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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

x Annual report pursuant to section 13 or 15(d)
of the Securities and Exchange Act of 1934

For the fiscal year ended March 31, 2003

or

o Transition report pursuant to section 13 or 15(d)
of the Securities and Exchange Act of 1934

For the transition period from                      to

Commission File No. 1-14880

LIONS GATE ENTERTAINMENT CORP.

(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (604) 609-6100

Securities registered pursuant to Section 12(b) of the Act

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 þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ.

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2002 (the last business day of the Company’s most recently completed second fiscal quarter) was approximately $52,461,010.

     As of June 13, 2003, 59,408,455 shares of the registrant’s no par value common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A and relating to its 2003 annual meeting of shareholders are incorporated by reference into Part III.

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FORWARD LOOKING STATEMENTS

     All statements, other than statements of historical fact, contained within this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as “may,” “intend,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “expect,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements.

     These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

     Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, those described in “Risk Factors” found elsewhere in this report.

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PART I

ITEM 1. BUSINESS.

Overview

     Lions Gate Entertainment Corp. (“Lions Gate”, “Company”, “we”, “us” or “our”) is an integrated North American entertainment company. We are an independent producer and distributor of film and television entertainment content. We release approximately 15 motion pictures theatrically per year. Our theatrical releases include films we produce in-house and films we acquire from third parties. We also have produced over 150 hours of television programming on average each of the last four years. Our disciplined approach to production, acquisition and distribution is designed to maximize our profit by balancing our financial risks against the probability of commercial success of each project. We distribute our library of approximately 2,000 motion picture and television program titles directly to retailers, video rental stores, pay and free television channels and indirectly to international markets through third parties. We also own a majority interest in CinemaNow, a development stage internet video-on-demand provider, and own and operate a film and television production studio.

     The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Company’s website at www.lionsgatefilms.com and in the future, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission.

Our Industry

     Motion Pictures

     General. According to the Motion Picture Association of America, or MPAA, overall domestic box office revenue increased 13.2% to $9.5 billion in 2002. The domestic motion picture exhibition industry has historically maintained steady growth in revenues and attendance. The MPAA reports that total domestic box office revenues grew at a compound annual growth rate of 8.3% from 1996 to 2002, and annual attendance grew from 1.3 billion to over 1.6 billion over the same period.

     Competition. Major studios have historically dominated the motion picture industry. The term major studios is generally regarded in the entertainment industry to mean: Universal Pictures, which includes Focus Features; Warner Bros., which includes New Line Cinema, Castle Rock Entertainment and Fine Line Features; Twentieth Century Fox, which includes Searchlight Pictures; Sony Pictures Entertainment, which includes Columbia Pictures, TriStar Pictures, Screen Gems Pictures and Sony Classics; Paramount Pictures, which includes Paramount Classics; The Walt Disney Company, which includes Buena Vista, Hollywood Pictures, Touchstone and Miramax Film Corp.; and MGM, which includes Metro Goldwyn Mayer Pictures and United Artists Pictures. Competitors less diversified than the major studios include Dreamworks SKG, Alliance Atlantis, Artisan Entertainment and IFC Entertainment.

     According to the MPAA, the average cost to produce and distribute a major studio film in 2002 was $89.4 million, including $58.8 million of production costs and $30.6 million of distribution and marketing expenses (sometimes called “P&A”). In comparison, films released by independent studios typically cost less than $40.0 million to produce and market. Despite the limited resources available to independent studios, independent films have gained wider market approval and increased share of overall box office receipts in recent years. Recent successful independent films such as Monster’s Ball, The Blair

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Witch Project and My Big Fat Greek Wedding highlight moviegoers’ willingness to support high quality motion pictures despite limited marketing and production budgets.

     In recent years, independent films have gained wider market approval and increased shares of overall box office receipts. According to the MPAA, between 1999 and 2002, box office receipts for independent films have grown at a compound rate of 8.7% to approximately $2.4 billion, representing 25% of total box office receipts.

     Product Life Cycle. Successful motion pictures may continue to play in theaters for up to six months or longer following their initial release. Concurrent with their release in the United States, motion pictures are generally released in Canada and may also be released in one or more other foreign markets. After the initial theatrical release, distributors seek to maximize revenues by releasing movies in sequential release date windows, which are generally exclusive against other non-theatrical distribution channels:

Typical Film Release Windows

     Home Video

     In its July 2002 Communications Industry Forecast, Veronis Suhler Stevenson, or VSS, a media merchant bank, estimated the size of the U.S. Home Video market to be $24.9 billion in 2002. According to VSS, from 1996 to 2001, this market grew at a compound annual growth rate of 5.8% and was projected to grow 10% in 2002. Growth in this sector has been supported by increased DVD penetration that reached 36.4% in 2002, up from 23.6% in 2001, according to the MPAA. Declining prices of DVD players, enhanced video and audio quality and special features such as deleted scenes, film commentaries and “behind the scenes” footage have helped increase the popularity of the DVD format, sparking increased home video rentals and sales in recent years.

     Television Programming

     According to VSS’s July 2002 Communications Industry Forecast, spending on filmed entertainment for television in the U.S. was projected to reach $22.1 billion in 2002, which would represent a 4.4% increase from 2001. VSS reported that from 1996 to 2001, spending on filmed entertainment for television grew at a compound rate of 7.2%, driven by increased spending by cable and satellite networks. Increased capacity for channels on upgraded digital cable systems and satellite television has precipitated the launch of numerous new networks seeking programming to compete with traditional broadcast networks.

     International Markets

     Worldwide demand for North American filmed content has increased in recent years. According to the MPAA, international box office receipts in 2002 were a record $9.6 billion, a 20% increase from

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2001. The ability to pre-sell international distribution rights for films produced by independent studios has played a key role in helping these studios finance the production of motion pictures.

The Company

     Competitive Strengths

     To achieve our goal of being a leading independent producer and distributor of film and television entertainment content, we will continue to exploit our competitive advantages, which we believe include:

•     Our reputation for producing and distributing critically acclaimed content. Based on the success of such films as Monster’s Ball, Frailty, American Psycho, O and Lovely and Amazing, we have established a reputation in the filmed entertainment industry for producing and distributing critically acclaimed content. Our four Academy Awards in the last five years are a testament to the quality films we produce, acquire and distribute. We believe our reputation and ability to produce and distribute critically acclaimed content has made us an attractive outlet for acquiring and distributing third party film productions. We believe this reputation also attracts leading actors, directors and other talent, as well as stimulating ideas, storylines and scripts, which provide the ingredients for success in our productions.

•     Our disciplined approach to production, acquisition and distribution of filmed and television entertainment content. We seek to minimize the financial risks often associated with film production, acquisition and distribution by negotiating co-production agreements, pre-selling international distribution rights, capitalizing on government subsidies and tax credits, structuring efficient production schedules and crafting agreements with top talent attracted to the films we develop and produce. In addition, we often attempt to minimize our financial exposure by structuring deals with talent that provide for their participation in the financial success of the motion picture in exchange for reduced up-front payments. Although the steps that we take to manage these risks may, in some cases, limit the potential revenues of a particular project, we believe that our approach to the motion picture business creates operating and financial stability for us.

•     Our library of film and television content which provides us with substantial recurring revenues. Our film and television content library, which includes approximately 2,000 motion picture and television program titles, provides us with substantial recurring revenues. Because of our success in marketing our home video library, other sources of content, including ABC (Stephen King’s Rose Red), CBS (Jesus), NBC (Saturday Night Live and Will and Grace) and Sports Illustrated (Sports Illustrated Swimsuit 2002 Home Video), have selected us to distribute their content to the home entertainment marketplace. As of March 31, 2003 our investment in film and television programming was $206.3 million, of which investment in theatrical films at that date was $151.8 million and investment in non-theatrical films and direct-to-television was $54.5 million. Library revenue included in motion picture revenue for fiscal 2003 was $43.1 million and for fiscal 2002 was $36.5 million. Library revenue is defined as revenue earned after the first cycle of sales which generally includes theatrical revenue, the first six months of video sales, the first pay television contract and the minimum guarantees from the first international sales.

• Our pursuit of acquisitions to enhance our competitive position. We have demonstrated a willingness and ability to use our financial resources to acquire companies, content libraries and individual films that we believe present opportunities to enhance our competitive position and generate significant financial returns. We have made or entered into, and will continue to pursue, various acquisitions, business combinations and joint ventures intended to complement or expand our business. We from time to time actively engage in discussions and activities with respect to possible acquisitions, however, we have no present agreements or understandings to enter into any such material transaction.

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Certain of our acquisitions may be significant and may involve the incurrence or assumption of debt and the issuance of common or preferred equity. Given that discussions or activities relating to possible acquisitions range from private negotiations to participation in open bid processes, the timing of any such acquisition is uncertain.

Recent Developments

     In June 2003, pursuant to a public offering, we sold 16,201,056 common shares at $2.05 to the public. Pursuant to a registration rights agreement, Mark Amin, our Vice Chairman, also sold 960,844 common shares.

     Of the $30.2 estimated net proceeds, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, we used $18.09 million to repurchase 4,028 shares of our Series A Preferred from SBS Broadcasting S.A. and 4,012 shares of our Series A Preferred from Telmunchen Femseh GmbH & Co. We used the remaining net proceeds for repayment of indebtedness.

     On May 14, 2003, ENT Holding Corporation, controlled by Tom Gores, purchased 2.5 million of our common shares at $2.20 per share from Frank Giustra, our founder. Mr. Giustra resigned as Chairman of our Board to devote full-time attention to his role as head of Vancouver-based mining consulting firm Endeavour Financial. Mr. Giustra remains a director and officer of several of our subsidiaries and the trustee of the trust that holds the shares of Lions Gate Television Corp. Mr. Giustra also continues to beneficially own or retain voting control over 757,401 of our common shares or options exercisable for our common shares.

     André Link, who has served as our President since April 2000, has succeeded Mr. Giustra as Chairman of our Board. Mr. Link was the founder of Lions Gate Films Corp., formerly Cinepix Film Properties Inc. Harald Ludwig, who has served on our Board since our inception, has been named Vice Chairman and Director.

     With Mr. Giustra’s departure, the recent death of Woody Knight, and the recent resignations of Joe Houssain and Doug Holtby, four of our Board of Directors seats required replacement. The four new directors are: Gary Newton, a senior executive in Montreal with Platinum Equity, a Los Angeles-based global investment and acquisition company and affiliate of ENT Holding Corporation; Mitchell Wolfe, an entertainment lawyer with the Canadian law firm of Beard Winter; David Doerksen, a Vancouver- and Saskatchewan-based producer; and Jeff Sagansky, our Series A Preferred shareholders’ nominee and a senior executive formerly with Sony, CBS and Paxson Communications, who replaces Mr. Knight.

     Production

     Motion Pictures. We primarily produce English language motion pictures with production budgets of $20 million or less. Films intended for theatrical release are generally budgeted between $5 million and $20 million, and those films intended for release directly to video or cable television are generally budgeted between $1 million and $5 million. We take a disciplined approach to film production with the goal of producing content that we can distribute to theatrical and ancillary markets, which include home video and pay and free television, both domestically and internationally. In fiscal 2002, we completed principal photography on seven productions and delivered 11 motion pictures. In fiscal 2003, we produced seven motion pictures, including the following:

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Confidence — starring Ed Burns, Dustin Hoffman, Andy Garcia and Rachel Weisz;

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	•		Godsend — starring Robert DeNiro, Greg Kinnear and Rebecca Romijn-Stamos;
	•		Wonderland — starring Val Kilmer, Lisa Kudrow, Dylan McDermott, Josh Lucas and Kate Bosworth;
	•		Shattered Glass — starring Hayden Christensen; and
	•		The Game — an urban reality motion picture starring Roc-A-Fella Records artists, including Beanie Sigel and Jay-Z.

     Our current strategic plan is to produce approximately eight motion pictures annually. We have the following motion pictures slated for production in fiscal 2004, (some of which we anticipate will be released in fiscal 2004, others we anticipate will be released at a later date):

	•		Cube O — the prequel to the successful independent sci-fi thriller Cube;
	•		The Cookout — an urban comedy starring Queen Latifah;
	•		The Photograph — an action thriller being produced by Brett Ratner; and
	•		Final Cut — a futuristic drama starring Robin Williams, Mira Sorvino and James Caviezel.

     We also recently announced an agreement to produce the sequel to House of 1000 Corpses.

     In fiscal 2003, Christal Films Productions, our French language film production unit, produced L’Espérance a.k.a Le Secret des Grands Cours D’eau, a Canadian production produced with the financial assistance of Telefilm Canada, Sodec, Super Écran and the CFT Production Fund. In fiscal 2004, Christal will (minority) coproduce a Canadian feature called Le Dernier Tunnel with Bloom Films (1998) Inc., fully produce a Canadian feature called Maman, last call and a 26-episode non fiction small budget television series called L’école des Fans.

     Our production team has developed a track record for producing modestly budgeted films with commercial potential. Our production division reviews hundreds of scripts, looking for material that will attract top talent. We then actively develop such scripts, working with the major talent agencies and producers to recruit talent that appeals to the film’s target audience. Recent successful examples of our process include Monster’s Ball, which earned Halle Berry an Oscar for best actress, Frailty starring Matthew McConaughey and Bill Paxton and American Psycho starring Christian Bale. We believe the commercial and critical success of these films should enhance our reputation and continue to give us access to top talent, scripts and projects. We also develop films in other niche markets, as evidenced by the recent successes of our urban films, including The Wash and State Property.

     The decision whether to “greenlight,” or proceed with production of, a film is a diligent process that involves numerous key executives of the company. Generally, the production division presents projects to a committee comprised of the heads of our production, distribution, home entertainment, international, legal and finance departments. In this process, scripts are discussed for both artistic merit and commercial viability. The committee considers the entire package, including the script, the talent that may be attached or pursued and the production division’s initial budget. They also discuss talent and story elements that could make the product more successful. Next, the heads of domestic and international distribution prepare estimates of projected revenues and the costs of marketing and distributing the film. Our finance and legal professionals review all of the projections, and the committee decides whether the

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picture is worth pursuing by balancing the risk of a production against its potential for financial success. We typically seek to mitigate the financial risk associated with film production by negotiating co-production agreements, pre-selling international distribution rights and capitalizing on government subsidies and tax credits. In addition, we often attempt to minimize our production exposure by structuring deals with talent that provide for them to participate in the financial success of the motion picture in exchange for reducing up-front payments.

     Television and Animation. Over the past four years, we have produced over 150 hours of television programming per year, including dramas, animated series, television movies, mini-series and reality and non-fiction programming through our in-house television production operations, including Termite Art Productions, and our interest in CinéGroupe Corporation.

     One-Hour Drama Series. In fiscal 2003 we delivered the second 13-episode season of The Dead Zone, which is broadcast on USA Network in the United States and CHUM Television in Canada and is distributed by Paramount International Television around the world. We received an order for another six episodes of this series, for a total of 32 episodes to date taking into account the first season. We recently announced an agreement to distribute our in-house production 1-800 Missing for broadcast on Lifetime Television, CHUM Television in Canada and distributed by Sony Television International Distribution internationally.

