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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2000
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (I.R.S. Employer
jurisdiction of 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
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(title of class)
Warrants to Purchase Common Stock
(title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of April 12, 2001, (based on the closing sale price on such
date as reported on the OTC Bulletin Board) was $0.51.
The number of shares of common stock outstanding as of April 12, 2001
was 9,803,906.
PART I
This Annual Report on Form 10-K 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
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 registrant will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized. The registrant's results of operations for the year
ended December 31, 2000 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 registrant 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 registrant,
as well as the unpredictable nature of audience and subdistributor response to
motion pictures distributed by the registrant, the registrant'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 registrant'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 registrant's costs and expenses, and thus the
capital required by the registrant 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 registrant with the Securities and Exchange Commission. 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 registrant. The
registrant 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
registrant over time means that actual events are bearing out as estimated in
such forward-looking statements.
ITEM 1. BUSINESS
General
First Look Media, Inc. ("Company") specializes in the acquisition and
direct distribution of, and worldwide license and sale of distribution rights
to, independently produced feature films in a wide variety of genres, including
action, art-house, comedy, drama, foreign language, science fiction and
thrillers. The Company has accumulated a library of distribution rights,
including sales agency rights, in various media and markets to approximately 250
films. Additionally, the Company has established a television commercial
production division and expects to begin producing television commercials for
domestic and international markets in the second half of 2001.
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With respect to its film related activities, the Company operates in
numerous capacities, including as:
o a distributor. The Company acquires the distribution rights to films
for specified terms, territories and media from independent producers.
In this capacity, the Company receives distribution fees. In exchange
for these distribution rights, the Company may commit to pay the
independent producer a minimum guaranteed payment ranging from
approximately $100,000 to $5,000,000 at or after delivery of the
completed film. These minimum guaranteed payments represent varying
portions of the films' production costs, including, on occasion,
substantially all of such costs. These minimum guaranteed payments may
enable the independent producer to obtain financing for the production
and/or completion of the film. By providing these minimum guaranteed
payments, the Company is often able to secure more extensive
distribution rights on more favorable terms.
o a producer. The Company selectively produces motion pictures that it
distributes, generally acquiring fully developed projects ready for
pre-production and contracting out pre-production and production
activities.
The Company has focused primarily on licensing theatrical, video, pay
television, free television, satellite and other distribution rights to foreign
sub-distributors in major international territories and regions. These
activities accounted for approximately 66.3% of the Company's total revenues in
2000.
The Company engages directly in domestic theatrical distribution
through its First Look Pictures division and domestic video distribution through
its First Look Home Entertainment division. The Company's theatrical
distribution activities include booking motion pictures for exhibition at movie
theaters, arranging for the manufacture of release prints from film negatives
and promoting motion pictures with advertising and publicity campaigns. The
Company's video distribution activities include the promotion and sale of
videocassettes to local, regional and national video retailers.
In connection with the Company's establishment of a television
commercial production division, the Company has hired experienced management and
supporting staff, has leased office and production space, and has engaged
directors of television commercial productions.
Corporate Information
The Company was incorporated in Delaware in December 1993 under the
name "Entertainment/Media Acquisition Corporation" in order to acquire an
operating business in the entertainment and media industry. The Company
consummated its initial public offering in February 1995, in which it sold
shares of common stock and warrants to purchase shares of common stock.
In October 1996, the Company merged with Overseas Filmgroup, Inc., a
privately held Delaware corporation ("Overseas Private") that had been operating
since February 1980. The Company was the surviving corporation in the merger.
Upon consummation of the merger, the Company changed its name to "Overseas
Filmgroup, Inc." The Company operated under the name "Overseas Filmgroup, Inc."
until January 2001. 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 and Internet content development.
The Company's principal executive offices are located at 8800 Sunset
Boulevard, Third Floor, Los Angeles, California 90069, and its telephone number
is (310) 855-1199.
Recent Developments
On February 13, 2001, the Company filed a registration statement with
the Securities and Exchange Commission, under which it is offering to exchange
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up to 321,429 shares of its common stock for the 4.5 million outstanding
warrants issued in conjunction with the Company's initial public offering in
February 1995. In the exchange offer, the Company will exchange one common share
for every 14 of its outstanding warrants tendered and accepted by the Company
for exchange. In lieu of fractional shares, holders will receive a cash payment
for the equivalent of any shares that the individual would otherwise be entitled
to receive. Holders who elect not to participate in the exchange offer will
retain the right to purchase one share of common stock for $5.00, for each
warrant held. These warrants expire on February 16, 2002. The exchange offer
will commence upon the SEC's declaration of effectiveness of the exchange offer
prospectus and the distribution to warrant holders of such prospectus and
related exchange offer documents, which is expected in the second quarter of
2001. The exchange offer will be made only by means of, and in accordance with
the terms of, the prospectus. If the exchange offer is completed, the Company
intends to deregister the warrants pursuant to the Exchange Act and delist the
warrants from trading on the OTC Bulletin Board.
Strategic Objectives
The Company seeks to become a more significant player in the
entertainment industry, while at the same time managing its risk and cash flow
so as to be able to effectively respond to continuing changes in the
entertainment industry. The Company's strategy to achieve its objectives
includes:
Creating a television commercial production division. The Company has
established a television commercial production division called "First Look
Artists." This division seeks to exploit the current trend in the industry of
utilizing talent not typically associated with advertising, such as high-profile
feature film directors. In this regard, the Company is assembling a roster of
accomplished feature filmmakers who the Company believes can successfully cross
over to the medium of television commercials. The Company also believes that it
can attract proven television commercial directors to its division's projects by
offering such directors access to potential film projects.
Creating a home entertainment division. The Company has launched a home
entertainment division called "First Look Home Entertainment." This division
directly distributes films on videocassette and DVD. The Company's premier
release was Quiet Days in Hollywood, starring Academy Award-winner, Hilary
Swank. The Company intends to release 18 to 24 films into the home entertainment
market during the next 12 months.
Creating an Internet entertainment division. The Company has
established an Internet entertainment division named "First Look Internet." The
Company will utilize its existing rights to content, relationships and expertise
to create and offer desirable entertainment through the Internet.
Utilizing the Company's recently obtained financial resources to expand
its domestic theatrical distribution activities. The Company believes there is
great opportunity in the U.S. theatrical distribution market. Though the Company
has had domestic success with films such as John Sayles' The Secret of Roan
Inish and the Academy Award-winning Antonia's Line, limited financial resources
kept the Company from becoming a more active player in this area. The Company
intends to utilize its expanded financial resources, including its credit
facility with The Chase Manhattan Bank and other commercial banks and financial
institutions, to become increasingly more active in this market. The Company
currently is identifying product and has hired appropriate additional staff to
supplement its domestic theatrical distribution operations.
Capitalizing on the Company's reputation and relationships with foreign
sources. The Company believes that it enjoys a prominent position in the
international independent film marketplace. The Company intends to capitalize on
its reputation and relationships to exploit opportunities in the areas of
production and acquisition financing, especially through private equity and
international sources. These efforts will enable the Company to access
increasingly higher profile films with commercial potential.
Reducing the Company's risk by limiting its direct investment in
acquisition costs and film production. As part of this strategy, the Company:
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o acts as distributor or licenses distribution rights for films
that are produced with funds provided by other parties and not
by the Company; and
o acts on behalf of producers to locate and arrange equity
sources, co-production and co-financing sources, pre-sales,
gap financing and other resources for the production of motion
pictures in exchange for sales and distribution rights to the
films and negotiated fees.
Acquiring films that the Company believes are likely to merit
theatrical release or are suitable for initial release on pay and basic
television. As part of this strategy, the Company:
o acquires films that have recognizable cast, directors and
producers and which embody greater production values, which
the Company believes enhances their audience appeal in the
competitive theatrical market. The Company attempts to
accomplish this by offering more incentives to talent than
offered by major studios such as greater creative and
financial opportunity tied to film performance;
o acquires films that are oriented to basic and pay television
programming needs, such as films with lower budgets or which
target specific genres, such as action films; and
o develops relationships with major studios and seeks to expand
its executive producing role in connection with motion
pictures that other companies produce and distribute.
For additional information about these operational strategies, see
"-Motion Picture Distribution by the Company," "-Acquisition of Rights by the
Company, Production and Financing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." No assurances can be given that
any or all of such strategies will be fully or partially realized, as their
successful implementation depends upon, among other things, the ability of the
Company's management to implement these strategies and the availability of
sufficient capital.
The Motion Picture Industry
Generally
The motion picture industry consists of two principal activities:
o production, which encompasses the creation, development and
financing of motion pictures; and
o distribution, which involves the promotion and exploitation of
feature-length motion pictures in a variety of media,
including theatrical exhibition, home video, television and
other ancillary markets, both domestically and
internationally.
The United States motion picture industry is dominated by the major
studios, including The Walt Disney Company, Paramount Pictures Corporation,
Warner Brothers Inc., Universal Pictures, Twentieth Century Fox, Sony Pictures
Entertainment, and MGM/UA. The major studios, which historically have produced
and distributed the vast majority of high-grossing theatrical motion pictures
released annually in the United States, are typically large, diversified
corporations that have strong relationships with creative talent, television
broadcasters and channels, Internet service providers, movie theater owners and
others involved in the entertainment industry. The major studios also typically
have extensive national or worldwide distribution organizations and own
extensive motion picture libraries.
