SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30,~~December 31, 2002

oTransition 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
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer
~~incorporation or organization)~~		Identification No.)

Suite 3123, Three Bentall Centre

595 Burrard Street

Vancouver, British Columbia V7X 1J1

(Address of principal executive offices, zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesü (CHECK) No ~~_____~~_______

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes (CHECK) No _______

As of ~~November 4, 2002,~~February 7, 2003, 43,207,399 shares of the registrant’s no par value common stock were outstanding.

TABLE OF CONTENTS


PART I
	Item 1. Financial Statements.
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures
PART II
	Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
SIGNATURES
CERTIFICATIONS

TABLE OF CONTENTS

Item Page

PART I
1. FINANCIAL STATEMENTS 2
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 14
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
4. CONTROLS AND PROCEDURES 23
PART II
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 24


Item					Page

				PART I
	1.	FINANCIAL STATEMENTS				4
	2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION				16
	3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK				24
	4.	CONTROLS AND PROCEDURES				26
			PART II
	6.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K				27

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

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

• any inability to manage our growth or obtain financing to support our operations;

• the unpredictability of commercial success of films and television programs which may result in significant write-downs affecting our results of operations and financial condition;

• dependence on third party financing, government incentive programs and German tax shelter arrangements that could be reduced, amended or eliminated;

• actual production costs exceeding budgets due to circumstances beyond our control;

• operating results fluctuating materially from period-to-period;

• interest rate changes; and

• fluctuating currency rates.

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

PART I

Item 1. Financial Statements.

LIONS GATE ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands of United States dollars)


	September 30, 2002			March 31, 2002			December 31, 2002			March 31, 2002
	(Unaudited)			(Note 2)
							(Unaudited)			(Note 2)
Assets
Cash and cash equivalents	$	11,755		$	6,641		$	7,261		$	6,641
Restricted cash		236			706			—			706
Accounts receivable, net of video reserves $12,562 (March 31, 2002 - $6,342) and provision for doubtful accounts of $8,238 (March 31, 2002 - $10,794)		114,049			116,941
Accounts receivable, net of video reserves $11,654 (March 31, 2002 - $6,342) and provision for doubtful accounts of $6,919 (March 31, 2002 - $10,794)								102,704			116,941
Investment in films and television programs		190,512			181,002			206,040			181,002
Discontinued operation		7,760			10,000			—			10,000
Property and equipment		31,438			31,729
Property and equipment, net								30,976			31,729
Goodwill, net of accumulated amortization of $5,643		27,499			27,499			27,499			27,499
Other assets		11,653			9,451			18,046			9,451
Future income taxes		466			466			466			466

	$	395,368		$	384,435		$	392,992		$	384,435

Liabilities
Bank loans	$	126,829		$	143,734		$	131,055		$	143,734
Accounts payable and accrued liabilities		47,233			52,277			53,298			52,277
Accrued participations and residuals costs		22,839			16,939			23,995			16,939
Production loans		34,671			23,941			23,766			23,941
Long-term debt		56,933			47,400			53,615			47,400
Deferred revenue		15,197			13,818			20,134			13,818
Minority interests		9,138			8,481			9,144			8,481

		312,840			306,590			315,007			306,590

Commitments and contingencies

Shareholders’ Equity
Preferred shares, 200,000,000 shares authorized, issued in series, including 1,000,000 series A (11,830 shares issued and outstanding) and 10 series B (10 shares issued and outstanding) (liquidation preference $30,167)		31,634			30,751			32,076			30,751
Common stock, no par value, 500,000,000 shares authorized, 43,231,921 issued and outstanding		157,675			157,675
Common stock, no par value, 500,000,000 shares authorized, 43,231,921 shares issued and outstanding								157,675			157,675
Accumulated deficit		(103,712	)		(105,801	)		(106,872	)		(105,801	)
Cumulative translation adjustments		(3,069	)		(4,780	)		(4,894	)		(4,780	)

		82,528			77,845			77,985			77,845

	$	395,368		$	384,435		$	392,992		$	384,435

See accompanying notes.

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


					Three months			Three months			Six months			Six months
					ended			ended			ended			ended
					September 30,			September 30,			September 30,			September 30,							Three months ended			Three months ended			Nine months ended			Nine months ended
					2002			2001			2002			2001							December 31, 2002			December 31, 2001			December 31, 2002			December 31, 2001

Revenues	Revenues				$	77,845		$	59,733		$	172,057		$	104,857		Revenues				$	61,867		$	70,552		$	233,924		$	175,409

Expenses:	Expenses:																Expenses:
		Direct operating				45,419			32,198			89,294			57,023			Direct operating				28,595			40,675			117,889			97,698
		Distribution and marketing				18,412			16,450			54,381			26,595			Distribution and marketing				23,230			21,354			77,611			47,949
		General and administration				7,850			8,414			15,333			15,618			General and administration				8,871			9,247			24,204			24,865
		Amortization				1,365			1,099			2,703			1,985			Amortization				1,215			1,205			3,918			3,190

			Total expenses			73,046			58,161			161,711			101,221				Total expenses			61,911			72,481			223,622			173,702

Operating Income						4,799			1,572			10,346			3,636
Operating Income (Loss)																	Operating Income (Loss)					(44	)		(1,929	)		10,302			1,707

Other Expenses:	Other Expenses:																Other Expenses:
		Interest on debt initially incurred for a term of more than one year				2,579			2,269			5,215			4,837			Interest on debt initially incurred for a term of more than one year				2,288			2,282			7,503			7,119
		Minority interests				166			598			631			420			Minority interests				(51	)		135			580			555
		Unusual losses				—			419			—			419			Unusual losses				—			814			—			1,233

				Total other expenses		2,745			3,286			5,846			5,676					Total other expenses		2,237			3,231			8,083			8,907

Income (Loss) Before Undernoted	Income (Loss) Before Undernoted					2,054			(1,714	)		4,500			(2,040	)	Income (Loss) Before Undernoted					(2,281	)		(5,160	)		2,219			(7,200	)
Gain on dilution of investment in a subsidiary	Gain on dilution of investment in a subsidiary					—			2,186			—			2,186		Gain on dilution of investment in a subsidiary					—			—			—			2,186

Income (Loss) Before Income Taxes and Equity Interests	Income (Loss) Before Income Taxes and Equity Interests					2,054			472			4,500			146		Income (Loss) Before Income Taxes and Equity Interests					(2,281	)		(5,160	)		2,219			(5,014	)
Income taxes	Income taxes					908			134			1,042			(1,176	)	Income taxes					(13	)		(2,720	)		1,029			(3,896	)

Income Before Equity Interests						1,146			338			3,458			1,322
Income (Loss) Before Equity Interests																	Income (Loss) Before Equity Interests					(2,268	)		(2,440	)		1,190			(1,118	)
Equity interest in Christal Films Distribution Inc.	Equity interest in Christal Films Distribution Inc.					52			—			446			—		Equity interest in Christal Films Distribution Inc.					16			—			462			—
Equity interest in CinemaNow, LLC	Equity interest in CinemaNow, LLC					—			(323	)		—			(740	)	Equity interest in CinemaNow, LLC					—			(394	)		—			(1,134	)

Net Income from Continuing Operations						1,198			15			3,904			582
Income (Loss) from Discontinued Operation						—			128			—			(774	)
Net Income (Loss) from Continuing Operations																	Net Income (Loss) from Continuing Operations					(2,252	)		(2,834	)		1,652			(2,252	)
Loss from Discontinued Operation																	Loss from Discontinued Operation					—			(358	)		—			(1,132	)

Net Income (Loss)	Net Income (Loss)					1,198			143			3,904			(192	)	Net Income (Loss)					(2,252	)		(3,192	)		1,652			(3,384	)
Dividends on Series A preferred shares	Dividends on Series A preferred shares					(386	)		(406	)		(792	)		(817	)	Dividends on Series A preferred shares					(396	)		(387	)		(1,188	)		(1,204	)
Accretion on Series A preferred shares	Accretion on Series A preferred shares					(500	)		(502	)		(1,023	)		(1,033	)	Accretion on Series A preferred shares					(512	)		(515	)		(1,535	)		(1,549	)

Net Income (Loss) Available to Common Shareholders					$	312		$	(765	)	$	2,089		$	(2,042	)
Net Loss Allocated to Common Shareholders																	Net Loss Allocated to Common Shareholders				$	(3,160	)	$	(4,094	)	$	(1,071	)	$	(6,137	)

Basic and Diluted Income (Loss)
Basic and Diluted Loss																	Basic and Diluted Loss
Per Common Share -																	Per Common Share -
		Per Common Share -															Loss from continuing operations				$	(0.07	)	$	(0.09	)	$	(0.02	)	$	(0.12	)
		Income (loss) from continuing operations			$	0.01		$	(0.02	)	$	0.05		$	(0.03	)	Loss from discontinued operation					—			(0.01	)		—			(0.02	)
		Loss from discontinued operation				—			—			—			(0.02	)
Net Loss																	Net Loss				$	(0.07	)	$	(0.10	)	$	(0.02	)	$	(0.14	)

Net Income (Loss)					$	0.01		$	(0.02	)	$	0.05		$	(0.05	)

See accompanying notes.

