SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-25308
FIRST LOOK MEDIA, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 13-3751702
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8000 Sunset Blvd., East Penthouse, Los Angeles, CA 90046
(Address of principal executive offices) (zip code)
Registrant's Telephone Number, Including Area Code: (323) 337-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
The number of shares of common stock outstanding as of May 15, 2003 was
14,539,573.
FIRST LOOK MEDIA, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements
Page
----
Consolidated Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002.................3
Consolidated Statements of Operations (unaudited) for the three months ended
March 31, 2003 and March 31, 2002.....................................................4
Consolidated Statements of Cash Flows (unaudited) for the three months ended
March 31, 2003 and March 31, 2002.....................................................5
Notes to Consolidated Financial Statements (unaudited).........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........8
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................13
Item 4. Controls and Procedures.........................................................................13
Part II - Other Information
Item 1. Legal Proceedings..............................................................................14
Item 2. Changes in Securities and Use of Proceeds......................................................14
Item 3. Defaults Upon Senior Securities................................................................14
Item 4. Submission of Matters to a Vote of Security Holders............................................14
Item 5. Other Information..............................................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................14
Signature.............................................................................15
Certification Pursuant to 18 U.S.C. Section 1350......................................16
Certification Pursuant to Rule 3a-14 and 15d-14.......................................17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST LOOK MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
---- ----
(Unaudited)
(in thousands)
ASSETS:
------
Cash and cash equivalents $ 2,989 $ 713
Accounts receivable, net of allowance for doubtful accounts of $2,009,000 and
$2,401,000 at March 31, 2003 and December 31, 2002, respectively 10,957 14,545
Investment 2,000 2,000
Film costs, net of accumulated amortization 20,273 23,198
Other assets 1,312 1,466
------------------ ------------------
Total assets $ 37,531 $ 41,922
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
Accounts payable and accrued expenses $ 1,715 $ 1,632
Accrued interest payable 58 84
Deferred revenue 1,535 1,209
Payable to producers 14,316 16,084
Notes payable 18,766 20,254
------------------ ------------------
Total liabilities 36,390 39,263
------------------ ------------------
Shareholders' equity:
Common stock, $.001 par value, 50,000,000 shares authorized; 14,584,573 shares
issued; 14,539,573 shares outstanding at March 31, 2003 and December 31, 2002,
respectively 15 15
Additional paid in capital 36,657 36,657
Accumulated deficit (35,444) (33,926)
Treasury stock at cost, 45,000 shares (87) (87)
------------------ ------------------
Total shareholders' equity 1,141 2,659
------------------ ------------------
Total liabilities and shareholders' equity $ 37,531 $ 41,922
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
3
FIRST LOOK MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2003 2002
---- ----
(in thousands except per share amounts)
Revenues $ 5,707 $ 6,781
Expenses:
Film costs 3,381 3,544
Distribution and marketing 1,952 1,652
Selling, general and administrative 1,599 1,856
---------------------- ---------------------
Total expenses 6,932 7,052
---------------------- ---------------------
Loss from operations (1,225) (271)
---------------------- ---------------------
Other income (expense):
Interest income 7 1
Interest expense (297) (263)
Other income 65 25
---------------------- ---------------------
Total other expense (225) (237)
---------------------- ---------------------
Loss before income taxes (1,450) (508)
Income tax provision 68 18
---------------------- ---------------------
Net loss $ (1,518) $ (526)
====================== =====================
Basic and diluted loss per share $ (0.10) $ (0.04)
====================== =====================
Weighted average number of common shares outstanding 14,540 11,876
====================== =====================
The accompanying notes are an integral part of these consolidated financial statements.