Motion picture libraries, consisting of motion picture copyrights and
distribution rights owned or controlled by a film company, can be valuable
assets capable of generating revenues from worldwide commercial exploitation in
existing media and markets, and potentially in future media and markets
resulting from new technologies and applications. The major studios also may own
or be affiliated with companies that own other entertainment related assets such
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as music and merchandising operations and theme parks. The major studios' motion
picture libraries and other entertainment assets may provide a stable source of
earnings which can offset the variations in the financial performance of their
new motion picture releases and other aspects of their motion picture
operations.
During the past 15 years, independent production and distribution
companies, many with financial and other ties to the major studios, have played
an important role in the production and distribution of motion pictures for the
worldwide feature film market. These companies include:
o Miramax Films Corporation, now affiliated with The Walt Disney
Company, which produced Scary Movie, the Scream film series,
Shakespeare in Love and Chocolat;
o New Line Cinema Corporation/Fine Line Features, now affiliated
with Time Warner Entertainment Company, L.P., which produced
the Austin Powers films, The Mask, Teenage Mutant Ninja
Turtles, the Nightmare on Elm Street series;
o USA Films (formerly October Films), which produced Traffic,
Secrets & Lies and Breaking the Waves, together with Gramercy
Pictures, which produced Dead Man Walking and Fargo, is part
of USA Films and USA Network;
o Orion Pictures, now affiliated with MGM/UA, which produced The
Silence of the Lambs and Hannibal;
o Artisan Entertainment Inc., which distributed The Blair Witch
Project; and
o Lion's Gate Films, which distributed American Psycho, Dogma,
Gods and Monsters and Affliction.
As a result of consolidation in the domestic motion picture industry, a
number of previously independent producers and distributors have been acquired
or are otherwise affiliated with major studios. However, there are also a large
number of other production and distribution companies that produce and
distribute motion pictures that have not been acquired or become affiliated with
the major studios. In contrast to the major studios, independent production and
distribution companies generally produce and distribute fewer motion pictures
and do not own production studios, national or worldwide distribution
organizations, associated businesses or extensive film libraries which can
generate gross revenues sufficient to offset overhead, service debt or generate
significant cash flow.
The motion picture industry is a world-wide industry. In addition to
the production and distribution of motion pictures in the United States, motion
picture distributors generate substantial revenues from the exploitation of
motion pictures internationally. In recent years, there has been a substantial
increase in the amount of filmed entertainment revenue generated by U.S. motion
picture distributors from foreign sources. From 1990 to 2000, international
revenues of motion picture distributors from filmed entertainment grew from
approximately $1.1 billion in 1990 to approximately $2.6 billion in 2000. This
growth has been due to a number of factors, including the general worldwide
acceptance of and demand for motion pictures produced in the United States, the
privatization of many foreign television industries, growth in the number of
foreign households with videocassette players and growth in the number of
foreign theater screens.
Many countries and territories, such as Australia, Canada, China,
France, Germany, Hong Kong, India, Italy, Russia, Japan, Spain, and the United
Kingdom have substantial indigenous film industries. As in the United States, in
a number of these countries the film industry, and in some cases, the
entertainment industry, in general, is dominated by a small number of companies
that maintain large and diversified production and distribution operations.
However, like in the United States, in most of these countries, there are also
smaller, independent, motion picture production and distribution companies.
Foreign distribution companies not only distribute motion pictures produced in
their countries or regions but also films licensed or sub-licensed from United
States production companies and distributors. In addition, film companies in
many foreign countries produce films not only for local distribution, but also
for export to other countries, including the United States. While some foreign
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language films and foreign English-language films appeal to a wide U.S.
audience, most foreign language films distributed in the United States are
released on a limited basis because they draw a specialized audience for which
the appeal has decreased substantially in recent years.
Motion Picture Production
Motion picture production begins with the screenplay adaptation of a
popular novel or other literary work acquired by the producer or the development
of an original screenplay having its genesis in a story line or scenario
conceived by a writer and acquired by the producer. In the development phase,
the producer typically seeks production financing and tentative commitments from
a director, the principal cast members and other creative personnel. A proposed
production schedule and budget also are prepared during this phase.
Pre-production begins upon completing the screenplay and arranging financing
commitments. In this phase, the producer:
o engages creative personnel to the extent not previously
committed;
o finalizes the filming schedule and production budget; obtains
insurance and secures completion guaranties, if necessary;
establishes filming locations and secures any necessary studio
facilities and stages; and
o prepares for the start of actual filming.
Principal photography, which is the actual filming of the screenplay,
generally extends from eight to sixteen weeks for a film produced by a major
studio and for as little as four to eight weeks for low budget films and films
produced by independent production companies. The length of filming depends in
each case upon factors such as budget, location, weather and complications
inherent in the screenplay. Following completion of principal photography, the
film enters the post-production phase. During this phase, the motion picture is
edited, opticals, dialogue, music and any special effects are added, and voice,
effects and music sound tracks and pictures are synchronized. This results in
the production of a negative from which release prints of the motion picture are
made.
Production costs consist primarily of:
o acquiring or developing the screenplay;
o compensating creative and other production personnel;
o film studio and location rentals;
o equipment rentals;
o film stock and other costs incurred in principal photography;
and o post-production costs, including the creation of special
effects and music.
Distribution expenses, which consist primarily of the costs of
advertising and preparing release prints, are not included in direct production
costs. The major studios generally fund production costs from cash flow
generated by motion pictures and related activities or, in some cases, from
unrelated businesses or through off-balance sheet methods. Substantial overhead
costs, consisting largely of salaries and related costs of the production staff
and physical facilities maintained by the major studios, also must be funded.
Independent production companies generally avoid incurring overhead costs as
substantial as those incurred by the major studios by hiring creative and other
production personnel and retaining the other elements required for
pre-production, principal photography and post-production activities on a
picture-by-picture basis. As a result, these companies do not own sound stages
and related production facilities, and, accordingly, do not have the fixed
payroll, general administrative and other expenses resulting from ownership and
operation of a studio. Independent production companies also may finance their
production activities on a picture-by-picture basis. Sources of funds for
independent production companies include bank loans, pre-licensing of
distribution rights, foreign government subsidies, equity offerings and joint
ventures. Independent production companies generally attempt to obtain all or a
substantial portion of their financing of a motion picture prior to commencement
of principal photography, at which point substantial production costs begin to
be incurred and require payment.
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As part of obtaining financing for its films, an independent production
company often is required by its lenders and distributors who advance production
funds to obtain a completion bond or production completion insurance from an
acceptable completion guarantor which names the lenders and applicable
distributors as beneficiaries. The guarantor assures the completion of the
particular motion picture on a certain date. If the motion picture cannot be
completed for the agreed upon budgeted cost, the completion guarantor is
obligated to pay the additional costs necessary to complete the picture by the
agreed upon delivery date. If the completion guarantor fails to timely complete
and deliver the motion picture on or before the agreed upon delivery date, the
completion guarantor is required to pay the lenders and distributor, if
applicable, an amount equal to the aggregate amount the lenders and distributor
have loaned or advanced to the independent producer.
In connection with the production and distribution of a motion picture,
major studios and independent production companies generally grant contractual
rights to actors, directors, screenwriters, owners of rights and other creative
and financial contributors to share in net revenues from a particular motion
picture. Except for the most sought-after talent, these third-party
participations are generally payable after all distribution fees, marketing
expenses, direct production costs and financing costs are recovered in full.
Major studios and independent film companies in the United States
typically incur obligations to pay residuals to various guilds and unions
including the Screen Actors Guild, the Directors Guild of America and the
Writers Guild of America. Residuals are payments required to be made on a
picture-by-picture basis by the motion picture producer to the various guilds
and unions arising from the exploitation of a motion picture in markets other
than the primary intended market. Residuals are calculated as a percentage of
the gross revenues derived from the exploitation of the picture in these
ancillary markets. The guilds and unions typically obtain a security interest in
all of the producer's rights in the motion picture being exploited to ensure
satisfaction of the residuals obligation. This security interest usually is
subordinate to the security interest of the lenders financing the production
cost of the motion picture and the completion bond company guaranteeing
completion of the motion picture. Under a producer's agreement with the guilds
and unions, the producer may transfer the obligation to pay the residuals to a
distributor if the distributor assumes the obligation to make the residual
payment. If the distributor does not assume those obligations, the producer is
obligated to pay those residuals.
Motion Picture Distribution
General
Motion picture distribution involves domestic and international
licensing of the picture for:
o theatrical exhibition;
o videocassettes, laser discs and digital video discs (DVD);
o presentation on television, including pay-per-view, basic and
premium cable, network, syndication or satellite;
o marketing of the other rights in the picture and underlying
literary property, which may include books, merchandising and
soundtracks;
o non-theatrical exhibition, which includes airlines, hotels and
armed forces facilities; and
o exploitation via the Internet, which is still evolving.
