PART II
In October the Company begins shooting Strike On 0siras, (currently in negotiations with Tom Berringer as well as. Keifer Sutherland and Bridget Fonda). Strike on Osiris should be ready by the Cannes Film Festival. in May, 1999. This production is based on the Israeli air strike an Iraq's nuclear reactor. This action movie is in the gem of Golans 1976 film entitled Operation Thunderbolt, one of three movies made in that period covering the hostage crisis at Entebbe and the: only one to receive an Oscar nomination.
Additionally, Golan and Globus have discovered now talent to create a franchisee as successful as their 1980's Ninja series which spawned nearly 100 imitations. The team is in the process of signing Quintero Seagal (the Japanese born son of Steven Seagal) to star exclusively in multiple 'Bushido' pictures which Magic Entertainment will produce over the next two years. This action series revolves around a modern day martial arts -warrior fighting justice in an urban setting.
Magic has also acquired the worldwide distribution rights (except Portugal, France and Spain) for Manuel de Oliveira's 'La Lettre " (The Letter) which will shoot in October in Paris and should be ready for the Cannes Film Festival next May, This $4-5 million movie is expected to star Chiara Mastroianni. Magic will contribute $500,000 for the worldwide distribution rights and receive a 40% distribution fee plus expenses in addition to being in first position on recoupment of its initial investment
Additional _Venues
First Miracle Group. Inc. will integrate a 40-film library portfolio available for various territories, which includes such titles as Mesmerized, Crack and Line of Fire, into Magic Entertainment With this library unit Magic can distribution and/or reissue these titles to enlarge its revenue base- We project that the majority of this library would be re-distributed onto television for additional revenues of up to S500,000 per year.
Magic also has a present revenue. stream from its California Athletic Clubs unit located in Northern California. This unit generated over $3.09 million in combined revenues from memberships and services in the latest nine month period ending January 3% 1998. This continued revenue stream should assist the Company as it awaits a much larger revenue stream from its movie productions. However. because the athletic clubs are not compatible with First Miracle Groups strategic business plan, we expect that the Company may divest this division in an effort to concentrate it focus on the movie production industry.
Earnings Outlook
Magic Entertainment has already secured minimum sales guarantees from its activities at Cannes in May, 1999, it has licensed 3 films in Malaysia., 4 in France, 4 in Germany, 4 in Brazil, and I film in Japan for min-imam guarantees of $3.31 million plus overages. Magic has contracts in negotiation worth $4.99 million Which, based on management's past history, we believe has a high possibility of closing. Therefore, the minimum secured and pending contracts, presently tow1ling $8.3 million, represent only a small percentage of the worldwide potential. We anticipate that the remaining unsold territory could significantly increase the minimum guarantees. We project that by including North America, Eastern Europe, the Far East, the Middle East and parts of Africa, the Company may generate in excess of $7 million in additional guarantees for a potential total of approximately $15 million in minimum guarantees from presale alone, not including overages.
Pursuant to the outside financing agreement, Magic Entertainment will receive 20% distribution fee ad infinitum until investors recoup 110% of their investment, after which Magic will retain, in addition to its 20% distribution fee, 65% of all revenues. What we find so attractive about the off-balance sheet financing is that Magic will not be responsible for the amortization of the cost of its films since copyright and negatives remain the property of the investment partnership vehicle, while Magic retains the exclusive right to distribute and license the productions. This unique method of financing relieves the company of the debt service and equity participation traditionally accepted by the movie industry. The absence of creative accounting and the investor's principal protection afforded by the structure of the off balance sheet financing leads us to believe that this method may become popular and an acceptable template for future financings of similar nature.
The library unit may add to these numbers of up to $500,000 in revenues by licensing various titles to television. As of the end of April (the first five weeks it was released), Grizzly Mountain video brings the Company's share to at least $350,00. This family film ranked number eight on the top ten video sellthrough. We expect Magic to receive overages from its films which should provide unlimited potential after any advances have been recouped. It should receive 50% of theatrical revenue, 30-35% of wholesale revenue from it video sales and 60%-70% from wholesale TV revenues. While the athletic clubs have the potential to add another $3 million in revenues approximately $1 million will help fund the entertainment subsidiary's start up costs which leaves these clubs with a net loss of approximately $2 million. Based on projected minimum guarantees, we therefore believe that First Miracle's net revenues could exceed, depending on financings, between $7.22 million and $11.17 million before including potential sales from TV and video. We are confident that if Menahem Golan and Yoram Globus, et al. Execute their proven business model, then First Miracle Group has a strong possibility of attaining the potential success previously by Cannon in 1986. Consequently, we initiate coverage of MVEE with a speculative Buy rating and recommend the stock to those with speculation as their main goal.
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