     Animated Series. CinéGroupe Corporation, in which we have an approximately 29% interest, develops and produces animated and live-action television series and television movies and motion picture product using 2-D and 3-D computer generated imagery and traditional ink and paint techniques. CinéGroupe Corporation has produced more than 800 half-hour animated and live-action episodes for television, including such series as Galidor: Defenders of the Outer Dimension, Sagwa, The Chinese Siamese Cat, What’s with Andy, Kids From Room 402, Pig City and Seriously Weird. CinéGroupe Corporation plans to expand production volume in response to heightened international demand for animated product and build its library using its state-of-the-art 3-D and technical equipment to its maximum capacity.

     Reality and Non-Fiction Programming. Termite Art Productions, a division of Lions Gate Television Inc., has created documentary and reality-based programs for such notable clients as the Discovery networks, Bravo, Court TV, MTV, VH1, A&E and The History Channel, as well as CBS, Fox and UPN. Over the last four years, Termite Art Productions has produced Unsolved History for the Discovery Channel, Celebrity Undercover for MTV, When Good Times Go Bad and Busted on the Job for Fox, Great Streets for PBS, Criss Angel-MindFreak! for ABC Family, Amazing Animal Videos for Animal Planet and Ripley’s Believe It or Not for Sony Television and TBS. In addition to distributing Termite Art Productions programs to domestic and international markets, we acquire third party productions for distribution.

     Television Movies. We are actively involved in the development, acquisition, production and distribution of television productions in the movie-of-the-week and mini-series formats. Production recently began in Québec on Student Predator (previously known as Inappropriate Behaviour), a movie-of-the-week to be produced by CinéGroupe Corporation and distributed worldwide by Lions Gate Television , contracted to be broadcast on Lifetime Television. In addition to the television movies already completed or nearing completion, we have approximately 20 hours of television movie programming in development with U.S. broadcasters and cable companies. We are in pre-production for the movie-of-the-week Lucky 7, for which we have entered into contracts with ABC Family for US Broadcast and Carleton America for international distribution.

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     Distribution

     Domestic Theatrical Distribution. We distribute motion pictures directly to North American movie theatres. Over the last few years our releases have included the following in-house productions: Monster’s Ball, starring Halle Berry and Billy Bob Thornton; American Psycho, starring Christian Bale; Frailty, starring Matthew McConaughey and Bill Paxton; The Wash, starring Snoop Dogg and Dr. Dre; and Rules of Attraction, starring James Van der Beek and Jessica Biel. Films that we have acquired and distributed in this same time period include: Dogma, starring Ben Affleck, Matt Damon and Chris Rock; O, starring Julia Stiles and Mekhi Phifer; The Red Violin, starring Samuel L. Jackson; Shadow of the Vampire, starring Willem Dafoe and John Malkovich; Secretary, starring Maggie Gyllenhaal and James Spader; Lovely & Amazing, starring Brenda Blethyn and Emily Mortimer; Gods and Monsters, starring Brendan Fraser, Ian McKellan and Lynn Redgrave; and Affliction, starring Nick Nolte and Sissy Spacek. In the last five years, films we have distributed have earned eleven Academy Award nominations and won four Academy Awards and have been nominated for and won numerous Golden Globe, Screen Actors Guild and Independent Spirit Awards.

     Our strategy is to release approximately 15 titles per year in theaters, which includes both our productions and acquisitions. Our approach to acquiring films for theatrical release is similar to our approach to film production in that we seek to limit our financial exposure while adding films to our release schedule and our video library. The decision whether to acquire a motion picture for theatrical release entails a process involving key executives at the company, including those from the releasing, home entertainment and acquisitions departments. The team meets to discuss a film’s expected critical reaction, marketability, and potential for commercial success, as well as the cost to acquire the picture, the estimated prints and advertising (“P&A”) required to enable the film to reach its widest possible audience, and the ancillary market potential for the film after the theatrical release.

     We prepare our marketing campaign and release schedules to attract the widest possible audience, with P&A typically tailored to minimize financial exposure while maximizing revenue potential for our releases. We construct release schedules taking into account moviegoer attendance patterns and competition from other studios’ scheduled theatrical releases. We use either wide or limited initial releases depending on the film. We generally spend less than half on P&A for a given film than a major studio and design our marketing plan to cost-effectively reach the widest possible audience.

     Our fiscal 2004 theatrical release schedule features some of our most highly anticipated films, including (in anticipated order of release):

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     We may revise the release date of a motion picture as the production schedule changes or in such a manner as we believe is likely to maximize revenues. Additionally, there can be no assurance that any of the motion pictures scheduled for release will be completed, that completion will occur in accordance with the anticipated schedule or budget, or that the motion pictures will necessarily involve any of the creative talent listed above.

     We also distribute French language films in Quebec through Christal Films Distribution, in which we have an equity and voting interest. In fiscal 2003, Christal Films Distribution distributed the following motion pictures: La Mystérieuse Mlle C; Savage Messiah; the Oscar-nominated Winged Migration (in French); Mission Cléopâtre (Astérix et Obélix), the highest grossing foreign film in Quebec history. Upcoming releases include: Taxi 3, Les Tourtereaux, starring Gérard Depardieu and Jean Reno; L’Auberge Espagnole, La Fleur du Mal, Rires et Châtiments, Fanfan la Tulipe, Effroyables jardins, Nez Rouge, Yamakasi 2, L’Espérance and Les Égarés.

     International Distribution. We distribute our in-house productions and third party acquisitions to the international marketplace on a territory-by-territory basis through third parties. We license international rights for approximately 185 motion pictures, including in-house productions American Psycho, Confidence, Frailty and the Academy Award winning Monster’s Ball, which gained further momentum by winning the Silver Bear for Best Actress at the 2002 Berlin Film Festival. We also license the Academy Award nominated Amores Perros internationally, which won two major prizes at the 2000 Cannes Film Festival. In the past year, we have also sold our biggest slate of in-house productions to the international marketplace, including the soon to be released Godsend and Wonderland, to some of the world’s leading independent distributors. For these and other in-house productions, international sales are often pre-sold to cover a significant portion of the production budget. We have also sold three foreign language titles that were acquired for international distribution, including the Argentinean motion picture Nine Queens, to be remade by Steven Soderberg, and the Spanish film El Otro lado de la Cama. Lions Gate International closed sales for various international rights at the 2003 Cannes Film Festival, including, but not limited to, sales for our current in-house production Final Cut, starring Robin Williams, Mira Sorvino and James Caviezel and third party product, including The Prince and the Freshman (working title) starring Julia Stiles, which is being released domestically by Paramount, and Nine Queens, which was released domestically by Sony Pictures Classics.

     Home Video Distribution. We have two U.S. video distribution labels, Trimark Home Video and Studio Home Entertainment, both branded to consumers as Lions Gate Home Entertainment, which aim

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to exploit our filmed and television content library of approximately 2,000 motion picture and television program titles. We have established a strong track record for building on the awareness generated from our theatrical releases, including the recent video release of Rules of Attraction. Recent home video releases include in-house productions Monster’s Ball, The Wash, Frailty and State Property and acquired films O, Lantana and Lovely and Amazing.

     In addition to our approximately 15 theatrical releases each year, we also acquire approximately 80 titles annually for direct-to-video distribution, adding almost 100 films to our library each year. We also produce and acquire motion pictures that are not theatrically released, but have commercial potential in video and ancillary markets, including: The Badge, starring Billy Bob Thornton and Patricia Arquette; Wise Girls, starring Mira Sorvino and Mariah Carey; and the sequels to the Cube and Reanimator franchises. We are also able to distribute successful television product on video, including the Saturday Night Live product and the first season of the hit comedy series Will and Grace, both from NBC. We recently reacquired the home entertainment distribution rights to several films we produced, including Academy Award winners and nominees Gods and Monsters starring Brendan Fraser and Ian McKellan, Affliction starring Nick Nolte and Sissy Spacek, Shadow of the Vampire starring Willem Dafoe and John Malkovich and The Red Violin starring Samuel L. Jackson.

     We directly distribute to the rental market through Blockbuster, Inc., Hollywood Entertainment Corporation, Movie Gallery, Inc. and Rentrak Corporation. We also distribute or sell directly to mass merchandisers, such as Costco Wholesale Corporation, Target Corporation, Best Buy Co. Inc., and others who buy large volumes of our videos and DVDs to sell directly to consumers.

     Pay and Free Television Distribution. We have more than 250 titles in active distribution in the domestic cable, free and pay television markets. We sell our library titles and new product to cable channels, including ABC Family, HBO, Starz, Showtime, Sci-Fi, IFC and USA. We also entered into an arrangement with Warner Home Entertainment for pay-per-view and video-on-demand distribution of Lions Gate Home Entertainment product, as well as into a movie syndication deal with New Line Television.

     Canadian Distribution. In Canada, we operate a full service theatrical, video/DVD and television distribution business in partnership with TVA Films, Inc. We and TVA Films each own 50% of JV Media Inc., a joint venture established to service each other’s motion picture and television product through all distribution media. JV Media has recently released the best-selling, critically-acclaimed French horror film Brotherhood of the Wolf in the home video market. JV Media has also slated such releases as our in-house production Confidence, starring Dustin Hoffman, and Cabin Fever, directed by Eli Roth. On video/ DVD, JV Media recently released our in-house production Rules of Attraction, which achieved top five-bestseller designation at many of Canada’s top video/DVD retailers. JV Media also recently completed a number of movie packages with Canada’s pay television networks and secured broadcast licenses for our titles such as Monster’s Ball, O and Frailty.

     Video-on-Demand. We own 55.0% of CinemaNow, a development stage company that distributes feature films on demand via the internet. CinemaNow streams and downloads over 1,000 motion pictures, delivering over 2.5 million streams to over 1.2 million users per month, using the Windows Media Player as its viewing platform. CinemaNow’s fee based, on demand selections are securely streamed using Microsoft’s Digital Rights Management. CinemaNow controls internet distribution rights to approximately 3,000 motion pictures from over 100 licensors, including distribution licenses with Fox, Warner Bros., MGM, Lions Gate, Tai Seng Video Marketing and Salvation motion picture libraries. CinemaNow makes select movies available through syndication partners including WindowsMedia.com, Netbroadcaster.com and numerous international distribution partnerships. CinemaNow also licenses its proprietary PatchBay™ technology, which is a suite of software capable of

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managing an online content distribution website, licensed by entities such as NHL.com. CinemaNow has completed three rounds of financing with investors including Microsoft, Blockbuster and Kipco.

     Studio Facilities

     We own and operate Lions Gate Studios, a state-of-the-art film and television production studio occupying nearly 14 acres in North Vancouver, British Columbia.

     Motion picture and television production continues to be attracted to Canada, attributed to numerous factors, including: i) close professional contacts between Canadian and U.S. studios, independent producers, distributors and buyers resulting from Canada’s geographic proximity to the United States; ii) lower production costs in Canada than in the U.S. and other countries due, in part, to lower guild and union minimums; iii) the favorable exchange rate of the Canadian dollar; iv) government tax incentives; v) the availability of location assistance to motion picture and television producers offered by many Canadian cities and several provinces; vi) a large number of highly trained and professional crews, technicians and production personnel; vii) flexible trade unions that insist upon less onerous requirements than their U.S. counterparts; and viii) Canada’s wide-ranging topography that makes Canada ideally suited for location shooting.

     Our studio’s annual occupancy has averaged above 90% over the last five years. Current studio productions include Miramax’s motion picture Scary Movie 3, Warner Bros.’ motion picture Scooby Doo 2, Warner Bros.’ television movie The Goodbye Girl, Fox Television’s series Tru Calling and USA Cable’s mini-series Battlestar Galactica. Also, Lions Gate Films’ motion picture Final Cut, is based at our studio.

     We expect to have continued high occupancy rates for both our studios and offices for the next year and have entered into an additional operating lease with Eagle Creek Studios in Burnaby, British Columbia. Eagle Creek Studios is occupied by Warner Bros. and has two 17,000 square foot sound stages with accompanying office space. The addition of Eagle Creek Studios increases Lions Gate Studios’ sound stage inventory to ten. We have also entered into a revenue sharing equipment supply contract with William F. White Limited for equipment on the stages.

Intellectual Property

     We are currently using the trademarks “TRIMARK HOME VIDEO” in connection with our domestic home video distribution, “LIONS GATE FILMS” and “TRIMARK PICTURES” in connection with films distributed domestically and licensed internationally and “LIONS GATE TELEVISION” and “TRIMARK TELEVISION” in connection with licenses to free, pay and cable television. The trademarks “LIONS GATE ENTERTAINMENT”, “LIONS GATE PICTURES” and “TRIMARK PICTURES” have been registered with the Commissioner of Patents and Trademarks in the United States. Additionally we have registered the trademark “TRIMARK ULTRA SPORTS” which is used in connection with our extreme sports video releases. We regard our trademarks as valuable assets and believe that our trademarks are an important factor in marketing our products.

     Copyright protection is a serious problem in the videocassette and DVD distribution industry because of the ease with which cassettes and DVDs may be duplicated. In the past, certain countries permitted video pirating to such an extent that we did not consider these markets viable for distribution. Our management believes the problem to be less critical at the present time. We and other video distributors have initiated legal actions to enforce copyright protection when necessary.

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Competition

     Television and motion picture production and distribution are highly competitive businesses. We face competition from companies within the entertainment business and from alternative forms of leisure entertainment, such as travel, sporting events, outdoor recreation and other cultural activities. We compete with the major studios, numerous independent motion picture and television production companies, television networks and pay television systems for the acquisition of literary and film properties, the services of performing artists, directors, producers and other creative and technical personnel and production financing. In addition, our motion pictures compete for audience acceptance and exhibition outlets with motion pictures produced and distributed by other companies. As a result, the success of any of our motion pictures is dependent not only on the quality and acceptance of a particular picture, but also on the quality and acceptance of other competing motion pictures released into the marketplace at or near the same time.

Employees

     As of June 9, 2003 we had approximately 300 full-time and 26 part-time regular employees in our worldwide operations and CinéGroupe Corporation has a further 307 full-time regular employees. We also hire additional employees on a picture-by-picture basis in connection with the production of our motion pictures and television programming. We believe that our employee and labour relations are good.

     None of our full-time employees are members of unions.

Government Incentives and Regulation

     Regulation by the CRTC. The Canadian Radio-television and Telecommunications Commission, or CRTC, has jurisdiction over all Canadian broadcasting and telecommunications companies. The CRTC has and continues to license and regulate broadcasting undertakings, including conventional (i.e., over-the-air television stations), specialty and pay television services, pursuant to the Broadcasting Act (Canada) and the applicable regulations made thereunder, the policies and decisions of the CRTC as issued from time to time and the conditions and expectations established in the broadcasting license for each undertaking.

     Canadian pay and specialty television channels have experienced rapid growth since the CRTC first issued licenses for these types of broadcasting undertakings in 1982. Specialty and pay television services are available to all subscribers of broadcasting distribution undertakings including cable and DTH companies. Subscriptions generally are through packages of special interest, news, sports, arts and entertainment programming. As of September 2002, there were over 50 Canadian specialty services and 13 Canadian pay-TV services available to Canadian subscribers. Moreover, in September 2001, an additional 47 new digital-only specialty channels were launched to subscribers of digital cable television services and to all DTH subscribers.