Although releases by the major studios typically are licensed and fully
exploited in all of the foregoing media, films produced or distributed by
independent film companies are often not exploited in all of the media. For
example, some films may not receive theatrical exhibition in the United States
or various other territories and instead may be released directly on home video
or as a pay television premiere or otherwise exploited on a pay television
service. In limited circumstances, these films may then be released in theaters.
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Production companies with distribution divisions typically distribute
their motion pictures themselves. Production companies without distribution
divisions may retain the services of sales agents or distributors to exploit the
motion pictures produced by them in selected or all media and territories.
Distribution companies may directly exploit distribution rights licensed to, or
otherwise acquired, by them by booking motion pictures with movie theaters or
selling videocassettes to video retailers. Alternatively, they may grant
sub-licenses to domestic or foreign sub-distributors to exploit completed motion
pictures in particular territories or media.
Acquisition of distribution rights
A sales agent does not generally acquire distribution rights from the
producer or other owner of rights in the motion picture. Instead, he acts as an
agent for the producer or rights owner, licensing the distribution rights to
distributors on behalf of the producer or rights owner in exchange for a sales
agency fee. This fee typically is computed as a percentage of gross revenues
from licenses obtained by the sales agent. A distributor generally licenses and
takes a grant of distribution rights from the producer or other rights owner of
the motion picture for a specified term in a particular territory or territories
and media, generally in exchange for a distribution fee calculated as a
percentage of gross revenues generated by the distributor's exploitation of the
motion picture. The distributor may agree to pay the producer of the motion
picture an advance or a minimum guarantee upon the delivery of the completed
motion picture. This amount is to be recouped by the distributor out of revenues
generated from the exploitation of the motion picture in particular media or
territories. After receiving its ongoing distribution fee and recouping the
advance or minimum guarantee plus its distribution costs, the distributor
generally pays the remainder of revenues in excess of an ongoing distribution
fee to the producer of the motion picture.
Obtaining license agreements with a distributor or distributors prior
to completion of a motion picture which provide for payment of a minimum
guarantee is often referred to as the pre-licensing or pre-selling of film
rights. This pre-selling may enable the producer to obtain financing for its
project by using the contractual commitment of the distributor to pay the
advance or minimum guarantee as collateral to borrow production funding. In the
past, pre-selling of film rights provided a means for financing film production.
However, the ability to pre-sell film rights in various territories and media,
the amount of pre-sales that can be obtained in certain territories and media
and thus, the percentage of a film's budget that can be covered with pre-sales,
fluctuates. In recent years, independent film companies generally have not been
able to pre-sell as great a percentage of a film's budget as they have in past
years.
The producer also may be able to acquire additional production funds
through gap financing. Although gap financing currently is being made available
by multiple lenders, certain banks have ceased providing this type of financing,
and many banks that provide gap financing are becoming more conservative in
their approach to these lending practices. As a result, there can be no
assurance that lenders will continue to make funds available on this basis. In
some circumstances, the distributor is entitled to recover any unrecouped costs
and advances from a film licensed to the distributor from the revenues from
another film or films also licensed to the distributor. This is commonly known
as cross collateralizing.
In addition to obtaining distribution rights in a motion picture for a
limited duration, a distributor also may acquire all or a portion of the
copyright in the motion picture or license certain distribution rights in
perpetuity. Both major studios and independent film companies often acquire
motion pictures for distribution through a customary industry arrangement known
as a negative pickup, under which the studio or independent film company agrees
to pay a specified minimum guaranteed amount to a production company in exchange
for all rights to the film upon completion of production and delivery of the
film. The production company normally finances production of the motion picture
pursuant to financing arrangements with banks and other lenders in which the
lender receives an assignment of the production company's right to payment of
the minimum guarantee and is granted a security interest in the film and in the
production company's rights under its arrangement with the studio or independent
film company. When the major studio or independent film company picks up the
completed motion picture, it pays the minimum guarantee or assumes the
production financing indebtedness incurred by the production company in
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connection with the film. In addition, the production company is paid a
production fee and generally is granted a participation in net revenues from
distribution of the motion picture.
The distribution cycle
Concurrently with their release in the United States, motion pictures
typically are released in Canada and also may be released in one or more other
international markets. Generally, a motion picture that is released theatrically
is available for distribution in other media during its initial distribution
cycle as follows:
Number of months following initial
Marketplace (Media) Domestic theatrical release
Domestic theatrical --
International theatrical --
Domestic home video and DVD (initial release) 4-6 months
Domestic pay-per-view 6-9 months
International home video and DVD (initial release) 6-12 months
Domestic pay television 9-10 months
International television (pay or free) 18-24 months
Domestic free television (network, barter syndication, 30-33 months
syndication and basic cable)
Films often remain in distribution for varying periods of time. For
example, major studio motion pictures that are released theatrically can play in
theaters for several weeks following their initial release or, at times,
including in the case of successful art-house films that are released on a
limited basis, for several months. On the other hand, unsuccessful films may
play in theaters for only a short period of time. Once released on
videocassette, a motion picture may remain available on videocassette for many
years. Similarly a motion picture can be licensed to various forms of television
for many years after its first release. The release periods set forth above
represent standard holdback periods. A holdback period represents a stipulated
period of time during which release of the motion picture in other media is
prevented to allow the motion picture to maximize its value in the media in
which it is currently being released. Holdback periods are often specifically
negotiated with various distributors on a media-by-media basis. However, the
periods set forth above represent our estimate of typical current holdback
periods in the motion picture industry.
In general, if a film is not released theatrically in the United States
and is instead first released on domestic home video, television exploitation
does not commence until four to eight months after the video release.
Thereafter, the same general release patterns indicated in the table above
typically apply. If a film premieres on United States pay television, the pay
television service is typically licensed for a four to six week exclusive airing
period. The license generally will provide for limited airings made up of five
to eight exhibition days with multiple airings permitted on each exhibition day.
The provisions of the license also usually provide for the pay television
service to receive subsequent airing periods following a period in which the
film can be released on video or sometimes even theatrically and a period during
which the film may be broadcast on free television.
A substantial portion of a film's ultimate revenues are generated in
its initial distribution cycle. The initial distribution cycle usually consists
of the first five years after the film's initial domestic release and includes
theatrical, video, and pay and free television. Commercially successful motion
pictures, however, may continue to generate revenues after the film's initial
distribution cycle from the re-licensing of distribution rights in certain media
and from the licensing of distribution rights with respect to new media and
technologies and in emerging markets. Although there has been a substantial
increase over the past fifteen years in the revenues generated from the
licensing of rights in ancillary media such as home video, DVD, cable and
pay-per-view, the theatrical success of a motion picture remains a significant
factor in generating revenues in foreign markets and in other media such as
10
video and television. For example, retail video stores currently purchase fewer
copies of videocassettes of motion pictures that have not been theatrically
released, and purchase more copies of major studio theatrical hits.
Theatrical
The theatrical distribution of a motion picture, whether in the United
States or internationally, involves the licensing and booking of the motion
picture to movie theaters, the promotion of the picture through advertising and
publicity campaigns and the manufacture of release prints from the film
negative. Expenditures on these activities, particularly on promotion and
advertising, are often substantial and may have a significant impact on the
ultimate success of the film's theatrical release. In addition, expenditures can
vary significantly depending upon a number of factors including:
o the markets and regions in which the film is distributed;
o the media used to promote the film such as newspaper,
television and radio;
o the number of screens on which the motion picture is to be
exhibited; and
o the ability to exhibit motion pictures during peak exhibition
seasons.
With a release by a major studio, the vast majority of these costs,
which primarily consist of advertising costs, are incurred prior to the first
weekend of the film's domestic theatrical release. Accordingly, there is not
necessarily a correlation between these costs and the film's ultimate box office
performance. In addition, the ability to distribute a picture during peak
exhibition seasons, including the summer months and the Christmas holidays, and
in the most popular theaters, may affect the theatrical success of a picture.
Films distributed theatrically by an independent film company are sometimes
released on a more limited basis which allows the distributor to defer marketing
costs until it is able to assess the initial public acceptance of the film.
While arrangements for the exhibition of a film vary greatly, there are
certain economic relationships generally applicable to theatrical distribution.
Theater owners retain a portion of the admissions paid at the box office,
typically referred to as gross box office receipts. The share of the gross box
office receipts retained by a theater owner generally includes a fixed amount
per week, in part to cover overhead, plus a percentage of receipts that usually
increases over time. Although these percentages vary widely, a theater owner's
share of a particular film's revenues will normally be approximately 60% to 65%
of gross box office receipts. The balance of the gross box office receipts,
referred to as gross film rentals, is paid to the distributor. The distributor
then retains a distribution fee, which is typically 30-35%, from the gross film
rentals. This percentage is used to recover the costs incurred in distributing
the film, which consist primarily of marketing and advertising costs and the
cost of release prints for exhibition. The balance of gross film rentals, after
deducting distribution fees and distribution costs recouped by the distributors,
is then applied against the recoupment of any advance paid for the distribution
rights plus interest and the balance is paid to the producer or other rights
owner of the film.
Home Video
A motion picture released theatrically typically will become available
for videocassette distribution within four to six months after its initial
domestic theatrical release. Certain films are not initially released
theatrically but may instead be released directly to home video. Given the
increasing preference of retail video stores for successful theatrical releases,
it has become increasingly difficult to secure the initial release of a film
directly to home video, and the economic opportunity for the films where a home
video release is obtained has greatly diminished.