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


	Common Stock				Series A Preferred Shares						Series B Preferred Shares							Cumulative						Common Stock				Series A Preferred Shares						Series B Preferred Shares							Cumulative
																		Translation																							Translation
	Number		Amount		Number			Amount			Number		Amount		Deficit			Adjustments			Total			Number		Amount		Number			Amount			Number		Amount		Deficit			Adjustments			Total

Balance at March 31, 2001		42,296,838	$	155,540		12,205		$	29,936			10	$	—	$	(54,796	)	$	(3,163	)	$	127,517			42,296,838	$	155,540		12,205		$	29,936			10	$	—	$	(54,796	)	$	(3,163	)	$	127,517
Conversion of Series A preferred shares		648,000		1,652		(648	)		(1,652	)												—			648,000		1,652		(648	)		(1,652	)												—
Exercise of stock options		87,083		137																		137			87,083		137																		137
Issued pursuant to share bonus plan		200,000		346																		346			200,000		346																		346
Stock dividends						273			696													696							273			696													696
Net loss available to common shareholders																(51,005	)					(51,005	)
Net loss allocated to common shareholders																																							(51,005	)					(51,005	)
Accretion of Series A preferred shares						—			1,771													1,771							—			1,771													1,771
Foreign currency translation adjustments																			(1,617	)		(1,617	)																			(1,617	)		(1,617	)

Balance March 31, 2002		43,231,921	$	157,675		11,830		$	30,751			10	$	—	$	(105,801	)	$	(4,780	)	$	77,845
Net income available to common shareholders																2,089						2,089
Balance at March 31, 2002																									43,231,921	$	157,675		11,830		$	30,751			10	$	—	$	(105,801	)	$	(4,780	)	$	77,845
Net loss allocated to common shareholders																																							(1,071	)					(1,071	)
Accretion of Series A preferred shares						—			883													883							—			1,325													1,325
Foreign currency translation adjustments																			1,711			1,711																				(114	)		(114	)

Balance at September 30, 2002		43,231,921	$	157,675		11,830		$	31,634			10	$	—	$	(103,712	)	$	(3,069	)	$	82,528
Balance at December 31, 2002																									43,231,921	$	157,675		11,830		$	32,076			10	$	—	$	(106,872	)	$	(4,894	)	$	77,985

See accompanying notes.

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


		Six months ended			Six months ended				Three months ended			Three months ended			Nine months ended			Nine months ended
		September 30, 2002			September 30, 2001				December 31, 2002			December 31, 2001			December 31, 2002			December 31, 2001

Operating activities:	Operating activities:							Operating activities:
Net income (loss)	Net income (loss)	$	3,904		$	(192	)	Net income (loss)	$	(2,252	)	$	(3,192	)	$	1,652		$	(3,384	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:							Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Amortization of property and equipment		1,854			1,121		Amortization of property and equipment		928			956			2,782			2,077
	Write-off of projects in development		530			552		Write-off of projects in development		128			97			658			649
	Amortization of pre-operating costs		319			312		Amortization of pre-operating costs		159			152			478			464
	Amortization of deferred financing costs		703			496		Amortization of deferred financing costs		342			296			1,045			792
	Amortization of films and television programs		88,473			56,206		Amortization of films and television programs		28,191			40,287			116,664			96,402
	Minority interests		631			420		Unusual items		—			814			—			1,233
	Gain on dilution of investment in subsidiary		—			(2,186	)	Minority interests		(51	)		135			580			555
	Other equity interests		(446	)		740		Gain on dilution of investment in subsidiary		—			—			—			(2,186	)
	Discontinued operation		—			774		Other equity interests		(16	)		394			(462	)		1,134
Changes in operating assets and liabilities
								Discontinued operation		—			358			—			1,132
Changes in operating assets and liabilities:								Changes in operating assets and liabilities:
	Accounts receivable		406			(4,896	)	Accounts receivable		11,641			2,796			12,047			(2,100	)
	Increase in investment in films and television programs		(99,525	)		(128,399	)	Increase in investment in films and television programs		(43,620	)		(33,767	)		(143,145	)		(162,075	)
	Other assets		(2,655	)		(2,721	)	Other assets		(3,421	)		(876	)		(6,076	)		(3,597	)
	Future income taxes		—			(334	)	Future income taxes		—			(858	)		—			(1,192	)
	Accounts payable and accrued liabilities		(1,508	)		7,586		Accounts payable and accrued liabilities		5,569			740			4,061			8,326
	Accrued participations and residuals costs		5,891			(159	)	Accrued participations and residuals costs		1,152			(869	)		7,043			(1,028	)
	Deferred revenue		1,447			18,016		Deferred revenue		4,880			(12,331	)		6,327			5,685

Net cash flows provided by (used in) operating activities	Net cash flows provided by (used in) operating activities		24			(52,664	)	Net cash flows provided by (used in) operating activities		3,630			(4,868	)		3,654			(57,113	)

Financing activities:	Financing activities:							Financing activities:
Issuance of capital stock	Issuance of capital stock		—			35		Issuance of capital stock		—			82			—			117
Dividends paid on Series A preferred shares	Dividends paid on Series A preferred shares		(792	)		(817	)	Dividends paid on Series A preferred shares		—			—			(792	)		(817	)
Increase (decrease) in bank loans	Increase (decrease) in bank loans		(17,153	)		43,519		Increase (decrease) in bank loans		4,095			(2,831	)		(13,058	)		40,688
Decrease in restricted cash	Decrease in restricted cash		470			—		Decrease in restricted cash		236			—			706			—
Increase in production loans			10,640			5,068
Increase (decrease) in production loans								Increase (decrease) in production loans		(11,044	)		3,522			(404	)		8,590
Increase (decrease) in long-term debt	Increase (decrease) in long-term debt		9,414			(281	)	Increase (decrease) in long-term debt		(3,492	)		5,962			5,922			5,681

Net cash flows provided by financing activities			2,579			47,524
Net cash flows provided by (used in) financing activities								Net cash flows provided by (used in) financing activities		(10,205	)		6,735			(7,626	)		54,259

Investing activities:	Investing activities:							Investing activities:
Minority investment in subsidiary	Minority investment in subsidiary		—			9,070		Minority investment in subsidiary		—			—			—			9,070
Cash received from discontinued operation	Cash received from discontinued operation		2,240			—		Cash received from discontinued operation		4,394			2,500			6,634			2,500
Acquisition of Eaton, net of cash acquired								Acquisition of Eaton, net of cash acquired		—			479			—			479
Purchase of property and equipment	Purchase of property and equipment		(1,649	)		(1,654	)	Purchase of property and equipment		(309	)		(4,702	)		(1,958	)		(6,775	)

Net cash flows provided by investing activities			591			7,416
Net cash flows provided by (used in) investing activities								Net cash flows provided by (used in) investing activities		4,085			(1,723	)		4,676			5,274

Net change in cash and cash equivalents	Net change in cash and cash equivalents		3,194			2,276		Net change in cash and cash equivalents		(2,490	)		144			704			2,420
Foreign exchange effect on cash	Foreign exchange effect on cash		1,920			(2,010	)	Foreign exchange effect on cash		(2,004	)		(271	)		(84	)		(2,281	)
Cash and cash equivalents-beginning of period	Cash and cash equivalents-beginning of period		6,641			6,652		Cash and cash equivalents-beginning of period		11,755			6,918			6,641			6,652

Cash and cash equivalents-end of period	Cash and cash equivalents-end of period	$	11,755		$	6,918		Cash and cash equivalents-end of period	$	7,261		$	6,791		$	7,261		$	6,791

See accompanying notes.

Lions Gate Entertainment Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

1. 1. Nature of Operations

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

2. 2. Basis of Presentation

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

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which conforms, in all material respects, with the accounting principles generally accepted in the United States (“U.S. GAAP”), except as described in note ~~11,~~12, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by Canadian or U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. Certain reclassifications have been made in the fiscal 2002 financial statements to conform to the fiscal 2003 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended March 31, 2002.

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

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

3. 3. Accounting Changes
~~Accounting Changes~~
Goodwill-

~~On November 1, 2001,~~The Company elected to early-adopt the Canadian Institute of Chartered Accountants ~~(“CICA”) released~~ Section 3062 “Goodwill and Other Intangible Assets”, to be applied by companies for fiscal years beginning on or after January 1, 2002. Early adoption was permitted for companies with their fiscal year beginning on or after April 1, 2001, provided the first interim period financial statements had not been previously issued. The Company elected to early-adopt (“CICA ~~3062~~3062”) on April 1, 2001. Under CICA 3062,

goodwill is no longer amortized but is reviewed annually, or more frequently if impairment indicators arise, for impairment, unless certain criteria have been met, and is similar, in many respects, to Statement of Financial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets”, under U.S. GAAP. In accordance with the

adoption provisions of CICA 3062, goodwill is required to be tested for impairment on the date of adoption. Under SFAS 142 goodwill is required to be tested for impairment within six months of adoption, as of the beginning of the year. At April 1, 2001 and September 30, 2001, it was determined that the fair value of each of the reporting units was in excess of its carrying value including goodwill and, therefore, no further work was required and an impairment loss was not required. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. ~~The amortization provisions of CICA 3062 apply to goodwill~~

Derivative Instruments and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization and impairment provisions of CICA 3062 are effective upon adoption of CICA 3062.

~~Derivative Instruments and~~ Hedging Activities-

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

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


	September 30, 2002		March 31, 2002		December 31, 2002		March 31, 2002

Theatrical Films
Released, net of accumulated amortization	$	63,651	$	67,298	$	63,898	$	67,298
Completed and not released		25,191		9,648		17,471		9,648
Acquired library, net of accumulated amortization		37,710		38,405		37,695		38,405
In progress		6,834		5,405		27,244		5,405
In development		825		1,923		696		1,923

		134,211		122,679		147,004		122,679

Non-Theatrical Films and Direct-To-Television
Released, net of accumulated amortization		42,028		38,093		41,944		38,093
Completed and not released		—		1,842		—		1,842
In progress		11,555		15,533		14,700		15,533
In development		2,718		2,855		2,392		2,855

		56,301		58,323		59,036		58,323

	$	190,512	$	181,002	$	206,040	$	181,002

The Company expects that approximately ~~47%~~44% of completed films and television programs, net of accumulated amortization, will be amortized during the ~~one year~~one-year period ending ~~September 30,~~December 31, 2003, and approximately ~~48%~~47% of accrued participants’ share will be paid during the ~~one year~~one-year period ending ~~September 30,~~December 31, 2003.

