SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
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.)
8800 Sunset Blvd., Third Floor, Los Angeles, CA 90069
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (310) 855-1199
OVERSEAS FILMGROUP, INC.
(Former name, former address and former fiscal year,
if changed since last report)
The Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 as set forth in the pages attached hereto:
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FIRST LOOK MEDIA, INC.
Reason for Revision to Form 10-Q
As set out more fully in footnote 5 to the financial statements, the quarterly
report on Form 10-Q for First Look Media, Inc. (f/k/a Overseas Filmgroup, Inc.)
has been revised for transactions related to the forgiveness of amounts due from
related parties under the terms of the Purchase Agreement in order to account
for these transactions in compliance with the provisions of Accounting
Principals Board Opinion 26 and SEC Staff Accounting Bulletin Topic 5-T.
INDEX
Part I - Financial Information
PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000
(unaudited) and December 31, 1999.....................................3
Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 2000
and June 30, 1999.....................................................4
Consolidated Statements of Cash Flows (unaudited)
for the six months
ended June 30, 2000 and June 30, 1999.................................5
Consolidated Statements of Comprehensive Income
(unaudited) for the three and six months ended
June 30, 2000 and June 30, 1999.......................................6
Notes to Consolidated Financial Statements (unaudited).................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................9
Signature.............................................................16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST LOOK MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
(Restated)
ASSETS:
Cash and cash equivalents $ 1,491,291 $ 270,031
Restricted cash 13,412 88,176
Accounts receivable, net of allowance for doubtful
accounts of $1,100,000 27,045,151 30,088,951
Related party receivable 0 149,000
Investment available-for-sale 1,891,595 2,908,383
Film costs, net of accumulated amortization 15,710,095 28,363,419
Fixed assets, net of accumulated depreciation 231,151 282,856
Other assets 1,889,096 496,078
---------------- ----------------
Total assets $ 48,271,791 $ 62,646,894
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 1,618,492 $ 1,146,677
Payable to related parties 0 1,334,624
Accrued interest payable 0 272,583
Payable to producers 24,058,865 22,462,179
Note payable to shareholders 0 1,989,229
Notes payable 7,028,825 19,764,175
Deferred income taxes 0 1,458,605
Deferred revenue 593,700 918,500
---------------- ----------------
Total liabilities 33,299,882 49,346,572
---------------- ----------------
Shareholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized; 904,971 and 0 shares outstanding, respectively 905 0
Common stock, $.001 par value, 25,000,000 shares
authorized; 9,848,906 shares issued; 9,803,906 shares outstanding
and 6,340,305 shares issued; 6,295,305 shares outstanding, respectively 9,850 6,340
Additional paid in capital 30,822,059 12,107,058
Cumulative unrealized gain on investment available-for-sale, net of taxes 460,630 1,477,418
Retained deficit (16,234,801) (203,760)
Treasury stock at cost, 45,000 shares (86,734) (86,734)
---------------- ----------------
Total shareholders' equity 14,971,909 13,300,322
---------------- ----------------
Total liabilities and shareholders' equity $ 48,271,791 $ 62,646,894
================ ================
The accompanying notes are an integral part of these financial statements.
