Gazdasági Ismeretek | Üzleti terv » Gene Massey - CinemaShares Business Plan

Source: http://www.doksinet TM The World’s First Audience-Financed Movies BUSINESS PLAN The CinemaShares.com Corporation 550 S. Barrington Ave Suite 2129 Los Angeles, California 90049 Phone: (310) 476-3668 Fax: (310) 476-9520 For more information, please contact: Gene Massey E-mail: Gene@CinemaShares.com Web site: www.CinemaSharescom This is a business plan, not an offering to sell securities. CONFIDENTIAL COPY NUMBER Source: http://www.doksinet Table of Contents Executive Summary - 3 Mission Statement - 5 The Company - 5 CS Unique Corporate Structure - 5 Corporate Structure Graphic Diagram - 6 Stock in a CS Licensee Company – 7 Marketing the Shares in Licensee Companies – 8 Size of Market - 10 Size of Market (Tables) - 11 Competitive Advantages – 12 Management Team – 14 Board of Advisors – 18 Capital Required and Use of Proceeds - 21 Investor Exit Strategy - 22 The Internet Industry Overview - 23 Motion Picture Industry Overview - 24 CinemaShares

Business-Method - 26 Managements Projected Revenue Sources - 27 Theatrical Exhibition - 27 Home Video - 28 Licensing Revenue - 30 Advertising Revenue - 31 Product Placement Revenue - 31 Merchandising Revenue - 31 Game Revenue - 32 Sequel and Prequel Rights - 33 TV and Cable Rights - 33 Soundtrack Licensing - 34 Non-Theatrical Distribution - 34 Managements Revenue Projections - 35 Financial Plan - 35 Total Movie Distributor Revenues [Table: Historic, Table: Future] - 36 Major Assumptions and Methodology Used in Projections - 37 Projections Key - 38 Conservative Scenario Summary & Detail [Table] - 39 Moderate Scenario Summary & Detail [Table] - 40 Aggressive Scenario Summary & Detail [Table] - 41 Valuation - 42 Appendix A - Paul Kagan Reference on Movie Release Revenues Appendix B – Info on U.S and International Patent Filings Appendix C – Related News Articles Appendix D - Anatomy of Movie Funding - Hollywood Reporter Article Appendix F – FUNGI - A Comedy About

Pollution, CinemaShares First Movie 2 Source: http://www.doksinet Executive Summary Since its birth in the early 1900s, the motion picture industry has financed the production and distribution of feature length films by loans from banks or movie studios that provided the necessary "front money" to create them. These investments have generally required repayment from revenues received from selling the film in various markets before any profits could be realized. Over the years, certain films financed in this manner have generated extraordinary profits. Even a film as expensive as "Titanic," with a cost of almost $200 million dollars to produce, generated nearly ten times its production cost in revenues for Twentieth Century Fox and Paramount, the two movie studios that shared production expenses. Numerous examples can be given of other highly successful films such as Spiderman, Harry Potter, Lord of the Rings, Star Wars, E.T, Jurassic Park, The Lion King, Men In

Black, Forest Gump, and Home Alone, that have generated enormous revenues, fully repaid the large loans necessary to make them, and even to this day produce revenues for the studios that financed them. And yet, every year a high percentage of films financed in this manner do not make back their costs. According to a recent media and entertainment study published by Arthur Andersen, more than 50% of the films made in the last three years have not been profitable. The study also reported that despite significant increases in revenues, operating income for the 35 largest media and entertainment companies actually decreased by 8% from 1998 to 1999. The Arthur Andersen report concludes with the statement: "In this environment, there has never been a greater need for content companies to have access to significant long-term and reasonably priced capital." The movie studios have long depended on the revenues from the highly successful films to make up for the commercial failures.

However, the high cost of producing and distributing featurelength movies continues to escalate each year, with a commensurate increase in risk for movie investors. This great financial risk from the significant percentage of box office failures is due to the inability of movie producers to accurately predict, prior to advancing the production funds of a proposed film, the number of tickets that will eventually be sold. Since presently known methods of surveying the audience cannot determine the number of tickets that will be eventually purchased for a proposed movie, a method is needed for consistently assuring the financial success of a movie, prior to advancing the funds needed for production and distribution. As a solution to this long-standing problem, The CinemaShares.com Corporation has developed a patent-applied-for business-method that allows the potential audience to invest in studio-quality motion pictures, participate in the filmmaking process, and share in a films profits.

Our patentpending business-method eliminates the loan repayment from the process of financing a motion picture. Furthermore, it allows an investor who purchases at least one share of stock in a movie to receive a guaranteed "Agreed Fair Return" on their investment in the form of a free copy of the movie. For the first time in history, CinemaShares provides a method of funding a yet-to-be-produced movie by presenting a "storyboard synopsis" on a production company’s Web site and allowing potential viewers of the movie to purchase as little as one share of the company‘s stock prior to production. The purchase of a minimum of one, fully-registered, publicly-traded, OTCBB share of 3 Source: http://www.doksinet stock in a CinemaShares Licensee Production Company holding rights to a proposed film will entitle a Shareholder to receive the following benefits: • Trademarked as "Audience-Financed Motion Pictures," our Business Method allows for the

distribution to shareholders of a free VHS or DVD copy of the movie as a stock dividend. (one free copy for every share held, upon completion of production) Described as an "Agreed Fair Return," shareholders will receive their copies by mail within a certain window to avoid competing with the theatrical release. • Our Business Method also allows for audience observation of, and participation in, the creative process of making a movie. After purchasing at least one share of stock, a Shareholder will be given the opportunity to participate as a "Cyber-Producer" during the making of the movie, by casting advisory votes on the Web site for certain non-essential elements of production. Some of the issues voted on will perhaps include casting, wardrobe, locations, key story points, and other fun items during shooting as they occur. Shareholders may also be able to download and read the script (with or without the ending), view storyboards and production notes, and

e-mail the production staff with their comments. They will be entitled to discounts on Studio Store merchandise and will be entered in contests to appear in the movie and receive free tickets to screenings. Through streaming video on the Web site, they will be able to view some of the dailies, celebrity interviews, and even view parts of the actual filming of the movie. • A shareholder will also receive a portion of the net profits generated from Worldwide theatrical, television, cable and home video distribution of the movie. The films financed using this method will generate revenues by distribution through traditional means, domestically and internationally, to movie theatres and video rental stores through major and independent studios, as well as through new and innovative methods on the Internet. However, unlike traditional motion picture financing methods, with CinemaShares method there is no loan to be repaid to the financing entity, and all net profits received from a

movies distribution will be paid out to Shareholders in the form of cash dividends. These considerable benefits are offered to any Shareholder who purchases at least one share of stock in a Licensee Company for $23 dollars ($20 dollars per share, plus a $3 online transaction fee) or less than the current retail price of a typical DVD movie title. The purchase would take place with a credit card on a CinemaShares Licensee Companys Web site. An additional, but significant, ancillary source of revenue for CinemaShares will be from the sale of our proprietary software, enabling publicly traded companies to deliver their disclosure documents and sell their own stock directly to the public through their own Web sites. Our software and databases would facilitate this capability and make it available to a wider market and at a lower cost than can be done by many companies in-house. 4 Source: http://www.doksinet Mission The Vision of CinemaShares is to become the worlds pre-eminent source

for financing, publicizing, and marketing studio-quality motion pictures. Our Mission is to use our Patent-Pending Internet-based financing concept, combined with traditional offline film distribution methods, to contribute to the creation of highly entertaining, commercially successful motion pictures that uplift the human spirit. The Company The CinemaShares.com Corporation (CinemaShares), a Nevada “C” Corporation, is a development-stage parent holding company incorporated in April of 2000. CinemaShares utilizes a new and innovative patent-applied-for Business Method that can minimize the risks associated with financing a motion picture. CinemaShares principal business is licensing our technology and software to our publicly traded “Licensee Companies” enabling them to develop and finance studio-quality motion pictures through their own Web sites. CinemaShares owns a Web site, wwwCinemaSharescom, and through access to our site we also provide our Licensee Companies with

assistance in production, advertising, and marketing their films to the public. CinemaShares Unique Corporate Structure Each film that is financed utilizing the CinemaShares Proprietary Business Method will be owned by a separate, publicly traded company and each company will own all rights to its motion picture property. CinemaShares is currently a pre-IPO, parent holding company, and will receive an interest in each of these publicly traded movie companies as compensation for: 1) the use of our proprietary software system, 2) licensing the U.S Patent for our Business Method, and in some cases, 3) transferring our rights in a motion picture property. CinemaShares holdings in a Licensee Company will vary in each case according to terms negotiated with the original owners of the motion picture property. Our holdings may range from a larger interest in a Licensee Company owning all rights to a film developed in-house by CinemaShares, to a smaller interest in a Licensee Company financing

a film by merely licensing our Business method and purchasing our software. CinemaShares will partner with a reputable online Broker/Dealer to facilitate the sale of stock in each of our Licensee Companies. For example, the first motion picture property planned for financing by CinemaShares will be the family comedy, Fungi - A Comedy About Pollution. A complete description of this film project can be seen in Appendix F of this document and at its Web site: www.Fungi-the-moviecom The Web site includes a storyboard synopsis, the budget, the shooting schedule, the cast description, the screenplay, and biographies of key personnel. CinemaShares has acquired all rights to this property and is transferring these rights and licensing its business-method to its first Licensee Company, The Fungi, Inc., in exchange for 45 percent of the new companys stock (See Corporate Structure Graphic below and description of first film offering in Appendix F) 5 Source: http://www.doksinet 6 Source:

http://www.doksinet Stock in a CinemaShares Licensee Company Publicly traded stock in any CinemaShares Licensee Company could be classified as a hybrid "Bank/Internet/Utility Stock." Motion pictures are typically financed by banks, which receive interest on the loans necessary to finance them. Over the life of a movie loan this interest can generate considerable revenues for the bank, with risk in the loans covered primarily by completion bonds and insurance policies. The company producing the movie is usually the entity at risk for the monies advanced for the production budget. Banks and financial companies generally have a good revenue stream from movie companies requiring financing. It is managements opinion that CinemaShares patent-pending method for financing movies will replace traditional bank financing, so we might be compared with a bank stock. Internet stocks are largely out of favor now because very few Internet-based companies are showing any real earnings, let

alone exponential earnings growth. A CinemaShares company will use the Internet as a tool to sell its stock online, not to generate the majority of its earnings. The earnings will come through traditional off-line methods for distribution, so we are more of a traditional financing company that uses the Internet, than a typical Internet company. Stock in a public utility is often purchased for the cash dividends paid out to shareholders. An example of a utility stock paying dividends is a typical coal mining stock. With a coal mining stock, the value of the stock actually goes down as the finite amount of coal is mined and sold and the proceeds are paid out as cash dividends to the Shareholders. If all goes as planned, the cash dividends paid out over time to the Shareholders eventually exceed the price they paid for the stock, and hopefully with enough of a return to make the endeavor worthwhile. CinemaShares management expects the stock in each Licensee Company to pay cash dividends

very much like a coal mining stock. In each of these companies, the public will finance the production of a film (as well as the cost of video and DVD copies distributed to Shareholders) through the purchase of fully registered, publicly traded stock (OTCBB) on the companys Web site. Upon completion of a film, CinemaShares management expects the Licensee Company to generate revenues from distributing the film through traditional means to theatres, home video, and television in the U.S and International markets Without the usual loan repayment for a movies production costs, the net profits received from the distribution of a Licensee Companys film can be expeditiously paid out as cash dividends. The typical CinemaShares Licensee Company could thus be described as a hybrid Bank/Internet/Utility stock, because the company replaces bank movie financing, it uses the Internet in its business model, and it pays out all earnings as cash dividends like a utility stock. CinemaShares expects to

receive the bulk of its revenues from cash dividends paid out from Licensee Companies. These cash dividends paid out to CinemaShares could be considerable, as we will usually hold from 5% to 50% of the Licensee Companys stock. For example, let us assume that CinemaShares holds 50% of the outstanding shares in a Licensee Company. If the Licensee Companys film produces actual world-wide profits ranging from as little as $2 million to as much as $100 million dollars, the cash dividends paid out to CinemaShares, the Parent Company, will correspondingly range from $1 million to $50 million. These revenues would flow through to CinemaShares, with very minimal deductions, as there would be no production loan to 7 Source: http://www.doksinet repay and the Licensee Company would have covered the major expenses. (See "Revenues" section for greater detail.) Even a highly successful film often receives the largest percentage of its revenues in the first few years of distribution.