Additionally, the Company expects approximately ~~87%~~84% of completed and released films and television programs, net of accumulated amortization, will be amortized over the three-year period ending ~~September 30,~~December 31, 2005.

5. The acquired library is being amortized using the straight-line method over a period of twenty years from the acquisition date. The remaining amortization period is 17.75 years at December 31, 2002 on the unamortized costs of $37.7 million.
9
5. Discontinued Operation

Mandalay Pictures, LLC (“Mandalay”) develops and produces large budget, class-A feature films. Effective April 1, 2002, the carrying value of the Company’s investment in Mandalay iswas presented as a discontinued operation as ~~the Company’s investment in Mandalay is~~it was expected to be sold by the end of the current fiscal year. ~~The results~~During the period, the Company received distributions of $2.5 million from Mandalay are reported separately for the current and comparable period. The Company believes that the carrying value of Mandalay as at September 30, 2002 does not exceed the proceeds that will be realized upon its disposition.

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

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

~~Subsequent to September 30,~~prior agreement. On November 8, 2002, the Company ~~received payment of $0.2 million from Mandalay and~~ sold its investment in Mandalay for cash of $4.2 million ~~due on closing~~ and an interest bearing convertible promissory note totaling $3.3 million. The note, bearing interest at 6%, is payable $1.3 million on December 31, 2005, $1.0 million on December 31, 2006 and $1.0 million on December 31, 2007. No gain or loss was recorded on the sale as the Company’s carrying value of $7.5 million equaled the sales price. At December 31, 2002 the note is included in Other assets in the accompanying Condensed Consolidated Balance Sheet.

6. 6. Bank Loans

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

The availability of funds under the revolving credit facilities is limited by the borrowing base, which is calculated on a monthly basis. The borrowing base assets at ~~September 30,~~December 31, 2002 totaled ~~$147.5~~$156.6 million (March 31, 2002 ~~- -$~~—$152.1 million). The revolving credit facility has an average variable interest rate of U.S. prime minus ~~0.4%~~0.05% on principal of ~~$106.6~~$113.1 million and an average variable interest rate of Canadian prime plus ~~1.2%~~0.9% on principal of ~~$15.8~~$14.0 million. The operating line of credit bears interest at Canadian prime plus 1% and the demand loans at Canadian prime plus 0% -— 4%. The Company is required to pay a monthly commitment fee of 0.375% on the total revolving credit facilities of $200.0 million less the amount drawn.

7. 7. Gain on Dilution

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

8. 8. Income (Loss) per Share

Basic income (loss) per share is calculated after adjusting net income (loss) for dividends and accretion on the preferred shares and using the weighted average number of common shares outstanding during the three and ~~six~~nine months ended ~~September 30,~~December 31, 2002 of ~~43,207,000~~43,232,000 shares and ~~43,205,000~~43,232,000 shares, respectively

~~(September 30,~~ (December 31, 2001 — ~~42,463,000~~42,976,000 shares and ~~42,427,000~~42,611,000 shares respectively). The exercise of common share equivalents including employee stock options, share purchase warrants, convertible promissory notes and Series A preferred shares could potentially dilute earnings per share in the future, but were not reflected in fully diluted income per share because to do so would be anti-dilutive.

9. 9. Segmented Information
     SFAS 131 “Disclosures about Segments of an Enterprise and Related Information” requires the Company to make certain disclosures about each reportable segment. The Company has five reportable business segments: Motion Pictures; Television; Animation; Studio Facilities; and CineGate. The
10
Company’s reportable business segments are strategic business units that offer different products and services, and are managed separately.
     Motion Pictures consists of the development and production of feature films, acquisition of North American and worldwide distribution rights, North American theatrical, video 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.
     Animation consists of the development, production and worldwide distribution of animated and live action television series, television movies and feature films.
     Studio Facilities consists of management of an eight-soundstage studio facility in Vancouver, Canada. Rental revenue is earned from soundstages, office and other services such as furniture, telephones and lighting equipment to 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.
     CineGate provides management services to Canadian limited partnerships, including accessing tax credits to finance production in Canada. CineGate ceased operations in fiscal 2002 upon the rescission of the tax shelter business by the Canadian government.
     Segmented information by business is as follows:
(all amounts in thousands of U.S. dollars)

For the three For the three For the nine For the nine
months ended months ended months ended months ended
Dec 31, 2002 Dec 31, 2001 Dec 31, 2002 Dec 31, 2001

Revenues
Motion Pictures $ 43,598 $ 29,545 $ 163,280 $ 91,291
Television 12,199 30,965 42,161 56,428
Animation 4,862 8,845 24,514 23,362
Studio Facilities 1,208 1,013 3,969 3,133
CineGate — 184 — 1,195

$ 61,867 $ 70,552 $ 233,924 $ 175,409

Segment profit (loss)
Motion Pictures $ 2,602 $ (3,799 ) $ 17,085 $ (1,550 )
Television 433 3,274 (724 ) 6,407
Animation 672 1,160 3,575 2,815
Studio Facilities 720 562 2,536 1,685
CineGate — 184 — 1,195

$ 4,427 $ 1,381 $ 22,472 $ 10,552

11
     The reconciliation of total segment profit to the Company’s income before income taxes and discontinued operations is as follows:
(all amounts in thousands of U.S. dollars)

Company’s total segment profit $ 4,427 $ 1,381 $ 22,472 $ 10,552
Less:
Corporate general and administration (3,256 ) (2,105 ) (8,252 ) (5,655 )
Unusual items — (814 ) — (1,233 )
Equity interests 16 (394 ) 462 (1,134 )
Amortization (1,215 ) (1,205 ) (3,918 ) (3,190 )
Interest (2,288 ) (2,282 ) (7,503 ) (7,119 )
Minority interests 51 (135 ) (580 ) (555 )
Gain on dilution of investment in a subsidiary — — — 2,186

$ (2,265 ) $ (5,554 ) $ 2,681 $ (6,148 )

10. Supplementary Cash Flow Statement Information

Interest paid for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 amounted to ~~$4.6~~$6.2 million ~~(September 30,~~(December 31, 2001 — ~~$5.1~~$8.6 million).

Income taxes paid for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 amounted to ~~$1.0~~$1.1 million ~~(September 30,~~(December 31, 2001 — ~~$0.5~~$1.1 million).

~~10.~~ 11. Commitments and Contingencies

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

~~11.~~ 12. Reconciliation to United States GAAP

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

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

912

(all amounts in thousands of USU.S. dollars, except per share amounts)

Net Income (Loss) Shareholders' Equity

Three months ended Three months ended Six months ended Six months ended
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 March 31, 2002

As reported under Canadian GAAP
$ 1,198 $ 144 $ 3,904 $ (192 ) $ 82,528 $ 77,845
Equity interest in loss of Mandalay Pictures (a) — 194 — 387 (2,301 ) (2,301 )
Discontinued operation (b) (1,941 ) — (2,575 ) — (2,575 ) —
Adjustment for capitalized pre-operating costs (c) 93 93 186 186 (1,531 ) (1,717 )
Restructuring costs (d) — — — — (1,145 ) (1,145 )
Accounting for income taxes (e) — — — — 1,900 1,900
Reclassification of Series A preferred Shares outside shareholders’ equity (f) — — — — (28,719 ) (28,175 )

Net income (loss)/ shareholders’ equity under U.S. GAAP
(650 ) 431 1,515 381 48,157 46,407
Adjustment to cumulative translation adjustments account (g) (3 ) (2,392 ) 1,711 (2,812 ) — —
Other comprehensive income (loss) (g) 316 (126 ) 239 (249 ) (19 ) (259 )

Comprehensive income (loss) attributable to common shareholders’ under U.S. GAAP
$ (337 ) $ (2,087 ) $ 3,465 $ (2,680 ) $ 48,138 $ 46,148

Basic and diluted income (loss) per common share under U.S. GAAP
$ (0.03 ) $ (0.01 ) $ 0.00 $ (0.03 )

Net Income (Loss) Shareholders' Equity

Three months ended Three months ended Nine months ended Nine months ended
Dec 31, 2002 Dec 31, 2001 Dec 31, 2002 Dec 31, 2001 Dec 31, 2002 March 31, 2002

As reported under Canadian GAAP
$ (2,252 ) $ (3,192 ) $ 1,652 $ (3,384 ) $ 77,985 $ 77,845
Accounting for capitalized pre-operating costs — Mandalay Pictures(a) — 194 — 581 (2,301 ) (2,301 )
Discontinued operation(b) (185 ) — (2,760 ) — (2,760 ) —
Adjustment for capitalized pre-operating costs(c) 93 93 279 279 (1,438 ) (1,717 )
Accounting for business combinations(d) — — — — (1,145 ) (1,145 )
Accounting for income taxes(e) — — — — 1,900 1,900
Reclassification of Series A preferred Shares outside shareholders’ equity(f) — — — — (28,997 ) (28,175 )

Net loss / shareholders’ equity under U.S. GAAP
(2,344 ) (2,905 ) (829 ) (2,524 ) 43,244 46,407
Adjustment to cumulative translation adjustments account(g) (1,825 ) (214 ) (114 ) (3,026 ) — —
Other comprehensive income (loss)(g) (9 ) 75 230 (174 ) (28 ) (259 )

Comprehensive loss attributable to common shareholders’ / shareholders’ equity under U.S. GAAP
$ (4,178 ) $ (3,044 ) $ (713 ) $ (5,724 ) $ 43,216 $ 46,148

Basic and diluted loss per common share under U.S. GAAP
$ (0.07 ) $ (0.08 ) $ (0.07 ) $ (0.11 )

1013

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

(all amounts in thousands of USU.S. dollars)


	September 30, 2002			March 31, 2002			December 31, 2002			March 31, 2002

Balance at beginning of the period	$	46,148		$	95,606		$	46,148		$	95,606
Increase in capital stock		—			1,179			—			1,179
Dividends paid on preferred shares		(792	)		(1,592	)		(1,188	)		(1,592	)
Accretion on preferred shares (f)		(683	)		(1,323	)		(1,031	)		(1,323	)
Net income (loss) under U.S. GAAP		1,515			(45,846	)		(829	)		(45,846	)
Adjustment to cumulative translation adjustments account (g)		1,711			(1,617	)		(114	)		(1,617	)
Other comprehensive income (loss) (g)		239			(259	)		230			(259	)

Balance at end of the period	$	48,138		$	46,148		$	43,216		$	46,148

~~(a)~~ (a) Accounting for Capitalized Pre-Operating Period Costs — Mandalay

Under Canadian GAAP, pre-operating costs incurred by Mandalay were deferred and amortized to income to March 31, 2002. The remaining unamortized pre-operating costs of $1.2 million at March 31, 2002 were included in write down and equity interest in investments subject to significant influence. Under U.S. GAAP, all start-up costs are required to be expensed as incurred. The amount for the three months and ~~six~~nine months ended ~~September 30,~~December 31, 2001 is presented net of income taxes of $0.1 million and ~~$0.3~~$0.4 million respectively.

