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 September 30, 2001
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.
(f/k/a Overseas Filmgroup, 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
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 __
The number of shares of common stock outstanding as of November 16,
2001 was 11,613,848.
FIRST LOOK MEDIA, INC.
INDEX
Page
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2001
(unaudited) and December 31, 2000...........................3
Consolidated Statements of Operations (unaudited)
for the three months and nine months ended
September 30, 2001 and September 30, 2000...................4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2001
and September 30, 2000......................................5
Consolidated Statements of Comprehensive Income
(unaudited) for the three months and nine
months ended September 30, 2001 and September 30, 2000......6
Notes to Consolidated Financial Statements (unaudited)..............7
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
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
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
------------ -----------
2001 2000
---- ----
(Unaudited)
(in thousands)
ASSETS:
-------
Cash and cash equivalents $ 41 $ 832
Accounts receivable, net of allowance for doubtful
accounts and return reserve of $1,212,000 and $1,100,000, respectively 29,515 26,583
Film costs, net of accumulated amortization 19,389 13,393
Other assets 1,778 1,472
------------------ -----------------
Total assets $ 50,723 $ 42,280
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY:
------------------------------------
Accounts payable and accrued expenses $ 1,737 $ 1,411
Accrued interest payable 190 174
Deferred revenue 1,122 87
Payable to producers 25,848 23,587
Notes payable 13,300 7,116
------------------ -----------------
Total liabilities 42,197 32,375
------------------ -----------------
Shareholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized; 904,971 shares
issued and outstanding (Liquidation preference of $3,846,271) 1 1
Common stock, $.001 par value, 50,000,000 shares authorized; 9,848,906
shares issued; 9,803,906 shares outstanding 10 10
Additional paid in capital 30,675 30,675
Accumulated deficit (22,073) (20,694)
Treasury stock at cost, 45,000 shares (87) (87)
------------------ -----------------
Total shareholders' equity 8,526 9,905
------------------ -----------------
Total liabilities and shareholders' equity $ 50,723 $ 42,280
================== =================
The accompanying notes are an integral part of these consolidated
financial statements.
3
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
----- ----- ----- ----
(in thousands except per share data)
Revenues $ 8,171 $ 4,767 $ 28,172 $ 15,228
----------------- ---------------- ---------------- ---------------
Expenses:
Film costs 4,592 3,583 19,171 11,591
Distribution and marketing costs 2,677 630 4,829 2,046
Selling, general and administrative 1,537 1,150 4,931 3,039
-------------- --------------- -------------- --------------
Total expenses 8,806 5,363 28,931 16,676
-------------- --------------- -------------- --------------
Loss from operations (635) (596) (759) (1,448)
----------------- ---------------- ---------------- ---------------
Other income (expense):
Interest income 2 13 10 23
Interest expense (307) (251) (822) (1,313)
Other income 110 682 217 770
-------------- --------------- -------------- --------------
Net other (expense) income (195) 444 (595) (520)
-------------- --------------- -------------- --------------
Loss before income taxes and cumulative
effect of accounting change (830) (152) (1,354) (1,968)
Income taxes 5 13 25 105
-------------- --------------- -------------- --------------
Loss before cumulative effect of accounting
change (835) (165) (1,379) (2,073)
Cumulative effect of accounting change - - - (14,123)
-------------- --------------- -------------- --------------
Net loss $ (835) $ (165) $ (1,379) $ (16,196)
============== ============== ============== ==============
Basic and diluted loss per share:
---------------------------------
Loss before cumulative effect of accounting
change $ (0.09) $ (0.02) $ (0.14) $ (0.27)
Cumulative effect of accounting change - - - (1.87)
-------------- --------------- -------------- --------------
Net loss $ (0.09) $ (0.02) $ (0.14) $ (2.14)
============== ============== ============== =============
Weighted average number of common share
outstanding 9,804 9,804 9,804 7,564
============== ============== ============== =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2001 2000
---- ----
(in thousands)
Cash flows used in operating activities:
Net loss $ (1,379) $ (16,196)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of accounting change - 15,582
Film cost amortization 19,171 11,591
Additions to film costs (8,889) (4,718)
Payment to producers (14,017) (8,490)
Capital gain and other non-cash income - (625)
Change in assets and liabilities:
Accounts receivable (2,932) 2,259
Other assets (306) (1,024)
Accounts payable and accrued expenses 342 (748)
Deferred income taxes - (1,459)
Deferred revenue 1,035 (123)
---------------- -------------------
Net cash used in operating activities (6,975) (3,951)
---------------- -------------------
Cash flows from investing activities:
Sale of marketable securities - 2,056
------------------ -------------------
Net cash provided by investing activities - 2,056
------------------ -------------------
Cash flows from financing activities:
Sale of securities, net of expenses - 16,647
Net borrowings (pay down) under credit facility 6,500 (12,553)
Net pay down of subordinated note payable (316) (992)
Net pay down of note payable to related party - (650)
Restricted cash position - 67
------------------ -------------------
Net cash provided by financing activities 6,184 2,519
------------------ -------------------
Net (decrease) increase in cash and cash equivalents (791) 624
Cash and cash equivalents at beginning of period 832 270
------------------ -------------------
Cash and cash equivalents at end of period $ 41 $ 894
================== ==================
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 905 $ 1,538
================== ===================
Income taxes $ 9 $ 6
================== ===================
Foreign withholding taxes $ 16 $ 98
================== ===================
The accompanying notes are an integral part of these consolidated
financial statements.