4
FIRST LOOK MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2003 2002
---- ----
(in thousands)
Cash flows from operating activities:
Net loss $ (1,518) $ (526)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Film costs 3,381 3,544
Additions to film costs (30) (2,091)
Payments to producers (2,194) (2,600)
Capital loss and other non-cash loss 12 -
Changes in operating assets and liabilities:
Accounts receivable 3,588 (322)
Other assets 154 54
Accounts payable and accrued expenses 57 258
Deferred revenue 326 (137)
--------------------- ---------------------
Net cash provided by (used in) operating activities 3,776 (1,820)
--------------------- ---------------------
Cash flows from financing activities:
Net (pay down) borrowings under credit facility (1,500) 1,000
Net pay down of subordinated note payable - (180)
Equity financing costs - (195)
--------------------- ---------------------
Net cash (used in) provided by financing activities (1,500) 625
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 2,276 (1,195)
Cash and cash equivalents at beginning of period 713 1,673
--------------------- ---------------------
Cash and cash equivalents at end of period $ 2,989 $ 478
===================== =====================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 282 $ 302
===================== =====================
Income taxes $ 9 $ 10
===================== =====================
Foreign withholding taxes $ 59 $ 8
===================== =====================
The accompanying notes are an integral part of these consolidated financial statements.
5
FIRST LOOK MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying unaudited consolidated financial statements of First Look
Media, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
reflected in these consolidated financial statements. Operating results for
the three months ended March 31, 2003 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
For the two years ended December 31, 2002, the Company had operating losses
of $11,711,000 and its operating activities used $17,221,000 of cash.
Although the Company generated $3,776,000 of cash from operating activities
during the first quarter of 2003, operating losses totaled $1,225,000,
which was primarily due to decreased revenues, a level of overhead
disproportionate to margins generated and increased bad debt expenses. As
of March 31, 2003, the Company had cash and cash equivalents of $2,989,000
and, based on its calculations, approximately $2,051,000 was available for
borrowing under its JPMorgan credit facility. Although the Company had
positive cash flow from operating activities for the three months ended
March 31, 2003, the operating losses and negative cash flow the Company has
experienced, along with the general market conditions for the Company's
business, have resulted in ongoing review and discussions between the
Company and its primary lender, JPMorgan, and the participating banks in
its credit facility. In February 2003, at JPMorgan's request, the Company
and JPMorgan amended the credit agreement to reduce the amount the Company
is permitted to borrow under the credit facility in relation to its library
value. The credit agreement initially provided that the Company could
borrow up to 50% (the "advance rate") of the valuation of its library,
conducted by an independent third party approved by JPMorgan. Under the
amendment, the advance rate was reduced to 45% as of April 1, 2003 and will
be further reduced to 40% as of July 1, 2003 and to 35% as of October 1,
2003. As of December 31, 2002 and March 31, 2003, the losses the Company
incurred resulted in its breach of the covenant in its credit agreement
that requires the Company to maintain a minimum level of net worth. In
April 2003, the Company and JPMorgan further amended the credit agreement,
pursuant to which JPMorgan waived the breach of the net worth covenant
through December 31, 2003 (subject to the Company maintaining a positive
net worth, as defined) and the Company agreed to reduce the commitment from
$40 million to $19 million on April 15, 2003, to $18 million on July 1,
2003, to $17 million on October 1, 2003 and to $14.5 million on January 1,
2004.
The Company's significant net losses and negative cash flow, along with the
most recent modifications under the credit agreement with JPMorgan, raise
questions about its ability to continue as a going concern. The Company has
been reviewing its past business plan, alternative plans and other options
and has made reductions in overhead, including staff reductions. In
addition, the Company has not renewed certain consulting contracts or its
first look arrangement with Grandview Pictures and has significantly
reduced its investments in films. The Company also is actively in
discussion with various parties regarding potential strategic
relationships, equity investment and revised business plans. If the Company
is not successful in generating sufficient future cash flow from operations
in accordance with its current or an altered business plan, raising
additional capital through public or private financings, strategic
relationships or other arrangements will be necessary. This additional
funding, if needed, might not be available on acceptable terms, or at all.
Failure to raise sufficient capital, if and when needed, could have a
material adverse effect on the business, results of operations and
financial condition of the Company, including the ability of the Company to
continue to operate as a going concern.
