UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934


		For the quarterly period ended ~~December 31, 2004~~June 30, 2005

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934


		For the transition period from to .

Commission File No. 1-14880

Lions Gate Entertainment Corp.

(Exact name of registrant as specified in its charter)


British Columbia, Canada		~~N/A~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

555 Brooksbank Avenue

North Vancouver

British Columbia ~~V7S~~V7J 3S5

and

2700 Colorado Avenue, Suite 200

Santa Monica, California 90404

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(604) 983-5555

Indicate by check mark whether the ~~registrant~~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. YesRþ No£o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YesRþ No£o

As of ~~February 8,~~August 1, 2005, ~~100,945,189~~101,875,620 shares of the registrant’s no par value common ~~shares~~stock were outstanding.

TABLE OF CONTENTS
~~PART I~~

Item Page

PART I
1. Financial Statements 3
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
3. Quantitative and Qualitative Disclosures About Market Risk 39
4. Controls and Procedures 40

PART II
1. Legal Proceedings 41
2. Unregistered Sales of Equity Securities and Use of Proceeds 41
3. Defaults Upon Senior Securities 41
4. Submission of Matters to a Vote of Security Holders 41
5. Other Information 41
6. Exhibits 42
EX-10.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1


~~Item 1.~~		~~Financial Statements~~
~~Item 2.~~		~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
~~Item 3.~~		~~Quantitative and Qualitative Disclosures About Market Risk~~
~~Item 4.~~		~~Controls and Procedures~~
~~PART II~~
~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~
~~Item 6.~~		~~Exhibits~~
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~

FORWARD LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as “may,” “intend,” “will,” “should,” “could,” “would,” ~~“expect,~~“expects,” “believe,” “estimate,” ~~“expect”~~ or the negative of these terms, and similar expressions intended to identify forward-looking statements.

These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, those risk factors found in our Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~February 9,~~June 29, 2005, which is incorporated herein by reference.

PART I


Item 1.	*Financial Statements.*

~~Item 1.~~~~Financial Statements~~
LIONS GATE ENTERTAINMENT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,			March 31,
	2005			2005

	(Unaudited)			(Note 2)
	(Amounts in thousands,
	except share amounts)
ASSETS
Cash and cash equivalents	$	138,272		$	112,839
Restricted cash		968			2,913
Accounts receivable, net of reserve for video returns of $51,208 (March 31, 2005 — $58,449) and provision for doubtful accounts of $6,133 (March 31, 2005 — $6,102)		102,439			150,019
Investment in films and television programs		365,595			367,376
Property and equipment		30,188			30,842
Goodwill		161,182			161,182
Other assets		31,417			29,458

	$	830,061		$	854,629


LIABILITIES
Bank loans	$	—		$	1,162
Accounts payable and accrued liabilities		139,605			134,200
Film obligations		144,188			130,770
Subordinated notes		385,000			390,000
Mortgages payable		18,109			18,640
Deferred revenue		48,286			62,459
Minority interests		—			259

		735,188			737,490

Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Common shares, no par value, 500,000,000 shares authorized, 101,873,874 at June 30, 2005 and 101,843,708 at March 31, 2005 shares issued and outstanding		305,812			305,662
Series B preferred shares (10 shares issued and outstanding)		—			—
Restricted common share units		2,099			—
Unearned compensation		(2,099	)		—
Accumulated deficit		(205,045	)		(183,226	)
Accumulated other comprehensive loss		(5,894	)		(5,297	)

		94,873			117,139

	$	830,061		$	854,629

December 31, March 31,
2004 2004
(Unaudited) (Note 2)
(All amounts in thousands,
except share
amounts)
ASSETS

Cash and cash equivalents $ 5,139 $ 7,089
Restricted cash 20,000 —
Accounts receivable, net of reserve for video returns of $54,932 (March 31, 2004 — $46,985) and provision for doubtful accounts of $7,482 (March 31, 2004 — $11,702) 110,649 129,245
Investment in films and television programs 366,465 406,170
Property and equipment 31,426 29,661
Goodwill 168,705 166,804
Other assets 22,868 23,714

$ 725,252 $ 762,683

LIABILITIES

Bank loans $ 75,102 $ 326,174
Accounts payable and accrued liabilities 112,359 129,724
Film obligations 168,806 114,068
Subordinated notes 215,000 65,000
Mortgages payable 19,063 19,041
Deferred revenue 39,014 38,932
Minority interests 150 135

629,494 693,074

Commitments and Contingencies
SHAREHOLDERS’ EQUITY

Common shares, no par value, 500,000,000 shares authorized, 100,944,357 at December 31, 2004 and 93,615,896 at March 31, 2004 shares issued and outstanding 302,856 280,501
Series B preferred shares (10 shares issued and outstanding) — —
Accumulated deficit (203,286 ) (203,507 )
Accumulated other comprehensive loss (3,812 ) (7,385 )

95,758 69,609

$ 725,252 $ 762,683

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


			Three Months Ended			Three Months Ended
			June 30, 2005			June 30, 2004

			(Amounts in thousands, except
			per share amounts)
Revenues			$	194,229		$	188,724
Expenses:
	Direct operating			100,264			80,810
	Distribution and marketing			93,481			98,066
	General and administration			17,329			17,127
	Depreciation			748			675

		Total expenses		211,822			196,678

Operating Loss				(17,593	)		(7,954	)

Other Expense (Income):
	Interest expense			4,884			5,461
	Interest rate swaps mark-to-market			337			(2,060	)
	Interest income			(1,065	)		(37	)
	Minority interests			—			(123	)

		Total other expenses, net		4,156			3,241

Loss Before Income Taxes				(21,749	)		(11,195	)
Income tax provision				(70	)		(267	)

Net Loss			$	(21,819	)	$	(11,462	)

Basic and Diluted Loss Per Common Share			$	(0.21	)	$	(0.12	)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(All amounts in thousands, except per share amounts)
Revenues
$ 190,398 $ 70,619 $ 610,186 $ 217,005

Expenses:

Direct operating 82,461 42,535 258,610 113,131
Distribution and marketing 80,263 34,660 282,546 102,910
General and administration 15,582 9,300 49,482 23,647
Severance and relocation costs — 5,934 — 5,934
Write-down of other assets — 8,064 — 8,064
Depreciation 835 718 2,224 1,748

Total expenses 179,141 101,211 592,862 255,434

Operating Income (Loss)
11,257 (30,592 ) 17,324 (38,429 )

Other Expenses (Income):

Interest 8,201 4,808 19,277 9,017
Interest rate swaps mark-to-market (419 ) (688 ) (2,408 ) (950 )
Minority interests (19 ) — 2 —
Other income — — (825 ) —
Equity interests — 948 200 1,959

Total other expenses, net 7,763 5,068 16,246 10,026

Income (Loss) Before Income Taxes
3,494 (35,660 ) 1,078 (48,455 )
Income tax provision 141 84 857 315

Net Income (Loss)
3,353 (35,744 ) 221 (48,770 )
Modification of warrants — (2,031 ) — (2,031 )
Dividends on Series A preferred shares — (66 ) — (320 )
Accretion and amortization on Series A preferred shares — (73 ) — (575 )

Net Income (Loss) Available to Common Shareholders
$ 3,353 $ (37,914 ) $ 221 $ (51,696 )

Basic and Diluted Income (Loss) Per Common Share
$ 0.03 $ (0.45 ) $ 0.00 $ (0.81 )

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


										Restricted											Accumulated
		Common Shares								Common								Comprehensive			Other
										Share		Unearned			Accumulated			Income			Comprehensive
		Number		Amount		Number		Amount		Units		Compensation			Deficit			(Loss)			(Loss)			Total

		(Amounts in thousands, except share amounts)
Balance at March 31, 2004			93,615,896	$	280,501		10	$	—						$	(203,507	)				$	(7,385	)	$	69,609
Exercise of stock options			4,991,141		13,871																				13,871
Exercise of warrants			3,220,867		10,842																				10,842
Issuance to directors for services			15,804		137																				137
Modification of stock options			—		311																				311
Comprehensive income (loss):
Net income																20,281		$	20,281						20,281
	Foreign currency translation adjustments																		2,374			2,374			2,374
	Net unrealized loss on foreign exchange contracts																		(286	)		(286	)		(286	)

	Comprehensive income																	$	22,369						—

Balance at March 31, 2005			101,843,708	$	305,662		10	$	—						$	(183,226	)				$	(5,297	)	$	117,139
Exercise of stock options			23,916		61																				61
Issuance to directors for services			6,250		62																				62
Modification of stock options			—		27																				27
Issuance of restricted share units										$	2,099	$	(2,099	)											—
Comprehensive income (loss):
	Net loss															(21,819	)		(21,819	)					(21,819	)
	Foreign currency translation adjustments																		(831	)		(831	)		(831	)
	Net unrealized gain on foreign exchange contracts																		234			234			234

	Comprehensive loss																	$	(22,416	)					—

Balance at June 30, 2005			101,873,874	$	305,812		10	$	—	$	2,099	$	(2,099	)	$	(205,045	)				$	(5,894	)	$	94,873

Accumulated
Series B Other
Common Shares Preferred Shares Accumulated Comprehensive
Number Amount Number Amount Deficit Loss Total
(All amounts in thousands, except share amounts)
Balance at March 31, 2003 43,231,921 $ 159,549 10 $ — $ (108,350 ) $ (7,567 ) $ 43,632
Issuance of common shares 44,951,056 103,176 103,176
Exercise of stock options 955,562 2,609 2,609
Exercise of warrants 275,400 1,377 1,377
Modification of stock options — 1,740 1,740
Modification of warrants — 2,031 2,031
Redemption of Series A preferred shares — 566 566
Conversion of Series A preferred shares 4,201,957 9,453 9,453
Net loss available to common shareholders (95,157 ) (95,157 )
Foreign currency translation adjustments (440 ) (440 )
Net unrealized gain on foreign exchange contracts 622 622

Balance at March 31, 2004 93,615,896 280,501 10 — (203,507 ) (7,385 ) 69,609
Exercise of stock options 4,091,790 11,149 11,149
Exercise of warrants 3,220,867 10,842 10,842
Issued to directors for services 15,804 137 137
Modification of stock options — 227 227
Net income available to common shareholders 221 221
Foreign currency translation adjustments 3,497 3,497
Net unrealized gain on foreign exchange contracts 76 76

Balance at December 31, 2004 100,944,357 $ 302,856 10 $ — $ (203,286 ) $ (3,812 ) $ 95,758

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Three Months Ended			Three Months Ended
		June 30, 2005			June 30, 2004

		(Amounts in thousands)
Operating Activities:
Net loss		$	(21,819	)	$	(11,462	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation of property and equipment		748			675
	Amortization of deferred financing costs		898			838
	Amortization of films and television programs		65,376			60,225
	Amortization of intangible assets		548			548
	Non-cash stock-based compensation		89			—
	Interest rate swaps mark-to-market		337			(2,060	)
	Minority interests		—			(123	)
Changes in operating assets and liabilities:
	Decrease in restricted cash		1,945			—
	Accounts receivable, net		40,774			24,767
	Increase in investment in films and television programs		(69,195	)		(45,790	)
	Other assets		(140	)		87
	Accounts payable and accrued liabilities		9,114			(17,372	)
	Film obligations		15,247			22,412
	Deferred revenue		(13,755	)		6,662

Net Cash Flows Provided By Operating Activities			30,167			39,407

Investing Activities:
Cash received from sale of investment			2,011			—
Purchases of property and equipment			(629	)		(45	)

Net Cash Flows Provided By (Used In) Investing Activities			1,382			(45	)

Financing Activities:
Issuance of common shares			61			10,651
Financing fees			—			(346	)
Repayment of subordinated notes			(5,000	)		—
Decrease in bank loans			—			(34,285	)
Repayment of mortgages payable			(285	)		(241	)

Net Cash Flows Used In Financing Activities			(5,224	)		(24,221	)

Net Change In Cash And Cash Equivalents			26,325			15,141
Foreign Exchange Effects On Cash			(892	)		(171	)
Cash And Cash Equivalents — Beginning Of Period			112,839			7,089

Cash And Cash Equivalents — End Of Period		$	138,272		$	22,059

Nine Months Nine Months
Ended Ended
December 31, December 31,
2004 2003
(All amounts in thousands)
Operating activities:

Net income (loss) $ 221 $ (48,770 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of property and equipment 2,224 1,748
Amortization and write-off of deferred financing costs 5,998 3,284
Amortization of films and television programs 169,163 87,188
Amortization of intangible assets 1,644 —
Relocation costs — 2,131
Write-down of other assets — 8,064
Gain on disposition of assets (666 ) —
Interest rate swaps mark-to-market (2,408 ) (950 )
Non-cash stock-based compensation 364 1,064
Minority interests 2 —
Equity interests 200 1,959
Changes in operating assets and liabilities:
Increase in restricted cash (20,000 ) —
Accounts receivable, net 17,137 (5,034 )
Increase in investment in films and television programs (125,387 ) (100,976 )
Other assets (1,263 ) 3,968
Future income taxes — (2,214 )
Accounts payable and accrued liabilities (16,157 ) 8,334
Film obligations 51,555 (11,453 )
Deferred revenue 507 116

Net cash flows provided by (used in) operating activities
83,134 (51,541 )

Financing activities:

Issuance of common shares 21,991 104,589
Redemption of Series A preferred shares — (18,090 )
Dividends paid on Series A preferred shares — (254 )
Financing fees (1,077 ) (11,287 )
Increase (decrease) in bank loans (251,212 ) 82,507
Increase in subordinated notes, net of issue costs 145,390 56,663
Decrease in production loans — (1,273 )
Decrease in debt (1,585 ) (7,912 )

Net cash flows provided by (used in) financing activities
(86,493 ) 204,943

Investing activities:

Cash received from disposition of assets, net 1,172 —
Acquisition of Artisan Entertainment Inc, net of cash acquired — (149,559 )
Purchase of property and equipment (1,952 ) (445 )

Net cash flows used in investing activities
(780 ) (150,004 )

Net change in cash and cash equivalents
(4,139 ) 3,398
Foreign exchange effect on cash
2,189 (835 )
Cash and cash equivalents — beginning of period
7,089 6,851

Cash and cash equivalents — end of period
$ 5,139 $ 9,414

See accompanying notes.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS
~~1. Nature of Operations~~


1.	Nature of Operations

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

On December 15, 2003, the Company acquired Film Holdings Co., the parent company of Artisan Entertainment Inc. (“Artisan”) as described in note 8. The acquisition is included in the consolidated balance sheet and all operating results and cash flows have been included in the ~~unaudited condensed~~ consolidated statements of operations and cash flows from the acquisition date.

~~2. Basis of Presentation and Use of Estimates~~


2.	Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements include the accounts of Lions Gate and all of its majority-owned and controlled subsidiaries and consolidated variable interest entities, with a provision for minority interests.

~~Effective April 1, 2004, the~~

The condensed consolidated financial statements of the Company ~~are being~~have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Prior to April 1, 2004, the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”). Prior year comparative consolidated financial statements have been restated to conform to the current year presentation in accordance with U.S. GAAP. U.S. GAAP which conforms, in all material respects, with the accounting principles generally accepted in Canada (“Canadian ~~GAAP,~~GAAP”), except as described in note 15. ~~We will disclose and quantify material differences with Canadian GAAP in our interim and annual financial statements for two fiscal years from April 1, 2004.~~

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. or Canadian GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three ~~and nine~~ months ended ~~December 31, 2004~~June 30, 2005 are not necessarily indicative of the results that may be expected for the year ended March 31, ~~2005.~~2006. The balance sheet at March 31, ~~2004~~2005 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

The accompanying unaudited condensed consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2005.

Certain ~~reclassifications~~amounts presented for fiscal 2005 have been ~~made in the fiscal 2004 financial statements~~reclassified to conform to the fiscal ~~2005~~2006 presentation. ~~For further information, refer to the March 31, 2004 audited consolidated financial statements and footnotes, as converted to U.S. GAAP, and filed on Form 8-k on January 21, 2005.~~

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs for investment in films and television programs; estimates of sales returns, ~~and other allowances,~~ provision for doubtful accounts, fair value of assets and liabilities for allocation of the purchase price of companies acquired, ~~current and future~~ income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and television programs, property and equipment, goodwill and intangible ~~assets, other investments, recoverability of future income taxes and goodwill.~~assets. Actual results could differ from such estimates.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

Restricted Cash

Restricted cash represents an amount on deposit with a financial institution that is contractually designated for theatrical marketing expenses for a specific title. Refer to note 6 for the theatrical marketing obligation.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 123R.~~On October 13,~~ In December 2004, the ~~Financial Accounting Standards Board reached a conclusion on Statement 123R,~~FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)). ~~The Statement would require~~SFAS 123(R) revises SFAS No. 123 and eliminates the alternative to use the intrinsic method of accounting under APB No. 25. SFAS 123(R) requires all public companies accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments, to account for these types of transactions using a fair-value-based method. The Company currently accounts for share-based payments to employees using the intrinsic value method as set forth in APB No. 25 “Accounting for Stock Issued to ~~Employees”.~~Employees.” As such, the Company generally recognizes no compensation cost for employee stock options. SFAS No. 123(R) eliminates the alternative to use APB No. 25’s intrinsic value method of accounting. Accordingly, the adoption of ~~Statement 123R’s~~SFAS No. 123(R)’s fair value method will have an impact on our ~~result~~results of operations, although it will have no impact on our overall financial position. The impact of adoption of ~~Statement 123R~~SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted ~~Statement 123R~~SFAS No. 123(R) in prior periods, the impact ~~of that standard~~ would have approximated the impact of ~~Statement~~SFAS No. 123 as described in the disclosure of pro forma net income (loss) ~~available to common shareholders~~ and basic and diluted income (loss) per share in note 12. ~~Statement 123~~SFAS No. 123(R) permits companies to adopt its requirements using either a modified prospective method or a modified retrospective method. The Company has not yet determined which method it will utilize. The provisions of SFAS No. 123(R) are effective for financial statements with the first interim or annual reporting period beginning after June 15, 2005. However, the SEC announced on April 14, 2005 that it would provide for a phased-in implementation process for SFAS No. 123(R). As a result, the Company will not be required to apply ~~Statement 123R~~SFAS No. 123(R) until the period beginning ~~July~~April 1, ~~2005.~~2006.


3.	Investment in Films and Television Programs


	June 30,		March 31,
	2005		2005

	(Amounts in thousands)
Theatrical and Non-Theatrical Films
Released, net of accumulated amortization	$	105,229	$	113,536
Acquired libraries, net of accumulated amortization		107,465		109,805
Completed and not released		19,649		12,083
In progress		43,401		42,581
In development		2,613		2,302
Product inventory		25,289		26,029

		303,646		306,336

Direct-to-Television Programs
Released, net of accumulated amortization		24,069		21,098
In progress		37,094		39,221
In development		786		721

		61,949		61,040

	$	365,595	$	367,376

~~EITF Issue No. 04-8.~~During the three months ended December 31, 2004, the Company adopted EITF Issue No. 04-8 “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share”, which applied to reporting periods ending after the effective date of December 15, 2004. Under EITF Issue No. 04-8, all instruments that have embedded conversion features that are contingent on market conditions indexed to an issuer’s share price are included in diluted earnings per share computations (if dilutive) regardless of whether the market conditions have been met. On October 4, 2004, Lions Gate Entertainment Inc., a wholly owned subsidiary of the Company sold $150.0 million 2.9375% Convertible Senior Subordinated Notes (“2.9375% Notes”) with a maturity date of October 15, 2024. The 2.9375% Notes are convertible at the option of the holder, at any time prior to maturity, upon satisfaction of certain conversion contingencies, into common shares of Lions Gate Entertainment Corp. and therefore the 2.9375% Notes would be included in diluted earnings per share computations for the three and nine months ended December 31, 2004 (if dilutive).8

~~3. Investment in Films and Television Programs~~

December 31, March 31,
2004 2004
(Amounts in thousands)
Theatrical and Non-Theatrical Films

Released, net of accumulated amortization $ 133,122 $ 111,242
Acquired libraries, net of accumulated amortization 116,127 128,559
Completed and not released 8,762 63,158
In progress 32,690 22,347
In development 2,002 1,230
Product inventory 25,244 26,957

317,947 353,493

Direct-to-Television Programs

Released, net of accumulated amortization 23,710 17,640
In progress 24,029 34,250
In development 779 787

48,518 52,677

$ 366,465 $ 406,170

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

Acquired libraries of ~~$116.1~~$107.5 million at ~~December 31, 2004~~June 30, 2005 (March 31, ~~2004~~2005 — ~~$128.6~~$109.8 million) include the Trimark library acquired October 2000 and the Artisan library acquired on December ~~15,~~ 2003 (refer to note 8). The Trimark library is amortized over its expected revenue stream for a period of ~~twenty~~20 years from the acquisition date. The remaining amortization period on the Trimark library as at ~~December 31, 2004~~June 30, 2005 is ~~fifteen and three quarter~~15.25 years on unamortized costs of ~~$23.6~~$21.8 million. The Artisan library includes titles released at least three years prior to ~~the date of acquisition, which totaled $98.5 million at~~ the date of acquisition and is amortized over its expected revenue stream for a period of up to ~~twenty~~20 years from the date of acquisition. The remaining amortization period on the Artisan library at ~~December 31, 2004~~June 30, 2005 is ~~nineteen~~18.5 years on unamortized costs of ~~$92.5~~$85.7 million.

The Company expects approximately ~~48%~~37% of completed films and television programs, net of accumulated amortization, will be amortized during the one-year period ending ~~December 31, 2005, and approximately 88% of accrued participants’ share will be paid during the one-year period ending December 31, 2005.~~

June 30, 2006. Additionally, the Company expects approximately ~~82%~~81% of completed and released films and television programs, ~~excluding acquired libraries,~~ net of accumulated amortization and excluding acquired libraries, will be amortized during the ~~three-year~~three year period ending ~~December 31, 2007.~~

~~4. Other Assets~~June 30, 2008.

December 31, March 31,
2004 2004
(Amounts in thousands)
Deferred financing costs, net $ 13,756 $ 14,181
Prepaid expenses and other 5,941 4,230
Intangible assets, net 2,726 4,370
Deferred print costs 445 933

$ 22,868 $ 23,714

4. Other Assets


	June 30,		March 31,
	2005		2005

	(Amounts in thousands)
Deferred financing costs, net	$	18,024	$	18,882
Prepaid expenses and other		7,412		8,148
Other investments		3,197		250
Intangible assets, net		2,784		2,178

	$	31,417	$	29,458

Deferred ~~financing costs.~~Financing Costs.Deferred financing costs primarily include costs incurred in connection with the credit facility (see note 5), and the issuance of the 4.875% Notes, the 2.9375% Notes and the ~~2.9375%~~3.625% Notes (see note 7) and are deferred and amortized to interest expense.

Intangible Assets.Intangible assets acquired in connection with the purchase of Artisan of $5.1 million represent distribution and personal service agreements and are amortized over a period of two to four years from the date of acquisition. ~~For the three and nine months ended December 31, 2004,~~Amortization expense of $0.5 ~~million and $1.6~~ million amortization was ~~recorded.~~recorded for the three months ended June 30, 2005 (2004 — $0.5 million). In June 2005, the Company acquired all of the publishing assets of a music publishing company, for a total purchase price of $1.2 million in cash. The publishing rights are amortized over a three-year period from the date of acquisition. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for each of the succeeding years is ~~$2.2~~$1.6 million, ~~for the year ended December 31, 2005~~$0.7 million and $0.5 million for the ~~year ended December~~years ending June 30, 2006, 2007 and 2008, respectively.


	Other Investments.

Maple Pictures Corp: On April 8, 2005, Lions Gate entered into library and output agreements with Maple Pictures Corp. (“Maple Pictures”), a Canadian corporation, for the distribution of Lions Gate’s motion picture, television and home video product in Canada. As part of this transaction, Maple Pictures purchased a majority of the Company’s interest in Christal Distribution, a number of production entities and other Lions Gate distribution assets in Canada. Maple Pictures was formed by two former Lions Gate executives and a third-party equity investor. Lions Gate also acquired a minority interest in Maple Pictures.

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

As a result of these transactions with Maple Pictures, Lions Gate recorded an investment in Maple Pictures of $2.2 million as of June 30, 2005 in other assets in the condensed consolidated balance sheet. The Company is accounting for the investment in Maple Pictures using the equity method.