~~(b)~~ (b) Accounting for Discontinued Operation

Under Canadian GAAP, effective April 1, 2002 and continuing until November 8, 2002, the ~~carrying value~~date of the sale of the Company’s investment in Mandalay, the carrying value of the investment is presented as a discontinued operation and the results of Mandalay are reported separately for the current and comparable period. Under U.S. GAAP, the investment in Mandalay is not considered a discontinued operation and would be accounted for using the equity method. Accordingly, in the three months and ~~six~~nine months ended ~~September 30,~~December 31, 2002 Mandalay’s net loss of ~~$1.9~~$0.2 million and ~~$2.6~~$2.8 million, respectively, would be recorded as a reduction in net income. Refer to note 5 for further information.

~~(c)~~ (c) Accounting for Capitalized Pre-Operating Period Costs — One-Hour Series Business

Under Canadian GAAP, the Company deferred certain pre-operating costs related to the launch of the television one-hour series business amounting to $3.0 million. This amount is being amortized over five years commencing in the year ended March 31, 2000. Under U.S. GAAP, all start-up costs are required to be expensed as incurred. The amounts are presented net of income taxes for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2002 of $0.1 million and ~~$0.1~~$0.2 million respectively ~~(September 30,~~(December 31, 2001 — $0.1 million and ~~$0.1~~$0.2 million respectively).

(d) Accounting for Business Combinations

Under Canadian GAAP prior to January 1, 2001, costs related to activities or employees of an acquiring company were ~~not~~ considered in the purchase price allocation. In fiscal 2001, the Company included $1.4 million of such costs in the purchase price for a subsidiary. Under U.S.

GAAP, costs related to the acquiring Company must be expensed as incurred. The amount is presented net of income taxes of $0.3 million.

(e) Accounting for Income Taxes

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

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

(f) Accretion on Preferred Shares

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

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

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

(g) Comprehensive ~~Loss~~Income (Loss)

Comprehensive ~~loss~~income (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

or loss. Adjustment to cumulative translation adjustments comprises foreign currency translation gains and losses. Other comprehensive ~~loss~~income (loss) comprises unrealized gains and losses on investments available for sale based on the market price of the shares at ~~September 30,~~December 31, 2002 net of income taxes of $nil ~~(September 30,~~(December 31, 2001 — ~~$nil).~~$nil ).

(h) Accounting for Tax Credits

Under Canadian GAAP, federal and provincial tax credits earned with respect to production costs may be included in revenue. U.S. GAAP requires that tax credits be presented as reduction of income tax expense. ~~The~~For the three and nine months ended December 31, 2002, the corresponding impact would be a reduction of revenue and a credit to income tax expense of ~~$3.4~~$1.5 million ~~(September 30,~~and $8.8 million respectively (December 31, 2001 — ~~$5.0 million)~~$4.0 million and $11.2 million respectively).

(i) Consolidated Financial Statements

Under Canadian GAAP, the Company consolidates the financial statements of CineGroupe Corporation (“CineGroupe”). as a result of its shareholder rights. On July 10, 2001, as a condition of a $9.2 million equity financing with a third party, CineGroupe’s Shareholders’ Agreement was amended to allow for certain participatory super-majority rights to be granted to the shareholders. Therefore, under U.S. GAAP, the Company would be precluded from consolidating CineGroupe and would account for its 29.4% ownership of CineGroupe, commencing April 1, 2001, using the equity method.

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

(all amounts in thousands of USU.S. dollars)


	Three months ended		Three months ended		Six months ended		Six months ended		Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2002		September 30, 2001		September 30, 2002		September 30, 2001		December 31, 2002		December 31, 2001		December 31, 2002		December 31, 2001
	$		$		$		$		$		$		$		$

Revenues		69,323		49,531		152,405		90,340		57,005		61,707		209,410		152,047
Direct operating expenses		38,531		24,569		73,717		45,555		25,391		33,860		99,108		79,415
Distribution and marketing expenses		18,291		16,236		54,123		26,349		23,142		21,350		77,265		47,69
General and administration expenses		7,462		7,824		14,419		14,470		7,973		8,381		22,392		22,851

The impact of using the equity method under U.S. GAAP on the consolidated balance sheet at ~~September 30,~~December 31, 2002 would ~~reduce~~be a reduction in total assets to ~~$346.4~~$349.2 million (March 31, 2002 — $336.4 million) and ~~reduce~~a reduction in debt (including bank loans, production and distribution loans, and long-term debt) to ~~$191.2~~$184.9 million (March 31, 2002 — $188.6 million).


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

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

The following discussion and analysis for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 and 2001 should be read in conjunction with the unaudited condensed consolidated financial statements included in this Form 10-Q. The unaudited condensed consolidated financial statements have been prepared in

accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). The material differences between the accounting policies used by Lions Gate under Canadian GAAP and United States (“U.S.”) GAAP are disclosed in note 1112 to the unaudited condensed consolidated financial statements. Certain reclassifications have been made in the ~~September 30,~~December 31, 2001 unaudited condensed consolidated financial statements to conform to the ~~September 30,~~December 31, 2002 presentation.

The functional currency of our business, defined as the economic environment in which we primarily generate and expend cash, is the Canadian dollar and the U.S. dollar for the Canadian and U.S.-based businesses, respectively. Commencing April 1, 2002 and going forward, our unaudited condensed consolidated financial statements are and will be presented in U.S. dollars, as is this Management Discussion and Analysis. In addition, the ~~September 30,~~December 31, 2001 unaudited condensed financial statements have been restated from Canadian to U.S. dollars. In accordance with generally accepted accounting principles in both Canada and the U.S., the financial statements of Canadian-based subsidiaries are translated for consolidation purposes using current exchange rates, with translation adjustments accumulated in a separate component of shareholders’ equity.

Overview

~~Income~~Loss from continuing operations, ~~income~~loss from discontinued operations and net ~~income~~loss for the three months ended ~~September 30,~~December 31, 2002, were ~~$1.2~~$2.3 million, $nil and ~~$1.2~~$2.3 million, respectively, or ~~$0.01,~~$0.07, $nil and ~~$0.01~~$0.07 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 43.2 million weighted average common shares outstanding. This compares to ~~income~~loss from continuing operations, loss from discontinued operations and net loss of $2.8 million, $0.4 million and $3.2 million, respectively, or $0.09, $0.01, and $0.10 per share (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 43.0 million weighted average common shares outstanding for the three months ended December 31, 2001.

Income from continuing operations, income from discontinued operations and net income offor the nine months ended December 31, 2002, were $1.7 million, $nil ~~$0.1 million~~ and ~~$0.1~~$1.7 million, respectively, or loss per share of $0.02, loss per share of $nil and loss per share of $0.02 respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 42.5 million weighted average common shares outstanding for the three months ended September 30, 2001.

Income from continuing operations, income from discontinued operations and net income for the six months ended September 30, 2002, were $3.9 million, $nil and $3.9 million, respectively, or $0.05, $nil and $0.05 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on 43.2 million weighted average common shares outstanding. This compares to ~~income~~loss from continuing operations, loss from discontinued operations and net loss of ~~$0.6~~$2.3 million, ~~$0.8~~$1.1 million and ~~$0.2~~$3.4 million, respectively, or loss per share of ~~$0.03,~~$0.12, loss per share of $0.02 and loss per share of ~~$0.05~~$0.14 per share respectively (after giving effect to the Series A preferred share dividends and accretion on the Series A preferred shares) on ~~42.4~~42.6 million weighted average common shares outstanding for the ~~six~~nine months ended ~~September 30,~~December 31, 2001.

EBITDA (defined as earnings before interest, provision for income taxes, amortization, minority interests, ~~unusual losses, write-down~~gain on dilution of investment in subsidiary and ~~equity interests in investments subject to significant influence)~~discontinued operation) of ~~$6.2~~$1.2 million for the three months ended ~~September 30,~~December 31, 2002 increased ~~$3.5~~$3.1 million or ~~129.6%~~258.3% compared to ~~$2.7~~negative $1.9 million for the three months ended ~~September 30,~~December 31, 2001. EBITDA of ~~$13.0~~$14.7 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 increased ~~$7.4~~$12.2 million or ~~132.1%~~488.0% compared to ~~$5.6~~$2.5 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2001. While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with GAAP. EBITDA does not reflect cash available to fund cash requirements. Not all companies calculate EBITDA in the same manner and the measure as presented may not be comparable to ~~similarly-titled~~similarly titled measures presented by other companies.