     Under the Broadcasting Act (Canada), the CRTC is responsible for regulating and supervising all aspects of the Canadian broadcasting system with a view to ensuring compliance with certain broadcasting policy objectives of the Broadcasting Act (Canada). For example, the Broadcasting Act (Canada) empowers the CRTC to issue licenses for terms of up to seven years to carry on a television programming undertaking (i.e., a conventional, specialty or pay television service) to entities eligible by virtue of their status as Canadian-owned and controlled under applicable foreign ownership and control directives issued under the legislation. In addition, the CRTC also imposes restrictions on the transfer of

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ownership and control of all licensed broadcasting undertakings, including television programming services.

     CRTC requirements provide that each Canadian broadcaster, including all conventional, specialty, pay and pay-per-view television services, must typically, as a condition of their CRTC issued broadcasting license, broadcast significant minimum amounts of Canadian content programming on their overall schedule and in prime time. Over-the-air private broadcasters must broadcast Canadian programs for a minimum of 60% of their entire schedule and 50% of their schedule between 6 p.m. and midnight. In addition, since September 2000, conventional broadcasters that are of the class of a “large multi-station ownership group” (including CTV, Global and TVA) must broadcast an average of at least eight hours per week of “priority Canadian programs” (as defined by the CRTC) during “peak hours” of 7:00 p.m. to 11:00 p.m.

     The CRTC enforces compliance with these requirements, and failure to comply can result in fines, shorter-term license renewals or revocation of a broadcaster’s license. The CRTC may also amend the terms and conditions governing such licenses at the time of renewal or in the final two years of a seven-year term, or earlier at the licensee’s request.

     Government Financial Support. Telefilm Canada, a government agency, provides financial assistance in the form of equity investments, interest free and low interest loans, and development and interim financing. Canadian motion picture and television productions that have significant Canadian creative, artistic and technical content and that meet certain published criteria qualify for such financial assistance. Telefilm Canada’s provincial counterparts in Quebec, Ontario, Manitoba, Saskatchewan, British Columbia, New Brunswick and Nova Scotia also provide financial support to qualifying Canadian content productions. In 1996, the Canadian federal government established the Canada Television and Cable Production Fund (now operating as the CTF), a government-cable industry partnership that combined the former Cable Production Fund, Telefilm Canada’s Canadian Broadcast Program Development Fund and a $100 million contribution from the Department of Canadian Heritage to form the television funding initiative. In its 2003 budget, the federal government announced that the amount provided by the Department of Canadian Heritage would be reduced to $75 million a year for 2003 and 2004, for a total of $150 million in the two-year period. Subsequently, in June 2003, the government announced that the contribution to the CTF provided through the Department of Canadian Heritage would be $87.5 million for 2003, an increase of $12.5 million over the amount announced in the 2003 budget. The $12.5 million increase will be advanced from the 2004 planned budget for the CTF, leaving the overall amount of $150 million over 2003 and 2004 provided in the 2003 budget unchanged.

     Tax Credits. The federal government provides a refundable tax credit for eligible Canadian-content motion picture or video productions produced by qualified taxable Canadian corporations. The federal tax credit is for a maximum amount of approximately 12% of the total production costs of an eligible production.

     The federal Film or Video Production Services Tax Credit, or FVPSTC, was introduced in 1997 to encourage the production in Canada of non-Canadian-content motion pictures and videos. Until recently, the FVPSTC refunded 11% of the cost of qualifying Canadian labor expenditures. In its 2003 budget, the federal government announced that it would increase the rate of the FVPSTC from 11% to 16%. This higher refundable rate will cover more of the overall production costs. Assuming that Canadian labor expenditures generally represent approximately 50% of the total production budget, the FVPSTC may net applicants approximately 8% of total production costs.

     In addition to the federal tax credits, most provinces offer a form of refundable provincial tax credit for motion pictures and videos that are produced, in whole or in part, in the particular province.

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     These tax credits range from 5.5% to 25% of eligible production costs. The applicable rate for any particular production will depend on a number of factors including the particular province in which the production occurs, whether the production meets provincial content requirements (where applicable) and whether the production is filmed in a specific location in a province that provides additional regional incentives.

     Co-Production Treaties. Canada is a party to motion picture and/or television co-production treaties with over 50 countries, which enables co-productions to qualify as local content and thus be eligible for government assistance and financing in more than one country, which reduces the cost of production. The most active relationship has traditionally been with France, but recently the United Kingdom has become a close second in volume of production.

     For Financial information about our government incentives for each of the last three fiscal years, refer to the consolidated financial statements note 17 — Government Assistance.

RISK FACTORS

     You should carefully consider the following discussion of risks and the other information included or incorporated by reference in this report in evaluating the Company and our business. The risks described below are not the only ones facing the Company. Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations.

We have had losses, and we cannot assure future profitability.

     We have reported operating income for fiscal years 2000, 2001 and 2003 and operating losses for fiscal years 1999 and 2002. We have reported net income for fiscal years 2001 and 2003 of $5.8 million and $1.1 million, respectively, and net losses for 1999, 2000 and 2002. Our accumulated deficit was $107.9 million at March 31, 2003. We cannot assure you we will continue to operate profitably, and if we cannot, we may not be able to meet our debt service, working capital requirements, capital expenditure plans, anticipated production slate or other cash needs. Our inability to meet those needs could have a material adverse effect on our business, results of operations and financial conditions.

We face substantial capital requirements and financial risks.

     Our business requires a substantial investment of capital. The production, acquisition and distribution of motion pictures and television programs require a significant amount of capital. A significant amount of time may elapse between our expenditure of funds and the receipt of commercial revenues from or government contributions to our motion pictures or television programs. This time lapse requires us to fund a significant portion of our capital requirements from our revolving credit facility and from other sources. Although we intend to continue to reduce the risks of our production exposure through financial contributions from broadcasters, distributors, tax shelters, government and industry programs and studios, we cannot assure you that we will continue to implement successfully these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition, completion and release of future motion pictures and television programs. If we increase our production slate or our production budgets, we may be required to increase overhead, make larger up-front payments to talent and consequently bear greater financial risks. Any of the foregoing could have a material adverse effect on our business, results of operations or financial condition.

     Our substantial leverage could adversely affect our financial condition. We are highly leveraged. Our primary source of capital is our revolving credit facility. The amount we have available to borrow under this facility depends upon our borrowing base, which in turn depends on the value of our existing

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library of films and television programs, as well as accounts receivable and cash in collateral accounts. If several of our larger motion picture productions are commercial failures or our library declines in value, our borrowing base could decrease. Such a decrease could have a material adverse effect on our business, results of operations or financial condition. For example, it could:

	•		require us to dedicate a substantial portion of our cash flow to the repayment of our indebtedness, reducing the amount of cash flow available to fund motion picture and television production and other operating expenses;
	•		limit our flexibility in planning for or reacting to downturns in our business, our industry or the economy in general;
	•		limit our ability to obtain additional financing, if necessary, for operating expenses, or limit our ability to obtain such financing on terms acceptable to us; and
	•		limit our ability to pursue strategic acquisitions and other business opportunities that may be in our best interests.

     Our revolving credit facility contains certain covenants and financial tests that limit the way we conduct business. Our revolving credit facility contains various covenants limiting our ability to incur or guarantee additional indebtedness, pay dividends and make other distributions, pre-pay any subordinated indebtedness, make investments and other restricted payments, make capital expenditures and sell assets. These covenants may prevent us from raising additional financing, competing effectively or taking advantage of new business opportunities. Under our revolving credit facility, we are also required to maintain specified financial ratios and satisfy certain financial tests. If we cannot comply with these covenants or meet these ratios and other tests, it could result in us being in default under our revolving credit facility, and unless we are able to negotiate an amendment, forbearance or waiver, we could then be required to repay all amounts then outstanding, which could have a material adverse effect on our business, results of operations or financial condition.

     Borrowings under our revolving credit facility are also secured by liens on substantially all of our assets and the assets of our subsidiaries. If we are in default under our revolving credit facility, the lenders could foreclose upon substantially all of our assets and the assets of our subsidiaries. We cannot assure you that we will generate sufficient cash flow to repay our indebtedness, and we further cannot assure you that, if the need arises, we will be able to obtain additional financing or to refinance our indebtedness on terms acceptable to us, if at all. Any such failure to obtain financing could have a material adverse effect on our business, results of operations and financial condition.

     Budget overruns may adversely affect our business. Our business model requires that we be efficient in production of our motion pictures and television programs. Actual motion picture and television production costs often exceed their budget, sometimes significantly. The production, completion and distribution of motion pictures and television productions are subject to a number of uncertainties, including delays and increased expenditures due to creative differences among key cast members and other key creative personnel or other disruptions or events beyond our control. Risks such as death or disability of star performers, technical complications with special effects or other aspects of production, shortages of necessary equipment, damage to film negatives, master tapes and recordings or adverse weather conditions may cause cost overruns and delay or frustrate completion of a production. If a motion picture or television production incurs substantial budget overruns, we may have to seek additional financing from outside sources to complete production. We cannot make assurances regarding the availability of such financing on terms acceptable to us, and the lack of such financing could have a material adverse effect on our business, results of operations and financial condition.

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     In addition, if a motion picture or television production incurs substantial budget overruns, we cannot assure you that we will recoup these costs, which could have a material adverse effect on our business, results of operations or financial condition. Increased costs incurred with respect to a particular film may result in any such film not being ready for release at the intended time and the postponement to a potentially less favorable time, all of which could cause a decline in box office performance, and thus the overall financial success of such film. Budget overruns could also prevent a picture from being completed or released. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

     Production costs and marketing costs are rising at a faster rate than increases in either domestic admissions to movie theatres or admission ticket prices, leaving us more dependent on other media, such as home video, television and foreign markets, and new media. If we cannot successfully exploit these other media, it could have a material adverse effect on our business, results of operations or financial condition.

Our revenues and results of operations may fluctuate significantly.

     Revenues and results of operations are difficult to predict and depend on a variety of factors. Our revenues and results of operations depend significantly upon the commercial success of the motion pictures and television programming that we distribute, which cannot be predicted with certainty. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods. In recent years, our revenues and results of operations have been significantly impacted by the success of critically acclaimed and award winning films, including Academy Award winners and nominees. We cannot assure you that we will manage the production, acquisition and distribution of future motion pictures as profitably as we have done with these recent critically acclaimed and award winning films or that we will produce or acquire motion pictures that will receive similar critical acclaim or perform as well commercially, which could have a material adverse effect on our business, results of operations and financial condition.

     We lack output agreements with cable and broadcast channels. We have an agreement with one cable or broadcast channel to exhibit our films, and that agreement does not cover films released after 2003. While similar broadcasters exhibit our films, they license such rights on a film-by-film, rather than an output, basis. We cannot assure you that our one agreement will be renewed or that we will be able to secure other output agreements on acceptable terms, if at all. Without multiple output agreements that typically contain guaranteed minimum payments, our revenues may be subject to greater volatility, which could have a material adverse effect on our business, results of operations or financial condition.

     Our revenue sharing agreements might not be renewed. We have one revenue sharing agreement with respect to the distribution of our library on home videos, and one revenue sharing agreement with respect to the distribution of our library on video cassettes and DVD. These agreements expire in September 2003 and August 2004, respectively. The agreement expiring in September 2003 accounts for approximately 10% of our gross revenues. The failure to renew either of these agreements on similar terms could have a material adverse effect on our business, results of operations or financial condition.

     We rely on a few major customers in realizing our filmed and television content library distribution revenues. A small number of retailers account for a significant percentage of our filmed and television content library distribution revenues. We do not have long-term agreements with any of these customers. We cannot assure you that we will continue to maintain favorable relationships with these customers or that they will not be adversely affected by economic conditions. If any of these customers

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reduces or cancels a significant order, it could have a material adverse effect on our business, results of operations or financial condition.

     Our revenues and results of operations are vulnerable to currency fluctuations. We report our revenues and results of operations in U.S. dollars, but a significant portion of our revenues is earned outside of the United States. Our principal currency exposure is between Canadian and U.S. dollars, although this exposure is partially mitigated through the structuring of the $200 million revolving credit facility as a $25 million Canadian dollar facility and a $175 million U.S. dollar facility. Each facility is borrowed and repaid in the respective country of origin, in local currency. We cannot accurately predict the impact of future exchange rate fluctuations between the Canadian dollar and the U.S. dollar or other foreign currencies on revenues and operating margins, and fluctuations could have a material adverse effect on our business, results of operations or financial condition.

     From time to time we may experience currency exposure on distribution and production revenues and expenses from foreign countries, which could have a material adverse effect on our business, results of operations and financial condition.

     Accounting practices used in our industry may accentuate fluctuations in operating results. In addition to the cyclical nature of the entertainment industry, our accounting practices (which are standard for the industry) may accentuate fluctuations in our operating results. In accordance with Canadian generally accepted accounting principles and industry practice, we amortize film and television programming costs using the “individual-film-forecast” method. Under this accounting method, we amortize film and television programming costs for each film or television program based on the following ratio:

     Revenue earned by title in the current period     
Estimated total revenues by title

We regularly review, and revise when necessary, our total revenue estimates on a title-by-title basis. This review may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. Results of operations in future years depend upon our amortization of our film and television costs. Periodic adjustments in amortization rates may significantly affect these results. In addition, we are required to expense film advertising costs as incurred, but are also required to recognize the revenue from any motion picture or television program over the entire revenue stream expected to be generated by the individual picture or television program.

Our ability to exploit our filmed and television content library may be limited.

     A significant portion of our filmed and television content library revenues comes from a small number of titles. We depend on a limited number of titles for the majority of the revenues generated by our filmed and television content library. In addition, many of the titles in our library are not presently distributed and generate substantially no revenue. If we cannot acquire new product and rights to popular titles through production, distribution agreements, acquisitions, mergers, joint ventures or other strategic alliances, it could have a material adverse effect on our business, results of operations or financial condition.

     We are limited in our ability to exploit a portion of our filmed and television content library. Our rights to the titles in our filmed and television content library vary; in some cases we have only the right to distribute titles in certain media and territories for a limited term. We cannot assure you that we will be able to renew expiring rights on acceptable terms, and any such failure could have a material adverse effect on business, results of operations or financial condition.

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Our success depends on external factors in the motion picture and television industry.

     Our success depends on the commercial success of motion pictures and television programs, which is unpredictable. Operating in the motion picture and television industry involves a substantial degree of risk. Each motion picture and television program is an individual artistic work, and unpredictable audience reactions primarily determine commercial success. Generally, the popularity of our motion pictures or programs depends on many factors, including the critical acclaim they receive, the format of their initial release, for example, theatrical or direct-to-video, the actors and other key talent, their genre and their specific subject matter. The commercial success of our motion pictures or television programs also depends upon the quality and acceptance of motion pictures or programs that our competitors release into the marketplace at or near the same time, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which we do not control and all of which may change. We cannot predict the future effects of these factors with certainty, any of which factors could have a material adverse effect on our business, results of operations and financial condition.