3
FIRST LOOK MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Restated) (Restated)
Revenues....................... $ 4,411,005 $ 6,540,726 $ 10,460,301 $ 13,231,090
Expenses:
Film costs.................. 3,352,169 5,412,347 8,008,302 10,751,083
Distribution and marketing
costs...................... 795,086 0 1,415,175 0
Selling, general and
administrative............. 1,095,272 719,412 1,888,759 1,464,986
--------------- ------------ --------------- -------------
Total expenses........... 5,242,527 6,131,759 11,312,236 12,216,069
--------------- ------------ --------------- -------------
(Loss) income from operations.. (831,522) 408,967 (851,935) 1,015,021
--------------- ------------ --------------- -------------
Other income (expense):
Interest income............. 9,660 1,520 9,710 1,809
Interest expense............ (542,764) (491,382) (1,061,737) (963,858)
Other....................... 33,226 4,181 87,674 29,660
--------------- ------------ --------------- -------------
Total other income (expense) (499,878) (485,681) (964,353) (932,389)
--------------- ------------ --------------- -------------
(Loss) income before income
taxes and cumulative effect
of accounting changes......... (1,331,400) (76,714) (1,816,288) 82,632
Income tax (provision) benefit. (19,246) 29,000 (91,620) (30,000)
--------------- ------------ --------------- -------------
(Loss) income before
cumulative effect of
accounting changes............ (1,350,646) (47,714) (1,907,908) 52,632
Cumulative effect of accounting
changes....................... 0 0 (14,123,133) 0
--------------- ------------ --------------- -------------
Net (loss) income....... $ (1,350,646) $ (47,714) $ (16,031,041) $ 52,632
=============== ============ =============== =============
Basic and diluted earnings (loss)
per share:
(Loss) income before
cumulative effect of
accounting changes........ $ (0.21) $ (0.01) $ (0.30) $ 0.01
Cumulative effect.......... - - (2.19) -
--------------- ------------ --------------- -------------
Net (loss) income........ $ (0.21) $ (0.01) $ (2.49) $ 0.01
=============== ============ =============== =============
Weighted average number of
basic and diluted common
shares outstanding............ 6,565,197 5,732,778 6,430,997 5,732,778
=============== ============ =============== =============
The accompanying notes are an integral part of these financial statements.
4
FIRST LOOK MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2000 1999
---- -----
(Restated)
Cash flows from operating activities:
Net (loss) income $ (16,031,041) $ 52,632
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Cumulative effect of accounting changes 14,123,133 0
Amortization of capitalized film costs 906,740 6,360,178
Additions to film costs (2,376,549) (6,757,588)
Depreciation of fixed assets 67,870 67,918
Change in assets and liabilities:
Decrease (increase) in accounts receivable 3,192,800 (2,136,972)
Increase in other assets (1,393,018) (263,456)
Decrease in accounts payable and accrued expenses (451,452) (98,590)
Increase in payable to producers 1,596,686 3,440,367
Decrease in deferred income taxes payable (1,458,605) (96,465)
(Decrease) increase in deferred revenue (324,800) 543,000
---------------- ---------------
Net cash (used in) provided by operating activities (2,148,236) 1,111,024
---------------- ---------------
Cash flows from investing activities:
Purchase of fixed assets (16,165) (43,710)
---------------- ---------------
Net cash used in investing activities (16,165) (43,710)
---------------- ---------------
Cash flows from financing activities:
Sale of securities, net of expenses 16,696,439 0
Net paydown under credit facility (12,735,350) (1,518,374)
Net payment on note payable to shareholders (650,192) (125,000)
Decrease in restricted cash position 74,764 158,364
---------------- ---------------
Net cash provided by (used in) financing activities 3,385,661 (1,485,010)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,221,260 (417,696)
Cash and cash equivalents at beginning of period 270,031 537,652
---------------- ---------------
Cash and cash equivalents at end of period $ 1,491,291 $ 119,956
================ ===============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 1,286,554 $ 1,298,770
================ ===============
Income taxes $ 6,400 $ 7,200
================ ===============
Foreign withholding taxes $ 85,220 $ 126,465
================ ===============
Non-cash transaction:
Forgiveness of amounts owed to principal shareholders $ 1,339,037 $ -
================ ===============
The accompanying notes are an integral part of these financial statements.
5
FIRST LOOK MEDIA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Restated) (Restated)
Net (loss) income $ (1,350,646) $ (47,714) $ (16,031,041) $ 52,632
Unrealized holding loss on
investment available-for-sale (487,999) 0 (1,016,788) 0
--------------- --------------- -------------------- ---------------------
Total comprehensive (loss)
income $ (1,838,645) $ (47,714) $ (17,047,829) $ 52,632
=============== =============== ==================== =====================
The accompanying notes are an integral part of these financial statements.
6
FIRST LOOK MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements of First Look
Media, Inc. (f/k/a Overseas Filmgroup, 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 six months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. Certain reclassifications have been made in the
1999 consolidated financial statements to conform to the 2000 presentation.
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, 1999 (the "1999 Consolidated Financial
Statements").