Christal: At March 31, ~~2006.~~

~~5. Bank Loans~~

2005, the Company had a 75% economic interest and a 30% voting interest in Christal Distribution (“Christal”), a film distributor and sub-distributor in Quebec, Canada. Through March 31, 2005 the Company was the primary beneficiary of Christal under FIN 46 and accordingly the Company consolidated Christal as at March 31, 2005. In connection with the Maple Pictures transaction discussed above, the Company sold the majority of its interest in Christal to Maple Pictures and the remainder of its interest was repurchased by Christal. As a result of the sale and repurchase of the interests, effective April 8, 2005, the Company no longer consolidated Christal and recorded amounts owing from Christal of $0.5 million, net of amounts payable to Christal, as of June 30, 2005 in other assets in the condensed consolidated balance sheet.


5.	Bank Loans

The Company entered into a $350 million credit facility in December 2003 consisting of a $200 million U.S. dollar-denominated revolving credit facility, a $15 million Canadian dollar-denominated revolving credit facility and a $135 million U.S. dollar-denominated term-loan. On October 4, 2004, the Company sold $150.0 million 2.9375% Notes and received $146.0 million of net proceeds after paying placement agents’ fees and offering expenses. In anticipation of the proceeds from the 2.9375% Notes, the Company repaid $60 million of term loan with the revolving credit facility on September 30, 2004 and on October 4, 2004 used the proceeds from the 2.9375% Notes to partially repay the revolving credit facility. Therefore, on September 30, 2004, the term loan was reduced to $75 million and the credit facility to $290 million. OnBy December 31, 2004, the Company had repaid the term loan in full, ~~with the revolving credit facility,~~ thereby reducing the credit facility to $215 million at ~~December~~March 31, ~~2004. The repayment of the term loan resulted in the write-off of deferred financing fees of $3.4 million on the term loan portion of~~2005. Effective March 31, 2005, the credit facility ~~which is recorded as interest expense.~~was amended to eliminate the $15 million Canadian dollar-denominated revolving credit facility and increase the U.S. dollar-denominated revolving credit facility by the same amount. At ~~December 31, 2004,~~June 30, 2005, the Company had ~~borrowed $73.4 million~~no borrowings (March 31, ~~2004~~2005 — ~~$324.7 million)~~nil) under the credit facility. The credit facility expires ~~December~~ December»31, 2008 and bears interest at 2.75% over the Adjusted LIBOR or ~~the Canadian Bankers Acceptance rate, or~~ 1.75% over the U.S. ~~or Canadian~~ prime ~~rates.~~rate. The availability of funds under the credit facility is limited by the borrowing base, which is calculated on a monthly basis. The borrowing base assets at ~~December 31, 2004~~June 30, 2005 totaled ~~$390.5~~ $388.6»million (March 31, ~~2004~~2005 — ~~$390.9~~$405.1 million)~~. At December 31, 2004,~~ and therefore the ~~revolving~~full $215 million is available under the credit facility had an average variable interest rate of 5.20% on principal of $73.4 million under the U.S. dollar credit facility. The Company had not drawn on the Canadian dollar credit facility as of December 31, 2004.at June 30, 2005. The Company is required to pay a monthly commitment fee of 0.50% per annum on the total credit facility of $215 million less the amount drawn. Right, title and interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc., the Company’s wholly-owned subsidiary, is being pledged as security for the credit facility. The credit facility is senior to the Company’s film obligations, subordinated notes and mortgages payable. The credit facility restricts the Company from paying cash dividends on its common shares. The Company entered into a $100 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than 5.0%. Fair market value of the interest rate swap at ~~December 31, 2004~~June 30, 2005 is negative $0.1 million (March 31, ~~2004~~2005 — negative ~~$2.3~~$0.1 million). ~~The~~Changes in the fair value representing a fair valuation ~~gains for~~loss on the interest rate swap during the three ~~and nine~~ months ended ~~December 31, 2004~~June 30, 2005 amount to less than $0.1 million (2004 — gain of $1.6 million) and are ~~$0.5 million and $2.2 million, respectively (2003 — gains~~included in the condensed consolidated statements of ~~$0.7 million and $1.0 million, respectively).~~operations.

The Company also has a $2.5 million operating line of credit available to a subsidiary, which is renewable annually. At December 31, 2004, $1.7 million (March 31, 2004 — $1.5 million) was drawn on the operating line of credit.

~~6. Film Obligations~~LIONS GATE ENTERTAINMENT CORP.

December 31, March 31,
2004 2004
(Amounts in thousands)
Minimum guarantees $ 7,933 $ 10,704
Minimum guarantees initially incurred for a term of more than one year 20,094 16,189
Participation and residual costs 107,198 79,034
Theatrical marketing 19,290 —
Film productions 14,291 8,141

$ 168,806 $ 114,068

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


6.	Film Obligations


	June 30,		March 31,
	2005		2005

	(Amounts in thousands)
Minimum guarantees	$	7,014	$	5,210
Minimum guarantees initially incurred for a term of more than one year		16,081		18,081
Participation and residual costs		104,866		95,650
Theatrical marketing		1,605		1,665
Film productions		14,622		10,164

	$	144,188	$	130,770

The Company expects approximately 63% of accrued participants’ shares will be paid during the one-year period ending June 30, 2006.

Refer to note 2 for restricted cash contractually designated for the theatrical marketing obligation.


7.	Subordinated Notes

3.625% Notes. In February 2005, Lions Gate Entertainment Inc. sold $150.0 million of 3.625% Convertible Senior Subordinated Notes. In connection with this sale, Lions Gate Entertainment Inc. granted the initial purchasers of the 3.625% Notes an option to purchase up to an additional $25.0 million of the 3.625% Notes for 13 days. The fair value of this option was not significant. The initial purchasers exercised this option in February 2005 and purchased an additional $25 million of the 3.625% Notes. The Company received $170.2 million of net proceeds after paying placement agents’ fees from the sale of $175.0 million of the 3.625% Notes. The Company also paid $0.6 million of offering expenses incurred in connection with the 3.625% Notes. Interest on the 3.625% Notes is payable semi-annually on March 15 and September 15 commencing on September 15, 2005. After March 15, 2012, interest will be 3.125% per annum on the principal amount of the 3.625% Notes, payable semi-annually on March 15 and September 15 of each year. The 3.625% Notes mature on March 15, 2025. Lions Gate Entertainment Inc. may redeem all or a portion of the 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption.

The holders may require Lions Gate Entertainment Inc. to repurchase the 3.625% Notes on March 15, 2012, 2015 and 2020 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase. Under certain circumstances, if the holders require Lions Gate Entertainment Inc. to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the common shares of the Company on the effective date of the change in control. No make whole premium will be paid if the price of the common shares of the Company is less than $10.35 per share or if the price of the common shares of the Company exceeds $75.00 per share.

The 3.625% Notes are convertible, at the option of the holder, at any time before the close of business on or prior to the trading day immediately before the maturity date, if the notes have not been previously redeemed or repurchased, at a conversion rate of 70.0133 shares of the Company per $1,000 principal amount of the 3.625% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $14.28 per share. Upon conversion of the 3.625% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company. The holder may convert the 3.625% Notes into common shares of the Company prior to maturity if the notes have been called for redemption, a change in control occurs or certain corporate transactions occur. In addition, under certain

~~7. Subordinated~~11

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

circumstances, if the holder converts their notes upon a change in control they will be entitled to receive a make whole premium.

2.9375% Notes

. In October 2004, ~~the Company~~Lions Gate Entertainment Inc. sold $150.0 million of 2.9375% Convertible Senior Subordinated Notes. The Company received $146.0 million of net proceeds after paying placement agents’ fees ~~and~~from the sale of $150.0 million of the 2.9375% Notes. The Company also paid $0.7 million of offering ~~expenses.~~expenses incurred in connection with the 2.9375% Notes. Interest on the 2.9375% Notes is payable semi-annually on April 15 and October 15 commencing on April 15, 2005 and the 2.9375% Notes mature on October 15, 2024. ~~The Company~~From October 15, 2009 to October 14, 2010, Lions Gate Entertainment Inc. may redeem ~~all or a portion of~~ the 2.9375% Notes at ~~its option on or after~~100.839%; from October 15, ~~2009~~2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at ~~100% of their principal amount, together with accrued~~100.420%; and ~~unpaid interest through the date of redemption.~~

thereafter at 100%.

The ~~holder~~holders may require ~~the Company~~Lions Gate Entertainment Inc. to repurchase the ~~notes~~2.9375% Notes on October 15, 2011, 2014 and 2019 or upon a change in control at a price equal to 100% of the principal amount, together with accrued and unpaid interest through the date of repurchase. Under certain circumstances, if the ~~holder requires the Company~~holders require Lions Gate Entertainment Inc. to repurchase all or a portion of their notes upon a change in control, they will be entitled to receive a make whole premium. The amount of the make whole premium, if any, will be based on the price of the common shares of the Company on the effective date of the change in control. No make whole premium will be paid if the price of the common shares of the Company is less than $8.79 per share or if the price of the common shares of the Company exceeds $50.00 per share. ~~The fair value of the make whole premium at December 31, 2004 was zero.~~

The holder may convert the ~~notes~~2.9375% Notes into common shares of the Company prior to maturity only if the price of the common shares of the Company issuable upon conversion of a note reaches a specified threshold over a specified period, the trading price of the notes falls below certain thresholds, the notes have been called for redemption, a change in control occurs or certain corporate transactions occur. In addition, under certain circumstances, if the holder converts their notes upon a change in control they will be entitled to receive a make whole premium. Before the close of business on or prior to the trading day immediately before the maturity date if the notes have not been previously redeemed or repurchased, the holder may convert the notes into common shares of the Company at a conversion rate of 86.9565 shares per $1,000 principal amount of the 2.9375% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $11.50 per share.

4.875% Notes. In December 2003, ~~the Company~~Lions Gate Entertainment Inc. sold $60.0 million of 4.875% Convertible Senior Subordinated ~~Notes (“4.875% Notes”).~~Notes. The Company received $57.0 million of net proceeds after paying placement agents’ fees ~~and~~from the sale of $60.0 million of the 4.875% Notes. The Company also paid $0.7 million of offering ~~expenses.~~expenses incurred in connection with the 4.875% Notes. Interest on the 4.875% Notes is due semi-annually on June 15 and December 15 commencing on June 15, 2004 and the 4.875% Notes mature on December 15, 2010. ~~The Company~~Lions Gate Entertainment Inc. may redeem all or a portion of the 4.875% Notes at its option on or after December 15, 2006 at 100% of their principal amount, together with accrued and unpaid interest through the date of redemption; provided, however, that the 4.875% Notes will only be redeemable if the closing price of the Company’s common shares equals or exceeds 175% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the day before the date of the notice of optional redemption.

The 4.875% Notes are convertible, at the option of the holder, at any time before the close of business on or prior to the ~~business~~trading day immediately ~~preceding~~before the maturity date ofif the ~~4.875% Notes, unless~~notes have not been previously redeemed ~~into common shares of the Company~~or repurchased at a conversion rate of 185.0944 shares of the Company per $1,000 principal amount of the 4.875% Notes, subject to adjustment in certain circumstances, which is equal to a conversion price of approximately $5.40 per share. Upon conversion of the 4.875% Notes, the Company has the option to deliver, in lieu of common shares, cash or a combination of cash and common shares of the Company. The holder may

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

convert the 4.875% Notes into common shares of the Company prior to maturity if the notes have been called for redemption, a change in control occurs or certain corporate transactions occur.

Promissory Note. On December 15, 2003, the Company assumed, as part of the purchase of Artisan, a $5.0 million subordinated promissory note to Vialta, Inc (“Promissory Note”) issued by Artisan which bears interest at 7.5% per annum compounded quarterly. The Promissory Note ~~matures on~~matured and was paid during April 1, 2005.

~~8. Acquisitions~~


8.	Acquisitions

On December 15, 2003, the Company completed its acquisition of Film Holdings Co., the parent company of Artisan, an independent distributor and producer of film and entertainment content, for a total purchase price of $168.9 million consisting of $160.0 million in cash and direct transaction costs of $8.9 million. In addition, the Company assumed debt of $59.9 million and other obligations (including accounts payable and accrued liabilities, film obligations and other advances) of ~~$145.3~~$144.0 million. Direct transaction costs are considered liabilities assumed in the acquisition, and as such, are included in the purchase price. Direct transaction costs include: amounts totaling $3.9 million paid to lawyers, accountants and other consultants; involuntary termination benefits totaling $4.9 million payable to certain Artisan employees terminated under a severance plan and various other amounts totaling $0.1 million. At ~~December~~June 30, 2005 and March 31, ~~2004,~~2005, the remaining liabilities under the severance plan ~~are $0.4 million.~~

were nil and $0.2 million, respectively, and included in accounts payable and accrued liabilities in the condensed consolidated balance sheets.

The purchase price may be adjusted for the payment of additional consideration of up to $7.5 million contingent upon the results of specified feature films. At ~~December 31, 2004,~~June 30, 2005, the contingent consideration cannot be reasonably estimated. When the contingency is resolved and if additional consideration becomes payable, the consideration will be recognized as an additional cost of the purchase.

The acquisition was accounted for as a purchase, with the results of operations of Artisan consolidated from December 15, 2003. Goodwill of $136.5 million represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired. The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values was as follows:

(Amounts in
thousands)

Cash and cash equivalents $ 19,946
Accounts receivable, net 37,842
Investment in films and television programs 170,224
Intangible assets 5,100
Other tangible assets acquired 4,471
Goodwill 136,518
Bank loans (54,900 )
Subordinated note (5,000 )
Other liabilities assumed (145,264 )

Total $ 168,937

During the three months ended December 31, 2004, the allocation of the purchase price was adjusted resulting in a decrease in other liabilities of $2.3 million and a decrease in goodwill of $2.3 million.

Severance and relocation costs incurred by Lions Gate, associated with the acquisition of Artisan, are not included in the purchase price and, as such, were recorded in the consolidated ~~statements~~statement of operations ~~during fiscal~~for the year ended March 31, 2004. Severance and relocation costs of $5.6 million included property lease abandonment costs of $2.5 million, the write-off of capital assets no longer in use of $2.1 million and severance of $1.0 million. At ~~December~~June 30, 2005 and March 31, ~~2004~~2005, the remaining liabilities under the severance plan ~~and~~are nil. At June 30, 2005, the remaining liabilities for the property lease abandonment are ~~nil and~~ $1.7 million ~~respectively.~~(March 31, 2005 — $1.7 million) and are included in accounts payable and accrued liabilities in the condensed consolidated balance sheets.


9.	Direct Operating Expenses


	Three Months Ended		Three Months Ended
	June 30, 2005		June 30, 2004

	(Amounts in thousands)
Amortization of films and television programs	$	65,376	$	60,225
Participation and residual expense		33,076		20,887
Amortization of acquired intangible assets		548		548
Other expenses		1,264		(850	)

	$	100,264	$	80,810

~~9. Direct Operating Expenses~~

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands)
Amortization of films and television programs $ 44,793 $ 31,418 $ 169,163 $ 87,188
Participation and residual expense 38,723 7,709 89,500 21,370
Other expenses (1,055 ) 3,408 (53 ) 4,573

$ 82,461 $ 42,535 $ 258,610 $ 113,131

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

Other expenses include direct operating expenses related to the studio facility ~~amortization of intangible assets~~ and provision for doubtful accounts. ~~The negative other~~Other expenses for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2004 ~~are primarily due to~~include a reduction in ~~our~~

the provision for doubtful ~~accounts as a result of a reclassification to sales allowances, which are reflected as a reduction of revenue, and due to the collection of accounts receivable that were previously reserved.~~

~~10. Comprehensive Income (Loss)~~accounts.

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands)
Net income (loss) $ 3,353 $ (35,744 ) $ 221 $ (48,770 )
Add (deduct): Foreign currency translation adjustments 1,979 (362 ) 3,497 171
Add: Net change in unrealized gain on foreign exchange contracts 442 — 76 —

Comprehensive income (loss) $ 5,774 $ (36,106 ) $ 3,794 $ (48,599 )

10. Comprehensive Loss

Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004

(Amounts in thousands)
Net loss $ (21,819 ) $ (11,462 )
Less: Foreign currency translation adjustments (831 ) (1,153 )
Less: Net unrealized gain (loss) on foreign exchange contracts 234 (645 )

Comprehensive loss $ (22,416 ) $ (13,260 )


11.	Loss Per Share

The Company calculates earnings per share in accordance with SFAS No. 128, “Earnings Per Share”. Basic ~~and Diluted Income (Loss) per Common Share~~

~~Basic income (loss)~~loss per share is calculated ~~after adjusting net income (loss)~~based on the weighted average common shares outstanding for ~~modification~~the period. Diluted earnings per share includes the impact of the convertible senior subordinated notes, share purchase warrants, stock options and ~~dividends and accretion on Series A preferred shares and~~restricted share units, if dilutive.


		Three Months Ended			Three Months Ended
		June 30, 2005			June 30, 2004

		(Amounts in thousands, except
		per share amounts)
Basic loss per common share is calculated as follows:
Numerator:
	Net loss	$	(21,819	)	$	(11,462	)

Denominator:
	Weighted average common shares outstanding		101,852			94,921

Basic and diluted loss per common share		$	(0.21	)	$	(0.12	)

Basic loss per share is calculated using the weighted average number of common shares outstanding during the three ~~and nine~~ months ended ~~December 31,~~June 30, 2005 and 2004 of ~~98,119,000~~101,852,000 shares and ~~96,437,000~~94,921,000 shares, ~~respectively (2003 — 84,375,000~~respectively. The exercise of common share equivalents including stock options, share purchase warrants, the conversion features of the 4.875% Notes, 2.9375% Notes and ~~63,646,000 shares, respectively).~~

Three Months Nine Months
Ended Ended
December 31, December 31,
2004 2004
(Amounts in (Amounts in
thousands, except thousands, except
per share amounts) per share amounts)
Diluted income per common share is calculated as follows:
Numerator:
Net income available to common shareholders $ 3,353 $ 221

Denominator:
Weighted average common shares outstanding 98,119 96,437
Share purchase options 5,287 5,216
Share purchase warrants 1,548 1,206

Adjusted weighted average common shares outstanding 104,954 102,859

Diluted income per common share $ 0.03 $ 0.00

~~The~~3.625% Notes and restricted share units could potentially dilute income (loss) per share in the future, but were not reflected in diluted loss per share during the periods presented because to do so would be anti-dilutive. Under the “if converted” method of calculating diluted earnings per share, the share purchase options, ~~and~~the restricted share units, the share purchase warrants ~~are included~~and the convertible senior subordinated notes, if outstanding, were anti-dilutive in each of the periods presented and were not reflected in diluted income per share under the treasury method. The shares issuable on the potential conversion of the 4.875% Notes and 2.9375% Notes are not included in diluted income per share as they are anti-dilutive.

During the three months ended December 31, 2004, the Company amended the outstanding warrants to allow the holders, at their option, to exercise by cashless exercise. Each warrant may be exchanged for common shares in the Company determined by taking the difference in the market price of the Company’s shares (defined as the average closing trading priceloss per common ~~share for the twenty consecutive trading~~

share.

days ending on the third day before the exercise date) less the exercise price of $5.00 and dividing this number by the market price. During December 2004, 1,993,250 warrants were exercised by cashless exercise resulting in the issuance of 1,052,517 common shares. As of December 31, 2004, 1,088,000 warrants remain outstanding.


12.	Accounting for Stock Based Compensation

The ~~warrants expired January 1, 2005.~~

~~12. Accounting for Stock Based Compensation~~

~~The~~ Company ~~has~~ elected to use the intrinsic value method in accounting for ~~stock-based~~stock based compensation as set forth in APB No. 25, “Accounting for Stock Issued to ~~Employees”, as permitted by Statement 123 “Accounting for Stock-based Compensation.~~Employees.” In accordance with ~~Statement of Financial Accounting Standards (“SFAS”)~~SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS No. 123”, the following disclosures are provided about the costs of stock-based compensation awards

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

using the fair value method for companies that elect to use the intrinsic value method. ~~Refer to note 2~~See Recent Accounting Pronouncements for ~~discussion of Statement 123R “Share-Based Payment” which the Company will be required to apply beginning July 1, 2005.~~

SFAS 123(R).

The weighted average estimated fair value of each stock option granted in the three ~~and nine~~ months ended ~~December 31, 2004~~June 30, 2005 was ~~$3.31 and $2.64 respectively (2003 — $1.22 and $0.79, respectively).~~$3.61. No stock options were granted during the three months ended June 30, 2004. The total ~~stock~~stock-based compensation expense for disclosure purposes for the three ~~and nine~~ months ended ~~December 31, 2004,~~June 30, 2005, based on the fair value of the stock options granted, ~~would be $0.5~~was $0.6 million (2004 — $0.2 million) and ~~$1.4~~the fair value of stock option modifications was less than $0.1 million ~~respectively (2003~~(2004 — ~~$0.3 million and $0.9 million, respectively)~~nil).

For disclosure purposes the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for stock options granted: a dividend yield of 0%, expected volatility of ~~30% (2003~~33% (2004 — 30%), risk-free interest rate of ~~3.8 % (2003~~4.0% (2004 — ~~2.6%~~3.8%) and expected life of five years.

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands, except per share amounts)
The resulting pro forma basic income (loss) per common share is calculated as follows:
Numerator:
Net income (loss) available to common shareholders $ 3,353 $ (37,914 ) $ 221 $ (51,696 )
Add: stock-based compensation expense recorded — 878 227 1,064
Less: stock-based compensation expense calculated using fair value method (529 ) (740 ) (1,618 ) (1,542 )

Adjusted net income (loss) available to common shareholders $ 2,824 $ (37,776 ) $ (1,170 ) $ (52,174 )

Denominator:
Weighted average common shares outstanding (thousands) 98,119 84,375 96,437 63,646

Adjusted basic and diluted income (loss) per common share $ 0.03 $ (0.45 ) $ (0.01 ) $ (0.82 )

~~During the nine months ended December 31, 2004 two employees of the Company terminated their employment but continued to provide services as consultants. These employees had been granted 150,000~~ The following pro forma basic and diluted income (loss) per common share includes stock-based compensation expense for stock options ~~66,668 of which had not vested~~issued and modified, as of the date of the change in employment status. The terms of the stock options require the grants to be forfeited upon change in status; however, the Company modified the terms to permit the two individuals to continue to vest in the options. The modified stock options that have not vested are accounted for prospectively as entirely new grants. Additional expense was recognized under the fair value method because the individuals are now non-employees. The fair value method resulted in additional compensation expense during the three and nine months ended December 31, 2004 of nil and $0.2 million, respectively. As of December 31, 2004, 16,667 of these stock options had not yet vested. The options will continue to be re-valued at each reporting date until the options fully vest.

During the three months ended September 30, 2003, the Company modified the terms of 3,048,000 options of certain officers of the Company, extending the expiry dates to coincide with their employment contract dates. The vesting period and exercise prices were unchanged.
~~Intrinsic value:~~The modification of these options is treated as an exchange of the original award for a new award and the resulting expense is recorded as stock-based compensation in general and administration expenses in the consolidated statement of operations. The additional compensation cost for the three and nine months ended December 31, 2003 is $0.4 million and $0.5 million, respectively, and is calculated by multiplying the market price on the date of the modification times the number of options vested less the original exercise price times the number of options vested. The additional compensation cost is attributed over the remaining

described above:


		Three Months Ended			Three Months Ended
		June 30, 2005			June 30, 2004

		(Amounts in thousands, except
		per share amounts)
The resulting pro forma basic loss per common share is calculated as follows:
Numerator:
	Net loss	$	(21,819	)	$	(11,462	)
	Add: stock-based compensation expense calculated using intrinsic value method		27			—
	Less: stock-based compensation expense calculated using fair value method		(602	)		(238	)

	Adjusted net loss	$	(22,394	)	$	(11,700	)

Denominator:
	Weighted average common shares outstanding		101,852			94,921

Adjusted basic and diluted loss per common share		$	(0.22	)	$	(0.12	)

~~service period. In the case of the options modified the options which are fully vested have no additional service requirements and the additional compensation is expensed immediately.~~
~~Fair value:~~For disclosure purposes, under the fair value method, the value of the new award is measured as the fair value at the date the new award is granted and the value of the old award is its fair value immediately before its terms were modified. The additional compensation cost for the incremental fair value of the new award plus unallocated compensation costs for the old award is attributed over the remaining service period. In the case of the options modified the total additional compensation to be expensed over the service period for the three and nine months ended December 31, 2003 is $0.4 million and $0.6 million, respectively. At December 31, 2003, there are no additional service requirements on these options and the incremental fair value relating to these options of $0.4 million and $0.6 million for the three and nine months ended December 31, 2003, respectively, would be expensed for disclosure purposes immediately.