5
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
Septermber 30, September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Net loss $ (835) $ (165) $ (1,379) $ (16,196)
Unrealized holding loss on investment
available for sale - - - (1,017)
Reversal of unrealized holding gain
on investment available for sale - (460) - (460)
-------------- -------------- -------------- ---------------
Total comprehensive loss $ (835) $ (625) $ (1,379) $ (17,673)
============== ============== ============== ===============
The accompanying notes are an integral part of these consolidated
financial statements
6
FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements of First
Look Media, Inc. (formerly known as 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 nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001. Certain reclassifications have been made in
the 2000 consolidated financial statements to conform to the 2001
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, 2000 (the
"2000 Consolidated Financial Statements").
2. Film costs consist of the following:
September 30, December 31,
------------- -----------
2001 2000
---- ----
(in thousands)
Film costs in release net of
accumulated amortization $ 13,652 $ 11,702
Film costs not yet available
for release 5,737 1,691
------------ -------------
$ 19,389 $ 13,393
============ =============
3. In June 2000, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 00-2, "Accounting by Producers or Distributors of Films" ("SOP
00-2"). SOP 00-2 establishes new accounting standards for producers or
distributors of films, including changes in revenue recognition 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 companies to follow the guidance provided by SOP
00-2. The Company adopted SOP 00-2 and, as a result, in the fiscal
quarter ended June 30, 2000 recorded a one-time, pre-tax non-cash
charge of $15,582,000 ($14,123,000 net of income taxes). This charge
has been reflected in the Company's Consolidated Statements of
Operations as a cumulative effect of accounting change, effective
January 1, 2000.
4. Segment Information
The Company manages its business in two operating segments: Motion
Picture 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 licenses, distributes, sells
and otherwise exploits distribution rights to motion pictures.
Activities include direct theatrical, video and DVD distribution in the
U.S. as well as licensing of rights to other theatrical, video and DVD
distributors and to pay, basic and free television broadcasters
7
throughout the world. The Television Commercial Production segment
produces commercials for manufacturers and service providers who use
the commercial to promote their products and services. There have been
no inter-segment transactions during the reported period. The Company
evaluates performance based on income or loss from operations before
interest expense and taxes.
Financial information by operating segment is set forth below:
Three Months Ended September 30, 2001 Three Months Ended September 30, 2000
------------------------------------- -------------------------------------
Television Television
Motion Commercial Motion Commercial
Pictures Production Totals Pictures Production Totals
-------------- ----------- ------------- -------------- ---------------- --------------
(in thousands) (in thousands)
Revenues from external
customers $ 7,966 $ 205 $ 8,171 $ 4,767 $ - $ 4,767
Loss from operations before
interest and taxes (489) (146) (635) (596) - (596)
Nine Months Ended and as of September 30, Nine Months Ended and as of September 30,
---------------------------------------------- ----------------------------------------------
2001 2000
---- ----
(in thousands) (in thousands)
Television Television
Motion Commercial Motion Commercial
Pictures Production Totals Pictures Production Totals
---------------- ---------------- ------------- -------------- ----------------- ------------
Revenues from external
customers $ 27,967 $ 205 $ 28,172 $ 15,228 $ - $ 15,228
Loss from operations
before interest and taxes (341) (418) (759) (1,448) - (1,448)
Total assets 50,591 132 50,723 46,400 - 46,400
5. Subsequent Events:
On October 15, 2001, pursuant to the terms of the Certificate of
Designations, Preferences and Rights of Series A Preferred Stock,
904,971 shares of outstanding Series A Preferred Stock automatically
converted into 1,809,942 shares of common stock.
