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Baja California Sur

2008
Table of Contents

1.0 Executive Summary


1.1 Objectives
1.2 Mission
1.3 Keys to Success
2.0 Company Summary
2.1 Company Ownership
2.2 Start-up Summary
2.3 Company Locations and Facilities
3.0 Services
3.1 Service Description
3.2 Competitive Comparison
3.3 Sales Literature
3.4 Fulfillment
3.5 Technology
3.6 Future Services
4.0 Market Analysis Summary
4.1 Market Segmentation
4.2 Target Market Segment Strategy
4.2.1 Market Needs
4.2.2 Market Trends
4.2.3 Market Growth
4.3 Service Business Analysis
4.3.1 Business Participants
5.0 Strategy and Implementation Summary
5.1 Sales Strategy
5.1.1 Sales Forecast
6.0 Management Summary
6.1 Organizational Structure
6.2 Personnel Plan
7.0 Financial Plan
7.1 Important Assumptions
7.2 Key Financial Indicators
7.3 Break-even Analysis
7.4 Projected Profit and Loss
7.5 Projected Cash Flow
7.6 Projected Balance Sheet
7.7 Business Ratios
1.0 Executive Summary

Welcome to the future of the Independent Film Industry! Cape Cabo Studios brings to the
community of Baja California Sur, a new breath of air in the Mexican movie industry market. By
combining old fashioned values, going the extra mile, and using cutting edge movie-making,
post production and editing software, Cape Cabo Studios will lead the market, providing the
same quality results, every time.

Cape Cabo Studios is an equal opportunity business making its expertise and its products
available to help the Independent Film Maker. Postproduction services are unique, up-to-date
and at a quality level in great demand by the film industry. The postproduction software brings
interactive filmmaking as close as the real world as possible. Through these and other products
and services, Cape Cabo Studios aims to be the number one resource for the Independent Film
Maker.

1.1 Objectives

Cape Cabo Studios is a business aimed at the worldwide Independent Film Maker. In order to
reach its lofty goals, Cape Cabo Studios must focus on the mission behind the vision. It will take
all the employees, owners, founders, and vendors daily living the vision that Cape Cabo Studios
represents. The vision manifests itself in four ways:

1. Be one of the top three comprehensive Independent Film Studios in the world.

2. Maintain the top state of the art Post-Production facility in the world.

3. Justly compensate the employees, owners, and founders of Cape Cabo Studios.

4. Produce the same quality results, every time.


1.2 Mission

In an ever changing, fast-paced world, success is determined by good choices for lasting
effects. Current Technology and Communication are essential. Cape Cabo Studios strives to be
the best choices of clients by helping them produce an excellent motion picture, television
series, commercial, or video using the most cost effective equipment and processing. Through
consistent, predictable professionalism, Cape Cabo Studios will ensure a worry and hassle-free
motion picture at a reasonable price.

But, not all our clients will be external. Cape Cabo Studios will also serve Mexican film clients.
Cape Cabo Studios will strive to provide the same predictable and professional working
environment to its employees and contracted vendors, justly compensating them for their
services. It is also a priority to make a comfortable living wage for its owners, founders, full-time
staff, and their families.

The Goal is to create and deliver a state of the art full service studio with all amenities with
primarily High Def POST Production facility with top-notch accommodations and market directly
to all production companies worldwide.

With the advent and development of new mediums for distribution of productions of all kinds, the
timing for a fully functional state of the art studio facility is timely warranted

Keeping in tune with the needs of the market, utilizing the latest technology and trends, all while
ensuring the client receives the individual attention they deserve, is the vision and daily mission
of Cape Cabo Studios; The Twenty-first Century Film Studio.

1.3 Keys to Success

Our keys to success include the commitment to quality by every person who is part of the team.
Each of us will be responsible to push ourselves to a higher level of professionalism in four
areas:

1. Consistent, accurate fulfillment of the producer's wishes.

2. Maintain the top state of the art Post-Production facility in the world.

3. Competitive pricing for the quality of services offered.

4. Significant profit made on each motion picture.

2.0 Company Summary

Founded in 2006, Cape Cabo Studios is a business designed to meet the needs of the ever-
changing motion picture world. Baja California Sur is the current home. Cape Cabo Studios'
staff, with numerous contract vendors, technicians, enables Production for Motion Pictures,
television, commercials, and video from throughout the world. Cape Cabo Studios is invested in
the community it resides in.
Cape Cabo Studios is, in part, the answer to demands of the motion picture world, on the film
industry itself interested in production in the State of the Art facilities. This enables the filmmaker
make films at reasonable budgets. As a business, we understand the needs of the Independent
Film Maker. Cape Cabo Studios strives to accomplish these goals, in Baja California and
worldwide by offering our services to all-Independent film makers.

2.1 Company Ownership

Cape Cabo Studios is established as an LLC with the intention of establishing a film studio for
independent filmmakers from throughout the World. In addition, it will establish an annual film
festival drawing attention, tourism, and financial gains to the community. All aspects of the
business will be documented to ensure that filmmakers can count on the same results every
time. It is these documents that will become the basis of ownership. The LLC will use its' name
as the guarantor of each service. Therefore, the Cape Cabo Studios LLC embodies the vision
and mission of Cape Cabo Studios.