2. Film costs consist of the following:
June 30, 2000 December 31, 1999
Films in release $ 104,370,921 $ 192,798,097
Less: Accumulated amortization (90,469,781) (166,365,578)
------------------ ------------------
Subtotal 13,901,140 26,432,519
Films not yet available for release 1,808,955 1,930,900
------------------ ------------------
$ 15,710,095 28,363,419
================== ==================
3. In June 2000, the Company consummated a sale of securities pursuant to a
Securities Purchase Agreement ("Purchase Agreement") with Rosemary Street
Productions, LLC ("Rosemary"), whereby the Company sold to Rosemary (i)
5,097,413 shares of common stock, (ii) 904,971 shares of Series A preferred
stock, each share of which is convertible into two shares of common stock
and votes with the common stock on an as-converted basis, and (iii)
five-year warrants to purchase up to 2,313,810 shares of common stock of
the Company at an exercise price of $3.40 per share (collectively, the
"Securities") for a cash purchase price of $17,000,000 (the "Securities
Purchase"). Expenses associated with this issuance of stock and warrants
totaled $433,563 through June 30, 2000. As a result of the transaction,
Rosemary now owns approximately 59.5% of the Company's voting securities.
In connection with the Purchase Agreement with Rosemary discussed below,
the Company entered into a note and debt contribution agreement with
Robert B. Little and Ellen Dinerman Little (collectively, the
"Littles"). Pursuant to the agreement, the Littles forgave:
o $1,339,037 of aggregate outstanding principal amount and $480,709 of
accrued but unpaid interest on a note issued to the Littles as part of
the consideration given relating to the merger of the Company and
Overseas Filmgroup, Inc. in October 1996;
o $78,101 of accrued and unpaid interest on loans in the aggregate
principal amount of $400,000 ("P&A Loans") made by the Littles to the
Company in December 1997 and February 1998, which were used to provide
a portion of the funds required by the Company for the print and
advertising costs associated with the domestic theatrical release of
MRS. DALLOWAY; and
o $125,131 of accrued salaries that the Company owed to them.
The Littles also contributed $130,000 in cash and 1,588,812 of their shares
of the Company's common stock to the Company's capital and the Company
repaid the Littles:
7
o $135,476 for various reimbursable expenses as provided in their
employment agreements with the Company;
o $130,000 of the remaining principal balance on the note issued in
connection with the October 1996 merger;
o $400,000 representing the aggregate principal amount owed by the
Company to the Littles under the P&A Loans;
o $564,524 of accrued salaries; and
o $200,000 representing the amount owed by the Company to the Littles
under the tax reimbursement agreement between the Company and the
Littles entered into in connection with the merger in October 1996.
Simultaneous with the consummation of the Securities Purchase, the Company,
as borrower, and certain subsidiaries of the Company, as guarantors,
entered into a $40 million credit facility (of which $33 million has been
committed) with The Chase Manhattan Bank and other commercial banks and
financial institutions. The proceeds from the credit facility were used to
refinance outstanding loans and accrued interest under the Company's
previous credit facility with Coutts & Co. and Bankgesellschaft Berlin A.G.
(formerly known as Berliner Bank A.G. London Branch) and will be used to
finance the Company's production, acquisition, distribution and
exploitation of feature length motion pictures, television programming,
video product and rights; and to fund the Company's working capital and
other lawful corporate purposes.
4. 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 film accounting standards, including changes in
revenue recognition and accounting for advertising, development and
overhead costs. Additionally, in June 2000, the Financial Accounting
Standards Board ("FASB") issued Statement 139 ("SFAS 139") which rescinds
FASB 53 on financial reporting by motion picture film producers or
distributors. SFAS 139 requires public companies to follow the guidance
provided by SOP 00-2. The Company has elected early adoption of SOP 00-2
and, as a result, has recorded a one-time, pre-tax non-cash charge of
$15,581,738 ($14,123,133 after taxes). This charge has been reflected in
the Company's Consolidated Statements of Operations as a cumulative effect
of accounting changes, effective January 1, 2000. Under SOP 00-2 for the
three and six months ended June 30, 2000, the Company recognized additional
distribution expense of approximately $617,000 and $1,050,000,
respectively.