After a certain period, it may not be worthwhile to a CinemaShares Licensee Company to pay dividends to hundreds of thousands of individual Shareholders, each holding a single share. At some point in the future, a films anticipated future revenues could be securitized and paid out in one lump sum to the Shareholders. Another option would be the purchase of all outstanding shares by the CinemaShares parent company or by a major studio that may want to add the Licensee Companys film to their library. (See Appendix C for article on the Pullman Bond.) Marketing the Shares in Licensee Companies Obviously, the primary marketing challenge for each CinemaShares License Company is to sell enough stock in an offering to be fully subscribed. The challenge is, of course, to generate enough interest in each movie project and drive enough traffic to our Web site. This is no small problem and the key to the success of our entire enterprise. The question is, can we sell a million shares, and how will

we do it? The answer may be found in examining the history of subscriptions sold online. The Internet is rapidly moving toward an online subscription model, and in essence, we have an online subscription/product/investment hybrid. Some examples of successful Internet subscriptions are: 1) the Sony Game site has over 300,000 subscribers who pay $9.95 per month for access, 2) Real.com has over 500,000 subscribers who pay $995 or more per month for RealPlayer Plus to download music, and 3) NetFlix.com, the worlds largest DVD rental company, has about 500,000 subscribers paying $20 a month to rent as many DVD’s as they want, with no late fees. (It is adding about 15,000 new subscribers every month, according to the company.) Successful studio movies routinely ship in excess of a million copies the first week of release on home video, and occasionally their successes are monumental. Both Gladiator and X-Men each earned in excess of $60 million in retail video sales and rental the first

week of release. Recently a number of studio and film-related Web sites have developed concepts based on Audience observation of the movie-making process, (See Competitive Advantages Section, Page 12). Management believes we could almost make a good argument for selling subscriptions to this creative process without an ownership in the project or the DVD dividend. In comparison to successful Internet subscription-only offerings, it is fairly easy to see the additional value we offer to our potential Shareholders for their $23 investment where they receive: a) the online subscription, b) the DVD dividend, and c) potential revenues from the product’s manufacturer. Our problem is largely one of making potential Shareholders aware of our offerings without a $50 million ad campaign. Management expects to accomplish this in several ways: • We expect to develop key strategic partnerships with movie-related Internet Web sites to drive traffic to the CinemaShares site. Links and

click-through banners will be purchased, bartered and/or exchanged with movie-fan Web sites such as AOL MovieFone, HSX.com, Ifilmcom, 8 Source: http://www.doksinet • • • Atomfilms.com, Yahoo Movies, and Hollywoodcom We also expect to establish relationships with companies specializing in the online sale and rental of movie copies such as Reel.com, Amazon, Netflix, Yahoo, and America Online The success of e-mail marketing cannot be ignored. According to estimates from Christopher Todd, an analyst at Jupiter Media Metrix, marketers spent $1 billion in 2001 for e-mail marketing and will spend $5.3 billion in 2005 Our Licensee Companies will promote the sale of their stock through custom-designed, flash-embedded, and/or streaming videoenabled e-mail marketing campaigns. We have researched our cost per acquisition (CPA) and estimate a maximum cost of about $3 dollars for every share of stock marketed online and offline. We will be sending out flash and streaming video enhanced

e-mails that encourage people to click through to our site and make a share purchase. We are also developing innovative viral marketing programs that encourage anyone receiving e-mail from us to forward it to others. Like most Web sites, CinemaShares has incentive programs to develop our own internal email list. We currently have contests for visitors who register on our site to receive a free DVD copy of our movie and will continue to expand on this feature. Another new method of marketing we intend to use is the distribution of pre-recorded CDs. Custom-designed CDs are now being distributed to the public containing preview trailers of upcoming movies with a link to the movie’s Web site. These CDs cost about 70 cents each, so a million could be distributed for about $700,000 dollars, to help seed our prospective market. In addition to the single shares marketed and sold to individuals through our Web sites, we also expect to sell large blocks of the stock offered in each

CinemaShares Licensee Company to certain Strategic Investor Partners who would benefit from owning free video copies. Although we have yet to develop a relationship with any of the major retailers, we will be working to develop strategic alliances with national video retail chains like Blockbuster and Hollywood Video, as well as other nationwide retail stores such as Wal-Mart, K-Mart, Target, and Best Buy. For example, Blockbuster is currently self-financing movies for direct distribution to their retail stores. If Blockbuster were to buy a portion of the stock offered in a CinemaShares Licensee Company as an investment, they would receive a free movie copy for each share of stock purchased. Blockbuster would thereby secure their investment with the free video dividends, because they could then sell or rent these video copies at retail prices in their stores nationwide, and still participate in the movies earnings. This same scenario could be played out with many other Strategic

Partners in the retail video or video distribution business such as Hollywood Entertainment, Wal-Mart, Warner Home Video, Target, K-Mart, etc. Our formula will also work extremely well with major movie studios and Internet retailers of movie copies such as Amazon.com, Reelcom, Bigstarcom, Buycom, and Yahoo.com As investors purchasing stock in CinemaShares films, the major movie studios and Internet retailers would be motivated to offer promotional links to help drive traffic to our Web site. In the opinion of management, these campaigns would be more than sufficient to insure that each offering will be fully subscribed. 9 Source: http://www.doksinet Size of Market According to Paul Kagan Associates, the video rental industry is the largest single source of U.S revenue to U.S movie distributors, representing about $76 billion, or 485%, of the $154 billion of domestic movie revenue in 2000. International distribution produced an additional $145 billion in revenues for U.S movie

producers with combined 2000 total movie revenues of over $321 billion. A large part of the potential market for the stock in our licensee companies consists of anyone who purchases copies of movies. In 2001, 10 billion VHS and DVD copies of movies were shipped to U.S retail outlets for purchase either by individuals as "sell through" copies or by the retail outlets themselves for rental. Total worldwide combined DVD and VHS sales revenue is expected to grow from $13.4 billion in 2000 to $327 billion by 2005 (Source: Adams Media Research) Historically, new technologies have led to the creation of additional distribution channels for movie studios resulting in additional revenues. It is the opinion of management that CinemaShares new business-method offers a major value-added alternative to the typical purchaser of a home video or DVD. The value added by CinemaShares Business Method to purchasers of movie copies is the opportunity to participate in the making of the movies

they purchase, as well as the right to own a share of the profits in each of these movies, paid out to them as cash dividends. We must also consider the psychological benefit to the movie fan of the pride of participation in, and partial ownership of, a studio-quality Hollywood movie. In 2001, Blockbuster alone generated $5.1 billion in video sales and rentals worldwide (Source: Blockbuster Annual Report). These video copies of movies were sold and rented to individuals who purchased or rented them with no expectation other than viewing and/or owning the video copy. Consider a Blockbuster video customer being offered the opportunity to participate in the making of a Hollywood movie, and own a share of that movies profits, for the same price they previously paid for just the video. It is easy to see why we believe that one day the majority of films could be financed using CinemaShares Business Method. 10 Source: http://www.doksinet Worldwide film revenues grew to a staggering $32.1

billion in 2000, with the US box office accounting for $7.8 billion of the total Worldwide revenues are expected to grow over the next five years by an average of 8.1%, with the overseas market continuing to gain in importance. The charts below show Paul Kagans calculations of the actual theatrical and video Worldwide revenue from 1995 to 1999 and projected theatrical and video Worldwide revenue from 2000 to 2005 (based on the 1999-growth rate of 8.1%), with projected Worldwide revenue of $47.5 billion in 2005 Total Movie Distributor Revenues (in $ millions) 2001 Projected 2003 2002 2004 2005 U.S home video 8,640 9,339 10,096 10,914 11,798 Other U.S revenue 9,163 9,906 10,708 11,575 12,513 Total U.S revenue 17,803 19,245 20,804 22,489 24,310 5,238 5,662 6,121 6,617 7,153 Other international revenue 11,710 12,658 13,684 14,792 15,990 Total international revenue 16,948 18,321 19,805 21,409 23,143 Total worldwide revenue 34,751 37,566 40,609

43,898 47,454 International home video Percentage increase (at 1999 rate) Source: Paul Kagan Associates 8.1% 8.1% 8.1% Total Movie Distributor Revenues (in $ millions) Actual 1995 1996 1997 1998 8.1% 1999 8.1% 2000 U.S home video 5,231 6,152 6,306 6,811 7,389 7,990 Other U.S revenue 6,020 6,690 7,161 7,240 7,837 8,474 Total U.S revenue 11,251 12,842 13,467 14,051 15,226 16,464 International home video 4,192 4,432 4,406 4,436 4,480 4,844 Other international revenue 6,052 7,439 8,049 8,999 10,015 10,829 Total international revenue 10,244 11,871 12,455 13,435 14,495 15,674 Total worldwide revenue 21,495 24,713 25,922 27,486 29,721 32,138 Percentage increase Source: Paul Kagan Associates 15.0% 4.9% 6.0% 8.1% 8.1% 11 Source: http://www.doksinet Competitive Advantages CinemaShares comes to market at a very opportune time. With the advent of the Internet and its ability to reach millions of movie fans, coupled with the

recent popularity of online stock trading, it is no wonder a number of start-up companies now have plans to offer stock in movies to the public. The Internet offers immediacy and so many options for interactivity that it is a perfect medium for not only selling stock in a movie, but also allowing for Shareholder involvement in the creation of the movie. A number of companies have announced plans to provide audience involvement in the financing and/or production of movies. Among these are: www.HollywoodInvestorcom - This is an expensive-looking, very creative, flash-enabled Web site that announces an opportunity to invest in large Studio-quality Hollywood movies. The sites creators would appear to be Hollywood insiders from the major movies they claim to have worked on, but the principals are not identified, nor are their exact credits on those films listed. It difficult to evaluate their business model, but they do have movie-related products for sale. www.civilianpicturescom - The

site for this company offers some promise, based on their streaming video promotional film. They are a registered broker/dealer (NASD/SIPC) and they plan to equity-finance movie production through underwriting the public sale of OTC BB listed stock. They announced their new business at the Sundance Film Festival at the end of January 2001. According to their video, they point out the same problems that we do with the equity financing of movies, such as enabling anyone to purchase shares, and enabling an affordable minimum investment for the small investor. They have not, however, solved the problem of money-losing films, do not have our free DVD dividend per share idea, and list no films ready for financing or production. See Appendix C for USA TODAY news article www.HollywoodStockExchangecom (also wwwHSXcom) - this is one of the most popular and most trafficked sites with almost one million unique visitors a month. There is no legal stock offered for sale on the site and it is not