     In addition, because a motion picture’s or television program’s performance in ancillary markets, such as home video and pay and free television, is often directly related to its box office performance or television ratings, poor box office results or poor television ratings may negatively affect future revenue streams. Our success will depend on the experience and judgment of our management to select and develop new investment and production opportunities. We cannot make assurances that our motion pictures and television programs will obtain favorable reviews or ratings, that our motion pictures will perform well at the box office or in ancillary markets or that broadcasters will license the rights to broadcast any of our television programs in development or renew licenses to broadcast programs in our library. The failure to achieve any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

     Licensed distributors’ failure to promote our programs may adversely affect our business. Licensed distributors’ decisions regarding the timing of release and promotional support of our motion pictures, television programs and related products are important in determining the success of these pictures, programs and products. As with most companies engaging in licensed distribution, we do not control the timing and manner in which our licensed distributors distribute our motion pictures or television programs. Any decision by those distributors not to distribute or promote one of our motion pictures, television programs or related products or to promote competitors’ motion pictures, programs or related products to a greater extent than they promote ours could have a material adverse effect on our business, results of operations or financial condition.

     We could be adversely affected by strikes or other union job actions. The motion picture and television programs produced by us generally employ actors, writers and directors who are members of the Screen Actors Guild, Writers Guild of America and Directors Guild of America, respectively, pursuant to industry-wide collective bargaining agreements. The collective bargaining agreement with the Writers Guild of America was successfully renegotiated and became effective as of May 2, 2001 for a term of three years. The collective bargaining agreements with the Screen Actors Guild and Directors Guild of America were each successfully renegotiated and became effective as of July 1, 2002 for a term of three years. Many productions also employ members of a number of other unions, including, without limitation, the International Alliance of Theatrical and Stage Employees, the Teamsters and the Alliance of Canadian Cinema, Television and Radio Artists. A strike by one or more of the unions that provide personnel essential to the production of motion pictures or television programs could delay or halt our ongoing production activities. Such a halt or delay, depending on the length of time, could cause a delay or interruption in our release of new motion pictures and television programs, which could have a material adverse effect on our business, results of operations or financial condition.

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We face substantial competition in all aspects of our business.

     We are smaller and less diversified than many of our competitors. Although we are an independent distributor and producer, we constantly compete with major U.S. and international studios. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations, including television networks and cable channels, that can provide both means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their motion picture and television operations. In addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties as well as for actors, directors and other personnel required for production. The resources of the major studios may also give them an advantage in acquiring other businesses or assets, including film libraries, that we might also be interested in acquiring. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

     The motion picture industry is highly competitive and at times may create an oversupply of motion pictures in the market. The number of motion pictures released by our competitors, particularly the major U.S. studios, may create an oversupply of product in the market, reduce our share of box office receipts and make it more difficult for our films to succeed commercially. Oversupply may become most pronounced during peak release times, such as school holidays and national holidays, when theatre attendance is expected to be highest. For this reason, and because of our more limited production and advertising budgets, we typically do not release our films during peak release times, which may also reduce our potential revenues for a particular release. Moreover, we cannot guarantee that we can release all of our films when they are otherwise scheduled. In addition to production or other delays that might cause us to alter our release schedule, a change in the schedule of a major studio may force us to alter the release date of a film because we cannot always compete with a major studio’s larger promotion campaign. Any such change could adversely impact a film’s financial performance. In addition, if we cannot change our schedule after such a change by a major studio because we are too close to the release date, the major studio’s release and its typically larger promotion budget may adversely impact the financial performance of our film. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

     The limited supply of motion picture screens compounds this product oversupply problem. Currently, a substantial majority of the motion picture screens in the U.S. typically are committed at any one time to only ten to 15 films distributed nationally by major studio distributors. In addition, as a result of changes in the theatrical exhibition industry, including reorganizations and consolidations and the fact that major studio releases occupy more screens, the number of screens available to us when we want to release a picture may decrease. If the number of motion picture screens decreases, box office receipts, and the correlating future revenue streams, such as from home video and pay and free television, of our motion pictures may also decrease, which could have a material adverse effect on our business, results of operations or financial condition.

     Technological advances may reduce our ability to exploit our motion pictures and television programs. The entertainment industry in general and the motion picture industry in particular continue to undergo significant technological developments, including video-on-demand. This rapid growth of technology combined with shifting consumer tastes could change how consumers view our motion pictures and television programs. For example, an increase in video-on-demand could decrease home video rentals. Other larger entertainment distribution companies will have larger budgets to exploit these growing trends. While we have an interest in CinemaNow, it is a company in its infancy whose commercial success is impossible to predict. We cannot predict how we will financially participate in the exploitation of our motion pictures and television programs through these emerging technologies or whether we have the right to do so for certain of our library titles. If we cannot successfully exploit these

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and other emerging technologies, it could have a material adverse effect on our business, results of operations or financial condition.

The loss of key personnel could adversely affect our business.

     Our success depends to a significant degree upon the efforts, contributions and abilities of our senior management, especially those set forth under “Management.” Although we have employment agreements with many of our key personnel, Mr. Burns’ agreement has expired, he is employed on a month-to-month basis and his agreement is being re-negotiated. In addition, 13 other employment agreements with senior management have expired or will expire within one year from the date of this report and such agreements must be re-negotiated. We cannot assure you that the services of our key personnel will continue to be available to us or that we will be able to successfully re-negotiate such employment agreements. The loss of services of any of these employees could have a material adverse effect on our business, results of operations or financial condition.

Failure to manage future growth may adversely affect our business.

     We may not be able to obtain additional funding to meet our requirements. Our ability to grow our company through acquisitions, business combinations and joint ventures, to maintain and expand our development, production and distribution of motion pictures and television programs and to fund our operating expenses depends upon our ability to obtain funds through equity financing, debt financing (including credit facilities) or the sale or syndication of some or all of our interests in certain projects or other assets. If we do not have access to such financing arrangements, and if other funding does not become available on terms acceptable to us, there could be a material adverse effect on our business, results of operations or financial condition.

     We are subject to risks associated with acquisitions and joint ventures. We have made or entered into, and will continue to pursue, various acquisitions, business combinations and joint ventures intended to complement or expand our business. We may encounter difficulties in integrating acquired assets with our operations. Furthermore, we may not realize the benefits we anticipated when we entered into these transactions. In addition, the negotiation of potential acquisitions, business combinations or joint ventures as well as the integration of an acquired business could require us to incur significant costs and cause diversion of management’s time and resources. Future acquisitions by us could result in the following consequences:

	•		dilutive issuances of equity securities;
	•		incurrence of debt and contingent liabilities;
	•		impairment of goodwill and other intangibles;
	•		development write-offs; and
	•		other acquisition-related expenses.

     Any of the foregoing could have a material adverse effect on our business, results of operations or financial condition.

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We face risks from doing business internationally.

     We distribute motion picture and television productions outside the United States and Canada through third party licensees and derive revenues from these sources. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks include:

	•		changes in local regulatory requirements, including restrictions on content;
	•		changes in the laws and policies affecting trade, investment and taxes (including laws and policies relating to the repatriation of funds and to withholding taxes);
	•		differing degrees of protection for intellectual property;
	•		instability of foreign economies and governments;
	•		cultural barriers;
	•		wars and acts of terrorism; and
	•		the spread of severe acute respiratory syndrome, or SARS.

     Any of these factors could have a material adverse effect on our business, results of operations or financial condition.

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

     Our ability to compete depends, in part, upon successful protection of our intellectual property. We do not have the financial resources to protect our rights to the same extent as major studios. We attempt to protect proprietary and intellectual property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable international companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited practical protection in certain countries. We also distribute our products in other countries in which there is no copyright and trademark protection. As a result, it may be possible for unauthorized third parties to copy and distribute our productions or certain portions or applications of our intended productions, which could have a material adverse effect on our business, results of operations or financial condition.

     Litigation may also be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and the diversion of resources and could have a material adverse effect on our business, results of operations or financial condition. We cannot assure you that infringement or invalidity claims will not materially adversely affect our business, results of operations or financial condition. Regardless of the validity or the success of the assertion of these claims, we could incur significant costs and diversion of resources in enforcing our intellectual property rights or in defending against such claims, which could have a material adverse effect on our business, results of operations or financial condition.

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Piracy of motion pictures, including digital and internet piracy, may reduce the gross receipts from the exploitation of our films.

     Motion picture piracy is extensive in many parts of the world, including South America, Asia, the countries of the former Soviet Union and other former Eastern bloc countries. Additionally, as motion pictures begin to be digitally distributed using emerging technologies such as the internet and online services, piracy could become more prevalent, including in the U.S., because digital formats are easier to copy. As a result, users can download and distribute unauthorized copies of copyrighted motion pictures over the internet. In addition, there could be increased use of devices capable of making unauthorized copies of motion pictures. As long as pirated content is available to download digitally, many consumers may choose to download such pirated motion pictures rather than pay for motion pictures. Piracy of our films may adversely impact the gross receipts received from the exploitation of these films, which could have a material adverse effect on our business, results of operations or financial condition.

Our shareholders could experience substantial dilution as a result of the conversion of our preferred shares, which dilution could be substantially increased if the anti-dilution provisions of our preferred shares apply to our public offering of common shares completed June 9, 2003.

     As of June 25, 2003, we had 3,790 Series A Preferred Shares outstanding that were issued at a price of $2,550 per share and that are currently convertible into 3,790,000 common shares. If we issue shares at a price less than the conversion price of the Series A Preferred Shares (currently $2.55), then the conversion price would be reduced to such lower price, subject to certain exceptions, and the holders of Series A Preferred Shares could convert such shares into the number of common shares equal to the issuance price of the Series A Preferred Shares divided by the new conversion price. We have agreed with all the holders of our Series A Preferred Shares that we will authorize amendment of the terms of the Series A Preferred Shares so that their conversion price is reduced to $2.30 rather than $2.55, and we are including such adjustment as an item to be voted upon by any required classes of shareholders at our next annual shareholders meeting, scheduled for September 12, 2003. If approved, this amendment would result in dilution to our existing shareholders as the Series A Preferred Shares would be convertible into 4,201,957 common shares. In connection with such agreement, each holder of Series A Preferred Shares has conditionally agreed to waive any requirement that the conversion price of the Series A Preferred Shares be adjusted as a result of our June 2003 public offering of common shares. If our shareholders do not approve the amendment to $2.30 at our next annual shareholders meeting, then the conversion price of the Series A Preferred Shares would be adjusted to $2.05, resulting in even greater dilution to our existing shareholders. At the public offering price of $2.05, the Series A Preferred Shares would be convertible into 4,714,390 common shares instead of the 3,790,000 common shares into which they are currently convertible or the 4,201,957 common shares into which they would be convertible if the amendment were approved. In addition, we are also authorized to issue additional Series A Preferred Shares in lieu of cash dividends on such shares, which such issuances would result in additional dilution to our existing shareholders.

We may lose certain benefits by failing to meet certain regulatory standards.

     We may not be eligible to receive certain British Columbia refundable tax credits. A portion of our consolidated revenues includes certain tax credits that Lions Gate Television Corp., or LGTC, applies to receive from the province of British Columbia under the British Columbia Film and Television Tax Credit Program, or the Tax Credit Program, which is administered by the provincial government agency British Columbia Film. For productions to qualify for the tax credits provided under the Tax Credit Program, LGTC must be “BC-controlled” for the purposes of the Income Tax Act (British Columbia). LGTC is a corporation wholly owned by a trust of which Frank Giustra, our former Chairman of the Board, is the trustee. The beneficiaries of the trust are Lions Gate Entertainment Corp., LGTC and our

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subsidiaries. In a letter dated January 17, 2003, British Columbia Film questioned the status of LGTC as a “BC-controlled” company and therefore the entitlement of LGTC to receive the British Columbia tax credits sought for certain of its productions. In particular, British Columbia Film questioned whether the trust currently holding the shares of LGTC was properly created and had the requisite indicia of ownership of the LGTC shares. We are currently providing additional information to British Columbia Film in support of our belief that LGTC is a “BC-controlled” company within the requirements of the Income Tax Act (British Columbia).

     If there is a determination by British Columbia Film that LGTC is not “BC-controlled” within the meaning of the Income Tax Act (British Columbia), then certain productions would not be eligible to receive the maximum British Columbia tax credits under the Tax Credit Program. The amount at risk represents the difference between tax credits available under the Tax Credit Program for “BC-controlled” companies and those available under the Tax Credit Program for non-BC-controlled companies. If such a determination were made, we would be required to return to British Columbia Film Cdn$2,218,000, or US$1,511,000, worth of tax credits previously received, reducing our cash balance by that amount. In addition, because under Canadian GAAP tax credits are included in our revenues, in the event of an adverse determination, we would take a charge to earnings in the amount of the lost tax credits. We have estimated the charge that would result from such a determination to be up to Cdn$5,354,000 (comprising the Cdn$2,218,000 in cash to be returned together with Cdn$3,136,000 included in revenue but not yet received), or US$3,648,000, in the aggregate.

     We may lose investment funds, tax credits and other benefits if we fail to meet Canadian regulatory requirements. Certain programs produced by us will be contractually required to be “Canadian content” programs in accordance with the requirements established from time to time by the Canadian Radio-television and Telecommunications Commissions, or CRTC, the Canadian Audio-Visual Certification Office, the Income Tax Act (Canada) and the regulations thereunder. If a program does not qualify under the applicable requirements, we would be in default of our commitments made in connection with these contracts. Any default could result in reduction or the elimination of license fees from the Canadian broadcasters, reduced or eliminated government incentives and/or future ineligibility for Canadian government incentive programs.

     The Canadian federal government and a number of its provincial counterparts have established refundable tax credit programs based on eligible labor expenditures of qualifying production entities. We expect that certain of our motion picture and television productions will incorporate these refundable tax credits as elements of production financing. If such productions do not ultimately qualify for anticipated refundable tax credits, the relevant production may require additional funds for completion, which may not be available from other sources.

     For our motion picture and television productions to continue to qualify for several refundable tax credits, we must remain Canadian-controlled pursuant to the Investment Canada Act (Canada), or ICA, among other statutory requirements. The ICA contains rules, the application of which determines whether an entity (as the term is defined in the ICA) is Canadian-controlled. Under these rules, an entity is presumed to be a non-Canadian in certain circumstances, including where Canadians own less than a majority of voting interests of an entity. This presumption may be rebutted, for example, if the entity establishes that it is not controlled in fact through the ownership of its voting interests and that two-thirds of the members of its board of directors are Canadians.

     Although we believe we are currently a Canadian-controlled entity under the ICA, there can be no assurance that the Minister of Canadian Heritage will not determine we are out of compliance with the ICA, or that events beyond our control will not result in our ceasing to be Canadian-controlled pursuant to the ICA. The ICA provides the Minister of Canadian Heritage with discretion to make a determination

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that a business activity prescribed under the ICA as relating to Canada’s cultural heritage or national identity (which includes a business engaged in the production, distribution, sale or exhibition of film or video products, hereinafter referred to as a “cultural business”) is not a Canadian-controlled entity, if the Minister is satisfied, after considering any information or evidence submitted by the entity or otherwise made available to the Minister or the Director of Investments, that the entity is controlled in fact by one or more non-Canadians. If we cease to be Canadian-controlled under the ICA, we would no longer qualify or be entitled to access these refundable tax credits and other Canadian government and private motion picture industry incentives that are restricted to Canadian-controlled corporations, including the ability to produce under Canada’s official co-production treaties with other countries.