5. The Company has restated filings on Form 10-Q for the quarterly period
ended June 30, 2000 for transactions related to the forgiveness of amounts
due from related parties under the terms of the Purchase Agreement in order
to account for these transactions in compliance with the provisions of
Accounting Principals Board Opinion 26 and SEC Staff Accounting Bulletin
Topic 5-T. The $558,810 and $125,131 for accrued interest and salaries,
respectively, forgiven by the principal shareholders in June 2000 were
originally recognized as other income and as a reduction of selling,
general and administrative expense. In these revised financial statements,
these amounts are accounted for as a capital contribution.
The table below shows the effect of this revision:
Three months ended Six months ended
June 30, 2000 June 30, 2000
------------- -------------
Revised Original Revised Original
------- -------- ------- --------
Income (loss) before cumulative effect of
accounting changes (1,350,646) (666,705) (1,907,908) (1,223,967)
Net income (loss) (1,350,646) (666,705) (16,031,041) (15,347,100)
Basic and diluted income (loss) per share
before cumulative effect of accounting
changes (0.21) (0.10) (0.30) (0.19)
Basic and diluted income (loss) per share (0.21) (0.10) (2.49) (2.39)
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains "forward-looking statements,"
including those within the meaning of the Private Securities Litigation Reform
Act of 1995. Such statements can be identified by the use of forward-looking
terminology such as "may," " expect," anticipate," "estimate," "intend" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward-looking statements. These risks and uncertainties include, among
other things, the highly speculative and inherently risky and competitive nature
of the motion picture industry. There can be no assurance of the economic
success of any motion picture since the revenues derived from the production and
distribution of a motion picture (which do not necessarily bear a direct
correlation to the production or distribution costs incurred) depend primarily
upon its acceptance by the public, which cannot be predicted. The commercial
success of a motion picture also depends upon the quality and acceptance of
other competing films released into the marketplace at or near the same time,
the availability of alternative forms of entertainment and leisure time
activities, general economic conditions and other tangible and intangible
factors, all of which can change and cannot be predicted with certainty.
Therefore, there is a substantial risk that some or all of the motion pictures
released, distributed, financed or produced by the Company will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized. The Company's results of operations for the period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected in future periods (including for the year ending December 31, 2000).
Due to quarterly fluctuations in the number of motion pictures in which the
Company controls the distribution rights and which become available for
distribution (and thus, for which revenue can first be recognized) and the
number of motion pictures distributed by the Company, as well as the
unpredictable nature of audience and sub-distributor response to motion pictures
distributed by the Company, the Company's revenues, expenses and earnings
fluctuate significantly from quarter to quarter and from year to year. In
addition, for several reasons, including (i) the likelihood of continued
industry-wide increases in acquisition, production and marketing costs and (ii)
the Company's intent, based upon its ongoing strategy, to acquire rights to or
produce films which have greater production values (often as a result of larger
budgets), the Company's costs and expenses, and thus the capital required by the
Company in its operations and the associated risks faced by the Company may
increase in the future. Additional risks and uncertainties are discussed
elsewhere in appropriate sections of this report and in other filings made by
the Company with the Securities and Exchange Commission, including the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1999. The
risks highlighted above and elsewhere in this report should not be assumed to be
the only things that could affect future performance of the Company. The Company
does not have a policy of updating or revising forward-looking statements and
thus it should not be assumed that silence by management of the Company over
time means that actual events are bearing out as estimated in such
forward-looking statements.
9
General
The operations of First Look Media, Inc. (f/k/a Overseas Filmgroup, Inc.)
(the "Company") were established on February 11, 1980. The Company is
principally involved in the acquisition and worldwide license or sale of
distribution rights to independently produced motion pictures. Certain motion
pictures are directly distributed by the Company in the domestic theatrical and
video markets under the name First Look Pictures.
In June 2000, the Company consummated a sale of securities pursuant to a
Purchase Agreement with Rosemary, whereby the Company sold to Rosemary (i)
5,097,413 shares of common stock, (ii) 904,971 shares of Series A preferred
stock, each share of which is convertible into two shares of common stock and
votes with the common stock on an as-converted basis, and (iii) five-year
warrants to purchase up to 2,313,810 shares of common stock of the Company at an
exercise price of $3.40 per share for a cash purchase price of $17,000,000. As a
result of the transaction, Rosemary now owns approximately 59.5% of the
Company's voting securities.
