional feature
film in the second quarter of FY2003. The Company reported net
earnings of $1.5 million or $0.09 basic earnings per share and
$0.07 diluted earnings per share, for the six months ended February
29, 2004 compared with net earnings of $4.8 million, or $0.80 basic
earnings per share and $0.56 diluted earnings per share for the
FY2003 comparable period. For the FY2003 comparable period, the
Company reported net earnings of $0.2 million before a one-time
gain on modification of debt of $4.6 million. The Company reported
year-to-date earnings from operations before undernoted, as
indicated in the financial statements, of $2.0 million for the six
months compared with $132,000 for the FY2003 comparable prior
period. Earnings from operations before the undernoted, which the
Company defines as revenue less amortization of investment in film
and television programming, other production and distribution
costs, selling, general and administrative costs and other
amortization, is a non-GAAP measure. The Company considers earnings
from operations to be a meaningful performance measure as it
provides an approximation of the Company's operational results.
Peace Arch Entertainment Group Inc., one of Canada's foremost
entertainment companies, creates, develops, produces and
distributes feature films and proprietary television programming
for worldwide markets. Peace Arch Entertainment Group Inc. has
offices in Vancouver, Toronto and London, England. This press
release includes statements that may constitute forward-looking
statements, usually containing the words "believe",
"estimate","project", "expect", or similar expressions. These
statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements inherently involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking
statements. Factors that would cause or contribute to such
differences include, but are not limited to, continued acceptance
of the Company's products and services in the marketplace,
competitive factors, dependence upon third-party vendors,
availability of capital and other risks detailed in the Company's
periodic report filings with the Securities and Exchange
Commission. By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions
or changes after the date of this release. For media inquires,
please contact: Nicole Spracklin Peace Arch Entertainment Group
Inc. Tel: (416) 487-0377 (ext. 237) Email: PEACE ARCH ENTERTAINMENT
GROUP INC. CONSOLIDATED BALANCE SHEETS As at February 29, 2004 and
February 28, 2003 and August 31, 2003 (Expressed in thousands of
Canadian dollars)
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February 29, August 31, February 28, 2004 2003 2003
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(unaudited) (audited) (unaudited) ASSETS Cash and cash equivalents
$ 344 $ 911 $ 1,059 Accounts and other receivables 27,895 14,747
11,472 Investment in film and television programming 19,653 20,805
14,769 Prepaid expenses and deposits 487 407 401 Property and
equipment 70 35 761 Deferred financing costs - - 493
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$ 48,449 $ 36,905 $ 28,955
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LIABILITIES Production loans $ 18,964 $ 17,973 $ 13,241 Accounts
payable and accrued liabilities 6,939 2,973 2,584 Deferred revenue
3,238 8,823 4,116 Deferred gain - - 371 Distribution obligation
2,312 2,312 - Promotion and advertising obligation (note 5) 10,158
- - Non-controlling interest (note 6) 346 - 27 Term loans - - 4,678
Obligation to issue shares 3,076 2,887 -
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45,033 34,968 25,017
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SHAREHOLDERS' EQUITY Capital Stock 35,888 35,878 35,750 Contributed
surplus 337 337 - Other paid-in capital 680 680 1,189 Deficit
(33,489) (34,958) (33,001)
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3,416 1,937 3,938
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$ 48,449 $ 36,905 $ 28,955
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Approved by the Board of Directors /s/ Gary Howsam Director /s/
Richard Watson Director ------------------- ----------------------
Gary Howsam Richard Watson PEACE ARCH ENTERTAINMENT GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months
Ended February 29, 2004 and February 28, 2003 (Expressed in
thousands of Canadian dollars except per share information)
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3 months ended 6 months ended February February 2004 2003 2004 2003
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(unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 7,654 $
10,091 $ 12,878 $ 11,724 Expenses Amortization of investment in
film and television programming and other production costs 5,329
8,824 9,633 10,084 Other production and distribution costs 3 215
139 267 Selling, general and administrative 624 732 1,129 1,097
Other amortization 4 41 6 144