2.2 Start-up Summary

Through careful planning on the part of the founders, the starts up costs for Cape Cabo Studios
are $75 Million USD. It enables for Cape Cabo Studios to be among the most advances Film
Studios in the world incorporating the latest digital technology and computerization than found in
a traditional film studio. It is the wish of the founders to remain a debt-free establishment.
However, we recognize that in reality not all variables are controllable.

Start-up Plan
Start-up Expenses
Legal $125,000
Stationery etc. $100,000
Brochures/DVD $1,075,000
Consultants $500,000
Insurance $30,000
Rent $225,000
Research and development $13,500,000
Computers & Software $16,230,000
Expensed equipment $11,100,000
Other $0
Total Start-up Expense $42,885,000

Start-up Assets Needed


Cash Requirements $5,000,000
Other Short-term Assets $4,000,000
Total Short-term Assets $9,000,000

Long-term Assets $48,000,000


Total Assets $57,000,000

Total Start-up Requirements: $99,885,000


Left to finance: $0

Start-up Funding Plan

Investment
Investor 1 $75,000,000
Investor 2 $25,000,000
Other $0
Total investment $100,000,000

Short-term Liabilities
Unpaid Expenses $0
Short-term Loans $0
Interest-free Short-term Loans $0
Subtotal Short-term Liabilities $0
Long-term Liabilities $0
Total Liabilities $0

Loss at Start-up ($43,000,000)


Total Capital $57,000,000
Total Capital and Liabilities $57,000,000

Start-up

$100,000,000

$90,000,000

$80,000,000

$70,000,000

$60,000,000

$50,000,000

$40,000,000

$30,000,000

$20,000,000

$10,000,000

$0
Expenses Assets Investment Loans

2.3 Company Locations and Facilities

Cape Cabo Studios is located in the southern tip of the Baja California peninsula on 60 acres. It
is a community-based business. Although the demand has for the independent film maker is
great, and Cape Cabo Studios will be a major technological Studio, Cape Cabo Studios will
eventually move from its small complex into the 60 acre expanded facilities and housing area,
within Baja California Sur. When the company has reached its finished point, Cape Cabo
Studios will be the premier Independent Film Studio in the world.

The company will always maintain a high degree of professionalism. All facilities and offices are
equipped with the latest in technology, such as movie cameras, computers systems,
telecommunications, developers, cameras, printers, and software. Cape Cabo Studios will have
a secure storage area for supplies and equipment used in production, such as walkie-talkies,
cellular phones, portable fax machines, and laptops.
3.0 Services

Although Cape Cabo Studios is primarily a service business, we also offer products to aid our
customers in planning the film production themselves. All Productions must include the use of
Cape Cabo Studio’s Lighting and Grip Equipment, expendables, medical services, paint
purchase and disposal, electrical power, catering services, bottled water and audio/visual
equipment. The following products are tools used inside our operation for the best possible
results:

1. Construction Mill

2. Labor and Craft Services

3. Property

4. Media and Production -

5. Backlot

6. Post-Production

3.1 Service Description

1. Construction Mill

• Art Department

• Print Shop

• Plumbing Department

• Paint Department –

• Staff Shop – Plastering, Vacuforms, Mold making etc.

2. Labor and Craft Services

• Office Services

• Water, Dispensers, Tables, Fixtures

• Trash Disposal Unit

• Stage Support

• Landscape Yard
3. Property

• Set Dressing

• Hand Props

• Upholstery, Drapes, Sewing Rooms

4. Media and Production

• Parking Operations

• Security

• Trailers - TBD

• Production Support

• Office Rental

• Little Theatres

• Stage Maintenance

• Stage Manager

• Vehicles - TBD

• Telecommunications – Phones

• Document Source Center

• Computers (Hardware, Software) Studio Control

5. Backlot

• Facades

• Exterior Green Screen

• Grip and Lighting

6. Post Production

• State of the Art Computers

• Advanced Technological Software Programs


3.2 Competitive Comparison

Cape Cabo Studios, although new, draws from the age-old tradition of going above and beyond
what is expected. Our systems for production of motion pictures are technologically futuristic.
Our plans have been drawn up, evaluated, worked, and reworked to ensure the maximum
efficiency while minimizing the possibility of error. We will employ local vendors who have the
same desire to be the best at what they do, while providing un-matchable services. Thus, we
give back to the community by providing jobs both inside and outside of our organization. We
encourage new and upcoming small businesses that provide a service within our need base to
step up to the challenge of being the best through their contract with Cape Cabo Studios.

Our production studio will not only compete but also excel with the latest production studios
created in Spain, Romania, and Czechoslovakia and others. We wish to make our production
and postproduction facilities available to the independent filmmaker who wants quality with a
budget. Cape Cabo Studios is a member of the community. Cape Cabo Studios gets the
opportunity to laugh when the community laughs and cry when the community cries, to rejoice
when the community rejoices and to help put the pieces back together when things change or
begin to fall apart. We care about the things that have meaning in the lives of our neighbors.

European Studios: The European Union audiovisual market (EUR 15) was worth 98.6 billion
euros in 2002. During the period 1998-2002, the average annual growth rate in the European
audiovisual sector was 6.5%. Production activity in Western Europe continued apace. Co-
productions accounted for 38.1 per cent of the regional total.

