FRV Média Inc.
TSX VENTURE : FRV

FRV Média Inc.

July 08, 2005 16:22 ET

FRV Media Stays The Course and Increases its Revenues in Fiscal 2005

MONTREAL, QUEBEC--(CCNMatthews - July 8, 2005) - All amounts are expressed in Canadian dollars unless otherwise indicated.

The Board of Directors of FRV MEDIA ("FRV" or the "Company") (TSX VENTURE:FRV) approved the Company's audited financial statements for the fourth quarter and fiscal 2005 ended March 31, 2005.



Recent events:

- Cite-Amerique delivers two major series: Station X and Histoire de
famille.
- FRV Media acquires the library and operations of Distribution La
Fete, providing it with a catalogue of over 100 titles and a top-
notch team with expertise in the acquisition/export of rights and
content.
- Two institutional investors inject $300,000 in FRV Media's capital
as part of a private placement.


KEY FIGURES, FISCAL 2004-2005 AND FOURTH QUARTER
(In thousands of dollars, except amounts per share.
Amounts per share are fully diluted)

---------------------------------------------------------------------
Fiscal years ended: Quarters ended:
---------------------------------------------------------------------
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Revenues $9,196 $3,633 $576 $1,751
---------------------------------------------------------------------
Gross profit (loss) $2,377 $1,596 $183 $626
---------------------------------------------------------------------
Loss before unusual
items and income taxes $(1,235) $(1,332) $(987) $(248)
---------------------------------------------------------------------
Net loss $(2,027) $(1,064) $(1,781) $(248)
---------------------------------------------------------------------
Net loss per share ($) $(0.07) $(0.04) $(0.06) $(0.01)
---------------------------------------------------------------------

The Board of Directors of FRV MEDIA ("FRV" or the "Company") (TSX
Venture) today approved the Company's audited financial statements
for the fourth quarter and fiscal 2005 ended March 31, 2005.

For fiscal 2005, FRV Media recorded consolidated revenues of
$9,196,322, up 153.1% over last year. Gross profit reached
$2,377,400, a 48.9% increase over the year-ago figure.

FRV Media recorded a net loss of $2,026,934 or $0.07 per share,
compared with a loss of $1,064,446 or $0.04 per share last year. The
period of comparison had benefited from an unusual after-tax gain of
$267,433.

The year's results are primarily due to the following factors:

- The positive impact on sales of the Altau.tv acquisition in August
2003 and of INEO in January 2004;
- The delivery by Cite-Amerique of several profitable feature films
and TV productions, notably Monica la Mitraille, Dragon and Selling
Innocence;
- On the other hand, some major productions were delivered to and
accepted by the broadcasters in the last quarter of the fiscal year
will translate into revenue and profit only in the second quarter
of fiscal 2006, when the exploitation licenses will come into
effect. These productions represent $3,253,593 in revenue $693,033
in gross profit.
- A lower than expected gross profit due in large part to the
exceptionally high write-offs of projects abandoned in the
development stage. Recorded as direct production cost, these
write-offs totalled $467,940 for the quarter, against the more
typical $25,000 a year earlier. The variation stems from the fact
that the Company interrupted the Educnet.tv project at INEO;
- FRV Media also felt the negative impact of lower than expected
sales for events organized by INEO and foreign sales by Cite-
Amerique International;
- Changes to the Company's capital structure resulted in financial
gains of $161,092;
- The goodwill write-off of $381,444 for INEO.

In all, the net loss of $2,026,934 represents an $816,450 loss from
current operations if certain items are disregarded, i.e., the write-
off of Educnet ($396,801), of INEO's goodwill ($381,444) and
projects in development ($71,139), as well as the adjustments to
accounting principles ($361,100).

"While our results for 2005 are below our potential, we were able to
complete the platform to support our development," explained Richard
Laferriere, president and CEO of FRV Media. "The recently acquired
assets and operations of Distribution La Fete allow us to now step up
the development of our distribution and export activities, which
completes the framework of our business plan. We will now be looking
for acquisition opportunities to play a proactive role in industry
consolidation, not only to increase business volume and earnings but
also to help create a coherent ensemble of operating units that
complement each other by their respective mission and expertise."