designed to finance movies. The site would, however, be a good advertising partner to drive traffic to the CinemaShares sites, and could supply excellent research statistics. www.MovieSharescom - This is a Web site actually designed to finance movies by selling stock However, according to their disclosure, when it is offered, it will be sold only to qualified investors. Furthermore, their investors will get nothing other than the stock and a possible invite to some screenings and parties. There are several films now listed for production and they are seeking investors. www.AudienceFundingcom - This site is almost identical in concept to MovieSharescom in that it has announced plans to sell stock in movies on its Web site. It does claim that it will sell not just to qualified investors, but to all movie fans and their shareholders will also be invited to special investor parties. They will not sell stock from their own Web site but will sell through Broker/Dealers, thereby most likely

eliminating the possibility of competing with our one share/DVD dividend concept. 12 Source: http://www.doksinet www.MGMcom - This is a very appealing and well-designed site focusing primarily on MGM Studios current and future film releases. Visitors to the site can see celebrity interviews, production stills, and trailers from upcoming films. One feature we plan to also offer is the ability to scroll down through a scene from the script as the same scene plays through a streaming video clip alongside. The site supports our belief that movie audiences want to observe all aspects of the filmmaking process, and viewers would jump at the chance to actually participate through online voting for some aspects of production. Visitors to the MGM site can also purchase VHS and DVD copies of MGM movies online. www.projectgreenlightcom - This overwhelmingly popular site is not designed to finance movies but is actually a contest for screenwriters who would like to submit a script for

consideration by Miramax. The winner of the first contest got his film “Stolen Summer” financed by Miramax and received $1 million to direct his movie script. Miramax is producing, and HBO will document the making of the film with a thirteen-week television series. This once again supports our contention that audiences want to observe and participate in the filmmaking process. The management of CinemaShares.com feels that we have very little competition for these reasons: • • • • • • Most of the companies listed above require "Qualified Investors" - An individual must meet certain financial criteria to legally invest in the project. All of the offerings require a minimum investment of several hundred to several thousand dollars. Movies are historically a very high-risk investment. Most individuals are aware of this and would be reluctant to invest. Most of the companies described above plan to offer stock that is illiquid and not fully listed, making it

difficult to trade. None of the Internet businesses described above are attempting to fully finance movies with our free-DVD-dividend-per-share concept, thereby offering an "agreed fair return" to the investor. We have filed for U.S and International Patents on our business method concept, and based on the opinion of our Intellectual Property Attorneys and their Prior Art research, we fully expect it to be granted. If it is granted, it may be broad enough to include all movie financing on the Internet. We expect to see many more companies attempting to utilize the Internet to finance movies in the near future. Most of the current movie investment Web sites offer stock only to "qualified investors" and have minimum investment requirements ranging from $200 to $2,000 dollars. It is managements opinion that without being fully listed as an OTC BB stock and without CinemaShares "agreed fair return" (a free video copy per share plus other benefits), the other

investment ideas will have difficulty succeeding. 13 Source: http://www.doksinet The Management Team: Gene Massey - CinemaShares Founder and Chairman /CEO Gene Massey began his film career in the early-1980s as a television commercial director, and since that time has been president of a Los Angeles-based film and television production company, Gene Massey Films, Inc. In recent years, the company has produced revenues primarily from the production of short films and national television commercials. Genes most recent film: Hymns From the Vedas: Creation, is a ten-minute film designed to introduce these ancient scriptures to modern audiences. This film was donated to the new Sathya Sai Baba Chaitanya Jyoti Spiritual Museum at Puttaparthi, India. In August of 1999, Gene trademarked the name CinemaShares.com, and filed US and International Patents for a new method of financing motion pictures on the Internet. In 1998, he completed the screenplay for the feature film “Fungi - A Comedy

about Pollution.” This script has now been recognized in three national screenplay competitions and received awards for Best Comedy Screenplay from both the Houston Film Festival and the Charleston Film Festival, and Best Screenplay Finalist from the Arizona Film Society. Most recently the screenplay also received the 2001 Film Advisory Board’s Award of Excellence for Family Films. Between 1990 and 1997, Gene worked personally with Ely Callaway, producing and directing over four hundred television commercials for Callaway Golf, and introducing and selling the "Big Bertha" line of golf clubs. Gene also often wrote or co-wrote many of the commercials, and his company, Gene Massey Films, Inc., managed traffic for shipping the commercials, and paid the Screen Actors Guild talent. During the period of time Gene directed Callaways commercials, their total sales increased from $21 million in 1990 to $843 million in 1997. Genes commercials for Callaway were produced at an average

cost of less than $15,000 each, while the industry average cost for a national spot made during that period was over $200,000. Gene has directed such well-known sports personalities as Johnny Miller, Sugar Ray Leonard, Chi Chi Rodriguez, Annika Sorenstam, Colin Montgomerie, Greg Louganis, Paul Azinger, Patty Sheehan, and Kenny Roberts. Also known for his comedy direction, Gene has also worked with such stars as Jean Stapleton, Smokey Robinson, Alice Cooper, Tommy Smothers, Kenny G, Jane Wyatt, Jimmy Walker, Eva Marie Saint, Vincent Price, and Henry Mancini. In addition to the Callaway Golf commercials, he has directed short films and commercials for clients such as Goodyear, Gucci, Chrysler, Pizza Hut, Toyota, Burger King, Epson Computers, Gallo, Polaroid, RCA, Case Tractors, the American Cancer Society, and the U.S Army Genes other film and television work has received awards from Clio, Telly, the New York Festival, the Houston Film Festival, the Art Directors Club of Los Angeles, and

the Homburg Award. Prior to his work as a director, Gene was an actor, appearing in a number of network television shows and feature films, and most notably working with Steven Spielberg on Close Encounters of the Third Kind. He studied film acting for nine years with Charles Conrad, and he also has a background in film editing, beginning with a job as Jack Horgers assistant editor on a feature film in 1974. 14 Source: http://www.doksinet Some of the milestones in his career include directing the world’s first notebook computer commercial (CLIO Recognition), and the first commercial on MTV. Prior to moving to Los Angeles to begin his career in the film industry, Gene attended the University of Georgia, majoring in Drama and Playwriting. Richard Stocker - Chief Financial Officer Mr. Stocker brings a wealth of international public accounting experience in the entertainment business to CinemaShares. A California-licensed Certified Public Accountant, he started his career with KPMG,

a top five accounting firm. His major film studio experience includes a stint at Warner Bros., where he oversaw the annual billion-dollar production budget that included such well-known hits as Batman Forever, Arnold Swarzenegger’s Eraser and television’s ER and Friends. Mr. Stocker also has considerable experience in motion picture exhibition, having worked for United Cinemas International, a worldwide chain of theaters and the largest theater group in Europe. He has also consulted on many diverse entertainment projects, including the Emmy nominated In Search of Doctor Seuss and the Film Advisory Board award winning Adventures of Pumpkin Pete. Most recently, he has served as the Chief Financial Officer of Pumpkinhouse Productions, a startup film production company specializing in childrens programming, and worked for Fox Cable Networks in a corporate financial planning and reporting capacity. Mr. Stocker graduated summa cum laude from San Diego State University in 1988 with a

Business degree in Accounting. He has continued his studies with post-graduate work in business entertainment at UCLA. Jeromee Johnson, Chief Technology Officer Jeromee Johnson is an experienced engineer and manager in the field of Financial Technology. As an Internet programmer, he has done extensive development in both Java and Perl, and is uniquely familiar with the technology of the Internet and the regulatory side of public finance, especially as it relates to securities trading. Jeromee holds a number of NASD regulated securities licenses (Series 4 Options Principal, 7 General Securities Rep, 24 General Securities Principal, 31 Managed Futures Rep, 53 Municipal Securities Principal, 55 Equity Trader/ Market Maker, 63 Uniform Securities Agent, and 65 Investment Advisor.) After graduating with a BS in Computer Science from the American Institute for Computer Sciences he has been employed as a Financial Advisor by Morgan Stanley Dean Witter, VP Operations and Technology at Daylight

Trading (also a partner in this successfully sold direct access trading company), and Director of Engineering at GoInvest.com Currently Jeromee is employed as Director of Trading Technology Solutions at Javelin Technologies, the industry leader in FIX technology. At Javelin, Jeromee acts as a project manager, taking ownership of projects with the Pacific Stock Exchange, Bank of America Securities, and Robertson Stephens, and as a development manager leading the FLIRT (Financial Language Internet Real Time Trading) protocol, Cherubino, and Coquette engineering teams. Jeromee also handles Javelin’s 15 Source: http://www.doksinet relationships with its technology clients and partners including Advent Software, TIBCO, Yahoo, Quicken.com (Intuit), Compaq, and BEA Systems In addition to his full time position with Javelin Technologies, Jeromee acts a technology advisor and occasionally a consulting engineer to several private and public companies including Taho Commerce, GBI Capital,

Feuerstein Capital Management, and JB Oxford. Seth Hallen – VP, Business Development Seth is a veteran entrepreneur and business development executive with an extensive background in building and operating two successful marketing companies over the past twelve years. In 1990, he co-founded Royal Windows, Inc., a Maryland-based company specializing in the direct marketing of commercial and residential construction and remodeling. As Royal Window’s President, he built the company’s annual revenues to over 4,000,000 dollars in just 3 years. In 1994, he sold his shares of the company to his partners to pursue opportunities in Los Angeles. In 1995 Seth founded Home Security Corporation, a company best known for becoming one of the most well known mass-marketer of security communications services. By the end of 1996, Home Security had over 100 employees and was nationally recognized as an industry leader. In 1998, Home Security began acquiring other service providers and by the end

of 1999 he sold his company for $2.1 million to pursue a career in the film and new media markets With the exciting things happening in the Internet world, in May of 2000, Seth combined his experience with building and running companies with his love of the entertainment industry to found the revolutionary new Internet/Media marketing conduit, Yowzer Media (www.yowzermediacom) Yowzer’s concept of audience and talent participation in the making of movies as well as promoting them ties in extraordinarily well with CinemaShares’ concept of Audience-Financed Motion Pictures. While President & CEO of Yowzer Media, Seth has developed relationships with companies such as Yahoo!, the Uproar Network and E! Online. These relationships will prove invaluable to CinemaShares as we market our concept to Internet-connected movie fans worldwide. Mr. Hallen graduated from the University of Maryland in 1990 with an Arts and Humanities degree in Radio, Television and Film. Angela Petillo, Chief

Counsel Ms. Petillo is an attorney in Business Affairs at the William Morris Agency, Beverly Hills, California. Ms Petillo negotiates development and production deals for the clients of one of the worlds largest entertainment agencies. Her daily activities put her in contact with some of Hollywoods biggest movie studios, filmmakers and stars. She previously served in a similar capacity for the Creative Artists Agency, ABC Television, and Dino DeLaurentiis Productions. She is currently considering our offer to employ her as an officer in CinemaShares. 16 Source: http://www.doksinet Ryan Pennington – Online Creative Director Mr. Pennington has over 8 years experience in developing and designing Web sites for highprofile companies in the entertainment and financial industries In 1999 Ryan designed the Academy Awards Web site for Universal Studios. In addition to his entertainment experience, he created Web sites for financial companies such as Javelin Technologies, JB Oxford &

Company, and Goinvest.com Mr Pennington holds a Bachelor of Science degree in Applied Art and Design from California Polytechnic University-San Luis Obispo. James Gladden, Web Developer Mr. Gladden is one of the most successful freelance flash Web Developers in Los Angeles and has expressed an interest in joining CinemaShares when we are fully funded. He has designed some of Hollywoods most popular Web sites. His numerous clients have included Steven Spielbergs DreamWorks Studios, Hollywood.com, Spike Radio, and Artist Direct His sites for popular television shows have included Melrose Place, and Beverly Hills 90210, and he has created sites for such popular music groups as the Rolling Stones, the Backstreet Boys, and Aerosmith. He would prove to be a valuable contributor to our endeavor. 17 Source: http://www.doksinet CinemaShares’ Board of Advisors Michael Byorick, Intellectual Property Law Mr. Byorick is Patent Counsel resident in the Colorado Springs office of Hogan &