6
2. Film Costs
Film costs consist of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
(in thousands)
Films in release net of accumulated amortization $ 16,111 $ 15,601
Films not yet available for release 4,162 7,597
-------------------- ------------------------
$ 20,273 $ 23,198
==================== ========================
3. Off Balance Sheet Commitments
As of March 31, 2003, the Company was committed to pay minimum guarantees
of approximately $3,058,000 contingent upon delivery of certain films to
the Company.
Additionally, the Company has entered into arrangements with German film
financing partnerships whereby the Company has guaranteed that within three
years from the commencement of principal photography of the related film,
the licensing and distribution proceeds, net of fees and expenses, will be
no less than sixty to eighty percent (depending upon the specific
arrangement) of the amount funded toward the production cost of the related
film. These guarantees generally are not recorded as liabilities unless and
until management expects that proceeds from the licensing and distribution
of the related film, net of fees and expenses, will be insufficient to
cover the guarantee within the agreed upon period for the particular film.
As of March 31, 2003, the Company had three such commitments outstanding,
whereby the total amount committed was $10,238,000. These guarantees are
summarized below.
Term of Guarantee Maximum Current
----------------- Potential Carrying Projected
Amount of Future Amountof Future
From To Guarantee Payments Liability Assets Held Contracts
---- -- ----------- ----------- --------- ---------- ----------
Film 1 10/04/01 10/04/04 $ 5,240,000 $2,607,000 $ - $1,311,000 $2,200,000
Film 2 12/03/00 12/03/03 3,998,000 3,101,000 1,442,000 1,950,000 1,991,000
Film 3 01/31/02 01/31/05 1,000,000 717,000 164,000 804,000 691,000
---------------------------------------------------------------------------------
$10,238,000 $6,425,000 $1,606,000 $4,065,000 $4,882,000
=================================================================================
In the event any of the guarantees are drawn upon, the Company has the
right to retain proceeds from the collection of accounts receivable in
addition to proceeds from future contracts related to licensing of
distribution rights in the respective film where the guarantee had been
called (both, net of fees and expenses) until we have recovered any
guarantee paid. The table above reflects the amount of cash and accounts
receivable held ("Assets Held") along with management's estimate of the
value of future contracts related to the licensing of distribution rights
("Projected Future Contracts") to the respective film as of March 31, 2003.
Management expects that the possibility of having to honor its contingent
obligations under these agreements is remote and in the event any of the
guarantees are drawn upon, management believes that proceeds from the
liquidation of accounts receivable and further distribution rights will be
sufficient to cover the maximum amount of future payments under each
guarantee.
4. Segment Information
For the period from July 1, 2001 through September 30, 2002, the Company
managed its business in two operating segments: Motion Picture
7
Distribution and Television Commercial Production. The segments were
determined based upon the types of products and services provided and sold
by each segment. The Motion Picture Distribution segment, the Company's
primary line of business, acquires licenses, distributes, sells and
otherwise exploits distribution rights to motion pictures. The Television
Commercial Production segment produced commercials for manufacturers and
service providers who use the commercial to promote their products and
services. This segment generated $1,158,000 and $263,000 of revenues during
the years ended December 31, 2002 and 2001, respectively. Beginning in the
fourth quarter of 2002, however, this segment became inactive and the
Company eliminated substantially all related overhead. In the future, if
the Company produces any television commercials, it will likely use a
company partially owned by Christopher J. Cooney, the Company's co-chairman
and chief executive officer, and Jeffrey Cooney, the Company's executive
vice president and a director, to provide all support services needed in
exchange for a fee.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q and in future filings by our company with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"management expects" or "we expect," "will continue," "is anticipated,"
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks are included in "Item 1: Business," "Item
7: Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in Exhibit 99: Risk Factors" included in our Form 10-K for the
year ended December 31, 2002. We have no obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.
General
The operations of our company were established as a private company in
February 1980 under the name Overseas Filmgroup, Inc. We were formed in December
1993 under the name "Entertainment/Media Acquisition Corporation" for the
purpose of acquiring an operating business in the entertainment and media
industry. We acquired the operations of Overseas Filmgroup, Inc. through a
merger in October 1996 and we were the surviving corporation in the merger.
