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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

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.
(Exact name of registrant as specified in its charter)

Suite 3123, Three Bentall Centre

595 Burrard Street

Vancouver, British Columbia V7X 1J1

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (604) 609-6100

     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    ü    No _____

     As of November 4, 2002, 43,207,399 shares of the registrant’s no par value common stock were outstanding.

TABLE OF CONTENTS

     Unless the context indicates otherwise, all references herein to “Lions Gate,” “the Company,” “we,” “us,” and “our” refer collectively to Lions Gate Entertainment Corp. and its subsidiaries.

     This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that can be identified by the use of forward-looking terminology such as “may,” “will,” “intend,” “anticipate,” “project,” “could” or “continue” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to, the following:

	•		any inability to manage our growth or obtain financing to support our operations;
	•		the unpredictability of commercial success of films and television programs which may result in significant write-downs affecting our results of operations and financial condition;
	•		dependence on third party financing, government incentive programs and German tax shelter arrangements that could be reduced, amended or eliminated;
	•		actual production costs exceeding budgets due to circumstances beyond our control;
	•		operating results fluctuating materially from period-to-period;
	•		interest rate changes; and
	•		fluctuating currency rates.

     Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revision to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. For a further discussion of the risks and uncertainties see the Risk Factors section of our 10-K.

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PART I

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands of United States dollars)

See accompanying notes.

2

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands of United States dollars, except per share amounts)

See accompanying notes.

3

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(All amounts in thousands of United States dollars, except share amounts)

See accompanying notes.

4

LIONS GATE ENTERTAINMENT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands of United States dollars)

See accompanying notes.

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Lions Gate Entertainment Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

1.

Nature of Operations

     Lions Gate Entertainment Corp. (“the Company” or “Lions Gate”) is a fully integrated entertainment company engaged in the development, production and distribution of feature films, television series, television movies and mini-series, non-fiction programming and animated programming, as well as the management of Canadian-based studio facilities. As an independent distribution company, the Company also acquires distribution rights from a wide variety of studios, production companies and independent producers.

2.

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements include the accounts of Lions Gate and all of its majority-owned and controlled subsidiaries, with a provision for minority interests. The Company controls a subsidiary company through a combination of existing voting interests and an ability to exercise various rights under certain shareholder agreements and debentures to acquire common shares.

     These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which conforms, in all material respects, with the accounting principles generally accepted in the United States (“U.S. GAAP”), except as described in note 11, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Canadian or U.S. GAAP 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 condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. Certain reclassifications have been made in the fiscal 2002 financial statements to conform to the fiscal 2003 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2002.

     The balance sheet at March 31, 2002 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

     Commencing in the quarter ended June 30, 2002 and going forward, our audited condensed consolidated financial statements are, and will be, presented in U.S. dollars as a substantial component of our operations are domiciled in the U.S. and the dominant market for trading volume of our common stock is on the American Stock Exchange.

3.

Accounting Changes Goodwill-

     On November 1, 2001, the Canadian Institute of Chartered Accountants (“CICA”) released Section 3062, “Goodwill and Other Intangible Assets”, to be applied by companies for fiscal years beginning on or after January 1, 2002. Early adoption 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. The Company elected to early-adopt CICA 3062 on April 1, 2001. Under CICA 3062,

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goodwill is no longer amortized but is reviewed annually, or more frequently if impairment indicators arise, for impairment, unless certain criteria have been met, and is similar, in many respects, to Statement of Financial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets”, under U.S. GAAP. In accordance with the adoption provisions of CICA 3062, goodwill is required to be tested for impairment on the date of adoption. Under SFAS 142 goodwill is required to be tested for impairment within six months of adoption, as of the beginning of the year. At April 1, 2001 and September 30, 2001, it was determined that the fair value of each of the reporting units was in excess of its carrying value including goodwill and, therefore, no further work was required and an impairment loss was not required. 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. The amortization provisions of CICA 3062 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization and impairment provisions of CICA 3062 are effective upon adoption of CICA 3062.

Derivative Instruments and Hedging Activities-

     On April 1, 2001, the Company adopted SFAS 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended in June 2000 by SFAS 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, where the provisions of SFAS 133 were applicable under Canadian GAAP, which requires companies to recognize all derivatives as either assets or liabilities in the balance sheet and measure such instruments at fair value. The adoption of these standards did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

4.		Investment in Films and Television Programs
		(all amounts in thousands of US dollars)

     The Company expects that approximately 47% of completed films and television programs, net of accumulated amortization, will be amortized during the one year period ending September 30, 2003, and approximately 48% of accrued participants’ share will be paid during the one year period ending September 30, 2003.