Hartson, LLP His practice is primarily concerned with obtaining patents for corporate clients in the computer and telecommunications industries. He has been extensively involved in counseling clients on a broad range of intellectual property law matters. Mr. Byorick was previously Patent Counsel for Microsoft Corporation, responsible for handling intellectual property matters for their Internet Division. As Microsoft’s fourth patent attorney, he had extensive experience in the area of protection of intellectual property, including determining patent filing and acquisition strategies, working with engineering staff to prioritize patentable ideas, and reviewing work of outside counsel. While working at Microsoft, he was invited to participate in the Microsoft Distinguished Lecturer series. Over fifteen years of engineering experience has provided Mr. Byorick with a diverse background in the telecommunications, computer and electrical engineering areas. He developed one of the first

user-programmable ‘PC’s in 1977 and created the Bell Business Basic programming language while at AT&T Bell Laboratories. Mr. Byorick graduated from the Georgia Institute of Technology with a Bachelor of Science in Information and Computer Science. He earned his J D from the University of Denver College of Law. He is admitted to the Colorado Bar and is a registered patent attorney Please see appendix A for Mr. Byoricks comments on the CinemaShares patent applications John Gorman, Securities Counsel Mr. Gorman is a partner in the firm of Luse, Lehman, Gorman, Pomerenk, & Schick, in Washington, D.C He is a former Special Counsel to the Chief Counsel, Corporation Finance Division, Securities and Exchange Commission. His experience at the SEC included responsibility for handling the regulation of securities offered by financial institution holding companies. Since leaving the SEC in 1984, Mr Gorman has specialized in counseling mutual to stock conversions, mutual holding

companies, mergers and acquisitions as well as providing advice as to executive compensation. In addition, Mr Gorman provides general corporate, securities law and regulatory advice to financial institutions on an ongoing basis. A 1979 graduate of Vanderbilt University School of Law, Mr. Gorman received a Bachelor of Science degree from Brown University in 1976. Inderjit Singh, MP, Government of Singapore Mr. Singh is past President of United Test and Assembly Center, and a Member of Parliament of the Government of Singapore. He is very active and well respected in the software industry in Singapore and has incubated several Internet companies. His expertise in these industries and investment contacts in Singapore will prove most valuable in his advisory role to CinemaShares. 18 Source: http://www.doksinet Angela Petillo, Entertainment Attorney Ms. Petillo is an attorney in Business Affairs at the William Morris Agency, Beverly Hills, California. Ms Petillo negotiates development

and production deals for the clients of one of the worlds largest entertainment agencies. Her daily activities put her in contact with some of Hollywoods biggest movie studios, filmmakers and stars. She previously served in a similar capacity for the Creative Artists Agency, ABC Television, and Dino DeLaurentiis Productions. She is currently considering our offer to employ her as an officer in CinemaShares. Jeromee Johnson, Internet Securities Trading Software Engineer Jeromee Johnson is an experienced engineer and manager in the field of Financial Technology. As an Internet programmer, he has done extensive development in both Java and Perl, and is uniquely familiar with the technology of the Internet and the regulatory side of public finance, especially as it relates to securities trading. Jeromee holds a number of NASD regulated securities licenses (Series 4 Options Principal, 7 General Securities Rep, 24 General Securities Principal, 31 Managed Futures Rep, 53 Municipal Securities

Principal, 55 Equity Trader/ Market Maker, 63 Uniform Securities Agent, and 65 Investment Advisor.) After graduating with a BS in Computer Science from the American Institute for Computer Sciences he has been employed as a Financial Advisor by Morgan Stanley Dean Witter, VP Operations and Technology at Daylight Trading (also a partner in this successfully sold direct access trading company), and Director of Engineering at GoInvest.com Currently Jeromee is employed as Director of Trading Technology Solutions at Javelin Technologies, the industry leader in FIX technology. At Javelin, Jeromee acts as a project manager, taking ownership of projects with the Pacific Stock Exchange, Bank of America Securities, and Robertson Stephens, and as a development manager leading the FLIRT (Financial Language Internet Real Time Trading) protocol, Cherubino, and Coquette engineering teams. Jeromee also handles Javelin’s relationships with its technology clients and partners including Advent Software,

TIBCO, Yahoo, Quicken.com (Intuit), Compaq, and BEA Systems In addition to his full time position with Javelin Technologies, Jeromee acts a technology advisor and occasionally a consulting engineer to several private and public companies including Taho Commerce, GBI Capital, Feuerstein Capital Management, and JB Oxford. Jerrol LeBarron, Writers Script Network Mr. LeBarron owns the Writers Script Network, an Internet-based screenplay marketing company. His Web site, wwwWritersScriptNetworkcom has first-look access to thousands of new screenplays and story ideas. He will prove extremely valuable to CinemaShares in acquiring new properties for production. 19 Source: http://www.doksinet Assoc. Prof (Dr) Toh See Kiat; MP, Government of Singapore, IT and Intellectual Property Attorney Dr Toh is a Senior Partner in the Singapore law firm of M/s Peter Ng & Company and is Head Specialist in the IT, Intellectual Property and Internet Practice Group. He is Chairman of CommerceNet

Singapore LTD and Commerce Trust Ltd; Associate Professor at the Nanyang Technological University and author of a book, Paperless International Trade: Law of Telematic Data Interchange (Butterworths Asia, 1992), which deals with eCommerce. Dr Toh advises companies and governments on the legal issues of eCommerce and is assisting the Dubai Internet City to draft eCommerce laws. Dr. Toh is currently a Singapore Member of Parliament and sits on the Government Parliamentary Committee on Communications and Information Technology; the National Internet Advisory Council and the National Trust Council. Concurrently, he sits on several international committees on eCommerce such as the ICC, AFACT and ISO Working Groups on eCommerce William Knoke, Investment Banker William Knoke is founder and President of the Harvard Capital Group specializing in financing high-technology companies, and is considered an expert on society’s future. Mr Knoke is author of the international bestseller Bold New

World: The Essential Road Map to the Twenty-First Century, now in ten languages, and an internationally recognized keynote speaker. Mr Knoke has been featured in The Wall Street Journal, Newsweek, The Los Angeles Times, Newsday, Forbes, Success, and other publications, and has appeared on over 50 television and radio interviews in the United States, Canada and Western Europe. He is a graduate of Harvard Business School, (MBA) and Stanford University (BA Economics, cum laude). S. Bryan Hickox, Film and Television Executive Producer Bryan Hickox is a film and television Executive Producer, Producer and Director who has personally produced 70 network Movies of the Week, pilots and Mini-Series; 7 network television series; 250 hours of syndicated television programming; and 10 theatrical feature films. Mr Hickox has also been Vice President of Production at a large, publicly traded, independent film and television production company and most recently President of Production at Santa

Monica Picture. Television movies Mr Hickox has produced have been the highest rated movies on their respective networks in 1987, 1988, 1989 and 1990. His movies have also won seven Emmy Awards, the George Foster Peabody Award, and have garnered over 200 other national and international film festival and competition awards. 20 Source: http://www.doksinet Capital Required And Use Of Proceeds CinemaShares is seeking a total of $20 million dollars, structured as a loan of convertible preferred debt, in what we anticipate to be our maximum need for investment capital. For this loan we are offering an equity position in CinemaShares of 2 million shares of restricted stock or 20% of the 10 million outstanding shares in the corporation. All assets of the CinemaSharescom Corporation would secure the loan. We expect to receive this investment in two stages: A First Round Investment of $6 million is needed for the following: • • • • • • • • • Complete the securities

offering for The Fungi, Inc., a Nevada Corporation and the first CinemaShares Licensee Company. This entails filing the SB-2 documents with the SEC and registering the offering in all 50 states. Open an office in Los Angeles and hire office staff. Update the Web site to provide for the sale of stock and allow audience participation in the movies we produce. Hire key executives from the motion picture and Internet industries. Build strategic partnerships to market our concept to the Internet audience. Begin pre-production on the first Licensee Companys film project. Make deposits to talent agencies to attach certain star name talent to the first Licensee Companys film project. Create promotional advertising and publicity campaigns to build brand awareness and market the sale of stock in the first Licensee Company to the public. Option and begin development of additional motion picture properties for future production by CinemaShares. Purchase Comprehensive D & O, E & O, and

other insurance policies. Use of First Round Proceeds (thousands): Legal, including all 50 states securities compliance (1st Film Co.) Staff and maintain Los Angeles office (1st yr) Technical, launch and maintain state-of-the-art Web site Marketing and Public Relations Talent holding fees Key personnel salaries (1st year) Insurance Development of future motion picture properties Finders fee (5%) Initial financing required $425 435 645 2,105 1,150 720 50 175 295 $6,000 21 Source: http://www.doksinet Prior to offering stock for sale in our first film project to the public, a Second Round Investment of $14 million is needed for the following: • Avoid an escrow or impound required by the SEC and certain states on monies received from the initial stock offering until the offering is fully subscribed. (The offering of one million shares at $20 must be fully subscribed to finance the first film production.) • Assure the first film project will proceed even if the offering is only

partially subscribed. This assurance is needed on the first project because our concept in new and untested, but we do not anticipate needing such an "assurance bond" on future productions. It is the opinion of CinemaShares management that this second stage investment could come from one or more of our Strategic Partners. Furthermore, in lieu of an actual cash investment, CinemaShares could proceed with its first stock offering by receiving a guarantee from a strategic partner such as Blockbuster or a major film studio that the planned film would proceed whether or not the offering is fully subscribed. Every year traditional movie studios and movie financiers make hundreds of investments in films in the budget range of our first offering without the many added values that an investment in CinemaShares would bring. (See Appendix C for an article on Blockbuster and Best Buy and their recent expansion into movie financing) Investor Exit Strategy An Investor in CinemaShares, the

