##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-34706
 THE FILM DEPARTMENT HOLDINGS, INC.
 
 Delaware
    
    27-2442818(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)8439 Sunset Boulevard, 2nd Floor 
West Hollywood, California
    
    90069(Address of principal executive offices)
    
    (Zip Code)
 323-785-3700
 o þ
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ o þ




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##### 



THE FILM DEPARTMENT HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements
    
    1Consolidated Balance Sheets
March 31, 2010 (Unaudited)
    
    1Consolidated Statements of Operations (Unaudited) 
Three Months Ended March 31, 2010 and 2009
    
    2Consolidated Statements of Members Deficit (Unaudited)
Three Months Ended March 31, 2010 and 2009
    
    3Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2010 and 2009
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18Caution Regarding Forward-Looking Statements
    
    18Corporate Conversion
    
    18Overview
    
    18Results of Operations
    
    19Liquidity and Capital Resources
    
    20Off-Balance Sheet Arrangements
    
    21Item 4. Controls and Procedures
    
    21PART II. OTHER INFORMATION
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    22Item 3. Defaults Upon Senior Securities
    
    22Item 6. Exhibits
    
    22SIGNATURES
    
    24EXHIBIT INDEX
    
    25EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 The Film Department Holdings LLC
 
 CONSOLIDATED BALANCE SHEETS
 March 31, 2010Unaudited(Amounts in Thousands)ASSETSCash and cash equivalents
    
    $
    1,010Restricted cash and cash equivalents
    
    
    137Accounts receivable, net
    
    
    7,628Property and equipment, net
    
    
    82Development costs
    
    
    1,812Capitalized film costs, net
    
    
    24,937Other assets
    
    
    1,292Debt issuance costs, net
    
    
    373Total assets
    
    $
    37,271LIABILITIES, REDEEMABLE MEMBER UNITS AND MEMBERS DEFICITLiabilitiesAccounts payable and accrued liabilities
    
    $
    1,238Accrued residuals and participations
    
    
    928Deferred revenue
    
    
    418Second Lien Notes, net of discount
    
    
    27,279Total liabilities
    
    $
    29,863Commitments and Contingencies(Note 10)Redeemable member units
    
    
    41,625Members deficit
    
    
    (34,217
    )Total liabilities, redeemable member units and members deficit
    
    $
    37,271
  1




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The Film Department Holdings LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedMarch 31,2010
    
    
    2009Unaudited(Amounts in thousands)Revenues
    
    $
    5,821
    
    
    $
    ExpensesDirect operating expense
    
    
    4,026
    
    
    
    Distribution and marketing expense
    
    
    138
    
    
    
    242General and administration expense
    
    
    3,963
    
    
    
    1,739Depreciation and amortization expense
    
    
    48
    
    
    
    48Total expenses
    
    
    8,175
    
    
    
    2,029Operating loss
    
    
    (2,354
    )
    
    
    (2,029
    )Other expense (income)Interest expenseContractual interest expense
    
    
    1,413
    
    
    
    1,221Amortization of debt discount
    
    
    267
    
    
    
    46Amortization of debt issuance costs
    
    
    74
    
    
    
    303Amortization of debt administration fees
    
    
    
    
    
    
    31Total interest expense
    
    
    1,754
    
    
    
    1,601Other expense
    
    
    
    
    
    
    Interest and other (income)
    
    
    
    
    
    
    (9
    )Total other expenses, net
    
    
    1,754
    
    
    
    1,592Net Loss
    
    $
    (4,108
    )
    
    $
    (3,621
    )
  2




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The Film Department Holdings LLC
 
 CONSOLIDATED STATEMENTS OF MEMBERS DEFICIT
 TotalAccumulated
    
    
    MembersDeficit
    
    
    DeficitUnaudited(Amounts in thousands)Balance,December 31, 2009
    
    $
    (30,065
    )
    
    $
    (30,065
    )Deemed dividend  accretion of Class B redeemable units
    
    
    (44
    )
    
    
    (44
    )Net loss for the three months ended March 31, 2010
    
    
    (4,108
    )
    
    
    (4,108
    )Balance,March 31, 2010
    
    $
    (34,217
    )
    
    $
    (34,217
    )
  3




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The Film Department Holdings LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedMarch 31,2010
    
    
    2009Unaudited(Amounts in thousands)Increase (Decrease) in Cash and Cash EquivalentsCash flows from operating activitiesNet loss
    
    $
    (4,108
    )
    
    $
    (3,621
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Amortization of film cost
    
    
    3,812
    
    
    
    Depreciation and amortization
    
    
    48
    
    
    
    48Unit-based compensation
    
    
    2,575
    
    
    
    Amortization of debt discount and issuance costs
    
    
    341
    
    
    