On November 8, 2001, the Company commenced a tender offer for 321,429
shares of the Company's common stock in exchange for outstanding
warrants issued in connection with the Company's initial public
offering in February 1995. Pursuant to the exchange offer, the Company
will exchange .0714 of a share of the Company's common stock for every
one of the Company's warrants tendered and accepted by the Company for
exchange.
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. These statements may consist of any statement other than a
recitation of historical fact and 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. Please note that all forward-looking statements are
necessarily speculative and there are 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
8
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 September 30, 2001 are not necessarily indicative of the results that may
be expected in future periods. 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 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, 2000. 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.
General
The operations of Overseas Filmgroup, Inc., a privately held Delaware
corporation ("Overseas Private"), were established in February 1980. The Company
was 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. The Company acquired Overseas Private through
a merger in October 1996 and the Company was the surviving corporation in the
merger. Immediately following the merger, the Company changed its name to
"Overseas Filmgroup, Inc." and succeeded to the operations of Overseas Private.
In January 2001, the Company changed its name to "First Look Media, Inc." in
order to reflect the broadening of its operations beyond foreign distribution of
independently produced feature films to additional areas such as theatrical and
video distribution in the United States and television commercial production.
Today, the Company is principally involved in the acquisition and
worldwide license or sale of distribution rights to independently produced
motion pictures. The Company directly distributes certain motion pictures in the
domestic theatrical market under the name "First Look Pictures" and in the
domestic video market under the name "First Look Home Entertainment."
Results of Operations
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Revenues increased by $3,404,000 (71.4%) to $8,171,000 for the quarter
ended September 30, 2001 from $4,767,000 for the quarter ended September 30,
2000. The increase in revenues was primarily due to, (i) five titles generating
approximately $4,463,000 in revenue from foreign territories and U.S. television
rights during the quarter ended September 30, 2001, compared to three titles
generating $2,468,000 during the quarter ended September 30, 2000, (ii) six
video releases generated $864,000 in revenue during the quarter ended September
30, 2001 compared to $653,000 generated by three video releases during the
quarter ended September 30, 2000 and, (iii) an increase of approximately
$1,178,000 in domestic theatrical and airline revenues.
Film costs as a percentage of revenues decreased to 56.2% for the
quarter ended September 30, 2001 compared to 75.2% for the quarter ended
September 30, 2000. Film costs include amortization of capitalized production
costs as well as accruals of participation cost for the current period. The
decrease in film costs as a percentage of revenues was primarily due to higher
9
negotiated distribution fees on titles released during the quarter ended
September 30, 2001 compared to the quarter ended September 30, 2000.
Distribution and marketing expenses increased to $2,677,000 for the
quarter ended September 30, 2001 compared to $630,000 for the quarter ended
September 30, 2000, primarily due to the increase in advertising and marketing
expense as a result of increased number of video releases and expanded marketing
campaigns on theatrical releases.
Selling, general and administrative expenses increased by $387,000
(33.7%) to $1,537,000 for the quarter ended September 30, 2001 from $1,150,000
for the quarter ended September 30, 2000. The increase was primarily due to
increases in:
o salary, payroll taxes and related expenses of $293,000 due to
additional personnel;
o legal and consulting fees of $27,000;
o bad debt expense of $52,000;
o health insurance expense of $13,000;
o rent expense of $27,000; and
o office and computer supplies of $34,000.
The above increases have been offset by increased overhead capitalization
of $60,000 due to the Company's increased involvement in production related
activities.
Net other income (expense) for the three-month period ended September
30, 2001 amounted to net other expense of $195,000, a decrease of $639,000 from
$444,000 net other income recorded for the quarter ended September 30, 2000. The
decrease is primarily due to recognizing a non-recurring capital gain of
$625,000 on the sale of securities during the quarter ended September 30, 2000,
and a net increase of $14,000 in interest expense and other income (expense)
during the quarter ended September 30, 2001 compared to the quarter ended
September 30, 2000.