Parent Company, will have multiple exits. These are described as follows: 1- The $20 million dollar investment in CinemaShares to avoid an escrow on the first film offering would be structured as a loan from CinemaShares to the first Licensee Company, designed to be repaid from monies received from the first offering. We expect the offering in the first film to be fully subscribed, and if so, the $20 million dollar loan from CinemaShares would be immediately repaid from proceeds received from the offering. CinemaShares would then immediately repay the $20 million to the original investor(s). If the offering were only partially subscribed, the loan would be partially repaid to the extent possible from any proceeds from the offering. With revenues in hand from the first film, coupled with expected major distributor interest in our future films, CinemaShares Management does not anticipate needing such a loan for our second offering. 2- Even after repayment of the initial $20 million

dollar loan, the investor(s) would retain their original percentage ownership in CinemaShares, the pre-IPO holding company, allowing for a second exit when CinemaShares goes forward with its planned IPO. 3- Unlike other Internet companies, CinemaShares earnings do not come primarily from the Internet. They come from traditional movie revenue sources such as theatrical, cable and home video distribution. Again, as there is no traditional financing loan to be repaid, and upon completion of the movie, any earnings received by a Licensee Company from the distribution of its movie can be expeditiously paid out to the Shareholders, and thereby CinemaShares, as cash dividends. CinemaShares management could elect to pay out earnings to corporate shareholders at any time. 22 Source: http://www.doksinet An Investor purchasing publicly traded stock in a CinemaShares Licensee Company will also receive certain benefits as outlined here: 1- CinemaShares management is claiming that Shareholders in

a Licensee Company will receive an initial "agreed fair return" for their individual share purchase ($23). This return on their investment includes voting participation on the Web site as a "Cyber-Producer" in the making of a Hollywood movie, and receiving a free VHS or DVD copy of the movie, when completed, as a stock dividend. It is managements opinion that these benefits alone constitute an "agreed fair return" to the individual investor purchasing a single share, because the typical price of a DVD purchased retail generally exceeds our share price. 2- An individual Shareholder, having already received an "agreed fair return" for his one share purchase, may consider the eventual cash dividend to be incidental, but an investor purchasing multiple shares may not want multiple video copies and may be very concerned about the profits he receives as cash dividends for each share purchased. Purchasers of multiple shares will have the option of

receiving, in lieu of a free video dividend, a one-time guaranteed cash dividend payment of $3, paid at the same time of distribution of the free video dividend. 3- Furthermore, any investor in a Licensee Company, regardless of the number of shares purchased and held, will receive their portion of the net profits earned by world-wide distribution of the Licensee Companys film, expeditiously paid out to them as cash dividends. These cash dividends could range anywhere from $0 to $100 per share, as there is no method to predict in advance of distribution the actual earnings they would receive from the sale of the film. 4- At some point in the future, a films anticipated future revenues could be securitized and paid out in one lump sum to the Shareholders in a Licensee Company. Another option would be the purchase of all outstanding shares by the CinemaShares parent company or by a major studio that may want to add the Licensee Companys film to their library. The Internet Industry

Overview The immediate future will see the Internet and the marvelous devices that connect us to it continue to revolutionize our lives. The pace of this revolution will grow exponentially over the next few years, as will the number of devices and the many ways they will enhance our productivity. There is no need to detail here the Internets expected growth rate. It is fairly common knowledge that in the history of American business, there has never been a better time or a greater opportunity for a well-placed investment in this medium. Internet companies achieving the greatest success now are doing so because they are using the Internet as it was intended to be used. Frank Biondi, the former President of Universal Studios and now the head of Waterview Advisors, has said that the Internet is just a tool. As it is really only a new means of communicating, we like to compare the Internet to the telephone. You cannot make very much money on the telephone unless you are using it to

implement your business plan. You might find some advertiser willing to pay you a little something to mention his product while youre talking on the phone, but youre never going to make any real money talking on the phone unless you use it to actually sell the product, or in some way facilitate the sale of a product. 23 Source: http://www.doksinet As detailed here in our business plan, CinemaShares will use the Internet as just such a tool. We expect to generate the majority of our revenue offline. Furthermore, our business model could succeed without the use of the Internet. The Internet will only accelerate our success and magnify our possibilities. We are essentially creating a new type of equity bank for the financing of motion pictures without the traditional loan. Although VOD (Video on Demand) may some day be one of the main sources of revenue for film producers, we do not expect to generate significant revenue in the immediate future from streaming the movies we finance from

our Web site. We expect to receive our principal revenue from the distribution of studio-quality motion pictures through traditional means such as home video and theatrical exhibition. Motion Picture Industry Overview The motion picture industry encompasses the production and theatrical exhibition of featurelength motion pictures and the subsequent distribution of these pictures in home video, television and other ancillary markets. The industry is dominated by the "major studios," as defined by the Motion Picture Association of America. The major studios include Universal Pictures, Warner Brothers, (which includes New Line Cinema and Castle Rock Entertainment), Twentieth Century Fox, Sony Pictures Entertainment, (which includes Columbia Pictures and TriStar Pictures), Paramount Pictures, The Walt Disney Company, (which includes Buena Vista, Touchstone and Miramax), and MGM, (which includes Metro Goldwyn Mayer Pictures, United Artists Pictures, Orion Pictures and Goldwyn

Entertainment Company). These major studios historically have produced and distributed the majority of theatrical motion pictures released annually in the United States. The major studios generally own their production studios and have national and/or worldwide distribution organizations. In recent years, however, "independent" producers, unaffiliated with the major studios, have played an important role in the production of motion pictures for the worldwide feature film market. These independent producers generally do not have their own distribution capabilities. Historically, independent distributors, unaffiliated with the major studios, have distributed film for the independent producers. According to Paul Kagan Associates Inc., a media and communications research firm in Carmel, California, the independent distributors box office share has increased from an average of 5.4% for the fiveyear period 1989 to1993 to 132% for the five-year period 1994 to 1998 In addition, the

number of domestic theatrical releases distributed by independent distributors has outnumbered those distributed by major studios in recent years. New Feature Distribution in the United States (Source: (MPAA). MPAA All Other Year Affiliates Distributors 2001. 189 273 2000. 191 270 1999. 213 229 1998. 221 269 1999. 219 242 24 Source: http://www.doksinet CinemaShares Licensee Companies will function as Independent Producers, who typically create motion pictures at substantially lower average production costs than major studios. Direct production costs consist of acquiring or developing the screenplay, film studio rental, cinematography, post-production costs and the compensation of creative and other production personnel. Distribution expenses, which consist primarily of the costs of advertising and releasing prints, are generally not included in direct production costs. Major studios typically release films with direct production costs ranging from $25 million to in excess of $100

million. From 1990 to 1998, the major studios average production costs, including overhead and capitalized interest (commonly referred to as "negative cost,"), have increased from $26.8 million to $527 million, representing a compound annual growth rate of 8.8% CinemaShares Licensee Companies will distribute their films through the major studios. Motion picture distribution encompasses the licensing of pictures for distribution or exploitation in various markets both domestically and internationally, following a release pattern. These markets include theatrical exhibition, home video, (rental and sell-through), television (which includes pay-per-view), pay television, first-run broadcast television and syndication, licensing and merchandising. The distributor typically acquires rights from a producer to distribute a motion picture in one or more markets. For its distribution rights, the distributor typically agrees to advance the producer a minimum royalty or guarantee, which

is to be recouped by the distributor out of revenues generated from the distribution of the motion picture and is generally nonrefundable. Successful motion pictures often continue to play in theaters for up to six months or longer following their initial release. Concurrent with their release in the United States, motion pictures are generally released in Canada and may also be released in one or more other foreign markets. After the initial theatrical release, distributors seek to maximize revenues by releasing movies in sequential release date windows, which are generally exclusive against other nontheatrical distribution channels: CinemaShares movies will follow the typical distribution release timetables: Movie Release Revenue Windows         Months After Approximate Approximate % of Initial Release Release Period Total Revenues* Theatrical.12% Home video. 4-6 months 1-3 months 25 Pay-per-view. 6-9 months 3 months 1 Pay television.10-18 months12-21

months5 Network or basic cable.30-36 months18-36 months6 Syndication.48-70 months3-15 years 1 Licensing and merchandising.ConcurrentOngoing 2 All international releasing.ConcurrentOngoing48% - 100% Following the industry norm, CinemaShares Licensee Companies will generally receive the majority of their revenues in the first three years after the initial release. 25 Source: http://www.doksinet CinemaShares Business-Method Our innovative Business Method is possible due to recent SEC and Federal Reserve regulations enabling single shares of stock to be sold economically from a Web site. These new rulings provide for: 1) the delivery of disclosure documents through e-mail, eliminating the need for mailing quarterly and annual reports, and 2) purchasing a company’s stock on a Web site with a credit card. Without these two new rulings, our Business Method would not be possible The fully listed OTCBB stock our Licensee Companies sell is not marginable, and as such, is not subject to

regulations T and U of the Federal Reserve. Our companies can therefore offer stock and even extend credit for their shares through their own Web sites. Our patent-pending Business Method essentially guarantees the profitability of any movie we choose to fully finance. It provides a unique method for funding the production of a movie by presenting a "storyboard synopsis" (a realistically drawn, sequential series of drawings depicting the action of the story, running concurrently with a narrative description) of the unproduced movie on a licensee production companys Web site. Accompanying the storyboard synopsis is an offer to participate in the making of the movie by ‘voting’ in an advisory capacity for certain options related to the movie’s production, as well as the opportunity to view the production of the movie via live streaming video transmission over the Internet. The participants in the offer, who, in part, comprise the ultimate audience, use the storyboard

synopsis to determine whether to make a purchase of the movie in advance of production. A potential viewer who decides to participate in the offer then purchases a minimum of one share of stock in the Licensee Company that holds the rights to the movie. This purchase entitles the Shareholder to receive, in addition to the above opportunities, a free copy of the movie (when completed) as a dividend. The stock purchase is effected by an electronics fund transfer, such as by the entering of a credit card number via the secure Web site. A surety bond, equaling the entire offering amount and required by the SEC and "merit review" states to guarantee the film is completed whether or not the offering is fully subscribed, is put in escrow. Production of the movie may or may not be commenced until the number of "tickets" (i.e, shares of stock in the production company) sold is sufficient to cover the cost of making the movie. The financial success of the movie is therefore

essentially guaranteed, because a section of the ultimate movie audience assures that sufficient funding is available to produce the movie by purchasing stock (and thereby, copies of the movie), prior to production. Upon completion of the movie and delivery to Shareholders of the video copies, the costs of production and distribution to Shareholders are completely paid for, and any future revenues received from screening the movie in world-wide markets are then, essentially, gross profit. All net profits received from the sale and distribution of each movie in world wide markets are paid out to Shareholders as cash dividends. The participants who decide to purchase a share of stock, and thereby a copy of the movie, become the end users of a product they themselves help create. Our Business Method exposes a movie’s ultimate audience to its story line and may even adapt the story line according to input received from them. In addition, it also allows the participants to help determine

aspects of the 26 Source: http://www.doksinet movie such as casting, wardrobe, selection of the filming locations and the shooting schedule. The filmmakers now have valuable feedback from their eventual audience in making their creative choices during the production of a movie. The CinemaShares method also solves the problem of "creative meddling" by the typical studio investor. A Licensee Production Company would not need to accept financing and the accompanying creative choices from the studio. The public will finance each production fully, and though provided with an advisory "vote" for certain creative choices, each Shareholder, by accepting the agreement on the Web site, understands that his suggestion may or may not be taken by the filmmakers. Thus, the CinemaShares method allows the filmmakers to be the ultimate arbiter of which options are to be employed in the actual production of the movie. Managements Projected Revenue Sources: All revenues from the

use of CinemaShares Business Method will come directly or indirectly from the marketing and sale of motion picture properties through traditional methods of distribution for typical major motion pictures produced by studios and independents, as well as from new and innovative means on the Internet. A CinemaShares Licensee Company will own all rights to a movie property it fully finances. These rights can generate considerable revenues from a variety of sources. As the US market represents only about 40 % of potential worldwide revenue, the foreign theatrical, home video, cable, and television sales are very important in the revenue stream and have great value in any distribution plan. In the following categories we describe the various sources of revenue generated directly or indirectly by the films financed using CinemaShares Business Method: Theatrical Exhibition Theatrical distribution of a motion picture involves the manufacture and transportation of multiple prints of the motion

picture, the promotion of the picture through advertising and publicity campaigns and the licensing of the motion picture to theatrical exhibitors. According to the Motion Picture Association of America, the major studios had average combined prints and advertising costs of $31.0 million per film in 2001 We believe that independents have prints and advertising costs generally ranging from $5 to $15 million per film. The size and success of the promotional advertising campaign can materially affect the revenues realized from the theatrical release of a motion picture. CinemaShares and its Licensee Companies at present have no plans to bear the cost of print and advertising campaigns for theatrical exhibition and expect to contract with major and independent motion picture distributors for the theatrical release of all of the films we finance. Release strategies depend on the particular genre of film and vary from wide releases, involving more than 800 screens, to specialized releases,