For the quarter ended March 31, FRV Media recorded revenues of
$575,965 against $1,751,270 a year earlier. Gross profit amounted to
$213,758, compared with $625,964 in Q4 of fiscal 2004. The net loss
for the quarter was $1,781,357 or $0.05 per share, against earnings
of $247,800 last year.

The quarterly results are attributable to the following factors:

- The deferment to the second quarter of fiscal 2006 of almost all
the productions delivered by Cite-Amerique and Altau.tv during the
quarter ended March 31. Although accepted by their respective
licensees, these productions will only be recognized when the
license actually comes into effect, in conformity with the
standards adopted by FRV Media (see below, "Accounting Principles
and Change"). As at March 31, these productions represented
$3,253,593 in revenue and $693,033 in gross profit.
- A lower than expected gross profit due in large part to the
exceptionally high write-offs of projects abandoned in the
development stage. Recorded at direct production cost, these
write-offs totalled $467,940 for the quarter, against the more
typical $25,000 a year earlier. The variation stems from the fact
that the Company interrupted the Educnet.tv project at INEO;
- The goodwill write-off of $381,444 for INEO.


ACCOUNTING PRINCIPLES AND CHANGES

The consolidated financial statements of FRV Media were prepared in accordance with generally accepted accounting principles in Canada ("GAAP") and are stated in Canadian dollars. The same is true for the additional financial information that appears in this report. FRV Media filed its audited financial statements for fiscal 2005 with the Canadian Securities Administrators. The reader can consult these financial statements at www.sedar.com. This MD&A should be read with these financial statements and related notes.

In March 2003, FRV Media management decided to adopt accounting practices closer to the American standard applicable to film producers and distributors. FRV Media adopted this new standard because it is stricter and more transparent than the one based on work progress. However, its application means that the Company's revenues are recognized less regularly, resulting in highly varied revenues and quarterly results. This variability will subside as the Company increases and diversifies its production.

Until that date, generally accepted accounting principles in our industry allowed revenue to be reported as the work progressed. Since March 2003, FRV Media has been recording production and distribution revenue only once the product has been delivered and accepted by the licensee and payment was reasonably assured, regardless of the contractual license date. In our view, from the date of delivery all the risks and benefits associated with a given production were transferred to the licensee.

In light of abstract EIC-141 issued by the Canadian Institute of Chartered Accountants ("CICA"), we decided to recognize revenue not only when a film or a program is delivered or accepted but when the license comes into effect. This change can mean that recognition of revenue and profit is delayed, sometimes for several months.

This change has been applied retroactively to our 2004 financial statements. The change in the date of recognition resulted in a decrease of $1,455,558 in revenue and an increase of $331,933 in net loss for the year. For fiscal 2005, the impact was a decrease of $1,798,035 in revenue and an increase in net loss of $361,100.

In 2005, in accordance with the new CICA recommendations, we also changed the way we record government financing and assistance for productions and their development. We also restated 2004 data in accordance with these new recommendations. In the past, government assistance was recorded as revenue, whereas it is now deducted from production costs. This change considerably reduces our revenues and production costs but has no impact on gross profit, operating expenses or the Company's earnings. However, it does increase certain ratios, namely, the gross margin rate for productions.

Despite this change, in our view, the gross value of productions, including government assistance, remains a meaningful measure of our production and business volume. Consequently, this press release presents, along with the revenues determined according to the new CICA recommendations, the gross value of the products, i.e., revenues plus government assistance.

ADDITIONAL INFORMATION

Readers can find the MD&A for the fiscal year ended March 31 at www.sedar.com. Moreover, the Company regularly discloses information pertaining to its operations through press releases, quarterly financial statements and its annual information form. This information is available on the SEDAR Web site at www.sedar.com.

ANALYSIS OF 2005 RESULTS

Revenues

Revenues for fiscal 2005 amounted to $9,196,322 on a gross value of $22,134,269 compared with revenues of $3,633,271 on a gross value of $6,969,204 last year. Regardless of the measure used, revenues therefore nearly tripled.

Organic growth was very strong. Subsidiary Cite-Amerique delivered several major productions, including feature films Monica la Mitraille and CQ2, the TV movie Selling Innocence and the first of the Dragon youth series.

Products totalling $3,253,593 with a gross value of $4,242,223 were delivered and accepted but not reported in the financial statements since their license only came into effect after the fiscal year-end. Therefore, the television series Histoire de famille, the first nine episodes of the TV series Station X and the documentary Antichambre des Grands were delivered during the year but their revenues will only be recognized in fiscal 2006.