    349Changes in operating assets and liabilities:Decrease (increase) in restricted cash and cash equivalents
    
    
    1,280
    
    
    
    (4,186
    )(Increase) in accounts receivable
    
    
    (2,079
    )
    
    
    (1,112
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    6,567
    
    
    
    (1
    )(Increase) in development costs
    
    
    (124
    )
    
    
    (417
    )Decrease (increase) in film costs
    
    
    71
    
    
    
    (26,265
    )Decrease (increase) in deposits and other assets
    
    
    3
    
    
    
    (595
    )Decrease in accounts payable
    
    
    (226
    )
    
    
    Increase (decrease) in accrued expenses and other liabilities
    
    
    313
    
    
    
    (174
    )(Decrease) increase in deferred revenue
    
    
    (194
    )
    
    
    2,332Increase in accrued interest on notes payable
    
    
    1,413
    
    
    
    1,036Net cash provided by (used in) operating activities
    
    
    9,692
    
    
    
    (32,606
    )Cash flows from investing activitiesProceeds from Sale of short-term investments
    
    
    
    
    
    
    10,350Net cash provided by investing activities
    
    
    
    
    
    
    10,350Cash flows from financing activitiesRepayment of Second Lien Notes
    
    
    (10,887
    )
    
    
    Proceeds from Senior Credit Facility
    
    
    
    
    
    
    15,218Proceeds from Issuance of Membership Units
    
    
    2,000
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (8,887
    )
    
    
    15,218Net increase (decrease) in cash and cash equivalents
    
    
    805
    
    
    
    (7,038
    )Cash and cash equivalents, beginning of period
    
    
    205
    
    
    
    13,730Cash and cash equivalents, end of period
    
    $
    1,010
    
    
    $
    6,692
  4




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The Film Department Holdings LLC
 
 Notes to Unaudited Consolidated Financial Statements
 1. Description of Business
 Company Overview
         2. Summary of Significant Accounting Policies
 Basis of Presentation
  5




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Revenue Recognition
   Cash and Cash Equivalents
   Restricted Cash and Cash Equivalents
     Accounts Receivable
    6




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Fair Value Accounting
   Property and Equipment
   Film Costs
    Development Costs
  7




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Debt Issuance Costs
 Law Abiding Citizen.
    Marketing Costs
  Income Taxes
  Use of Estimates
  3. Property and Equipment
  March 31,Life2010
    
    
    (in years)(Amounts inthousands)Technical equipment and computers
    
    $
    172
    
    
    $
    3Furniture, fixtures and equipment
    
    
    185
    
    
    
    3Computer software
    
    
    72
    
    
    
    3Leasehold improvements
    
    
    122
    
    
    
    3Subtotal
    
    
    551Less: accumulated depreciation and amortization
    
    
    (469
    )Property and equipment, net
    
    $
    82
  8




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##### Table of Contents



4. Development Costs
  (Amounts inthousands)Balance at December 31, 2009
    
    $
    1,689Additions
    
    
    124Balance at March 31, 2010
    
    $
    1,813
  5. Film Costs
 The Rebound Law Abiding Citizen. The Rebound Law Abiding Citizen
  (Amounts inthousands)Films in release
    
    $
    56,195Accumulated amortization
    
    $
    (31,258
    )Film costs, net
    
    $
    24,937
  6. Second Lien Notes
      9




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(Amounts inthousands)Original principal amount
    
    $
    15,606Accrued interest
    
    
    11,958Less: unamortized discount
    
    
    (285
    )Second Lien Notes payable, net of interest and unamortized discount
    
    $
    27,279
   10




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Law Abiding Citizen
 Earthbound
  7. Senior Credit Facility
       Law
Abiding Citizen
  11




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8. Warrants
     9. Redeemable Member Units
      12




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13




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##### Table of Contents



WeightedAverageExerciseUnits
    
    
    Price(Units and per unit prices not inthousands)Outstandingat December 31, 2008
    
    
    1,913.5
    
    
    $
    952Granted (MIS)
    
    
    
    
    
    
    Forfeited (MIS)
    
    
    
    
    
    
    Outstandingat March 31, 2009
    
    
    1,913.5
    
    
    
    952Granted (Phantom H units)
    
    
    1,580
    
    
    
    13Granted (Class H)
    
    
    15,352
    
    
    
    13Forfeited (MIS)
    
    
    (9
    )
    
    
    900Redeemed (MIS)
    
    
    (1,904.5
    )
    
    
    952Outstandingat December 31, 2009
    
    
    16,932
    
    
    
    952Granted (Phantom H units)
    
    
    93,243
    
    
    
    10Granted (Class H)
    
    
    905,786
    
    
    
    10Forfeited (MIS)
    