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5,960 9,812 10,907 11,592
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Earnings from operations before undernoted 1,694 279 1,971 132
Interest income 7 87 7 129 Interest expense (1) (15) (2) (110)
Provision for share issuance (note 4) (94) - (188) - Gain on sale
of assets - 32 - 65 Foreign exchange gain 26 25 27 23 Gain on
modification of debt - 4,604 - 4,604 Non-controlling interest (note
6) (346) (27) (346) (27)
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Earnings before income taxes 1,286 4,985 1,469 4,816 Provision for
income taxes - - - -
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Net earnings for the period 1,286 4,985 1,469 4,816 Net earnings
per common share BASIC $ 0.07 $ 0.84 $ 0.09 $ 0.80
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DILUTED $ 0.06 $ 0.60 $ 0.07 $ 0.56
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CONSOLIDATED STATEMENTS OF DEFICIT For the Three and Six Months
Ended February 29, 2004 and February 28, 2003 (Expressed in
thousands of Canadian dollars)
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3 months ended 6 months ended February February 2004 2003 2004 2003
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(unaudited) (unaudited) (unaudited) (unaudited) Deficit, beginning
of period $ (34,775) $ (37,986) $ (34,958) $ (37,817) Net earnings
for the period 1,286 4,985 1,469 4,816
--------------------------------------------------- $ (33,489) $
(33,001) $ (33,489) $ (33,001) PEACE ARCH ENTERTAINMENT GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three and Six Months
Ended February 29, 2004 and February 28, 2003 (Expressed in
thousands of Canadian dollars)
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3 months ended 6 months ended February February 2004 2003 2004 2003
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(unaudited) (unaudited) (unaudited) (unaudited) Cash flows from
operating activities Net earnings for the period $ 1,286 $ 4,985 $
1,469 $ 4,816 Items affecting cash Amortization of film and
television programming and other production costs 5,329 8,824 9,633
10,084 Other amortization 4 41 6 144 Interest on debt discount -
(49) - - Provision for share issuance 94 - 188 - Gain on
modification of debt - (4,604) - (4,604) Gain of sale of assets -
(32) - (65) Non-controlling interest 346 27 346 27 Investment in
film and television programming (5,013) (13,738) (8,482) (15,527)
Changes in non-cash operating working capital (5,241) (12,139)
(4,686) (10,580)
--------------------------------------------------- (3,195)
(16,685) (1,526) (15,705)
--------------------------------------------------- Cash flows from
investing activities Increase in deferred costs - (147) - (367)
Property and equipment acquired (21) - (41) -
--------------------------------------------------- (21) (147) (41)
(367) --------------------------------------------------- Cash
flows from financing activities Increase in bank indebtedness 6,359
12,232 7,900 11,386 Increase (decrease) in debt (3,045) 516 (6,910)
(103) Issuance of common shares - 3,880 10 3,880
--------------------------------------------------- 3,314 16,628
1,000 15,163 ---------------------------------------------------
Increase (decrease) in cash and cash equivalents 98 (204) (567)
(909) Cash and cash equivalents, beginning of period 246 1,263 911
1,968 --------------------------------------------------- Cash and
cash equivalents, end of period $ 344 $ 1,059 $ 344 $ 1,059
---------------------------------------------------
--------------------------------------------------- Supplemental
cash flow information Interest paid 1 15 2 110 Income taxes paid -
- - - Income taxes recovered - - - - Non-cash transactions
Obligation to issue shares 94 - 188 - Issuance of convertible
instruments and reduction in value of debt - 509 - 509 PEACE ARCH
ENTERTAINMENT GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended February 29, 2004 and February
28, 2003 (unaudited) (Dollar amounts in tables expressed in
thousands of Canadian dollars) 1. Operations Based in Toronto,
Ontario, Canada, Peace Arch Entertainment Group Inc., together with
its subsidiaries, (collectively, the "Company") is a fully
integrated company that creates, develops, produces and distributes
film, television and video programming for world-wide markets. 2.
Future Operations The interim consolidated financial statements
have been prepared on the "going concern" basis, which assumes the
realization of assets and the settlement of liabilities in the
normal course of operations. The application of the "going concern"
basis is dependent upon the Company achieving profitable operations
to generate sufficient cash flows to fund continuing operations or,
in the absence of adequate cash flows from operations, obtaining
additional financing to meet its obligations as they come due.