Immediately following the merger, we changed our name to "Overseas Filmgroup,
Inc." and succeeded to the operations of the private company. In January 2001,
we changed our name to "First Look Media, Inc." in order to reflect the
broadening of our operations beyond foreign distribution of independently
produced feature films to additional areas such as U.S. theatrical and video/DVD
distribution.
Today, we are principally involved in the acquisition and worldwide
license or sale of distribution rights to independently produced motion
pictures. We directly distribute certain motion pictures in the domestic
theatrical market under the name "First Look Pictures" and in the domestic
video/DVD market under the name "First Look Home Entertainment."
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues decreased by $1,074,000 (15.8%) to $5,707,000 for the three months
ended March 31, 2003 from $6,781,000 for the three months ended March 31, 2002.
The decrease was primarily due to decreases in revenue from the licensing of
films ($1,933,000 for the three months ended March 31, 2003 compared to
8
$4,088,000 for the three months ended March 31, 2002), decreased airline
revenues ($42,000 for the three months ended March 31, 2003 compared to $137,000
for the three months ended March 31, 2002) and decreased revenue from the
theatrical release of films in the U.S. market ($23,000 for the three months
ended March 31, 2003 compared to $161,000 for the three months ended March 31,
2002). These decreases were partially offset by increases in revenue from the
direct distribution of motion pictures in the U.S. video market ($2,863,000 for
the three months ended March 31, 2003 compared to $1,513,000 for the three
months ended March 31, 2002).
Film costs as a percentage of revenues increased to 59.2% for the three
months ended March 31, 2003 compared to 52.3% for the three months ended March
31, 2002. Film costs include amortization of capitalized production and
acquisition costs and video and DVD duplication costs as well as current period
participation cost accruals. This increase was primarily due to higher
amortization of capitalized production and acquisition costs on films licensed
in the three months ended March 31, 2003 compared to the three months ended
March 31, 2002.
Distribution and marketing expenses increased by $300,000 (18.2%) to
$1,952,000 for the three months ended March 31, 2003 from $1,652,000 for the
three months ended March 31, 2002. Distribution and marketing expenses as a
percentage of revenues increased to 34.2% for the three months ended March 31,
2003 compared to 24.4% for the three months ended March 31, 2002. This increase
was primarily due to increased marketing and distribution costs related to the
direct distribution of films in the theatrical, video and DVD markets in the
U.S. ($1,132,000 for the three months ended March 31, 2003 compared to $680,000
for the three months ended March 31, 2002). In accordance with the accounting
standards, we expense distribution and marketing expenses as incurred.
Selling, general and administrative expenses, net of amounts capitalized to
film costs, decreased by $257,000 (13.9%) to $1,599,000 for the three months
ended March 31, 2003 from $1,856,000 for the three months ended March 31, 2002.
We capitalize a portion of our overhead costs incurred in connection with our
production activities related to a motion picture by adding these costs to the
capitalized film costs of the motion picture. The decrease in general and
administrative expenses was primarily as a result of decreases in:
o salaries and payroll taxes of $130,000;
o bad debt expense and reserves of $116,000;
o office supplies of $48,000;
o consulting fees of $24,000;
o legal fees of $12,000; and
o publicity of $12,000.
These decreases were partially offset by increases in:
o rental expenses of $36,000;
o decreased capitalized overhead of $33,000; and
o accounting fees of $18,000.
Net other expense was $225,000 for the quarter ended March 31, 2003
compared to $237,000 for the quarter ended March 31, 2002. The decrease was
primarily due to an increase in other income ($65,000 for the three months ended
March 31, 2003 compared to $25,000 for the three months ended March 31, 2002),
partially offset by an increase in interest expense ($297,000 for the three
months ended March 31, 2003 compared to $263,000 for the three months ended
March 31, 2002).
As a result of the above, we had a net loss of $1,518,000 for the quarter
ended March 31, 2003 (reflecting foreign withholding taxes and state taxes of
$68,000), compared to a net loss of $526,000 (reflecting foreign withholding
taxes and state taxes of $18,000) for the quarter ended March 31, 2002.