Simultaneous with the consummation of the Securities Purchase, the Company,
as borrower, and certain subsidiaries of the Company, as guarantors, entered
into a $40 million credit facility (of which $33 million has been committed)
with The Chase Manhattan Bank and other commercial banks and financial
institutions. The proceeds from the credit facility were used to refinance
outstanding loans and accrued interest under the Company's previous credit
facility with Coutts & Co. and Bankgesellschaft Berlin A.G. (formerly known as
Berliner Bank A.G. London Branch) and will be used to finance the Company's
production, acquisition, distribution and exploitation of feature length motion
pictures, television programming, video product and rights; and to fund the
Company's working capital and other lawful corporate purposes.
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 film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Additionally, in June 2000, the Financial Accounting Standards Board ("FASB")
issued Statement 139 ("SFAS 139") which rescinds FASB 53 on financial reporting
by motion picture film producers or distributors. SFAS 139 requires public
companies to follow the guidance provided by SOP 00-2. The Company has elected
early adoption of SOP 00-2 and, as a result, has recorded a one-time, pre-tax
non-cash charge of $15,581,738 ($14,123,133 after taxes). This charge has been
reflected in the Company's Consolidated Statements of Operations as a cumulative
effect of accounting changes, effective January 1, 2000. Under SOP 00-2 for the
three and six months ended June 30, 2000, the Company recognized additional
distribution expense of approximately $617,000 and $1,050,000, respectively.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues decreased by $2,129,721 (32.6%) to $4,411,005 for the three months
ended June 30, 2000 from $6,540,726 for the three months ended June 30, 1999.
The decrease in revenues was primarily due to decreased revenue from films first
available for release in the three months ended June 30, 2000 (approximately
$541,000 from four films) compared to the three months ended June 30, 1999
(approximately $3,336,000 from one film).
As a result of the adoption of SOP 00-2, marketing and distribution costs
are treated as period costs and expensed as incurred, rather than capitalized
and amortized as a part of film costs. For the three months ended June 30, 2000,
film costs include amortization of capitalized production and acquisition costs
as well as current period participation cost accruals. Distribution and
marketing costs incurred in the current period are separately stated. For the
three months ended June 30, 1999, film costs include amortization of
distribution and marketing costs capitalized to film costs. For the three months
ended June 30, 2000, film costs as a percentage of revenues were 76.0% and
distribution and marketing costs as a percentage of revenues were 18.0%. For the
three months ended June 30, 1999, film costs were 82.7%. The increase in
10
combined film costs and distribution and marketing costs as a percentage of
revenues for the three months ended June 30, 2000 compared to film costs for the
three months ended June 30, 1999 was primarily due to expensing of marketing and
distribution costs as incurred as well as generally lower margins for the three
months ended June 30, 2000 compared to the three months ended June 30, 1999. The
gross margin for a given period will vary depending upon the gross margins
earned on films generating revenue in the period. Gross margins vary from film
to film based upon many factors, including the fees negotiated by the Company
with respect to its sales, licensing and distribution services and the amount
(if any) of the Company's investment in a particular film. In some cases, the
Company is entitled to only a fee based upon a percentage of the film's gross
revenues in a particular territory or territories and media. In other
circumstances, the Company may have a substantial investment in the film as a
result of having produced the related film or minimum guarantee commitments or
rights acquisition costs and is dependent upon the film's actual performance in
order to generate a positive gross margin. Other factors that impact gross
margins include market acceptance of a film, the budget of the film and
management's analysis of the motion picture's prospects which, under the
individual film forecast method, impacts the rate of amortization.
Selling, general and administrative expenses, net of amounts capitalized to
film costs, increased by $375,860 (52.3%) to $1,095,272 for the quarter ended
June 30, 2000 from $719,412 for the quarter ended June 30, 1999. This increase
was primarily due to increased bad debt expense (approximately $144,478),
increased franchise tax expense (approximately $36,542) and decreased
capitalized overhead (approximately $153,708). The Company capitalizes certain
overhead costs incurred in connection with the production of films.