These consolidated financial statements do not reflect adjustments
that would be necessary if the "going concern" basis is not
appropriate. 3. Significant Accounting Policies (a) Basis of
Presentation The interim consolidated financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in Canada for interim financial reporting.
Accordingly, they do not include all of the information and
footnote disclosures necessary for complete financial statements in
conformity with Canadian generally accepted accounting principles.
The interim consolidated financial statements have been prepared in
a manner which is consistent with the accounting policies described
in the Company's Annual Report for the year ended August 31, 2003
and should be read in conjunction therewith. The interim
consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany balances
and transactions have been eliminated. (b) Comparative Figures
Certain comparative figures have been restated to conform to the
basis of presentation adopted for the current period. (c) Earnings
before interest, taxes, depreciation and amortization (EBITDA)
EBITDA is comprised of net earnings from operations before the
undernoted plus other amortization. EBITDA is not a measure
recognized under Canadian or United States generally accepted
accounting principles. The calculation of EBITDA may be different
from that presented by other companies and therefore may not be
comparable to other companies. Management believes EBITDA is an
important measure of the Company's earnings and its ability to
generate cash from its core business activities. (d)
Non-controlling interest Non-controlling interest represents the
interests of arm's length parties' ownership position in the
Company's business interests in which the Company controls. 4. Debt
Restructuring During the year ended August 31, 2002, the Company
entered into an agreement with Fremantle Enterprises Inc.
("Fremantle"), an existing trade creditor, whereby Fremantle agreed
to exchange its trade payable balance of $7,783,000 for a term loan
secured by a charge on the assets of the Company and a secured
interest in certain copyrights to productions. The promissory note
bore interest at 10% per annum and was intended to mature on June
30, 2004. Effective January 30, 2003, the Company and Fremantle
agreed to restructure the remaining $7,580,000 of term debt due to
Fremantle. Fremantle agreed that the revised source of debt
repayments and security would be restricted to the business,
assets, and undertakings of the Company as they existed immediately
prior to January 30, 2003 (the pre-existing assets). The new debt
has no fixed repayment dates. Interest, which continues to accrue
at 10% per annum, and principal are payable from the income streams
of the pre-existing assets, subject to priority interests. The
revised terms also exclude a previous right of prepayment by the
Company of all outstanding amounts. Pursuant to the Debt Repayment
Agreement dated January 30, 2003, the Company has also agreed that
if any amount of the Fremantle debt, including unpaid interest,
remains outstanding as of December 31, 2004, Fremantle will, for a
period of 90 days, have the right to convert such unpaid amount to
Class B Subordinate Voting Shares in the capital of the company at
the lesser of either (a) $5.00 per share or (b) the average trading
close price of the shares for the 30 days prior to December 31,
2004, provided that in no event shall the conversion price be less
than $3.00 per share. The modification of the debt is treated for
accounting purposes as a settlement of the original debt, as the
present value of cash flows under the terms of the modified debt
instrument is at least 10% different from the carrying amount of
the original debt. The fair value of the debt after modification is
based on the discounted expected future cash flows of the
pre-existing assets. The Company recorded a gain on modification of
the debt, for the year ended August 31, 2003. Release and
reconstitution of a loan guarantee During the year ended August 31,
2001, the Company guaranteed a loan due to Comerica Bank -
California ("Comerica") to a maximum of US$2,075,000 on behalf of a
co-production partner. During the year ended August 31, 2002, the
co-production partner defaulted on its loan payments. As at August
31, 2002, the amount of the outstanding related debt was $1,675,000
(US$1,075,000) and the Company recognized its obligation as debt
and receivable due from the co-producer. The receivable was written
off at August 31, 2002. During the year ended August 31, 2003, the
Company entered into a Release and Reconstitution Agreement with
Comerica which restructured the terms of the loan guarantee.