The following table reconciles EBITDA (defined as earnings before interest, provision for income taxes, amortization, minority interests, ~~unusual losses, write-down~~gain on dilution of investment in subsidiary and ~~equity interests in investments subject~~discontinued operation) to ~~significant influence) to Net~~net income (loss):


	Three months ended			Three months ended			Six months ended			Six months ended			Three months ended			Three months ended			Nine months ended			Nine months ended
	Sept 30, 2002			Sept 30, 2001			Sept 30, 2002			Sept 30, 2001			Dec. 31, 2002			Dec. 31, 2001			Dec. 31, 2002			Dec. 31, 2001

	(amounts in thousands)												(amounts in thousands)
EBITDA, as defined	$	6,164		$	2,671		$	13,049		$	5,621		$	1,187		$	(1,932	)	$	14,682		$	2,530
Amortization		(1,365	)		(1,099	)		(2,703	)		(1,985	)		(1,215	)		(1,205	)		(3,918	)		(3,190	)
Interest		(2,579	)		(2,269	)		(5,215	)		(4,837	)		(2,288	)		(2,282	)		(7,503	)		(7,119	)
Minority interests		(166	)		(598	)		(631	)		(420	)		51			(135	)		(580	)		(555	)
Unusual losses		—			(419	)		—			(419	)
Gain on dilution of investment in subsidiary		—			2,186			—			2,186			—			—			—			2,186
Income taxes		(908	)		(134	)		(1,042	)		1,176			13			2,720			(1,029	)		3,896
Equity interests in investments subject to significant influence		52			(323	)		446			(740	)
Income (loss) from discontinued operation		—			128			—			(774	)
(Loss from discontinued operation														—			(358	)		—			(1,132	)

Net income (loss)	$	1,198		$	143		$	3,904		$	(192	)	$	(2,252	)	$	(3,192	)	$	1,652		$	(3,384	)

Results of Operations

Three Months Ended ~~September 30,~~December 31, 2002 Compared to Three Months Ended ~~September 30,~~December 31, 2001

Revenue for the three months ended ~~September 30,~~December 31, 2002 of ~~$77.8~~$61.9 million ~~increased $18.1~~decreased $8.7 million or ~~30.3%~~12.3% compared to ~~$59.7~~$70.6 million in the comparable period.

Motion Pictures revenue of ~~$50.2~~$43.6 million increased ~~$18.7~~$14.1 million or ~~59.4%~~47.8% from ~~$31.5~~$29.5 million in the prior year’s ~~first~~third quarter. Quarter-over-quarter theatrical revenue decreased ~~$4.8~~$2.3 million to ~~$2.1~~$3.2 million, video revenue increased ~~$16.1~~$8.2 million to ~~$33.7~~$24.7 million, television revenue increased ~~$2.8~~$4.7 million to ~~$5.0~~$6.1 million and international revenue increased ~~$0.4~~$4.2 million to ~~$5.1~~$9.3 million. The most significant theatrical ~~release~~releases in the quarter ~~was~~are~~Lovely~~ Rules of Attractionand ~~Amazing~~Secretarywith theatrical revenue of ~~$1.2 million.~~$1.9 million and $0.8 million, respectively. Significant theatrical releases in the comparable quarter includedOThe Washand~~Songcatcher~~Les Boys(released in Quebec) with theatrical revenue of ~~$5.4~~$3.0 million and ~~$0.9~~$1.5 million, respectively. Significant video releases in the current quarter ~~included:~~included~~Frailty~~Liberty Stands Stillwith video revenue of ~~$9.8~~$2.1 million.FrailtyandMonster’s Ballreleased on video in previous quarters earned video revenue this quarter of $2.8 million and~~Cat’s Meowwith video revenue of $1.1 million.~~ $2.1 million, respectively. A majority of the television revenue in the current quarter relates to the licensing ofOMonster’s Ballto pay ~~television for $1.1 million.~~television. The most significant international releases in the current quarter were~~Cube 2~~Rules of Attractionand~~Cat’s Meow~~Liberty Stands Stillwith international revenue of ~~$1.8~~$2.1 million and ~~$1.4~~$1.0 million, respectively. ~~Additionally, all domestic rights to~~~~Narc~~~~were sold during the quarter for $2.6 million.~~

Television production revenue of ~~$17.8~~$12.2 million ~~increased $1.1~~decreased $18.8 million or ~~6.6%~~60.6% from ~~$16.7~~$31.0 million in the prior year’s ~~first~~third quarter. Current quarter deliveries included: ~~nine one-hour~~2 one hour episodes ofDead Zoneto UPN in the U.S. ~~and to international territories and 11 one-hour~~, 5 one hour episodes ofTrackerinternationally and the television moviesCabin Pressure, Pilot’s Wife, SuperfireandAttack on the Queen~~to international territories.~~internationally. In the prior year’s ~~second~~third quarter ~~nine~~deliveries included seven one-hour episodes ofMysterious Waysin, six one-hour episodes ofTracker, two one-hour episodes ofIron Chef, a one-hour episode ofDead Zone, the ~~U.S., Canada and to international territories~~ television movieAttack on the Queenand the ~~television movies~~four hour mini-series~~Pilot’s Wife~~Superfire~~in the U.S. and~~~~Cabin Pressure~~~~to international territories were delivered.~~. Termite Art contributed revenue of ~~$1.8~~$4.5 million compared to ~~$2.1~~$3.4 million in the prior year’s ~~second~~third quarter. In the current quarter Termite Art delivered ~~9.5~~22.5 hours of programming, compared to 1320.5 hours delivered in the prior year’s ~~second~~third quarter. Current

quarter deliveries included: one hour of each of~~Inside VICAP, Return to Area 51, Nostradamus, Crop Circles,~~ Amazing Baby Bloopers, ~~Wage Slaves,~~ What Were You Thinking, Amazing Animal Videosand~~Charming.~~Unsolved History.

In Animation, CinéGroupe’s revenue of ~~$8.5~~$4.9 million decreased ~~$1.7~~$3.9 million or ~~16.7%~~44.3% from ~~$10.2~~$8.8 million in the prior year’s ~~second~~third quarter. In the current quarter a total of ~~28.0~~20.0 half-hours were delivered ~~including:~~includingDaft Planet ~~Galidor Defender of the Outer Dimension,~~ andStrange ~~Tales and Three Pigs.~~Tales.In the prior year’s ~~second~~third quarter, ~~35.5~~29.0 half-hours were delivered includingSagwa The Chinese Siamese Cat, What’s With Andyand~~Kids From Room 402.~~Big Wolf on Campus.

Studio Facilities revenue of ~~$1.4~~$1.2 million increased ~~$0.3~~$0.2 million or ~~27.3%~~20% from ~~$1.1~~$1.0 million in the prior year’s ~~second~~third quarter due ~~primarily to revenues earned from subleased stages and ancillary operations and~~ to an increase in rental rates. In the current quarter, stage and office occupancy levels averaged ~~84%~~76.0% and ~~82%~~73.0% respectively, compared to ~~99%~~99.0% and ~~96%~~94.0% respectively in the prior year’s ~~second~~third quarter. Occupancy rates decreased partially due to an increase in occupancy space from the building of a new sound stage.

Direct operating expenses of ~~$45.4~~$28.6 million for the three months ended ~~September 30,~~December 31, 2002 were ~~58.3%~~46.2% of revenue, compared to direct operating expenses of ~~$32.2~~$40.7 million, which were ~~53.9%~~57.6% of revenue in the comparable quarter. Direct operating expenses as a percentage of revenue ~~increased~~decreased in the current quarter primarily due to ~~low~~the mix of titles included in the quarter. Higher margins ~~recognized~~ on ~~the international delivery of 11 episodes of Tracker. This was~~a one-hour special and rights license fees included in Television were offset by ~~collection of previously fully reserved accounts receivable of $0.7 million.~~lower margins on Motion Picture titles.

Distribution and marketing costs (also known as “P&A”) of ~~$18.4~~$23.2 million for the three months ended ~~September 30,~~December 31, 2002 increased ~~$1.9~~$1.8 million or ~~11.5%~~8.4% compared to ~~$16.5~~$21.4 million in the prior year’s ~~second~~third quarter. P&A increased quarter-over-quarter primarily due to ~~an increase in marketing and duplication costs related to~~advertising expenditure of $9.8 million on the ~~increase in video revenues generated during the quarter. This was offset by duplication credits and video inventory adjustments~~theatrical release of ~~$2.9 million.~~

Rules of Attraction.

General and administration expenses of ~~$7.9~~$8.9 million decreased ~~$0.5~~$0.3 million or ~~6.0%~~3.3% compared to ~~$8.4~~$9.2 million in the prior year’s ~~second~~third quarter.

Amortization expense in the current quarter of ~~$1.4~~$1.2 million ~~increased $0.3 million or 27.3% from $1.1 million in~~remained consistent with the prior year’s first quarter due to a $0.4 million increase in property and equipment amortization offset by a $0.1 million decrease in development costs amortization. Property and equipment amortization increased due to additional Animation colorization and post-production equipment purchases in the prior fiscal year, newly-constructed soundstages that commenced operations in September 2000 and December 2001 and to capitalized systems implementation costs that were amortized from June 2002.third quarter.

Interest expense in the current quarter of ~~$2.6 million increased $0.3 million or 13.0% from~~ $2.3 million inremained consistent with the prior year’s ~~second quarter. Interest expense increased compared to the prior year’s second~~third quarter due to a $0.6 million decrease in capitalized interest resulting from a decline in new production in the current quarter and a $0.1 million increase in amortization of bank financing charges. These increases were partially offset bydespite a reduction in total interest-bearing debt at the end of the current quarter and decrease in annual interest rates by approximately 3%1.2% quarter-over-quarter. This decrease was offset by an increase in amortization of bank financing charges and less capitalization of interest resulting from a decline in new production financed by the revolving credit facility.