     Such a change in status would require us to return tax credits previously received, reducing our cash balance. In addition, because under Canadian GAAP tax credits are included in revenues, we would take a charge to earnings in the amount of the lost tax credits. There are currently no transfer restrictions on our common shares as a class, and we accordingly may not be able to prevent a change of control to non-Canadians. In addition, certain provincial refundable tax credits require that the applicant be provincially controlled. If any of our affiliates that accesses or intends to access such credits ceases to be provincially controlled, we would no longer be entitled to access the applicable provincial refundable tax credit.

     For all of the foregoing reasons, the loss of our Canadian status could have a material adverse effect on our business, results of operations or financial condition.

     We face other risks in obtaining production financing from private and other international sources. For some productions, we finance a portion of our production budgets from incentive programs from such agencies as Telefilm Canada, as well as international sources in the case of our international treaty co-productions. There can be no assurance that local cultural incentive programs that we may access in Canada and internationally, as a result of our Canadian-controlled status, will not be reduced, amended or eliminated. Any change in policies in connection with incentive programs may have an adverse impact on us. In addition, we could lose our ability to exploit such incentive programs in Canada if we cease to qualify as “Canadian.” Certain programs produced by us will be contractually required to be certified as “Canadian Film and Video Production.” If a program does not qualify for such certification, we would be in default on commitments made in connection with government incentive programs and licenses to broadcasters/distributors. In addition, to the extent we do not qualify as “Canadian” as a result of a merger, an acquisition or an unconstrained share transfer to one or more non-Canadians, we would no longer qualify for such incentives/tax credits and may be liable to repay certain benefits to the applicable authorities. The foregoing could have a material adverse effect on our business, results of operations or financial condition.

     An investment by non-Canadians in our business is potentially reviewable by the Minister of Canadian Heritage. Under the ICA, the Minister of Canadian Heritage has discretion to determine, after considering any information or evidence submitted by the entity or otherwise made available to the Minister or the Director of Investments, that an investment by a non-Canadian in a cultural business may constitute an acquisition of control by that non-Canadian, notwithstanding the provisions in the ICA that state that certain investments do not or may not constitute an acquisition of control that would require notification or review under the ICA. In the event that the Minister of Canadian Heritage exercises her discretion and deems an investment by a non-Canadian in a cultural business to be an acquisition of control, the investment is potentially subject to notification and/or review. If the investment is subject to review, the Minister must be satisfied that the investment is likely to be of net benefit to Canada. Such a determination is often accompanied by requests that the non-Canadian provide undertakings supportive of Canadian cultural policy. These undertakings may, in some circumstances, include a request for financial support of certain initiatives. The determination by the Minister of whether a proposed investment is of

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net benefit to Canada also includes consideration of sector specific policies of the Canadian federal government. One such policy prohibits takeovers of Canadian owned and controlled film distribution businesses by non-Canadians. This prohibition is not contained in the ICA nor in the regulations made under the ICA, but is a separate foreign investment policy relating to the Canadian film distribution sector. If an investment by a non-Canadian in our business is deemed by the Minister to be an acquisition of control and ultimately subject to review, the current policy of the Canadian federal government prohibiting the takeover of a Canadian owned and controlled film distribution business would be applied in the context of the Minister’s determination of whether the proposed investment would be of net benefit to Canada, with the result that the company’s film distribution business in Canada may have to be divested to a Canadian purchaser, which could have a material adverse effect on our business, results of operations or financial condition.

     A failure to meet Canadian programming restrictions may decrease the time slots or amount of license fees and incentive programs available to us. Canadian broadcasters, including all conventional, specialty, pay and pay-per-view television services are typically required, as a condition of their license, to broadcast significant minimum amounts of Canadian content programming on their overall schedule and in prime time. The CRTC enforces compliance with these requirements, and failure to comply can result in fines or in the revocation of a broadcaster’s license, or more restrictive terms on license renewal. The CRTC has issued detailed criteria that must be met for a television production to qualify as a “Canadian program.” The criteria require, among other things, that Canadians perform a minimum level of key and creative functions and that specified minimum production costs be paid to Canadians or Canadian companies. If our productions cease to qualify as Canadian programs under existing CRTC regulations and policies, or if these regulations or policies should change on further review by the CRTC, we may find it more difficult to secure time slots in Canada for our productions, or the amount of the license fees we may generate in Canada may decrease if our programs do not qualify as Canadian programs. In addition, if our productions cease to meet minimum Canadian content requirements, we may be unable to access various federal and provincial motion picture and television incentive programs, including refundable tax credits, as discussed below. There could be a material adverse effect on our business, results of operations and financial condition if any change in the policies of the Canadian or provincial governments in connection with their incentive programs occurs.

ITEM 2. PROPERTIES.

     Our corporate head office is located at Suite 3123, Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia and occupies approximately 600 square feet of space under a month to month agreement. Our principal executive offices are located at Suite 3123, Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia, V7X 1J1 and 4553 Glencoe Avenue, Suite 200, Marina del Rey, California, 90292. Our Canadian operations and financial personnel are located in leased space of 6,018 square feet expiring in 2006 in Toronto, Ontario and United States corporate executives and operations, including CinemaNow, are located in leased space of 35,000 square feet expiring in 2009 in Marina del Rey, California.

     Christal Films’ office is located in the borough of Westmount, Montreal, Quebec, and occupies approximately 14,000 square feet under a lease agreement expiring in 2007. Christal Films leases a further 5,000 square feet of space in St. Laurent for storage facilities on a monthly basis.

     CinéGroupe Corporation operates from two premises in Montréal, Quebec totalling approximately 70,000 square feet, the leases which expire in 2006. They also have a 1,280 square foot office in Los Angeles which lease expires in 2006.

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     The LG Studios complex is located at 555 Brooksbank Avenue, North Vancouver, British Columbia. LG Studios’ facilities occupy an approximately 14-acre site in a landscaped, park-like setting. The land on which the facilities are situated is owned by LG Studios and is currently subject to mortgages under five separate term loans. We have signed a letter of intent to amalgamate the loans into one five-year loan of $17.54 million, expiring in June 2008. We have a five-year operating lease for 50,000 square feet with Eagle Creek Studios in Burnaby, British Columbia expiring in 2005.

     Termite Art has leased office space totalling approximately 11,000 square feet in Studio City, California, which expires in 2004.

     We believe that our current facilities are adequate to conduct our business operations for the foreseeable future. We believe that we will be able to renew these leases on similar terms upon expiration. If we cannot renew, we believe that we could find other suitable premises without any material adverse impact on our operations.

ITEM 3. LEGAL PROCEEDINGS.

     We know of no actual, threatened or pending legal proceedings to which we or any of our subsidiaries is a party which are material or potentially material, either individually or in the aggregate.

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

     No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.

Executive Officers

     The following table provides information about our executive officers at June 25, 2003:

     Mark Amin. Mr. Amin has been our Vice Chairman since October 2000. From 1984 to October 2000, Mr. Amin served as Chief Executive Officer or Chairman of Trimark Holdings, Inc., which he founded. Since 1998 Mr. Amin has been Chairman of CinemaNow and since 2001 the owner and Chief Executive Officer of Sobini Films. Mr. Amin became a director in October 2000.

     Michael Burns. Mr. Burns has been our Vice Chairman since March 2000. From 1991 to March 2000, Mr. Burns served as Managing Director and Head of Prudential Securities Inc.’s Los Angeles Investment Banking Office. Mr. Burns became a director in August 1999. Mr. Burns is Chairman and a director of Novica.com.

     Jon Feltheimer. Mr. Feltheimer has been our Chief Executive Officer since March 2000. From 1997 to 1999, Mr. Feltheimer served as Executive Vice President of Sony Pictures Entertainment. Mr. Feltheimer became a director in January 2000.

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     James Keegan. Mr. Keegan has been our Chief Administrative Officer since April 2002 and our Chief Financial Officer since September 2002. From September 1998 to April 2002, Mr. Keegan was the Chief Financial Officer of Artisan Entertainment. From April 1989 to March 1990, he was Controller of Trimark Holdings, Inc. and from March 1990 to August 1998, he was the Chief Financial Officer of Trimark Holdings, Inc.

     Gordon Keep. Mr. Keep has been our Senior Vice President since October 1997. From 1987 to October 1997, Mr. Keep served as Vice President, Corporate Finance of Yorkton Securities Inc. Mr. Keep has been a director since June 2000. From January 2001 to September 2002, Mr. Keep was a consultant for Endeavour Financial and from October 2002 to the present, Mr. Keep has been the Managing Director, Corporate Finance of Endeavour Financial. Mr. Keep is a director and member of the audit committees of Dunsmuir Ventures Ltd. and Adobe Ventures Inc. Mr. Keep is President, a director and a member of the audit committee of Full Riches Investments Ltd.

     Wayne Levin. Mr. Levin has been our Executive Vice President, Legal and Business Affairs since November 2000. He worked for Trimark Holdings, Inc. from September 1996 to November 2000, first as Director of Legal and Business Affairs from 1996 to 1998 and then as General Counsel and Vice President from 1998 to 2000.

     André Link. Mr. Link has been our President since April 2000 and our Chairman since May 2003. Since 1962, Mr. Link has been Chief Executive Officer of Lions Gate Films Corp. Mr. Link has been a director since November 1997.

     Harald Ludwig. Mr. Ludwig has been a director since November 1997 and our Vice Chairman since May 2003. Since 1985, Mr. Ludwig has served as President of Macluan Capital Corporation, a leverage buy-out company. Mr. Ludwig is a director and a member of the compensation committee of West Fraser Timber Limited and a director of SVC Second Ventures Limited and Compass Aerospace Limited.

     Marni Wieshofer. Ms. Wieshofer has been our Executive Vice President, Corporate Development since September 2002. From April 1999 until September 2002. Ms. Wieshofer served as our Chief Financial Officer. From February 1999 to April 1999, Ms. Wieshofer was our Vice President, Finance. From October 1995 to January 1999, Ms. Wieshofer served as Vice President, Finance of Alliance Atlantis Communications, an entertainment company.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

     Our Common Stock is listed on the Toronto Stock Exchange (the “TSE”) and the American Stock Exchange (“AMEX”) and trades under the symbol “LGF.”

Toronto Stock Exchange

     The following table sets forth the range of high and low closing sale prices for our Common Stock, as reported by the TSE in Canadian dollars, for our two most recent fiscal years:

American Stock Exchange

     The following table sets forth the range of high and low closing sale prices for our Common Stock, as reported by AMEX in U.S. dollars, for our two most recent fiscal years:

Holders

     As of June 25, 2003, there were 59,408,455 shares issued and outstanding and 375 registered holders of our common shares.

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Dividend Policy

     We have not paid any dividends on our outstanding common shares since our inception and do not anticipate doing so in the foreseeable future. The declaration of dividends on our common shares is restricted by our revolving credit facility and preferred shares and is within the discretion of our board of directors and will depend upon the assessment of, among other things, our earnings, financial requirements and operating and financial condition. At the present time, given our anticipated capital requirements we intend to follow a policy of retaining earnings in order to finance further development of our business. We are also limited in our ability to pay dividends on our common shares by restrictions under the Company Act (British Columbia) relating to the sufficiency of profits from which dividends may be paid.

     Our 5.25% Series A Convertible Redeemable Preferred Shares are entitled to cumulative dividends, as and when declared by the board of directors, payable semi-annually on the last day of March and September of each year. At our option, the dividend may be paid in cash or additional Series A Preferred Shares. On March 31, 2002, we declared and paid, in kind, a dividend of $773,600, or $66.94 per share, by the issuance of 273 Series A Preferred Shares and cash payments of $77,450. On September 30, 2002, we declared and paid a cash dividend of $791,871, or $66.94 per share. On March 31, 2003, we declared and paid a cash dividend of $791,871, or $66.94 per share.

Taxation

     The following is a general summary of certain Canadian income tax consequences to U.S. Holders (who deal at arm’s length with the company) of the purchase, ownership and disposition of common shares. For the purposes of this Canadian income tax discussion, a “U.S. Holder” means a holder of common shares who (1) for the purposes of the Income Tax Act (Canada) is not, has not, and will not be resident in Canada at any time while he or she holds common shares, (2) at all relevant times is a resident of the United States under the Canada-United States Income Tax Convention (1980) (the “Convention”), and (3) does not and will not use or be deemed to use the common shares in carrying on a business in Canada. This summary does not apply to U.S. Holders who are insurers. Such U.S. Holders should seek tax advice from their advisors. An actual or prospective investor that is a United States limited liability company in some circumstances may not be considered to be a resident of the United States for the purposes of the Convention and therefore may not be entitled to benefits thereunder.

     This summary is not intended to be, and should not be construed to be, legal or tax advice to any prospective investor and no representation with respect to the tax consequences to any particular investor is made. The summary does not address any aspect of any provincial, state or local tax laws or the tax laws of any jurisdiction other than Canada or the tax considerations applicable to non-U.S. Holders. Accordingly, prospective investors should consult with their own tax advisors for advice with respect to the income tax consequences to them having regard to their own particular circumstances, including any consequences of an investment in common shares arising under any provincial, state or local tax laws or the tax laws of any jurisdiction other than Canada.

     This summary is based upon the current provisions of the Income Tax Act (Canada), the regulations thereunder and the proposed amendments thereto publicly announced by the Department of Finance, Canada before the date hereof and our understanding of the current published administrative and assessing practices of the Canada Customs and Revenue Agency. It does not otherwise take into account or anticipate any changes in law, whether by legislative, governmental or judicial action.

     The following summary applies only to U.S. Holders who hold their common shares as capital property. In general, common shares will be considered capital property of a holder where the holder is

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neither a trader nor dealer in securities, does not hold the common shares in the course of carrying on a business and is not engaged in an adventure in the nature of trade in respect thereof. This summary does not apply to holders who are “financial institutions” within the meaning of the mark-to-market rules contained in the Income Tax Act (Canada).

     Amounts in respect of common shares paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends to a shareholder who is not a resident of Canada within the meaning of the Income Tax Act (Canada) will generally be subject to Canadian non-resident withholding tax. Such withholding tax is levied at a basic rate of 25%, which may be reduced pursuant to the terms of an applicable tax treaty between Canada and the country of residence of the non-resident shareholder. Under the Convention, the rate of Canadian non-resident withholding tax on the gross amount of dividends received by a U.S. Holder is generally 15%. However, where such beneficial owner is a company that owns at least 10% of the voting shares of the company paying the dividends, the rate of such withholding is 5%.