Home video distribution consists of the promotion and sale of
videocassettes to local, regional and national video retailers that rent or sell
videocassettes to consumers primarily for home viewing. Traditionally, films
initially were made available in videocassette form at a wholesale price of
11
approximately $50 to $75 per videocassette. The wholesalers would then resell
the videocassette to video rental stores at a price of approximately $75 to $105
per videocassette. Today, although much video revenue is generated on this
basis, most video revenue is being generated on a "revenue sharing" basis
whereby videocassettes are sold at a very reduced price to video rental stores,
and a percentage of the rental revenue is then shared with the owners or
licensors of the films. Following the initial marketing period, selected films
may be remarketed at a wholesale price of $10 to $15 or less for sale to
consumers. These sell-through arrangements are used most often with films that
will appeal to a broad marketplace or to children. A few major releases with
broad appeal may be initially offered by a film company at a price designed for
sell-through rather than rental when it is believed that the ownership demand by
consumers will result in a sufficient level of sales to justify the reduced
margin on each cassette sold. Today, most home video distribution contracts in
international territories are arranged similarly to those in domestic
territories although the wholesale prices may differ.
Television
Television rights for films initially released theatrically that have
broad appeal generally are licensed:
o first to pay-per-view for an exhibition period within six to
nine months following initial domestic theatrical release;
o then to pay television approximately 12 to 15 months after
initial domestic theatrical release;
o thereafter to basic cable broadcasters or in certain cases to
network television for an exhibition period; and
o then to syndication or "free" television.
Pay-per-view allows subscribers to pay for individual programs. Pay
television allows cable television subscribers to view such services as
HBO/Cinemax, Showtime/The Movie Channel, Encore Media Services or others offered
by their cable system operators for a monthly subscription fee. Pay-per-view and
pay television are now delivered not only by cable, but also by satellite
transmission, and films are usually licensed in both of these media. Films that
are not initially released in the domestic theatrical market may premiere
instead on pay television followed in some limited circumstances by theatrical
release. Groups of motion pictures often are packaged and licensed as a group
for exhibition on television over a period of time and, therefore, revenues from
these television licensing packages may be received over a period that extends
beyond the initial distribution cycle of a particular film. Motion pictures also
are licensed and packaged by producers and distributors for television broadcast
in international markets by government or privately owned television studios and
networks. Pay television is less developed outside the United States, but is
experiencing significant international growth. The prominent foreign pay
television services include Canal+, Premiere, STAR TV, British Sky Broadcasting
and the international operations of several U.S. cable services, including HBO,
the Disney Channel, Turner Broadcasting and DirecTV.
Non-theatrical and other rights
Films may be licensed for use by airlines, schools, public libraries,
community groups, the military, correctional facilities, ships at sea and
others. Music contained in a film may be licensed for sound recording, public
performance and sheet music publication. Rights in motion pictures may be
licensed to merchandisers for the manufacture of products such as toys,
T-shirts, posters and other merchandise. Rights also may be licensed to create
novels from a screenplay and to generate other related book publications, as
well as interactive games on platforms such as CD-ROM and CD-I.
12
Motion Picture Distribution by the Company
International distribution
The Company's management has considerable expertise in international
distribution. Robert B. Little, the Company's co-chairman of the board and
president, has substantial experience in licensing motion pictures for
distribution outside the United States and has been active in international
motion picture sales since 1975. Over the past 25 years, he has developed
relationships with distributors in most territories through the Company's
foreign sales activities. In addition, the Company is a founding member of the
American Film Marketing Association, which sponsors the American Film Market.
The American Film Market, along with the Cannes Film Festival and MIFED, are the
major annual international film markets that are attended by distributors
worldwide. The Company participates annually with a sales office at all three
major film markets, as well as three major television and two major video
markets. The Company also attends many film festivals throughout the world
including Sundance, the Toronto Film Festival and others. From time to time, the
Company also may engage independent representatives to assist it in acquiring
and licensing motion picture rights.
The Company licenses distribution rights internationally in various
media such as theatrical, video, pay television, free television, satellite and
other rights to foreign sub-distributors on either an individual rights basis or
grouped in combinations of rights. The Company licenses these rights to
sub-distributors in international territories either on a picture-by-picture
basis or occasionally pursuant to output arrangements. Currently, the Company's
most important international territories are Australia, the Benelux countries,
Canada, France, Germany, Italy, Japan, Scandinavia, Spain and the United
Kingdom.
The terms of the Company's license agreements with foreign
sub-distributors vary depending upon the territory and media involved and
whether the agreement relates to a single or multiple motion pictures. Most of
the Company's license agreements provide that the Company will receive a minimum
guarantee from the foreign sub-distributor with all or a majority of the minimum
guarantee paid prior to, or upon delivery of, the film to the sub-distributor
for release in the particular territory. The remainder of any unpaid minimum
guarantee generally is payable at specified intervals after delivery of the film
to the sub-distributor. The minimum guarantee is recovered by the
sub-distributor out of the revenues generated from exploitation of the picture
in the territory. The foreign sub-distributor retains a negotiated distribution
fee, generally measured as a percentage of the gross revenues generated from its
distribution of the motion picture, recovers its distribution expenses and the
minimum guarantee and ultimately pays the Company the remainder of any receipts
in excess of the distributor's ongoing distribution fee. The Company must rely
on the foreign sub-distributor's ability to successfully exploit the film in
order to receive any proceeds in excess of the minimum guarantee.
The Company occasionally does not receive a minimum guarantee from the
foreign sub-distributor and instead negotiates terms that usually result in an
allocation of gross revenues between the sub-distributor and the Company.
Typically, the terms of these types of arrangements provide for the
sub-distributor to retain an ongoing distribution fee, calculated as a
percentage of the sub-distributor's gross receipts in the territory, recover its
expenses and pay remaining receipts in excess of the ongoing distribution fee to
the Company. Alternatively, often with respect to video rights, the terms may
provide for a royalty to be paid to the Company calculated as a percentage of
the sub-distributor's gross receipts from exploitation of the video rights
without deduction for the sub-distributor's distribution expenses.
At times, the Company enters into output arrangements with local
foreign distributors whereby the foreign sub-distributor receives the right,
typically for a specified period and number of motion pictures, to distribute
motion pictures that the Company has released in a particular territory and
designated media. In some circumstances, the foreign sub-distributor pays the
Company a minimum guarantee on a picture-by-picture basis with each minimum
guarantee having been either pre-negotiated or computed as a stipulated
percentage of the production or acquisition cost of each picture.
Domestic distribution
In addition to obtaining foreign distribution rights, the Company has
been active in acquiring domestic distribution rights. The Company exploits its
domestic distribution rights in a variety of ways. In 1993, the Company
13
established First Look Pictures, its domestic theatrical releasing operation,
and in 1999 the Company began releasing films directly on video. Not all of the
films the Company licenses or distributes receive domestic theatrical release by
First Look Pictures. The Company may license films initially to pay television
services for premiere on pay television, including cable and satellite. The
Company licenses some films to domestic television broadcasters for release
initially on television. The Company also licenses to third party distributors,
such as Fox Searchlight, who may release theatrically and distribute the film in
other media as well. During 2000, the Company acquired domestic distribution
rights to seventeen films. The Company theatrically released two of these films
during 2000 and expects to release three more during 2001. The Company has
licensed one film to a third party domestic distributor for theatrical and other
exploitation, seven films were or are intended to be released straight to video
and three films will either be released initially on television or on video.
The Company occasionally licenses domestic video rights of a film to
sub-distributors, including Blockbuster, Inc. and USA Films. In addition, the
Company has created First Look Home Entertainment, which has released 15 films
on video in 2000 and expects to release approximately 22 films in 2001.
The Company licenses distribution rights directly to pay television
services including HBO, Showtime and Encore, as well as smaller services,
pay-per-view services and basic cable services, including USA, Lifetime, Bravo
and the Independent Film Channel. Although the Company has not engaged in
significant licensing or syndication of domestic free television rights except
as part of a license of rights in multiple media, the Company controls these
rights to a significant portion of the films in the Company's library and has
licensed these rights in certain films to third parties.
In some cases, the Company will license the right to distribute a film
domestically in multiple media to a major studio, a division of a major studio
or an independent distributor. Although the terms of these licenses vary, the
Company typically will be paid a minimum guarantee. The sub-distributor then
retains a distribution fee, measured as a percentage of the gross receipts
received by the sub-distributor from exploitation of the film, recovers its
distribution costs and the advance paid to the Company, and ultimately pays the
Company the remainder of any receipts in excess of an ongoing distribution fee.