During the three months ended December 31, 2003, the Company modified the terms of 250,000 options of a certain past director of the Company, amending the price of the options to be consistent with those granted to other Directors. The expiry date and vesting period were unchanged.
~~Intrinsic value:~~The modification of these options is treated as an exchange of the original award for a new award. The additional compensation cost at the date of modification is calculated by multiplying the market price on the date of the modification times the number of options vested less the original exercise price times the number of options vested. The market price on the date of the modification was less than the exercise price resulting in no additional compensation cost. The options are valued using variable accounting for stock-based compensation until they are exercised, forfeited or expire. The additional compensation cost for the three and nine months ended December 31, 2003 is $0.5 million.
~~Fair value:~~For disclosure purposes, under the fair value method, the value of the new award is measured as the fair value at the date the new award is granted and the value of the old award is its fair value immediately before its terms were modified. The additional compensation cost for the incremental fair value of the new award plus unallocated compensation costs for the old award is attributed over the remaining service period. In the case of the options modified, the total additional compensation to be expensed over the service period is not material. At December 31, 2003, there are no additional service requirements on these options and the incremental fair value relating to these options, which is not material, would be expensed for disclosure purposes for the three and nine months ended December 31, 2003.

Options were granted to a certain employee of the Company with an exercise price determined at a future date. These options are valued using variable accounting for stock-based compensation and the resulting expense is recorded as stock-based compensation in general and administration expenses in the consolidated statements of operations. The additional compensation cost for the three and nine months ended December 31, 2003 of $0.1 million is calculated by multiplying the market price on December 31, 2003 times the number of options vested less the market price on the date the options were granted times the number of options vested. The additional compensation cost is expensed in the current reporting period and adjusted each reporting period until such time as the exercise price is determined.

On November 13, 2001, the Board of Directors of the Company resolved that 750,000 options, granted to certain officers of the Company to purchase common shares of the Company, be revised as stock appreciation rights (“~~SARs”~~SAR’s”) which entitle the holders to receive cash only and not common shares. The amount of cash received will be equal to the amount by which the trading price of common shares on the exercise notice date exceeds the ~~SARs~~SARs’ price of $5.00 multiplied by the number of options exercised. Any twenty-day average trading price of common shares prior to the exercise notice date has to be $6.00 or above in order for the officers to exercise their SARs. These SARs are not considered part of the Employees’ and Directors’ Equity Incentive Plan. The Company measures compensation expense as the amount by which the market value of common shares exceeds the ~~SARs~~SARs’ price. At ~~December 31, 2004,~~June 30, 2005, the market price of common shares was ~~$10.62~~$10.26 (March 31, 2005 — $11.05; June 30, 2004 — $6.98) and the SARs had all vested. ~~The~~Due to the reduction in the market price of its common shares, the Company recorded ~~stock~~a reduction in stock-based compensation expense in the amount of ~~$1.5 million and $3.3~~$0.6 million in general and administration expenses in the ~~unaudited~~ condensed consolidated statement of operations for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2005 (June 30, 2004 ~~respectively (2003~~ — ~~nil)~~expense of $0.5 million). The expense is calculated by using the market price of common shares on ~~December 31, 2004~~June 30, 2005 less the ~~SARs~~SARs’ price, multiplied by the 750,000 SARs vested. At ~~December 31, 2004,~~June 30, 2005, the Company has a stock-based compensation

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

accrual in the amount of ~~$4.2~~$3.9 million (March 31, ~~2004~~2005 — ~~$0.9~~$4.5 million) included in accounts payable and accrued liabilities on the condensed consolidated balance sheets relating to these SARs.

On February 2, 2004, an officer of the Company was granted 1,000,000 SARs, which entitle the officer to receive cash only, and not common shares. The amount of cash received will be equal to the amount by which the trading price of common shares on the exercise notice date exceeds the ~~SARs~~SARs’ price of $5.20 multiplied by the number of SARs exercised. The SARs vest one quarter immediately on the award date and one quarter on each of the first, second and third anniversaries of the award date. These SARs are not considered part of the Employees’ and Directors’ Equity Incentive Plan. Applying FIN 28 “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans”, the Company is accruing compensation expense over the service period,

which is assumed to be the three year vesting period, using a graded approach and measures compensation cost as the amount by which the market value of common shares exceeds the ~~SARs~~SARs’ price times the SARs assumed to have vested under the graded approach. At ~~December 31, 2004,~~June 30, 2005, the market price of common shares was ~~$10.62. The~~$10.26 (March 31, 2005 — $11.05; June 30, 2004 — $6.98). Due to the reduction in the market price of its common shares, the Company recorded a reduction in stock-based compensation expense ~~related to these SARs~~ in the amount of ~~$1.8 million and $3.7~~$0.2 million in general and administration expenses in the ~~unaudited~~ condensed consolidated statement of operations for the three months ~~and nine months~~ ended ~~December 31,~~June 30, 2005 (June 30, 2004 ~~(2003~~ — ~~nil)~~expense of $0.8 million). During the ~~three months~~year ended ~~December~~March 31, ~~2004~~2005 the officer exercised 150,000 of the vested SARs and the Company paid $0.9 million. The ~~amount paid is included in the $3.7 million for the nine months ending December 31, 2004 and reduced the accrued liability. The~~ total expense is calculated by using the market price of common shares on ~~December 31, 2004~~June 30, 2005 less the ~~SARs~~SARs’ price, multiplied by the remaining ~~517,302~~793,032 SARs assumed to have vested ~~and adding the actual expense of $0.9 million for~~less the 150,000 SARs exercised. At ~~December 31, 2004,~~June 30, 2005, the Company has a stock-based compensation accrual in the amount of ~~$2.8~~$3.3 million (March 31, 2005 — $3.5 million) included in accounts payable and accrued liabilities on the condensed consolidated balance sheets relating to these SARs.

~~On October 13, 2004,~~

Effective June 27, 2005, the ~~Financial Accounting Standards Board reached a conclusion~~Company entered into restricted share unit agreements with certain employees and awarded 198,000 restricted common share units. Upon issuance of the restricted common share units, an unamortized compensation expense equivalent to the market value of the common shares on ~~Statement 123R, “Share-Based Payment”. (see Note 2)~~the date of grant was charged to shareholders’ equity as unearned compensation. This unearned compensation will be amortized over the three-year vesting period. The ~~adoption~~market value of ~~Statement 123R’s fair value method will have an impact~~the units granted was $10.60 per unit on the date of grants. Compensation expense related to these restricted common share units was insignificant to our ~~result~~condensed consolidated statement of operations although it will have no impact on our overall financial position. The impact of adoption of Statement 123R cannot be predicted at this time because it will depend on levels of share-based payments granted infor the ~~future. The Company will be required to apply Statement 123R beginning July 1,~~three months ended June 30, 2005.

~~13. Segment Information~~


13.	Segment Information

SFAS No. 131 “Disclosures About Segments of an Enterprise and Related Information” requires the Company to make certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct nature of their operations and each segment is a strategic business unit that offers different products and services and is managed separately. The Company evaluates performance of each segment using segment profit (loss) as defined below. The Company has three reportable business segments: Motion Pictures, Television and Studio Facilities.

Motion Pictures consists of the development and production of feature films; acquisition of North American and worldwide distribution rights; North American theatrical, home entertainment and television distribution of feature films produced and acquired and worldwide licensing of distribution rights to feature films produced and acquired.

Television consists of the development, production and worldwide distribution of television productions including television series, television movies and mini-series and non-fiction programming.

Studio Facilities consists of ownership and management of an eight-soundstage studio facility in Vancouver, Canada. Rental revenue is earned from soundstages, office and other equipment and services to

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

tenants that produce or support the production of feature films, television series, movies and commercials. Tenancies vary from a few days to five years depending on the nature of the project and the tenant.

Segmented information by business unit is as follows:


		Three Months Ended			Three Months Ended
		June 30, 2005			June 30, 2004

		(Amounts in thousands)
Segment revenues
	Motion Pictures	$	146,982		$	159,066
	Television		45,858			28,647
	Studio Facilities		1,389			1,011

		$	194,229		$	188,724

Segment profit (loss)
	Motion Pictures	$	(9,220	)	$	(2,866	)
	Television		2,377			4,232
	Studio Facilities		811			450

		$	(6,032	)	$	1,816

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands)
Segment revenues
Motion Pictures $ 175,141 $ 51,912 $ 536,983 $ 160,360
Television 14,158 17,129 69,692 51,728
Studio Facilities 1,099 1,578 3,511 4,917

$ 190,398 $ 70,619 $ 610,186 $ 217,005

Segment profit (loss)
Motion Pictures $ 19,070 $ (14,943 ) $ 39,118 $ (22,937 )
Television 1,150 1,309 7,294 6,026
Studio Facilities 480 1,020 1,746 3,221

$ 20,700 $ (12,614 ) $ 48,158 $ (13,690 )

Segment profit (loss) is defined as segment revenue less segment direct operating, distribution and marketing, and general and administration ~~expenses and severance and relocation costs.~~expenses. The reconciliation of total segment profit (loss) to the Company’s income (loss) before income taxes is as follows:


		Three Months Ended			Three Months Ended
		June 30, 2005			June 30, 2004

		(Amounts in thousands)
Company’s total segment profit (loss)		$	(6,032	)	$	1,816
Less:
	Corporate general and administration		(10,813	)		(9,095	)
	Depreciation		(748	)		(675	)
	Interest expense		(4,884	)		(5,461	)
	Interest rate swaps mark-to-market		(337	)		2,060
	Interest income		1,065			37
	Minority interests		—			123

		$	(21,749	)	$	(11,195	)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands)
Company’s total segment profit (loss) $ 20,700 $ (12,614 ) $ 48,158 $ (13,690 )
Less:
Corporate general and administration (8,608 ) (4,351 ) (28,610 ) (10,082 )
Corporate severance and relocation costs. — (4,845 ) — (4,845 )
Write-down of other assets — (8,064 ) — (8,064 )
Depreciation (835 ) (718 ) (2,224 ) (1,748 )
Interest (8,201 ) (4,808 ) (19,277 ) (9,017 )
Interest rate swaps mark-to-market 419 688 2,408 950
Minority interests 19 — (2 ) —
Other income — — 825 —
Equity interests — (948 ) (200 ) (1,959 )

Income (Loss) Before Income Taxes $ 3,494 $ (35,660 ) $ 1,078 $ (48,455 )

~~14. Commitments and Contingencies~~

14. Commitments and Contingencies

The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company does not believe that adverse decisions in any such pending or threatened proceedings, or any amount which the Company might be required to pay by reason thereof, would have a material adverse effect on the financial condition or future results of the Company. The Company has provided an accrual for estimated losses under the above matters ~~at December 31, 2004.~~as of June 30, 2005, in accordance with FAS 5 “Accounting for Contingencies”.

~~15. Reconciliation to Canadian GAAP~~17

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


15.	Reconciliation to Canadian GAAP

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

below in accordance with the provisions of the Securities and Exchange Commission (“SEC”) and the National Instrument adopted by certain securities authorities in Canada.

Under Canadian GAAP, the net ~~income (loss)~~loss and ~~income (loss)~~loss per share figures for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2005 and 2004, ~~and 2003,~~ and the shareholders’ equity as at ~~December 31, 2004~~June 30, 2005 and March 31, ~~2004~~2005 are as follows:

Net Income (Loss)
Three Months Nine Months
Three Months Ended Nine Months Ended
Ended December 31, Ended December 31, Shareholders’ Equity
December 31, 2003 December 31, 2003 December 31, March 31,
2004 (Restated) 2004 (Restated) 2004 2004
(Amounts in thousands)
As reported under U.S. GAAP
$ 3,353 $ (35,744 ) $ 221 $ (48,770 ) $ 95,758 $ 69,609
Adjustment for capitalized pre-operating costs (a) — (154 ) — (462 ) — —
Stock-based compensation (b) (529 ) 138 (1,391 ) (478 ) — —
Adjustment for accretion on subordinated notes (c) (1,946 ) (190 ) (3,182 ) (190 ) (3,991 ) (809 )
Adjustment for amortization of subordinated notes issue costs (c) 47 — 122 — 170 48
Adjustment for amortization and write-off of deferred debt financing costs (d) (266 ) — (98 ) — — 98
Provision for debentures and other receivables due from CinéGroupe (e) — 8,064 — 8,064 — —
Adjustment for consolidation of CinéGroupe (e) — (2,333 ) — (2,333 ) — —
Adjustment for interest rate swaps mark-to-market (f) (158 ) (688 ) (474 ) (950 ) 2,483 2,957
Accounting for business combinations (g) — — — — 1,145 1,145
Accounting for income taxes (h) — — — — (1,900 ) (1,900 )


	Net Loss
							Shareholders’ Equity
	Three Months Ended			Three Months Ended
	June 30, 2005			June 30, 2004			June 30, 2005			March 31, 2005

	(Amounts in thousands, except per share amounts)
As reported under U.S. GAAP	$	(21,819	)	$	(11,462	)	$	94,873		$	117,139
Adjustment for interest rate swaps(a)		(158	)		(158	)		2,167			2,325
Accounting for business combinations(b)		—			—			1,145			1,145
Accounting for income taxes(c)		—			—			(1,900	)		(1,900	)
Accounting for stock-based compensation(g)		(575	)		(238	)		—			—
Adjustment for accretion on subordinated notes(d)		(3,158	)		(618	)		(9,582	)		(6,424	)
Adjustment for amortization of subordinated notes issue costs(d)		227			36			709			482
Adjustment for amortization and write-off of deferred bank loan financing costs(e)		—			84			—			—
Reclassification of conversion feature of subordinated notes outside shareholders’ equity(d)		—			—			74,854			74,854
Other comprehensive income (loss) (net of tax of nil)(f)		—			—			(538	)		(304	)

Net Loss/ Shareholders’ Equity under Canadian GAAP	$	(25,483	)	$	(12,356	)	$	161,728		$	187,317

Basic and Diluted Loss per Common Share under Canadian GAAP	$	(0.25	)	$	(0.13	)

LIONS GATE ENTERTAINMENT CORP.

Net Income (Loss)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended Shareholders’ Equity
December 31, December 31, December 31, December 31, December 31, March 31,
2004 2003 2004 2003 2004 2004
Amounts in thousands
Reclassification of conversion feature of subordinated notes inside shareholders’ equity (c) — — — — 42,017 16,269
Other comprehensive loss (i) — — — — (666 ) (590 )

Net Income (Loss) Shareholders’ Equity under Canadian GAAP
$ 501 $ (30,907 ) $ (4,802 ) $ (45,119 ) $ 135,016 $ 86,827

Basic Income (Loss) per Common Share under Canadian GAAP (k)
$ 0.01 $ (0.39 ) $ (0.05 ) $ (0.76 )

Diluted Income (Loss) per Common Share under Canadian GAAP (k)
$ 0.00 $ (0.39 ) $ (0.05 ) $ (0.76 )

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

Reconciliation of movement in Shareholders’ Equity under Canadian GAAP:


	June 30,			March 31,
	2005			2005

	(Amounts in thousands)
Balance at beginning of the year	$	187,317		$	86,827
Increase in common shares		123			24,850
Increase in contributed surplus(d)(g)		602			60,842
Net loss under Canadian GAAP		(25,483	)		12,424
Adjustment to cumulative translation adjustments account(f)		(831	)		2,374

Balance at end of the period	$	161,728		$	187,317

December 31, March 31,
2004 2004
(Amounts in thousands)
Balance at beginning of the year
$ 86,827 $ 74,717
Increase in common shares 23,746 117,894
Decrease in Series A preferred shares — (32,519 )
Increase in contributed surplus 25,748 20,528
Deconsolidation of CinéGroupe’s net deficiency in equity — 2,333
Dividends paid on Series A preferred shares — (387 )
Accretion on Series A preferred shares(j) — (1,127 )
Net loss under Canadian GAAP (4,802 ) (94,172 )
Adjustment to cumulative translation adjustments account(i) 3,497 (440 )

Balance at end of the period
$ 135,016 $ 86,827

(a) Interest Rate Swaps Mark-to-Market

Under U.S. GAAP, the interest swaps do not meet the criteria of effective hedges and therefore the fair valuation loss of less than $0.1 million for the three months ended June 30, 2005 (2004 — gain of $1.6 million) on the Company’s interest swap and fair valuation loss of $0.3 million for the three months ended June 30, 2005 (2004 — gain of $0.5 million) on a subsidiary company’s interest swap are recorded in the condensed consolidated statement of operations.

Under Canadian GAAP, until April 1, 2004, the interest rate swaps were determined to be effective hedges under Canadian Institute of Chartered Accountants (“CICA”) Section 3860, “Financial Instruments — Disclosure and Presentation”, and no fair valuation adjustments were recorded. In December 2001, the CICA released Accounting Guideline (“AcG-13”), “Hedging Relationships”, to be applied by companies for periods beginning on or after July 1, 2003. The standard establishes criteria to identify, designate, document and determine the effectiveness of hedging relationships, for the purpose of applying hedge accounting and provides guidance on the discontinuance of hedge accounting. Under Canadian GAAP the Company has adopted AcG-13 effective April 1, 2004 and determined the interest rate swaps do not meet the criteria of effective hedges and therefore the fair valuation loss of less than $0.1 million for the three months ended June 30, 2005 (2004 — gain of $1.6 million) on the Company’s interest swap and fair valuation loss of $0.3 million for the three months ended June 30, 2005 (2004 — gain of $0.5 million) on a subsidiary company’s interest swap are recorded in the condensed consolidated statement of operations, which is consistent with U.S. GAAP.

The transitional provisions of AcG-13 provide that when an entity terminates its designation of a hedging relationship or a hedging relationship ceases to be effective, hedge accounting is not applied to gains, losses, revenues or expenses arising subsequently. However, the hedge accounting applied to the hedging relationship in prior periods is not reversed. Any gains, losses, revenues or expenses deferred previously as a result of applying hedge accounting continue to be carried forward for subsequent recognition in income in the same period as the corresponding gains, losses, revenues or expenses associated with the hedged item. Accordingly, under Canadian GAAP at April 1, 2004 the Company recorded the fair values of the interest rate swaps totaling $3.0 million on the consolidated balance sheet and recorded the off-setting entry to deferred assets which is being amortized straight-line to interest expense over the terms of the interest rate swaps. This results in an additional interest expense in the three months ended June 30, 2005 of $0.2 million (2004 — $0.2 million).


*(b)*	*Accounting for ~~Capitalized Pre-Operating Period Costs~~Business Combinations*

Under U.S. GAAP, ~~all start-up~~ costs ~~are~~related to the acquiring company must be expensed as incurred. Under Canadian GAAP, ~~the Company deferred certain pre-operating~~prior to January 1, 2001, costs related to restructuring activities of an acquiring company

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

were considered in the ~~launch~~purchase price allocation. In fiscal 2001, the Company included $1.4 million of such costs in the ~~television one-hour series~~purchase price for an acquired company under Canadian GAAP. The amount is presented net of income taxes of $0.3 million.


*(c)*	*Accounting for Income Taxes*

SFAS 109 requires deferred tax assets and liabilities be recognized for temporary differences, other than non-deductible goodwill, arising in a business ~~amounting to $3.0 million. This amount was being amortized over five years commencing in~~combination. In the year ended March 31, 2000, ~~and~~under U.S. GAAP, goodwill was ~~fully amortized at March 31, 2004.~~

~~(b)~~ ~~Accounting for Stock Based Compensation~~

~~In December 2003,~~increased to reflect the Canadian Institute of Chartered Accountants (“CICA”) amended Section 3870 to require companies to account for stock options using the fair value based method for fiscal years beginning on or after January 1, 2004. In accordance with the transitional alternatives permitted under amended Section 3870, the Company retroactively adopted the fair value based method of accounting for stock options and accordingly, the three and nine months ended December 31, 2003 have been restated. The impact of this change for the three and nine months ended December 31, 2004 was to decrease net income by $0.5 million and $1.6 million respectively (2003 — $0.7 million and $1.5 million, respectively) and to decrease basic earnings per share by nil and $0.02, respectively (2003 — $0.01 and $0.03 respectively).

In accordance with CICA Section 3870, the following disclosures are provided about the costs of stock based compensation awards using the fair value method. The weighted average estimated fair value of each stock option granted in the three and nine months ended December 31, 2004 were $3.31 and $2.64 respectively (2003 — $1.22 and $0.79 respectively). The fair value of each stock option grant was estimatedadditional deferred tax liability resulting from temporary differences arising on the ~~date~~acquisition of grant using the Black-Scholes option pricing model with the following assumptions used for stock options granted: a dividend yield of 0%, expected volatility of 30% (2003 — 30%), risk-free interest rate of 3.8% (2003 — 2.6%) and expected life of five years (2003 — five years).

~~required~~Company recorded a charge to ~~be applied (refer to note 12).~~

~~During~~retained earnings when the ~~three months ended December��31, 2003, the Company modified the terms of 250,000 options of a certain past director~~deferred tax liability was established upon adoption of the ~~Company, amending the price of the options to be consistent with those granted to other Directors. The expiry date and vesting period were unchanged. Under U.S. GAAP the intrinsic value method~~applicable accounting standard in 2001; accordingly, there is ~~applied and under Canadian GAAP the fair value method is required to be applied (refer to note 12).~~

~~Options were granted to~~ a certain employee of the Company with an exercise price determined at a future date (refer to note 12). Under U.S. GAAP, these options are valued using variable accounting for stock-based compensation and the resulting expense is recorded as stock-based compensation in general and administration expensesdifference in the ~~unaudited condensed consolidated statements~~carrying amount of ~~operations. Under Canadian GAAP, variable accounting for stock-based compensation is not applicable and therefore does not result~~goodwill arising in ~~additional compensation expense.~~

the business combination of $1.9 million as at June 30, 2005 (March 31, 2005 — $1.9 million).


*~~(c)~~ (d)*	*Reclassification of Conversion Feature of Subordinated Notes, Accretion on Subordinated Notes and Amortization of ~~Note~~Subordinated Notes Issue Costs*

Under U.S. GAAP, the conversion feature of the 4.875% Notes, as explained in note 7, is not accounted for separately. Under Canadian GAAP, the conversion feature of the 4.875% Notes is valued at $16.3 million, net of placement agents’ fees and offering expenses of $1.0 million and, accordingly, shareholders’ equity is increased by $16.3 million. Under U.S. GAAP the principal amount and the carrying amount of the 4.875% Notes are the same and therefore no accretion is required whereas, under Canadian GAAP, the difference between the principal amount of $60.0 million and the original net carrying amount of $42.7 million is being accreted on a straight-line basis over seven years as a charge to interest. Under U.S. GAAP all of the placement agents’ fees and offering expenses are capitalized and amortized over seven years as a charge to interest expense whereas, under Canadian GAAP, the placement agents’ fees and offering expenses have been allocated to the conversion feature and to debt. The portion allocated to debt is being amortized on a straight-line basis over seven years as a charge to interest expense.

Under U.S. GAAP, the conversion feature of the 2.9375% Notes, as explained in note 7, is not accounted for separately. Under Canadian GAAP, the conversion feature of the 2.9375% Notes is valued at $25.7 million, net of placement agents’ fees and offering expenses of $0.8 million and, accordingly, shareholders’ equity is increased by $25.7 million. Under U.S. GAAP the principal amount and the carrying amount of 2.9375% Notes are the same and therefore no accretion is required whereas, under Canadian GAAP, the difference between the principal amount of $150.0 million and the original net carrying amount of $123.5 million is being accreted on a straight-line basis over five years, the time to the first potential redemption date by the Company, as a charge to interest. Under U.S. GAAP all of the placement agents’ fees and offering expenses are capitalized and amortized ~~over twenty~~through the earliest redemption date of seven years as a charge to interest expense whereas, under Canadian GAAP, the placement agents’ fees and offering expenses have been allocated to the conversion feature and to debt. The portion allocated to debt is being amortized on a straight-line basis ~~over~~through the scheduled maturity date of twenty years as a charge to interest expense.