     A U.S. Holder will generally not be subject to tax under the Income Tax Act (Canada) in respect of any capital gain arising on a disposition of common shares (including on a purchase by the company) unless at the time of disposition such shares constitute taxable Canadian property of the holder for purposes of the Income Tax Act (Canada) and such holder is not entitled to relief under an applicable tax treaty. If the common shares are listed on a prescribed stock exchange at the time they are disposed of, they will generally not constitute taxable Canadian property of a U.S. Holder unless, at any time during the five year period immediately preceding the disposition of the common shares, the U.S. Holder, persons with whom he or she does not deal at arm’s length, or the U.S. Holder together with non-arm’s length persons, owned 25% or more of the issued shares of any class or series of the capital stock of the company. In any event, under the Convention, gains derived by a U.S. Holder from the disposition of common shares will generally not be subject to tax in Canada unless the value of the company’s shares is derived principally from real property or certain other immovable property situated in Canada.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

     Our consolidated financial statements have been prepared in accordance with Canadian GAAP that conforms, in all material respects, with U.S. GAAP, except as described in the notes to the financial statements (specifically, note 22 of the notes to consolidated financial statements beginning on page F-31). As described more specifically in those notes and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, the differences between Canadian GAAP and U.S. GAAP cause adjustments in statement of operations data (including revenues and income (loss)) and balance sheet data (including shareholders’ equity).

     The consolidated financial information included in this report is expressed in U.S. dollars. Commencing with the period beginning April 1, 2002, our consolidated financial statements are presented in U.S. dollars, as a substantial component of our operations are domiciled in the U.S. and the principal market for trading of our common shares is the American Stock Exchange. Prior to April 1, 2002, our consolidated financial statements were presented in Canadian dollars and have been converted to U.S. dollars for presentation in this report. The U.S. dollar and the Canadian dollar are the functional currencies of the Company’s U.S. and Canadian based businesses, respectively. Assets and liabilities denominated in currencies other than U.S. dollars are translated at exchange rates in effect at the relevant balance sheet date. Revenue and expense items denominated in currencies other than U.S. dollars are translated at the average rate of exchange for the relevant period. Any resulting foreign exchange gains and losses are recorded as a separate component of shareholders equity. You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis

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of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in this report.

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

     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in “Risk Factors” and elsewhere in this document.

Overview

     We are an independent producer and distributor of film and television entertainment content. We release approximately 15 motion pictures theatrically per year. Our theatrical releases include films we produce in-house and films we acquire from third parties. We also have produced over 150 hours of television programming on average each of the last four years. Our disciplined approach to production, acquisition and distribution is designed to maximize our profit by balancing our financial risks against the probability of commercial success of each project. We distribute our library of approximately 2,000 motion picture and television program titles directly to retailers, video rental stores, pay and free television channels and indirectly to international markets through third parties. We also own a majority interest in CinemaNow, a development stage internet video-on-demand provider, and own and operate a film and television production studio.

     Our revenues are derived from the following business units:

	•		Motion Pictures, which includes Theatrical, Home Entertainment, Television and International Distribution. Theatrical revenues are derived from the domestic theatrical release of motion pictures in North America. Home entertainment revenues are derived from the sale of video and DVD releases of our own productions and acquired films, including theatrical releases and direct-to-video releases. Television revenues are primarily derived from the licensing of our product to the domestic cable, free and pay television markets. International revenues are derived from the licensing of our productions and acquired films to international markets on a territory-by-territory basis.
	•		Television, which includes the licensing to domestic and international markets of one-hour drama series, television movies and non-fiction programming.
	•		Animation, which includes an interest in CinéGroupe Corporation, a producer and distributor of animated feature films and television programming.
	•		Studio Facilities, which includes Lions Gate Studios and the leased facility Eagle Creek Studios, which derive revenue from rental of sound stages, production offices, construction mills, storage facilities and lighting equipment to film and television producers.

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     Our primary operating expenses include the following:

	•		Direct Operating Expenses, which include amortization of production or acquisition costs, participation and residual expenses.
	•		Distribution and Marketing Expenses, which primarily include the costs of theatrical “prints and advertising” and of video and DVD duplication and marketing.
	•		General and Administrative Expenses, which include salaries and other overhead.

     The functional currency of our business, based on the economic environment in which we primarily generate and expend cash, is the Canadian dollar and the U.S. dollar for the Canadian and U.S.-based businesses, respectively. Commencing with the period beginning April 1, 2002, condensed consolidated financial statements are presented in U.S. dollars, as a substantial component of our operations are domiciled in the U.S. and the principal market for trading of our common shares is the American Stock Exchange. This Management’s Discussion and Analysis, and all financial statements in this report have been restated in U.S. dollars. In accordance with generally accepted accounting principles in both Canada and the U.S., the financial statements of Canadian-based companies are translated for consolidation purposes using current exchange rates in effect on the balance sheet date and revenue and expenses translated at the average rate of exchange for the relevant period. Any resulting foreign exchange gains and losses are recorded as a separate component of shareholders’ equity. The functional currencies of each of the Company’s operations in the United States and Canada are unchanged.

     Due to the retroactive adoption without restatement of Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3062 (“CICA 3062”) on April 1, 2001 and SoP 00-2 and CICA Handbook Section 3465 (“CICA 3465”) on April 1, 2000, all as described in note 2(c) to the consolidated financial statements, our operating results from periods prior to April 1, 2001 are not comparable to periods after that date. See our discussion of SoP 00-2 in “Critical Accounting Policies” below.

     Discontinued Operation. Effective April 1, 2002, the carrying value of the Company’s investment in Mandalay Pictures, LLC (“Mandalay”) was presented as a discontinued operation as it was expected to be sold by the end of the current fiscal year. During fiscal 2003, the Company received distributions of $2.4 million from Mandalay under a prior agreement. On November 8, 2002, the Company sold its investment in Mandalay for cash of $4.2 million and an interest bearing convertible promissory note totaling $3.3 million. The note, bearing interest at 6%, is payable $1.3 million on December 31, 2005, $1.0 million on December 31, 2006 and $1.0 million on December 31, 2007. No gain or loss was recorded on the sale as the Company’s carrying value of $7.5 million equaled the sales price.

     Investment in CinemaNow. During the quarter ended March 31, 2002, CinemaNow advised the Company of its inability to generate sufficient cash flows from operation to sustain its operations over the next twelve months, without raising additional capital. Given the uncertain economic climate and CinemaNow’s recurring losses there was no assurance that further financing would be forthcoming and as a result, the Company wrote down its investment in CinemaNow to $nil. The write-off of the investment in CinemaNow of $13.4 million was disclosed in the statement of operations as the write-down in investments subject to significant influence. During the quarter ending March 31, 2003, the Company purchased $0.4 million of Series C Convertible Preferred Shares of CinemaNow as part of a CinemaNow round of financing. The round of financing and conversion of a debenture decreased the Company’s economic and voting interest from 63% to 57.4%. The subsequent investment in CinemaNow is accounted for using the equity method, as the Company does not have the ability to control the strategic,

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operating, investing and financing decisions of CinemaNow as a consequence of the Company’s inability to elect the majority of the Board of Directors of CinemaNow.

Recent Developments

     Sale of Common Shares. On June 4, 2003, the Company issued a prospectus to sell 15,000,000 common shares at a public offering price of $2.05 per share. On June 9, 2003, the Company received $28.9 million of net proceeds, after deducting underwriting discounts, and issued 15,000,000 common shares. The Company estimates the offering expenses will be approximately $1.0 million. The Company used $18.1 million of the net proceeds to repurchase 8,040 Series A Preferred Shares at a per share purchase price of $2,250 and used the remaining net proceeds for repayment of bank loans and general business purposes. On June 13, 2003, the underwriters exercised a portion of their over allotment option and the Company received $2.3 million of net proceeds, after deducting underwriting discounts, and issued an additional 1,201,056 common shares.

Critical Accounting Policies

     The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see note 2 to our audited consolidated financial statements.

     Generally Accepted Accounting Principles. Our consolidated financial statements have been prepared in accordance with Canadian GAAP, which conforms, in all material respects, with U.S. GAAP, except as described in the notes to the financial statements. The U.S. dollar and the Canadian dollar are the functional currencies of our U.S. and Canadian-based businesses, respectively. Commencing with the period beginning April 1, 2002, our consolidated financial statements are presented in U.S. dollars as a substantial component of our operations are domiciled in the U.S. and the primary market for trading volume of our common shares is on the American Stock Exchange. Prior to April 1, 2002, our consolidated financial statements were presented in Canadian dollars. These consolidated financial statements and those amounts previously reported in Canadian dollars have been translated from Canadian dollars to United States dollars by translating the assets and liabilities at the rate in effect at the respective balance sheet dates and revenues and expenses at the average rate for the reporting periods. Any resulting foreign exchange gains and losses are recorded as a separate component of shareholders equity. The functional currencies of each of the Company’s operations in the United States and Canada are unchanged.

     Accounting for Films and Television Programs. In June 2000, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 00-2 “Accounting by Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes new accounting standards for producers or distributors of films, including changes in revenue recognition, capitalization and amortization of costs of acquiring films and television programs and accounting for exploitation costs, including advertising and marketing expenses. We elected early adoption of SoP 00-2 and retroactively adopted SoP 00-2 effective as of April 1, 2000. We also elected to adopt SoP 00-2 for Canadian GAAP purposes. The prior years’ financial statements were not restated, as the effect of the new policy on the prior periods was deemed not reasonably determinable. Accordingly, opening

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accumulated deficit for the year ended March 31, 2001 was increased to reflect the cumulative effect of the accounting change in the amount of $40.7 million (net of income taxes of $1.5 million). The principal changes as a result of applying SoP 00-2 are as follows:

	•		Advertising and marketing costs, which were previously capitalized to investment in films and television programs on the balance sheet and amortized using the individual film forecast method, are now expensed the first time the advertising takes place.
	•		The capitalization of production costs for episodic television series is limited to revenue that has been contracted for on an episode-by-episode basis until such time as the criteria for recognizing secondary market revenues are met.

     We capitalize costs of production, including financing costs, to investment in motion pictures and television programs. These costs are amortized to direct operating expenses in accordance with SoP 00-2. These costs are stated at the lower of unamortized motion picture or television program costs or fair value (net present value). These costs for an individual motion picture or television program are amortized in the proportion that current period actual revenues bear to management’s estimates of the total revenue expected to be received from such motion picture or television program over a period not to exceed ten years from the date of delivery. Management regularly reviews and revises when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or write-down of all or a portion of the unamortized costs of the motion picture or television program to its fair value. No assurance can be given that unfavorable changes to revenue estimates will not occur, which may result in significant write-downs affecting our results of operations and financial condition.

     Revenue Recognition. Revenue from the sale or licensing of motion pictures and television programs is recognized upon meeting all recognition requirements of SoP 00-2. Revenue from the theatrical release of motion pictures is recognized at the time of exhibition based on the company’s participation in box office receipts. Revenue from the sale of DVDs in the retail market, net of an allowance for estimated returns, is recognized on the later of shipment to the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental revenue is recognized when we are entitled to receipts and such receipts are determinable. Revenues from television licensing are recognized when the motion picture or television program is available to the licensee for telecast. For television licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows.” Revenue from sales of international territories are recognized when the feature film or television program is available to the distributor for exploitation and no conditions for delivery exist, which under most sales contracts requires that full payment has been received from the distributor. For contracts that provide for rights to exploit a program on multiple media (e.g. theatrical, video, television) with a fee for a single motion picture or television program where the contract specifies the permissible timing of release to various media, the fee is allocated to the various media based on management’s assessment of the relative fair value of the rights to exploit each media and is recognized as the program is released to each media. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on management’s assessment of the relative fair value of each title. Rental revenue from short-term operating leases of studio facilities is recognized over the term of the lease. Prior to December 2001, we earned fees from management services provided to Canadian limited partnerships, whose purpose was to assist in the financing of motion pictures produced in Canada, and those fees were recognized as revenue when the financing was completed. We no longer provide these management services due to the rescission of certain tax shelter provisions by the Canadian government. Cash payments received are recorded as deferred revenue until all the conditions of revenue recognition have been met. We accrue for video returns and provide for allowances in the financial statements based on previous returns and our allowances history on a title-by-title basis in each of the

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video businesses. There may be differences between actual returns and allowances and our historical experience.

     Income Taxes. The Company recognizes future income tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the financial statements or income tax returns. Future income taxes are provided for using the liability method. Under the liability method, future income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.

     Goodwill. In November 2001, the CICA released Handbook Section 3062, “Goodwill and Other Intangible Assets,” to be applied by companies for fiscal years beginning on or after January 1, 2002. Early adoption of CICA 3062 was permitted for companies with their fiscal year beginning on or after April 1, 2001, provided the first interim period financial statements had not been previously issued. We elected to early-adopt CICA 3062 on April 1, 2001. Under CICA 3062, goodwill is no longer amortized but is reviewed annually for impairment, or more frequently if impairment indicators arise, unless certain criteria have been met. CICA 3062 is similar, in many respects, to SFAS 142, “Goodwill and Other Intangible Assets,” under U.S. GAAP. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Notes 2(c) and 6 to our consolidated financial statements include additional information relating to the net carrying value of goodwill and the pro forma effect of the adoption of CICA 3062 on the prior years’ consolidated statements of operations.

Results of Operations

     Fiscal 2003 compared to Fiscal 2002

     Consolidated revenues in fiscal 2003 of $301.8 million increased $29.3 million, or 10.8%, compared to $272.5 million in fiscal 2002.

     Motion pictures revenue of $208.9 million in fiscal 2003 increased $48.3 million, or 30.1%, compared to $160.6 million in fiscal 2002. Theatrical revenue of $12.7 million decreased $15.2 million or 54.5% compared to $27.9 million in fiscal 2002. Significant theatrical releases in fiscal 2003 included: Frailty with revenue of $3.7 million, Rules of Attraction with revenue of $1.9 million, Lovely and Amazing with revenue of $1.3 million and Secretary with revenues of $1.1 million. Significant theatrical releases in fiscal 2002 included: Monster’s Ball with revenue of $7.5 million, “O” with revenue of $5.3 million and The Wash with revenue of $3.2 million. Video revenue of $135.8 million increased $37.1 million, or 37.6%, in fiscal 2003 compared to $98.7 million in fiscal 2002. Significant video releases in fiscal 2003 included: Monster’s Ball with revenue of $33.2 million, Frailty with revenue of $13.5 million, Rose Red with revenue of $8.1 million, Rules of Attraction with revenue of $6.5 million and State Property with revenue of $5.3 million. International revenue of $31.5 million increased $6.2 million, or 24.5% compared to $25.3 million in fiscal 2002. Significant international sales in fiscal 2003 include: Frailty with $4.1 million, Rules of Attraction with $3.5 million, Confidence with $3.3 million, Cube 2 with $3.0 million, Liberty Stands Still with $1.7 million and Monster’s Ball with $1.6 million. Television revenue from motion pictures of $21.1 million increased $13.0 million or 160.5%, compared to $8.1 million. Significant television license fees in fiscal 2003 included: Monster’s Ball $2.8 million, American Psycho $1.8 million, Frailty $0.9 million and The Wash $0.9 million.

     Television production revenue of $59.4 million in fiscal 2003 decreased by $11.3 million, or 16.0%, from $70.7 million in fiscal 2002, due primarily to the delivery of fewer television movies. In fiscal 2003, 35 hours of one-hour drama series were delivered, contributing revenue of $41.3 million, television movies contributed revenue of $2.3 million and video releases of television product contributed

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$3.7 million. In fiscal 2002, 48 hours of one-hour drama series were delivered for revenue of $34.2 million and television movies contributed revenue of $20.0 million. Domestic deliveries of one-hour drama series in fiscal 2003 included 22 hours of Dead Zone to USA, 8 hours of Tracker and 5 hours of No Boundaries. Video releases included Dead Zone, Superfire, TheVoid and Tracker. In fiscal 2003, Termite Art Productions contributed revenue of $10.4 million on the delivery of 71.5 hours of non-fiction programming including: Unsolved History and Amazing Animals 3. In fiscal 2002, Termite Art Productions delivered 78.5 hours of non-fiction programming for revenue of $15.0 million.