Repayment of the loan is restricted to the ultimate proceeds of
specific exploitation rights secured under the original loan
agreement and, subject to priority interests, including repayment
to Fremantle, to the pre-existing assets. If any amount of the
Comerica liability remains outstanding as of December 31, 2005,
Comerica will, for a period of 90 days, have the right to convert
such unpaid amount to Class B Subordinate Voting Shares in the
capital of the Company at a deemed price of $5.00 per share. The
modification of the Comerica obligations is treated for accounting
purposes as a settlement of the original debt, as the present value
of cash flows under the terms of the modified debt is at least 10%
different from the carrying amount of the original debt. The fair
value of the debt after modification is based on the discounted
expected future cash flows of the pre-existing assets. Conversion
instruments As described, and in conjunction with the above, on
January 30, 2003, the Company issued a conversion instrument to
Fremantle which permits Fremantle to convert the amount of its
outstanding debt including unpaid accrued interest at December 31,
2004, if any, into Class B Subordinate Voting Shares of the company
for a period of 90 days commencing on December 31, 2004. The
conversion price will be the lower of either (a) $5.00 per share or
(b) the average closing price of the Class B shares for the 30 days
prior to December 31, 2004, provided that in no event shall the
conversion price be less than $3.00 per share. Pursuant to the
conversion instrument, 2,527,000 Class B shares, which represent
the number of shares that could be issued for the principal amount
of debt of $7,580,000, have been reserved for issuance. As
described, and in conjunction with the above, on January 30, 2003,
the Company issued a conversion instrument to Comerica which
permits Comerica to convert the amount of its outstanding loan at
December 31, 2005, if any, into Class B Subordinate Voting Shares
of the Company for a period of 90 days commencing on December 31,
2005 at a price of $5.00 per share. Pursuant to the conversion
instrument, 366,000 Class B Shares, which represent the number of
shares that could be issued for the obligation of US$1,075,000,
have been reserved for issuance. During the year ended August 31,
2003, the Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity,"
which established standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. Reorganization of a subsidiary, Peace Arch
Project Development Corp. (PAPDC) During the year ended August 31,
2003, the Company carried out a reorganization and rationalization
of its assets, operations and subsidiaries. Pursuant to the
reorganization, the Company's wholly owned subsidiary, PAPDC,
became the owner of substantially all of the assets and business
(collectively, the pre-existing assets) as at January 30, 2003. The
pre-existing assets consisted principally of accounts and loans
receivable, film and television programming rights, and all shares
and other securities (including intercompany loans) held by the
Company in its subsidiaries existing at January 30, 2003. At the
same time, PAPDC and its subsidiaries directly or indirectly were
assigned substantially all of the pre-existing debts and
liabilities of the Company, including the Company's indebtedness to
Fremantle and Comerica. However, the Company continues to have a
conditional obligation to satisfy any remaining indebtedness to
Fremantle and Comerica by issuing a variable number of shares to
Fremantle and Comerica under Conversion Rights Certificates (the
conversion instruments) issued by the Company to each of them.
Subsequent to the reorganization of PAPDC described above, on
August 1, 2003, the Company sold all of its shares of PAPDC for
nominal consideration. Pursuant to the terms of the Fremantle
conversion instrument, the Company has estimated the fair value of
the obligation to issue shares for the interest accrued for the six
month period and has taken a charge of $188,000 in the Company's
consolidated statement of operations. 5. Promotion and Advertising
Obligation During the quarter, the Company entered into promotional
and film enhancement agreements for two of its productions whereby
the Company has arranged for the support of the promotion and
advertising campaign for the two films during their release. The
promotion and advertising obligation is offset by an accounts
receivable. 6. Non-controlling Interest During the quarter, the
Company delivered two productions and earned profit in a subsidiary
where each of these businesses consists of a non-controlling
interest in the ownership and entitlement to the profit. These
amounts are payable to the non-controlling interests as and when
dividends or profits from these businesses are declared and paid to
the non-controlling interests and the Company. 7. Segmented
Information Revenue by geographic location, based on the location
of customers. 2004 2003 $ $ Revenue Canada 2,341 3,558 United
States 2,923 2,542 Spain - 1,225 France - 1,940 Other foreign 7,614
2,459 ------------------- 12,878 11,724 -------------------
------------------- 8. Related Party Transactions The Company has
entered into the following related party transactions. These
transactions are measured at the exchange amount, which is the
actual amount of consideration given as established and agreed
between the related parties. (a) During the six months ended
February 29, 2004, the Company paid $79,000 (2003- $29,000) to a
company controlled by a director and officer of the Company for
executive services rendered. These expenditures are reflected in
the Company's selling, general and administrative expenses. (b)
During the six months ended February 29, 2004, the Company paid
$43,000 (2003 - $nil) to a director of the Company for legal
services rendered. These expenditures are reflected in the
Company's selling, general and administrative expenses. (c) At
February 29, 2004, the Company was indebted to a company controlled
by a director and officer of the Company in the amount of
$2,223,000. With the exception of $304,000, this loan bears
interest at the rate of prime plus 2% per annum. (d) At February
29, 2004, the Company was owed $1,959,000 from related party c)
above, which is included in accounts and other receivables. This
balance is unsecured, non interest bearing and has no specified
repayment date. 9. Subsequent Events The shareholders, at its
shareholder meeting held on February 11, 2004, approved the
Company's plan to restructure its share capital, by which all Class
A Multiple Voting Shares and all Class B Subordinate Voting Shares
will be merged into one class of common shares all having one vote
each. The new common shares commenced trading on March 16, 2004.