Nearly every other European country has a state-sponsored film commission showcasing their
country as a film locale to Hollywood.

France

Investment in French films passed €1bn for the first time in 2003. The highest number of films
since 1981 was made in France during the year and the number of co-productions being made
has doubled since the year 2000. Foreign investment now accounts for nearly a third of all
production investment and French investment in films initiated by others has tripled in five years.
The average budget per film was up 26 per cent last year, but fluctuates annually

Romania, Czech Republic (Prague) and Poland: With the value of the US dollar, these
particular locations are currently seeing an increase from production companies. The distance,
weather and language translation for crew and staff are of the undesirable elements, which
makes these less important locations.

Prague: The business at a value of $350 million), employing some 20,000 Czechs. Confident
that Prague will continue to attract multimillion-dollar Hollywood film productions, the
government is ignoring longtime pleas from Czech film professionals to offer tax breaks to
foreign studios that choose to spend their money. Promotion and tax incentives, which have
turned countries like Canada into film-location empires, are implemented to help face old
competitors like the UK and upstarts such as Bulgaria and Romania. Currently, there are 4
productions in progress of US interests.

Barrandov Studios has 100,000 sq ft of stage space and 60 acres of back lot.

VAT: A 5% rate applies to selected goods and services (staple foodstuffs, medicines and other
health care products, newspapers, periodicals, books and specific environmentally-friendly
products). Since May 2004, 19% VAT is imposed on most goods, rental and services such as
road freight transport, public catering services, accommodation and tourism, and most repairs
and mediation services.

If a foreign production unit signs a contract for a project with a Czech executive production unit
then the foreign production unit pays no VAT. This means that during the production of the
project all services and facilities are hired by the Czech production unit, which pays VAT.

The VAT will be refunded to the Czech production unit. The Czech production unit does not
invoice the foreign production unit for the VAT.

Services rendered abroad are not taxable in the Czech Republic, and under the new VAT law
certain domestic services are tax exempt.

In other cases the foreign production unit has to pay the VAT. This means that it is more
profitable for the foreign production unit to entitle a Czech executive production unit to hire all
services and facilities.

The underdog film territories of Hungary, Bulgaria, Romania and Estonia are getting their acts
together, building studios, passing film laws and luring international productions to their borders.

Romania and Bulgaria: Romania and Bulgaria are already drawing an exponential increase in
straight-to-video productions as well as low-budget films. UK investors, headed by a London-
based company, are constructing a studio facility in the Romanian capital, with a 20,000-square-
foot soundstage, animation facilities and an adjoining hotel.

Hungary: Last year Hungary introduced a 20 percent spending rebate for all filmmakers. In an
overt bid to draw producers to the Carpathian basin, Hungarian law gives foreign producers
rebates of 10% of their in-country budget for simply hiring a Hungarian line production company.

Foreign producers in co-production agreements with Hungarian companies can reap further
benefits by offering lucrative tax shelters to Hungarian investors

Latvia: Latvia's National Film Center has just completed a major state-funded studio complex in
Riga that NFC director hopes will both help local directors and service international film crews.

3.3 Sales Literature

The business will begin with a general corporate brochure establishing the positioning. This
brochure will be developed as part of the start-up expenses.

Literature and mailings for the initial market forums will be very important, with the need to
establish a high-quality look and feel in order to create and fulfill the right sense of
professionalism.

DVD presentation of Cape Cabo Studios and its' facilities will be sent to all industry executives,
producers, and production personnel in the film making industry.
3.4 Fulfillment

The principals of the business will provide the key fulfillment and delivery. The real core value is
professional expertise, provided by a combination of experience, hard work, and education
(in that order).
We will turn to qualified professionals for freelance back up in market research and presentation
and report development, which are areas that we can afford to contract out without risking the
core values provided to the clients.

3.5 Technology

Cape Cabo Studios will maintain the latest Windows® and Macintosh® capabilities including:

Complete e-mail facilities on the Internet, CompuServe, America-Online, and Applelink, for
working with clients directly through e-mail delivery of drafts and information.

Complete presentation facilities for preparation and delivery of multimedia presentations on


Macintosh or Windows machines, in formats that include on-disk presentation, live presentation,
or video presentation.

Complete desktop publishing facilities for delivery of regular retainer reports, project output
reports, marketing materials, and market research reports.

The most advanced technological equipment including Cameras and Post-Production in the
industry.

3.6 Future Services

Cape Cabo Studios will continue its growth in the Independent Fill Maker's market and beyond.

4.0 Market Analysis Summary

The following sections describe the market segmentation, strategies, and industry analysis.

4.1 Market Segmentation

The breakdown of the market for film productions falls in a niche market as the medium
budgeted Independent Film.

Global Film Production: Global box office revenues are forecast to grow to $25.6 billion by
2010 – nearly double the 1995 total. Numbers of films produced worldwide stood at 3,827 in
2002, up by 181 films since 2001 and the numbers increase each year…Europe produced 666
in 1997 and numbers have increased each year. The highest average production budgets are
found in the US ($27million), UK ($12.48million), Germany ($8.68million), France ($7.53million),
and Ireland ($6.08million). Three out of these five countries are English speaking showing the
impact of the language on its productions costs and revenues. It is clear that three world regions
dominate overall film investment – North America and Western Europe are number 1 and 2
respectively.