The Company does not always receive a minimum guarantee from the
licensing of distribution rights to foreign and domestic sub-distributors. This
has caused the Company to rely more heavily on the actual financial performance
of the film being distributed. In some circumstances, whether the Company
receives a minimum guarantee depends upon the media. For example, in the case of
motion pictures that have not been theatrically released, the Company is
increasingly entering into video distribution arrangements with sub-distributors
where no minimum guarantee is paid to the Company or where the minimum guarantee
paid to the Company is significantly less than those paid to the Company for
similar films in the past. In addition, even if the Company does obtain minimum
guarantees from its sub-distributors, the minimum guarantees do not assure the
profitability of the Company's motion pictures or its operations. Additional
revenues may be necessary from distribution of a motion picture to enable the
Company to recover any investment in the motion picture in excess of the
aggregate minimum guarantees obtained from sub-distributors, pay for
distribution costs, pay for ongoing acquisition and development of other motion
pictures by the Company and cover general overhead. While the pre-licensing of
distribution rights to sub-distributors in exchange for minimum guarantees may
reduce some of the Company's risk from unsuccessful films, it also may result in
the Company receiving lower revenues with respect to highly successful films.
First Look Pictures
Some of the motion pictures for which the Company controls domestic
rights are directly distributed to theaters throughout the United States through
First Look Pictures. During 2000, First Look Pictures released three films and
broadened the release of one film initially released in December 1999. Although
some of First Look Pictures' future releases may appeal to a wide audience, many
of the First Look Pictures' releases to date have been foreign language and
art-house films intended to appeal primarily to sophisticated audiences.
14
The Company believes that it can benefit in several ways by
theatrically distributing films in the United States directly through First Look
Pictures. The domestic theatrical success of a motion picture can be a
significant factor in generating revenues from its distribution in ancillary
media and foreign markets. For example, retail video stores purchase few copies
of videocassettes of motion pictures that have not been theatrically released.
In addition, the Company believes it is generally able to obtain more favorable
distribution terms in its agreements with foreign and domestic sub-distributors
in other media with respect to motion pictures that have been theatrically
released in the United States. The Company also believes that, in some cases,
First Look Pictures' operations enable it to achieve domestic theatrical release
for films that might not otherwise be released in U.S. theaters. In addition,
the Company believes that its ability to release a film theatrically in the U.S.
enables it to attract more recognizable talent, higher profile producers and
more promising motion picture projects for both domestic and foreign
distribution and that by theatrically releasing films itself in the United
States, the Company can retain a significantly greater share of the revenue from
domestic media in the event of a highly successful theatrical release.
Films distributed theatrically in the United States by First Look
Pictures typically have been released on a limited basis to initially less than
100 screens and in selected cities, expanding to new cities or regions based
upon the performance of the film. Some films that are released in new cities as
prints become available from cities where the engagement has closed, reducing
the number of prints needed and the aggregate cost of the prints. The Company
may release appropriate films with more mass market appeal on a wide release
basis either through First Look Pictures or, more likely, by licensing the film
to a domestic distributor with more significant financial and distribution
resources.
The cost to First Look Pictures to distribute a specialized motion
picture or art-house film on a limited-release basis has typically ranged from
approximately $100,000 to $2,000,000. Expenditures for prints, marketing and
advertising represent a substantial portion of the costs of releasing a film. In
connection with the acquisition of domestic theatrical rights to a film, the
Company occasionally commits to spend no less than a specified minimum amount
for prints and advertising costs. These costs are in addition to the direct
production or acquisition costs and other distribution expenses of the films.
Generally, in addition to receiving a distribution fee, the Company is
entitled to recover its print and advertising expenditures. Although First Look
Pictures may at times utilize standard broadcast television advertising, First
Look Pictures typically supports its limited releases with local newspaper and,
in certain instances, some cable television advertising. First Look Pictures
also relies on local and national publicity, such as reviews or articles in
local and national publications and appearances of a film's principal artists on
radio and television talk shows. In contrast, distributors of national, wide
release films rely primarily on national advertising campaigns, including
substantial television advertising, to attract theatergoers.
The success of a domestic theatrical release by First Look Pictures can
be affected by a number of factors outside the Company's control. These factors
include:
o audience and critical acceptance;
o the availability of motion picture screens;
o the success of competing films in release;
o awards won by First Look Pictures' releases or that of its
competition;
o inclement weather; and
o competing televised events such as sporting and news events.
15
As a result of the foregoing, and depending upon audience acceptance of
the films distributed through First Look Pictures, the Company expects that in
some cases it may not recover all of its distribution expenses or derive any
profit solely from domestic theatrical distribution revenue of First Look
Pictures' releases. In addition, the Company cannot assure that total revenues
from any First Look Pictures' release, including revenues derived from the film
in ancillary media and international markets, will be sufficient to allow the
Company to recover all of its costs or to realize a profit.
During 2000, First Look Pictures released the following four motion
pictures:
Title Major Creative Elements Storyline Release Date
- --------------------------- ---------------------------------- ------------------------- ---------------------------
A Map of the World Producers: Kathleen Kennedy and A journey to discover December 1999 for a one
Frank Marshall (The Sixth Sense, the meaning of week Oscar qualifying run
The Color Purple, E.T.) friendship, the and then re-released in
Director: Scott Elliott strength of family and January 2000
Cast: Sigourney Weaver (the the power of forgiveness
Alien Series, Gorillas in The
Mist, Working Girl), Julianne
Moore (Hannibal, The End of The
Affair, Boogie Nights), Chloe
Sevigny, (Boys Don't Cry, The
Last Days of Disco)
The Opportunists Executive Producer: Jonathan An ex-con is having a Summer 2000
Demme (Philadelphia, That Thing hard time making ends
You Do) meet and an alleged
Director: Myles Connell long-lost Irish cousin
Cast: Christopher Walken convinces him to go
(The Deer Hunter, Pulp Fiction), along on one more heist
Peter McDonald (Felicia's
Journey), Cyndi Lauper (Mrs.
Parker and the Vicious Circle)
Ratcatcher Executive Producer: Andrea Portrait of an October 2000
Calderwood impoverished Glasgow
Director: Lynne Ramsay, Jr. community in the 1970s
Cast: William Eadie, Tommy through the eyes of a
Flanagan, Mandy Matthews 12-year old boy
Me and Isaac Newton Executive Producer: Michael A documentary in which November 2000
Apted, Jody Patton seven scientists
Director: Michael Apted explain their work and
Cast: Gertrude Ellon, Ashok the roles that
Gadgil, Michio Kaku creativity and
invention play in their
research
The Company anticipates the release of the following films by First
Look Pictures in the first half of 2001:
Anticipated
Title Major Creative Elements Storyline Release Date
- --------------------------- ---------------------------------- ------------------------- ---------------
Chopper Executive Producer: Al Clark Standover man, April 2001
Director: Andrew Dominik underworld executioner
Cast: Eric Bana and inventive
raconteur, Mark
`Chopper' Read is
Australia's most
infamous criminal and
best-selling author.
This is the story.
A Question of Faith Executive Producer: Edward R. In the heart of May 2001
Pressman California wine country
Director: Tim Disney lies a monastery where
Cast: Martha Hackett, Bernard centuries-old
Hill traditions of ritual,
discipline and solitude
create a timeless
serenity-until one
dazzling moment changes
everything.
Bread & Tulips Producer: Daniele Maggioni Vacationing alone in June 2001
(Pane e Tulipani) Director: Silvio Seldini Venice, Italy, a woman
Cast: Lucia Maglietto, Bruno rediscovers her past
Ganz, Giuseppe Battiston and the freedom of a
forgotten life.
But when her
husband hires an
inept detective
to find her,
hilarity and
poignancy ensues
in this romantic
comedy.
The Company cannot assure that the motion pictures scheduled for
release by First Look Pictures in 2001 or any motion pictures thereafter will
actually be released or released in accordance with its anticipated schedule.
The motion picture business is subject to numerous uncertainties, including
financing requirements, personnel availability and the release schedule of
competing films.
17
Acquisition of Rights by the Company, Production and Financing
The Company acquires sales and distribution rights from a wide variety
of independent production companies and producers. The Company generally
acquires these rights to single films, as compared to acquiring films pursuant
to multi-picture acquisition agreements with independent film companies or
producers. The Company commits to acquire rights to motion pictures at various
stages in the completion of a film, from films completed and ready for release
to developed or undeveloped film projects for which the Company may arrange
financing or production services to complete. In acquiring rights, the Company
generally seeks to obtain rights to commercially appealing motion pictures with
substantially lower direct negative costs than motion pictures released by the
major studios.
In order to fund the acquisition costs of the films for which the
Company acquires rights, the Company has primarily relied on:
o Company's credit facility,
o other lenders willing to finance the Company's contractual
minimum guarantee obligations to the films' producers or
rights owners;
o working capital;
o pre-sales;
o gap financing;
o insurance backed financing structures; and
o other third party equity sources such as private investors.
The films that the Company sells, licenses and distributes generally
have direct negative costs ranging from $1,000,000 to $7,000,000. The Company
may acquire rights to finance or produce motion pictures with direct negative
costs and marketing costs below or substantially in excess of the average direct
negative costs and marketing costs of the films that the Company has
distributed. As part of the Company's overall business strategy, the Company
intends to emphasize films with more recognizable cast, directors and producers
and greater production values and which may accordingly have broader appeal in
the competitive theatrical market. The Company also will attempt to limit its
exposure with respect to production and acquisition costs through gap financing
and accessing equity sources such as private investors.
The Company sometimes acquires limited distribution or sales rights and
acquires worldwide rights, at times including the copyright, to the films.