     In animation, CinéGroupe’s revenue of $28.2 million in fiscal 2003 decreased $7.3 million, or 20.6%, compared to $35.5 million in fiscal 2002. In fiscal 2003, a total of 79 half-hours of television programming were delivered including: 17 half-hours of Galidor: Defender of the Outer Dimension, 26 half-hours of Strange Tales, 23 half-hours of Three Pigs and 13 half-hours of Daft Planet. In fiscal 2002, a total of 110.5 half-hours of television programming were delivered including: 26.5 half-hours of Sagwa, The Chinese Siamese Cat, 26 half-hours of What’s With Andy, 21 half-hours of Big Wolf on Campus, 12 half-hours of Wunchpunch, 12 half-hours of Kids From Room 402 and nine half-hours of Galidor: Defender of the Outer Dimension and the motion picture Wilderness Station.

     Studio facilities revenue of $5.4 million in fiscal 2003 increased $1.2 million, or 28.6%, compared to $4.2 million in fiscal 2002 due primarily to an increase in rental rates and stage space.

     CineGate ceased operations in fiscal 2002 upon the rescission of certain tax shelter provisions by the Canadian government. Prior to ceasing operations in fiscal 2002, CineGate arranged and received commission revenue on production financings. In fiscal 2002, CineGate earned commission revenue of $1.5 million on approximately $172.5 million of production financing.

     Direct operating expenses include amortization, participation and residual expenses. Direct operating expenses of $154.4 million for fiscal 2003 were 51.2% of revenue, compared to direct operating expenses of $159.9 million, which were 58.7% of revenue in fiscal 2002. Direct operating expenses for television and animation decreased year over year due to a decrease in revenue. This decrease was offset by an increase in motion picture expenses due to an increase in revenue. However, motion pictures expenses as a percentage of revenue decreased, primarily due to higher margins on titles which contributed significant revenue in fiscal 2003.

     In fiscal 2003, we decreased the provision for doubtful accounts by $3.1 million compared to an increase of $6.9 million in fiscal 2002, of which $2.5 million was to provide for amounts due from a bankrupt customer. The provision for doubtful accounts represents 8.2% of accounts receivable (excluding tax credits receivable) at March 31, 2003 and 10.3% at March 31, 2002. The decrease in the provision year over year is due to collection of $0.7 million of a receivable which was previously provided for in fiscal 2002 and the write off of approximately $6.0 million receivables during fiscal 2003 (which had been fully reserved), offset by an increase in the provision of approximately $3.5 million.

     Distribution and marketing expenses of $96.5 million, increased $20.3 million, or 26.6%, compared to $76.2 million in fiscal 2002. Theatrical P&A in fiscal 2003 was $36.6 million, compared to $33.9 million in fiscal 2002. Theatrical P&A in fiscal 2003 included significant expenditures on titles such as Rules of Attraction and Frailty. Video distribution and marketing costs on motion picture and television product in fiscal 2003 of $51.5 million increased or 24.7% compared to $41.3 million in fiscal 2002 due to an increase in marketing and duplication costs related to the increase in video revenues generated during the year, primarily due to the release of Monster’s Ball. This was offset by duplication credits of $4.6 million received from our primary duplicator during fiscal 2003, based on volume targets and on terms of a new agreement reached with the duplicator.

     General and administrative expenses of $32.3 million in fiscal 2003 decreased $2.4 million, or 6.9%, compared to $34.7 million in fiscal 2002. Television, animation and studios general and

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administrative expenses remained relatively constant year over year. Motion pictures and corporate expenses decreased primarily because a subsidiary company whose results were consolidated with Lions Gate in fiscal 2002 is equity accounted in fiscal 2003 and because the operations of acquired companies are more fully integrated with Lions Gate.

     Amortization of $5.3 million in fiscal 2003 increased $0.7 million, or 15.2%, from $4.6 million in fiscal 2002 due primarily to increased amortization of capital assets of $0.3 million for the acquisition of animation equipment and of $0.4 million for the new accounting system implemented in June 2002, as fiscal 2003 includes a full year of amortization for the accounting system compared to a partial year of amortization in fiscal 2002.

     Fiscal 2003 interest expense of $10.2 million increased $0.4 million, or 4.1%, from $9.8 million in fiscal 2002 primarily due to $1.6 million decrease in interest capitalized to production costs, resulting from a decline in new production financed by the revolving credit facility in fiscal 2003, partially offset by a $1.1 million decrease in interest expense due to a reduction in total interest-bearing debt and a decrease in annual interest rates.

     Unusual losses of $1.4 million recorded in fiscal 2002 related to a $0.8 million loss recorded on the acquisition of the remaining 50% of Eaton Entertainment LLC, a $0.4 million loss on disposal related to the demolition of an existing structure to provide room to build a new 20,500 square foot sound stage at Lions Gate Studios and the write-off of capital assets relating to the downsizing of our offices.

     On July 10, 2001, a subsidiary of the company completed an equity financing with a third party for $9.2 million. The gain on dilution of the company’s investment was $2.2 million.

     The fiscal 2003 provision for income taxes of $1.9 million consisted of a $1.9 million provision compared to fiscal 2002 which consisted of a $1.3 million provision, partially offset by the recognition of the benefits of income tax losses of $1.0 million. At March 31, 2003, we had Canadian non-capital losses of approximately $30.2 million available to reduce Canadian income taxes carried forward for seven years and $66.4 million for U.S. income tax losses carried forward for 15 to 20 years.

     Other equity interests for the year ended March 31, 2003 includes $0.4 million equity interest in Christal Films Distribution Inc. (“Christal”) which consists of 75% of the net income of Christal and $0.4 million equity interest in the loss of CinemaNow which represents 57.4% of losses of CinemaNow. Other equity interests for the year ended March 31, 2002 include $1.1 million equity interest, representing 63% of the losses of CinemaNow, prior to write-down of the Company’s investment in CinemaNow. At March 31, 2002, the Company was required by Canadian and U.S. GAAP to reassess the carrying value of its investment in CinemaNow as CinemaNow had experienced recurring losses and could not demonstrate with reasonable certainty that it had twelve months of cash to fund operations. The resulting write-down of the investment of $13.4 million, which had no impact on fiscal 2002 cash flows, was expensed as write-down in investments subject to significant influence in the consolidated statement of operations. During the quarter ending March 31, 2003, the Company purchased $0.4 million of Series C Convertible Preferred Shares of CinemaNow as part of a CinemaNow round of financing. The round of financing and conversion of a debenture decreased the Company’s voting and

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economic interests from 63% to 57.4%. As a result of the new investment in CinemaNow, the Company recorded equity interest in the loss of CinemaNow from the date of the new investment.

     Loss from discontinued operation for the year ended March 31, 2003 of $0 compares to loss from discontinued operation for the year ended March 31, 2002 of $19.0 million. Effective April 1, 2002, the carrying value of the Company’s investment in Mandalay Pictures, LLC (“Mandalay”) was presented as a discontinued operation as it was expected to be sold by the end of fiscal year 2003. During fiscal 2003, the Company received distributions of $2.4 million from Mandalay under a prior agreement. On November 8, 2002, the Company sold its investment in Mandalay for cash of $4.2 million and an interest bearing convertible promissory note totaling $3.3 million. The note, bearing interest at 6%, is payable $1.3 million on December 31, 2005, $1.0 million on December 31, 2006 and $1.0 million on December 31, 2007. No gain or loss was recorded on the sale, as the Company’s carrying value of $7.5 million equaled the sales price. In fiscal 2002, the Company received cash of $5.4 million from Mandalay, which was recorded as a reduction in the Company’s investment in Mandalay. For the year ended March 31, 2002, the Company recorded a $8.4 million equity interest in the losses of Mandalay and a $10.6 million write-down of the investment in Mandalay to its estimated fair value at March 31, 2002 of $10.0 million. The equity loss and the write-down were included as a component of loss from discontinued operation.

     Income from continuing operations, loss from discontinued operation and net income for the year ended March 31, 2003 were $1.1 million, $0 and $1.1 million, respectively, or loss per share of $0.06, loss per share of $0 and loss per share of $0.06, respectively, on 43.2 million weighted average common shares outstanding (after giving effect to the Series A Preferred Share dividends and accretion on the Series A Preferred Shares). This compares to loss from continuing operations, loss from discontinued operation and net loss for the year ended March 31, 2002 of $28.0 million, $19.0 million and $47.0 million, respectively, or loss per share of $0.74, loss per share of $0.44 and loss per share of $1.18, respectively, on 42.8 million weighted average common shares outstanding (after giving effect to the Series A Preferred Share dividends and accretion on the Series A Preferred Shares).

     Under U.S. GAAP, the net loss for the year ended March 31, 2003 was $3.8 million. The income under U.S. GAAP is less than under Canadian GAAP, due primarily to Mandalay’s net loss of $2.1 million for the period ending November 8, 2002, the date of the sale of the Company’s investment in Mandalay and for the interest swap mark-to-market of $3.2 million. Under U.S. GAAP, the investment in Mandalay is not considered a discontinued operation and would be accounted for using the equity method, as described in note 22(b) of our accompanying financial statements. Under U.S. GAAP, the interest swap does not meet the criteria of an effective hedge and therefore the fair market value of $3.2 million is recorded in the statement of operations, as described in note 22(d) of our accompanying financial statements.

     Fiscal 2002 compared to Fiscal 2001

     Revenues in fiscal 2002 of $272.5 million increased $84.8 million, or 45.2%, compared to $187.7 million in fiscal 2001.

     Motion pictures revenue of $160.6 million in fiscal 2002 increased $44.9 million, or 38.8%, compared to $115.7 million in fiscal 2001. The increase was due primarily to the inclusion of the Trimark operations for the full fiscal 2002 period compared to the inclusion of Trimark’s post-acquisition revenue for the period October 13, 2000 to March 31, 2001 of $33.4 million in fiscal 2001. Theatrical revenue of $27.9 million increased $14.7 million or 111.4% compared to $13.2 million in fiscal 2001. Significant theatrical releases in fiscal 2002 included: Monster’s Ball with revenue of $7.5 million; O, with revenue of $5.3 million; and The Wash, with revenue of $3.2 million. Other significant theatrical releases include Amores Perros, Les Boys 3, Lantana and Songcatcher. Video revenue of $98.7 million increased $33.0 million, or 50.2%, in fiscal 2002 compared to $65.7 million in fiscal 2001. Significant video releases in fiscal 2002 included O, which was released on video on February 19, 2002 and earned revenue in excess of $14.1 million in the last six weeks of fiscal 2002; The Wash, with video revenue in excess of $6.4

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million; and Shadow of the Vampire, with video revenue in excess of $3.2 million. International revenues were relatively consistent year-over-year, while television revenue from motion pictures decreased $4.1 million in fiscal 2002 to $8.1 million due to the timing of the availability of the television windows.

     Television production revenue of $70.7 million in fiscal 2002 increased by $23.2 million, or 48.8%, from $47.5 million in fiscal 2001, due primarily to the increased number of hours delivered in fiscal 2002 in all television divisions. In fiscal 2002, 48 hours of one-hour drama series were delivered, contributing revenue of $34.2 million. Deliveries in fiscal 2002 included: 22 episodes of Mysterious Ways to PAXTV, NBC (eight of 22 episodes), CTV in Canada and Columbia Tristar internationally; 14 episodes of Tracker to the U.S. syndication market, CHUM Television in Canada, Telemunchen in Germany and other international broadcasters; eight episodes of No Boundaries to WB Network in the U.S., CanWest Global in Canada and international broadcasters; two episodes of Dead Zone to UPN in the U.S. and Paramount internationally; and two episodes of Iron Chef to UPN in the U.S., City TV and Alliance Atlantis in Canada, and international broadcasters. In fiscal 2001, 29 hours of one-hour drama series were delivered for revenue of $29.6 million. Television movies contributed revenue of $20.0 million in fiscal 2002. Deliveries included: Superfire to ABC and international broadcasters; The Pilot’s Wife to CBS in the U.S. and international broadcasters; and Attack on the Queen to TBS in the U.S. and international broadcasters. In fiscal 2001, one television movie was delivered to international territories. In fiscal 2002, Termite Art Productions contributed revenue of $15.0 million on the delivery of 78.5 hours of non-fiction programming including 25.5 hours of Amazing Animal Videos to Animal Planet, 13 hours of Incredible Vacation Videos to Travel Channel, six and one-half hours of Wild Rescues to Animal Planet and five hours of MTV Video Party to MTV. In fiscal 2001, Termite Art Productions delivered 68.5 hours of non-fiction programming for revenue of $12.2 million.

     In animation, CinéGroupe’s revenue of $35.5 million in fiscal 2002 increased $15.8 million, or 80.2%, compared to $19.7 million in fiscal 2001. The increase was primarily due to increased deliveries in fiscal 2002. In fiscal 2002, a total of 110.5 half-hours of television programming were delivered (compared to 81.5 half-hours in fiscal 2001) including: 26.5 half-hours of Sagwa, The Chinese Siamese Cat to PBS in the U.S. and TVO in Canada; 26 half-hours of What’s With Andy to ABC Family in the U.S. and Teletoon in Canada; 21 half-hours of Big Wolf on Campus to ABC Family in the U.S. and YTV in Canada; 12 half-hours of Wunchpunch to Radio Canada and Saban internationally; 12 half-hours of Kids From Room 402 to ABC Family in the U.S. and Teletoon and TQS in Canada; and nine half-hours of Galidor: Defender of the Outer Dimension to Fox Kids and Lego in the U.S. and YTV in Canada. In addition, the motion picture Wilderness Station was delivered to distribution partners around the world. CinéGroupe Library revenue of $3.0 million, interactive revenue of $0.6 million and service and other revenue of $0.1 million were earned in fiscal 2002, compared to $0.8 million, $0.5 million and $0.9 million, respectively, in fiscal 2001.

     Studio facilities revenue of $4.2 million in fiscal 2002 increased $0.5 million, or 13.5%, compared to $3.7 million in fiscal 2001 due primarily to an improvement in occupancy levels and revenues generated from additional services now offered at the studios including lighting, equipment and furniture rentals.

     Prior to CineGate ceasing operations in fiscal 2002, we arranged financing and received commission revenue on production financings arranged for CineGate. We earned commission revenue of $1.5 million in fiscal 2002 on approximately $172.5 million of production financing arranged through the CineGate joint venture, compared to revenue of $1.1 million earned in fiscal 2001. CineGate ceased operations in fiscal 2002 upon the rescission of certain tax shelter provisions by the Canadian government.