The Company had a net loss of $835,000 for the quarter ended September
30, 2001 (reflecting foreign withholding and state taxes of $5,000), compared to
a net loss of $165,000 for the quarter ended September 30, 2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Revenues increased by $12,944,000 (85.0%) to $28,172,000 for the nine
months ended September 30, 2001 from $15,228,000 for the nine months ended
September 30, 2000. The increase in revenues was primarily due to, (i) fourteen
titles generating approximately $14,714,000 from foreign territories and U.S.
television rights during the nine months ended September 30, 2001 compared to
nine titles generating approximately $5,462,000 during the nine months ended
September 30, 2000, (ii) fourteen video releases generated $2,221,000 for the
nine months ended September 30, 2001 compared to nine video releases which
generated $994,000 for the nine months ended September 30, 2000 and, (iii) an
increase of $1,078,000 in domestic theatrical revenue and (iv) an increase of
approximately $1,290,000 in airline and distribution revenues during the nine
months ended September 30, 2001.
Film costs as a percentage of revenues decreased to 68.0% for the nine
months ended September 30, 2001 compared to 76.1% for the nine months ended
September 30, 2000. Film costs include amortization of capitalized production
costs as well as accruals of participation cost for the current period. The
decrease in film costs as a percentage of revenues was primarily due to higher
negotiated distribution fees on titles released during the nine months ended
September 30, 2001 compared to the nine months ended September 30, 2000.
10
Distribution and marketing expenses increased to $4,829,000 during the
nine months ended September 30, 2001 compared to $2,046,000 for the nine months
ended September 30, 2000, primarily due to increased number of video releases
and expanded advertising campaigns on theatrical releases.
Selling, general and administrative expenses increased by $1,892,000
(62.3%) to $4,931,000 for the nine months ended September 30, 2001 from
$3,039,000 for the nine months ended September 30, 2000. The increase was
primarily due to increases in:
o salary, payroll taxes and related expenses of $1,212,000 due to
additional personnel;
o legal and consulting fees of $209,000;
o bad debt expense of $320,000;
o health insurance expense of $40,000;
o meals and entertainment expenses of $42,000;
o publicity expenses of $41,000;
o rent expense of $45,000; and
o office and computer supplies of $114,000.
The above increases were offset by an increase in overhead capitalization
of $133,000 due to the Company's increased involvement in production related
activities.
Net other expense for the nine months ended September 30, 2001
increased by $75,000 to $595,000, from $520,000 for the nine months ended
September 30, 2000. The increase is primarily due to recognizing a non-recurring
capital gain of $625,000 on the sale of securities during the nine months ended
September 30, 2000, and a $478,000 decrease in interest expense as a result of
maintaining lower outstanding notes payable and lower interest rates during the
nine months ended September 30, 2001, compared to the nine months ended
September 30, 2000.
As a result of the above, the Company had a loss before income taxes
and cumulative effect of accounting change of $1,354,000 for the nine months
ended September 30, 2001, compared to a loss before income taxes and cumulative
effect of accounting change of $1,968,000 for the nine months ended September
30, 2000.
The Company reported a cumulative effect of accounting change of
$14,123,000, net of income tax benefit of $1,459,000, effective January 1, 2000,
relating to its adoption of SOP 00-2.
The Company had a net loss of $1,379,000 for the nine months ended
September 30, 2001 (reflecting foreign withholding and state taxes of $25,000),
compared to a net loss of $16,196,000 (including a one-time charge relating to
the cumulative effect of accounting change of $14,123,000) for the nine months
ended September 30, 2000.
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 have been cash flow from operations, bank borrowings and
equity financings.
June 2000 Private Placement
In June 2000, the Company consummated a private placement with Rosemary
Street Productions, LLC ("Rosemary Street"), in which the Company sold to
Rosemary Street for an aggregate cash purchase price of $17,000,000:
11
o 5,097,413 shares of common stock;
o 904,971 shares of Series A preferred stock ("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
o five-year warrants to purchase up to 2,313,810 shares of common stock
at an exercise price of $3.40 per share.
On October 15, 2001, pursuant to the terms of the Certificate of
Designations, Preferences and Rights of Series A Preferred Stock each share of
outstanding Series A Preferred Stock automatically converted into two shares of
common stock.
Chase Facility
Concurrently with the consummation of the June 2000 private placement
with Rosemary Street, the Company entered into a $40 million credit facility
with The Chase Manhattan Bank. A portion of the proceeds from this new credit
facility was used to refinance outstanding loans and accrued interest under the
Company's previous credit facility with Coutts & Co. and Bankgesellschaft Berlin
A.G. The remaining proceeds will be available to finance the Company's
production, acquisition, distribution and exploitation of feature length motion
pictures, television programming, video products, and for working capital and
general corporate purposes including the Company's expansion into television
commercial production.