Generally, this depends upon whether the Company agrees to pay the producer or
other rights owner a substantial minimum guarantee. As part of the Company's
acquisition of theatrical, video and television distribution rights, the Company
may obtain the right to exploit ancillary rights, such as music or sound track
rights, merchandising rights, or rights to produce CD-ROMs or other interactive
media products. Although the Company may license these rights to
sub-distributors, the Company historically has not derived any significant
revenues from these ancillary rights.
The Company occasionally is appointed as the sales agent for a
particular motion picture to license, on behalf of the rights owner,
distribution rights in the film to various distributors for exploitation on a
territory-by-territory basis. This often occurs in conjunction with gap
financing or insurance backed financing arrangements. When the Company acts as a
sales agent, the Company generally is entitled to a sales agency fee which
typically ranges from approximately 10% to 20% of the gross revenues from
resulting licenses or sales. However, this fee may be higher or lower depending
upon the film. The Company generally advances limited funds toward the marketing
and distribution of the film which generally range from $50,000 to $150,000. In
various arrangements, a portion or all of the sales agency fee and some or all
of the distribution expenses may be deferred as part of the sales agency
arrangement until a specified level of revenues from sale and licensing of the
particular distribution rights is achieved.
18
The Company also may act in much the same manner as a distributor but,
rather than licensing the distribution rights of a particular film to a third
party on behalf of the rights owner, the Company licenses the distribution
rights in the film from the rights owner and sub-licenses those rights to
distributors in various territories. The Company then exploits the distribution
rights for a given term in a given territory or territories and media. The fee
structure and funds provided for marketing and distribution remain similar to
that of a sales agency. Since 1998, the Company has acted in this manner, or as
a sales agent, more frequently than in prior years.
In both a sales agency arrangement and the distribution arrangement
described above, the amounts payable by the Company to the rights owner depend
upon the Company success in licensing the film and the financial performance of
the film itself. In acquiring distribution rights to a completed or incomplete
film, however, the Company may agree to pay the rights owner a minimum guarantee
that is independent of the financial performance of the film. Historically, the
minimum guarantees paid by the Company have ranged from approximately $100,000
to $5,000,000, although in some circumstances they may exceed these amounts.
Depending upon the particular arrangement, a minimum guarantee may be payable in
full at the time of delivery of the completed film or in installments following
complete delivery of the film. The rights owner also may receive additional
payments as a result of the Company's exploitation of the distribution rights to
the film. After receiving a distribution fee and recovering the Company's
distribution expenses and minimum guarantee, the Company pays the remainder of
revenues in excess of an ongoing distribution fee to the rights owner.
The Company typically receives a larger share of gross receipts from
the license and distribution of motion pictures for which the Company has
provided a minimum guarantee than from those that the Company does not. At
times, the minimum guarantee paid by the Company may represent all or a
substantial portion of the film's production costs. In those circumstances, the
Company generally receives worldwide distribution rights in all media and
generally will also obtain ownership of the copyright to the film, with the
production company from which the Company acquired the rights receiving a
production fee and generally a participation in net revenues from distribution
of the motion picture. In 2000, the Company provided minimum guarantees for only
one film, which represented a majority of the final production costs of the
film. The Company currently intends to become more active in providing minimum
guarantees.
The Company's commitment to pay a minimum guarantee with respect to
films that have not begun production often enables the production company or
producer to obtain financing for its project, if needed. In some cases, the
Company's contractual commitment to pay a minimum guarantee upon delivery of a
film serves as sufficient collateral for a bank to lend production funds. The
bank typically will insure delivery of the film to the Company by requiring the
producer to purchase a completion guaranty. To enable the production company or
producer to borrow production funding, or to borrow at preferential bank fees
and interest rates, the Company also may have to secure the Company's purchase
or acquisition commitment, which the Company generally has done by obtaining a
letter of credit from the Company's lenders. In some situations, the production
company or producer of a film initially may obtain funds:
o from other distribution companies that obtain distribution
rights in specified media or territories, for example, the
domestic distribution rights or distribution rights in Germany
or the United Kingdom;
o by accessing foreign governmental film industry incentive
programs such as programs offered in the past by the
Netherlands, Isle of Man, the United Kingdom, Canada,
Australia and New Zealand; or
o by using its own resources or other resources available to it,
and subsequently approaching the Company to supply the
remaining funds necessary to complete or co-finance the film
in exchange for the Company obtaining the remaining
distribution rights to the motion picture.
The Company has not been actively involved in co-financing
arrangements. However, the Company intends to increase its participation in
these arrangements. When the Company participates in co-financing arrangements,
the Company will commit to fund a portion of a particular film's production
costs in combination with other equity providers. The Company also intends to
further develop relationships with major studios and expand the Company's
executive producing role in connection with motion pictures produced and
distributed by other companies.
19
In June 2000, the Company entered into a "first look" agreement with
The Little Film Company, Inc. and Ellen Dinerman Little, the Company's former
co-chairman, co-chief executive officer and president. The agreement provides
for a three-year term ending in June 2003. Under this agreement, the Company
will have an exclusive "first look" on any project that The Little Film Company
owns or controls or which it has the right to submit to the Company or any
project that it has the right to acquire or may wish to acquire for development
or production. The agreement also provides for the Company to pay The Little
Film Company annual overhead for office space and related expenses, an annual
fee and a discretionary revolving development fund. The Company also will
compensate The Little Film Company on a project-by-project basis.
In connection with the purchase of certain of the Company's securities
by Rosemary Street Productions, LLC in June 2000, Rosemary Street assigned to
the Company a first look agreement with Grandview Pictures LLC and Jon Kilik.
The agreement provides for a three-year term ending in May 2002, which the
Company may renew for an additional two-year term. Under the agreement, the
Company will have an exclusive "first look" on any project that Grandview
Pictures wants to produce and which it owns or controls or which it has the
right to submit to the Company under the agreement or which it has the right to
acquire or may wish to acquire for development and/or production, or has been
authorized by third parties to submit to the Company for development and/or
production, as a feature length theatrical motion picture or television
production. The agreement also provides for the Company to pay to Grandview
Pictures annual overhead for its New York office, including an annual salary for
Jon Kilik and fees for Kilik's production services based on the cash budget of
the applicable pictures. The Company also will compensate Grandview Pictures for
each theatrical or television motion picture produced by Kilik.
The Company did not produce any of the films that it distributed in
2000. The Company currently plans to produce at least one motion picture in 2001
entitled Skins, which is the first film to be produced under the Company's first
look agreement with Grandview Pictures. When the Company has produced a film,
the Company's production subsidiaries typically have obtained production
financing by obtaining production loans using the Company's minimum guarantee
commitment as collateral, at times secured by a letter of credit issued under
the Company's credit facilities. The Company attempts to minimize the risks
associated with any development and production activities that it conducts in a
variety of ways. The Company does not maintain a substantial staff of creative
or technical personnel. The Company also does not own or operate sound stage and
related production facilities and, accordingly, does not have the fixed payroll,
general and administrative and other expenses resulting from such ownership. In
addition, in those circumstances where the Company produces a film, it generally
attempts to acquire fully developed projects ready for pre-production with, when
feasible, completed scripts, directors and cast members who are committed to or
are interested in the project. Many projects also have a producer involved or
committed. However, if at the time of the Company's acquisition of rights in a
project, a producer is not formally or informally committed to a project, the
Company may also engage a production services company or a producer to supervise
and arrange all pre-production, production and post-production activities in
exchange for a production fee and a participation in net revenues from the film.
The following chart provides information regarding completed motion
pictures first made available to the Company for distribution during 2000 other
than those films described under "- Motion Picture Distribution by the
Company-First Look Pictures." The chart includes acquisitions of rights from
unaffiliated production companies or other rights owners, as well as from
production companies that the Company owns or controls.
Motion Picture Title Genre Territories Acquired Selected Cast
- -------------------- ----- -------------------- -------------
Before Night Falls Drama Universe excluding the United Javier Bardem (Academy Award(R)nominee for
States and Canada Best Actor), Andrea di Stefano, Olivier
Martinez, Johnny Depp (Platoon, Chocolat,
Ed Wood), Sean Penn (Sweet and Lowdown,
Dead Man Walking, Carlito's Way), Michael
Wincott (Alien: Resurrection, The Crow,
Robin Hood: Prince of Thieves)
20
Motion Picture Title Genre Territories Acquired Selected Cast
- -------------------- ----- -------------------- -------------
Chasing Beauties Comedy Universe excluding the United Hill Harper (He Got Game, Get on the Bus,
States Beloved), Heather Gottlieb, Nicole Ari
Parker (The End of Violence, Hairspray,
Boogie Nights)
Dead Babies Comedy Universe excluding the United Paul Bettany (Land Girls, Suicide Club,
Kingdom and Scandinavia Bent), Olivia Williams (The Sixth Sense,
Rushmore, The Postman), Charlie Condou
Ed Gein Thriller Universe Steve Railsback (Disturbing Behavior, Barb
Wire), Carrie Snodgress
Envy Thriller Universe excluding Canada and the Linda Cropper, Anna Lise Phillips, Wade
United States Osborne, Jeff Truman
Falling Through Thriller United States Peter Weller (Robocop, Mighty Aphrodite),
Roy Scheider (All That Jazz, The French
Connection, Jaws)
Following Thriller Universe excluding Canada and the Jeremy Theobald, Alex Haw, Lucy Russell,
United States John Nolan
Full Disclosure Thriller Universe Fred Ward (Road Trip, Short Cuts, Bob
Roberts, Thunderheart), Christopher Plummer
(The Insider, Twelve Monkeys),Penelope Ann
Miller (Carlito's Way, Chaplin,
Awakenings), Rachel Ticotin (Con Air, Don
Juan DeMarco), Virgina Madsen (The
Haunting, The Rainmaker, Ghosts of the
Mississippi)
Graduation Week Comedy Universe Nicholle Tom (The Nanny, Beethoven),
Albanna Ubach (All of It, Clockwatchers,
johns), John Livingston (The Net, Mr.