In the prior year’s ~~second~~third quarter a ~~$0.4~~$0.8 million unusual loss ~~on disposal~~ was recorded ~~related to~~on the ~~demolition~~acquisition of ~~an existing structure to provide room to build a new sound stage at Lions Gate Studios.~~the remaining 50% of Eaton Entertainment, LLC.

Our investment in CinemaNow, LLC (“CinemaNow”) was written down to $nil at March 31, 2002. The prior year’s ~~second~~third quarter equity interest in CinemaNow of $0.4 million represents 63% of the operating losses of CinemaNow for the three months ended ~~September 30,~~December 31, 2001.

~~Income~~Loss from discontinued operation in the current quarter of $nil compares to ~~income~~loss from discontinued operation in the comparable quarter of ~~$0.1~~$0.4 million. The prior year’s ~~second~~third quarter ~~income~~loss from discontinued operation represents 100% of the operating ~~income~~loss of Mandalay Pictures, LLC (Mandalay) for the three months ended ~~September 30,~~December, 2001 of ~~$0.4~~$0.1 million, ~~less~~plus amortization of capitalized pre-operating period costs of $0.3 million. On November 8, 2002, the Company sold its investment in Mandalay.

Our unaudited condensed consolidated financial statements have been prepared in accordance with Canadian GAAP. The material differences between the accounting policies used by us under Canadian GAAP and U.S. GAAP are disclosed in note 1112 to the unaudited condensed consolidated financial statements. Under U.S. GAAP the net loss for the three months ended ~~September 30,~~December 31, 2002 was ~~$0.7~~$2.3 million. The net ~~income~~loss under U.S. GAAP is ~~less than~~consistent with Canadian GAAP. The net loss under ~~Canadian~~U.S. GAAP ~~due primarily to inclusion of~~includes the net loss in Mandalay ~~partially~~until November 8, 2002, the date of sale of the Company’s investment in Mandalay, offset by the add back of the amortization of pre-operating costs relating to our television one-hour series business, as described in notes ~~11(a)~~12(a), ~~11(b)~~12(b) and ~~11(c)~~12(c) respectively.

~~Six~~Nine Months Ended ~~September 30,~~December 31, 2002 Compared to ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2001

Revenue for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 of ~~$172.1~~$233.9 million increased ~~$67.2~~$58.5 million or ~~64.1%~~33.4% compared to ~~$104.9~~$175.4 million in the comparable period. ~~Revenue increased in all businesses.~~

Motion Pictures revenue of ~~$119.7~~$163.3 million increased ~~$58.0~~$72.0 million or ~~94.0%~~78.9% from ~~$61.7~~$91.3 million in the prior period. Period-over-period theatrical revenue decreased ~~$1.2~~$3.5 million to ~~$9.8~~$13.0 million, video revenue increased ~~$43.1~~$51.3 million to ~~$83.8~~$108.5 million, television revenue increased ~~$4.2~~$8.9 million to ~~$8.4~~$14.5 million and international revenue increased ~~$6.1~~$10.3 million to ~~$12.3~~$21.6 million. The most significant theatrical release in the period wasFrailtywith theatrical revenue of ~~$3.5~~$3.7 million.Monster’s Ball,which was released in fiscal 2002, earned additional theatrical revenue in the period of $2.8 million. Significant

theatrical releases in the comparable period includedO,The WashandAmores Perroswith theatrical revenue of $5.4 million, $3.0 million and $3.0 million, respectively. Significant video releases in the current period included:Frailtywith video revenue of ~~$9.8~~$12.6 million andMonster’s Ballwith video revenue of ~~$29.6~~$31.7 million. A majority of the television revenue in the current period relates to the licensing ofOMonster’s Ballto pay television ~~for $1.1 million~~ and to a single library sale to a cable network for $1.8 million. The most significant international releases in the current period wereFrailty, Rules of Attraction, Cube 2,andMonster’s Ballwith international revenue of ~~$3.4~~$4.1 million,~~Cube 2~~~~with international revenue of $1.8~~ $2.1 million, $2.6 million, and~~Cat’s Meowwith international revenue of $1.4 million. Additionally, all domestic rights to~~~~Narc~~~~were sold during the period for $2.6 million.~~ $2.2 million, respectively.

Television production revenue of ~~$30.0~~$42.2 million ~~increased $4.5~~decreased $14.2 million or ~~17.6 %~~25.2% from ~~$25.5~~$56.4 million in the prior year’s period. Current period deliveries included: 1113.0 one-hour episodes ofDead Zone, 2429.0 one-hour episodes ofTracker, 1313.0 one-hour episodes ofNo Boundariesand ~~four one-hour episodes~~8.0 hours of television movies. ~~In the prior~~Prior year’s period 11deliveries included: 18 one-hour episodes ofMysterious Ways, ~~one hour of the~~ two one-hour pilots ofDead Zone,the mini-seriesSuperfireand ~~two one-hour episodes~~3.0 hours of television ~~movies were delivered.~~movies. Termite Art contributed revenue of ~~$5.1~~$9.6 million compared to ~~$6.5~~$9.8 million in the prior year’s period. In the current period Termite Art delivered ~~28.5~~51.0 hours of programming, compared to ~~42.5~~63.0 hours delivered in the prior year’s period.

In Animation, CinéGroupe’s revenue of ~~$19.7~~$24.5 million increased ~~$5.2~~$1.1 million or ~~35.9%~~4.7% compared to ~~$14.5~~$23.4 million in the prior year’s period. In the current period a total of ~~52.0~~72.0 half-hours were delivered including:Daft Planet, ~~Galidor Defender of the~~ Outer Dimension, Strange TalesandThree Pigs.In the prior year’s period, ~~59.5~~76.5 half-hours were delivered including:~~Sagwa,~~ What’s ~~With~~with Andy, Big Wolf on Campus, Kids ~~From~~from Room 402andWounchpounch.

Studio Facilities revenue of ~~$2.8~~$4.0 million increased ~~$0.7~~$0.9 million or ~~33.3%~~29.0% from ~~$2.1~~$3.1 million in the prior year’s period due primarily to revenues earned from our subleased stages and ancillary operations and to an increase in rental rates. In the current period, stage and office occupancy levels averaged ~~86%~~83.0% and ~~84%~~80.0% respectively, compared to ~~98%~~98.0% and ~~93%~~93.0% respectively in the prior year’s period. Occupancy rates decreased partially due to an increase in occupancy space from the building of a new sound stage.

Direct operating expenses of ~~$89.3~~$117.9 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 were ~~51.9%~~50.4% of revenue, compared to direct operating expenses of ~~$57.0~~$97.7 million, which were ~~54.4%~~55.7% of revenue in the comparable period. Direct operating expenses as a percentage of revenue decreased primarily due to ~~highly profitable projects in the first quarter~~higher margin titles such asMonster’s Ball,andState Propertyand ~~library sales~~a one-hour special and ~~to second quarter collection of previously fully reserved accounts receivable of $0.7 million.~~rights license fees included in Television and provisions in Animation and Television taken in the prior year’s period. These favorable variances were ~~partially~~ offset by ~~losses~~lower margin titles and the loss recognized on the delivery ~~of episodes~~ ofTracker.

Distribution and marketing costs ~~(also known as “P&A”)~~ of ~~$54.4~~$77.6 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2002 increased ~~$27.8~~$29.7 million or ~~104.5%~~62.0% compared to ~~$26.6~~$47.9 million in the prior year’s period. P&A increased period-over-period primarily due to larger expenditure on theatrical releases ofRules of AttractionandFrailtyand to an increase in marketing and duplication costs related to the increase in video revenues generated during the period, ~~including~~primarily due to the release ofMonster’s Ball~~in the first quarter and to advertising expenditures on the theatrical release of~~~~Frailty~~. ~~This was offset by duplication credits and video inventory adjustments of $2.9 million.~~

General and administration expenses of ~~$15.3~~$24.2 million decreased ~~$0.3~~$0.7 million or ~~1.9%~~2.8% compared to ~~$15.6~~$24.9 million in the prior year’s period.

Amortization expense in the current period of ~~$2.7~~$3.9 million increased $0.7 million or ~~35.0%~~21.9% from ~~$2.0~~$3.2 million in the prior year’s period due to ~~a $0.6 million~~an increase in property and equipment ~~amortization and a $0.1 million increase in other amortization costs.~~amortization. Property and equipment amortization increased due to additional ~~Animation colorization~~animation and post-production equipment purchases

and newly-constructed soundstages in the prior fiscal year ~~newly-constructed soundstages that commenced operations in September 2000 and December 2001~~ and to capitalized systems implementation costs that were amortized from June 2002.

Interest expense in the current period of ~~$5.2~~$7.5 million increased $0.4 million or ~~8.3%~~5.6% from ~~$4.8~~$7.1 million in the prior year’s period. Interest expense increased compared to the prior year’s period due to a ~~$1.1~~$2.2 million decrease in capitalized interest resulting from a decline in new production financed by the revolving credit facility in the current period and a ~~$0.2~~$0.3 million increase in amortization of bank financing charges. These increases were partially offset by a reduction in total interest-bearing debt at the end of the period and a decrease in annual interest ~~rates by approximately 3% period-over-period.~~rates.

In the prior year’s period, ~~the Company recorded an~~ unusual losses of $1.2 million included a loss of $0.4 million related to the demolition of an existing structure to provide room to build a new sound stage at Lions Gate ~~Studios.~~Studios and a loss of $0.8 million on the acquisition of the remaining 50% of Eaton Entertainment, LLC.