Under U.S. GAAP, the conversion feature of the 3.625% Notes, as explained in note 7, is not accounted for separately. Under Canadian GAAP, the conversion feature of the 3.625% Notes is valued at $32.9 million, net of placement agents’ fees and offering expenses of $1.0 million and, accordingly, shareholders’ equity is increased by $32.9 million. Under U.S. GAAP the principal amount and the carrying amount of 3.625% Notes are the same and therefore no accretion is required whereas, under Canadian GAAP, the difference between the principal amount of $175.0 million and the original net carrying amount of $141.1 million is being accreted on a straight-line basis over seven years, the time to the first potential redemption date by the Company, as a charge to interest. Under U.S. GAAP all of the placement agents’ fees and offering expenses are capitalized and amortized through the earliest redemption date of seven years as a charge to interest expense whereas,

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

under Canadian GAAP, the placement agents’ fees and offering expenses have been allocated to the conversion feature and to debt. The portion allocated to debt is being amortized on a straight-line basis through the scheduled maturity date of twenty years as a charge to interest expense.


*~~(d)~~ (e)*	*Accounting for Amortization and Write-Off of Deferred ~~Debt~~Bank Loan Financing Costs*

Under U.S. GAAP, deferred ~~debt~~ financing costs in the amount of $4.3 million allocated to the Company’s term loan was being amortized using the effective interest method over the term of the loan as a charge to interest expense whereas, under Canadian GAAP, the same amount was being amortized on a straight-line basis over the term of the loan. On December 31, 2004, the Company repaid its term loan and wrote off the deferred ~~debt~~ financing costs related to the term loan.


*~~(e)~~*	*~~Consolidated Financial Statements~~*

~~On July 10, 2001, as a condition of a $9.2 million equity financing with a third party, CinéGroupe’s Shareholders’ Agreement was~~

amended to allow for certain participatory super-majority rights to be granted to the shareholders. Therefore, under U.S. GAAP, the Company was precluded from consolidating CinéGroupe and accounted for its 29.4% ownership of CinéGroupe, commencing April 1, 2001, using the equity method. Under Canadian GAAP, CinéGroupe was consolidated. During the year ended March 31, 2004, under U.S. GAAP, the Company’s investment in CinéGroupe was reduced to nil and therefore the Company did not record any additional losses under the equity method as it had no further funding requirements. However, under Canadian GAAP, under the consolidation method, the Company continued to consolidate CinéGroupe’s results until January 1, 2004 when the Company deconsolidated the assets and liabilities of CinéGroupe as described below.

During the year ended March 31, 2004, the Company evaluated its investment in CinéGroupe as CinéGroupe was unable to meet its financial obligations in the ordinary course of business and sought protection under the Companies Creditors Arrangement Act (“CCAA”) in December 2003. Under U.S. GAAP the Company recorded a provision of $8.1 million against debentures and other receivables due from CinéGroupe at December 31, 2003. Under Canadian GAAP, the intercompany debentures and other receivables due from CinéGroupe are eliminated on consolidation. On January 1, 2004, the Company determined that as a result of a CCAA filing it no longer had the ability to control or to significantly influence CinéGroupe. Under U.S. GAAP, this determination had no effect as the investment in CinéGroupe was nil and debentures and other receivables due from CinéGroupe had been provided for at December 31, 2003. Under Canadian GAAP, effective January 1, 2004, the Company deconsolidated the assets and liabilities of CinéGroupe, resulting in a net deficiency in equity of $2.3 million which was recorded as an adjustment to accumulated deficit, and wrote-off $8.1 million of convertible debentures and other receivables due from CinéGroupe, which as intercompany debentures and receivables, were previously eliminated on consolidation. At December 31, 2004 and March 31, 2004, because CinéGroupe is being accounted for using the cost method and the investment had been reduced to nil under U.S. and Canadian GAAP, there are no differences on the consolidated balance sheet at December 31, 2004 and March 31, 2004.

Accounting for CinéGroupe using the consolidation method for the period April 1, 2003 to December 31, 2003 under Canadian GAAP would increase the unaudited condensed consolidated statements of operations items to the following amounts:

Three Months Nine Months
Ended Ended
December 31, December 31,
2003 2003
(Amounts in (Amounts in
thousands) thousands)
Revenues $ 75,176 $ 225,909
Direct operating expenses $ 48,356 $ 123,591
Distribution and marketing expenses $ 34,660 $ 102,929
General and administration expenses $ 10,298 $ 26,244

(f) ~~Interest Rate Swaps Mark-to-Market~~

Under U.S. GAAP, the interest rate swaps do not meet the criteria of effective hedges and therefore the fair valuation gains of $0.5 million and $2.2 million, respectively for the three and nine months ended December 31, 2004 (2003 — gains of $0.7 million and $1.0 million, respectively) on the Company’s interest rate swap and the fair valuation loss of $0.1 million and a gain of $0.2 million respectively, for the three and nine months ended December 31, 2004 (2003 — nil) on a subsidiary company’s interest rate swap are recorded in the unaudited consolidated statement of operations.

Under Canadian GAAP, until April 1, 2004, the interest rate swaps were determined to be effective hedges under Canadian Institute of Chartered Accountants (“CICA”) Section 3860, “Financial Instruments — Disclosure and Presentation”, and no fair valuation adjustments were recorded. In December 2001, the CICA released Accounting Guideline (“AcG-13”), “Hedging Relationships”, to be applied by companies for periods beginning on or after July 1, 2003. The standard establishes criteria to identify, designate, document and determine the effectiveness of hedging relationships, for the purpose of applying hedge accounting and provides guidance on the discontinuance of hedge accounting. Under Canadian GAAP the Company has adopted AcG-13 effective April 1, 2004 and determined the interest rate swaps do not meet the criteria of effective hedges and therefore the fair valuation gains of $0.5 million and $2.2 million, respectively, for the three and nine months ended December 31, 2004 (2003 — gains of $0.7 million and $1.0 million, respectively) on the Company’s interest rate swap and the fair valuation loss of $0.1 million and a gain of $0.2 million respectively, for the three and nine months ended December 31, 2004 (2003 — nil and nil) on a subsidiary company’s interest rate swap are recorded in the consolidated statement of operations, which is consistent with U.S. GAAP.

The transitional provisions of AcG-13 provide that when an entity terminates its designation of a hedging relationship or a hedging relationship ceases to be effective, hedge accounting is not applied to gains, losses, revenues or expenses arising subsequently. However, the hedge accounting applied to the hedging relationship in prior periods is not reversed. Any gains, losses, revenues or expenses deferred previously as a result of applying hedge accounting continue to be carried forward for subsequent recognition in income in the same period as the corresponding gains, losses, revenues or expenses associated with the hedged item. Accordingly, under Canadian GAAP at April 1, 2004 the Company recorded the fair values of the interest rate swaps totaling $3.0 million on the unaudited consolidated balance sheet and recorded the off-setting entry to deferred assets which is being amortized straight-line to interest expense over the terms of the interest rate swaps. This results in an additional interest expense for the three and nine months ended December 31, 2004 of $0.2 million and $0.5 million, respectively (2003 — nil and nil).

~~(g)~~ ~~Accounting for Business Combinations~~

Under U.S. GAAP, costs related to the acquiring company must be expensed as incurred. Under Canadian GAAP, prior to January 1, 2001, costs related to restructuring activities of an acquiring company were considered in the purchase price allocation. In fiscal 2001, the Company included $1.4 million of such costs in the purchase price for an acquired company under Canadian GAAP. The amount is presented net of income taxes of $0.3 million.

~~(h)~~ ~~Accounting for Income Taxes~~

SFAS 109 requires deferred tax assets and liabilities be recognized for temporary differences, other than non-deductible goodwill, arising in a business combination. In the year ended March 31, 2000, under U.S. GAAP, goodwill was increased to reflect the additional deferred tax liability resulting from temporary differences arising on the acquisition of Lions Gate Studios in fiscal 1999. Under Canadian GAAP, the Company recorded a charge to retained earnings when the deferred tax liability was established upon adoption of the applicable accounting standard in 2001; accordingly, there is a difference in the carrying amount of goodwill arising in the business combination of $1.9 million as at December 31, 2004 (March 31, 2004 — $1.9 million).

~~(i)~~ Comprehensive Income (Loss)

Comprehensive ~~income (loss)~~loss consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under U.S. GAAP are excluded from the determination of net income (loss). Under U.S. GAAP, comprehensive income (loss) includes cumulative translation adjustments and unrealized gains ~~or losses~~(losses) on foreign exchange contracts, net of income taxes of nil. Under Canadian GAAP, cumulative translation adjustments are included inas a separate component of shareholders’ equity and unrealized gains ~~or losses~~(losses) on foreign exchange contracts are not recorded.


*~~(j)~~ (g)*	*~~Accretion on Series A Preferred Shares~~Accounting for Stock Based Compensation*

~~Under U.S. GAAP,~~

In December 2003, the ~~difference between the initial carrying value and the redemption price was being accreted~~Canadian Institute of Chartered Accountants (“CICA”) amended Section 3870 to require companies to account for stock options using the ~~effective interest~~fair value based method ~~over five~~for fiscal years ~~whereas,~~beginning on or after January 1, 2004. In accordance with the transitional alternatives permitted under ~~Canadian GAAP,~~amended Section 3870, the ~~difference was being accreted as a charge to accumulated deficit on a straight-line basis over five years. During~~Company retroactively adopted the ~~year~~fair value based method of accounting for stock options and accordingly, the years ended March 31, 2004 ~~all preferred shares were repurchased or converted~~and March 31, 2003 have been restated. The impact of this change for the three-months ended June 30, 2005 was to ~~common shares~~decrease net income and ~~therefore from April 1, 2004, no accretion charge is recorded.~~

~~(k) Basic~~increase contributed surplus by $0.6 million (2004 — $0.2 million) and ~~Diluted Income (Loss) Per Share~~

~~Basic income (loss)~~to increase basic loss per share ~~under Canadian GAAP is calculated as follows:~~by $0.01, respectively (2004 — nil).

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands, except per share amounts)
Numerator:
Net income (loss) $ 501 $ (30,907 ) $ (4,802 ) $ (45,119 )
Less:
Modification of warrants — (2,031 ) — (2,031 )
Dividends on Series A preferred shares — (66 ) — (320 )
Accretion and amortization on Series A preferred shares — (131 ) — (771 )

Net income (loss) available to common shareholders $ 501 $ (33,135 ) $ (4,802 ) $ (48,241 )

Denominator:
Weighted average common shares outstanding (thousands) 98,119 84,375 96,437 63,646

Basic income (loss) per common share $ 0.01 $ (0.39 ) $ (0.05 ) $ (0.76 )

~~On December 15, 2003,~~ In accordance with CICA Section 3870, the ~~Board~~following disclosures are provided about the costs of ~~Directors~~stock-based compensation awards using the fair value method. The weighted average estimated fair value of each stock option granted in the ~~Company resolved that~~three months ended June 30, 2005 was $3.61. No stock options were granted during the ~~term of the Company’s 5,525,000 warrants issued in December 1999 would be extended by one year. The warrants will expire January 1, 2005 instead of January 1,~~three months ended June 30, 2004. ~~The modification of these warrants is treated as an exchange of the original warrant for a new warrant.~~ The fair value of ~~the new warrant is measured at~~each stock option grant was estimated on the date of grant using the ~~new warrant is issued and~~Black-Scholes option pricing model with the ~~value of the old warrant is its fair value immediately before its terms were modified. The additional incremental fair value of the new warrant is $2.0 million~~following assumptions used for stock options granted during the three ~~and nine~~ months ended ~~December 31, 2003.~~

~~Fully diluted income per share under Canadian GAAP is calculated as follows:~~

Three Months
Ended
December 31,
2004
(Amounts in
thousands, except
per share amounts)
Diluted income per common share is calculated as follows:
Numerator:
Net income available to common shareholders $ 501

Denominator:
Weighted average common shares outstanding 98,119
Share purchase options 5,287
Share purchase warrants 1,548

Adjusted weighted average common shares outstanding 104,954

Diluted income per common share $ 0.00

~~The share purchase options~~June 30, 2005: a dividend yield of 0%, expected volatility of 33% (2004 — 30%), risk-free interest rate of 4.0% (2004 — 3.8%) and ~~the share purchase warrants are included in diluted income per share under the treasury method. The shares issuable on the potential conversion~~expected life of ~~the 4.875% Notes and 2.9375% Notes are not included in diluted income per share as they are anti-dilutive.~~

five years (2004 — five years).

~~16. Consolidating Financial Information~~


16.	Consolidating Financial Information

In December 3, 2003, the Company sold $60.0 million of the 4.875% Notes, through its wholly owned U.S. subsidiary Lions Gate Entertainment Inc. (the “Issuer”). The 4.875% Notes, by their terms, are fully and unconditionally guaranteed by the Company. On April 2, 2004, the Company filed a registration statement on Form S-3 to register the resale of the 4.875% Notes and common shares issuable on conversion of the 4.875% Notes. On April 29, 2004, the registration statement was declared effective by the Securities and Exchange ~~Commission.~~

OnCommission (SEC).

In October 4, 2004, the Company sold $150.0 million of the 2.9375% Notes, through ~~its wholly owned U.S. subsidiary Lions Gate Entertainment Inc. (the “Issuer”).~~the Issuer. The 2.9375% Notes, by their terms, are fully and unconditionally guaranteed by the Company. On February 4, 2005, the Company filed a registration statement on Form S-3 to register the resale of the 2.9375% Notes and

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)

common shares issuable on conversion of the 2.9375% Notes.

On March 3, 2005, the registration statement was declared effective by the SEC.

In February 2005, the Company sold $175.0 million of the 3.625% Notes, through the Issuer. The 3.625% Notes, by their terms, are fully and unconditionally guaranteed by the Company. On March 29, 2005, and as amended April 6, 2005, the Company filed a registration statement on Form S-3 to register the resale of the 3.625% Notes and common shares issuable on conversion of the 3.625% Notes. On April 13, 2005, the registration statement was declared effective by the SEC.

The following tables present condensed consolidating financial information as of ~~December 31, 2004~~June 30, 2005 and March 31, ~~2004~~2005 and for the ~~nine~~three months ended ~~December 31,~~June 30, 2005 and 2004 ~~and 2003~~ for (1) the Company, on a stand-alone basis, (2) the Issuer, on a stand-alone basis, (3) the non-guarantor subsidiaries of the Company (including the subsidiaries of the Issuer) on a combined basis (collectively, the “Other Subsidiaries”) and (4) the Company on a consolidated basis.

As of December 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
BALANCE SHEET

Assets

Cash and cash equivalents $ 2,934 $ 327 $ 1,878 $ — $ 5,139
Restricted cash — — 20,000 — 20,000
Accounts receivable, net 760 — 109,889 — 110,649
Investment in films and television programs — — 366,465 — 366,465
Property and equipment 58 1,562 29,806 — 31,426
Goodwill — — 168,705 — 168,705
Other assets 138 15,400 7,330 — 22,868
Investment in subsidiaries 225,189 251,226 — (476,415 ) —
Future income taxes 1,868 — (1,868 ) — —

$ 230,947 $ 268,515 $ 702,205 $ (476,415 ) $ 725,252

Liabilities and Shareholders’ Equity (Deficiency)

Bank loans $ — $ 73,400 $ 1,702 $ — $ 75,102
Accounts payable and accrued liabilities 2,452 11,823 98,084 — 112,359
Film obligations — — 168,806 — 168,806
Subordinated notes — 210,000 5,000 — 215,000
Mortgages payable — — 19,063 — 19,063
Deferred revenue — — 39,014 — 39,014
Minority interests — — 150 — 150
Intercompany payables (receivables) (129,523 ) 486 144,617 (15,580 ) —
Intercompany equity 262,260 93,217 306,514 (661,991 ) —
Shareholders’ equity (deficiency) 95,758 (120,411 ) (80,745 ) 201,156 95,758

$ 230,947 $ 268,515 $ 702,205 $ (476,415 ) $ 725,252


	As of June 30, 2005

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
BALANCE SHEET
ASSETS
Cash and cash equivalents	$	4,004		$	19,603		$	114,665		$	—		$	138,272
Restricted cash		—			—			968			—			968
Accounts receivable, net		34			—			102,405			—			102,439
Investment in films and television programs		—			—			365,595			—			365,595
Property and equipment		—			3,174			27,014			—			30,188
Goodwill		—			—			161,182			—			161,182
Other assets		77			19,215			12,125			—			31,417
Investment in subsidiaries		220,334			273,515			—			(493,849	)		—
Deferred income taxes		1,896			—			(1,896	)		—			—

	$	226,345		$	315,507		$	782,058		$	(493,849	)	$	830,061


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
Accounts payable and accrued liabilities	$	192		$	19,726		$	119,687		$	—		$	139,605
Film obligations		—			—			144,188			—			144,188
Subordinated notes		—			385,000			—			—			385,000
Mortgages payable		—			—			18,109			—			18,109
Deferred revenue		—			—			48,286			—			48,286
Intercompany payables (receivables)		(130,990	)		(51,540	)		198,090			(15,560	)		—
Intercompany equity		262,270			93,217			306,513			(662,000	)		—
Shareholders’ equity (deficiency)		94,873			(130,896	)		(52,815	)		183,711			94,873

	$	226,345		$	315,507		$	782,058		$	(493,849	)	$	830,061

Nine Months Ended December 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
STATEMENT OF OPERATIONS

Revenues
$ 345 $ — $ 610,147 $ (306 ) $ 610,186
Expenses:

Direct operating — — 258,610 — 258,610
Distribution and marketing — — 282,546 — 282,546
General and administration 818 28,081 20,889 (306 ) 49,482
Depreciation 34 96 2,094 — 2,224

Total expenses 852 28,177 564,139 (306 ) 592,862

Operating Income (Loss)
(507 ) (28,177 ) 46,008 — 17,324

Other Expenses (Income):

Interest 59 17,644 1,574 — 19,277
Interest rate swaps mark-to-market — (2,200 ) (208 ) — (2,408 )
Minority interests — — 2 — 2
Other income — — (825 ) — (825 )
Equity interests (793 ) (38,546 ) 200 39,339 200

Total other expenses (income) (734 ) (23,102 ) 743 39,339 16,246

Income (Loss) Before Income Taxes
227 (5,075 ) 45,265 (39,339 ) 1,078
Income tax provision (6 ) — (851 ) — (857 )

Net Income (Loss)
$ 221 $ (5,075 ) $ 44,414 $ (39,339 ) $ 221

LIONS GATE ENTERTAINMENT CORP.

Nine Months Ended December 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
STATEMENT OF CASH FLOWS

Net cash flows provided by (used in) operating activities
$ (23,161 ) $ 108,133 $ (1,838 ) $ — $ 83,134

Financing activities:

Issuance of common shares 21,991 — — — 21,991
Financing fees — (1,077 ) — — (1,077 )
Increase (decrease) in bank loans — (251,300 ) 88 — (251,212 )
Increase in subordinated notes — 145,390 — — 145,390
Decrease in mortgages payable — — (1,585 ) — (1,585 )

Net cash flows provided by (used in) financing activities
21,991 (106,987 ) (1,497 ) — (86,493 )

Investing activities:

Cash received from disposition of assets, net — — 1,172 — 1,172
Purchase of property and equipment — (1,424 ) (528 ) — (1,952 )

Net cash flows provided by (used in) investing activities
— (1,424 ) 644 — (780 )

Net change in cash and cash equivalents
(1,170 ) (278 ) (2,691 ) — (4,139 )
Foreign exchange effect on cash
3,099 614 (1,524 ) — 2,189
Cash and cash equivalents — beginning of period
1,005 (9 ) 6,093 — 7,089

Cash and cash equivalents — end of period
$ 2,934 $ 327 $ 1,878 $ — $ 5,139

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


			Three Months Ended June 30, 2005

			Lions Gate			Lions Gate
			Entertainment			Entertainment			Other			Consolidating			Lions Gate
			Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

			(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues			$	172		$	—		$	194,201		$	(144	)	$	194,229
Expenses:
	Direct operating			—			—			100,264			—			100,264
	Distribution and marketing			—			—			93,481			—			93,481
	General and administration			351			10,432			6,690			(144	)		17,329
	Depreciation			—			26			722			—			748

		Total expenses		351			10,458			201,157			(144	)		211,822

Operating Loss				(179	)		(10,458	)		(6,956	)		—			(17,593	)

Other Expenses (Income):
	Interest expense			17			4,564			303			—			4,884
	Interest rate swaps mark-to-market			—			19			318			—			337
	Interest income			—			(1,065	)		—			—			(1,065	)

		Total other expenses		17			3,518			621			—			4,156

Loss Before Equity Interests and Income Taxes				(196	)		(13,976	)		(7,577	)		—			(21,749	)
Equity interests				21,623			8,955			—			(30,578	)		—

Income (Loss) Before Income Taxes				(21,819	)		(22,931	)		(7,577	)		30,578			(21,749	)
Income tax provision				—			—			(70	)		—			(70	)

Net Income (Loss)			$	(21,819	)	$	(22,931	)	$	(7,647	)	$	30,578		$	(21,819	)

LIONS GATE ENTERTAINMENT CORP.

Nine Months Ended December 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
RECONCILIATION OF NET INCOME (LOSS) TO CANADIAN GAAP

As reported under U.S. GAAP
$ 221 $ (5,075 ) $ 44,414 $ (39,339 ) $ 221
Adjustment for interest rate swaps mark-to market (474 ) (368 ) (106 ) 474 (474 )
Adjustment for accretion on subordinated notes (3,182 ) (3,182 ) — 3,182 (3,182 )
Adjustment for amortization of subordinated notes issue costs 122 122 — (122 ) 122
Stock-based compensation (1,391 ) (1,391 ) — 1,391 (1,391 )
Adjustment for amortization of debt financing costs (98 ) (98 ) — 98 (98 )

Net income (loss) under Canadian GAAP
$ (4,802 ) $ (9,992 ) $ 44,308 $ (34,316 ) $ (4,802 )

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


		Three Months Ended June 30, 2005

		Lions Gate			Lions Gate
		Entertainment			Entertainment			Other			Consolidating		Lions Gate
		Corp.			Inc.			Subsidiaries			Adjustments		Consolidated

		(Amounts in thousands)
STATEMENT OF CASH FLOWS
Net cash flows provided by (used in) operating activities		$	3,916		$	(85,958	)	$	112,209		$	—	$	30,167

Investing activities:
	Cash received from sale of investment		—			—			2,011			—		2,011
	Purchases of property and equipment		—			(758	)		129			—		(629	)

Net cash flows provided by (used in) investing activities			—			(758	)		2,140			—		1,382

Financing activities:
	Issuance of common shares		61			—			—			—		61
	Repayment of subordinated notes		—			—			(5,000	)		—		(5,000	)
	Repayment of mortgages payable		—			—			(285	)		—		(285	)

Net cash flows provided by (used in) financing activities			61			—			(5,285	)		—		(5,224	)

Net change in cash and cash equivalents			3,977			(86,716	)		109,064			—		26,325
Foreign exchange effect on cash			(916	)		(37	)		61			—		(892	)
Cash and cash equivalents — beginning of period			943			106,356			5,540			—		112,839

Cash and cash equivalents — end of period		$	4,004		$	19,603		$	114,665		$	—	$	138,272

As of December 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
RECONCILIATION OF SHAREHOLDERS’ EQUITY (DEFICIENCY) TO CANADIAN GAAP

As reported under U.S. GAAP
$ 95,758 $ (120,411 ) $ (80,745 ) $ 201,156 $ 95,758
Adjustment for interest rate swaps mark-to-market 2,483 1,962 521 (2,483 ) 2,483
Accounting for business combinations 1,145 — 1,145 (1,145 ) 1,145
Accounting for income taxes (1,900 ) — — — (1,900 )
Adjustment for accretion on subordinated notes (3,991 ) (3,991 ) — 3,991 (3,991 )
Adjustment for amortization of subordinated notes issue costs 170 170 — (170 ) 170
Reclassification of conversion feature of subordinated notes outside shareholders’ equity 42,017 — — — 42,017
Other comprehensive loss (666 ) (666 ) (666 ) 1,332 (666 )

Shareholders’ equity (deficiency) under Canadian GAAP
$ 135,016 $ (122,936 ) $ (79,745 ) $ 202,681 $ 135,016

LIONS GATE ENTERTAINMENT CORP.