Acquired in 2004, Altau and INEO also contributed to revenue growth, with Altau delivering a number of productions, of which the most important in terms of revenues were Soir de Fete avec Isabelle Boulay, a variety show broadcast in Canada and France, Fous du risque, a documentary TV series, and Projet Tuning. Although the volume of dubbing activities remained stable, event recording increased markedly. For example, Altau recorded the Champ Car Molson Indy Montreal and the Grand Prix de Trois-Rivieres, the Challenge sur glace de Sherbrooke and the Mercuriades.

INEO held shows and symposiums in Ottawa and Montreal, organized the annual conference of the Canadian Manufacturers and Exporters Association and launched Toutpourreussir.com, an interactive site of the Quebec Education Ministry aimed at high-school students.

Gross profit

Gross profit stood at $2,774,201 or 30.2% of revenues and 12.5% of their gross value in contrast with $1,596,415 or 43.9% of revenues and 23.0% of gross value last year. The drop in gross margin is essentially due to the fact that last year Cite-Amerique recorded exceptionally high exploitation revenues due to the success of Seraphin un homme et son peche both at the box office and in terms of licensed products. The gross margin on these revenues is higher than on our other activities.

At the end of the year, unrecognized gross profit associated with productions delivered and accepted was $693,033 compared with $331,933 at the end of 2004.

Operating expenses

Covering FRV Media and its subsidiaries, consolidated operating expenses for the year ended March 31, 2005 amounted to $3,871,818, compared with $2,638,243 a year earlier. Most of this increase stems from the fact that the operating expenses of Altau and INEO were recorded for a full year, as opposed to only seven and two months respectively in fiscal 2004. As well, we stepped up the development of our distribution and export activities and therefore the pace of some related operating expenses.

Financial expenses net of interest income were $12,563, compared with $213,385 last year. The decrease stems from the gain on the debt write-off recorded following the conversion of 5,600,000 Class C shares into an equal number of Class A shares. The Class C shares had a debt component for which the interest was deemed and capitalized but still reported as an expense.

Depreciation of fixed assets stood at $125,228, against $76,666 in the year-ago period. The increase is primarily attributable to Altau and INEO, taken into account for a full year in 2005.

The loss before unusual items and taxes was $1,235,408, compared with $1,331,879 in 2004.

FRV Media wrote off the Educnet project ($396,801) as well as the goodwill registered when INEO was acquired ($381,444), for a total charge of $0.02 per share. The Educnet write-off stems from the fact that this project is no longer part of INEO's core strategy. The INEO goodwill write-off is consistent with the write-off of Educnet.tv, Moreover, since its expected profitability is lower now than at the time of acquisition, we took a full write-off. We will be developing an alternate strategy to realize the value of our investment in INEO

During the 2004 fiscal year, subsidiary Cite-Amerique reached an out-of-court settlement with a third party concerning the exploitation of certain rights derived from the television series Marguerite Volant. As a result of this settlement, the Company recorded an extraordinary gain of $267,433, net of charges and applicable taxes.

RECENT DEVELOPMENTS

Cite-Amerique continues to film Dragon II, scheduled for delivery to the Treehouse network in early 2006. Shooting of L'Audition is finished, and the feature film was delivered on time in June.

Altau.tv is producing a second series of Marc Gagnon rencontre and Projet Tuning, which both should air in fall 2005.

Altau.tv is also involved in the Metrovision project of Societe de transport de Montreal. Working with such partners as RDI, Cirque du Soleil and the National Film Board, Altau.tv provides informative, entertaining capsules shown on giant screens in Montreal metro stations.

After the fiscal year-end, FRV Media completed the acquisition of Distribution la Fete's assets and operations, comprising a library of some 100 titles representing several hundred hours of audiovisual material covering a vast array of genres: feature films, drama series, animation series and documentaries. The Company paid an immediate consideration of $500,000 and will pay an additional amount of up to $500,000 over two years, contingent on the achievement of certain sales objectives during that period.

Also after the year-end, FRV completed a private equity placement with two institutional investors who injected $300,000 into FRV's capital. The placement consists of 600,000 units at a price of $0.50 each, comprising one Class A share and a half warrant, each warrant entitling the holder to purchase one Class A share at a price of $0.60 per share until October 29, 2006, and at $0.75 between October 30, 2006 and April 29, 2007.