9
Liquidity and Capital Resources
We require substantial capital for the acquisition of film rights, the
funding of distribution costs and expenses, the payment of ongoing overhead
costs and the repayment of debt. The principal sources of funds for our
operations have been cash flow from operations, bank borrowings and equity
financings.
June 2002 Private Placement
In June 2002, we consummated a private placement with Seven Hills Pictures,
LLC, in which we sold to Seven Hills, for an aggregate cash purchase price of
$6,050,000, 2,630,434 shares of our common stock and five-year warrants to
purchase up to 1,172,422 shares of our common stock at an exercise price of
$3.40 per share. Warrants to purchase 881,137 shares of common stock are
immediately exercisable and will expire on June 25, 2007. Warrants to purchase
291,285 shares of common stock ("Note Warrants") only will become exercisable
upon conversion of the convertible promissory note described below, in
proportion to the amount of the note converted if the note is not converted in
whole, and will expire on June 25, 2007. If no portion of the note is converted
into common stock, then the Note Warrants will not become exercisable. As of
March 31, 2003, Seven Hills owned approximately 18.1% of our outstanding voting
securities.
Additionally, in May 2002, the Company and Seven Hills formed a joint
venture company. In connection with formation of the joint venture, the Company
and the joint venture company issued a $2,000,000 convertible promissory note to
Seven Hills. The note bears interest at a rate of 4% per annum, payable
quarterly in arrears, and principal and unpaid interest on the note are payable
on June 25, 2008. The note is recourse against us as to interest only (accrued
prior to the maturity date) and against the joint venture company as to both
principal and interest. The note has been discounted by approximately $268,000,
the value of the Note Warrants, which discount will be amortized over the term
of the note.
JPMorgan Facility
In June 2000, we entered into a $40 million credit facility with JPMorgan
Securities, Inc. (formerly Chase Securities, Inc. and The Chase Manhattan Bank)
("JPMorgan") and other commercial banks and financial institutions. A portion of
the proceeds from this credit facility was used to repay outstanding loans and
accrued interest under our previous credit facility with Coutts & Co. and
Bankgesellschaft Berlin A.G. The remaining proceeds have been used to finance
our production, acquisition, distribution and exploitation of feature length
motion pictures, video product and rights and for working capital and general
corporate purposes.
Under the JPMorgan facility, we borrow funds through loans evidenced by
promissory notes. The loans are made available through a revolving line of
credit that may be reduced, partially or in whole, at any time and are to be
fully paid on June 20, 2005. The JPMorgan facility also provides for letters of
credit to be issued from time to time upon our request. Amounts available for
drawing (referred to as the "borrowing base") under the JPMorgan facility are
calculated each month and, under the original terms of the credit agreement,
could not exceed the $40 million commitment. The main components of the
borrowing base include a library credit (originally 50% of the value of our film
library, based upon a third party valuation of future cash flows, which, under
the terms of the credit agreement, is required to be updated every twelve
months) and an accounts receivable credit (85% of net accounts receivable which
are acceptable to JPMorgan). As of March 31, 2003, we had borrowed an aggregate
of $17,000,000 under the JPMorgan facility and an additional $2,051,000 was
available to borrow based upon borrowing base calculations provided to JPMorgan
as of March 31, 2003.
The amounts drawn down under the JPMorgan facility bear interest, as we may
select, at rates based on either LIBOR plus 2% or a rate per annum equal to the
greater of (a) the Prime Rate plus 1%, (b) the Base CD Rate plus 2% and (c) the
Federal Funds Effective Rate plus 1.5% (as these terms are defined in the credit
agreement). In addition to an annual management fee of $125,000, we pay a
commitment fee on the daily average unused portion of the JPMorgan facility at
an annual rate of 0.5%. Upon entering the JPMorgan facility, we paid a one-time
fee of approximately $848,000 as a cost of acquiring the JPMorgan facility. The
JPMorgan facility restricts the creation or incurrence of indebtedness of
additional securities. The JPMorgan facility is collateralized by all of our
tangible and intangible assets and future revenues.
