EFTA02710585

Regan Arts • Worse Case Scenario 2015 Income Statement & Cash Flow Key Assumptions Revenue - Income Statement Revenue derived is based on the lay down quantities as proposed by RA Saks team (done in conjunction with S&S) Laydown quantities are the quantities that the sales team are committing to sell - In this model laydown quantities as provided by the RA sales team have been reduced by 20% - The selling list price is reduced by the average discount rate of 53%. (This is the industry standard discount rate) The model assumes laydown occurs during the month of publication of the book Returns then occur 3 months after laydown. Return rates vary based on category of book: Fiction 50% - Other 40% Illustration 30% The model spreads the returns over 3 months: 60% in Month 1, 20% in month 2 and 20% in Month 3 Expenses Income Statement Most expenses are based on the expenses per the Individual Title Budgets which are prepared by Production Director PPB (Paper Print & Binding) unit cost conies from the individual title budgets. - Plant Expense (Costs to Develop the book) unit cost again comes from the individual title budgets. - PPB and Plant expenses units are based on the laydown units less the returned units and match the month of revenue and returns. Royalties are based on the % contractually agreed on each title Royalty % and expense increases based on the number of books sold. - Note in the P&L for simplicity we booked royalty expense in total during the laydown ( Publication month) (Units are laydown quantities less returns). Selling and Distribution (paid to our distributor) is 13% of Revenue. The contract stipulates a flat 1O% but also includes additional charges, such as special packaging, etc. and this model assumes an additional 3%. Marketing & Promotion (M&P) spend comes from the individual title budgets. As a guide $1.00 per hardcover copy $0.50 to $0.75 per paperback. Freight spend comes from the individual title budgets. M&P and Freight expense is booked in total during the publication month. Cash Flow • Inflows - Cash is received 60 days after invoicing/publication. (e.g. February revenue is paid in April) - Note during months where no books are published, returns of earlier publications could result in negative revenue. Cashflow model shows the total revenue and selling & distribution on a separate line (note actual cash received is the net of these 2 lines). Cash Flow - OutflOwL - Royalty Advances (14) are the commitments we have made in 2014. These are the installments that we have to pay per title in 2015. Royalty Advances (15) is a placeholder for advances on titles that will be produced in 2016 and beyond. The model front loads (75%) in the first half of 2015. PPB payments occur in the month of invoking/publication and are based on the total print run per the individual title budget, not the laydown quantities. - Plant expense payments occur in the month of invoicing/publication and are based on the individual title budget, not laydown quantities. - Other expenses (salaries etc.) are based on the P&L and occur in the month the expense is occurred. • The Cash Flow Model also includes a capex placeholder of $240A($200k in leasehold improvements for the proposed move and 540k in Computer equipment, printers etc.) PT pared ay L Murphy 12/5/2011 EFTA_R1_O212278O EFTA02710585 Regan Arts Income Statement 2015 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 FY 2015 Revenue• 0 408,733 1,577,905 623,255 317,400 15,975 11'7'•`32 1,887.771 792,200 5,012,461 Direct Costs PPG 0 64,000 215,264 111,308 44,184 21,864 ;6.7;8; (27.129; 157,065 350,411 871,399 Plant Expense 0 17,165 71,925 54,917 33,800 34,457 20,913 17,909; 33,881 115,001 348,277 Royalty 0 66,836 238,548 61,401 38,749 45.286 21,750 13,105 199,597 88,754 12,289 786,316 Selling & Distribution 0 53,135 205,128 81,023 41,262 2,077 • 4, (24,789: 245,410 102,986 651,620 0 201,136 730,864 308.649 157,995 103,684 33,978 (46,722) 635.954 657,152 2,657,612 Gross Marin 0 207,597 847,041 314,606 159,405 187.709) (461808) (143.960) 1,251,816 135,047 2,354,849 Other Expenses M&P 0 50,000 285,000 58,000 73,000 62,500 27,500 5,000 246,000 153,000 0 0 960,000 Freight 0 11,791 64,464 12.926 16,412 16,085 6,266 2,433 59,087 50,764 0 0 240,228 Salaries- Existing Employees 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 1,707,180 Salaries- New Employees 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 610,500 Overhead 67,300 67,300 67,300 67,300 67,300 67,300 67,300 67.300 67,300 78,300 67,300 67,300 818,600 260,440 322,231 609,904 331,366 349,852 339,025 294,206 267,873 565,527 475,204 260,440 260,440 4,336,508 Net Profit (260,440) (114,634) 237,137 (16,760) (190,447) (426,734) (343,014) (411,833) 686,289 (340.157) (314,862) (486,203) (1,981,659) • Negative revenue occurs in months where no books are published and we have returns of earlier publications. Prepared by J. Murphy 12/5/2014 EFTA_R1_02122781 EFTA02710586 Regan Arts Cash Flow 2015 Cash Inflow lan-IS Feb-15 Mar-15 Apr-15 May-1s krn-15 hil-15 Aug-1S Sep-IS Oct-15 Nov-15 0e4-15 FY 2015 Revenue 0 0 0 408.733 1,577,905 623,255 317,400 15,975 