US films saw the largest increase in average budgets in 2002, up some 47 per cent over 2001.

US Major Studios: The US major film studios dominate the global film economy. Although
producing a relatively small amount of films per year, the revenues that flow through integrated
distribution mechanisms run into tens of billions of dollars.

European Studios: The European Union audiovisual market (EUR 15) was worth 98.6 billion
euros in 2002. During the period 1998-2002, the average annual growth rate in the European
audiovisual sector was 6.5%. Production activity in Western Europe continued apace. Co-
productions accounted for 38.1 per cent of the regional total.
England, Germany, Poland, Czech Republic, and France. These studios fall under the
L4, 000,000 ($7,500,000usd) budgets.
• All have their own production, which eliminates Film Company’s availability.

• Smaller Weather window – seasonal

• Interruptions

Mexico Film Industry Studios: In August 2005, the Mexican government has set aside close
to US$1 million (euro 814,000) to back loans for movies as a growing number of the country's
film makers win international acclaim.

The funds, from Mexico's Economy Department, will act as a guarantee for about US$2.5 million
(euro2.03 million) in loans from national development bank Nacional Financiera that could help
fund up to 20 movies, the ministry said Thursday.

The department expects the loan support to benefit 35 small and medium-sized companies
involved in the film industry across the country.

Such success has been a breath of fresh air for the Mexican movie industry, which had
dwindled from making as many as 200 films a year during World War II, the so-called golden
age of Mexican film, to putting out just a handful of local productions a year.

Production has picked up in recent years, and the industry is expected to put out 50 movies in
2005. Although the funds are modest, the ministry hopes it's setting an example for other
investors, public or private, to follow.

The ministry is also allotting about $300,000 to Mexico's national film commission, Conafilm,
which promotes the industry and facilitates meetings between participants in the business.
Market Analysis
Potential Customers Growth 2009 2010 2011 2012 2013 CAGR
Independent Film Productions 10% 8 9 10 11 12 10.67%
DVD/TV 15% 10 12 14 16 18 15.83%
Other 10% 0 0 0 0 0 0.00%
Total 13.62% 18 21 24 27 30 13.62%

Market Analysis (Pie)

Independent Film Productions


DVD/TV
Other

4.2 Target Market Segment Strategy

Our target markets are middle Independent Film Maker.

Film Strategy: Film production is the genesis of an economic chain dedicated in bringing
entertainment to an audience, whether it is done in cinemas, on DVD/Video, on television, or
over the Internet. Without production there is no need for distribution strategies. It is important to
remember that money is not made from production. Since production is not a revenue source, it
is important to have a focused strategy in order to keep the costs down and has been the case
over several years now. Our studio will be developed to accommodate this most important
element.

Overseas Production: The expansion of overseas markets is forcing the major studios to
review their production strategies. Moves are being made to establish production bases and
deals overseas. Warner Bros and Disney have already implemented programs. Disney is in the
UK, Germany, Netherlands and some Italy. Warner is mainly active in Germany and 20th
Century Fox is in the UK. Of all the majors, Paramount and Universal currently have no
production activities abroad although Universal is in the process of setting up deals with
filmmakers in all parts of the world and declares overseas co-productions and acquisitions as a
key part of its diversification strategy.
The Independent Film: Many independent production companies in the US have been busy
establishing output deals. An independent film is defined by any major studio, which has no
more than 49% control of the production. This blurs the lines between the independent and the
major studios. In reality, many perceive independents are subsidiaries of the major group.

Animation: The increasing popularity and market of the animated production is now recognized
as a long-term revenue stream. Cape Cabo Studios will be able to accommodate these
productions as well.

Television: As of January 2004, the European Audiovisual Observatory estimates that a total of
1,100 national or transnational television channels are available or originate in the European
Union. More than 200 of these channels target non-national markets. In addition, there are
around 1,900 regional and local channels of which almost 70 are carried on satellites. Channel
numbers have risen steeply from 103 in 1990 to more than 1,100 in 2003 (excluding local
channels) – movie and sports themed channels are those showing the fastest increase in
numbers.

Of all the screen media industries in Europe, none generates more revenue than the TV
industry. The Western European pay TV business will generate just shy of €20bn in revenue
this year. PPV revenues from movies and sport will grow at a far greater rate than traditional
premium TV revenues over the coming few years. By 2006, PPV services will be contributing
more than five per cent of total pay TV revenues in Mexico, France, Spain, Italy and the
Netherlands.

Alternative Media: Alternative content will add $30m annual revenue to foreign exhibitors by
the year 2008. There are 40 exhibitors worldwide who have already screened alternative
content.

Our secret: Don’t aim for the big studio films, target mid range productions and set up an
American to be the liaison-this will keep the lights on. Competing with New Zealand, Australia,
Romania, Prague and Poland is the target market. Cape Cabo Studios will deliver a better
studio that smaller productions can feel comfortable.

There are currently over 50 co-production agreements in force between foreign countries and
these treaties stipulate a legal framework in which producers from these countries may work
together. They also define the role, which the various sources of film funding and financing may
play within the financial structure of a European co-production.

Panavision (camera supplier) is already in Mexico, but we can deliver a special deal for any of
our own productions. Bringing the U.S. is as easy as keeping the rates very low and keeping the
tax incentives in place.