Other expense (net of other income) for the three months ended June 30,
2000 increased by $14,197 to $499,878 for the three months ended June 30, 2000
compared to other expense (net of other income) of $485,681 for the three months
ended June 30, 1999.
As a result of the above, the Company had a loss before income taxes of
$1,331,400 for the three months ended June 30, 2000, compared to a loss before
income taxes of $76,714 for the three months ended June 30, 1999.
The Company had a loss of $1,350,646 for the three months ended June 30,
2000 (reflecting a tax expense of $19,246 related to foreign withholding taxes)
compared to a net loss of $47,714 for the three months ended June 30, 1999
(reflecting an effective tax rate of 37.8%).
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues decreased by $2,770,789 (20.9%) to $10,460,301 for the six months
ended June 30, 2000 from $13,231,090 for the six months ended June 30, 1999. The
decrease in revenues was primarily due to decreased revenue from films first
available for release in the six months ended June 30, 2000 (approximately
$546,000 from five films) compared to the six months ended June 30, 1999
(approximately $3,481,000 from two films).
As a result of the adoption of SOP 00-2, marketing and distribution
costs are treated as period costs and expensed as incurred, rather than
capitalized and amortized as a part of film costs. For the six months ended June
30, 2000, film costs includes amortization of capitalized production and
acquisition costs as well as current period participation cost accruals.
Distribution and marketing costs incurred in the current period are separately
stated. For the six months ended June 30, 1999 film costs include amortization
of distribution and marketing costs capitalized to film costs. For the six
months ended June 30, 2000, film costs as a percentage of revenues were 76.6%
and distribution and marketing costs as a percentage of revenues were 13.5%. For
the six months ended June 30, 1999, film costs were 81.3%. The increase in
combined film costs and distribution and marketing costs as a percentage of
revenues for the six months ended June 30, 2000 compared to film costs for the
six months ended June 30, 1999 was primarily due to expensing of marketing and
distribution costs as incurred as well as generally lower margins for the six
months ended June 30, 2000 compared to the six months ended June 30, 1999. The
gross margin for a given period will vary depending upon the gross margins
earned on films generating revenue in the period. Gross margins vary from film
to film based upon many factors, including the fees negotiated by the Company
with respect to its sales, licensing and distribution services and the amount
(if any) of the Company's investment in a particular film. In some cases, the
Company is entitled to only a fee based upon a percentage of the film's gross
revenues in a particular territory or territories and media. In other
circumstances, the Company may have a substantial investment in the film as a
result of having produced the related film or minimum guarantee commitments or
rights acquisition costs and is dependent upon the film's actual performance in
order to generate a positive gross margin. Other factors that impact gross
margins include market acceptance of a film, the budget of the film and
management's analysis of the motion picture's prospects which, under the
individual film forecast method, impacts the rate of amortization.
11
Selling, general and administrative expenses, net of amounts capitalized to
film costs, increased by $423,773 (28.9%) to $1,888,759 for the six months ended
June 30, 2000 from $1,464,986 for the six months ended June 30, 1999. This
increase was primarily due to increased bad debt expense (approximately
$76,057), increased compensation and compensation related expenses
(approximately $168,174) and decreased capitalization of overhead (approximately
$179,102).
Other expense increased to $964,353 for the six months ended June 30, 2000
compared to $932,389 for the six months ended June 30, 1999, primarily as a
result of an increase in interest expense ($97,879) which was partially offset
by an increase in other revenue ($65,915).
As a result of the above, the Company had a loss before the cumulative
effect of an accounting change and income taxes of $1,816,288 for the six months
ended June 30, 2000, compared to income before income taxes of $82,632 for the
six months ended June 30, 1999.
The Company adopted SOP 00-2 in June 2000. Accordingly, the Company
reported the cumulative effect of accounting changes of $15,581,738 ($14,123,133
after taxes).