The ~~$0.4~~$0.5 million equity interest in Christal Films Distribution Inc. (“Christal”) consists of 75% of the net income of Christal for the ~~six~~nine months ended ~~September 30,~~December 31, 2002. Our investment in CinemaNow was written down to $nil at March 31, 2002. The prior year’s period equity interest in CinemaNow of $1.1 million represents 63% of the operating losses of CinemaNow for the ~~six~~nine months ended ~~September 30,~~December 31, 2001.

~~Income~~Loss from discontinued operation in the current period of $nil compares to loss from discontinued operation in the comparable period of ~~$0.8~~$1.1 million. The prior year’s period loss from discontinued operation represents 100% of the operating loss of Mandalay ~~Pictures, LLC~~ for the ~~six~~nine months ended ~~September 30,~~December 31, 2001 of $0.2 million, plus of amortization of capitalized pre-operating period costs of ~~$0.6~~$0.9 million. On November 8, 2002, the Company sold its investment in Mandalay.

inclusion of the net loss in Mandalay until November 8, 2002 the date of sale of the Company’s investment in Mandalay. This is partially offset by the add back of the amortization of pre-operating costs relating to our television one-hour series business, as described in notes ~~11(a)~~12(a), ~~11(b)~~12(b) and ~~11(c)~~12(c) respectively.

Liquidity and Capital Resources

Cash flows from operating activities in the ~~six~~nine months ended ~~September 30,~~December 31, 2002 were ~~$nil~~$3.7 million compared to cash flows used in operating activities of ~~$52.7~~$57.1 million in the comparable period due primarily to improved operating results, a decrease in accounts receivable, an increase in accruals and ~~decreased net investment~~a decrease in investment in films and television programs in the current period as a result of less production and acquisition activity in the current period. These favorable operating cash flow variances are partially offset by a decrease in deferred revenue — significant collections for television series and television movies were received during the previous period. Cash flows ~~from~~used in financing activities in the ~~six~~nine months ended ~~September 30,~~December 31, 2002 were ~~$2.6~~$7.6 million compared to cash flows from financing activities of ~~$47.5~~$54.3 million in the comparable period primarily due to the repayment of bank loans in the current period compared to the previous period where a significant component of production activity was financed through bank loans. This decrease was offset by an increase in production loans during the period used to finance production activity. Cash flows from investing activities in the ~~six~~nine months ended ~~September 30,~~December 31, 2002 were ~~$0.6~~$4.7 million compared to cash flows from ~~financing~~investing activities of ~~$7.4~~$5.3 million in the comparable period. In the prior year’s period ~~primarily due to Cdn$14.0~~$9.2 million ~~($9.2 million)~~ of equity financing from a third party for shares in CineGroupe was received. In the current period $2.5 million was received from Mandalay as distributions under a prior agreement and $4.2 million was received as proceeds from the sale of the Company’s investment in Mandalay. Cash flows used for the purchase of property and equipment decreased in the current period compared to the previous ~~period.~~

period where animation and post production equipment was purchased.

Our liquidity and capital resources were provided during the ~~six~~nine months ended ~~September 30,~~December 31, 2002 principally through cash generated from operations and the $200 million “borrowing base” revolving credit facility with J.P. Morgan Securities. The credit facility is limited by our borrowing base, which includes certain accounts receivable, and “library” credits. Management projects that the difference between the borrowing base and the amount borrowed over the next ~~two quarters~~quarter will be positive resulting in excess borrowing capacity. At ~~September 30,~~December 31, 2002, the borrowing base assets totaled ~~$147.5~~$156.6 million and we had drawn ~~$122.4~~$127.2 million of our $200.0 million revolving operating credit facility.

Provision for doubtful accounts of ~~$8.2~~$6.9 million at ~~September 30,~~December 31, 2002 decreased ~~$2.6~~$3.9 million from $10.8 million at March 31, 2002 primarily due to ~~the~~ net write ~~off~~offs of ~~$2.5~~$2.8 million of video accounts receivable and ~~chargebacks~~$1.4 million of international, non-theatrical and other accounts receivable against the provision and the collection of a $0.7 million receivable provided for at March 31, 2002. This was offset by an increase in the provision for all other receivables during the period of ~~$0.6~~$1.1 million.

The nature of our business is such that significant initial expenditures are required to produce and acquire 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 lines available, single-purpose production financing and tax shelter 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, interest coverage, liquidity, capital base and debt-to-total capital ratios with the long-term goal of maintaining our creditworthiness.

Our current financing strategy is to leverage investment in film and television programs through operating credit facilities and single-purpose production financing. We usually obtain financing commitments, including, in some cases, funds from government incentive programs and foreign distribution commitments to cover, on average, at least 70% of the budgeted hard costs of a project before commencing production.

Our 5.25% convertible, non-voting redeemable Series A preferred shares are entitled to cumulative dividends, as and when declared by the Board of Directors, payable semi-annually on the last day of March and September of each year. We have the option of paying such dividends either in cash or additional preferred shares. ~~On September 30, 2002 we paid a cash dividend on our Series A preferred shares of $791,871.~~ We do not pay and do not intend to pay, and are restricted from paying by our revolving credit facility, dividends on common shares. Considering our business strategy and investment opportunities, we believe it to be in the best interest of shareholders to invest all available cash in the expansion of our business.

Critical Accounting Policies

We believe that 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 the March 31, 2002 consolidated financial statements.

We accrue for video returns and allowances in the financial statements based on previous returns and allowance 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 capitalize costs of production, including financing costs, to investment in films and television programs. These costs are amortized to direct operating expenses in accordance with SoP 00-2. These costs are stated at the lower of unamortized film or television program costs and fair value. These costs for an individual film or television program are amortized in the proportion that current period actual revenues bear to management’s estimates of the total revenue expected to be received from such film or television program over a period not to exceed ten years from the date of delivery. As a result, if revenue estimates change with respect to a film or television program, we may be required to write down all or a portion of the unamortized costs of such film or television program. No assurance can be given that unfavorable changes to revenue estimates will not occur, which may result in significant write-downs affecting our results of operations and financial condition.

Revenue is driven by audience acceptance of a film or television program, which represents a response not only to artistic merits but also to critics’ reviews, marketing and the competitive market for entertainment, general economic conditions, and other intangible factors, all of which can change rapidly. Actual production costs may exceed budgets. Risk of labor disputes, disability of a star performer, rapid changes in production technology, shortage of necessary equipment and locations or adverse weather conditions may cause cost overruns. We generally maintain insurance policies (“completion bonds” and “essential elements insurance” on key talent), mitigating certain of these risks.

Interest Rate and Currency Risk Management

Additionally, 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. In the current period we entered into foreign exchange contracts to hedge future production expenses denominated in Canadian dollars. In July 2002, the Company entered into a $100.0 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%. Other hedges and derivative financial instruments ~~will~~may be used in the future, within guidelines approved or to be approved by the Board of Directors for counterparty exposure, limits and hedging practices, in order to manage our interest rate and currency exposure. We have no intention or entering into financial derivative contracts, other than to hedge a specific financial risk.

Our principal currency exposure is between Canadian and U.S. dollars, although this exposure is significantly mitigated through the structuring of the $200 million revolving credit facility as a $25 million Canadian dollar credit facility and a $175 million U.S. dollar credit facility. Each facility is borrowed and repaid in the respective country of origin, in local currency.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Quantitative and Qualitative Disclosures About Market Risk~~

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.

Debt. We are exposed to cash flow risk due to changes in market interest rates related to our outstanding debt. For example, our credit facilities and some of our long-term debt bears interest on borrowings outstanding at various time intervals and at market rates based on either the Canadian prime rate or the U.S. prime rate, plus a margin ranging from ~~–0.48%~~-0.34% to 4.0%. Our principal risk with respect to our long-term debt is interest rate risk, to the extent not mitigated by interest rate swap and foreign exchange contracts.

The table below presents principal debt repayments and related weighted average interest rates for our credit facilities and long-term debt obligations at ~~September 30,~~December 31, 2002 by expected maturity date.

Expected Maturity Date

Year Ending March 31,

2003 2004 2005 2006 2007

(amounts in thousands)
Bank Loans:

Variable (1) $ — $ — $ — $ 122,400 $ —
Variable (2) 4,429 — — — —
Long-term Debt:

Fixed (3) — 20,569 — 1,514 —
Fixed (4) — 19,839 — 9,255 —


	Expected Maturity Date										Expected Maturity Date
											Year Ending March 31,
	Year Ending March 31,
											2003		2004		2005		2006		2007
	2003		2004		2005		2006		2007
											(amounts in thousands)
			(amounts in thousands)
Bank Loans:
Variable (1)											$	—	$	—	$	—	$	127,094	$	—
Variable ~~(6)~~(2)												2,963		998		—		—		—
Long-term Debt:
Fixed (3)												—		20,530		—		1,503		—
Fixed (4)												—		19,839		—		6,255		—
Fixed (5)		530		1,222		578		—		—		296		1,230		581		—		—
Variable ~~(6)~~(2)		18,720		5,112		1,793		—		—
Variable (6)												4,362		14,217		529		—		—
Variable (7)		6,600		4,809		—		—		—		—		6,987		—		—		—

	$	30,279	$	51,551	$	2,371	$	133,169	$	—	$	7,621	$	63,801	$	1,110	$	134,852	$	—

(1)		Revolving credit facilities, which expire September 25, 2005. Average variable interest rate on principal of ~~$15,816~~$14,010 equal to Canadian prime plus ~~1.2%~~0.9% and average variable interest rate on principal of ~~$106,584~~$113,084 equal to U.S. prime minus ~~0.4%~~0.05%.

(2)		~~Line~~Demand loans at Canadian prime plus 0%-4% and line of credit due July 31, 2003 at Canadian prime plus 1% ~~and demand loans at Canadian prime plus 0% — 4%~~.

(3)		~~Fixed~~Average fixed interest rate equal to 6.44%.

(4)		Non interest-bearing.

