SOURCE: Peace Arch Entertainment Group Inc.

January 12, 2007 17:58 ET

Peace Arch® Entertainment Group Inc. Reports First Quarter Fiscal 2007 Results

Revenues Increase From $0.9 Million to $11.3 Million With Positive Earnings, Validating High Growth Strategy for International Entertainment Company

TORONTO -- (MARKET WIRE) -- January 12, 2007 -- Peace Arch Entertainment Group Inc. (AMEX: PAE) (TSX: PAE) today announced operating results for its first quarter of fiscal 2007, ending November 30, 2006, that reported revenues of $11.3 million versus $0.9 million for the same period last year.

The Company's revenues for the three months ended November 30, 2006 were $11.3 million up significantly from $0.9 million last year. The growth in revenues reflects an increase in both Motion Picture and Television revenues and includes $5.7 million in revenues generated by the Company's new Home Entertainment segment, recognized through the acquisition of kaBOOM! Entertainment Inc. in the second quarter of fiscal 2006.

Peace Arch reported net earnings of $86,000, or $0.00 per diluted share in the three months ended November 30, 2006, compared to a net loss of $(699,000), or $(0.04) per diluted share for the same period last year. The profitability in the first quarter is driven by the higher revenue volumes and the Company's strategy of growth with a focus on the distribution side of the business. Included in net earnings for the three months ended November 30, 2006 was $577,000 of interest expense primarily due to the increase in production loans and a foreign exchange loss of $317,000.

Peace Arch Entertainment Group Inc. Chief Executive Officer Gary Howsam stated, "Our first quarter results illustrate the strength of our corporate vision and the impact of our aggressive growth strategy to refocus the business on distribution and sales while building new revenue sources. We have had a strong start to fiscal 2007 both operationally and financially. The Company made progress on its strategy to expand the way it delivers content to viewers by building its sales capacity and accelerating growth by acquiring existing content libraries and compatible distribution vehicles. We continue to deliver to the marketplace the large quantity of highly sought-after programming we created during 2006. Our shareholders can expect Peace Arch to continue capitalizing on our growth-focused business model throughout 2007 and beyond."

During the quarter, the Company delivered one film, one made-for-television movie and ten episodes of two television series, compared to the delivery of one documentary for the same period of the prior year. The film delivered was "Chapter 27" and the made-for-television movie delivered was "Maneater." The Company is currently in production of "Animal 2," a sequel to the successful feature film drama "Animal," and "The Tudors," a 10-hour dramatic mini-series focusing on the tumultuous years of King Henry VIII's nearly forty-year reign of England. The Home Entertainment segment reported both strong revenues and earnings in the quarter.

During the first quarter, the Company achieved several key milestones in support of its strategic growth initiatives as follows:

* Engaged highly respected film and television industry executives Mary Herne and Suzanne Barron, as Executive Vice President, and Senior Vice President, International Television and Home Entertainment. Both Barron and Herne are responsible for all sales and marketing of original and acquired content to international television licensees and DVD distributors, and are based in Peace Arch's Los Angeles office.

* Entered into a business venture agreement with CSC Global Technologies Inc. to launch a digital film distribution subsidiary. The business venture is intended to capitalize on the demand for delivery of film and television programming via the Internet and video on demand. The agreement with CSC enhances Peace Arch's ability to distribute independent film content worldwide and to offer content and technology support to other digital program providers.

* Completed a sale of certain distribution rights excluding North America with Sony Pictures Home Entertainment for the television program series "The Tudors" focusing on the tumultuous years of King Henry VIII's nearly 40-year reign of England. The film is currently in production to be delivered later during fiscal 2007.

* Was invited to premiere two recently completed films, "Chapter 27" and "Delirious" at the prestigious Sundance Film Festival, North America's top independent movie showcase, to be held this year at the end of January in and around Park City, Utah.