The symbol for the Company's common shares on the Toronto Stock
Exchange is "PAE". The previous symbols for the Company's Class A
Multiple Voting Shares ("PAE.A") and Class B Subordinate Voting
Shares ("PAE.B") on the Toronto Stock Exchange are no longer
applicable and will no longer be used. The symbol for the Company's
common shares on the American Stock Exchange remains "PAE".
SUPPLEMENTAL INFORMATION For the convenience of the reader,
operating results for the six months ended February 29, 2004 and
February 28, 2003 have been translated into US Dollars using the
average exchange rate in effect for the periods. The average rate
used for the six months ending February 29, 2004 was US$0.76 for
each $1.00 Canadian. Balance sheet information has been translated
into US Dollars using the Bank of Canada noon spot rate in effect
at the balance sheet dates. The Bank of Canada noon spot rate in
effect at February 29, 2004 was US$0.75 for each $1.00 Canadian.
These translations are not necessarily representative of the
amounts that would have been reported if the Company had
historically reported its financial statements in US Dollars. In
addition, the rates utilized are not necessarily indicative of
rates in effect at any other time. EBITDA - comprised of net
earnings from operations before undernoted plus other amortization.
PEACE ARCH ENTERTAINMENT GROUP INC. UNITED STATES DOLLARS Selected
Financial and Operating Information For the Six Months Ended
February 29, 2004 and February 28, 2003 (Reported in accordance
with generally accepted accounting principles in Canada) (Expressed
in thousands of US Dollars except per share information)
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2004 2003 (unaudited) (unaudited)
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Revenue $ 9,756 $ 7,535 Earnings for the period 1,113 3,095 EBITDA
1,119 3,176 Diluted earnings per common share $ 0.05 $ 0.36
Selected Balance Sheet Information As at February 29, 2004 and
February 28, 2003 (Reported in accordance with generally accepted
accounting principles in Canada)
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2004 2003 (unaudited) (unaudited)
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Cash and cash equivalents $ 257 $ 711 Accounts and other
receivables 20,817 7,699 Investment in film and television
programming 14,666 9,912 Prepaid expenses and deposits 363 269
Property and equipment 52 511 Deferred financing costs - 331 Total
Assets 36,156 19,433 Production loans 14,152 8,887 Accounts payable
and accrued liabilities 5,178 1,734 Deferred revenue 2,416 2,762
Deferred gain - 249 Non-controlling interest 258 18 Debt - 3,140
Distribution obligation 1,725 - Promotion and advertising
obligation 7,581 - Obligation to issue shares 2,296 - Total
Liabilities 33,607 16,790 Capital stock 26,782 23,993 Contributed
surplus 251 - Other paid-in capital 507 798 Deficit (24,992)
(22,148) Shareholders' equity 2,549 2,643 DATASOURCE: Peace Arch
Entertainment Group Inc. CONTACT: For media inquires, please
contact: Nicole Spracklin, Peace Arch Entertainment Group Inc.,
Tel: (416) 487-0377 (ext. 237), Email:
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