Wrong, EdTV), Irene Ng, Jack Noseworthy
(Cecil B. Demented, U-571, Unconditional
Love), Devon Odessa (My So Called Life),
Sean Patrick Thomas (Can't Hardly Wait,
Cruel Intentions)
Greenfingers Comedy Universe Clive Owen (Croupier), Helen Mirren
(Teaching Mrs. Tingle, The Pledge, Mosquito
Coast), David Kelly (Waking Ned Devine),
Natasha Little, Warren Clarke
21
Motion Picture Title Genre Territories Acquired Selected Cast
- -------------------- ----- -------------------- -------------
Here's to Life Comedy Universe excluding the United Eric McCormack (Will and Grace), James
Kingdom, Canada and the United Whitmore (Shawshank Redemption, Nuts,
States Planet of the Apes), Kim Hunter, Ossie
Davis (Dr. Doolittle, Get on the Bus, I'm
Not Rappaport)
Housebound Thriller Universe Peter Sarsgaard (Boys Don't Cry,
Unconditional Love, Desert Blue), Kathatina
Wressnig, Angeline Ball, Geoffrey Lower
Life Before This Drama/Thriller United States Stephen Rea (The End of the Affair, The
Crying Game, Crime of the Century),
Catherine O'Hara (Nightmare Before
Christmas, Home Alone Series, Beetlejuice),
Joe Pantoliano (The Matrix, Memento, The
Fugitive), Sarah Polley (The Sweet
Hereafter, Go)
Proximity Thriller/Action Universe excluding Germany and the Rob Lowe (The West Wing, St. Elmo's Fire),
United States James Coburn (Affliction, The Nutty
Professor, The Player)
Relative Values Romantic Comedy Universe Julie Andrews (The Sound of Music, Mary
Poppins), William Baldwin (Primary Suspect,
Virus, Bulworth, Flatliners), Jeanne
Tripplehorn (The Firm, Basic Instinct,
Timecode), Colin Firth (Shakespeare in
Love, The English Patient), Stephen Fry
Something More Drama United States Michael Goorjian (Party of Five, Chaplin,
David's Mother), Jennifer Beals
(Flashdance, Without Malice, Last Days of
Disco), Chandra West, David Lovgren
(Antitrust)
Sunstorm Action Universe Bo Derek (10, Bolero, Tommy Boy), Stacy
Keach (American History X, The Sea Wolf),
Elena Llyons
The Company's Film Library of Distribution Rights
The Company's film library consists of rights to a broad range of
films, most of which were produced since 1980. At December 31, 2000, the Company
had various distribution rights to more than 250 motion pictures, including more
than 77 motion pictures in which the Company owns an interest in the copyright
and approximately 74 motion pictures for which the Company acts as sales agent
on behalf of the producer or other rights owner in the film. The Company's
distribution rights generally range from 12 to 25 years or more from the date of
acquisition, and typically extend to many, if not all, media for exhibition
worldwide or in specified territories.
22
In addition to exploitation of distribution rights to motion pictures
in the Company's library in the major media, the Company is able to exploit
various ancillary rights in the films under certain situations. The Company has
arranged for the music in several motion pictures that it has distributed to be
released as soundtrack recordings, including Waking Ned Devine, A Merry War,
Mrs. Dalloway, The Secret of Roan Inish, Party Girl, The Big Squeeze and
Infinity. Although exploitation of these soundtracks and other ancillary rights
have not generated significant revenues for the Company to date, the Company's
ownership or control of ancillary rights to motion pictures in the Company's
library, including interactive rights, remake rights and merchandising rights,
may provide future sources of additional revenues.
Additionally, the Company has granted to Yahoo! Inc. the right to
exploit on the Internet approximately fifty titles from the Company's film
library on a revenue sharing basis.
Major Customers
In 1998, Fox Searchlight accounted for $5,000,000 or 19.5% of the
Company's revenues. In 1999, Buena Vista accounted for $3,500,000 or 10.4% of
the Company's revenues. During the year ended December 31, 2000, USA Network
accounted for $3,014,000 or 13.3% of the Company's total revenues.
Employees
As of April 12, 2001, the Company employed 47 full-time employees and 3
part-time employees. Some of the Company's subsidiaries are or may become
subject to the terms in effect from time to time of various industry-wide
collective bargaining agreements, including the Writers Guild of America, the
Directors Guild of America, the Screen Actors Guild and the International
Alliance of Theatrical Stage Employees. The Company may assume a production
company's obligation to pay residuals to these various entertainment guilds and
unions. A strike, job action or labor disturbance by the members of any of these
entertainment guilds and unions could have a material adverse effect on the
production of a motion picture within the United States, and, consequently, on
the Company's business, operations and results of operations. These
organizations all have engaged in strikes and similar activities. The Company
believes that its current relationship with its employees is satisfactory.
Competition
Motion picture distribution, finance and production are highly
competitive businesses. The competition comes both from companies within the
same business and from companies in other entertainment media that create
alternative forms of leisure entertainment. The Company competes with major film
studios including:
o The Walt Disney Company;
o Paramount Pictures Corporation;
o Universal Pictures;
o Sony Pictures Entertainment;
o Twentieth Century Fox;
o Warner Brothers Inc.; and
o MGM/UA and their affiliates, including previously independent
companies such as Miramax and New Line Cinema which are
dominant in the motion picture industry.
The Company also competes with numerous independent and foreign motion
picture production and distribution companies. Many of the organizations with
which the Company competes have significantly greater financial and other
resources than the Company. For instance, German-based and multinational
production and distribution companies recently have been successful in raising
significant capital in equity financings in Germany. The Company's ability to
compete successfully depends upon the continued availability of independently
produced, domestic and foreign motion pictures and the Company's ability to
identify and acquire distribution rights to, and successfully license and
23
distribute, motion pictures with commercial potential. A number of formerly
independent motion picture companies have been acquired in recent years by major
entertainment companies. These transactions have significantly increased
competition for the acquisition of distribution rights to independently produced
motion pictures.
Films that the Company distributes or finances also compete for
audience acceptance and exhibition outlets with motion pictures that other
companies distribute and produce. As a result, the success of any of the films
that the Company distributes or finances is dependent not only on the quality
and acceptance of that particular film, but also on the quality and acceptance
of other competing films released into the marketplace at or near the same time.
With respect to the Company's domestic theatrical releasing operations, a
substantial majority of the motion picture screens in the United States
typically are committed at any one time to films distributed nationally by the
major film studios, which generally buy large amounts of advertising on
television and radio and in newspapers and can command greater access to
available screens. Although some movie theaters specialize in the exhibition of
independent, specialized motion pictures and art-house films, there is intense
competition for screen availability for these films as well. Given the
substantial number of motion pictures released theatrically in the United States
each year, competition for exhibition outlets and audiences is intense. In
addition, there also have been rapid technological changes over the past fifteen
years. Although technological developments have resulted in the creation of
additional revenue sources from the licensing of rights with respect to new
media, these developments also have resulted in increased popularity and
availability of alternative and competing forms of leisure time entertainment
including pay/cable television programming and home entertainment equipment such
as videocassettes, interactive games and computer/Internet use.
Regulation
In 1994, the United States was unable to reach an agreement with its
major international trading partners to include audio-visual works, such as
television programs and motion pictures, under the terms of the General
Agreement on Trade and Tariffs Treaty. The failure to include audio-visual works
under the treaty allows many countries to continue enforcing quotas that
restrict the amount of United States-produced television programming which may
be aired on television in those countries. The Council of Europe has adopted a
directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission time,
exclusive of news, sports, game shows and advertising, for European works. The
directive does not itself constitute law, but must be implemented by appropriate
legislation in each member country. In addition, France requires that original
French programming constitute a required portion of all programming aired on
French television. These quotas generally apply only to television programming
and not to theatrical exhibition of motion pictures, but quotas on the
theatrical exhibition of motion pictures could also be enacted in the future.
The Company cannot assure that additional or more restrictive theatrical or
television quotas will not be enacted or that countries with existing quotas
will not more strictly enforce such quotas. Additional or more restrictive
quotas or more stringent enforcement of existing quotas could materially and
adversely affect the Company's business by limiting the Company's ability to
fully exploit its rights in motion pictures internationally and, consequently,
to assist or participate in the financing of these motion pictures.