* Signed a multi-picture agreement with Corus Entertainment's Western Canadian pay television service, Movie Central. Over the next three years, Movie Central will pre-license 24 new titles from Peace Arch, including movies-of-the-week and feature-length productions.

Subsequent to the first quarter ended November 30, 2006, the following significant transactions occurred:

* Completed the acquisition of independent film companies Castle Hill Productions Inc. ("CHP") and Dream LLC ("Dream"), for a purchase price of US$9,000,000. The Dream/CHP library of approximately 500 titles represents one of the largest independent film libraries in the world, containing both classic and contemporary motion pictures. This strategic transaction supports Peace Arch's goal of revenue growth through U.S. and worldwide distribution, and brings to the Company a proven U.S. distribution and licensing operation with an experienced executive team.

* Negotiated a settlement of an outstanding legal dispute with Viacom Inc., MTV Networks, and VH1 Music First et al. Viacom agreed to pay US$1.0 million as settlement to the Company's claim for damages in the original amount of US$2.7 million and consequential damages arising from the failure to honor a contract for the co-financing of the television series "Big Sound." In addition, the Company entered into a distribution agreement with Viacom for the sale of certain U.S. broadcast rights for the television series "Big Sound."

As at November 30, 2006, Peace Arch's total shares outstanding was 31,458,984 Common Shares (including 222,689 shares in escrow) and 4,347,827 Series I Preference Shares and 3,161,929 Series II Preference Shares. The Company also has outstanding 1,185,896 Series II Preference Share purchase warrants and 1,569,000 Common Share purchase warrants.

For full Financial Statements, Note Disclosure and MD&A, please refer to the Company's filings, which are available at: www.sedar.com and www.sec.gov/edgar.

About Peace Arch® Entertainment Group Inc.

Peace Arch® Entertainment produces and acquires feature films, television and home entertainment content for distribution to worldwide markets. Peace Arch Home Entertainment is one of the leading distributors of DVDs and related products in Canada. For additional information, please visit www.peacearch.com.

For more investor oriented information about Peace Arch Entertainment, visit http://www.trilogy-capital.com/tcp/peace-arch/. For current stock price quotes and news, visit http://www.trilogy-capital.com/tcp/peace-arch/quote.html. To view an Investor Fact Sheet, visit http://www.trilogy-capital.com/tcp/peace-arch/factsheet.html. To read a transcript of a recent Peace Arch investor conference call or listen to an archived recording, please visit http://www.trilogy-capital.com/tcp/peace-arch/conference.html.

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, continued acceptance of the Company's products and services in the marketplace, competitive factors, dependence upon third-party vendors, availability of capital and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission. 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.


Peace Arch Entertainment Group Inc.
Consolidated Balance Sheets

(expressed in thousands of Canadian dollars)

                                              November 30 August 31
                                                     2006      2006
                                                        $         $
                                              (unaudited) (audited)
Assets
Cash and cash equivalents                           3,650     1,216
Accounts and other receivables                     23,726    21,471
Inventory                                           2,391     1,830
Investment in film and television programming      36,893    29,174
Prepaid expenses and deposits                         591       370
Property and equipment                                585       571
Intangible assets                                   1,785     1,875
Goodwill                                            5,252     5,252
Deferred acquisition costs                          1,013       511
Restricted term deposits                           22,980    21,272
                                              ---------------------
                                                   98,866    83,542
                                              =====================

Liabilities
Bank credit facility                                1,533     1,811
Production loans                                   35,688    29,762
Accounts payable and accrued liabilities           16,971    11,384
Deferred revenue                                    2,655       799
Future income tax liability                           819       883
Revenue guarantee obligation                       22,980    21,272
                                              ---------------------
                                                   80,646    65,911
                                              =====================

Shareholders' Equity
Capital stock                                      22,408    21,760
Contributed surplus                                 2,944     2,864
Warrants                                              885     1,010
Other paid-in capital                                 680       680
Deficit                                           (8,697)   (8,683)
                                              ---------------------
                                                   18,220    17,631
                                              ---------------------
                                                   98,866    83,542
                                              =====================