Under the Chase facility, 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 Chase facility also provides for letters
of credit to be issued from time to time upon the Company's request. At
September 30, 2001, the Company had borrowed an aggregate of $13,000,000 under
the Chase facility.
The amounts drawn down under the Chase facility bear interest, as the
Company 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%
or (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, the
Company pays a commitment fee on the daily average unused portion of the Chase
facility at an annual rate of 0.5%. The Company has also paid a one-time fee of
approximately $890,000 as a cost of acquiring the Chase facility. The Chase
facility also restricts the creation or incurrence of indebtedness or issuance
of additional securities. The Chase facility is collateralized by all tangible
and intangible assets and future revenues of the Company.
In May 2001, the Company entered into an amendment to the Chase
facility, pursuant to which the requisite lenders agreed, effective as of the
date of the amendment, to:
o permit the Company to obtain financing for one film from another
lender;
o increase the Company's overhead allowance from $5 million to $7.25
million excluding bad debt expense; and
o reduce the minimum level of Consolidated Net Worth (as defined in the
credit agreement) that the Company is required to maintain from $28
million to $22 million.
Other Loans
In addition to the amounts outstanding under the Chase facility, during
1998 the Company borrowed $2,000,000 from another lender, the proceeds of which
were used to acquire rights to a particular film. This subordinated note bears
interest at the Prime Rate plus 1.5% and is collateralized by amounts due under
12
distribution agreements from the specific film. The subordinated note matures on
May 29, 2002. As of September 30, 2001, $300,000 was outstanding under the
subordinated note.
Resources
At September 30, 2001, the Company had cash and cash equivalents of
$41,000, compared to cash and cash equivalents of $832,000 as of December 31,
2000. At September 30, 2001, $6,024,000 was available for the Company to draw
down under the Chase facility.
The Company believes that its existing cash funds from the Chase
facility, funds from its operations and other available sources of cash will be
sufficient to fund its operations for at least the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates. The Company does not use derivative financial instruments. Because very
few of the Company's revenues are denominated in foreign currency, the Company
does not believe there is a significant risk imposed on the Company due to the
fluctuations in foreign currency exchange rates. The table below provides
information about the Company's debt obligations as of September 30, 2001,
including principal cash flows and related weighted average interest rates by
expected maturity dates:
Expected Maturity Date
----------------------
(in thousands)
Liabilities 2001 2002 2003 2004 2005 Thereafter
----------- ---- ---- ---- ---- ---- ----------
Variable rate:
Chase Credit Facility - - - - $ 13,000 -
Average interest rate 5.8% 5.8% 5.8% 5.8% 5.8% -
Subordinated note payable - $ 300 - - - -
Average interest rate - 7.0% - - - -
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in legal proceedings incidental to its normal
business activities. In the opinion of management, none of these proceedings are
material in relation to the Company's financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Preferred Stock Conversion
Pursuant to a securities purchase agreement dated May 3, 2000 between
the Company and Rosemary Street, Rosemary Street purchased from the Company
904,971 shares of Series A Preferred Stock, each share of which automatically
converted into two shares of common stock on October 15, 2001. The shares were
issued pursuant to an exemption from registration under the Securities Act of
1933, as amended, provided by Section 4(2).
Warrant Exchange
On November 8, 2001, the Company commenced a tender offer whereby
approximately 321,429 shares of the Company's common stock were offered in
exchange for the outstanding warrants that were issued in connection with the
Company's initial public offering in February 1995. In the exchange offer, the
Company will exchange .0714 of a share of the Company's common stock for every
one of the Company's outstanding warrants tendered and accepted by the Company
for exchange. No fractional shares of common stock will be issued in the
exchange offer. Fractional shares will be rounded up to the nearest whole share
based upon the aggregate number of warrants tendered by the holder or its agent
in the exchange offer. The exchange offer will expire on December 18, 2001,
unless extended by the Company. The issuance of shares of common stock upon
exchange of the warrants pursuant to the exchange offer are being issued
pursuant to Section 3(a)(9) of the securities Act of 1933 and are, therefore,
exempt from registration thereunder.
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
None.
(b) Reports on Form 8-K
None.
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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.
November 19, 2001
FIRST LOOK MEDIA, INC.
By: /s/ William F. Lischak
----------------------------
William F. Lischak
Chief Financial Officer,
Chief Operating Officer and
Secretary
15