10
The operating losses and negative cash flow we have experienced, along with
the general market conditions for our business, have resulted in ongoing review
and discussions with JPMorgan and the participating banks in our credit
facility. In February 2003, at JPMorgan's request, we and JPMorgan amended the
credit agreement to reduce the amount we are permitted to borrow under the
credit facility in relation to our library value. The credit agreement initially
provided that we could borrow up to 50% (the "advance rate") of the valuation of
our library, conducted by an independent third party approved by JPMorgan. Under
the amendment, the advance rate was reduced to 45% as of April 1, 2003 and will
be further reduced to 40% as of July 1, 2003 and to 35% as of October 1, 2003.
As of December 31, 2002 and March 31, 2003, the losses we incurred resulted in
our breach of the covenant in the credit agreement that requires us to maintain
a minimum level of net worth. In April 2003, we and JPMorgan further amended the
credit agreement, pursuant to which JPMorgan waived the breach of the net worth
covenant through December 31, 2003 (subject to our maintaining a positive net
worth, as defined) and we agreed to reduce the commitment from $40 million to
$19 million on April 15, 2003, to $18 million on July 1, 2003, to $17 million on
October 1, 2003 and to $14.5 million on January 1, 2004.
Off Balance Sheet Commitments
In addition to direct bank borrowings, we occasionally enter into
contractual arrangements whereby we commit to pay certain amounts for the
acquisition of distribution rights of a film at a date in the future. These
contractual commitments are sometimes used by producers or other rights owners
to access production financing with respect to the given film. These commitments
generally are subject to the rights owner meeting certain conditions, including
delivery by the rights owner to us of certain physical materials and legal
documents relating to the film that will enable us to properly exploit the
rights we are acquiring. Once these conditions are met, we become obligated
under our contract to pay the amounts called for in the given contract. We treat
these types of commitments as liabilities, includable in our balance sheet only
upon satisfaction of the conditions to our obligation and disclose these
obligations as commitments. As of March 31, 2003, the total of these outstanding
commitments was $4,622,000, of which $1,564,000 was reflected as a liability on
our balance sheet (Payable to Producers) and $3,058,000 was not reflected as a
liability on our balance sheet, but will be once the various conditions to our
commitment, including delivery of the related film, are satisfied.
Additionally, we have entered into arrangements with German film financing
partnerships whereby we have guaranteed that within three years from the
commencement of principal photography of the related film, the licensing and
distribution proceeds, net of our fees and expenses, will be no less than sixty
to eighty percent (depending upon the specific arrangement) of the amount funded
toward the production cost of the related film. These guarantees generally are
not recorded as liabilities unless and until we expect that proceeds from the
licensing and distribution of the related film, net of our fees and expenses,
will be insufficient to cover the guarantee within the agreed upon period for
the particular film. As of March 31, 2003, we had three such commitments
outstanding, whereby the total amount committed was $10,238,000. These
guarantees are summarized below.
Term of Guarantee Maximum Current
----------------- Potential Carrying Projected
Amount of Future Amountof Future
From To Guarantee Payments Liability Assets Held Contracts
---- -- ----------- ----------- --------- ---------- ----------
Film 1 10/04/01 10/04/04 $5,240,000 $2,607,000 $ - $1,311,000 $2,200,000
Film 2 12/03/00 12/03/03 3,998,000 3,101,000 1,442,000 1,950,000 1,991,000
Film 3 01/31/02 01/31/05 1,000,000 717,000 164,000 804,000 691,000
------------------------------------------------------------------------------------
$10,238,000 $6,425,000 $1,606,000 $4,065,000 $4,882,000
====================================================================================
11
In the event any of the guarantees are drawn upon, we have the right to retain
proceeds from the collection of accounts receivable in addition to proceeds from
the future contracts of distribution rights in the respective film where the
guarantee had been called (both, net of our fees and expenses) until we have
recovered any guarantee paid. The table above reflects the amount of cash and
accounts receivable held ("Assets Held") along with our estimate of the value of
future licenses of distribution rights ("Projected Future Contracts") to the
respective film as of March 31, 2003. We expect that the possibility of having
to honor our contingent obligations under these agreements is remote and in the
event any of the guarantees are drawn upon, we believe that proceeds from the
liquidation of accounts receivable and further distribution rights will be
sufficient to cover the maximum amount of future payments under each guarantee.