Completions Bonds: We can deliver the infrastructure setting up financing for films for co-
productions if desired. We are also working with under the latest co-production treaty.

Baja California is a great place to shoot and offers some pretty good incentives for all production
companies.
Marketing Analysis

• Cater to All Major and Independent Film Companies Worldwide (Tens of Thousands)

• Target also - TV Programs, Music Video, and Commercial productions as well -

• Film Festivals exposure

• Trade Magazines

• Hollywood connection from existing business

4.2.1 Market Needs

Cape Cabo Studios is in a unique position of competition. We compete against hotels with
conference facilities, conference centers, other event planners both on the large and small
scale, persons within an organization who are assigned the task of organizing an event, and
people who wish to organize their own events without the benefit of assistance. The benefits
and drawbacks of each of our competitors as compared with the services we offer are hardly a
match in quality and price.

A new report by Screen Digest shows that European cinema admissions will reach 1 billion in
2005, rising from 910m in 2002 - an impressive 20% growth rate over the three year period.
More good news for the European cinema industry - box office revenues will rise at an even
faster rate over the same period – by 33% – due to a steep rise in forecasted ticket prices.

The key driver behind this growth has been the massive growth of multiplexes over the past
decade. By the end of 2002, multiplexes accounted for nearly half (47%) of all European cinema
screens. Another consequence of this is that the average number of screens per site has risen –
to an average of 2.5 across Europe. Ireland has the most screens per site, an average of 4.5.

Leading this growth in multiplexes have been British and French cinema chains. In an analysis
of the 100 leading European national exhibition circuits, UK and French cinema exhibitors
accounted for over 40% of European Screens. Of the top ten leading circuits, the top seven are
all of UK or French origin.

The seven leading global cinema chains have added 650 screens in Western Europe in the past
four years, more than in any other region in the world. UCI accounts for 40 per cent of the net
additions. UCI is the only major international exhibitor expanding in the Central and Eastern
Europe region. It has done so through the acquisition of Ster Century's circuit.

Cape Cabo Studios Support:

• Australia, Canada, Spain and Sweden are the only countries, which have more than 20
seats per 1,000 populations worldwide; of these, Spain has the most.

• Some Central and Eastern European countries (Czech Republic and Hungary) have
more seats per head than the UK; but Poland only has half as many
• The growth of multiplexes has resulted in screen seating capacity worldwide falling five
per cent in the past two years

• Scandinavian countries Sweden and Denmark, plus South Africa and Turkey, have
screens with the smallest average capacity (150 to 170 seats per screen)

• Global screen advertising was worth $1.06 billion in 2002. The sector saw an average
growth rate of 9.6 per cent across all territories, outstripping many other sectors of the
display advertising market.

• Western Europe as a whole is the dominant revenue earner in the sector, representing
68.2 per cent of total global revenues in 2002.

Worldwide Box Office Figures:

• Five of the 10 largest box office markets in the world are in Western Europe, but the
territory accounts for just over a quarter of global box office revenues

• The US accounts for almost 45 per cent, but no other single country takes more than 10
per cent of worldwide revenues

• Share of the cinema market taken by non-US countries fell from 62 to 54 per cent
between 1995 and 2002

• Last year, non-US share of the total increased by almost three per cent, mainly as a
result of the falling value of the dollar, a trend that has continued into 2004

• Over three quarters of total Western European cinema revenues derive from just five
countries: Germany, France, the UK, Italy and Spain

• Of these, only Germany’s market share has fallen consistently throughout the past 10
years, and now stands at just 4.4 per cent of the world total

Television Figures:

There are 3.9m digital cable homes in Europe, equivalent to 6.6 per cent of total cable homes.

We forecast 15.9m digital cable homes in 2006, equivalent to 25 per cent of total cable homes
in Europe.

France and in particular Germany will be the main growth areas over the next four years.

By 2008, there will be 94.4m pay TV households in Europe, compared to 82.4m at the end of
2003, at an average growth rate of 2.8 per cent a year
Internet Pay TV:

Screen Digest expects that there will be some 340,000 net additions to the IPTV subscriber
total in Europe during 2004

We think that growth in European IPTV subscribers this year will be around 120 per cent

Net annual additions will nearly double next year, and increase by a factor of four in 2008, by
the end of which we expect there to be over 4.4m IPTV subscribers in Europe

By 2008, IPTV subscribers will account for just under five per cent of total pay TV subscribers
in Europe

IPTV has a tiny penetration in Europe of just 0.2 per cent of TV homes – about the same as
pay DTT services

By 2008, IPTV will have a penetration figure of close to two per cent of TV homes, a similar
penetration to ‘free digital DTH’ today

Over the past 12 months the number of commercially-active IPTV projects in Europe has
increased significantly

The most important IPTV project in Europe at the moment is e. Biscom’s Fastweb in Italy, with
over 150,000 subscribers at the end of the 2Q 2004

We forecast that IPTV subscribers will increase significantly in Europe over the next four years

However, with estimated 4.4m subscribers by 2008, IPTV will not pose a serious threat to
established pay TV services by 2008

Fastweb relies on both DSL and fibre-to-the-home (FTTH) as a transport medium, with DSL
increasingly becoming the medium of choice