OUTLOOK

FRV has a four-pronged development plan:

- Increase delivery volume to general and specialty broadcasters in
Quebec, Canada and abroad;
- Increase international co-productions. FRV already has solid
achievements in this regard (Dragon, Isabelle Boulay, Dice) and new
and ongoing projects are underway with French co-producers, for
example, the documentary series Livraison speciale;
- Step up development of our distribution and export activities by
leveraging the recently acquired library and by adding production
acquisitions with high commercial value;
- When appropriate, make timely acquisitions that will not only
increase business volume and earnings but also help create a
coherent ensemble of operating units that complement each other by
their respective focus and expertise.


Notwithstanding possible acquisitions, organic growth should continue, fuelled in large part by the production activities of our two subsidiaries (Cite-Amerique and Altau.tv) and the distribution and export initiatives of FRV Media International. While seeking this growth, FRV Media will also focus more on improving its gross margin.

FORWARD LOOKING INFORMATION

This press release contains forward-looking statements reflecting the objectives, estimates and expectations of FRV management. These statements are identified by the use of verbs such as "believe," "anticipate," "estimate" and "expect" as well as the use of the future or conditional tense. By their very nature, these types of statements involve risk and uncertainty. Consequently, results could differ materially from the Company's projections or expectations. For information on the nature of the risk factors not specifically mentioned in this press release, the reader can consult FRV's MD&A for the fiscal year ended March 31, 2005, under the heading "Risks and Uncertainties."

ABOUT FRV MEDIA

FRV Media Inc. is a producer, exporter and integrator of quality content deployed across multiple platforms: television, cinema, multimedia and publishing. Through its wholly owned subsidiaries Cite-Amerique, Altau.tv and the INEO Group, the Company creates and distributes dramatic content (TV series, made-for-TV movies and feature films), youth programs, children's programs, documentaries, variety shows, magazine-style series and education, training and career-planning information. It is also involved in dubbing and event coverage and recording.



FRV Media Inc.
Consolidated Earnings
Years ended March 31, 2005 and 2004


2005 2004
--------------------------------------------------------------------
$ $
Sales 9,196,322 3,633,271
--------------------------------------------------------------------

Production costs 5,965,214 457,685
Direct distribution costs 456,907 1,579,171
--------------------------------------------------------------------
6,422,121 2,036,856
--------------------------------------------------------------------
Gross profit 2,774,201 1,596,415
--------------------------------------------------------------------

Operating expenses 3,871,818 2,638,243
Financial expenses 208,091 251,720
Gain on write-off of liability component
of class "C" shares (Note 20) (161,092)
Amortization of property and equipment 125,228 76,666
Interest income (34,436) (38,335)
--------------------------------------------------------------------
4,009,609 2,928,294
--------------------------------------------------------------------
Loss before unusual item and income taxes (1,235,408) (1,331,879)
Unusual items
Write-off of a project under
development acquired (Note 4b) 396,801
Impairment of goodwill (Notes 4b and 16) 381,444
Gain realized on settlement of
a lawsuit (Note 14) (267,433)
--------------------------------------------------------------------
778,245 (267,433)
--------------------------------------------------------------------
Loss before income taxes (2,013,653) (1,064,446)
Income taxes (Note 6) 13,281
--------------------------------------------------------------------
Net loss (2,026,934) (1,064,446)
--------------------------------------------------------------------
--------------------------------------------------------------------

Basic and diluted earnings per
Class "A" and "C" shares (Note 7) (0.07) (0.04)

Basic and diluted weighted average number of
outstanding Class "A" and
"C" shares (Note 7) 30,766,886 23,655,752

The accompanying notes are an integral part of the consolidated
financial statements.



FRV Media Inc.
Consolidated Deficit
Consolidated Contributed Surplus
Years ended March 31, 2005 and 2004

DEFICIT 2005 2004
--------------------------------------------------------------------
$ $
Balance, beginning of year,
as previously reported 2,023,048 1,236,639
Accounting changes (Note 2) 501,158
--------------------------------------------------------------------
Balance, beginning of year, as restated 2,524,206 1,236,639
Net loss 2,026,934 1,064,446
Share issue expenses 277,809 53,896
--------------------------------------------------------------------
Balance, end of year 4,828,949 2,354,981
--------------------------------------------------------------------
--------------------------------------------------------------------

CONTRIBUTED SURPLUS 2005 2004
--------------------------------------------------------------------
$ $
Accounting changes (Note 2) 169,225
Stock-based compensation 16,927
Exercised options (766)
--------------------------------------------------------------------
Balance, end of year 185,386 -
--------------------------------------------------------------------
--------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated
financial statements.