Distribution rights to motion pictures are granted legal protection
under the copyright laws of the United States and most foreign countries. These
laws provide substantial civil and criminal sanctions for unauthorized
duplication and exhibition of motion pictures. Motion pictures, musical works,
sound recordings, art work, still photography and motion picture properties are
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976, as amended. The Company is aware of reports
of extensive unauthorized misappropriation of videocassette rights to motion
pictures which may include motion pictures distributed by us. Motion picture
piracy is an industry-wide problem. The Motion Picture Association of America,
an industry trade association, operates a piracy hotline and investigates all
reports of such piracy. Depending upon the results of investigations,
appropriate legal action may be brought by the owner of the rights. Depending
upon the extent of the piracy, the Federal Bureau of Investigation may assist in
these investigations and related criminal prosecutions.
Motion picture piracy is also an international problem. Motion picture
piracy is extensive in many parts of the world, including South America, Asia
including Korea, China and Taiwan, the countries of the former Soviet Union and
24
other former Eastern bloc countries. In addition to the Motion Picture
Association, the Motion Picture Export Association, the American Film Marketing
Association and the American Film Export Association monitor the progress and
efforts made by various countries to limit or prevent piracy. In the past, these
various trade associations have enacted voluntary embargoes of motion picture
exports to certain countries in order to pressure the governments of those
countries to become more aggressive in preventing motion picture piracy. In
addition, the United States government has publicly considered trade sanctions
against specific countries that do not prevent copyright infringement of United
States produced motion pictures. The Company cannot assure that voluntary
industry embargoes or United States government trade sanctions will be enacted.
If enacted, these actions could impact the amount of revenue that the Company
realizes from the international exploitation of motion pictures depending upon
the countries subject to and the duration of such action. If not enacted or if
other measures are not taken, the motion picture industry as a whole, and the
Company's business in particular, may continue to lose an indeterminate amount
of revenues as a result of motion picture piracy.
The Code and Ratings Administration of the Motion Picture Association
assigns ratings indicating age-group suitability for theatrical distribution of
motion pictures. The Company sometimes, although not always, submits the
Company's motion pictures for these ratings. In certain circumstances, motion
pictures that the Company did not submit for rating might have received
restrictive ratings, including, in some circumstances, the most restrictive
rating which prohibits theatrical attendance by persons below the age of
seventeen. Unrated motion pictures, or motion pictures receiving the most
restrictive rating, may not be exhibited in certain movie theaters or in certain
locales, thereby potentially reducing the total revenues generated by these
films. United States television stations and networks, as well as foreign
governments, impose additional restrictions on the content of motion pictures
which may restrict in whole or in part theatrical or television exhibition in
particular territories. In 1997, the major broadcast networks and the major
television production companies implemented a system to rate television
programs. This television rating system has not had a material adverse effect on
the motion pictures distributed by the Company. However, the possibility exists
that the sale of theatrical motion pictures for broadcast on domestic free
television may become more difficult because of potential advertiser
unwillingness to purchase advertising time on television programs that are rated
for limited audiences. The Company cannot assure that current and future
restrictions on the content of motion pictures may not limit or adversely affect
the Company's ability to exploit certain motion pictures in particular
territories and media.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 8800 Sunset
Boulevard, Third Floor, Los Angeles, California and consist of approximately
10,000 square feet of office space. The Company's lease payments are
approximately $20,000 per month. The lease expires on September 30, 2002. Under
the terms of the lease, the Company became responsible in October 1999 for a
percentage of operating costs above a base year calculation.
In May 2001, the Company entered into a sublease for 4,000 square feet
of office and production space located at 2932 Nebraska Avenue, Santa Monica,
California for its television commercial production operations. The term of the
sublease is through March 31, 2003 and provides for an annual rent of $108,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in legal proceedings incidental to its normal
business activities. In the opinion of management, none of these proceedings are
material in relation to the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since January 11, 2001, the Company's common stock and warrants have
been quoted on the OTC Bulletin Board under the symbols "FRST" and "FRSTW,"
respectively. Prior to that date, the Company's common stock and warrants were
quoted on the OTC Bulletin Board under the symbols "OSFG" and "OSFGW,"
respectively. The following table sets forth the high and low closing bid
quotations for the periods indicated. The quotations represent prices between
dealers and do not include retail markups or markdowns or commissions. They may
not necessarily represent actual transactions.
Common Stock Warrants
------------------- ---------------------
1999 High($) Low($) High($) Low($)
---- --- ---- ---
First quarter....... 3-1/8 2-1/16 1/2 1/4
Second quarter...... 2-15/16 2-11/16 1/4 3/16
Third quarter....... 3-3/8 2-1/4 9/16 1/8
Fourth quarter...... 2-3/4 2-1/4 5/16 1/8
2000
First quarter....... 2-7/8 2-1/4 1/4 1/8
Second quarter ..... 2-1/2 2 1/8 1/16
Third quarter....... 2-1/8 1-3/4 1/8 1/16
Fourth quarter...... 1-7/8 1-1/2 1/8 1/8
As of April 12, 2001, there were approximately 28 holders of record of
the Company's common stock and there were 9,803,906 shares of common stock
issued and outstanding. As of April 12, 2001, there were approximately 10
holders of record of the Company's warrants and there were 4,500,000 warrants
issued and outstanding.
On April 12, 2001 the last reported sale price of the Company's common
stock as reported on the OTC Bulletin Board was $0.51. On April 12, 2001, the
last reported sale price of the Company's warrants was $.03.
Dividends
The Company has not paid cash dividends on its common stock and the
Company presently intends to retain future earnings to finance the expansion and
development of its business and not pay dividends on its common stock. Any
determination to pay cash dividends in the future would be at the discretion of
the board of directors and would be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at that time by the board of directors. In addition, certain
covenants in the Company's credit facility with The Chase Manhattan Bank
substantially restrict payment of cash dividends.
26
Recent Sales of Unregistered Securities
During the three months ended December 31, 2000, the Company made the
following sales of unregistered securities:
Consideration
Received and
Description of
Underwriting or Other If Option, Warrant, or
Discounts to Market Convertible Security,
Price Afforded to Exemption from Terms of Exercise or
Date of Sale Title of Security Number Sold Purchasers Registration Claimed Conversion
- ------------ --------------------- --------------- ----------------------- ------------------------ -------------------------
11/15/00 Options to purchase 10,000 Options granted under 4(2) Exercisable one year
common stock the 1996 Basic Stock from grant date at an
Option Plan to exercise price of $1.75
certain non-employee per share.
directors - no other
consideration
received by Company
until exercise
- ------------ --------------------- --------------- ----------------------- ------------------------ -------------------------
12/4/00 Options to purchase 50,000 Options granted under 4(2) 20,000 shares are
common stock the 2000 Performance immediately exercisable
Equity Plan to and 30,000 shares
employee - no other become exercisable on
consideration 11/30/02 at an exercise
received by Company price of $1.50 per
until exercise share.
- ------------ --------------------- --------------- ----------------------- ------------------------ -------------------------
27
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of and for each
of the years in the five-year period ended December 31, 2000 are derived from
the Company's consolidated financial statements, which statements have been
audited by PricewaterhouseCoopers LLP, independent accountants. The selected
consolidated financial data set forth below should be read in conjunction with
the Company's consolidated financial statements and the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," each included elsewhere in this report. "Statement of Operations
Data" presented below includes reclassifications of certain revenue and expense
items which are not directly associated with operations. Such reclassifications
include interest income, interest expenses, foreign exchange effects and other
non-operating items.
1996 1997 1998 1999 2000
------------------------------------------------------------------------
(amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues $28,678 $22,494 $25,585 $33,784 $22,625
Film costs 23,058 19,152 21,015 30,888 16,850
Distribution and marketing costs - - - - 4,774
Selling, general and administrative 3,596 3,509 2,960 2,983 6,473
Income (loss) from operations 2,024 (168) 1,610 (87) (5,472)
Income (loss) before income taxes and cumulative
effect of accounting changes 1,665 (837) 112 (1,989) (6,230)
Income tax provision (benefit) 3,131 (293) 53 (736) 137
Income (loss) before cumulative effect of
accounting changes (1,466) (544) 59 (1,253) (6,367)
Cumulative effect of accounting changes - - - - (14,123)
Net income (loss) (1,466) (544) 59 (1,253) (20,490)
Basic and diluted net income (loss) per share
before cumulative effect of accounting changes (0.41) (0.09) 0.01 (0.21) (0.78)
Cumulative effect - - - - (1.74)
Net income (loss) per share after cumulative effect (0.41) (0.09) 0.01 (0.21) (2.52)
Weighted average number of common shares
outstanding (000's) 3,611 5,748 5,732 5,990 8,131
AS OF DECEMBER 31,
------------------
1996 1997 1998 1999 2000
-------------------------------------------------------------------------------
(amounts in thousands)
BALANCE SHEET DATA:
Film costs, net of accumulated amortization 28,358 29,741 29,003 28,364 13,393
Total assets 40,804 46,560 50,209 62,647 42,280
Total long-term liabilities 16,607 23,142 22,013 19,764 6,500
Total liabilities 28,612 34,999 38,588 49,348 32,375
Total shareholders' equity 12,192 11,561 11,621 13,299 9,905
- -------------------
(1) From January 1, 1989 to October 31, 1996, Overseas Private operated as
an S corporation under Subchapter S of the Internal Revenue Code. During the