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     Additionally, the Company expects approximately 87% of completed and released films and television programs, net of accumulated amortization, will be amortized over the three-year period ending September 30, 2005.

5.

Discontinued Operation

     Mandalay Pictures, LLC (“Mandalay”) develops and produces large budget, class-A feature films. Effective April 1, 2002, the carrying value of the Company’s investment in Mandalay is presented as a discontinued operation as the Company’s investment in Mandalay is expected to be sold by the end of the current fiscal year. The results of Mandalay are reported separately for the current and comparable period. The Company believes that the carrying value of Mandalay as at September 30, 2002 does not exceed the proceeds that will be realized upon its disposition.

     The Company’s investment in Mandalay is comprised of a 45% common stock interest, and a 100% interest in preferred stock with a stated value of $50.0 million. Prior to its classification as a discontinued operation, Lions Gate recorded 100% of the operating losses of Mandalay, as it was the sole funder of Mandalay.

     Mandalay is considered a partnership for income tax purposes, and contractually Lions Gate is entitled to access the tax losses of Mandalay. Accordingly, the tax effects attributable to the operating losses of Mandalay are included in the Company’s tax provision.

     Subsequent to September 30, 2002, the Company received payment of $0.2 million from Mandalay and sold its investment in Mandalay for cash of $4.2 million due on closing 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.

6.

Bank Loans

     The Company has a $175.0 million U.S. dollar-denominated revolving credit facility, a $25.0 million Canadian dollar-denominated revolving credit facility, a Cdn$2.0 million ($1.3 million) operating line of credit and Cdn$5.0 million ($3.2 million) in demand loans.

     The availability of funds under the revolving credit facilities is limited by the borrowing base, which is calculated on a monthly basis. The borrowing base assets at September 30, 2002 totaled $147.5 million (March 31, 2002 - -$152.1 million). The revolving credit facility has an average variable interest rate of U.S. prime minus 0.4% on principal of $106.6 million and an average variable interest rate of Canadian prime plus 1.2% on principal of $15.8 million. The operating line of credit bears interest at Canadian prime plus 1% and the demand loans at Canadian prime plus 0% - 4%. The Company is required to pay a monthly commitment fee of 0.375% on the total revolving credit facilities of $200.0 million less the amount drawn.

7.

Gain on Dilution

     On July 10, 2001 a third party invested Cdn$14.0 million ($9.2 million) in the Company’s animation partner to obtain a 35% interest. The gain on dilution of the company’s investment was Cdn$3.4 million, net of income taxes of $nil ($2.2 million, net of income taxes of $nil) and resulted in a decrease of Cdn$0.2 million ($0.1 million) in goodwill.

8.

Income per Share

     Basic income per share is calculated after adjusting net income for dividends and accretion on the preferred shares and using the weighted average number of common shares outstanding during the three and six months ended September 30, 2002 of 43,207,000 shares and 43,205,000 shares, respectively

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(September 30, 2001 — 42,463,000 shares and 42,427,000 shares respectively). The exercise of common share equivalents including employee stock options, share purchase warrants, convertible promissory notes and Series A preferred shares could potentially dilute earnings per share in the future, but were not reflected in fully diluted income per share because to do so would be anti-dilutive.

9.

Supplementary Cash Flow Statement Information

     Interest paid for the six months ended September 30, 2002 amounted to $4.6 million (September 30, 2001 — $5.1 million).

     Income taxes paid for the six months ended September 30, 2002 amounted to $1.0 million, (September 30, 2001 — $0.5 million).

10.

Commitments and Contingencies

     The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any pending or threatened proceedings, or any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company.

11.

Reconciliation to United States GAAP

     The consolidated financial statements of the Company have been prepared in accordance with Canadian GAAP. The material differences between the accounting policies used by the Company under Canadian GAAP and U.S. GAAP are disclosed below in accordance with the rules and regulations of the Securities and Exchange Commission.