FRV Media Inc.
Consolidated Cash Flows
Years ended March 31, 2005 and 2004

2005 2004
--------------------------------------------------------------------
$ $
OPERATING ACTIVITIES
Net loss (2,026,934) (1,064,446)
Non-cash items
Amortization of televion and
film productions 4,213,706 415,855
Write-off of television and
film productions 27,386
Amortization of distribution
rights and costs 29,363 68,920
Write-off of projects under development 467,940 25,602
Stock-based compensation 16,927
Interest premium capitalized to
convertible debenture 14,859 12,166
Implicit interest charged to liability
component of class "C" shares 90,433 126,197
Gain on write-off of liability component
of class "C" shares (161,092)
Loss on disposal of property and equipment 1,342
Amortization of property and equipment 125,228 76,666
Goodwill impairment 381,444
Changes in assets and
liabilities (Note 8) (3,820,674) (1,914,690)
--------------------------------------------------------------------
Cash flows from operating activities (667,458) (2,226,344)
INVESTING ACTIVITIES
Business acquisitions (Note 4) (123,150)
Short-term investments (7,016,446) (3,824,172)
Disposal of short-term investments 9,115,115 2,541,185
Reserved cash (1,132,996)
Deposit in trust (250,000)
Reserved investment (1,136,897)
Deferred transaction costs (61,912)
Property and equipment (59,772) (166,448)
Disposal of property and equipment 3,310
--------------------------------------------------------------------
Cash flows from investing activities (539,598) (1,572,585)
--------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term loans (2,144,983) 4,074,381
Long-term loans 300,971
Repayment of long-term debt (180,924) (266,039)
Due to related companies (297,862)
Issuance of class "A" shares 3,072,050 1,273,750
Share issue expenses (277,809) (53,896)
--------------------------------------------------------------------
Cash flows from financing activities 468,334 5,031,305
--------------------------------------------------------------------
Net increase (decrease) in cash (738,722) 1,232,376
Cash, beginning of year 1,426,162 193,786
--------------------------------------------------------------------
Cash, end of year 687,440 1,426,162
--------------------------------------------------------------------
--------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated
financial statements.



FRV Media Inc.
Consolidated Balance Sheets
March 31, 2005 and 2004

2005 2004
--------------------------------------------------------------------
$ $
ASSETS
Cash 687,440 1,426,162
Short-term investments (Note 9) 1,071,402 3,170,071
Reserved cash and investments (Note 10) 2,519,893
Accounts receivable (Note 11) 6,603,518 7,143,037
Income taxes receivable 2,280 37,777
Prepaid expenses 181,453 106,864
Television and film productions (Note 12) 3,593,449 2,672,611
Distribution rights and costs (Note 13) 159,914 29,396
Balance of sale (Note 14) 150,000 300,000
Deferred transaction costs 61,912
Property and equipment (Note 15) 379,722 449,830
Goodwill (Note 16) 2,168,938 2,550,382
Future income taxes 499,325 499,325
--------------------------------------------------------------------
18,079,246 18,385,455
--------------------------------------------------------------------
--------------------------------------------------------------------

LIABILITIES
Short-term loans (Note 17) 5,223,009 7,367,992
Accounts payable and accrued
liabilities (Note 18) 2,461,148 2,654,860
Deferred revenue (Note 19) 4,531,771 3,046,795
Long-term debt (Note 20) 650,233 1,362,957
--------------------------------------------------------------------
12,866,161 14,432,604
--------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (Note 21)
Class "A" shares and warrants 9,856,648 5,284,754
Equity component of Class "C" shares 1,023,078
Contributed surplus 185,386
Deficit (4,828,949) (2,354,981)
--------------------------------------------------------------------
5,213,085 3,952,851
--------------------------------------------------------------------
18,079,246 18,385,455
--------------------------------------------------------------------
--------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated
financial statements.

On behalf of the Board,

/S/ Richard Laferriere /S/ Alain Dufour


The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information