Attractive triple play package offers will be principal factor in boosting IPTV take-up in the next
few years

Home Television Shopping:

The Western European t-commerce sector (TV shopping, direct response TV and
transactional interactive TV) is currently growing at a rate of 17 per cent a year

Screen Digest forecasts that total spending in the market will reach €5.2 billion in 2004

The UK is the largest t-commerce market, accounting for 48 per cent of the European total,
facilitated by high levels of digitization and two-way interactivity

Germany is the only other European market where t-commerce revenue is currently higher
than €1 billion a year, and it accounts for 29 per cent of the European total

The main obstacle to growth in Europe is under-developed or missing infrastructure. The


regulation of advertising and/or TV shopping is another limiting factor in some countries
DVD Trends:

Feature film is the dominant genre in both VHS and DVD retail in Europe, despite a plethora of
non-film titles available

But film’s share of the DVD market has slipped more than 10 per cent since 2000, in favor of
children’s, movies and other genres

Three out of every four DVDs sold in Europe are feature films, but only half of VHS sales

Music titles already account for a larger share (6.8 per cent) that they ever did on VHS

Non-film titles still account for a much smaller share of DVD sales than VHS sales

Music recorded the greatest increase in DVD market share since 2000; children’s the greatest
on VHS

Sales of DVD recorders increased by as much as 400 per cent in parts of Europe during 2003

Nevertheless, DVD recorders account for only around four per cent of DVD hardware sales in
Europe.

4.2.2 Market Trends

One important trend is the one toward greater international sales in film making production.
Although the U.S. market is still the biggest with major studio production, independent film
production are recording more gains in the non-U.S. market than in the U.S. market.

Another important trend is the one toward greater use of specialized and focused equipment
and technology, instead of in-house resources. Companies are looking for more out-sourcing
and, in general, a preference for variable costs instead of fixed costs.

4.2.3 Market Growth

It is difficult to determine non-US growth rate for the Independent Film, however, past data
suggests more than a 22 percent per year during the past few years. Independent film
production outside the USA has developed considerably higher than in the US market.

4.3 Service Business Analysis

One of Cape Cabo Studio’s challenges will be establishing itself as a major independent film
Studio, positioned as a relatively risk-free film production opportunity.

4.3.1 Business Participants

Participation from current Hollywood industry and production personnel will insure success for
Cape Cabo Studios.
5.0 Strategy and Implementation Summary

Marketing and Competition

We have discussed our client base as being predominately middle budgeted Independent Film
productions. We must cater to them. We promise the same great results using the most modern
technology in filmmaking, every time.

Our marketing is predominantly by word of mouth or visual connection to film producers. Major
independent filmmakers will be invited to the opening of Cape Cabo Studios. When marketing to
the independent filmmaker, the idea of greater efficiency for the money and a professionally
advanced studio with postproduction facilities without error would be the key concept.
Independent Film Maker, especially the medium budgeted producer, does not wish to deal with
problems that arise due to oversight on their part. If the guarantee of worry-free, error-free
production studios is available at a cost benefit to them, there really appears to be no better
choice.

5.1 Sales Strategy

Cape Cabo Studios deals with a diverse market of clients. Within each market segment, closing
of sales will differ. Each approach is described as follows:

Budgets from $10,000 - $100,000,000

Film, Television, Commercial, Music, Games, Web and all production companies

Big Screen (English and Foreign)

10,500 independent producers

600 films made - 250 hit big screen (US Only)

Alternative New Mediums - which means more production

Web Broadcasts

Cell Phones

Direct to Video/DVD

Low Cost Independent Film Makers $2-$5 Million USD

Sales will be concluded one to two days after the end of the event. A follow-up phone call will be
placed informing the client of the total cost, number of attendees, and information about the
billing packet that will arrive at their offices. Feedback forms will be included in these packets to
ensure the client is being served as they deem appropriate. Form letter thank you will be sent
following each event.
Medium Cost Independent Film Makers $6-$100 Million USD

Sales will be concluded with a follow-up phone call one to two days after the event. The phone
call will explain the total cost of the event, number of attendees, and information concerning the
billing. Individual parties of any age group are placed on a billing cycle. Invoices will be sent out
the 25th of the month and will be due the 10th of the following month. Feedback forms will be
included in these packets to ensure the client is being served as they deem appropriate. Thank
you cards will follow each individual event.

Marketing Directive:

One film can bring tourists forever

Aggressive Marketing

MIFED and all major tradeshows worldwide

Film Festivals

Film Commissions

Film Schools

Spokesperson

Magazines

Websites

Productions companies (US and others)

Film

Commercials

Music Videos

Television series

Video Game Entertainment Designers

Home Shopping – Infomercials

Co-Productions

5.1.1 Sales Forecast

Cape Cabo Studios has the foresight to grow at a rapid pace to keep up with demand. The
average production cost in is approximately $6 Million for the medium Independent Film Maker.
Initially, we will target that group. We wish to maintain a steady rate of production growth;
however, we understand that studio use and services will vary in different months. As noted in
the graph and chart, rapid increases during the spring, summer, and fall season will boost sales,
and then allow that growth to level off at a steady rate. We estimate to produce a minimum of 8
full feature movies per year based on an 8-week period.