whereby the film is first screened only in selected 27 Source: http://www.doksinet cities. Under the terms of a distribution contract, the distributor and theatrical exhibitor generally enter into an arrangement providing for the exhibitors payment to the distributor of a percentage of the box office receipts for the exhibition period, and in some cases after deduction of the theaters overhead or a flat negotiated weekly amount. The distributors percentage of box office receipts varies widely, ranging from an effective rate of 35% to over 90%, depending primarily upon the success of the motion picture at the box office. Revenues are typically collected 90 to120 days after screening, although substantial delays in collection are not unusual. According to Paul Kagan Associates, the trend on the part of major studios toward widerrelease blockbusters over the past ten years has led to a decline in profitability, while the efficiency and quality of smaller production films have been on

the rise. (Measured by Paul Kagan Associates as the ratio of a films estimated revenues against negative and releasing costs.) CinemaShares was created to finance small to medium budget, studio-quality motion pictures with a budget range of $10 to $50 million. For example, The FUNGI, Inc the first company to license our technology, has planned as its first movie; “FUNGI – A COMEDY ABOUT POLLUTION.” This movie will be cast with star name talent, it will have a production budget of over $12 million, and will receive considerable public relations and media attention from the FUNGI Web site (much like “The Blair Witch Project”). We also anticipate receiving considerable free publicity from the release of news on CinemaShares as an entity created to finance movies. These considerable advantages, plus the fact that the FUNGI screenplay has already won awards from three major screenplay competitions, could make this project considerably more appealing than the typical project

submitted to the major studios for distribution. The FUNGI, Inc, company plans to seek a distribution agreement with a major studio prior to production. Please see the revenue projections section of this document for projected earnings from "FUNGI" and Appendix F for more information on the actual offering. Home Video Home video distribution involves the promotion and sale of videocassettes and DVD to video retailers such as K-Mart, Wal-Mart, etc., and video specialty stores such as Blockbuster, convenience stores, record stores and other outlets, which then rent or sell the videocassettes and DVDs to consumers for private viewing. The distributors of the titles rather than the retailers generally incur marketing and distribution costs for individual titles. Of the many movies produced by major studios and released in the United States each year, relatively few are profitable, based on box office revenues alone. In addition to purchasing box office hits, video rental stores

also purchase movies for resale on videocassette and DVD that are not successful at the box office, thus providing the movie studios with a reliable source of revenue for almost all of their movies. Major feature films are usually scheduled for release in the home video market within four to six months after theatrical release to capitalize on the theatrical advertising and publicity for the film. Promotion of new releases is generally undertaken during the nine to twelve weeks before the release date. Videocassettes of feature films are typically sold to domestic wholesalers at a high price point referred to as rental pricing, that generally discourages purchase by individual 28 Source: http://www.doksinet consumers, and consumers rent these videos for fees typically ranging from $1 to $5 per day. Wholesalers who meet established sales and performance objectives may earn rebates, return credits and cooperative advertising allowances. Selected titles, including some made-for-video

programs, family-oriented titles and some extremely large box-office successes may be initially released at a price point that encourages direct purchase by consumers and are supported by substantial consumer marketing campaigns. Direct sale to consumers is referred to as the "pricedfor-sale" or "sell-through" market Profit margins to video retailers on sell-through products are generally lower than on rental products. Generally, those films that initially are not released to the sell-through market are released to the sell-through market at reduced sell-through pricing approximately four months to one year after they have been released to the rental market. Generally, owners of films have not shared in video rental income because, according to industry custom, video distributors historically have sold videocassettes to video rental stores. However, video distributors have begun to enter into revenue sharing agreements with major video retail chains. Under these

arrangements, videocassettes are leased to video rental stores at a lower upfront cost to the store, and a percentage of the video rental revenues are then shared with the owners or licensors of the films. The implementation of revenue sharing dramatically affects a retailers cost of sales and the distributors revenues by changing the business model from a primarily fixed to primarily variable cost approach. Movies priced for sell- through are usually not subject to revenue sharing arrangements. We believe the adoption of revenue sharing agreements by leading retail chains and the advent of DVD present significant growth opportunities for the home entertainment industry. Revenue sharing agreements provide retailers with the opportunity to substantially increase the quantity and selection of newly released video titles they stock due to the significantly lower up-front payments by the retailers to the distributors. DVD presents the opportunity for distributors of home video product to

increase revenues, as consumers replace existing titles currently on the VHS format, and to earn higher margins on sales of new titles in DVD relative to the VHS format. According to the Motion Picture Association of America, DVD has become the fastest growing new format in history as shown on the following chart: Length of Time to Reach One Million Units Shipped* Technology Years DVD Player.19 CD Player.27 Big-Screen TV.42 VCR.46 Color TV.88 *Source: Motion Picture Association of America According to the Motion Picture Association of America, the number of DVD software units shipped to retailers increased to 364.4 million in 2001 from 108 million in 1997, while the number of titles available on DVD increased to 13,000 in 2001 from 600 in 1997. Paul Kagan Associates estimates that DVD and VHS sell-through revenues should reach parity in 2009, at approximately $8 billion each, bringing the industry close to $16 billion in sales, as compared with $9 billion in 1998. 29 Source:

http://www.doksinet According to Paul Kagan Associates, the U.S videocassette and DVD rental and sales industry will grow from $17.1 billion in revenue in 1998 to a projected $228 billion in 2005 However, another movie research firm, Adams Media Research predicts that Total combined DVD and VHS sales revenue is expected to grow from an estimated $13.4 billion in 2000 to $327 billion by 2005. Paul Kagan Associates estimates that in 1999, 859 million, or 859% of the 100 million total U.S television households owned a VCR The number of VCRs that were sold in the United States in 1999 was estimated by Paul Kagan Associates to be 20.5 million, which represents the largest number of VCRs sold in any single year. In addition, the Consumer Electronics Manufacturers Association estimates that about 4.1 million DVD players were sold to dealers in the United States during 1999. According to Paul Kagan Associates, the VCR and DVD markets will continue to grow as the number of multi-VCR households

is expected to increase from 9.7 million in 1999 to 514 million by 2005 and the number of DVD households is projected to reach 31.0 million in 2005 See Appendix C for recent news article Licensing Revenue: Another important source of revenue for CinemaShares.com would be from fees received from producers listing their projects on our Web site as a means to secure financing. For example, CinemaShares, for a negotiated fee, would accept film projects seeking financing to put up on our site. We would utilize our patent-applied-for Business Method to create a color storyboard synopsis and production package describing the intended film and post it on the CinemaShares.com Web site along with other film projects, similarly described Our audience would then vote on which project or projects to continue with into the financing stage. Film projects selected by our Internet audience would insure an on-going supply of desirable films to finance. Receiving approval of our patent from the U.S

Patent Office would grant CinemaShares an exclusive and very important source of revenue - licensing fees for our Business Method. However, whether or not CinemaShares is granted exclusivity through U.S and International patents will not detract from the fact that our method of film financing is a very powerful tool and highly desirable to film producers everywhere. The major film producers constantly complain about the cost of production and are plagued by films that do not make back their costs. Any company licensing our Business Method to finance a film could be guaranteed at least some profitability on every production, because the company could choose to commence production on a film only when enough shares of stock are sold to cover the cost to make the film and ship the copies. This is the very essence of our patent – a cure for money losing films, and this is why we believe we have the method by which all films in the future will be financed. 30 Source: http://www.doksinet

Advertising Revenue: CinemaShares will not rely on Internet advertising as a principal source of income. Banner advertising revenue is often the principal source of revenue for many well-capitalized Internet companies. However, unlike many Web sites receiving the majority of their revenues from advertising, our Licensee Companies Web sites expect only additional income from specific companies targeting our well-defined audience. With the advent of streaming video, a number of sites now feature video commercials. It is the opinion of management that this trend will greatly accelerate, and with the high level of streaming content planned on our sites, any CinemaShares Licensee Company utilizing our Business Method will be particularly well suited for this new method of delivering an advertising message. Although we will still be able to accept traditional banner ad placements, we expect to receive greater revenues from video spot ads. Product Placement Revenue: Another source of

revenue not available to typical Web sites would be from a new type of product placement – writing product mentions into the story line. We have done this with our first Licensee Companys film, Fungi - A Comedy About Pollution, by actually writing into the story line such companies as Federal Express, Blue Cross, American Express, and Callaway Golf. We have done so with the intention of receiving payment for product mentions. Our Licensee Companies will have complete control over each films content and can therefore very easily change the material to suit any advertisers who are willing to pay a fee. Another type of product placement, Adynamic Ad Insertion, while still in its infancy, is poised for exponential revenue growth. This technology allows a Web surfer to click on a particular item in a scene and immediately be taken to a Web page where they are able to purchase that particular product. This is believed by many to be a major potential source of revenue for all movie

companies. Merchandising Revenue The release of “Star Wars” in 1977 forever changed the movie industry. Not only was it a colossal blockbuster at the box office, but it firmly established the financial firepower of merchandising. Until the Jedi invaded toy stores everywhere, merchandising was not a major factor in the movie revenue stream. Over $2 billion in Stars Wars merchandising revenues dramatically changed that The potential of merchandising revenues has been ably illustrated by other movies too, and children’s movies are particularly well suited for exploiting this lucrative revenue stream. Teenage Mutant Turtles, a movie targeting children, took in a staggering $1 billion in merchandising revenues in one year alone. The great revenue potential of merchandising is not confined to movies. Television shows such as the Care Bears and more recently “Teletubbies” have produced the majority of their revenues from merchandising. It is well known that the popular children’s

show “Barney” on US public television is basically “given away’ to the Public Broadcasting System for very little financial 31 Source: http://www.doksinet remuneration, with the hefty merchandising associated with Barney more than compensating for the low licensing fees. This is a classic case of the ‘give them free razors and make large profits on the razorblades” strategy being applied to the movie industry. Of course, not all movies produce such huge merchandising returns. But the range of spin-off products possible, such as PVC figurines, T-shirts, key chains, board games etc. means that there are significant opportunities available to the movie producer, particularly in the family-kids genre which CinemaShares plans to target. A good example would be the $4 million that Mattel paid in 1991 for the rights to manufacture characters in the movie “Hook." A more typical master licensing agreement from a major toy company like Hasbro or Mattel would involve

$250,000 to $1,000,000 in up-front licensing fees and 5-6% royalties on all sales. T-shirt merchandising deals can involve $100-150,000 in up-front licensing fees and 8% royalties on all sales. One only needs a special promotional deal with McDonalds or Coca-Cola or any other company interested in reaching the all-important childrens market for this to produce a major return to the license holder. Our first Licensee Companys film, Fungi - A Comedy About Pollution, is positioned in the prime merchandising family-kids movie genre, and like all of our licensee companies will be in the enviable position of having some one million co-producers, all eager to purchase a memento commemorating their involvement with this exciting project. What movie fan, owning a share of a movie, watching their movie being made through streaming video on the Web site and taking an active role in voting on the Web site for various production decisions, would not want to buy a hat, or a T-shirt, etc. as a

souvenir from their movie? Having only half of the subscribers purchase a T-shirt and a cap would represent potential income of over $1,000,000, and the additional income potential of having this motivated and financially ambitious army of Fungi fans encouraging their friends and family to purchase merchandising items is enough to make any accountant’s eyes light up. While it is by no means guaranteed that Fungi would be as successful in merchandising as any of the movies mentioned, management does feel that merchandising represents a tremendous opportunity for revenue development and that Fungi is uniquely positioned to capitalize on this. Game Revenue: According to Arcadia Investment Corp. and VidTrac, the total domestic home video game market generated about $6.0 billion in software sales and about $634 million in rental revenue in 2001. Arcadia Investment Corp projects that video game software sales will remain relatively steady through 2001. Based upon estimates of Gerard