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     Direct operating expenses of $159.9 million for fiscal 2002 were 58.7% of revenue, compared to direct operating expenses of $104 million, which were 55.4% of revenue in fiscal 2001. Direct operating expenses as a percentage of revenue increased in fiscal 2002 primarily due to the loss recognized on the delivery of the 14 episodes of Tracker, the impact of the significant theatrical and video revenues on O (a distribution service deal with 15% fees), and the softening of the European marketplace, which has resulted in increased provisions for bad debts. In fiscal 2002, we increased our provision for doubtful accounts by $6.9 million (including $1.6 million relating to KirchMedia) and wrote off or cancelled contracts directly against revenue totaling $1.9 million. Excluding tax credits receivable, the provision for doubtful accounts at March 31, 2002 represented 11.6% of accounts receivable, compared to 4.5% at March 31, 2001.

     Our P&A expenses of $76.2 million more than doubled in fiscal 2002, increasing $41.8 million, or 121.5%, compared to $34.4 million in fiscal 2001. P&A increased year-over-year primarily due to the advertising expenditures on the more significant theatrical and video releases in fiscal 2002. Theatrical P&A in fiscal 2002 was $33.9 million, compared to $21.8 million in fiscal 2001. Video P&A of $41.3 million compared to $11.6 million in fiscal 2001 due to the significant increase in video activity and video releases being brought “in-house.” Revenues earned on videos released through our Universal output deal, which expired on August 31, 2002, were recorded net of distribution and marketing expenses. In fiscal 2002, our most significant video releases, O and The Wash, were released directly by us, outside of the Universal output deal.

     General and administrative expenses of $34.7 million in fiscal 2002 increased $9.6 million, or 38.2%, compared to $25.1 million in fiscal 2001. In motion pictures, general and administrative expenses increased $4.4 million, or 28.8%, to $19.7 million in fiscal 2002 from $15.3 million in fiscal 2001 primarily as a result of a full year of combined operations with Trimark and the growth of the production and theatrical and video distribution businesses. Television general and administrative expenses of $3.4 million in fiscal 2002 were virtually unchanged year-over-year. Animation general and administrative expenses increased $0.8 million, or 44.4%, to $2.6 million in fiscal 2002 from $1.8 million in fiscal 2001 due to the creation of an international sales department and increased head count at the corporate head office. General and administrative expenses in the corporate office of $8.7 million in fiscal 2002 increased $4.6 million, or 112.2%, from $4.1 million in fiscal 2001 primarily due to increased headcount as a result of growth in corporate administration and support functions.

     Amortization of $4.6 million in fiscal 2002 decreased $1.1 million, or 19.3%, from $5.7 million in fiscal 2001 due primarily to a decrease in goodwill amortization of $1.8 million year-over-year as a result of the adoption of CICA 3062, which was partially offset by increased amortization of capital assets of $0.9 million, primarily in animation, pertaining to the acquisition of animation and technical services equipment financed through capital leases.

     Fiscal 2002 interest expense of $9.8 million increased by $2.1 million, or 27.3%, from $7.7 million in fiscal 2001 due to interest on borrowings used to finance the purchase of Trimark and increased production and acquisition activity, and bank charges related to bank facilities, which amounts were partially offset by decreased interest rates.

     Unusual losses of $1.4 million recorded in fiscal 2002 related to a $0.8 million loss recorded on the acquisition of the remaining 50% of Eaton Entertainment LLC, a $0.4 million loss on disposal related to the demolition of an existing structure to provide room to build a new 20,500 square foot sound stage at Lions Gate Studios and the write-off of capital assets relating to the downsizing of our offices.

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     On July 10, 2001, a subsidiary of the company completed an equity financing with a third party for $9.2 million. The gain on dilution of the company’s investment was $2.2 million (net of income taxes of $0).

     The fiscal 2002 provision for income taxes of $0.3 million consisted of a $1.3 million provision for income taxes, partially offset by the recognition of the benefits of income tax losses of $1 million. At March 31, 2002, we had Canadian non-capital losses of approximately $28.5 million available to reduce Canadian income taxes carried forward for seven years and $38.1 million for U.S. income tax losses carried forward for 15 to 20 years.

     The $1.1 million equity interest in the loss of CinemaNow represented 63% of the operating losses of CinemaNow for the nine months ended December 31, 2001, compared to a $1.0 million equity interest in the loss for the year ended March 31, 2001. At March 31, 2002 the Company was required by Canadian and U.S. GAAP to reassess the carrying value of its investment in CinemanNow as CinemaNow had experienced recurring losses and could not demonstrate with reasonable certainty that it had twelve months of cash to fund operations. The resulting write-down of the investment of $13.4 million, which had no impact on fiscal 2002 cash flows, was expensed as write-down in investments subject to significant influence in the consolidated statement of operations.

     Loss from discontinued operation for the year ended March 31, 2002 of $19.0 million compares to loss from discontinued operation for the year ended March 31, 2001 of $5.5 million. In fiscal 2002, the Company received cash of $5.4 million from Mandalay, which was recorded as a reduction in the Company’s investment in Mandalay. With the authority granted by the Board of Directors, prior to the close of the fourth quarter of fiscal 2002, management committed to a plan to divest its ownership interest in Mandalay. Mandalay was written down to its estimated fair value at March 31, 2002 of $10.0 million. Such estimated fair value was supported by cash expected to be received from Mandalay under a prior agreement and estimated proceeds from the sale of the Company’s ownership interest in Mandalay. The resulting write-down of $10.6 million is included as a component of loss from discontinued operations. The fiscal 2002 loss from discontinued operation also includes 100% of the operating loss of Mandalay of $7.0 million and amortization of previously deferred pre-operating costs of $1.4 million. The fiscal 2001 loss from discontinued operation represents 100% of the operating loss of Mandalay of $4.3 million and amortization of previously deferred pre-operating costs of $1.2 million.

     Loss from continuing operations, loss from discontinued operation and net loss for the year ended March 31, 2002 were $28.0 million, $19.0 million and $47.0 million, respectively, or loss per share of $0.74, loss per share of $0.44 and loss per share of $1.18, respectively, on 42.8 million weighted average common shares outstanding (after giving effect to the Series A Preferred Share dividends and accretion on the Series A Preferred Shares). This compares to income from continuing operations, loss from discontinued operation and net income for the year ended March 31, 2001 of $11.3 million, $5.5 million and $5.8 million, respectively, or income per share of $0.21, loss per share of $0.15 and income per share of $0.06, respectively on 36.2 million weighted average common shares (after giving effect to the Series A Preferred Share dividends and accretion on Series A Preferred Shares).

     Under U.S. GAAP the net loss for the year ended March 31, 2002 was $43.5 million. The loss under U.S. GAAP is less than under Canadian GAAP, due primarily to the add back of the amortization of pre-operating costs relating to Mandalay Pictures and our television one-hour series business, as described in notes 21(a) and 21(b).

EBITDA

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     EBITDA, defined as earnings before interest, provision for income taxes, amortization, minority interests, gain on dilution of investment in subsidiary and discontinued operation, of $18.7 million for the year ended March 31, 2003 increased $32.9 million, or 231.7%, compared to negative EBITDA of $14.2 million for the year ended March 31, 2002, which had decreased $37.3 million, or 161.5%, compared to $23.1 million for the year ended March 31, 2001.

     EBITDA is a non-GAAP financial measure. Management believes EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. Presentation of EBITDA is consistent with our past practice, and EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with GAAP. EBITDA does not reflect cash available to fund cash requirements. Not all companies calculate EBITDA in the same manner and the measure as presented may not be comparable to similarly-titled measures presented by other companies.

     The following table reconciles EBITDA to net income (loss):

Liquidity and Capital Resources

     Our liquidity and capital resources are provided principally through cash generated from operations, a $200 million revolving credit facility with J.P. Morgan Chase Bank, German tax shelter financing, and production loans.

     Bank loans. The $200 million revolving credit facility with J.P. Morgan Chase Bank is limited by our borrowing base, which includes certain accounts receivable and credits for our film and television program library. At March 31, 2003, the borrowing base assets totaled $166.4 million and we had drawn $125.4 million of our $200 million revolving credit facility. At June 26, 2003, $51.6 million is available under our credit facility. Currently, the credit facility bears interest at 2.5% over the Adjusted LIBOR, or the Canadian Banker Acceptance rate, or 1.5% over the U.S. or Canadian prime rates. At March 31, 2003, the revolving credit facility has an average variable interest rate of U.S. prime minus 0.39% on principal of $108.6 million and an average variable interest rate of Canadian prime plus 1.06% on principal of $16.8 million. U.S. and Canadian prime interest rates at March 31, 2003 were 4.25% and 4.75%, respectively. The Company entered into a $100 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than 5.0%. Unrecognized losses at March 31, 2003 amount to $3.2 million. Our credit facility contains various covenants, including limitations on indebtedness, dividends and capital expenditures, and maintenance of certain financial ratios. Although we are in compliance with all terms of our credit facility, there can be no assurances that we will remain in

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compliance with such covenants or other conditions under our credit facility in the future. We anticipate continued borrowing under our credit facility. We entered into a $100 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than 5.0%.

     Filmed Entertainment Backlog. Backlog represents the amount of future revenue not yet recorded from executed contracts for the licensing of motion pictures and television product for television exhibition and in international markets. Backlog at March 31, 2003 and at March 31, 2002 is approximately $47.3 million and $35.2 million, respectively.

     Cash flows provided by (used in) operating activities. Cash flows provided by operating activities in the year ended March 31, 2003 were $10.8 million compared to cash flows used in operating activities of $60.7 million in the year ended March 31, 2002 and $34.1 million in the year ended March 31, 2001. In fiscal 2003, the Company increased cash flow provided by accounts receivable and decreased investment in motion pictures and television, compared to fiscal 2002.

     Cash flows provided by (used in) financing activities. Cash flows used in financing activities in the year ended March 31, 2003 were $14.3 million compared to cash flows from financing activities of $54.8 million in the year ended March 31, 2002 and $54.5 million in the year ended March 31, 2001, due primarily to the net repayment of bank loans and production and distribution loans of $17.9 million in fiscal 2003, partially offset by the net proceeds from long term debt of $4.7 million.

     Cash flows provided by (used in) investing activities. Cash flows provided by investing activities of $4.5 million in the year ended March 31, 2003 is primarily due to $2.4 million received from Mandalay Pictures as distributions under a prior agreement and $4.2 million as proceeds from the sale of the Company’s investment in Mandalay Pictures. Cash flows from investing activities of $7.3 million in the year ended March 31, 2002 is due to the $9.2 million third party investment in a subsidiary and $5.4 million received from Mandalay Pictures, partially offset by additions to animation and studio property and equipment of $7.7 million. In fiscal 2001, the majority of the $29.7 million use of cash in investing activities was due to the acquisition of Trimark.

     Anticipated cash requirements. The nature of our business is such that significant initial expenditures are required to produce and acquire motion pictures and television programs, while revenues from these motion pictures and television programs are earned over an extended period of time after their completion or acquisition. As our operations grow, our financing requirements are expected to grow and management projects the continued use of cash in operating activities and therefore we are dependent on continued access to external sources of financing. We believe that cash flow from operations, cash on hand, credit lines available and tax shelter financing available will be adequate to meet known operational cash requirements for the foreseeable future, including the funding of future motion picture and television production, motion picture rights acquisitions, and theatrical and video release schedules. We monitor our cash flow, interest coverage, liquidity, capital base and debt-to-total capital ratios with the long-term goal of maintaining our creditworthiness.

     Our current financing strategy is to finance corporate operations and to leverage investment in motion picture and television programs through equity, operating credit facilities and single-purpose production financing. We usually obtain financing commitments, including, in some cases, funds from government incentive programs and foreign distribution commitments. These commitments have averaged at least 70% of the budgeted third-party costs of a project before commencing production. In addition, we may acquire businesses or assets, including individual films or libraries, that are complementary to our business. Such a transaction could be financed through our equity, cash flow from operations or debt facilities.

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     Principal debt repayments due during the year ending March 31, 2004 of $71.4 million consist principally of $10.7 million of mortgages on the studio facilities, $20.9 million of production loans, $19.8 million of German tax shelter financings and $11.2 of convertible subordinated notes. Mortgages due will be refinanced. Production loans of $15.2 million are secured by accounts receivable, which we expect to collect and use for repayment of these loans. Other repayments due are expected to be paid through cash generated from operations or from the available borrowing capacity from our $200 million credit facility with J.P. Morgan Securities.

     Our 5.25% Convertible Redeemable Series A Preferred Shares are entitled to cumulative dividends, as and when declared by the board of directors, payable semi-annually on the last day of March and September of each year. Dividends payable on Series A Preferred shares for the year ending March 31, 2004 is estimated to be $0.5 million after taking into account the effect of the repurchase of Series A Preferred Shares in June 2003. We have the option of paying such dividends either in cash or additional Series A Preferred Shares. We do not pay and do not intend to pay, and are restricted from paying by our revolving credit facility, dividends on common shares. We believe it to be in the best interest of shareholders to invest all available cash in the expansion of our business.

     Commitments. The table below presents future commitments under contractual obligations and commercial commitments at March 31, 2003 by expected maturity date.

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

Currency and Interest Rate Risk Management

     Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will be used in the future, within guidelines approved or to be approved by the board of directors for counterpart exposure, limits and hedging practices, in order to manage our interest rate and currency exposure. We have no intention of entering into financial derivative contracts, other than to hedge a specific financial risk.

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     Currency Rate Risk. We incur certain operating and production costs in foreign currencies and are subject to market risks resulting from fluctuations in foreign currency exchange rates. Our principal currency exposure is between Canadian and U.S. dollars, although this exposure has been significantly mitigated through the structuring of the $200 million revolving credit facility as a $25 million Canadian dollar facility and a $175 million U.S. dollar credit facility. Each facility is borrowed and repaid in the respective country of origin, in local currency. We also enter into foreign exchange contracts to hedge future production expenses denominated in Canadian dollars. Gains and losses on the foreign exchange contracts are capitalized and recorded as production costs when the gains and losses are realized. As at March 31, 2003, there were no foreign exchange contracts outstanding. During the fiscal year, we completed foreign exchange contracts denominated in Canadian dollars. The net gains resulting from the completed contracts amounted to $0.3 million. These contracts are entered into with a major financial institution as counterpart. The Company is exposed to credit loss in the event of nonperformance by the counterpart, which is limited to the cost of replacing the contracts, at current market rates. There are no unrecognized gains or losses at March 31, 2003. These forward exchange contracts do not subject us to risk from exchange rate movements because gains and losses on the contracts offset losses and gains on the transactions being hedged. No collateral or other security was pledged as security to support these financial instruments. We currently intend to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks.

     Interest Rate Risk. We are exposed to cash flow risk due to changes in market interest rates related to our outstanding debt. For example, our credit facilities and some of our long-term debt bears interest on borrowings outstanding at various time intervals and at market rates based on either the Canadian prime rate or the U.S. prime rate, plus a margin ranging from -0.43% to 4.0%. Our principal risk with respect to our long-term debt is interest rate risk, to the extent not mitigated by interest rate swap and foreign exchange contracts. We entered into a $100.0 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than 5.0%. Unrecorded losses at March 31, 2003 amount to $3.2 million. The table below presents principal debt repayments and related weighted average interest rates for our credit facilities and long-term debt obligations at March 31, 2003 by expected maturity date.