The Company had a net loss of $16,031,041 for the six months ended June 30,
2000 (reflecting an a tax provision of $91,620, primarily related to foreign
withholding taxes) compared to net income of $52,632 for the six months ended
June 30, 1999 (reflecting an effective tax rate of 36.3%).
Liquidity and Capital Resources
The Company requires 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 the
Company's operations has been cash flow from operations, bank borrowings and
equity.
In June 2000, the Company, as borrower, and certain of the Company's
subsidiaries, as guarantors, entered into a $40 million credit facility (of
which $33 million has been committed) with The Chase Manhattan Bank and other
commercial banks and financial institutions. The Company only is permitted to
use the proceeds from the credit facility to:
o refinance outstanding loans and accrued interest under its previous
credit facility with Coutts & Co. and Bankgesellschaft Berlin A.G.;
o finance its production, acquisition, distribution and exploitation of
feature length motion pictures, television programming, video product
and rights; and
o fund its working capital and other lawful corporate purposes.
Under the terms of the credit agreement, the Company borrows funds through loans
evidenced by promissory notes. The loans are made available through a revolving
line of credit which may be reduced, partially or in whole, at any time and is
to be fully paid on June 20, 2005. The credit facility also provides for letters
of credit to be issued from time to time upon the Company's request.
The facility bears interest, as the Company may select, at rates based on
either the LIBOR or a rate per annum equal to the greater of (a) the Prime Rate,
(b) the Base CD Rate plus 1% and (c) the Federal Funds Effective Rate plus 1/2%
(as these terms are defined in the credit agreement). In addition to an annual
management fee, there is a commitment fee of 1/2 of 1% per year on the average
daily amount by which the lender's commitment, as such commitment may be reduced
in accordance with the credit agreement, exceeds the sum of the principal
balance of such lender's outstanding loans plus a pro rata share of the total
face amount of letters of credit issued to the Company. The Company also is
required to pay certain up-front fees based on the total amount of commitments
made by each lender under the agreement.
12
Under the credit agreement, which is secured by substantially all of the
assets of the Company and its domestic subsidiaries, the Company is required to:
o provide quarterly and yearly financial reports to the banks;
o maintain insurance through financially sound and reputable insurers on
all of the pledged assets of the Company and its domestic subsidiaries
that are insurable;
o obtain written approval from the banks prior to making or incurring
any obligation to make capital expenditures during any fiscal year in
excess of $500,000;
o obtain written approval from the banks prior to beginning production
or entering into any agreement to co-finance or acquire any right to a
motion picture, film or video tape produced for theatrical,
non-theatrical or television release in excess of $3,000,000;
o obtain written approval from the banks prior to entering into any
major distribution agreements; and
o maintain certain consolidated net worth and liquidity ratios.
The credit agreement also restricts the creation or incurrence of indebtedness
and the issuance of additional securities. Events of default under the credit
agreement include, among other things:
o a change of control;
o the failure, in some situations, of Christopher Cooney, Robert B.
Little or William Lischak to serve as a director or be employed in the
capacity set out in his respective employment agreement;
o the failure to make a payment of any principal or interest when due,
and the failure is not cured within three days; and
o any final judgment for the payment of money in excess of $250,000 that
is entered against the Company or its domestic subsidiaries and that
remains outstanding for a period of 30 consecutive days without being
discharged, stayed or bonded in full.
In connection with the Purchase Agreement with Rosemary discussed below,
the Company entered into a note and debt contribution agreement with Robert B.
Little and Ellen Dinerman Little (collectively, the "Littles"). Pursuant to the
agreement, the Littles forgave:
o $1,339,037 of aggregate outstanding principal amount and $480,709 of
accrued but unpaid interest on a note issued to the Littles as part of
the consideration given relating to the merger of the Company and
Overseas Filmgroup, Inc. in October 1996;
o $78,101 of accrued and unpaid interest on loans in the aggregate
principal amount of $400,000 ("P&A Loans") made by the Littles to the
Company in December 1997 and February 1998, which were used to provide
a portion of the funds required by the Company for the print and
advertising costs associated with the domestic theatrical release of
MRS. DALLOWAY; and
o $125,131 of accrued salaries that the Company owed to them.