As of March 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
BALANCE SHEET

Assets

Cash and cash equivalents $ 1,005 $ (9 ) $ 6,093 $ — $ 7,089
Accounts receivable, net 180 75 128,990 — 129,245
Investment in films and television programs — — 406,170 — 406,170
Property and equipment 87 236 29,338 — 29,661
Goodwill — — 166,804 — 166,804
Other assets 141 14,246 9,327 — 23,714
Investment in subsidiaries 226,691 215,109 — (441,800 ) —
Future income taxes 1,824 — (1,824 ) — —

$ 229,928 $ 229,657 $ 744,898 $ (441,800 ) $ 762,683

Liabilities and Shareholders’ Equity (Deficiency)

Bank loans $ — $ 324,700 $ 1,474 $ — $ 326,174
Accounts payable and accrued liabilities 1,183 8,850 119,691 — 129,724
Film obligations — — 114,068 — 114,068
Subordinated notes 60,000 5,000 — 65,000
Mortgages payable — — 19,041 — 19,041
Deferred revenue — — 38,932 — 38,932
Minority interests — — 135 — 135
Intercompany payables (receivables) (103,124 ) (144,035 ) 262,738 (15,579 ) —
Intercompany equity 262,260 93,217 306,545 (662,022 ) —
Shareholders’ equity (deficiency) 69,609 (113,075 ) (122,726 ) 235,801 69,609

$ 229,928 $ 229,657 $ 744,898 $ (441,800 ) $ 762,683

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


	Three Months Ended June 30, 2005

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
RECONCILIATION OF NET INCOME (LOSS) TO CANADIAN GAAP
As reported under U.S. GAAP	$	(21,819	)	$	(22,931	)	$	(7,647	)	$	30,578		$	(21,819	)
Interest rate swaps mark-to-market		(158	)		(123	)		(35	)		158			(158	)
Accounting for stock-based compensation		(575	)		—			—			—			(575	)
Adjustment for accretion on subordinated notes		(3,158	)		(3,158	)		—			3,158			(3,158	)
Adjustment for amortization of subordinated notes issue costs		227			227			—			(227	)		227

Net income (loss) under Canadian GAAP	$	(25,483	)	$	(25,985	)	$	(7,682	)	$	33,667		$	(25,483	)


	As of June 30, 2005

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
RECONCILIATION OF SHAREHOLDERS’ EQUITY (DEFICIENCY) TO CANADIAN GAAP
As reported under U.S. GAAP	$	94,873		$	(130,896	)	$	(52,815	)	$	183,711		$	94,873
Interest rate swaps mark-to-market		2,167			1,682			485			(2,167	)		2,167
Accounting for business combinations		1,145			—			1,145			(1,145	)		1,145
Accounting for income taxes		(1,900	)		—			(1,900	)		1,900			(1,900	)
Adjustment for accretion on subordinated notes		(9,582	)		(9,582	)		—			9,582			(9,582	)
Adjustment for amortization of subordinated notes issue costs		709			709			—			(709	)		709
Reclassification of conversion feature of subordinated notes outside shareholders’ equity		74,854			—			—			—			74,854
Other comprehensive income (loss)		(538	)		(538	)		(538	)		1,076			(538	)

Shareholders’ equity (deficiency) under Canadian GAAP	$	161,728		$	(138,625	)	$	(53,623	)	$	192,248		$	161,728

LIONS GATE ENTERTAINMENT CORP.

As of March 31, 2004
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
RECONCILIATION OF SHAREHOLDERS’ EQUITY (DEFICIENCY) TO CANADIAN GAAP

As reported under U.S. GAAP
$ 69,609 $ (113,075 ) $ (122,726 ) $ 235,801 $ 69,609
Adjustment for interest rate swaps mark-to-market 2,957 2,957 — (2,957 ) 2,957
Accounting for business combinations 1,145 — 1,145 (1,145 ) 1,145
Accounting for income taxes (1,900 ) — (1,900 ) 1,900 (1,900 )
Adjustment for accretion on subordinated notes (809 ) (809 ) — 809 (809 )
Adjustment for amortization of subordinated notes issue costs 48 48 — (48 ) 48
Adjustment for amortization of debt financing costs 98 98 — (98 ) 98
Reclassification of conversion feature of subordinated notes outside shareholders’ equity 16,269 — — — 16,269
Other comprehensive loss (590 ) (590 ) (590 ) 1,180 (590 )

Shareholders’ equity (deficiency) under Canadian GAAP
$ 86,827 $ (111,371 ) $ (124,071 ) $ 235,442 $ 86,827

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


	As of March 31, 2005

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
BALANCE SHEET
ASSETS
Cash and cash equivalents	$	943		$	106,356		$	5,540		$	—		$	112,839
Restricted cash		—			—			2,913			—			2,913
Accounts receivable, net		35			69			149,915			—			150,019
Investment in films and television programs		—			—			367,376			—			367,376
Property and equipment		—			2,544			28,298			—			30,842
Goodwill		—			—			161,182			—			161,182
Other assets		92			19,517			9,849			—			29,458
Investment in subsidiaries		250,701			291,206			—			(541,907	)		—
Deferred income taxes		1,896			—			(1,896	)		—			—

	$	253,667		$	419,692		$	723,177		$	(541,907	)	$	854,629


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
Bank loans	$	—		$	—		$	1,162		$	—		$	1,162
Accounts payable and accrued liabilities		143			21,074			112,983			—			134,200
Film obligations		—			—			130,770			—			130,770
Subordinated notes					385,000			5,000						390,000
Mortgages payable		—			—			18,640			—			18,640
Deferred revenue		—			—			62,459			—			62,459
Minority interests		—			—			259			—			259
Intercompany payables (receivables)		(134,932	)		19,623			130,887			(15,578	)		—
Intercompany equity		262,269			93,217			306,515			(662,001	)		—
Shareholders’ equity (deficiency)		126,187			(99,222	)		(45,498	)		135,672			117,139

	$	253,667		$	419,692		$	723,177		$	(541,907	)	$	854,629

Nine Months Ended December 31, 2003
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
STATEMENT OF OPERATIONS

Revenues
$ 1,140 $ — $ 216,472 $ (607 ) $ 217,005
Expenses:

Direct operating — — 113,131 — 113,131
Distribution and marketing — — 102,910 — 102,910
General and administration 1,918 8,164 14,172 (607 ) 23,647
Severance and relocation costs 118 5,348 468 — 5,934
Write-down of other assets 5,409 — 2,655 — 8,064
Depreciation 111 434 1,203 — 1,748

Total expenses 7,556 13,946 234,539 (607 ) 255,434

Operating Loss
(6,416 ) (13,946 ) (18,067 ) — (38,429 )

Other Expenses:

Interest 274 7,042 1,701 — 9,017
Interest rate swaps mark-to-market — (950 ) — — (950 )
Equity interests 41,333 21,775 1,959 (63,108 ) 1,959

Total other expenses 41,607 27,867 3,660 (63,108 ) 10,026

Loss Before Income Taxes
(48,023 ) (41,813 ) (21,727 ) 63,108 (48,455 )
Income tax (provision) benefit (747 ) 1 431 — (315 )

Net Loss $ (48,770 ) $ (41,812 ) $ (21,296 ) $ 63,108 $ (48,770 )

LIONS GATE ENTERTAINMENT CORP.

Nine Months Ended December 31, 2003
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
STATEMENT OF CASH FLOWS

Net cash flows provided by (used in) operating activities
$ (61,501 ) $ (200,831 ) $ 210,791 $ — $ (51,541 )

Financing activities:

Issuance of common shares 104,589 — — — 104,589
Redemption of Series A preferred shares (18,090 ) — — — (18,090 )
Dividends paid on Series A preferred shares (254 ) — — — (254 )
Financing fees (73 ) (11,214 ) — — (11,287 )
Increase (decrease) in bank loans (18,027 ) 155,434 (54,900 ) — 82,507
Increase in subordinated notes — 56,663 — — 56,663
Decrease in production loans — — (1,273 ) — (1,273 )
Increase (decrease) in debt (12,080 ) — 4,168 — (7,912 )

Net cash flows provided by (used in) financing activities
56,065 200,883 (52,005 ) — 204,943

Investing activities:

Acquisition of Artisan Entertainment Inc, net of cash acquired — — (149,559 ) — (149,559 )
Purchase of property and equipment (21 ) (201 ) (223 ) — (445 )

Net cash flows used in investing activities
(21 ) (201 ) (149,782 ) — (150,004 )

Net change in cash and cash equivalents
(5,457 ) (149 ) 9,004 — 3,398
Foreign exchange effect on cash
8,199 (460 ) (8,574 ) — (835 )
Cash and cash equivalents — beginning of period
(126 ) 1,706 5,271 — 6,851

Cash and cash equivalents —end of period
$ 2,616 $ 1,097 $ 5,701 $ — $ 9,414

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


	As of March 31, 2005

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
RECONCILIATION OF SHAREHOLDERS’ EQUITY (DEFICIENCY) TO CANADIAN GAAP
As reported under U.S. GAAP	$	126,187		$	(99,222	)	$	(45,498	)	$	135,672		$	117,139
Interest rate swaps mark-to-market		2,325			1,840			485			(2,325	)		2,325
Accounting for business combinations		1,145			1,145			1,145			(2,290	)		1,145
Accounting for income taxes		(1,900	)		—			(1,900	)		1,900			(1,900	)
Adjustment for accretion on subordinated notes		(6,424	)		(6,424	)		—			6,424			(6,424	)
Adjustment for amortization of subordinated note issue costs		482			482			—			(482	)		482
Reclassification of conversion feature of subordinated notes to shareholders’ equity		74,854			—			—			—			74,854
Other comprehensive loss		(304	)		(304	)		(304	)		608			(304	)

Shareholders’ equity (deficiency) under Canadian GAAP	$	196,365		$	(102,483	)	$	(46,072	)	$	139,507		$	187,317

LIONS GATE ENTERTAINMENT CORP.

Nine Months Ended December 31, 2003
Lions Gate Lions Gate
Entertainment Entertainment Other Consolidating Lions Gate
Corp. Inc. Subsidiaries Adjustments Consolidated
(Amounts in thousands)
RECONCILIATION OF NET LOSS TO CANADIAN GAAP

As reported under U.S. GAAP
$ (48,770 ) $ (41,812 ) $ (21,296 ) $ 63,108 $ (48,770 )
Adjustment for capitalized pre-operating costs (462 ) (462 ) (462 ) 924 (462 )
Adjustment for interest rate swaps mark-to-market (950 ) (950 ) — 950 (950 )
Adjustment for accretion on subordinated notes (190 ) (190 ) — 190 (190 )
Provision for debentures and other receivables due from CinéGroupe 8,064 — 2,655 (2,655 ) 8,064
Adjustment for consolidation of CinéGroupe (2,333 ) — (2,333 ) 2,333 (2,333 )
Stock-based compensation (478 ) (478 ) — 478 (478 )

Net loss under Canadian GAAP
$ (45,119 ) $ (43,892 ) $ (21,436 ) $ 65,328 $ (45,119 )

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


			Three Months Ended June 30, 2004

			Lions Gate			Lions Gate
			Entertainment			Entertainment			Other			Consolidating			Lions Gate
			Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

			(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues			$	120		$	—		$	188,751		$	(147	)	$	188,724
Expenses:
	Direct operating			—			—			80,810			—			80,810
	Distribution and marketing			—			—			98,066			—			98,066
	General and administration			1,467			7,628			8,179			(147	)		17,127
	Depreciation			11			31			633			—			675

		Total expenses		1,478			7,659			187,688			(147	)		196,678

Operating Income (Loss)				(1,358	)		(7,659	)		1,063			—			(7,954	)

Other Expenses (Income):
	Interest expense			21			4,899			541			—			5,461
	Interest income			—			—			(37	)		—			(37	)
	Interest rate swaps mark-to-market			—			(1,591	)		(469	)		—			(2,060	)
	Minority interests			—			—			(123	)		—			(123	)

		Total other expenses (income)		21			3,308			(88	)		—			3,241

Income (Loss) Before Equity Interests and Income Taxes				(1,379	)		(10,967	)		1,151			—			(11,195	)
Equity interests				(10,083	)		(113	)		—			10,196			—

Income (Loss) Before Income Taxes				(11,462	)		(11,080	)		1,151			10,196			(11,195	)
Income tax provision				—			(241	)		(26	)		—			(267	)

Net Income (Loss)			$	(11,462	)	$	(11,321	)	$	1,125		$	10,196		$	(11,462	)

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


		Three Months Ended June 30, 2004

		Lions Gate			Lions Gate
		Entertainment			Entertainment			Other			Consolidating		Lions Gate
		Corp.			Inc.			Subsidiaries			Adjustments		Consolidated

		(Amounts in thousands)
STATEMENT OF CASH FLOWS
Net cash flows provided by (used in) operating activities		$	(3,513	)	$	35,184		$	7,736		$	—	$	39,407

Investing activities:
	Purchases of property and equipment		—			(45	)		—			—		(45	)

Net cash flows used in investing activities			—			(45	)		—			—		(45	)

Financing activities:
	Issuance of common stock		10,651			—			—			—		10,651
	Financing fees paid		—			(346	)		—			—		(346	)
	Increase (decrease) in bank loans		—			(34,700	)		415			—		(34,285	)
	Decrease in mortgages payable		—			—			(241	)		—		(241	)

Net cash flows provided by (used in) financing activities			10,651			(35,046	)		174			—		(24,221	)

Net change in cash and cash equivalents			7,138			93			7,910			—		15,141
Foreign exchange effect on cash			(3,778	)		(84	)		3,691			—		(171	)
Cash and cash equivalents — beginning of period			1,005			(9	)		6,093			—		7,089

Cash and cash equivalents — end of period		$	4,365		$	—		$	17,694		$	—	$	22,059

LIONS GATE ENTERTAINMENT CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS — (Continued)


	Three Months Ended June 30, 2004

	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated

	(Amounts in thousands)
RECONCILIATION OF NET INCOME (LOSS) TO CANADIAN GAAP
As reported under U.S. GAAP	$	(11,462	)	$	(11,321	)	$	1,125		$	10,196		$	(11,462	)
Interest rate swaps mark-to-market		(158	)		(123	)		(35	)		158			(158	)
Accounting for stock-based compensation		(238	)		—			—			—			(238	)
Adjustment for accretion on subordinated notes		(618	)		(618	)		—			618			(618	)
Adjustment for amortization of subordinated notes issue costs		36			36			—			(36	)		36
Adjustment for amortization of debt financing costs		84			84			—			(84	)		84

Net income (loss) under Canadian GAAP	$	(12,356	)	$	(11,942	)	$	1,090		$	10,852		$	(12,356	)

~~Item 2.~~~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~Overview~~


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*


	Overview

We are ana diversified independent producer and distributor of ~~film~~motion pictures, television programming, home entertainment, family entertainment and ~~television entertainment~~video-on-demand content. We release approximately 15 to 18 motion pictures theatrically per year. Our theatrical releases include films we produce in-house and films we acquire from third parties. We also have produced approximately ~~150~~122 hours of television programming on average each of the last ~~four~~three fiscal years. We anticipate a decrease in the number of hours produced in the current fiscal year as we focus on internally produced fiction and non-fiction programming and less on “work for hire” non-fiction programming. Our disciplined approach to production, acquisition, and distribution is designed to maximize our profit by balancing our financial risks against the probability of commercial success of each project. We currently distribute our library of approximately 6,200 motion picture titles and 1,800 television episodes and programs directly to retailers, video rental stores, and pay and free television channels and indirectly to international markets through third parties. ~~Our rights to titles in our library vary; in some cases we have only the right to distribute titles for a limited term.~~ We also own ana minority interest in CinemaNow, Inc., or CinemaNow, an internet video-on-demand provider, and own and operate a film and television production ~~studio. On December 15, 2003,~~studio in Vancouver, British Columbia. Effective April 2005, we ~~completed our acquisition of Artisan Entertainment Inc., or Artisan, which added~~also own a ~~diversified motion picture, family~~minority interest in Maple Pictures, a Canadian film and home entertainment company to our company. The fully integrated distribution network we acquired from Artisan includes direct-to-store distribution capabilities and expanded output capabilities with pay television and pay-per-view providers. Our unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2004 includes the results of the Company on a consolidated basis including Artisan and our unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2003 include Artisan for the 16-day period from the acquisition date of December 15, 2003.

distributor based in Toronto, Canada.

Our revenues are derived from the following business segments:


	•	Motion Pictures, which includes Theatrical, Home Entertainment, Television and International Distribution. Theatrical revenues are derived from the domestic theatrical release of motion pictures in North America. Home entertainment revenues are derived from the sale of video and DVD releases of our own productions and acquired films, including theatrical releases and direct-to-video releases. Television revenues are primarily derived from the licensing of our productions and acquired films to the domestic cable, free and pay television markets. International revenues are derived from the licensing of our productions and acquired films to international markets on a territory-by-territory basis.

• Television, which includes the licensing to domestic and international markets of one-hour drama series, television movies and mini-series and non-fiction programming.

• Studio Facilities, which includes Lions Gate Studios and the leased facility Eagle Creek Studios, which derive revenue from rental of sound stages, production offices, construction mills, ~~and~~ storage facilities and lighting equipment to film and television producers.

Our primary operating expenses include the following:


	•	Direct Operating Expenses, which ~~primarily includes~~include amortization of ~~film and television~~ production or acquisition costs, participation and residual expenses.

• Distribution and Marketing Expenses, which primarily include the costs of theatrical “prints and advertising” and of video and DVD duplication and marketing.

• General and Administration Expenses, which include salaries and other overhead.

Recent Developments

Maple Pictures Corp. On April 8, 2005, we entered into library and output agreements with Maple Pictures, a Canadian corporation, for the distribution of Lions Gate’s motion picture, television and home video product in Canada. As part of this transaction, Maple Pictures purchased a majority of our interest in Christal Distribution, a number of production entities and other Lions Gate distribution assets in Canada. Maple Pictures was formed by two former Lions Gate executives and a third-party equity investor. We also acquired a minority interest in Maple Pictures. As a result of these transactions with Maple Pictures, Lions Gate recorded an investment in Maple Pictures of $2.2 million as of June 30, 2005 in other assets in the condensed consolidated balance sheet.

Our remaining interest in Christal Distribution was repurchased by Christal Distribution. As a result of the sale and repurchase of our interests, effective April 8, 2005, we no longer consolidated Christal Distributions, previously consolidated as a variable interest entity under FIN 46 and $0.5 million owing from

~~Generally Accepted Accounting Principles (“GAAP”).~~On March 29, 2004, the new British Columbia Business Corporations Act came into force, which allows us to prepare our financial statements either under Canadian or U.S. GAAP. We have elected to prepare financial statements under U.S. GAAP commencing April 1, 2004. Therefore, these consolidated financial statements have been prepared in accordance with U.S. GAAP and amounts previously reported under Canadian GAAP have been restated under U.S. GAAP. We must disclose and quantify material differences with Canadian GAAP in our interim and annual financial statements for

~~the next two fiscal years from April 1, 2004. The differences for the three and nine months ended December 31, 2004 are described~~Christal Distributions, net of amounts payable, was recorded, as of June 30, 2005 in ~~note 15 of our accompanying consolidated financial statements.~~

~~CinemaNow.~~In July 2004, we purchased $0.2 million Series D Convertible Preferred Shares as part of an $11 million round of financing secured by CinemaNow. The round of financing decreased our voting and economic interests from approximately 54% to 30%. During the nine months ended December 31, 2004, we recorded losses of $0.2 million as other ~~equity interests~~assets in the condensed consolidated ~~statements of operations. Therefore the investment in CinemaNow is nil at December 31, 2004.~~

~~Non-fiction programming.~~In July 2004, we entered into a transaction with Creative Differences Productions Inc., a company wholly owned by a former employee of Lions Gate who was primarily responsible for Termite Art. As a result of this transaction, Creative Differences Productions Inc. assumed the responsibility for the San Fernando Valley premises and certain operations of Termite Art. The transaction resulted in a gain of $0.7 million recorded as other income in the consolidated statement of operations for the nine months ended December 31, 2004. The transaction also resulted in a reduction of non-fiction programming hours for the three and nine months ended December 31, 2004 compared to previous periods. Lions Gate retained the distribution operations of Termite Art.

~~Stock-Based Compensation Plan.~~On September 14, 2004, the shareholders approved the 2004 Performance Incentive Plan that provides for the issue of 2.0 million common shares of the Company to eligible employees, directors, officers and other eligible persons of the Company and its affiliates.

~~Issuance of Convertible Senior Subordinated Notes.~~On October 4, 2004, Lions Gate Entertainment Inc., a wholly owned subsidiary of the Company sold $150.0 million 2.9375% Convertible Senior Subordinated Notes (“2.9375% Notes”) with a maturity date of October 15, 2024. We received $146.0 million of net proceeds after paying placement agents’ fees. Offering expenses were approximately $0.5 million. The 2.9375% Notes are convertible at the option of the holder, at any time prior to maturity, upon satisfaction of certain conversion contingencies, into common shares of Lions Gate Entertainment Corp. at a conversion rate of 86.9565 shares per $1,000 principal amount of the 2.9375% Notes, which is equal to a conversion price of approximately $11.50 per share, subject to adjustment upon certain events. We used the net proceeds for repayment of outstanding indebtedness under the existing U.S. dollar revolving credit facility and term loan, and may also use the net proceeds for other general business purposes, which may include the financing of a portion of any future acquisitions.

~~Exercise of Warrants.~~During the nine months ended December 31, 2004, 2,168,350 warrants were exercised and the Company issued 2,168,350 common shares and received proceeds of $10.8 million. During December 2004, an additional 1,993,250 warrants were exercised by cashless exercise resulting in the issuance of 1,052,517 common shares. Any remaining warrants expired January 1, 2005 and therefore no warrants are outstanding.

~~Credit Facility.~~In anticipation of the proceeds from the 2.9375% Notes, we repaid $60 million of term loan with the revolving credit facility on September 30, 2004 and on October 4, 2004 used the proceeds from the 2.9375% Notes to partially repay the revolving credit facility. Therefore, on September 30, 2004, the term loan was reduced to $75 million and the credit facility to $290 million. On December 31, 2004, we repaid the term loan in full with the revolving credit facility, thereby reducing the credit facility to a $215 million revolving facility at December 31, 2004. The repayment of our term loan resulted in the write-off of deferred financing fees of $3.4 million on the term loan portion of the credit facility which is recorded as interest expense.

~~Critical Accounting Policies~~

balance sheet.

CRITICAL ACCOUNTING POLICIES

The application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see note 2 to our ~~March 31, 2004~~ audited consolidated financial ~~statements as converted to U.S. GAAP filed on Form 8-K on January 21, 2005.~~

statements.

Generally Accepted Accounting Principles.~~As described above, effective April 1, 2004, we elected to prepare our financial statements under U.S. GAAP, which were previously prepared under Canadian GAAP. Therefore, our~~ Our consolidated financial statements have been prepared in accordance with U.S. GAAP which conforms, in all material respects, with Canadian GAAP, except as described in the notes to the condensed consolidated financial statements.

On March 29, 2004, the new British Columbia Business Corporations Act came into force, which allows the Company to prepare its financial statements either under Canadian or U.S. GAAP. The Company elected to prepare financial statements under U.S. GAAP commencing April 1, 2004. Prior to April 1, 2004, the Company’s consolidated financial statements were prepared under Canadian GAAP. Amounts presented in prior years in the consolidated financial statements have been converted to U.S. GAAP. The Company must disclose and quantify material differences with Canadian GAAP in its interim and annual financial statements through March 31, 2006.

Accounting for Films and Television Programs. In June 2000, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 00-2 “Accounting by Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes accounting standards for producers or distributors of films, including changes in revenue recognition, capitalization and amortization of costs of acquiring films and television programs and accounting for exploitation costs, including advertising and marketing expenses.

