SOURCE: Peace Arch Entertainment Group Inc.

December 01, 2008 08:46 ET

Peace Arch® Entertainment Provides Further Information Regarding the Filing of Its Annual Financial Statements

TORONTO--(Marketwire - December 1, 2008) - Peace Arch® Entertainment Group Inc. (AMEX: PAE) (TSX: PAE), today announced that it will be unable to timely file its annual financial statements for the year ended August 31, 2008 in Canada and related CEO and CFO certifications, management discussion and analysis and Annual Information Form due to management's re-evaluation of the Company's investment in ten movie titles and its participation in their production during fiscal 2006 and possible restatement of its consolidated financial statements for fiscal 2006 and fiscal 2007.

As a result of this review, management has determined that ten non-owned single-purpose production companies qualify as variable interest entities and should be consolidated in the Company's financial statements for the year ended August 31, 2008, and that pending further review, consolidation in prior periods may also be appropriate. This will require the Company's auditors to conduct an audit of these ten non-owned production companies. Until such time as the auditors have completed their audit of these non-owned variable interest entities, management is not able to quantify the adjustment that will be required to the consolidated financial statements. There is no certainty as to when the Company will be in a position to file the annual financial statements and the related documentation.

In addition to the foregoing, as part of its ongoing review and evaluation of the Company's investment in film and television assets, management has concluded that a write-down of approximately $21.0 million in the fourth quarter is appropriate. This is in addition to a third quarter write-down of $4.0 million bringing the total write-down to approximately $25.0 million for the year ended August 31, 2008.

Furthermore, in fiscal 2007 and fiscal 2006 the Company entered into sub-distribution agreements with unrelated companies for certain territories in relation to several film titles on which the Company owned international distribution rights. The Company recognized approximately $3.8 million of distribution revenue (approximately $0.9 million in net income) in fiscal 2007 and approximately $2.9 million of distribution revenue (approximately $1.1 million in net income) in fiscal 2006 in relation to these sub-distribution agreements.

As a result of this information coming to the Board, a Special Committee of the Board has been appointed to investigate the Company's involvement with the non-owned production companies and the nature of the sub-distribution agreements. The Board has concerns that certain transactions in connection with the non-owned production companies and the sub-distribution agreements may not have been appropriate and may not have been accounted for correctly. Subject to the results of that review, the Company may need to reduce the associated revenue and net income that was previously reported.

At this time, the Company is unable to estimate the final impact of the potential adjustments and possible restatement of the results for prior years, however it is possible that such adjustments and possible restatement could have a material adverse effect on the shareholder's equity of the Company once finalized. The Company has made contact with the Ontario Securities Commission about these matters.

All adjustments referred to herein are preliminary and unaudited and reflect anticipated adjustments as of the issuance of this press release. These results are subject to change arising from the restatement process, subsequent events and the completion of the audit of the Company's financial statements by the Company's independent auditors.

Forward-Looking Statements

This press release includes statements that may constitute forward-looking statements, usually containing the words "believe," "estimate," "project," "expect," or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, that the corresponding restatement of the Company's financial statements may change based upon the Audit Committee's ongoing analysis, that the Company's ability to file required reports timely with the Securities and Exchange Commission and Canadian securities regulators will be impaired, that potential claims or proceedings may arise relating to such matters, that the Audit Committee in consultation with the Company's independent auditors will determine that the proper accounting differs from the accounting treatment upon which the assumptions and forward-looking statements in this release are based and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission and with the Canadian securities regulators. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this release.

Contact Information

  • Contact:
    Gerry Noble
    Chief Executive Officer
    Peace Arch Entertainment Group Inc.
    Email: Email Contact