    
    Outstandingat March 31, 2010
    
    
    1,015,961
    
    
    $
    10
  Stock Based Awards Outstanding
    
    
    Stock BasedWeighted
    
    
    
    
    
    
    CompensationAverage
    
    
    
    
    
    
    ExercisableRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractual
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Life
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    
    Number
    
    
    (Years)
    
    
    Price
    
    
    Number
    
    
    Price(Amounts not in thousands)2009$
    1,000
    
    
    
    1,000
    
    
    
    2.00
    
    
    $
    1,000
    
    
    
    500
    
    
    $
    1,000$
    900
    
    
    
    913.5
    
    
    
    2.48
    
    
    $
    900
    
    
    
    394
    
    
    $
    900$
    900  $1,000
    
    
    
    1,913.5
    
    
    
    2.18
    
    
    $
    951
    
    
    
    894
    
    
    $
    956
   14




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TotalClass B-1
    
    
    Class B-2
    
    
    Class G
    
    
    Class H
    
    
    Class J
    
    
    Redeemable(Amounts in thousands)
    
    Units
    
    
    Units
    
    
    Units
    
    
    Units
    
    
    Units
    
    
    UnitsBalance, December 31, 2009
    
    $
    23,970
    
    
    
    7,328
    
    
    $
    3,437
    
    
    $
    2,096
    
    
    
    175
    
    
    $
    37,006Issuance of Units
    
    
    
    
    
    
    
    
    
    $
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Deemed dividend on Class B-1 & B-2
    
    
    34
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Unit-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,575
    
    
    
    
    
    
    
    2,575Balance, March 31, 2010
    
    $
    24,004
    
    
    
    7,338
    
    
    $
    5,437
    
    
    $
    4,671
    
    
    
    175
    
    
    $
    41,625
 10. Commitments and Contingencies
  Years Ending December 31,
    
    Amount(Amounts inthousands)2010
    
    $
    5282011
    
    
    6772012
    
    
    6972013
    
    
    7182014
    
    
    7392015
    
    
    435Total minimum lease payments
    
    $
    3,794
   Years Ending December 31,
    
    Amount(Amounts inthousands)2010
    
    $
    3.002011
    
    
    4.002012
    
    
    0.70Thereafter
    
    
    Total
    
    $
    7.70
 15




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Legal Matters
  Indemnification
  11. Going Concern
 Going Concern
   Law
Abiding Citizen
  Law Abiding Citizen
  16




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12. Subsequent Events
     17




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   
 Cautionary Statement Regarding Forward-Looking Statements
 The statements in this report include forward-looking statements. These forward-looking statements
are based on our managements current expectations and beliefs and involve numerous risks and
uncertainties that could cause actual results to differ materially from expectations. You should
not rely upon these forward-looking statements as predictions of future events because we cannot
assure you that the events or circumstances reflected in these statements will be achieved or will
occur. You can identify forward-looking statements by the use of forward-looking terminology,
including the words believes, expects, may, will, should, seeks, intends, plans,
estimates or anticipates or the negative of these words and phrases or other variations of
these words and phrases or comparable terminology.
 For a discussion of the factors that could cause actual results to differ materially from the
forward-looking statements, see the Risk Factors set forth in the Companys Post-Effective
Amendment No. 3 to its Registration Statement on Form S-1, filed with the Securities and Exchange
Commission (the Commission) on May 28, 2010 and the other risks and uncertainties that are set
forth elsewhere in this report or detailed in our other Commission reports and filings. We assume
no obligation to update these forward-looking statements.
 Introduction
  
    
    Corporate Conversion
    
    Overview
    
    Results of Operations
    
    Liquidity and Capital Resources
    
    Off  Balance Sheet Arrangements
 
 Corporate Conversion
  
 Overview
 Law Abiding Citizen The Rebound
  18




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Results of Operations
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    5,821
    
    
    $
    ExpensesDirect operating expense
    
    
    4,026
    
    
    
    Distribution and marketing expense
    
    
    138
    
    
    
    242General and administrative expense
    
    
    3,963
    
    
    
    1,739Depreciation and amortization expense
    
    
    48
    
    
    
    48Total expenses
    
    $
    8,175
    
    
    $
    2,029Operating loss
    
    
    (2,354
    )
    
    
    (2,029
    )Other expenses (income)Interest expenseContractual interest expense
    
    
    1,413
    
    
    
    1,221Amortization of debt discount
    
    
    267
    
    
    
    46Amortization of debt issuance costs
    
    
    74
    
    
    
    303Amortization of debt administration fees
    
    
    
    
    
    
    31Total interest expense
    
    $
    1,754
    
    
    $
    1,601Other expense
    
    
    
    
    
    
    Interest and other (income)
    
    
    
    
    