We capitalize costs of production and acquisition, including financing costs and production overhead, to investment in films and television programs. These costs are amortized to direct operating expenses in

accordance with ~~Statement of Position 00-2 “Accounting by Producers or Distributors of Films” (“~~SoP ~~00-2”).~~00-2. These costs are stated at the lower of unamortized films or television program costs or estimated fair value. These costs for an individual film or television program are amortized and participation and residual costs are accrued in the proportion that current year’s revenues bear to management’s estimates of the ultimate revenue at the beginning of the year expected to be recognized from exploitation, exhibition or sale of such film or television program over a period not to exceed ten years from the date of initial release. For previously released film or television programs acquired as part of a library, ultimate revenue includes estimates over a period not to exceed twenty years from the date of acquisition. Management regularly reviews and revises when necessary, its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value. ~~Unfavorable~~No assurance can be given that unfavorable changes to revenue and cost estimates ~~may~~will not occur, which may result in significant write-downs affecting our results of operations and financial condition.

Revenue Recognition.Revenue from the sale or licensing of films and television programs is recognized upon meeting all recognition requirements of SoP 00-2. Revenue from the theatrical release of feature films is recognized at the time of exhibition based on the Company’s participation in box office receipts. Revenue from the sale of videocassettes and digital video disks (“DVDs”) in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer). Under revenue sharing arrangements, rental revenue is recognized when the Company is entitled to receipts and such receipts are determinable. Revenues from television licensing are recognized when the feature film or television program is available to the licensee for telecast. For television licenses that include separate availability “windows” during the license period, revenue is allocated over the “windows”. Revenue from sales to international territories are recognized when access to

the feature film or television program ~~is available to the distributor for exploitation and no conditions for delivery exist, which under most sales contracts requires that full payment~~ has been ~~received from~~granted or delivery has occurred, as required under the ~~distributor.~~sales contract, and the right to exploit the feature film or television program has commenced. For multiple media rights contracts with a fee for a single film or television program where the contract provides for media holdbacks, the fee is allocated to the various media based on management’s assessment of the relative fair value of the rights to exploit each media and is recognized as each holdback is released. For multiple-title contracts with a fee, the fee is allocated on a title-by-title basis, based on management’s assessment of the relative fair value of each title.

Rental revenue from short-term operating leases of studio facilities is recognized over the term of the lease.

Cash payments received are recorded as deferred revenue until all the conditions of revenue recognition have been met. Long-term, non-interest bearing receivables are discounted to present value.

Reserves.Revenues are recorded net of estimated returns and other allowances. We estimate ~~accruals~~reserves for video returns ~~and other allowances~~ in the condensed consolidated financial statements based on previous returns and our estimated expected future returns related to current period sales ~~and our allowances history~~ on a title-by-title basis in each of the video businesses. There may be differences between actual returns ~~and allowances~~ and our historical experience. We estimate provisions for accounts receivable based on historical experience and relevant facts and information regarding the collectability of the accounts receivable.

Income Taxes.The Company ~~recognizes future~~is subject to income taxes in the United States, and in several states and foreign jurisdictions in which we operate. We account for income taxes according to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and ~~liabilities for the expected~~certain temporary differences. The standard requires recognition of a future ~~income~~ tax consequences of transactions that have been included in the financial statements or income tax returns. Future income taxes are provided for using the liability method. Under the liability method, future income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. Future income tax assets, after deducting valuation allowances, are recognizedbenefit to the extent that itrealization of such benefit is ~~more-likely-than-not that they will be realized in~~more likely than not or a valuation allowance is applied.

Goodwill. On April 1, 2001, the ~~foreseeable future. Future income tax assets~~Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and ~~liabilities are adjusted for the effects of changes in tax laws and rates at the date of substantive enactment.~~

~~Goodwill.~~Other Intangible Assets”. Goodwill is ~~assessed~~reviewed annually for impairment ~~at least annually~~ within each fiscal year or between the annual tests if an event occurs or circumstances change that indicate it is more-likely-than-not ~~reduces~~that the fair value of a reporting unit ~~below~~is less than its carrying value. The Company ~~completed~~performs its annual impairment ~~tests~~test as ~~required under SFAS 142 and CICA 3062, with the most recent test completed at~~of December 31 ~~2003. No events have occurred or circumstances changed subsequent to December 31, 2003, that would cause the~~in each fiscal year. The Company ~~to perform an interim impairment test. The next~~performed its annual impairment test ~~will be completed during the quarter ended March 31, 2005,~~on its goodwill as atof December 31, 2004. No goodwill impairment was identified in any of the Company’s reporting units. Determining the fair value of reporting units requires various assumptions and estimates.

Business Acquisitions.The Company accounts for its business acquisitions as a purchase, whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair value. The excess of the purchase price over estimated fair value of the net identifiable assets is allocated to goodwill. Determining the fair value of assets and liabilities requires various assumptions and estimates.

Recent Accounting Pronouncements

financial position. The impact of adoption of ~~Statement 123R~~SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted ~~Statement 123R~~SFAS No. 123(R) in prior periods, the impact ~~of that standard~~ would have approximated the impact of ~~Statement~~SFAS No. 123 as described in the disclosure of pro forma net income (loss) ~~available to common shareholders~~ and basic and diluted income (loss) per share in note 12 in the notes to ~~our~~the condensed consolidated financial statements. ~~Statement 123R~~SFAS No. 123(R) permits companies to adopt its requirements using either a modified prospective method or a modified retrospective method. The Company has not yet determined which method it will utilize. The provisions of SFAS No. 123(R) are effective for financial statements with the first interim or annual reporting period beginning after June 15, 2005. However, the SEC announced on April 14, 2005 that it would provide for a phased-in implementation process for SFAS No. 123(R). As a result, the Company will not be required to apply ~~Statement 123R~~SFAS No. 123(R) until the period beginning ~~July~~April 1, ~~2005.~~

~~EITF Issue No. 04-8.~~For the three months ended December 31, 2004, the Company adopted EITF Issue No. 04-8 The Effect of Contingently Convertible Debt on Diluted Earnings Per Share, which applied to reporting periods ending after the effective date of December 15, 2004. Under EITF Issue No. 04-8, all instruments that have embedded conversion features that are contingent on market conditions indexed to an issuer’s share price are included in diluted earnings per share computations (if dilutive) regardless of whether the market conditions have been met. On October 4, 2004, Lions Gate Entertainment Inc., a wholly owned subsidiary of the Company sold $150.0 million 2.9375% Notes with a maturity date of October 15, 2024. The 2.9375% Notes are convertible at the option of the holder, at any time prior to maturity, upon satisfaction of certain conversion contingencies, into common shares of Lions Gate Entertainment Corp. and therefore the shares issuable on the potential conversion of the 2.9375% Notes would be included in diluted earning per share computations for the three and nine months ended December 31, 2004 (if dilutive).

2006.

Results of Operations
~~Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003~~


	*Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004*

Consolidated revenues this quarter of ~~$190.4~~$194.2 million increased ~~$119.8~~$5.5 million, or ~~169.7%~~2.9%, compared to ~~$70.6~~$188.7 million in the prior year’s quarter.

Motion pictures revenue of ~~$175.1~~$147.0 million this quarter ~~increased $123.2~~decreased $12.1 million, or ~~237.4%~~7.6%, compared to $51.9 million in the prior year’s quarter due to significant releases during the quarter and revenues generated by acquired Artisan titles. Theatrical revenue of $28.9 million this quarter increased $26.0 million, or 896.6%, compared to $2.9$159.1 million in the prior year’s quarter. ~~The most significant theatrical release~~Theatrical revenue included in motion picture revenue of $22.3 million this quarter ~~was~~~~Saw.~~~~The most significant~~decreased $13.8 million, or 38.2%, compared to $36.1 million in the prior year’s quarter. Significant theatrical ~~release~~releases this quarter includedCrash, High Tension, RizeandState Property 2. Significant theatrical releases in the prior year’s quarter ~~was~~includedFahrenheit 9/11, The ~~Cooler~~Punisher. andGodsend.Video revenue included in motion picture revenue of ~~$120.8~~$97.4 million this quarter increased ~~$84.7~~$22.0 million, or ~~234.6%~~29.2%, compared to ~~$36.1~~$75.4 million in the prior year’s quarter. Significant video releases this quarter includedDiary of a Mad Black Woman, Alone In the Dark, Beyond the Seaand theTyler Perry Plays.Previously released titles such asSaw, Final CutandOpen Water~~and~~~~Care Bears: Journey~~ also continued to ~~Joke-A-Lot.~~ ~~Video releases in prior quarters and re-promotions of previous releases~~generate video revenues in the ~~current quarter also contributed significant revenues.~~quarter. Significant video releases in the prior year’s quarter includedThe ~~Anna Nicole Show, Leprechaun Back 2 Tha Hood~~Cooler, Girl With a Pearl Earring, Saved By the Belland~~Saturday Night Live: The Best of Chris Farley.~~Step Into Liquid. International revenue included in motion picture revenue of ~~$11.3~~$10.0 million this quarter ~~increased $1.9~~decreased $30.7 million, or ~~20.2%~~75.4%, compared to ~~$9.4~~$40.7 million in the prior year’s quarter. Significant international sales this quarter ~~included~~include~~Godsend, The Prince & Me, Final Cut~~Hotel Rwanda.~~and~~~~Open Water.~~Significant international sales in the prior year’s quarter included~~Wonderland, Confidence, Shattered Glass~~Punisher, Godsendand~~Cat’s Meow.~~The Prince and Me.Television revenue ~~from~~included in motion ~~pictures~~picture revenue of ~~$10.7~~$16.3 million this quarter increased ~~$7.7~~$9.4 million, or ~~256.7%~~136.2%, compared to ~~$3.0~~$6.9 million in the prior year’s quarter. Significant television license fees this quarter included~~Van Wilder: Party Liaison~~Open Water.~~and~~~~Girl With a Pearl Earring.~~

Television production revenue of ~~$14.2~~$45.9 million this quarter ~~decreased~~increased by ~~$2.9~~$17.3 million, or ~~17.0%~~60.5%, from ~~$17.1~~$28.6 million in the prior year’s quarter. This quarter, ~~19.0~~25 hours of one-hour drama series and 7 half-hours of half-hour drama series were delivered ~~domestically~~ contributing revenue of ~~$8.4~~$42.9 million and international and other revenue on one-hour drama series was ~~$1.9~~$1.7 million. ~~Also this~~This quarter, revenue contributed from television movies, ~~contributed revenue of $3.1 million,~~ video releases of television product ~~contributed revenue of $0.7 million~~ and non-fiction programming ~~contributed revenue of $0.1~~totaled $1.3 million. In the prior year’s quarter, ~~8.0~~9 hours of one-hour drama series and mini-series were delivered ~~domestically contributing~~for revenue of ~~$7.7~~$11.9 million and international and other revenue on one-hour drama series was ~~$3.6~~$8.1 million, television movies contributed revenue of ~~$1.1~~$6.2 million, video releases of television product contributed ~~$0.1~~$1.5 million and ~~30.5 hours of~~ non-fiction programming ~~were~~
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~~delivered contributing~~contributed revenue of ~~$4.3~~$1.3 million. Domestic deliveries of one-hour drama series this quarter includedThe Cut, Wildfire, Missingand~~Second Verdict.~~The Dead Zone~~Television movies this~~and of half-hour drama series includedWeeds. Domestic deliveries in the prior year’s quarter included the one-hour drama series ~~Frankenstein.~~The ~~decrease in revenue~~ Dead Zoneand ~~hours of non-fiction programming is due~~the mini-series 5 Days to ~~the disposition in July 2004 of the production operations of Termite Art, a division of the television segment.~~

Midnight.

Studio facilities revenue of ~~$1.1~~$1.4 million this quarter ~~decreased $0.5~~increased $0.4 million, or ~~31.3%~~40%, compared to ~~$1.6~~$1.0 million in the prior year’s quarter due primarily to ~~a decrease~~an increase in occupancy ~~and rental~~ rates this quarter ~~over quarter. We anticipate a continued decrease in revenues for fiscal 2005,~~ compared to ~~fiscal 2004, due to a decrease in occupancy rates.~~
the prior year’s quarter.

Direct operating expenses primarily include amortization of film and television production or acquisition costs, participation and residual expenses. Direct operating expenses of ~~$82.5~~$100.3 million for the quarter were ~~43.3%~~51.6% of revenue, compared to direct operating expenses of ~~$42.5~~$80.8 million, which were ~~60.2%~~42.8% of revenue in the

prior year’s quarter. Direct operating expenses as a percentage of revenue for the motion pictures ~~segment decreased quarter over quarter as higher margin titles were included in the current quarter.~~
~~In the current quarter, we decreased the provision for doubtful accounts by $1.8 million to $7.5 million at December 31, 2004. The decrease in the provision is primarily~~and television segments increased due to ~~a reclassification~~the margins on the mix of ~~sales allowances, which are reflected~~titles released during the quarter. The television segment in particular generated significant series revenue associated with higher direct operating expenses as a ~~reduction~~percentage of ~~revenue, and due to collection of accounts receivable that were previously provided for.~~
revenue.

Distribution and marketing expenses of ~~$80.3~~$93.5 million ~~increased $45.6~~decreased $4.6 million, or ~~131.4%~~4.7%, compared to ~~$34.7~~$98.1 million in the prior year’s ~~quarter due to significant releases during the quarter and to costs associated with revenues generated by acquired Artisan titles.~~quarter. Theatrical prints and advertising (“P&A”) this quarter of ~~$30.1~~$50.0 million ~~increased $22.1~~decreased $4.9 million, or ~~276.3%~~8.9%, compared to ~~$8.0~~$54.9 million in the prior year’s quarter. Theatrical P&A this quarter included significant expenditures on the release of titles such as~~Saw~~Crash, High Tensionand~~Beyond~~Rize. Theatrical P&A in the prior year’s quarter included significant expenditures on the release of titles such asGodsend, The ~~Sea.~~PunisherandFahrenheit 9/11.Video distribution and marketing costs on motion picture and television product this quarter of ~~$48.3~~$40.3 million ~~increased $24.0~~decreased $1.4 million, or ~~98.8%~~3.4%, compared to ~~$24.3~~$41.7 million in the prior year’s quarter. Video expenditure this quarter included significant expenditure on the release of titles such asDiary of a Mad Black Woman, Alone In the Dark, Beyond the Seaand theTyler Perry Plays. Video expenditure in the prior year’s quarter included significant expenditure on the release of titles such asThe Cooler, Girl With a Pearl Earring, Saved By the BellandStep Into Liquid.

General and administration expenses of $17.3 million this quarter increased $0.2 million, or 1.2%, compared to $17.1 million in the prior year’s quarter. The increase was primarily due to an increase in ~~marketing~~professional fees offset by a decrease in salaries and ~~duplication costs related to the increase in video revenues generated during the quarter,~~benefits. Professional fees increased primarily due to fees associated with the ~~release~~documentation, assessment and testing of~~Open Water~~ our internal controls as required by Section 404 of the Sarbanes Oxley Act and~~Care Bears: Journey~~ due to ~~Joke-A-Lot.~~
~~General~~the fees associated with our fiscal year end audit services. Salaries and ~~administration expenses~~benefits decreased as the prior year’s quarter included stock-price bonuses due under employment contracts and stock-based compensation expense related to share appreciation rights, whereas in the current quarter a recovery of ~~$15.6~~the stock-based compensation expense is recorded. In the current quarter, $1.1 million of production overhead was capitalized compared to $0.6 million in the prior year’s quarter.

Depreciation and amortization of $0.7 million this quarter increased ~~$6.3~~$0.2 million, or ~~67.7%~~40.0%, ~~compared to $9.3~~from $0.5 million in the prior year’s quarter.

      Interest expense of $4.9 million this quarter decreased $0.6 million, or 10.9%, from $5.5 million in the prior year’s quarter primarily due to ~~an increase~~a decrease in ~~salaries~~interest and ~~benefits and office and operations costs as a result~~amortization of deferred financing fees on the increase in the number of employees and volume of operations due to the acquisition of Artisan in December 2003. Salaries and benefits also increased as a result of stock-based compensation expense related to share appreciation rights of $3.2 million. Effective March 31, 2004, Christal Films Distribution Inc. (“Christal”), a variable interest entity, was consolidated and therefore general and administration expenses of $0.4 million for Christal are recorded this quarter, but not in the prior year’s quarter. In the current quarter, $0.6 million of production overhead was capitalized compared to $0.7 million in the prior year’s quarter.
     ~~Severance and relocation costs of $5.9 million in the prior year’s quarter represent costs incurred~~credit facility, offset by Lions Gate, associated with the acquisition of Artisan, which include property and lease abandonment costs of $2.8 million, the write-off of capital assets no longer in use of $2.1 million and severance of $1.0 million.
     Write down of other assets of $8.1 million in the prior year’s quarter consists of a provision against convertible debentures and other receivables due from CinéGroupe. CinéGroupe was unable to meet its financial obligations in the ordinary course of business and sought protection under the Companies Creditors Arrangement Act (“CCAA”) in December 2003. As a result, we determined that amounts owing may not be collectible and recorded a provision against convertible debentures and other receivables due from CinéGroupe, resulting in a write-down of amounts owing to nil.
     ~~Depreciation of $0.8 million this quarter increased $0.1 million, or 14.3%, compared to $0.7 million in the prior year’s quarter.~~
     ~~Interest expense of $8.2 million this quarter increased $3.4 million, or 70.8%, compared to $4.8 million in the prior year’s quarter primarily due to~~ an increase in interest and amortization ~~on subordinated notes and an increase in amortization and write-off~~ of deferred financing ~~costs~~fees on the subordinated notes. The credit facility had a nil balance during the three months ended June 30, 2005 resulting in a decrease in interest on the credit facility. During the three months ended December 31, 2004, deferred financing fees on the term loan portion of the credit facility were written off resulting in a decrease in amortization of deferred financing fees. The ~~current quarter~~three months ended June 30, 2005 includes interest and amortization on the 4.875% Notes issued December 2003, ~~and~~ the 2.9375% Notes issued October 2004 and the 3.625% Notes issued February 2005, whereas the ~~prior year’s quarter~~three months ended June 30, 2004 includes ~~approximately one month of~~ interest and amortization on the 4.875% Notes only. The current quarter includes amortization of increased deferred financing fees on the amended credit facility and write-off of deferred financing fees of $3.4 million on the term loan portion of the amended credit facility which was repaid December 31, 2004. The prior year’s quarter includes amortization of deferred financing fees and write-off of deferred financing fees of $2.0 million on the previous credit facility repaid December 2003. In both the current quarter and prior year’s quarter $0.3 million interest is capitalized to production costs.
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Interest rate swaps do not meet the criteria of effective hedges and therefore a fair valuation ~~gain~~loss of ~~$0.4~~$0.3 million was recorded this quarter and a fair valuation gain of ~~$0.7~~$2.1 million was recorded in the prior year’s quarter.

~~Equity interests~~

This quarter included interest income of ~~$0.9~~$1.1 million, compared to an insignificant amount of interest income in the prior year’s quarter. Interest income this quarter ~~includes $1.0 million equity interest in~~was earned on the ~~loss of CinéGroupe which consists of approximately 29% of~~cash balance held during the ~~net~~three months ended June 30, 2005.

Net loss of CinéGroupe and $0.1 million equity interest in the income of Christal which consists of approximately 75% of the net income of Christal. Effective January 1, 2004, we began accounting for CinéGroupe under the cost method of accounting, as we no longer had the ability to significantly influence CinéGroupe due to a CCAA filing, and therefore no equity interest is recorded this quarter. Effective March 31, 2004, Christal was consolidated as a variable interest entity and therefore no equity interest is recorded this quarter.
~~Net income~~ for the three months ended ~~December 31, 2004~~June 30, 2005 was ~~$3.4~~$21.8 million, or ~~basic earnings~~loss per share of ~~$0.03~~$0.21 on ~~98.1~~101.9 million weighted average shares outstanding. ~~Diluted earnings per share for the three months ended December 31, 2004 were $0.03.~~ This compares to net loss for the three months ended ~~December 31, 2003~~June 30, 2004 of ~~$35.7~~$11.5 million or loss per share of ~~$0.45~~$0.12 on ~~84.4~~94.9 million weighted average common shares outstanding (after giving effect to modification of warrants and dividends and accretion on the Series A Preferred Shares). In December 2003, the expiration date of warrants was extended by one year to January 1, 2005 and the modification resulted in a charge to net income (loss) available to common shareholders. In February 2004, we exercised our right to convert all remaining preferred shares to common shares. Therefore, for the three months ended December 31, 2004, there are no Series A Preferred Share dividends or accretion on the Series A Preferred Shares.
outstanding.

~~Nine months Ended December 30. 2004 Compared to Nine months Ended December 31, 2003~~EBITDA
     ~~Consolidated revenues for the nine months ended December 30. 2004 of $610.2 million increased $393.2 million, or 181.2%, compared to $217.0 million for the nine months ended December 31, 2003.~~
     Motion pictures revenue of $537.0 million this period increased $376.6 million, or 234.8%, compared to $160.4 million in the prior year’s period due to significant releases during the period and revenues generated by acquired Artisan titles. Theatrical revenue of $113.3 million this period increased $93.1 million, or 460.9%, compared to $20.2 million in the prior year’s period. Significant theatrical releases this period included~~Fahrenheit 9/11, Saw, The Punisherand~~~~Open Water.~~~~Significant theatrical releases in the prior year’s period included~~~~Cabin Fever, House of 1000 Corpses~~~~and~~~~Confidence.~~~~Video revenue of $325.9 million this period increased $220.5 million, or 209.2%, compared to $105.4 million in the prior year’s period. Significant video releases this period included~~~~The Punisher, Barbie in the Prince and the Pauper, Open Water, Godsend, Dirty Dancing: Havana Nights, The Cooler~~~~and~~~~Girl With a Pearl Earring.~~~~Video releases in prior quarters and the video library continued to contribute significant video revenue. Significant video releases in the prior year’s period included~~~~House of 1000 Corpses, Confidence, Will & Grace: Season 1~~~~and~~~~Secretary~~~~. International revenue of $67.1 million this period increased $41.8 million, or 165.2%, compared to $25.3 million in the prior year’s period. Significant international sales this period included~~~~The Punisher, Godsend~~~~and~~~~The Prince and Me.~~~~Significant international sales in the prior year’s period included~~~~Confidence, Wonderland~~~~and~~~~Cabin Fever.~~Television revenue from motion pictures of $26.9 million this period increased $19.6 million, or 268.5%, compared to $7.3 million in the prior year’s period. Significant television license fees this period included~~Van Wilder: Party Liaison, House of the Deadand~~~~Cabin Fever.~~
     Television production revenue of $69.7 million this period increased by $18.0 million, or 34.8%, from $51.7 million in the prior year’s period. This period, 46.0 hours of one-hour drama series were delivered domestically contributing revenue of $38.8 million and international and other revenue on one-hour drama series was $15.0 million. Also this period, television movies contributed revenue of $11.9 million, video releases of television product contributed revenue of $2.7 million and non-fiction programming contributed revenue of $0.9 million. In the prior year’s period, 24.0 hours of one-hour drama series were delivered for revenue of $24.1 million and international and other revenue on one-hour drama series was $9.2 million, television movies contributed revenue of $7.6 million, video releases of television product contributed revenue of $2.3 million and non-fiction programming contributed revenue of $7.5 million. Domestic deliveries of one-hour drama series this period included~~Missing, Second Verdict, Dead Zoneand~~~~5 Days to Midnight.~~~~Television movies this period included~~~~Frankenstein, Baby For Sale, Infidelity~~~~and~~~~A Mother’s Gift.~~15.0 hours of non-fiction programming were delivered during the period compared to 62.0 hours in the prior year’s period. The decrease in revenue and hours of non-fiction programming is due to the disposition in July 2004 of the production operations of Termite Art, a division of the television segment.
     Studio facilities revenue of $3.5 million this period decreased $1.4 million, or 28.6%, compared to $4.9 million in the prior year’s period due primarily to a decrease in occupancy and rental rates period over period. We anticipate a continued decrease in revenues for fiscal 2005, compared to fiscal 2004, due to a decrease in occupancy rates.
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Direct operating expenses primarily include amortization of film and television production or acquisition costs, participation and residual expenses. Direct operating expenses of $258.6 million for the period were 42.4% of revenue, compared to direct operating expenses of $113.1 million, which were 52.1% of revenue in the prior year’s period. Direct operating expenses as a percentage of revenue for the motion pictures segment decreased period over period as higher margin titles were included in the current period.