• Produce 8 full feature movies per year (based on 8 weeks period)

• Full Service Studio - no production in house

• Newest state of the art design for efficiency and costs

• Full in house complete digital animation creative department

• Direct connection to Major Hollywood studios

• Panavision camera relationship

• Trained Personnel in the newest methods

• Weather – no restrictions

• Economic costs

• Intangible - Video, television, Music video, commercials traffic TBD. (requires a 12


month period to determine frequency)

Unit Sales 2009 2010 2011

Unit Prices

Direct Unit Costs

Direct Cost of Sales


6.0 Management Summary

Information and expense details are presented in subtopics 6.1 and 6.2.

6.1 Organizational Structure

The management team within Cape Cabo Studios will be small in the beginning. Bob Gill
President and CEO of FilmworksFx and Albee Patnesky from Panavision, who jointly have over
35 years in the film and production industry, will be heading the Cape Cabo Studios
Management Team. The primary employees will be the US Manager for Production and US
Manager for Post Production. They will identify Mexican film workers in the industry and begin
training for production at Cape Cabo Studios. When Cape Cabo Studios reaches its expansion
goals, each division of the studio will have one to two managers, an office assistant, two to three
site managers for the area, and product and marketing specialists. This team will function as
one with constant communication through weekly staff meetings, e-mail, and message boards.
All jobs are interrelated. The performance of one affects the performance of the others;
therefore, each team member expects nothing but the best from each other.

As it functions currently, we see no gaps in the management of this organization. Should Cape
Cabo Studios grow beyond its estimated size; more positions in specialized areas will need to
be added as well as additional site support and office assistance. To fill these positions, Cape
Cabo Studios is looking for energetic, teachable, detail-oriented persons who want the potential
to grow and improve their skills within the organization. Cape Cabo Studios wants to be the
best; therefore, they will hire those who want to succeed. It will provide opportunities to
Community workers as well as film industry workers throughout Mexico.
6.2 Personnel Plan

The following table shows the estimated personnel needs for Cape Cabo Studios.

Personnel Plan
Personnel 2009 2010 2011
Manager $0 $150,000 $250,000
Post-Production Manager $0 $200,000 $250,000
Production Director $0 $100,000 $180,000
Other $0 $0 $0
Total Payroll $0 $450,000 $680,000

Total Headcount 0 0 0
Payroll Burden $0 $67,500 $102,000
Total Payroll Expenditures $0 $517,500 $782,000

7.0 Financial Plan

Motion Picture Studios-based businesses require major funds to start up, and as they grow and
expand, less funds to maintain. The charts and graphs that follow will show that investment up
front allows Cape Cabo Studios to function debt-free with little overhead. This gives Cape Cabo
Studios a quicker break-even point and increased profit margins from the start. As Cape Cabo
Studios grows, the debt-free philosophy will be maintained until it is impossible to function
during growth periods without financial assistance.

7.1 Important Assumptions

Tax rates are noted for information. We carry no loan burden that would be affected by these
rates. What hits Cape Cabo Studios the hardest (but not nearly are bad as other service
businesses), is the tax rate of 23.5%, which is nearly one quarter of the total sales. As Cape
Cabo Studios continues to grow, these numbers will be reference rather than influence.
General Assumptions
2009 2010 2011
Short-term Interest Rate % 10.00% 10.00% 10.00%
Long-term Interest Rate % 10.00% 10.00% 10.00%
Payment Days Estimator 30 30 30
Tax Rate % 25.00% 25.00% 25.00%
Expenses in Cash % 10.00% 10.00% 10.00%
Personnel Burden % 15.00% 15.00% 15.00%

7.2 Key Financial Indicators

The break-even point for Cape Cabo Studios is based on the assumption that we will produce 8
full-length movies each month and average approximately $2,500,000 per film for production
and $2,500,000 for postproduction.
7.3 Break-even Analysis

The break-even point will appear more rapidly for Cape Cabo Studios than for other types of
businesses.

Break-even Analysis:
Monthly Units Break-even 0
Monthly Sales Break-even $54,098

Assumptions:
Average Per-Unit Revenue $3,300,000.00
Average Per-Unit Variable $250,000.00
Cost
Estimated Monthly Fixed Cost $50,000
Break-even Analysis

$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
($5,000,000)
0 2 4 6 8 10

Monthly break-even point

Break-even point = where line intersects with 0

7.4 Projected Profit and Loss

Leading the industry in Independent Film Studios requires the use of the resources available at
the lowest cost. As noted in the table, we spend less money on overhead than studios. This
savings allows us to market in creative ways and spend funds on expansion into other areas
when the time is right.