The Littles also contributed $130,000 in cash and 1,588,812 of their shares of
the Company's common stock to the Company's capital and the Company repaid the
Littles:
13
o $135,476 for various reimbursable expenses as provided in their
employment agreements with the Company;
o $130,000 of the remaining principal balance on the note issued in
connection with the October 1996 merger;
o $400,000 representing the aggregate principal amount owed by the
Company to the Littles under the P&A Loans;
o $564,524 of accrued salaries; and
o $200,000 representing the amount owed by the Company to the Littles
under the tax reimbursement agreement between the Company and the
Littles entered into in connection with the merger in October 1996.
At June 30, 2000, the Company had cash and cash equivalents of $1,491,291
compared to cash and cash equivalents of $270,031 as of December 31, 1999.
Additionally, at June 30, 2000, the Company had restricted cash of $13,412 held
by its primary lender, to be applied against various film facilities. The
restricted cash balance as of December 31, 1999 was $88,176.
Additionally, as of June 30, 2000, the Company owned 17,454 shares of
Yahoo!, Inc. common stock that it received as part of a share-for-share exchange
with broadcast.com, which was subsequently acquired by Yahoo!, Inc. Under the
terms of the share-for-share agreement, the Company's Yahoo!, Inc. shares could
not be sold, transferred, assigned, pledged, hypothecated, or otherwise disposed
of on or before July 18, 2000. Similarly, the 562,527 shares of the Company's
common stock issued to broadcast.com, which is now held by Yahoo!, Inc., are
unregistered shares and were restricted for a similar one year period. On July
19, 2000, the Company sold 8,727 shares of the Yahoo!, Inc. common stock for
approximately $1,164,000.
As of June 30, 2000, the Company also had deferred revenue relating to
distribution commitments and guarantees from sub-distributors of approximately
$593,700.
In 1999, the Company acquired rights to thirteen films and First Look
Pictures released two films. During the six months ended June 30, 2000, the
Company acquired rights to nine films and First Look Pictures broadened the
release of one picture initially released in December 1999. During the next
twelve months, the Company currently intends to acquire rights to and distribute
or act as sales agent with respect to approximately ten to fifteen films,
including two to six First Look Pictures releases. This total is exclusive of
films where the Company acquires primarily re-issue rights. The credit agreement
with Chase requires the consent of the banks prior to the Company entering into
any new rights acquisitions in excess of $3,000,000 or commitments to spend
amounts for capital expenditures during any fiscal year in excess of $500,000.
Therefore, the Company's ability to achieve these goals will depend on its
ability to find opportunities that fit within these parameters or the banks'
willingness to permit the Company to enter these types of acquisitions and
commitments. There can be no assurance that pre-sales, co-production funds, gap
financing and third party equity will be available in the future. As a result of
the foregoing, and because the motion picture business and the Company's
operations are subject to numerous additional uncertainties, there can be no
assurance that the Company's acquisition, financing and distribution goals will
be achieved.
The Company has actively sought to obtain additional equity capital. In
June 2000, the Company sold to Rosemary:
o 5,097,413 shares of common stock;
o 904,971 shares of Series A preferred stock, each share of which is
convertible into two shares of common stock; and
o warrants to purchase up to 2,313,810 shares of common stock at an
exercise price of $3.40 per share, exercisable until June 19, 2005
14
for a cash purchase price of $17,000,000. The preferred stock votes with the
common stock on an as-converted basis. Rosemary also has an option, exercisable
until September 17, 2000, to purchase up to an additional 1,625,260 shares of
common stock for an aggregate purchase price of $4,000,000. The Company also
issued warrants to purchase an aggregate of 675,000 shares of common stock to
various people and entities in consideration for their services rendered in
connection with the transactions contemplated by the Securities Purchase. These
warrants are identical to the warrants issued to Rosemary.
The Company believes that its existing capital, funds from operations and
other available sources of capital will be sufficient to enable the Company to
fund its presently planned acquisition, distribution and overhead expenditures
for the next twelve months.
15
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.
FIRST LOOK MEDIA, INC.
Date: February 5, 2001 By: /s/ William F. Lischak
----------------------------------
William F. Lischak
Chief Financial Officer,
Chief Operating Officer
and Secretary
16