(5)		~~Fixed~~Average fixed interest rate equal to 10.8%.

(6)		~~Average variable interest rate equal to Canadian prime plus 1.4%.~~ Majority consists of production loans secured by accounts receivable. Average variable interest rate on production loans equal to Canadian prime plus 1.58%.

(7)		Production loans with an average variable interest rate equal to US ~~prime.~~prime plus 0.31%.

Commitments.The table below presents future commitments under contractual obligations and commercial commitments at ~~September 30,~~December 31, 2002 by expected maturity date.


	Expected Maturity Date
											Expected Maturity Date
	Year Ending March 31,										Year Ending March 31,

	2003		2004		2005		2006		2007		2003		2004		2005		2006		2007

	(Amounts in thousands)										(amounts in thousands)
Operating leases	$	1,325	$	2,354	$	2,047	$	1,360	$	1,001	$	662	$	2,367	$	2,064	$	1,375	$	1,006
Employment contracts		5,617		5,945		1,643		370		—		2,856		6,735		1,643		370		—
Unconditional purchase obligations		9,849		4,675		—		—		—		5,984		12,039		—		—		—
Distribution and marketing commitments		2,850		12,000		—		—		—		3,500		13,200		—		—		—
Corporate guarantee		321		—		—		—		—		321		—		—		—		—

	$	19,962	$	24,974	$	3,690	$	1,730	$	1,001	$	13,323	$	34,341	$	3,707	$	1,745	$	1,006

Foreign Currency. We incur certain operating and production costs in foreign currencies and are subject to market risks resulting from fluctuations in foreign currency exchange rates. In certain instances, we enter into foreign currency exchange contracts in order to reduce exposure to changes in

foreign currency exchange rates that affect the value of our firm commitments and certain anticipated foreign currency cash flows. We currently intend to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks.

We have entered into foreign exchange contracts to hedge future production expenses denominated in Canadian dollars. Gains and losses on the foreign exchange contracts are capitalized and recorded as production costs when the gains and losses are realized. At ~~September 30,~~December 31, 2002, we had contracts to sell US$~~1.4~~2.3 million in exchange for Cdn$~~2.3~~3.7 million over a period of ~~nine~~six weeks at a weighted average exchange rate of 1.6107. Additionally, we have undertaken to unwind the above hedge contract and, therefore, have contracts to sell Cdn$2.3 million in exchange for US$1.4 million over a period of nine weeks at a weighted average exchange rate of 1.5794.

As at September 30, 2002 we also had contracts to sell US$2.1 million in exchange for Cdn$3.2 million over a period of four weeks at an exchange rate of 1.5712, and contracts to sell US$3.9 million in

1.5775.

~~exchange for Cdn$6.2 million over a period of eight weeks at an exchange rate of 1.5838.~~ We do not require collateral or other security to support any of these contracts. Net unrecognized gains as at ~~September 30,~~December 31, 2002 amounted to $0.1 million.

~~Item 4.~~

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The term “disclosure controls and procedures” is defined in Rules 13a-14(c) and 15d-14(c) 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. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days before the filing of this quarterly report (the “Evaluation Date”), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

(b) Changes in internal controls. We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. For the quarter ended ~~September 30,~~December 31, 2002, there were no significant changes to our internal controls or in other factors that could significantly affect our internal controls.

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PART II


~~Item 4.~~		~~Submissions of Matters to a Vote of Security Holders~~

~~On September 10, 2002, the Company held its annual meeting of shareholders. Below is a summary of the matters voted on at the meeting.~~

~~An election of directors was held with the following persons being elected directors:~~

Name Votes For Votes Withheld

Michael Burns 32,295,767 37,108
Drew Craig 32,293,767 39,108
Arthur Evrensel 32,296,067 36,808
Jon Feltheimer 32,296,067 36,808
Frank Giustra 32,295,967 36,908
Douglas Holtby 32,294,067 38,808
Joe Houssian 31,807,167 525,708
Gordon Keep 32,296,067 36,808
Morley Koffman 32,296,067 36,808
Patrick Lavelle 32,294,067 38,808
Andre Link 32,293,013 39,862
Harald Ludwig 32,295,967 36,908
G. Scott Paterson 31,809,067 523,808
E. Duff Scott 32,294,067 38,808

~~The only other matter voted upon~~Item 6. Exhibits, Financial Statement Schedules, and ~~approved at the meeting was the approval of the re-appointment of Ernst & Young LLP as the Company’s auditors for fiscal 2003, the results of which are listed below:~~Reports on Form 8-K.

Votes For Votes Withheld

32,300,161 28,014

Under applicable British Columbia law, abstentions and broker non-votes are not tabulated. Abstentions and broker non-votes are not counted in determining a quorum or the number of shares necessary for approval.

~~The Series B preferred shareholder, Mark Amin, elected himself as a director. The Series A preferred shareholders unanimously elected Thomas Augsberger, Howard Knight and Harry Sloan as directors.~~


~~Item 6.~~		~~Exhibits, Financial Statement Schedules, and Reports on Form 8-K~~

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


Exhibit
Number		Description of Documents

3.1(1)		Articles of Incorporation
3.2(2)		Amendment to Articles of Incorporation to Provide Terms of the Series A Preferred Shares dated as of December 20, 1999
3.3(3)		Amendment to Articles of Incorporation to Provide Terms of the Series B Preferred Shares dated as of September 26, 2000
3.4(4)		Amendment to Articles of Incorporation to change the size of the Board of Directors dated as of September 12, 2001
4.1(1)		Trust Indenture between the Company and CIBC Mellon Trust Company dated as of April 15, 1998
4.2(2)		Warrant Indenture between the Company and CIBC Mellon Trust Company dated as of December 30, 1999

(1)		Incorporated by reference to the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 1998 (File No. 000-27730).

(2)		Incorporated by reference to the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2000 (File No. 000-27730).

(3)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001 (File No. 1-14880).

(4)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001 (File No. 1-14880).

(b) Reports on Form 8-K
~~None.~~

25 None.

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.



DATE: ~~November~~February 14, ~~2002~~		~~By: /s/ James Keegan~~

	2003		By: /s/James Keegan James Keegan Chief Financial Officer (Principal Financial Officer and duly authorized signatory)

2628

CERTIFICATIONS

I, Jon Feltheimer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lions Gate Entertainment Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

2729

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: ~~November~~February 14, ~~2002~~2003		/s/ Jon Feltheimer

		Jon Feltheimer Chief Executive Officer

2830

I, James Keegan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Lions Gate Entertainment Corp.;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could

2931

significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: ~~November~~February 14, ~~2002~~2003		/s/ James Keegan

		James Keegan Chief Financial Officer

3032

	•		any inability to manage our growth or obtain financing to support our operations;

	•		the unpredictability of commercial success of films and television programs which may result in significant write-downs affecting our results of operations and financial condition;

	•		dependence on third party financing, government incentive programs and German tax shelter arrangements that could be reduced, amended or eliminated;

	•		actual production costs exceeding budgets due to circumstances beyond our control;

	•		operating results fluctuating materially from period-to-period;

	•		interest rate changes; and

	•		fluctuating currency rates.

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

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


	Net Income (Loss)												Shareholders' Equity

	Three months ended			Three months ended			Six months ended			Six months ended
	Sept 30, 2002			Sept 30, 2001			Sept 30, 2002			Sept 30, 2001			Sept 30, 2002			March 31, 2002

As reported under Canadian GAAP	$	1,198		$	144		$	3,904		$	(192	)	$	82,528		$	77,845
Equity interest in loss of Mandalay Pictures (a)		—			194			—			387			(2,301	)		(2,301	)
Discontinued operation (b)		(1,941	)		—			(2,575	)		—			(2,575	)		—
Adjustment for capitalized pre-operating costs (c)		93			93			186			186			(1,531	)		(1,717	)
Restructuring costs (d)		—			—			—			—			(1,145	)		(1,145	)
Accounting for income taxes (e)		—			—			—			—			1,900			1,900
Reclassification of Series A preferred Shares outside shareholders’ equity (f)		—			—			—			—			(28,719	)		(28,175	)

Net income (loss)/ shareholders’ equity under U.S. GAAP		(650	)		431			1,515			381			48,157			46,407
Adjustment to cumulative translation adjustments account (g)		(3	)		(2,392	)		1,711			(2,812	)		—			—
Other comprehensive income (loss) (g)		316			(126	)		239			(249	)		(19	)		(259	)

Comprehensive income (loss) attributable to common shareholders’ under U.S. GAAP	$	(337	)	$	(2,087	)	$	3,465		$	(2,680	)	$	48,138		$	46,148

Basic and diluted income (loss) per common share under U.S. GAAP	$	(0.03	)	$	(0.01	)	$	0.00		$	(0.03	)

(a)		Evaluation of disclosure controls and procedures. The term “disclosure controls and procedures” is defined in Rules 13a-14(c) and 15d-14(c) 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. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days before the filing of this quarterly report (the “Evaluation Date”), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

(b)		Changes in internal controls. We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. For the quarter ended ~~September 30,~~December 31, 2002, there were no significant changes to our internal controls or in other factors that could significantly affect our internal controls.


Name	Votes For		Votes Withheld

Michael Burns		32,295,767		37,108
Drew Craig		32,293,767		39,108
Arthur Evrensel		32,296,067		36,808
Jon Feltheimer		32,296,067		36,808
Frank Giustra		32,295,967		36,908
Douglas Holtby		32,294,067		38,808
Joe Houssian		31,807,167		525,708
Gordon Keep		32,296,067		36,808
Morley Koffman		32,296,067		36,808
Patrick Lavelle		32,294,067		38,808
Andre Link		32,293,013		39,862
Harald Ludwig		32,295,967		36,908
G. Scott Paterson		31,809,067		523,808
E. Duff Scott		32,294,067		38,808