In the current period, we decreased the provision for doubtful accounts by $4.2 million to $7.5 million at December 31, 2004. The decrease in the provision is primarily due to a reclassification of sales allowances, which are reflected as a reduction of revenue, and due to accounts receivable written off and collection of accounts receivable that were previously provided for.

Distribution and marketing expenses of $282.5 million increased $179.6 million, or 174.5%, compared to $102.9 million in the prior year’s period due to significant releases during the period and to costs associated with revenues generated by acquired Artisan titles. Theatrical prints and advertising (“P&A”) this period of $135.4 million increased $89.1 million, or 192.4%, compared to $46.3 million in the prior year’s period. Theatrical P&A this period included significant expenditures on the release of titles such as Open~~Water, Saw, Godsend, The Punisherand~~~~Fahrenheit 9/11.~~Video distribution and marketing costs on motion picture and television product this period of $140.4 million increased $89.6 million, or 176.4%, compared to $50.8 million in the prior year’s period due to an increase in marketing and duplication costs related to the increase in video revenues generated during the period, primarily due to the release of~~The Punisher, Barbie in the Prince and the Pauper, Open Water, Dirty Dancing: Havana Nights, Godsend, Care Bears: Journey to Joke-A-Lotand~~~~The Cooler.~~

General and administration expenses of $49.5 million this period increased $25.9 million, or 109.8%, compared to $23.6 million in the prior year’s period primarily due to an increase in salaries and benefits, professional fees and office and operations costs as a result of the increase in the number of employees and volume of operations due to the acquisition of Artisan in December 2003. Salaries and benefits also increased as a result of stock-price bonuses due under employment contracts and stock compensation expense related to share appreciation rights of $7.0 million. Effective March 31, 2004, Christal, a variable interest entity, was consolidated and therefore general and administration expenses of $1.7 million for Christal are recorded this period, but not in the prior year’s period. In the current period, $1.9 million of production overhead was capitalized compared to $2.1 million in the prior year’s period.

Severance and relocation costs of $5.9 million in the prior year’s quarter represent costs incurred by Lions Gate, associated with the acquisition of Artisan, which include property and lease abandonment costs of $2.8, the write-off of capital assets no longer in use of $2.1 million and severance of $1.0 million.

Write down of other assets of $8.1 million in the prior year’s quarter consists of a provision against convertible debentures and other receivables due from CinéGroupe. CinéGroupe was unable to meet its financial obligations in the ordinary course of business and sought protection under CCAA in December 2003. As a result, we determined that amounts owing may not be collectible and recorded a provision against convertible debentures and other receivables due from CinéGroupe, resulting in a write-down of amounts owing to nil.

Depreciation of $2.2 million this period increased $0.5 million, or 29.4%, compared to $1.7 million in the prior year’s period due primarily to the addition of $2.7 million of property and equipment as a result of the purchase of Artisan in December 2003.

Interest expense of $19.3 million this period increased $10.2 million, or 113.3%, compared to $9.0 million in the prior year’s period primarily due to an increase in interest on the credit facility, interest on promissory notes and advances acquired as part of the acquisition of Artisan, an increase in interest and amortization on subordinated notes and an increase in amortization and write-off of deferred financing costs on the credit facility. Interest on the credit facility increased as the credit facility balance increased to finance the acquisition of Artisan in December 2003 and remained higher than the prior year’s period until October 2004 when the credit facility balance was partially repaid with proceeds from the issuance on the 2.9375% Notes. Interest rates also increased from December 2003 when the amended credit facility was entered into. The current period includes interest and amortization on the 4.875% Notes issued December 2003 and the 2.9375% Notes issued October 2004, whereas the prior year’s quarter includes approximately one month of interest and amortization on the 4.875% Notes only. The current period includes amortization of increased deferred financing fees on the amended credit facility and write-off of increased deferred financing fees of $3.4 million on the term loan portion of the amended credit facility which was repaid December 31, 2004. The prior year’s quarter includes amortization of deferred financing fees and write-off of deferred financing fees of $2.0 million on the previous credit facility repaid December 2003. In the current period $0.7 million interest is capitalized to production costs, compared to $1.0 million in the prior year’s period.

Interest rate swaps do not meet the criteria of effective hedges and therefore a fair valuation gain of $2.4 million was recorded this period and a fair valuation gain of $1.0 million was recorded in the prior year’s period.

Other income this period includes a $0.7 million gain on the disposition of assets and liabilities of Termite Art, a division of the television segment, in exchange for cash. Other income this period also includes $0.1 million collection of cash on a promissory note that was previously fully reserved.

Equity interests of $0.2 million this period includes $0.2 million equity interest in the loss of CinemaNow which consists of approximately 30% of the losses of CinemaNow. The investment in CinemaNow made in July 2004 was reduced to nil by December 31, 2004 and therefore we did not record any additional losses, as we have no further funding requirements. Equity interests of $2.0 million in the prior year’s period includes $1.8 million equity interest in the loss of CinéGroupe which consists of approximately 29% of the net loss of CinéGroupe, $0.3 million equity interest in the loss of CinemaNow which consists of approximately 55% of the net loss of CinemaNow and $0.1 million equity interest in the income of Christal which consists of approximately 75% of the net income of Christal. Effective January 1, 2004, we began accounting for CinéGroupe under the cost method of accounting, as we no longer had the ability to significantly influence CinéGroupe due to a CCAA filing, and therefore no equity interest is recorded this period. Effective March 31, 2004, Christal was consolidated as a variable interest entity and therefore no equity interest is recorded this period.

Net income for the nine months ended December 31, 2004 was $0.2 million, or income per share of $0.00 on 96.4 million weighted average shares outstanding. Diluted earnings per share for the nine months ended December 31, 2004 were $0.00. This compares to net loss for the nine months ended December 31, 2003 of $48.8 million or loss per share of $0.81 on 63.6 million weighted average common shares outstanding (after giving effect to modification of warrants and dividends and accretion on the Series A Preferred Shares). In December 2003, the expiration date of warrants was extended by one year to January 1, 2005 and the modification resulted in a charge to net income (loss) available to common shareholders. In February 2004, we exercised our right to convert all remaining preferred shares to common shares. Therefore, for the nine months ended December 31, 2004, there are no Series A Preferred Share dividends or accretion on the Series A Preferred Shares.

~~EBITDA~~

EBITDA, defined as earnings before interest, interest rate ~~swap~~swaps mark-to-market, income tax provision, depreciation and minority interests of ~~$12.1~~negative $16.8 million for the three months ended ~~December 31, 2004~~ June 30, 2005

increased ~~$42.9~~$9.5 million, or 130.1%, compared to negative EBITDA ~~of negative $30.8~~$7.3 million for the three months ended December 31, 2003. EBITDA of $20.2 million for the nine months ended December 31, 2004 increased $58.8 million compared to EBITDA of negative $38.6 million for the nine months ended December 31, 2003.
June 30, 2004.

EBITDA is a non-GAAP financial measure. Management believes EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations. Presentation of EBITDA is consistent with our past practice, and EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, ~~operating income,~~ net income and other measures of financial performance reported in accordance with GAAP. EBITDA does not reflect cash available to fund cash requirements. Not all companies calculate EBITDA in the same manner and the measure as presented may not be comparable to ~~similarly titled~~similarly-titled measures presented by other companies.

The following table reconciles EBITDA to net ~~income (loss):~~loss:

Three Months Ended
June 30,

2005 2004

(Amounts in thousands)
EBITDA, as defined $ (16,845 ) $ (7,279 )
Depreciation (748 ) (675 )
Interest expense (4,884 ) (5,461 )
Interest rate swaps mark-to-market (337 ) 2,060
Interest income 1,065 37
Minority interests — 123
Income tax provision (70 ) (267 )

Net loss $ (21,819 ) $ (11,462 )

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(Amounts in thousands)
EBITDA, as defined
$ 12,092 $ (30,822 ) $ 20,173 $ (38,640 )
Depreciation (835 ) (718 ) (2,224 ) (1,748 )
Interest (8,201 ) (4,808 ) (19,277 ) (9,017 )
Interest rate swaps mark-to-market 419 688 2,408 950
Minority interests 19 — (2 ) —
Income tax provision (141 ) (84 ) (857 ) (315 )

Net income (loss)
$ 3,353 $ (35,744 ) $ 221 $ (48,770 )

Refer to note 15 of the condensed consolidated financial statements for reconciliation of net income (loss) reported under U.S. GAAP to net income (loss) reported under Canadian GAAP.

Liquidity and Capital Resources

Our liquidity and capital resources are provided principally through cash generated from operations, issuance of ~~common shares~~subordinated notes and ~~debt instruments, including~~ a credit facility with JP Morgan. On

Issuance of Convertible Senior Subordinated Notes. In December 2003, Lions Gate Entertainment Inc. sold $60.0 million of 4.875% Notes that mature on December 15, 2010. We received $57.0 million of net proceeds, after paying placement agents’ fees. Offering expenses were $0.7 million. The 4.875% Notes are convertible, at the option of the holder, at any time before the close of business on the business day immediately preceding the maturity date of the 4.875% Notes, unless previously redeemed, into common shares of the Company at a conversion rate of 185.0944 shares per $1,000 principal amount of the 4.875% Notes, which is equal to a conversion price of approximately $5.40 per share. Lions Gate Entertainment Inc. may redeem the 4.875% Notes at its option on or after December 15, 2006 at 100% of their principal amount plus accrued and unpaid interest if the closing price of our common shares exceeds 175% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of notice of redemption.

In October 4, 2004, weLions Gate Entertainment Inc. sold ~~$150.0 million~~the 2.9375% Notes ~~and~~that mature on October 15, 2024. We received $146.0 million of net proceeds after paying placement agents’ ~~fees and offering expenses. On December 31, 2004, we had repaid~~fees. Offering expenses were $0.5 million. The 2.9375% Notes are convertible at the ~~term loan portion~~option of the ~~credit facility in full and therefore~~holder, at ~~December 31, 2004,~~any time prior to maturity, upon satisfaction of certain conversion contingencies, into common shares of the ~~credit facility was reduced~~Company at a conversion rate of 86.9565 shares per $1,000 principal amount of the 2.9375% Notes, which is equal to a ~~$215~~conversion price of approximately $11.50 per share, subject to adjustment upon certain events. From October 15, 2009 to

October 14, 2010, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.839%; from October 15, 2010 to October 14, 2011, Lions Gate Entertainment Inc. may redeem the 2.9375% Notes at 100.420%; and thereafter at 100%.

In February 2005, Lions Gate Entertainment Inc. sold the 3.625% Notes that mature on March 15, 2025. We received $170.2 million ~~revolving credit facility.~~
of net proceeds after paying placement agents’ fees. Offering expenses were approximately $0.6 million. The 3.625% Notes are convertible at the option of the holder, at any time prior to maturity into common shares of the Company at a conversion rate of 70.0133 shares per $1,000 principal amount of the 3.625% Notes, which is equal to a conversion price of approximately $14.28 per share, subject to adjustment upon certain events. Lions Gate Entertainment Inc. may redeem the 3.625% Notes at its option on or after March 15, 2012 at 100% of their principal amount plus accrued and unpaid interest.

Credit Facility.The Company entered into a $350 million credit facility in December 2003 consisting of a $200 million U.S. dollar-denominated revolving credit facility, a $15 million Canadian dollar-denominated revolving credit facility and a $135 million U.S. dollar-denominated term-loan. On October 4, 2004, we sold $150.0 million 2.9375% Notes and received $146.0 million of net proceeds after paying placement agents’ fees and offering expenses. In anticipation of the proceeds from the 2.9375% Notes, we repaid $60 million of term loan with the revolving credit facility on September 30, 2004 and on October 4, 2004 used the proceeds from the 2.9375% Notes to partially repay the revolving credit facility. Therefore, on September 30, 2004, the term loan was reduced to $75 million and the credit facility to $290 million. OnBy December 31, 2004, wethe Company had repaid the term loan in full, ~~with the revolving credit facility,~~ thereby reducing the credit facility to $215 million. Effective March 31, 2005, the credit facility was amended to eliminate the $15 million ~~at December 31, 2004.~~Canadian dollar-denominated revolving credit facility and increase the U.S. dollar-denominated revolving credit facility by the same amount. At ~~December 31, 2004.~~June 30, 2005, the Company had ~~borrowed $73.4 million~~no borrowings (March 31, ~~2004~~2005 — ~~$324.7 million)~~nil) under the credit facility. The credit facility expires December 31, 2008 and bears interest ~~in the case of revolving credit facility loans~~ at 2.75% over the Adjusted LIBOR or the Canadian Bankers Acceptance rate, or 1.75% over the U.S. or Canadian prime rates. The availability of funds under the credit facility is limited by the borrowing base, which is calculated on a monthly basis. The borrowing base assets at ~~December 31, 2004~~June 30, 2005 totaled ~~$390.5~~$388.6 million (March 31, ~~2004~~2005 — ~~$390.9~~$405.1 million)~~. At December 31, 2004,~~ and therefore the ~~revolving~~full $215 million is available under the credit facility had an average variable interest rate of 5.20% on principal of $73.4 million under the U.S. dollar revolving credit facility. The Company had not drawn on the Canadian dollar credit facility as of December 31, 2004.at June 30, 2005. The Company is required to pay a monthly commitment fee of 0.50% per annum on the total credit facility of ~~$215.0~~$215 million less the amount drawn. Right, title and interest in and to all personal property of Lions Gate Entertainment Corp. and Lions Gate Entertainment Inc. is being pledged as security for the credit facility. The credit facility is senior to the Company’s film obligations, subordinated notes and mortgages payable. The credit facility restricts the Company from paying cash dividends on its common shares. The Company entered into a $100 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than 5.0%. Fair market value of the interest rate swap at ~~December 31, 2004~~June 30, 2005 is ~~negative~~ $0.1 million (March 31, ~~2004~~2005 — ~~negative $2.3~~$0.1 million). ~~The~~Changes in the fair value representing a fair valuation ~~gains for~~loss on the interest rate swap during the three ~~and nine~~ months ended ~~December 31, 2004~~June 30, 2005 amount to less than $0.1 million (2004 — gain of $1.6 million) and are ~~$0.5 million and $2.2 million respectively (2003 — gains~~included in the condensed consolidated statements of ~~$0.7 million and $1.0 million, respectively).~~
operations.

Filmed Entertainment Backlog.Backlog represents the amount of future revenue not yet recorded from executed contracts for the licensing of films and television product for television exhibition and in international markets. Backlog at ~~December 31, 2004~~June 30, 2005 and at March 31, ~~2004~~2005 is ~~approximately $107.0~~$138.5 million and ~~$114.1~~$100.3 million, respectively.
The increase in backlog is primarily due to contracts entered into on titles such asSaw, Diary of a Mad Black Woman, MissingandWildfireduring the three months ended June 30, 2005.

Cash Flows Provided by ~~(Used in)~~ Operating Activities.Cash flows provided by operating activities in the ~~nine~~three months ended ~~December 31, 2004~~June 30, 2005 were ~~$83.1~~$30.2 million compared to cash flows ~~used in~~provided by operating activities ~~of $51.5 million~~ in the ~~nine~~three months ended ~~December 31, 2003. This period~~June 30, 2004 of $39.4 million. The decrease in cash flows ~~from operations increased as a result of increased~~provided by operating ~~results,~~activities resulted from an increase in accounts receivable and an increase in film obligations (including a $19.3 million theatrical marketing obligation, refer to note 6), offset by an increase in restricted cash (designated for the theatrical marketing obligation, refer to note 2),net loss this quarter, an increase in investment in films and television programs ~~and~~expenditure, a decrease in cash received from deferred revenue, offset by an increase in accounts payable and accrued ~~liabilities.~~
liabilities and an increase in cash provided by the collection of accounts receivables in the current quarter.

Cash Flows Provided ~~by (Used in) Financing~~by/ Used in Investing Activities.Cash flows ~~used in financing~~provided by investing activities of ~~$86.5~~$1.4 million infor the ~~nine~~three months ended ~~December 31, 2004 were primarily due to the repayment of bank loans, offset by proceeds~~June 30, 2005 included cash received from the sale of ~~the 2.9375% Notes and proceeds from the issuance~~our investment in Christal Distribution to Maple Pictures Corp. of ~~common shares for the exercise of stock options and warrants. Cash flows provided by financing activities of $204.9~~$2.0 million, in the nine months ended December 31, 2003 were primarily proceeds from the issuance of common shares, proceeds from bank loans and proceeds from the sale of the 4.875% Notes, offset by payment for the repurchase of Series A preferred shares and financing fees on the amended credit facility entered into December 2003.
~~Cash Flows Used in Investing Activities.~~Cash flows used in investing activities of $0.8 million in the nine months ended December 31, 2004 consists of cash received on the disposition of the assets and liabilities of Termite Art, a division of the television
37

~~segment,~~ less ~~$2.0~~$0.6 million for purchases of property and equipment. Cash flows used in investing activities in the three months ended June 30, 2004 consisted of ~~$150.0~~purchases of property and equipment and were not significant.

Cash Flows Used in Financing Activities. Cash flows used in financing activities in the three months ended June 30, 2005 of $5.2 million were primarily for repayment of a promissory note. Cash flows used in financing activities of $24.2 million in the ~~nine~~three months ended ~~December 31, 2003~~June 30, 2004 were primarily due to the repayment of bank loans of $34.3 million, offset by the issuance of common stock mainly for the ~~purchase price paid on the acquisition~~exercise of ~~Artisan, less cash acquired.~~
warrants of $10.7 million.

Anticipated Cash Requirements.The nature of our business is such that significant initial expenditures are required to produce, acquire, distribute and market films and television programs, while revenues from these films and television programs are earned over an extended period of time after their completion or acquisition. As our operations grow, our financing requirements are expected to grow and management projects the continued use of cash in operating activities and, therefore, we are dependent on continued access to external sources of financing. We believe that cash flow from operations, cash on hand, credit facility availability, tax shelter and ~~other~~ production financing available will be adequate to meet known operational cash requirements for the foreseeable future, including the funding of future film and television production, film rights acquisitions and theatrical and video release schedules. We monitor our cash flow liquidity, availability, fixed charge coverage, capital base, film spending and leverage ratios with the long-term goal of maintaining our creditworthiness.

Our current financing strategy is to fund operations and to leverage investment in films and television programs through our cash flow from operations, our credit facility, single-purpose production financing, government incentive programs and ~~foreign~~ distribution commitments. In addition, we may acquire businesses or assets, including individual films or libraries, ~~which~~that are complementary to our business. ~~Such a~~Any such transaction could be financed through our cash flow from operations, credit facilities, equity or debt financing.

Future annual repayments on debt and other financing obligations, initially incurred for a term of more than one year, as of ~~December 31, 2004~~June 30, 2005 are as follows:

Year Ended March 31,

2006 2007 2008 2009 2010 Thereafter Total

(Amounts in thousands)
Bank loans $ — $ — $ — $ — $ — $ — $ —
Film obligations — Minimum guarantees initially incurred for a term of more than one year 24 3,620 12,437 — — — 16,081
Film obligations — Film productions 2,609 7,933 — 4,080 — — 14,622
Subordinated notes — — — — — 385,000 385,000
Mortgages payable 2,401 897 1,656 13,155 — — 18,109

$ 5,034 $ 12,450 $ 14,093 $ 17,235 $ — $ 385,000 $ 433,812

Year Ended March 31,
2005 2006 2007 2008 2009 Thereafter Total
(Amounts in thousands)
Bank loans $ 1,702 $ — $ — $ — $ 73,400 $ — $ 75,102
Film obligations — Film productions 9,542 4,749 — — — — 14,291
Film obligations — Minimum guarantees initially incurred for a term of more than one year 24 1,513 6,120 12,437 — — 20,094
Subordinated notes — 5,000 — — — 210,000 215,000
Mortgages payable 297 2,739 1,081 2,003 12,943 — 19,063

$ 11,565 $ 14,001 $ 7,201 $ 14,440 $ 86,343 $ 210,000 $ 343,550

Principal debt and other financing obligation repayments due during the nine months ending March 31, 2006 of $5.0 million consists of $2.4 million of mortgages on the studio facility and $2.6 million owed to film production entities on delivery of titles. Principal repayments due are expected to be paid through cash generated from operations or from the available borrowing capacity from our revolving credit facility with JP Morgan.

Future commitments under contractual obligations by expected maturity date as of June 30, 2005 are as follows:

Year Ended March 31,

2006 2007 2008 2009 2010 Thereafter Total

(Amounts in thousands)
Operating leases $ 1,727 $ 1,999 $ 2,042 $ 454 $ 42 $ — $ 6,264
Employment and consulting contracts 10,672 7,643 2,122 — — — 20,437
Purchase obligations 52,744 12,325 1,100 5,095 — — 71,264
Distribution and marketing commitments 25,205 20,000 — — — — 45,205

$ 90,348 $ 41,967 $ 5,264 $ 5,549 $ 42 $ — $ 143,170

      Purchase obligations relate to the purchase of film rights for future delivery, future film production and development obligations. Amounts due during the ~~three~~nine months ~~ended~~ending March 31, ~~2005~~2006 of ~~$11.6~~$90.3 million are expected to be paid through cash generated from operations or from the available borrowing capacity from our revolving credit ~~facility.~~
~~Commitments.~~~~The table below presents future commitments under contractual obligations at December 31, 2004 by expected maturity date.~~

Year Ended March 31,
2005 2006 2007 2008 2009 Thereafter Total
(Amounts in thousands)
Operating leases $ 852 $ 2,786 $ 2,244 $ 2,169 $ 453 $ — $ 8,504
Employment and consulting contracts 5,340 9,825 4,346 1,325 — — 20,836
Unconditional purchase obligations 14,386 35,494 11,500 1,100 1,000 — 63,480
Distribution and marketing commitments — 11,608 20,000 — — — 31,608

$ 20,578 $ 59,713 $ 38,090 $ 4,594 $ 1,453 $ — $ 124,428

facility with JP Morgan.
     Unconditional purchase obligations relate to the purchase of film rights for future delivery and advances to producers. Amounts due during the three months ended March 31, 2005 of $ 20.6 million are expected to be paid through cash generated from operations or from the available borrowing capacity from our revolving credit facility.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Currency and Interest Rate Risk Management
      Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will be used in the future ~~within guidelines approved or to be approved by the board of directors for counterpart exposure, limits and hedging practices,~~ in order
38
to manage our interest rate and currency exposure. We have no intention of entering into financial derivative contracts, other than to hedge a specific financial risk.
     Currency Rate Risk.We incur certain operating and production costs in foreign currencies and are subject to market risks resulting from fluctuations in foreign currency exchange rates. Our principal currency exposure is between Canadian and U.S. dollars, although this exposure has been significantly mitigated through the structuring of the revolving credit facility as a $15 million Canadian dollar-denominated credit facility and $200 million U.S. dollar-denominated credit facility. Each facility is borrowed and repaid in the respective country of origin in local currency. We also enterdollars. The Company enters into forward foreign exchange contracts to hedge foreign currency exposures on future production expenses denominated in Canadian dollars. These forward exchange contracts do not subject us to risk from exchange rate movements because gains and losses on the contracts offset losses and gains on the transactions being hedged. Gains and losses on the foreign exchange contracts are capitalized and recorded as production costs when the gains and losses are realized. As of ~~December 31, 2004, the Company~~June 30, 2005, we had outstanding contracts to sell US$~~9.2~~11.6 million in exchange for CDN$~~11.9~~14.9 million over a period of 20fourteen weeks at a weighted average exchange rate of CDN$~~1.2985. During~~1.2889. Changes in the ~~nine months ended December, 2004, the Company completed~~fair value representing an unrealized fair value gain on foreign exchange contracts ~~denominated in Canadian dollars. The net gains resulting from~~outstanding during the ~~completed contracts were $0.5 million. Unrealized gains for the nine~~three months ended ~~December 31, 2004~~June 30, 2005 amounted to ~~$0.7~~$0.2 million and are included in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. During the three months ended June 30, 2005, we completed foreign exchange contracts denominated in Canadian dollars. The net losses resulting from the completed contracts were $0.2 million. These contracts are entered into with a major financial institution as counterparty. ~~The Company is~~We are exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contracts, at current market rates. ~~The Company does~~We do not require collateral or other security to support these contracts. ~~We currently intend to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks.~~
     Interest Rate Risk.Our principal risk with respect to our ~~bank loans~~debt and other financing obligations is interest rate risk, to the extent not mitigated by interest rate swaps. We ~~are exposed~~currently have minimal exposure to cash flow risk due to changes in market interest rates related to our ~~bank loans, which bear interest on borrowings~~ outstanding debt and other financing obligations. Our credit facility has a nil balance at ~~various time intervals~~June 30, 2005 and ~~at market rates based on either the Canadian prime rate or the U.S. prime rate, plus a margin ranging from — 0.08%~~any future balance up to ~~0.50% at December 31, 2004. At December 31, 2004, our~~$100 million will be mitigated by interest rate ~~risk~~swaps. Other financing obligations subject to variable interest rates include $14.6 million owed to film production entities on ~~our credit facility is fully mitigated by our interest rate swap as described below.~~
delivery of titles.
      The Company entered into a $100 million interest rate swap at an interest rate of 3.08%, commencing January 2003 and ending September 2005. The swap is in effect as long as three month LIBOR is less than
39
5.0%. Fair value of the interest rate swap at June 30, 2005 is $0.1 million (March 31, 2005 — $0.1 million). Changes in the fair value representing a fair valuation loss on the interest rate swap during the three months ended June 30, 2005 amount to less than $0.1 million (2004 — gain of $1.6 million) and are included in the condensed consolidated statements of operations. This contract is entered into with a major financial institution as counterparty. The Company is exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contract, at current market rates. The Company does not require collateral or other security to support this contract. Fair market value of the interest rate swap at December 31, 2004 is negative $0.1 million (March 31, 2004 — negative $2.3 million). The fair valuation gains for the three and nine months ended December 31, 2004 are $0.5 million and $2.2 million respectively (2003 — gains of $0.7 million and $1.0 million, respectively).
      A subsidiary of the Company entered into a CDN$20 million interest rate swap at a fixed interest rate of 5.62%, commencing September 2003 and ending September 2008. This contract is entered into with a major financial institution as counterparty. The subsidiary is exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contract, at current market rates. The subsidiary does not require collateral or other security to support this contract. The subsidiary entered into the interest rate swap as a condition of its loan which states the interest rates under the facility are to be fixed either by way of a fixed rate term loan or by way of an interest rate swap. During the three months ended June 30, 2005, the subsidiary recorded interest expense of $0.3 million (2004 — $0.3 million), including amounts incurred under the interest rate swap, that approximates the amount they would have paid if they had entered into a fixed rate loan agreement. Fair ~~market~~ value of the interest rate swap at ~~December 31, 2004~~June 30, 2005 is negative ~~$0.4~~$0.7 million (March 31, ~~2004~~2005 — negative ~~$0.6~~$0.3 million). ~~The~~Change in the fair value representing a fair valuation loss on the interest rate swap for the three months ended ~~December 31, 2004~~June 30, 2005 amount to $0.3 million (2004 — gain of $0.5 million) and is ~~$0.1 million and~~included in the ~~fair valuation gain for~~condensed consolidated statements of operations. This contract is entered into with a major financial institution as counterparty. The subsidiary is exposed to credit loss in the ~~nine months ended December 31, 2004~~event of nonperformance by the counterparty, which is ~~$0.2 million (2003 — nil).~~
limited to the cost of replacing the contract, at current market rates.
      The table below presents ~~principal debt~~ repayments and related weighted average interest rates for our ~~bank loans, subordinated notes~~interest-bearing debt and ~~mortgages payable at December 31, 2004.~~other obligations as of June 30, 2005.

