The beaten-down, about to bounce list for 2005

Peace Arch Entertainment Group (PAE/AMEX $0.34)

52wk High $0.85 Low $0.31
Common Shares Outstanding: 21.1 million
Current Market Cap: $7 million

Financials for Year Ending August 31, 2005

Revenue: $10.7 million / Net Earnings $1.4 million ($0.07/share)
Earnings included and abnormal gain of $2.6 million
Capitalized Investment in Film Programming (Assets): $15.5 million
Cash & Receivables (Assets): $14.4 million
Loans & A/P (Liabilities): $20.5 million

Peace Arch (AMEX: PAE) is small by industry standards but likely one of the best plays you'll find anywhere in the microcap entertainment sector. They are one of Canada's leading entertainment companies that create, develop, finances, produces and distributes proprietary feature film and television programming for worldwide markets. They have undergone somewhat of a restructuring in 2005 and have turned their focus to the packaging, financing, and distribution of higher quality, more commercial projects.

Because they trade just off the 52 week low and have numerous excellent projects in the pipeline for 2006, I believe the $0.30's makes them a very attractive speculation. Tax loss selling will wrap up this week and the added liquidity down here may prove to be an opportunity for the New Year.

The company's revenue for 2005 was $10.7 million and while they incurred a loss for the year, only $3.9 million was spent on selling, general and administration costs. The balance of $8.6 million was amortization and depreciation. This industry is dependent upon financing so their balance sheet could use some work but it does not appear to be a major issue at this stage. The joy of this industry is that it only takes one major hit to turn a company's balance sheet around dramatically. One movie they are doing in particular about the assassination of John Lennon should draw a lot of media attention upon release and could be a major winner for them.

Last month they announced that the 2005 American Film Market in Santa Monica was their most successful in the company's history. Through its theatrical sales unit, Peace Arch Films Ltd., and its new genre division Archetype Films, the Company closed presales across its entire slate of nine new projects in Canada, the United Kingdom, Spain, France, Japan, Scandinavia, Belgium, the Netherlands, Portugal, Brazil, Greece, the Middle East, South Africa, Indonesia, the Czech and Slovak Republics, former Yugoslavia, C.I.S., Turkey and Romania.

According to the company, they sold their films to many of the most highly regarded independent distributors in the industry. They introduced nine new titles at the 2005 American Film Market, including CHAPTER 27 starring Lindsay Lohan and Jared Leto and "DELIRIOUS" (romantic comedy) starring Steve Buscemi, Michael Pitt and Alison Lohman. The company also launched its new genre division, Archetype Films, which focuses on horror, thriller, action and suspense movies. Chapter 27 is a drama exploring the 1980 murder of John Lennon. Filming will commence in New York in early 2006.

They are also acquiring worldwide distribution rights to two high profile films, "Arritmia," and "The Veteran," starring Ally Sheedy.

The Company's production "Our Fathers," the first picture produced under a long-term agreement between Peace Arch and Showtime, was nominated for two Emmy Awards and their feature film "The Good Shepherd" received two Directors Guild of Canada award nominations and Peace Arch's factual television subsidiary The Eyes won six Leo Awards for production excellence.

Overall they have a strong pipeline of entertainment content for 2006 that could have a significant impact upon profitability and cashflow heading into 2007. They have beefed up their management expertise and with the stock trading at levels not seen since 2003, this could be a very good turn around situation if you have patience.

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