    
    (9
    )Investment Loss
    
    
    
    
    
    
    Total other expenses, net
    
    
    1,754
    
    
    
    1,592Loss before income taxes
    
    
    (4,108
    )
    
    
    (3,621
    )Income tax provision
    
    
    
    
    
    
    Net loss
    
    $
    (4,108
    )
    
    $
    (3,621
    )Realized (Unrealized) Investment LossComprehensive Loss
 Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
 Revenue
 The Rebound Law Abiding Citizen The Rebound Law Abiding Citizen
 Direct Operating Costs
 The Rebound Law Abiding Citizen
 Distribution and marketing expense
  19




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General and administration expense
  Depreciation and amortization expense
  Interest expense
  Other expenses
  Interest and other (income)
  Net Loss
  
 Liquidity and Capital Resources
 General
 Law
Abiding Citizen The Rebound
  20




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Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
 Law
Abiding Citizen Law Abiding
Citizen
   Liquidity and Capitalization as of December 31, 2009 and March 31, 2010
 Law Abiding Citizen The Rebound.
   
 Off-Balance Sheet Arrangements
 Law Abiding Citizen
 
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  21




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PART II. OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
  
 Item 6. Exhibits
 10.6
    
    First Amendment to Second Amended and Restated Executive Services
Agreement by and between Mark Gill and The Film Department Holdings
LLC, dated March 30, 2010 (1)10.12
    
    First Amendment to Second Amended and Restated Executive Services
Agreement by and between Neil Sacker and The Film Department
Holdings LLC, dated March 30, 2010 (2)10.19
    
    First Amendment to Amended and Restated Executive Services Agreement
by and between Robert Katz and The Film Department Holdings LLC,
dated March 30, 2010 (3)10.29
    
    Fifth Amendment to Employment Agreement by and between Bernd Stephan
and The Film Department Holdings LLC, dated February 8, 2010 (4)10.35
    
    Loan and Security Agreement by and between Earthbound Films, LLC and
Union Bank, N.A., dated January 29, 2010 (5)10.36
    
    Investment Advisory Services Agreement by and between The Film
Department Holdings LLC and Girard Securities, Inc., dated March 30,
2010 (6)31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended (7)31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended (7)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (7)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (7)
 
 (1)
    
    Incorporated by reference to Exhibit 10.6 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(2)
    
    Incorporated by reference to Exhibit 10.8 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(3)
    
    Incorporated by reference to Exhibit 10.10 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(4)
    
    Incorporated by reference to Exhibit 10.13 to the Companys Amendment No. 2 to Registration
Statement on Form S-1, filed with the Commission on March 5, 2010.(5)
    
    Incorporated by reference to Exhibit 10.19 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010. 22




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(6)
    
    Incorporated by reference to Exhibit 10.20 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(7)
    
    Filed herewith. 23




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THE FILM DEPARTMENT HOLDINGS, INC.By
    /s/ Mark Gill
    
    Dated: June 10, 2010Mark GillChief Executive Officer 24




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EXHIBIT INDEX
 10.6
    
    First Amendment to Second Amended and Restated Executive Services
Agreement by and between Mark Gill and The Film Department Holdings
LLC, dated March 30, 2010 (1)10.12
    
    First Amendment to Second Amended and Restated Executive Services
Agreement by and between Neil Sacker and The Film Department
Holdings LLC, dated March 30, 2010 (2)10.19
    
    First Amendment to Amended and Restated Executive Services Agreement
by and between Robert Katz and The Film Department Holdings LLC,
dated March 30, 2010 (3)10.29
    
    Fifth Amendment to Employment Agreement by and between Bernd Stephan
and The Film Department Holdings LLC, dated February 8, 2010 (4)10.35
    
    Loan and Security Agreement by and between Earthbound Films, LLC and
Union Bank, N.A., dated January 29, 2010 (5)10.36
    
    Investment Advisory Services Agreement by and between The Film
Department Holdings LLC and Girard Securities, Inc., dated March 30,
2010 (6)31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended (7)31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Amended (7)32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (7)32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (7)
 
 (1)
    
    Incorporated by reference to Exhibit 10.6 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(2)
    
    Incorporated by reference to Exhibit 10.8 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(3)
    
    Incorporated by reference to Exhibit 10.10 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(4)
    
    Incorporated by reference to Exhibit 10.13 to the Companys Amendment No. 2 to Registration
Statement on Form S-1, filed with the Commission on March 5, 2010.(5)
    
    Incorporated by reference to Exhibit 10.19 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(6)
    
    Incorporated by reference to Exhibit 10.20 to the Companys Amendment No. 4 to Registration
Statement on Form S-1, filed with the Commission on April 6, 2010.(7)
    
    Filed herewith. 25