Year Ended March 31,

2006 2007 2008 2009 2010 Thereafter Total

(Amounts in thousands)
Film obligations — Film productions:

Variable(1) $ 2,609 $ 7,933 $ — $ 4,080 $ — $ — $ 14,622
Subordinated notes:

Fixed(2) — — — — — 60,000 60,000
Fixed(3) — — — — — 150,000 150,000
Fixed(4) — — — — — 175,000 175,000
Mortgages payable:

Fixed(5) 2,401 897 1,656 13,155 — — 18,109

$ 5,010 $ 8,830 $ 1,656 $ 17,235 $ — $ 385,000 $ 417,731

Year Ended March 31,
2005 2006 2007 2008 2009 Thereafter Total
(Amounts in thousands)
Bank loans:

Variable(1) $ — $ — $ — $ — $ 73,400 $ — $ 73,400
Variable(2) 1,702 — — — — — 1,702
Subordinated notes:

Fixed(3) — — — — — 60,000 60,000
Fixed(4) — — — — — 150,000 150,000
Fixed(5) — 5,000 — — — — 5,000
Mortgages payable:

Fixed(6) 297 2,739 1,081 2,003 12,943 — 19,063

$ 1,999 $ 7,739 $ 1,081 $ 2,003 $ 86,343 $ 210,000 $ 309,165

39
(1) ~~Revolving credit facility, which expires December 31, 2008. Weighted~~Amounts owed to film production entities on delivery of titles. The film production entities incurred average variable interest ~~rate~~rates at ~~December 31, 2004 on principal~~June 30, 2005 of ~~$73.4 million equal to~~ U.S. prime minus ~~0.05%~~1.76%.

(2) ~~Operating line of credit available to a subsidiary. Average variable interest rate at December 31, 2004 of Canadian prime plus 0.50%.~~
~~(3)~~ 4.875% Notes with fixed interest rate equal to 4.875%.

~~(4)~~(3) 2.9375% Notes with fixed interest rate equal to 2.9375%.

~~(5)~~(4) ~~Promissory notes~~3.625% Notes with fixed interest rate equal to ~~7.5%~~3.625%.

~~(6)~~(5) ~~Loans with property, buildings and equipment provided as collateral. Average fixed~~Mortgages payable on the studio facility. Fixed interest rate equal to ~~5.87%~~5.62% to 7.51%.
40


Item 4.	*Controls and Procedures.*

~~Item 4.~~~~Controls and Procedures~~
Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time

periods. As of ~~December 31, 2004,~~June 30, 2005, the end of the period covered by this report, the ~~company had~~Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures. Based on that evaluation, ~~except as described below,~~ our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective. The company reviews its disclosure controls and procedures on an on going basis and may from time to time make changes aimed at enhancing their effectiveness and to ensure that they evolve withnot effective because we are still in the ~~company’s business.~~

process of remediating the material weaknesses described below.

As ~~reported~~previously disclosed in ~~Item 9A of~~ our Annual Report on Form 10-K for ~~the fiscal year ended March 31, 2004, our independent auditors reported to our Audit Committee certain matters involving~~2005, management identified material weaknesses in internal controls ~~that our independent auditors considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants. The reportable conditions generally~~over financial reporting related to the following areas:


	•	Calculating participations expense and related liabilities for financial reporting purposes

	•	Calculating amortization of investment in film and television programs

	•	Monitoring certain charges billed to us by our outsourced home entertainment distribution service provider

	•	Financial statement close process

Notwithstanding these material weaknesses, there were no restatements of any previously issued financial ~~close process, including account analysis. We acquired Artisan on December 15, 2003. From the date~~statements of ~~acquisition~~ the Company ~~began the process~~as a result of ~~integrating Artisan and converting our accounting systems to that of Artisan’s, both of which contributed to the conditions described above.~~

~~With the completion of the acquisition of Artisan in December 2003 and much of the integration complete, management is actively working to address~~ these matters and continued to make significant improvements in the financial close process during its third quarter of fiscal 2005 resulting in a timely filing of each quarterly report on Form 10-Q filed in this fiscal year. Although the complete remediation of the reportable conditions will take some time, Management continues to add and reallocate accounting staff and resources appropriately and put in place processes and systems to further improve itsidentified control ~~processes.~~

deficiencies.

Changes in Internal Control over Financial Reporting

~~Certain improvements were made~~

As disclosed in our Annual Report on Form 10K for 2005, the Company has implemented an action plan to remediate the material weaknesses described above. During the quarter we continued to add accounting resources, implemented review procedures, and continued to improve our processes and controls. Management intends to further implement its action plan, remediate these material weaknesses and improve our processes and control procedures.

No other changes to internal ~~controls~~control over financial reporting have come to our management’s attention during the ~~nine~~three months ended ~~December 31, 2004. These improvements included developing more detailed closing schedules, better coordination~~June 30, 2005 that have materially adversely affected, or are reasonably likely to materially adversely affect the Company’s internal control over financial reporting.

PART II


Item 1.	*Legal Proceedings*

None.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

None.


Item 3.	*Defaults Upon Senior Securities*

None.


Item 4.	*Submission of Matters to a Vote of Security Holders*

None.


Item 5.	*Other Information*

On August 8, 2005 the Board of Directors: (1) granted 12,500 restricted share units to each of Harald Ludwig and ~~communication among departments, obtaining additional resources~~Hardwick Simmons, both of whom joined the Board on June 30, 2005 and each of whom is a ~~temporary~~non-employee director; (2) granted 37,500 common shares to Harry Sloan our former Chairman; and ~~permanent basis and performing more formalized account analysis and review procedures. Further improvements in internal controls will include the addition of personnel on a permanent basis.~~(3) cancelled options to purchase 150,000 common shares previously granted to Harry Sloan.

~~PART II~~

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

During the nine months ended December 31, 2004, 2,168,350 warrants to purchase common shares of the Company were exercised and the Company issued 2,168,350 common shares and received proceeds of $10.8 million. In December 2004, the Company amended the warrants to allow for cashless exercise. During December 2004, an additional 1,993,250 warrants were exercised by cashless exercise resulting in the issuance of 1,052,517 common shares. Any remaining warrants expired January 1, 2005 and therefore no warrants are outstanding. The Company claimed an exemption from registration for the issuances under Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits

~~Item 6. Exhibits~~

Exhibits filed for Lions Gate through the filing of this Form 10-Q.


~~Exhibit Number~~		~~Description of Documents~~
~~31.1~~		~~Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~		~~Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~		~~Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~


Exhibit
Number			Description of Documents

	10	.6	Director Compensation Summary.
	31	.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31	.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32	.1	Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LIONS GATE ENTERTAINMENT CORP.


	By:	/s/ ~~JAMES KEEGAN~~James Keegan



		Name: James Keegan
		Title: Chief Financial Officer

Date: ~~February~~August 9, 2005


Item		Page

PART I
1.	Financial Statements		3
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
3.	Quantitative and Qualitative Disclosures About Market Risk		39
4.	Controls and Procedures		40

PART II
1.	Legal Proceedings		41
2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
3.	Defaults Upon Senior Securities		41
4.	Submission of Matters to a Vote of Security Holders		41
5.	Other Information		41
6.	Exhibits		42
EX-10.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1


	December 31,			March 31,
	2004			2004
	(Unaudited)			(Note 2)
	(All amounts in thousands,
	except share
	amounts)
ASSETS
Cash and cash equivalents	$	5,139		$	7,089
Restricted cash		20,000			—
Accounts receivable, net of reserve for video returns of $54,932 (March 31, 2004 — $46,985) and provision for doubtful accounts of $7,482 (March 31, 2004 — $11,702)		110,649			129,245
Investment in films and television programs		366,465			406,170
Property and equipment		31,426			29,661
Goodwill		168,705			166,804
Other assets		22,868			23,714

	$	725,252		$	762,683

LIABILITIES
Bank loans	$	75,102		$	326,174
Accounts payable and accrued liabilities		112,359			129,724
Film obligations		168,806			114,068
Subordinated notes		215,000			65,000
Mortgages payable		19,063			19,041
Deferred revenue		39,014			38,932
Minority interests		150			135

		629,494			693,074

Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common shares, no par value, 500,000,000 shares authorized, 100,944,357 at December 31, 2004 and 93,615,896 at March 31, 2004 shares issued and outstanding		302,856			280,501
Series B preferred shares (10 shares issued and outstanding)		—			—
Accumulated deficit		(203,286	)		(203,507	)
Accumulated other comprehensive loss		(3,812	)		(7,385	)

		95,758			69,609

	$	725,252		$	762,683


	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,
	2004			2003			2004			2003
	(All amounts in thousands, except per share amounts)
Revenues	$	190,398		$	70,619		$	610,186		$	217,005

Expenses:
Direct operating		82,461			42,535			258,610			113,131
Distribution and marketing		80,263			34,660			282,546			102,910
General and administration		15,582			9,300			49,482			23,647
Severance and relocation costs		—			5,934			—			5,934
Write-down of other assets		—			8,064			—			8,064
Depreciation		835			718			2,224			1,748

Total expenses		179,141			101,211			592,862			255,434

Operating Income (Loss)		11,257			(30,592	)		17,324			(38,429	)

Other Expenses (Income):
Interest		8,201			4,808			19,277			9,017
Interest rate swaps mark-to-market		(419	)		(688	)		(2,408	)		(950	)
Minority interests		(19	)		—			2			—
Other income		—			—			(825	)		—
Equity interests		—			948			200			1,959

Total other expenses, net		7,763			5,068			16,246			10,026

Income (Loss) Before Income Taxes		3,494			(35,660	)		1,078			(48,455	)
Income tax provision		141			84			857			315

Net Income (Loss)		3,353			(35,744	)		221			(48,770	)
Modification of warrants		—			(2,031	)		—			(2,031	)
Dividends on Series A preferred shares		—			(66	)		—			(320	)
Accretion and amortization on Series A preferred shares		—			(73	)		—			(575	)

Net Income (Loss) Available to Common Shareholders	$	3,353		$	(37,914	)	$	221		$	(51,696	)

Basic and Diluted Income (Loss) Per Common Share	$	0.03		$	(0.45	)	$	0.00		$	(0.81	)


												Accumulated
					Series B							Other
	Common Shares				Preferred Shares				Accumulated			Comprehensive
	Number		Amount		Number		Amount		Deficit			Loss			Total
	(All amounts in thousands, except share amounts)
Balance at March 31, 2003		43,231,921	$	159,549		10	$	—	$	(108,350	)	$	(7,567	)	$	43,632
Issuance of common shares		44,951,056		103,176												103,176
Exercise of stock options		955,562		2,609												2,609
Exercise of warrants		275,400		1,377												1,377
Modification of stock options		—		1,740												1,740
Modification of warrants		—		2,031												2,031
Redemption of Series A preferred shares		—		566												566
Conversion of Series A preferred shares		4,201,957		9,453												9,453
Net loss available to common shareholders										(95,157	)					(95,157	)
Foreign currency translation adjustments													(440	)		(440	)
Net unrealized gain on foreign exchange contracts													622			622

Balance at March 31, 2004		93,615,896		280,501		10		—		(203,507	)		(7,385	)		69,609
Exercise of stock options		4,091,790		11,149												11,149
Exercise of warrants		3,220,867		10,842												10,842
Issued to directors for services		15,804		137												137
Modification of stock options		—		227												227
Net income available to common shareholders										221						221
Foreign currency translation adjustments													3,497			3,497
Net unrealized gain on foreign exchange contracts													76			76

Balance at December 31, 2004		100,944,357	$	302,856		10	$	—	$	(203,286	)	$	(3,812	)	$	95,758


	(Amounts in
	thousands)

Cash and cash equivalents	$	19,946
Accounts receivable, net		37,842
Investment in films and television programs		170,224
Intangible assets		5,100
Other tangible assets acquired		4,471
Goodwill		136,518
Bank loans		(54,900	)
Subordinated note		(5,000	)
Other liabilities assumed		(145,264	)

Total	$	168,937


	Net Income (Loss)
				Three Months						Nine Months
	Three Months			Ended			Nine Months			Ended
	Ended			December 31,			Ended			December 31,			Shareholders’ Equity
	December 31,			2003			December 31,			2003			December 31,			March 31,
	2004			(Restated)			2004			(Restated)			2004			2004
							(Amounts in thousands)
As reported under U.S. GAAP	$	3,353		$	(35,744	)	$	221		$	(48,770	)	$	95,758		$	69,609
Adjustment for capitalized pre-operating costs (a)		—			(154	)		—			(462	)		—			—
Stock-based compensation (b)		(529	)		138			(1,391	)		(478	)		—			—
Adjustment for accretion on subordinated notes (c)		(1,946	)		(190	)		(3,182	)		(190	)		(3,991	)		(809	)
Adjustment for amortization of subordinated notes issue costs (c)		47			—			122			—			170			48
Adjustment for amortization and write-off of deferred debt financing costs (d)		(266	)		—			(98	)		—			—			98
Provision for debentures and other receivables due from CinéGroupe (e)		—			8,064			—			8,064			—			—
Adjustment for consolidation of CinéGroupe (e)		—			(2,333	)		—			(2,333	)		—			—
Adjustment for interest rate swaps mark-to-market (f)		(158	)		(688	)		(474	)		(950	)		2,483			2,957
Accounting for business combinations (g)		—			—			—			—			1,145			1,145
Accounting for income taxes (h)		—			—			—			—			(1,900	)		(1,900	)


	As of December 31, 2004
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	2,934		$	327		$	1,878		$	—		$	5,139
Restricted cash		—			—			20,000			—			20,000
Accounts receivable, net		760			—			109,889			—			110,649
Investment in films and television programs		—			—			366,465			—			366,465
Property and equipment		58			1,562			29,806			—			31,426
Goodwill		—			—			168,705			—			168,705
Other assets		138			15,400			7,330			—			22,868
Investment in subsidiaries		225,189			251,226			—			(476,415	)		—
Future income taxes		1,868			—			(1,868	)		—			—

	$	230,947		$	268,515		$	702,205		$	(476,415	)	$	725,252

Liabilities and Shareholders’ Equity (Deficiency)
Bank loans	$	—		$	73,400		$	1,702		$	—		$	75,102
Accounts payable and accrued liabilities		2,452			11,823			98,084			—			112,359
Film obligations		—			—			168,806			—			168,806
Subordinated notes		—			210,000			5,000			—			215,000
Mortgages payable		—			—			19,063			—			19,063
Deferred revenue		—			—			39,014			—			39,014
Minority interests		—			—			150			—			150
Intercompany payables (receivables)		(129,523	)		486			144,617			(15,580	)		—
Intercompany equity		262,260			93,217			306,514			(661,991	)		—
Shareholders’ equity (deficiency)		95,758			(120,411	)		(80,745	)		201,156			95,758

	$	230,947		$	268,515		$	702,205		$	(476,415	)	$	725,252


	Nine Months Ended December 31, 2004
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	345		$	—		$	610,147		$	(306	)	$	610,186
Expenses:
Direct operating		—			—			258,610			—			258,610
Distribution and marketing		—			—			282,546			—			282,546
General and administration		818			28,081			20,889			(306	)		49,482
Depreciation		34			96			2,094			—			2,224

Total expenses		852			28,177			564,139			(306	)		592,862

Operating Income (Loss)		(507	)		(28,177	)		46,008			—			17,324

Other Expenses (Income):
Interest		59			17,644			1,574			—			19,277
Interest rate swaps mark-to-market		—			(2,200	)		(208	)		—			(2,408	)
Minority interests		—			—			2			—			2
Other income		—			—			(825	)		—			(825	)
Equity interests		(793	)		(38,546	)		200			39,339			200

Total other expenses (income)		(734	)		(23,102	)		743			39,339			16,246

Income (Loss) Before Income Taxes		227			(5,075	)		45,265			(39,339	)		1,078
Income tax provision		(6	)		—			(851	)		—			(857	)

Net Income (Loss)	$	221		$	(5,075	)	$	44,414		$	(39,339	)	$	221


	As of March 31, 2004
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)
BALANCE SHEET
Assets
Cash and cash equivalents	$	1,005		$	(9	)	$	6,093		$	—		$	7,089
Accounts receivable, net		180			75			128,990			—			129,245
Investment in films and television programs		—			—			406,170			—			406,170
Property and equipment		87			236			29,338			—			29,661
Goodwill		—			—			166,804			—			166,804
Other assets		141			14,246			9,327			—			23,714
Investment in subsidiaries		226,691			215,109			—			(441,800	)		—
Future income taxes		1,824			—			(1,824	)		—			—

	$	229,928		$	229,657		$	744,898		$	(441,800	)	$	762,683

Liabilities and Shareholders’ Equity (Deficiency)
Bank loans	$	—		$	324,700		$	1,474		$	—		$	326,174
Accounts payable and accrued liabilities		1,183			8,850			119,691			—			129,724
Film obligations		—			—			114,068			—			114,068
Subordinated notes					60,000			5,000			—			65,000
Mortgages payable		—			—			19,041			—			19,041
Deferred revenue		—			—			38,932			—			38,932
Minority interests		—			—			135			—			135
Intercompany payables (receivables)		(103,124	)		(144,035	)		262,738			(15,579	)		—
Intercompany equity		262,260			93,217			306,545			(662,022	)		—
Shareholders’ equity (deficiency)		69,609			(113,075	)		(122,726	)		235,801			69,609

	$	229,928		$	229,657		$	744,898		$	(441,800	)	$	762,683


	Nine Months Ended December 31, 2003
	Lions Gate			Lions Gate
	Entertainment			Entertainment			Other			Consolidating			Lions Gate
	Corp.			Inc.			Subsidiaries			Adjustments			Consolidated
	(Amounts in thousands)
STATEMENT OF OPERATIONS
Revenues	$	1,140		$	—		$	216,472		$	(607	)	$	217,005
Expenses:
Direct operating		—			—			113,131			—			113,131
Distribution and marketing		—			—			102,910			—			102,910
General and administration		1,918			8,164			14,172			(607	)		23,647
Severance and relocation costs		118			5,348			468			—			5,934
Write-down of other assets		5,409			—			2,655			—			8,064
Depreciation		111			434			1,203			—			1,748

Total expenses		7,556			13,946			234,539			(607	)		255,434

Operating Loss		(6,416	)		(13,946	)		(18,067	)		—			(38,429	)

Other Expenses:
Interest		274			7,042			1,701			—			9,017
Interest rate swaps mark-to-market		—			(950	)		—			—			(950	)
Equity interests		41,333			21,775			1,959			(63,108	)		1,959

Total other expenses		41,607			27,867			3,660			(63,108	)		10,026

Loss Before Income Taxes		(48,023	)		(41,813	)		(21,727	)		63,108			(48,455	)
Income tax (provision) benefit		(747	)		1			431			—			(315	)

Net Loss	$	(48,770	)	$	(41,812	)	$	(21,296	)	$	63,108		$	(48,770	)


	•	Television, which includes the licensing to domestic and international markets of one-hour drama series, television movies and mini-series and non-fiction programming.


	•	Studio Facilities, which includes Lions Gate Studios and the leased facility Eagle Creek Studios, which derive revenue from rental of sound stages, production offices, construction mills, ~~and~~ storage facilities and lighting equipment to film and television producers.


	•	Distribution and Marketing Expenses, which primarily include the costs of theatrical “prints and advertising” and of video and DVD duplication and marketing.


	•	General and Administration Expenses, which include salaries and other overhead.


	Year Ended March 31,

	2006		2007		2008		2009		2010		Thereafter		Total

	(Amounts in thousands)
Bank loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Film obligations — Minimum guarantees initially incurred for a term of more than one year		24		3,620		12,437		—		—		—		16,081
Film obligations — Film productions		2,609		7,933		—		4,080		—		—		14,622
Subordinated notes		—		—		—		—		—		385,000		385,000
Mortgages payable		2,401		897		1,656		13,155		—		—		18,109

	$	5,034	$	12,450	$	14,093	$	17,235	$	—	$	385,000	$	433,812


(1)	~~Revolving credit facility, which expires December 31, 2008. Weighted~~Amounts owed to film production entities on delivery of titles. The film production entities incurred average variable interest ~~rate~~rates at ~~December 31, 2004 on principal~~June 30, 2005 of ~~$73.4 million equal to~~ U.S. prime minus ~~0.05%~~1.76%.

(2)	~~Operating line of credit available to a subsidiary. Average variable interest rate at December 31, 2004 of Canadian prime plus 0.50%.~~

~~(3)~~	4.875% Notes with fixed interest rate equal to 4.875%.

~~(4)~~(3)	2.9375% Notes with fixed interest rate equal to 2.9375%.

~~(5)~~(4)	~~Promissory notes~~3.625% Notes with fixed interest rate equal to ~~7.5%~~3.625%.

~~(6)~~(5)	~~Loans with property, buildings and equipment provided as collateral. Average fixed~~Mortgages payable on the studio facility. Fixed interest rate equal to ~~5.87%~~5.62% to 7.51%.