Resources
For the two years ended December 31, 2002, we had operating losses of
$11,711,000 and operating activities used $17,221,000 of cash. Although
$3,776,000 of cash was generated by our operating activities during the first
quarter of 2003, our operating losses totaled $1,225,000, which was primarily
due to decreased revenues, a level of overhead disproportionate to margins
generated and increased bad debt expenses. As of March 31, 2003, we had cash and
cash equivalents of $2,989,000 and, based on our calculations, approximately
$2,051,000 was available for borrowing under the JPMorgan facility.
Our significant net losses and negative cash flow, along with the most
recent modifications under the credit agreement with JPMorgan, raise questions
about our ability to continue as going concern. We have been reviewing our past
business plan, alternative plans and other options and have made reductions in
overhead, including staff reductions. In addition, we have not renewed certain
consulting contracts or our first look arrangement with Grandview Pictures and
have significantly reduced our investments in films. We also are actively in
discussion with various parties regarding potential strategic relationships,
equity investment and revised business plans. If we are not successful in
generating sufficient future cash flow from operations in accordance with our
current or an altered business plan, raising additional capital through public
or private financings, strategic relationships or other arrangements will be
necessary. This additional funding, if needed, might not be available on
acceptable terms, or at all. Failure to raise sufficient capital, if and when
needed, could have a material adverse effect on our business, results of
operations and financial condition, including our ability to continue to operate
as a going concern.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. We do
not use derivative financial instruments. Because only a small portion of our
revenues is denominated in foreign currency, we do not believe there is a
significant risk imposed on us due to the fluctuations in foreign currency
exchange rates. The table below provides information about our debt obligations
as of March 31, 2003, including principal cash flows and related weighted
average interest rates by expected maturity dates:
Expected Maturity Date
(in thousands)
2004 2005 2006 2007 2008
---- ---- ---- ---- ----
Borrowings under credit facility - $17,000 -
Average interest rate (variable) 3.3% 3.3% - - -
Subordinated note payable - - - - $2,000
Average interest rate 4% 4% 4% 4% 4%
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
of the effectiveness of our disclosure controls and procedures was made under
the supervision and with the participation of our management, including the
chief executive officer and chief financial officer. Based on that evaluation,
the CEO and CFO concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
our evaluation, there were no significant changes in our internal controls or in
other factors that could significantly affect these controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are engaged in legal proceedings incidental to our normal business
activities. In the opinion of management, none of these proceedings are material
in relation to our financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2003, we did not make any sales of
unregistered securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.38 Amendment No. 5, dated as of April 18, 2003, to the Credit, Security,
Guaranty and Pledge Agreement dated as of June 20, 2000, as amended
among our company as Borrower, the Guarantors named therein, the
Lenders referred to therein, and JPMorgan Chase Bank, as
Administrative Bank and as Issuing Bank.
(b) Reports on Form 8-K
None
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 2003
FIRST LOOK MEDIA, INC.
By: /s/ William F. Lischak
-----------------------
William F. Lischak
Chief Financial Officer, Chief
Operating Officer and Secretary
15
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Look Media, Inc. (the
"Company") on Form 10-Q for the quarter ended March 31, 2003 as filed with the
Securities and Exchange Commission (the "Report"), each of the undersigned, in
the capacities and on the dates indicated below, hereby certifies pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
May 15, 2003
/s/ Christopher J. Cooney
--------------------------
Christopher J. Cooney
Chief Executive Officer
/s/ William F. Lischak
-------------------------
William F. Lischak
Chief Financial Officer, Chief
Operating Officer and Secretary
16
CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christopher J. Cooney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Look Media,
Inc.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003 /s/ Christopher J. Cooney
-------------------------
Christopher J. Cooney
Chief Executive Officer
17
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, William F. Lischak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Look Media,
Inc.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003 /s/ William F. Lischak
----------------------
William F. Lischak
Chief Financial Officer,
Chief Operating Officer and Secretary
18