     Under U.S. GAAP, the net income (loss) and income (loss) per share figures for the three months and six months ended September 30, 2002 and 2001 and the shareholders’ equity as at September 30, 2002 and March 31, 2002 were as follows:

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(all amounts in thousands of US dollars, except per share amounts)

10

Reconciliation of movement in Shareholders’ Equity under U.S. GAAP:

(all amounts in thousands of US dollars)

(a)

Accounting for Capitalized Pre-Operating Period Costs — Mandalay

Under Canadian GAAP, pre-operating costs incurred by Mandalay were deferred and amortized to income to March 31, 2002. The remaining unamortized pre-operating costs of $1.2 million at March 31, 2002 were included in write down and equity interest in investments subject to significant influence. Under U.S. GAAP, all start-up costs are required to be expensed as incurred. The amount for the three months and six months ended September 30, 2001 is presented net of income taxes of $0.1 million and $0.3 million respectively.

(b)

Accounting for Discontinued Operation

Under Canadian GAAP, effective April 1, 2002, the carrying value of the Company’s investment in Mandalay is presented as a discontinued operation and the results of Mandalay are reported separately for the current and comparable period. Under U.S. GAAP, the investment in Mandalay is not considered a discontinued operation and would be accounted for using the equity method. Accordingly, in the three months and six months ended September 30, 2002 Mandalay’s net loss of $1.9 million and $2.6 million, respectively, would be recorded as a reduction in net income. Refer to note 5 for further information.

(c)

Accounting for Capitalized Pre-Operating Period Costs — One-Hour Series Business

Under Canadian GAAP, the Company deferred certain pre-operating costs related to the launch of the television one-hour series business amounting to $3.0 million. This amount is being amortized over five years commencing in the year ended March 31, 2000. Under U.S. GAAP, all start-up costs are required to be expensed as incurred. The amounts are presented net of income taxes for the three and six months ended September 30, 2002 of $0.1 million and $0.1 million respectively (September 30, 2001 — $0.1 million and $0.1 million respectively).

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(d)  Accounting for Business Combinations

Under Canadian GAAP prior to January 1, 2001, costs related to activities or employees of an acquiring company were not considered in the purchase price allocation. In fiscal 2001, the Company included $1.4 million of such costs in the purchase price for a subsidiary. Under U.S. GAAP, costs related to the acquiring Company must be expensed as incurred. The amount is presented net of income taxes of $0.3 million.

(e)  Accounting for Income Taxes

Under Canadian GAAP commencing in the year ended March 31, 2001, the Company used the asset and liability method to recognize future income taxes which is consistent with the U.S. GAAP method required under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”), except that Canadian GAAP requires use of the substantively enacted tax rates and legislation, whereas U.S. GAAP only permits use of enacted tax rates and legislation. The use of substantively enacted tax rates under Canadian GAAP to measure future income tax assets and liabilities resulted in an increase in Canadian net future income tax assets (before valuation allowances) of $0.1 million (September 30, 2001 – $1.5 million), with a corresponding increase in valuation allowances of $0.1 million (September 30, 2001 – $1.1 million).

SFAS 109 requires deferred tax assets and liabilities be recognized for temporary differences, other than non-deductible goodwill, arising in a business combination. In the year ended March 31, 2000, under U.S. GAAP, goodwill was increased to reflect the additional deferred tax liability resulting from temporary differences arising on the acquisition. Under Canadian GAAP, the Company did not restate income taxes for years prior to March 31, 2001, accordingly, there is a difference in the carrying amount of goodwill arising in the business combination of $1.9 million as at September 30, 2002 (March 31, 2002 – $1.9 million).

(f)  Accretion on Preferred Shares

Under Canadian GAAP, the Company’s preferred shares have been included in shareholders’ equity as the Company considers the likelihood of redemption by the holders to be remote. Under U.S. GAAP, the preferred shares would be presented outside of shareholders' equity.

Under Canadian GAAP, the fair value of the basic preferred shares was determined using the residual value method after determining the fair value of the common share purchase warrants and the preferred share conversion feature. Under U.S. GAAP, the carrying amount of the preferred shares at the date of the offering of $27.6 million is the residual value arrived at by taking the $33.2 million proceeds less the fair value of the share purchase warrants of $3.9 million less share issue costs of $1.7 million.

Under Canadian GAAP, the difference between the carrying amount and the redemption value of $32.3 million is being accreted as a charge to accumulated deficit on a straight line basis over five years whereas, under U.S. GAAP, the difference would be accreted using the effective interest method over five years.

(g)  Comprehensive Loss

Comprehensive loss consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under U.S. GAAP are excluded from the determination of net income

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or loss. Adjustment to cumulative translation adjustments comprises foreign currency translation gains and losses. Other comprehensive loss comprises unrealized losses on investments available for sale based on the market price of the shares at September 30, 2002 net of income taxes of $nil (September 30, 2001 — $nil).