Peace Arch Entertainment Group Inc.
Consolidated Statements of Earnings (Loss)

(expressed in thousands of Canadian dollars, except per share amounts)

                                         Three Months  Three Months
                                                Ended         Ended
                                          November 30   November 30
                                                 2006          2005
                                                    $             $
                                           (unaudited)   (unaudited)

Revenue                                        11,330           909
                                          -------------------------
Expenses
Amortization of investment in film and
television programming, and other
production costs                                4,398           832
Home entertainment direct costs                 4,249             -
Selling, general and administrative             1,890         1,020
Other amortization                                124            20
                                          -------------------------
                                               10,661         1,872
                                          -------------------------
Loss from operations before the
undernoted                                        669          (963)

Interest income                                   260           252
Interest expense                                 (577)         (430)
Gain on sale of asset                               -            33
Foreign exchange gain (loss)                     (317)          409
Loss on settlement of obligations                 (13)            -
                                          -------------------------
Earnings (loss) before income taxes                22          (699)

Income tax recovery                                64             -
                                          -------------------------
Net earnings (loss) for the period                 86          (699)
                                          =========================

Net earnings (loss) per common share
Basic                                            0.00         (0.04)
                                          =========================
Diluted                                          0.00         (0.04)
                                          =========================




Peace Arch Entertainment Group Inc.
Consolidated Statements of Deficit

(expressed in thousands of Canadian dollars)

                                   Three Months  Three Months
                                          Ended         Ended
                                    November 30   November 30
                                           2006          2005
                                              $             $
                                     (unaudited)   (unaudited)

Deficit - Beginning of period            (8,683)       (4,255)

Preference share dividends                 (100)          (59)
Net earnings (loss) for the period           86          (699)
                                     -------------------------
Deficit - End of period                  (8,697)       (5,013)
                                     =========================




Peace Arch Entertainment Group Inc.
Consolidated Statements of Cash Flows

(expressed in thousands of Canadian dollars)

                                        Three Months   Three Months
                                               Ended          Ended
                                         November 30    November 30
                                                2006           2005
                                                   $              $
                                          (unaudited)    (unaudited)

Cash flows from operating activities
Net earnings (loss) for the period                86           (699)
Items not affecting cash
Amortization of film and television
programming                                    2,374            539
Income tax recovery                              (64)             -
Other amortization                               124             20
Stock-based compensation and warrant costs       119             56
Loss on settlement of obligations                 13              -
Gain on sale of asset                              -            (33)
Investment in film and television
programming                                  (10,093)        (4,503)
Changes in non-cash operating working
capital                                        3,875          1,877
                                          -------------------------
                                              (3,566)        (2,743)
                                          -------------------------
Cash flows from investing activities
Property and equipment purchases                 (48)           (32)
                                          -------------------------
                                                 (48)           (32)
                                          -------------------------
Cash flows from financing activities
Bank credit facility                            (278)             -
Issuance of preference shares                    277              -
Payment of preference share dividends              -            (59)
Issuance of common shares                        123              -
Production loans                              15,114          6,438
Repayment of production loans                 (9,188)        (4,513)
                                          -------------------------
                                               6,048          1,866
                                          -------------------------
Increase (decrease) in cash and
cash equivalents                               2,434           (909)
Cash and cash equivalents -
Beginning of period                            1,216          1,428
                                          -------------------------
Cash and cash equivalents -
End of period                                  3,650            519
                                          =========================
Supplemental cash flow information
Interest paid                                    610            577

Contact Information

  • Contact:

    Roy Bodner
    Vice President Public Relations
    Peace Arch Entertainment
    310.450.1711
    Email Contact

    or

    Financial Communications
    Trilogy Capital Partners
    Paul Karon
    Toll-free: 800-592-6067
    Email Contact