Profit and Loss (Income


Statement)
2009 2010 2011
Sales $0 $50,000,000 $70,000,000
Direct Cost of Sales $0 $6,000,000 $8,350,000
Other $0 $0 $0
------------ ------------ ------------
Total Cost of Sales $0 $6,000,000 $8,350,000
Gross Margin $0 $44,000,000 $61,650,000
Gross Margin % 0.00% 88.00% 88.07%
Operating Expenses:
Advertising/Promotion $0 $162,000 $330,000
Travel $0 $0 $0
Miscellaneous $0 $0 $0
Payroll Expense $0 $450,000 $680,000
Payroll Burden $0 $67,500 $102,000
Depreciation $0 $0 $0
Leased Equipment $0 $0 $0
Utilities $0 $0 $0
Insurance $0 $0 $0
Rent $0 $0 $0
Contract/Consultants $0 $0 $0
------------ ------------ ------------
Total Operating Expenses $0 $679,500 $1,112,000
Profit Before Interest and $0 $43,320,500 $60,538,000
Taxes
Interest Expense Short-term $0 $0 $0
Interest Expense Long-term $0 $0 $0
Taxes Incurred $0 $10,830,125 $15,134,500
Extraordinary Items $0 $0 $0
Net Profit $0 $32,490,375 $45,403,500
Net Profit/Sales 0.00% 64.98% 64.86%

7.5 Projected Cash Flow

Our cash situation is great. Although we begin with little extra cash, our increased growth allows
us to make up for lost time. Our cash balance is always above the mark with the cash flow not
too far behind. We have no negatives in our cash analysis.

Pro-Forma Cash Flow


2009 2010 2011
Net Profit $0 $32,490,375 $45,403,500
Plus:
Depreciation $0 $0 $0
Change in Accounts Payable $0 $1,396,613 $445,953
Current Borrowing $0 $0 $0
(repayment)
Increase (decrease) Other $0 $0 $0
Liabilities
Long-term Borrowing $0 $0 $0
(repayment)
Capital Input $0 $0 $0
Subtotal $0 $33,886,988 $45,849,453
Less: 2009 2010 2011
Change in Other Short-term $0 $0 $0
Assets
Capital Expenditure $0 $0 $0
Dividends $0 $0 $0
Subtotal $0 $0 $0
Net Cash Flow $0 $33,886,988 $45,849,453
Cash Balance $5,000,000 $38,886,988 $84,736,441
Cash

$5,000,000

$4,500,000

$4,000,000

$3,500,000

$3,000,000

$2,500,000 Cash Flow

$2,000,000 Cash Balance

$1,500,000

$1,000,000

$500,000

$0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

7.6 Projected Balance Sheet

Cape Cabo Studios is set up for success. The balance sheet in the following table shows
managed but sufficient growth of net worth, and a sufficiently healthy financial position. The
monthly estimates are included in the appendices.

Pro-forma Balance Sheet

Assets
Short-term Assets 2009 2010 2011
Cash $5,000,000 $38,886,988 $84,736,441
Other Short-term Assets $4,000,000 $4,000,000 $4,000,000
Total Short-term Assets $9,000,000 $42,886,988 $88,736,441
Long-term Assets
Capital Assets $48,000,000 $48,000,000 $48,000,000
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $48,000,000 $48,000,000 $48,000,000
Total Assets $57,000,000 $90,886,988 $136,736,441

Liabilities and Capital


2009 2010 2011
Accounts Payable $0 $1,396,613 $1,842,566
Short-term Notes $0 $0 $0
Other Short-term Liabilities $0 $0 $0
Subtotal Short-term Liabilities $0 $1,396,613 $1,842,566

Long-term Liabilities $0 $0 $0
Total Liabilities $0 $1,396,613 $1,842,566

Paid in Capital $100,000,000 $100,000,000 $100,000,000


Retained Earnings ($43,000,000) ($43,000,000) ($10,509,625)
Earnings $0 $32,490,375 $45,403,500
Total Capital $57,000,000 $89,490,375 $134,893,875
Total Liabilities and Capital $57,000,000 $90,886,988 $136,736,441
Net Worth $57,000,000 $89,490,375 $134,893,875

7.7 Business Ratios

Data on our business ratios is shown in the table below.

Ratio Analysis
2009 2010 2011 Industry Profile
Sales Growth 0.00% 0.00% 40.00% 0.00%

Percent of Total Assets 2009 2010 2011 Industry Profile


Accounts Receivable 0.00% 0.00% 0.00% 0.00%
Inventory 0.00% 0.00% 0.00% 0.00%
Other Short-term Assets 7.02% 4.40% 2.93% 100.00%
Total Short-term Assets 15.79% 47.19% 64.90% 100.00%
Long-term Assets 84.21% 52.81% 35.10% 0.00%
Total Assets 100.00% 100.00% 100.00% 100.00%

Other Short-term Liabilities 0.00% 0.00% 0.00% 0.00%


Subtotal Short-term Liabilities 0.00% 1.54% 1.35% 0.00%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00%
Total Liabilities 0.00% 1.54% 1.35% 0.00%
Net Worth 100.00% 98.46% 98.65% 100.00%

Percent of Sales 2009 2010 2011 Industry Profile


Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 0.00% 88.00% 88.07% 0.00%
Selling, General & 0.00% 23.02% 23.21% 0.00%
Administrative Expenses
Advertising Expenses 0.00% 0.32% 0.47% 0.00%
Profit Before Interest and 0.00% 86.64% 86.48% 0.00%
Taxes

Ratios 2009 2010 2011 Industry Profile


Current 0.00 30.71 48.16 0.00
Quick 0.00 30.71 48.16 0.00
Total Debt to Total Assets 0.00% 1.54% 1.35% 0.00%
Pre-Tax Return on Net Worth 0.00% 48.41% 44.88% 0.00%
Pre-Tax Return on Assets 0.00% 47.66% 44.27% 0.00%