(h)  Accounting for Tax Credits

Under Canadian GAAP, federal and provincial tax credits earned with respect to production costs may be included in revenue. U.S. GAAP requires that tax credits be presented as reduction of income tax expense. The corresponding impact would be a reduction of revenue and credit to income tax expense of $3.4 million (September 30, 2001 — $5.0 million).

(i)  Consolidated Financial Statements

Under Canadian GAAP, the Company consolidates the financial statements of CineGroupe Corporation (“CineGroupe”). On July 10, 2001, as a condition of a $9.2 million equity financing with a third party, CineGroupe’s Shareholders’ Agreement was amended to allow for certain participatory super-majority rights to be granted to the shareholders. Therefore, under U.S. GAAP, the Company would be precluded from consolidating CineGroupe and would account for CineGroupe, commencing April 1, 2001, using the equity method.

There is no impact on net income under U.S. GAAP. Accounting for CineGroupe using the equity method under U.S. GAAP would reduce the condensed consolidated statements of operations items to the following amounts:

(all amounts in thousands of US dollars)

The impact of using the equity method under U.S. GAAP on the consolidated balance sheet at September 30, 2002 would reduce total assets to $346.4 million (March 31, 2002 — $336.4 million) and reduce debt (including bank loans, production loans, and long-term debt) to $191.2 million (March 31, 2002 — $188.6 million).

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     We develop, produce and distribute a targeted range of film and television content in North America and around the world. To reflect our core businesses, this discussion focuses on Motion Pictures, Television, Animation and Studio Facilities. Please also refer to the information in note 17 to the March 31, 2002 audited consolidated financial statements.

     The following discussion and analysis for the six months ended September 30, 2002 and 2001 should be read in conjunction with the unaudited condensed consolidated financial statements included in this Form 10-Q. The unaudited condensed consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). The material differences between the accounting policies used by Lions Gate under Canadian GAAP and United States (“U.S.”) GAAP are disclosed in note 11 to the unaudited condensed consolidated financial statements. Certain reclassifications have been made in the September 30, 2001 unaudited condensed consolidated financial statements to conform to the September 30, 2002 presentation.

     The functional currency of our business, defined as 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 April 1, 2002 and going forward, our unaudited condensed consolidated financial statements are and will be presented in U.S. dollars, as is this Management Discussion and Analysis. In addition, the September 30, 2001 unaudited condensed financial statements have been restated from Canadian to U.S. dollars. In accordance with generally accepted accounting principles in both Canada and the U.S., the financial statements of Canadian-based subsidiaries are translated for consolidation purposes using current exchange rates, with translation adjustments accumulated in a separate component of shareholders’ equity.

Overview

     Income from continuing operations, income from discontinued operations and net income for the three months ended September 30, 2002, were $1.2 million, $nil and $1.2 million, respectively, or $0.01, $nil and $0.01 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 43.2 million weighted average common shares outstanding. This compares to income from continuing operations, income from discontinued operations and net income of $nil, $0.1 million and $0.1 million, respectively, or loss per share of $0.02, loss per share of $nil and loss per share of $0.02 respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 42.5 million weighted average common shares outstanding for the three months ended September 30, 2001.

     Income from continuing operations, income from discontinued operations and net income for the six months ended September 30, 2002, were $3.9 million, $nil and $3.9 million, respectively, or $0.05, $nil and $0.05 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 43.2 million weighted average common shares outstanding. This compares to income from continuing operations, loss from discontinued operations and net loss of $0.6 million, $0.8 million and $0.2 million, respectively, or loss per share of $0.03, loss per share of $0.02 and loss per share of $0.05 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 42.4 million weighted average common shares outstanding for the six months ended September 30, 2001.

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     EBITDA (defined as earnings before interest, provision for income taxes, amortization, minority interests, unusual losses, write-down and equity interests in investments subject to significant influence) of $6.2 million for the three months ended September 30, 2002 increased $3.5 million or 129.6% compared to $2.7 million for the three months ended September 30, 2001. EBITDA of $13.0 million for the six months ended September 30, 2002 increased $7.4 million or 132.1% compared to $5.6 million for the six months ended September 30, 2001. 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 (defined as earnings before interest, provision for income taxes, amortization, minority interests, unusual losses, write-down and equity interests in investments subject to significant influence) to Net income (loss):