Klauer Mattison & Co., Inc, it is the opinion of management that most of the recent growth in the home video game industry has been fueled by the success of Sony PlayStation® and Nintendo 64® and their respective video games. Arcadia Investment Corp recently reported that as of the end of 1999, the installed base of Sony PlayStation within the United States was about 21.0 million Nintendo has stated that as of the end of 1999, the installed base of Nintendo 64 within the United States was about 14.0 million units We expect that the home video game industry will continue to grow with the anticipated U.S introduction of Sony PlayStation 2™ in the fall of 2000. 32 Source: http://www.doksinet With a movie-based game there is considered to be a pre-sold audience for the home video game, giving the CinemaShares licensee companies another excellent revenue source. Based on its story line and wide appeal to kids and families, it is managements opinion that CinemaShares first movie,

Fungi - A Comedy About Pollution, is especially well suited for the creation of a Sony PlayStation or Nintendo game. Such a game distributed through traditional channels could result in considerable revenue for our first Licensee Company and thereby for CinemaShares. Revenue from Sequel and Prequel Rights: A public company utilizing CinemaShares Business Method would generally hold all rights in the film it plans to produce. A successful film often breeds a sequel (a follow-on movie usually about what could happen next in the story), and sometimes a prequel (a movie about what could have happened in the story before the current one). A CinemaShares company owning all rights to a movie would either license the rights to make a sequel, or would form a new company to produce the sequel. In either case, considerable additional revenue would be generated for the Shareholders in the company holding the original rights in the property. Revenue from Television and Cable Rights: Television

and cable series are often based on original movies. The CinemaShares Licensee Company holding all rights to an original film would be the beneficiary of revenues generated from the sale of rights to produce a television program. These rights can be considerable A successful television program can be extremely profitable, producing a revenue stream for many years to come. Pay-Per-View television allows cable and satellite television subscribers to purchase individual programs, including recently released motion pictures on a "per use" basis. The subscriber fees are typically divided among the program distributor, the pay-per-view operator and the cable system operator. Pay Television Pay television allows subscribers to view premium channels, including HBO/Cinemax, Showtime/The Movie Channel, and other pay television networks offered by cable and satellite system operators for a monthly subscription fee. The pay television networks acquire a substantial portion of their

programming from motion picture distributors. Films are licensed to pay networks for fees, which are usually based on the films box office revenues, and most major producers have long-term output deals with the major pay networks. New markets may develop with the maturation of direct broadcast satellite systems, and other digital television systems. Broadcast and Basic Cable Television Broadcast television allows viewers to receive, without charge, programming broadcast over the air by affiliates of the major networks including ABC, CBS, NBC and Fox, recently formed networks including UPN and the WB Network and independent television stations and cable and satellite networks including USA, F/X and the Sci-Fi 33 Source: http://www.doksinet Channel. In some areas, viewers may receive the same programming via cable transmission for which subscribers pay a basic cable television fee. Broadcasters or cable system operators pay fees to distributors for the right to air programming a

specified number of times. As with pay-per-view and pay television, broadcast and basic cable networks typically acquire a substantial portion of their programming through output agreements. Television networks, independent television networks, television stations and cable system operators generally license television series, films and film packages consisting of theatrically released feature films and made-for- television movies pursuant to agreements with distributors or syndicators that allow a fixed number of telecasts over a prescribed period of time for a specified cash license fee or for barter of advertising time. Pay/cable television services usually license pictures for initial exhibition commencing approximately 10 to 18 months after initial domestic theatrical release or six months after domestic home video release. Licensing of these properties is generally accomplished pursuant to agreements, which allow a fixed number of telecasts over a prescribed period of time for a

specified license fee. In addition to their domestic distribution activities, some motion picture distributors generate revenues from distribution, directly or indirectly through sub-licensees, of motion pictures in foreign theaters, home video, television and other foreign markets. There has been a dramatic increase in recent years in the Worldwide demand for filmed entertainment. This growth is largely due to the privatization of television stations, introduction of direct broadcast satellite services and increased home video and cable penetration. Pre-sales of international distribution rights are often used by independent film companies to finance all or a portion of the direct production costs of a motion picture. Pre-sales consist of license fees paid by international distributors in return for the right to exploit the completed motion picture in theaters or to distribute it in home video, television, international or other ancillary markets. Soundtrack Licensing In some cases,

Soundtrack Licensing has been the largest source of revenue for a filmed entertainment project. Original songs created for a specific movie generate considerable revenues in perpetuity and should not be overlooked in the business plan for any project. CinemaShares management plans to maximize this potential source of income for our Shareholders. For example, in our movie, FUNGI - A Comedy About Pollution, famed Music Composer Paul Williams has tentatively agreed to collaborate with Barry Fasman to create original songs and the original score for this family project. Non - Theatrical Distribution CinemaShares expects additional movie-based ancillary revenues from a variety of sources. Licensing and Marketing Revenues also may be derived from the non-theatrical distribution of motion pictures to airlines, schools, libraries, hospitals and the military. Soundtrack albums and licensing of rights to perform musical works from film music can be a significant source of ancillary income. 34

Source: http://www.doksinet Managements Revenue Projections: As described below under "Revenue Projections," we rely on and refer to information regarding our industry from market research reports, including reports from the Motion Picture Association of America, Paul Kagan Associates, Inc., Adams Media Research, and other publicly available information. Although we believe this information to be reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it. CinemaShares offers the individual investors who purchase a single share of stock in a CinemaShares company a guaranteed "agreed fair return" as described elsewhere in this document, as well as the possibility of some additional earnings, paid out as cash dividends. However, this unique method of financing movies is also well positioned to produce significant financial returns for CinemaShares, the Parent Holding Company, as can be seen from these Revenue

Projections below. It should be again noted that each individual movie would be owned by a separate legal entity that will be responsible for its own operating costs. Accordingly, most of CinemaShares’ actual corporate expenses will come from marketing its services, creating the publicly trading Licensee Companies, and administering and collecting its licensing fees. With most of each films expenses held in the individual movie companies, CinemaShares produces an enviably high rate of return. The CinemaShares revenues shown below are based on the collective Net Revenues received by its Licensee Companies from the distributors of their films and include deductions for all expenses such as prints and advertising. Financial Plan The entertainment industry is, of course, a glamorous one. Yet a CinemaShares’ investor, though excited by the prospect of active involvement in this attractive field, will nonetheless remain interested in the financial return of his or her investment.

CinemaShares is in the enviable position of not only aiming to penetrate a glamorous market but also of offering potentially glamorous returns. It is management’s opinion that CinemaShares offers an incredible opportunity to get in on the ground floor of a potentially industry-changing business method. Consider for instance that the worldwide box office grew to a staggering $20.2 billion in 2001, with the US box office accounting for $8.4 billion of the total (see table on page ) It is management’s opinion that CinemaShares’ Patent-Pending Business Method will allow it to capture a significant portion of the worldwide theatrical and home video markets. Management’s strategy is to initially focus on a few select projects to demonstrate the superior financing option of using CinemaShares’ business method. This in turn will generate media ‘buzz’ and spark investor interest, leading to a larger slate of movies being produced using this novel Business Method. It is

management’s belief that the benefits of using this unique system of movie financing will lead to a significant portion of movie financing being raised through this or a similar method. It should be again noted that CinemaShares is currently the only company offering such a 35 Source: http://www.doksinet method of movie financing and that both U. S and International Patents have been applied for to protect our method of business. Major Assumptions and Methodology Used in the Financial Projections The average profit assumptions by movie type were obtained from a Paul Kagan and Associates report, see Appendix A. The report details worldwide rental income from all sources, less worldwide costs, giving the profitability by movie category. CinemaShares has adjusted the numbers used to reflect the fact that the financing loan (i.e negative cost) would not need to be repaid to the investors up front but would rather be paid back through dividends on the shares owned by each individual

investor. CinemaShares’ income would therefore be based on worldwide revenues less only the actual worldwide costs before deducting the negative cost. For instance, if a movie were made in the $15-20 million comedy genre, according to Paul Kagan and Associates it would produce average worldwide revenue of $45.4 million with worldwide costs of $40.7 million However, using CinemaShares’ unique financing method, the loan raised to finance the movie of $17.5m (average of the cost range $15-20 million) is paid back to individual shareholders through dividends and thus would not need to be repaid before CinemaShares’ licensing royalty. This would reduce the worldwide costs to $232 million, producing a profit of $22.2 million for distribution to the movie’s shareholders CinemaShares would then receive its 5 to 45% distribution on this amount, as previously agreed with each particular movie project. As the number of movies financed by CinemaShares increases, the average percentage of

revenues generated as licensing fees will decrease. This is due to the assumption that CinemaShares will license its patent-pending Business Method to other production companies and the major studios, rather than producing all movies itself. CinemaShares anticipates that it will continue to receive 45% of revenues of those movies that it produces in-house, while accepting a smaller fee for those movies that merely use CinemaShares Business Method. According to the Motion Picture Association of America’s (MPAA) 2001 Economic Review, there were some 482 new features released in 2001, a slight increase from the 478 and 461 in 2000 and 1999, respectively. CinemaShares feels that its method of movie financing offers significant financial and other advantages over the traditional methods of movie financing and that this will in turn spur an even greater number of movies being made. However, while management feels that this method of movie financing could eventually become the de-facto

standard in the entertainment industry, for our financial projections a relatively modest penetration rate of 6.6% (32/482), 16.8% (81/482) and 224% (108/482) by year 5 has been assumed for the Conservative, Moderate and Aggressive scenarios, respectively. 36 Source: http://www.doksinet Financial Projections Key: 1. 2. 3. The number of movies financed by CinemaShares, by genre. Average profit by movie category, determined using Paul Kagan and Associates report, as described below in “Major Assumptions” CinemaShares’ percentage ownership of each movie, producing an average ownership percentage. Total profit is then multiplied by CinemaShares’ average percentage to produce CinemaShares’ total revenue. Based upon this scenario, three financial outcomes are considered as follows, ranging from Conservative to Moderate to Aggressive: 37 Source: http://www.doksinet Conservative Scenario Summary: Year 1 Number of movies financed Cinemashares percentage Year 2 Year 3 Year

4 Year 5 1 45.0% 2 45.0% 7 20.7% 16 16.3% 32 13.1% Revenue ( in $ millions) 27.00 38.91 56.51 175.57 301.41 Sales and Marketing General and Administrative (2.70) (2.70) (5.84) (3.89) (8.48) (5.65) (14.05) (17.56) (24.11) (30.14) Total operating expenses (5.40) (9.73) (14.13) (31.60) (54.25) Operating Income 21.60 29.18 42.38 143.97 247.16 Income taxes (7.56) (10.21) (14.83) (50.39) (86.51) Net Income Net Income % 14.04 52% 18.97 49% 27.55 49% 93.58 53% 160.65 53% Conservative Scenario Detail: Year 2 Genre Comedy Science fiction Other Kids/Family Year 3 Genre Comedy Science fiction Other Kids/Family Year 4 Genre Comedy Science fiction Other Kids/Family Year 5 Genre Comedy Science fiction Other Kids/Family 1 No. of movies 0-10 10-15 1 0 0 1 2 0.0 0.0 0.0 0.0 18.2 0.0 0.0 0.0 No. of movies 0-10 10-15 3 0 1 3 7 0.0 0.0 0.0 0.0 18.2 0.0 35.9 45.9 No. of movies 0-10 10-15 5 1 4 6 16 0.0 0.0 0.0 9.4 18.2 39.1 71.8 45.9 No. of movies 0-10