114.830) (190.682) 1.887,771 792,200 5,417,726 Selluig & Osstribution 0 0 0 (41,262) (2.071) 1.928 24,789 (24$.4101 (102.9861 (104.304) fashtatty 0 0 0 355,598 1,372.778 542,232 276,138 13,898 112.302) (165,893) 1,642,360 689,214 4,713,422 Royalbes - Advances 1141* 141,000 91,250 295,000 205,000 1,250 0 0 33,750 368,750 230000 10,000 65,000 1,441,000 Royalty Advances (15) 250,000 250,000 250,000 250,000 250,000 250,000 83,333 83.333 83,333 83.333 83,333 83,333 2,000000 PPB 0 100,000 473,350 123,700 116,725 158,700 44,775 17,000 456,920 526,305 0 0 2,017,475 Plant Expense 0 26,820 133,546 65,080 73,347 92,903 46,644 14,500 108,424 185,030 0 0 746,264 Salaries & Fringe Benefits 193,140 193,140 193,140 193,140 193,140 193,140 193,140 193,140 193.140 193,140 193,140 193,140 2,317,680 Other Overhead 67,300 67,300 67,300 67,300 67,300 67,300 67,300 67,300 67,300 78,300 67,300 67,300 818,600 1.48.P 0 50,000 285,000 58,000 73.000 62,500 27,500 5,030 246,000 153,030 0 0 960.000 Freight 0 11,791 64,464 12,926 16,412 16,085 6,266 2.433 59.087 50,764 0 0 240.228 Capex (WI & Computers) 70,000 70,000 70,000 10,000 0 0 10,000 0 0 10,000 0 0 240.000 721,440 860,301 1,831,800 985,146 791.174 840,628 478,958 416,456 1,582,954 1.509,842 353.773 408,773 10,781.247 Net Cash Flow 021.440/ (860,301) 11.831.8001 1629448) 581,604 1298,3961 002.8201 (402.5581 (1.595,857) 11.675,736) 1,288,587 280,440 (6.061.825) • Commitments made el 2014 for titles pubished in 2015. This does not reflect payments made in 2014. Prepared by 1. Murphy 12/5/2014 EFTA_R1_02122782 EFTA02710587 Expense Title Yearly Salary Jan-1S Feb-1S Mar-15 Apr-1S May-IS Jun-15 Ail-15 Aug-1S Sep-1S Oct-1S Nov-15 Dec-15 FY 2015 Existing Emoloyees CEO 450,000 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500 450,000 Head of Production 140,000 11,667 11,667 11,667 11,667 11,667 11,667 11,667 11,667 11,667 11,667 11,667 11,667 140,000 Editorial Intern 32,000 2,667 2,667 2,667 2,667 2.667 2,667 2,667 2,667 2,667 2,667 2,667 2,667 32,000 Editonal Intern 32,000 2,667 2,667 2,667 2,667 2.667 2,667 2,667 2.667 2,667 2,667 2.667 2.667 32,000 Editor 50000 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 50,000 Senior Editor 100,000 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 100.000 Associate Editor 55,000 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 4,583 55.000 Managing Editor 50.000 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 4,167 50,000 Executive Editor and Associate Publisher 160,000 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 13,333 160.000 Head of Marketing and Publicity 100,000 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 100,000 Head of Sales 90,000 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 90,000 Creative Director 250,000 20,833 20,833 20,833 20,833 20,833 20,833 20,833 20,833 20,833 20,833 20,833 20,833 250,000 Finance Manager (40% Allocation) 29,000 2.417 2,417 2.417 2,417 2,417 2.417 2,417 2,417 2,417 2,417 2417 2,417 29,000 Total Salaries 128,167 128,167 128,167 128,167 128,167 128,167 128,167 128,167 128,167 128,167 128,167 128,167 1438,000 Fringe & Benefits 11% 14,098 14,098 14,098 14,098 14,098 14,098 14.098 14.098 14.098 14.098 14.098 14.098 169.180 Total Salaries and Fringe Benefits-Existing Employees 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 142,265 1,707,180 New Hires Director of Publicity 150.000 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 150,000 Junior Publicist 75,000 6,250 6,250 6,250 6,250 6,250 6,250 6,250 6,250 6,250 6,250 6,250 6,250 75,000 Executive Assistant 75.000 6,250 6,250 6,250 6.250 6.250 6,250 6,250 6,250 6.250 6,250 6,250 6.250 75,000 Editonal Assistant 40,000 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 40,000 Senior Editor 150.000 12,500 12,500 12,503 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 197,000 interior Designer 60.000 5.000 5.003 5.003 5,000 5,000 5.030 S. 5.000 5,000 5.000 5,000 5,000 60,000 Total Salaries 45,833 45,833 45,833 45,833 45,833 45,833 45,833 45,833 45,833 45,833 45,833 45,833 550,000 Fringe & Benefits 11% 5,042 5,042 5,042 5,042 5,042 5,042 5,042 5,042 5,042 5,042 5,042 5,042 60,500 Total Salaries and Fringe Benefits - New Hires 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 50,875 610,500 Total Salaries and Fringe Benefits for Existing and New 193,140 193,140 193,140 193.110 193,140 193,140 193,140 193.140 193,140 193,140 193,140 193,140 2,317,6110 Prepared by J. Murphy 12/5/2014 EFTA_R1_02122783 EFTA02710588 Expense lan-15 Feb-15 Mar-15 Apr-15 May-15 lun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 FY 2015 Rent • 27,300 27,300 27,300 27,300 27,300 27,300 27,300 27,300 27,300 27,300 27,300 27,300 327,600 0 Other Overheads 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 300,000 Insurance 0 0 0 0 0 0 0 0 0 11,000 0 0 11,000 legal Fees 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 Travel and Entertainment 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 60,000 Total Overhead 67,300 67,300 67,300 67,300 67,300 67,300 67,300 67,300 67,300 78,300 67,300 67,300 818,600 • 6,300 square feet at $51 Prepared by J. Murphy 12/5/2014 EFTA_R1_02122784 EFTA02710589