10-15 7 6 9 10 32 0.0 0.0 0.0 9.4 36.4 78.3 35.9 45.9 2 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 0.0 0.0 0.0 68.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 22.2 0.0 0.0 68.3 24.1 0.0 0.0 58.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 0.0 50.9 68.3 24.1 0.0 0.0 58.3 47.0 0.0 121.2 137.0 0.0 0.0 0.0 344.8 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 39.6 101.7 136.5 24.1 82.0 178.4 174.8 47.0 60.4 242.5 274.1 50.2 0.0 144.4 344.8 0.0 0.0 145.6 0.0 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 Total Profit 18.2 0.0 0.0 68.3 86.5 Total Profit 64.5 0.0 35.9 172.4 272.8 Total Profit 133.7 39.1 243.9 663.7 1,080.4 Total Profit 202.2 260.2 848.6 985.5 2,296.5 No. of movies 2 0 0 0 2 No. of

movies 2 1 2 2 7 No. of movies 3 2 4 7 16 No. of movies 4 3 8 17 32 3 CS % by Movie 45.0% 25.0% 10.0% 5.0% 45.0% CS % by Movie 45.0% 25.0% 10.0% 5.0% 20.7% CS % by Movie 45.0% 25.0% 10.0% 5.0% 16.3% CS % by Movie 45.0% 25.0% 10.0% 5.0% 13.1% CS Revenue 8.2 0.0 0.0 30.7 38.9 CS Revenue 13.4 0.0 7.4 35.7 56.5 CS Revenue 21.7 6.4 39.6 107.8 175.6 CS Revenue 26.5 34.2 38 111.4 129.3 301.4 Source: http://www.doksinet Moderate Scenario Summary: Year 1 Number of movies financed Cinemashares percentage Year 2 Year 3 Year 4 Year 5 1 45.0% 3 38.3% 13 20.4% 30 17.2% 81 11.2% Revenue ( in $ millions) 27.00 50.73 113.43 325.71 730.68 Sales and Marketing General and Administrative (2.70) (2.70) (7.61) (5.07) (17.01) (11.34) (26.06) (32.57) (58.45) (73.07) Total operating expenses (5.40) (12.68) (28.36) (58.63) (131.52) Operating Income 21.60 38.05 85.07 267.08 599.16 Income taxes (7.56) (13.32) (29.77) (93.48) (209.70) Net Income 14.04 24.73 55.30

173.60 389.45 52% 49% 49% 53% 53% Net Income % Moderate Scenario Detail: 1 Year 2 Genre Comedy Science fiction Other Kids/Family Year 3 Genre Comedy Science fiction Other Kids/Family Year 4 Genre Comedy Science fiction Other Kids/Family Year 5 Genre 2 No. of movies 0-10 10-15 1 0 0 2 3 0.0 0.0 0.0 0.0 18.2 0.0 0.0 45.9 No. of movies 0-10 10-15 5 0 2 6 13 0.0 0.0 0.0 9.4 36.4 0.0 35.9 91.8 No. of movies 0-10 10-15 12 1 6 11 30 5.5 0.0 0.0 0.0 72.8 39.1 71.8 183.5 No. of movies 0-10 10-15 3 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 0.0 0.0 0.0 68.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 0.0 50.9 68.3 24.1 0.0 0.0 58.3 0.0 0.0 0.0 137.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 0.0 50.9 204.8 48.1 0.0 89.2 58.3 94.0 0.0 121.2 274.1 50.2 0.0 144.4 344.8 0.0 0.0 0.0

0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ Total Profit 18.2 0.0 0.0 114.1 132.3 Total Profit 104.9 0.0 86.8 364.7 556.4 Total Profit 315.2 39.1 477.5 1,065.5 1,897.3 Total Profit No. of movies 2 1 0 0 3 No. of movies 3 3 4 3 13 No. of movies 4 8 9 9 30 No. of movies CS % by Movie 45.0% 25.0% 10.0% 5.0% 38.3% CS % by Movie 45.0% 25.0% 10.0% 5.0% 20.4% CS % by Movie 45.0% 25.0% 10.0% 5.0% 17.2% CS % by Movie CS Revenue 7.0 0.0 0.0 43.8 50.7 CS Revenue 21.4 0.0 17.7 74.3 113.4 CS Revenue 54.1 6.7 82.0 182.9 325.7 CS Revenue 39 Comedy Science fiction Other Kids/Family 17 0.0 8 0.0 34 21.1 22 0.0 81 54.6 78.3 179.5 137.6 66.7 79.2 254.3 477.8 96.2 82.0 713.7 233.1 141.0 120.7 1,091.1 685.2 100.5 0.0 433.3 1,034.5 72.5 0.0 145.6 0.0 102.8 0.0 138.4 0.0 634.4 360.2 2,977.0 2,568.2 6,539.8 4 8 36 33 81 45.0% 25.0% 10.0% 5.0% 11.2% 70.9 40.2 332.6 286.9 730.7 Source:

http://www.doksinet Aggressive Scenario Summary: Year 1 Number of movies financed Cinemashares percentage Year 2 Year 3 Year 4 Year 5 1 45.0% 4 35.0% 18 17.2% 44 13.4% 108 10.2% Revenue ( in $ millions) 27.00 62.38 178.44 476.48 938.48 Sales and Marketing General and Administrative (2.70) (2.70) (9.36) (6.24) (26.77) (17.84) (38.12) (47.65) (75.08) (93.85) Total operating expenses (5.40) (15.59) (44.61) (85.77) (168.93) Operating Income 21.60 46.78 133.83 390.72 769.55 Income taxes (7.56) (16.37) (46.84) (136.75) (269.34) Net Income Net Income % 14.04 52% 30.41 49% 86.99 49% 253.97 53% 500.21 53% Aggressive Scenario Detail: Year 2 Genre Comedy Science fiction Other Kids/Family Year 3 Genre Comedy Science fiction Other Kids/Family Year 4 Genre Comedy Science fiction Other Kids/Family Year 5 Genre Comedy Science fiction Other Kids/Family 1 No. of movies 0-10 10-15 1 0 0 3 4 0.0 0.0 0.0 0.0 18.2 0.0 0.0 91.8 No. of movies 0-10 10-15 8

0 2 8 18 5.5 0.0 0.0 9.4 36.4 0.0 35.9 91.8 No. of movies 0-10 10-15 14 11.0 3 0.0 10 21.1 17 9.4 44 72.8 39.1 71.8 183.5 No. of movies 0-10 10-15 23 11.0 16 0.0 41 21.1 28 18.8 108 36.4 78.3 251.3 275.3 2 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 0.0 0.0 0.0 68.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 0.0 50.9 68.3 48.1 0.0 0.0 116.5 47.0 0.0 0.0 137.0 0.0 0.0 0.0 344.8 0.0 0.0 0.0 0.0 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 44.5 39.6 50.9 273.0 48.1 41.0 178.4 116.5 94.0 0.0 242.5 274.1 50.2 725 0.0 0.0 144.4 0.0 1,034.5 4404 Total profit by movie category (in $m) 15-20 20-30 30-40 40-50 50-60 88.9 79.2 254.3 273.0 96.2 82.0 713.7 291.4 141.0 301.8 1,091.1 685.2 251.2 725 161.8 0.0 866.6 2912 1,034.5 8807 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ 0.0 0.0 0.0 0.0 60+ 205.6 0.0 276.8 341.4 Total Profit

18.2 0.0 0.0 160.0 178.2 Total Profit 181.5 0.0 86.8 767.8 1,036.1 Total Profit 393.2 119.7 709.1 2,331.4 3,553.4 Total Profit 903.0 703.0 3,766.2 3,800.3 9,172.4 No. of movies 2 2 0 0 4 No. of movies 3 4 4 7 18 No. of movies 4 8 10 22 44 No. of movies 4 9 45 50 108 3 CS % by Movie 45.0% 25.0% 10.0% 5.0% 35.0% CS % by Movie 45.0% 25.0% 10.0% 5.0% 17.2% CS % by Movie 45.0% 25.0% 10.0% 5.0% 13.4% CS % by Movie 45.0% 25.0% 10.0% 5.0% 10.2% CS Revenue 6.4 0.0 0.0 56.0 62.4 CS Revenue 31.3 0.0 14.9 132.2 178.4 CS Revenue 52.7 16.1 95.1 312.6 476.5 CS Revenue 92.4 71.9 385.3 388.8 938.5 The detail supporting the above financial summaries can be found in the Exhibit section, page 40 Source: http://www.doksinet Valuation There are many methods that can be used to attach a value to a business, but a start up business presents a special challenge. There is no historical financial information that can be analyzed and projected forward Careful attention should therefore be placed

on the projected financial statements, and on management’s strategy for achieving them. One of the most common approaches to new business valuation is the use of industry rules of thumb to provide a large picture valuation of a particular company. Specifically, sales and profit multiples are a widely used valuation benchmarks. The information needed is annual revenue and an appropriate industry multiplier. The industry multiplier can be found in various financial publications and on the Internet, as well as from analyzing sales of comparable businesses. This method is easy to understand and use and is often viewed as the valuation benchmark A useful method to investigate the potential worth of CinemaShares would therefore be to apply a meaningful multiple to its revenue to produce a Price/Sales ratio. Assuming a CinemaShares IPO by year 5, it would be appropriate to value the company based on the comparable multiples of other publicly traded companies. Given that CinemaShares is a

hybrid motion picture/financing/internet company a number of examples have been chosen from these sectors and applied to the financial projections on pages 38-40. Under the Conservative, Moderate and Aggressive scenarios, Year 5 revenue is projected to be $301, $731 and $938 million, respectively. Applying the selected companies’ Price/Sales ratios to these projections produces the following CinemaShares valuations: COMPANY E Trade Disney AOL Time Warner Amazon MGM Citigroup Clear Channel Charles Schwab Cox Communications Wells Fargo Bank Yahoo Ebay Pixar Financial Sector Average Motion Picture Industry Av. S&P 500 Price/ Sales Ratio Market Cap (1) (1) 0.74 1.26 1.31 1.82 2.02 2.32 2.55 2.56 3.25 4.11 7.15 16.07 23.07 1,367 28,981 47,936 6,415 2,734 136,100 18,631 10,728 13,470 75,764 5,994 16,197 2,149 301 301 301 301 301 301 301 301 301 301 301 301 301 223 380 395 549 609 699 769 772 980 1,239 2,155 4,844 6,954 731 731 731 731 731 731 731 731 731 731 731 731 731 541

921 957 1,330 1,476 1,695 1,863 1,871 2,375 3,003 5,224 11,742 16,857 938 938 938 938 938 938 938 938 938 938 938 938 938 694 1,182 1,229 1,708 1,896 2,177 2,393 2,403 3,050 3,857 6,710 15,081 21,651 2.80 3.36 2.63 N/A N/A N/A 301 301 301 844 1,013 793 731 731 731 2,046 2,455 1,922 938 938 938 2,628 3,153 2,468 Conservative CinemaShares Revenue Valuation (in $ millions) Moderate CinemaShares Revenue Valuation (in $ millions) Aggressive CinemaShares Revenue Valuation (in $ millions) The above Price/Sales ratio analysis values CinemaShares anywhere from $223 million to $21.6 billion in year 5, depending on the scenario adopted and multiple applied. A 20% share in CinemaShares could thus be worth anywhere from $76.0 million to $43 billion This clearly represents a significant return on an initial investment of $20 million. 41