## <u>Revenue - Income Statement</u>

	- Revenue derived is based on the lay down quantities as proposed by RA Sales team (done in conjunction with S&S)

• Laydown quantities are the quantities that the sales team are committing to sell

- 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

## <u>Exoenses - Income Statement</u>

	- Most expenses are based on the expenses per the Individual Title Budgets which are prepared by Production Director

- PPB (Paper Print & Binding) unit cost comes 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 10% 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 - Outflows

- 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 invoicing/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 $240k.($200k in leasehold improvements for the proposed move and $40k in Computer equipment, printers etc.)

## Cash Flow - Outflows (cont.)

## Regan Arts

## Income Statement 2015

<table><tr><th></th><th>Jan-15</th><th>Feb-15</th><th>Mar-15</th><th>Apr-15</th><th>May-15</th><th>Jun-15</th><th>Jul-15</th><th>Aug-15</th><th>Sep-15</th><th>Oct-15</th><th>Nov-15</th><th>Dec-15</th><th>FY 2015</th></tr><tr><td>Revenue*</td><td>0</td><td>510,916</td><td>1,972,382</td><td>779,069</td><td>396,750</td><td>19,968</td><td>(18,538)</td><td>(238,352)</td><td>2,359,713</td><td>990,249</td><td>(113,032)</td><td>(393,549)</td><td>6,265,576</td></tr><tr><td>Direct Costs</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>PPB</td><td>0</td><td>80,000</td><td>269,080</td><td>139,135</td><td>55,230</td><td>27,330</td><td>(8,448)</td><td>(33,911)</td><td>196,332</td><td>438,014</td><td>(16,649)</td><td>(56,864)</td><td>1,089,249</td></tr><tr><td>Plant Expense</td><td>0</td><td>21,456</td><td>89,906</td><td>68,646</td><td>42,251</td><td>43,071</td><td>26,142</td><td>(9,886)</td><td>42,352</td><td>143,752</td><td>(13,661)</td><td>(18,682)</td><td>435,347</td></tr><tr><td>Royalty</td><td>°</td><td>86,240</td><td>305,942</td><td>80,432</td><td>50,027</td><td>56,608</td><td>28,342</td><td>17,192</td><td>255,116</td><td>111,215</td><td>0</td><td>15,833</td><td>1,006,946</td></tr><tr><td>Selling &amp; Distribution</td><td>0</td><td>66,419</td><td>256,410</td><td>101,279</td><td>51,577</td><td>2,596</td><td>(2,410)</td><td>(30,986)</td><td>306,763</td><td>128,732</td><td>(14,694)</td><td>(51,161)</td><td>814,525</td></tr><tr><td></td><td>0</td><td>254,115</td><td>921,338</td><td>389,492</td><td>199,085</td><td>129,605</td><td>43,627</td><td>(57,591)</td><td>800,562</td><td>821,713</td><td>(45,004)</td><td>(110,874)</td><td>3,346,066</td></tr><tr><td>Gross Marin</td><td>0</td><td>256,801</td><td>1,051,044</td><td>389,577</td><td>197,665</td><td>(109,636)</td><td>(62,164)</td><td>(180,761)</td><td>1,559,152</td><td>168,536</td><td>(68,028)</td><td>(282,676)</td><td>2,919,510</td></tr><tr><td>Other Expenses</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>M&amp;P</td><td>0</td><td>50,000</td><td>285,000</td><td>58,000</td><td>73,000</td><td>62,500</td><td>27,500</td><td>5,000</td><td>246,000</td><td>153,000</td><td>0</td><td>0</td><td>960,000</td></tr><tr><td>Freight</td><td>0</td><td>11,791</td><td>64,464</td><td>12,926</td><td>16,412</td><td>16,085</td><td>6,266</td><td>2,433</td><td>59,087</td><td>50,764</td><td>0</td><td>3,537</td><td>243,765</td></tr><tr><td>Salaries-Existing Employees</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>1,707,180</td></tr><tr><td>Salaries- New Employees</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>610,500</td></tr><tr><td>Overhead</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>78,300</td><td>67,300</td><td>67,300</td><td>818,600</td></tr><tr><td></td><td>260,440</td><td>322,231</td><td>609,904</td><td>331,366</td><td>349,852</td><td>339,025</td><td>294,206</td><td>267,873</td><td>565,527</td><td>475,204</td><td>260,440</td><td>263,977</td><td>4,340,045</td></tr><tr><td>Net Profit</td><td>(260,440)</td><td>(65,430)</td><td>441,140</td><td>58,211</td><td>(152,187)</td><td>(448,661)</td><td>(356,370)</td><td>(448,634)</td><td>993,625</td><td>(306,668)</td><td>(328,468)</td><td>(546,653)</td><td><u>(1,420,535)</u></td></tr></table>

• Negative revenue occurs in months where no books are published and we have returns of earlier publications.

## Income Statement 2015 (cont.)

## Regan Arts

Cash Flow - 2015

<table><tr><th></th><th>Jan-15</th><th>Feb-15</th><th>Mar-15</th><th>Apr-15</th><th>May-15</th><th>Jun-15</th><th>Jul-15</th><th>Aug-15</th><th>Sep-15</th><th>Oct-15</th><th>Nov-15</th><th>Dec-15</th><th>FY 2015</th></tr><tr><td><u>Cash Inflow</u></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Revenue</td><td></td><td></td><td>0</td><td>510,916</td><td>1,972,382</td><td>779,069</td><td>396,750</td><td>19,968</td><td>(18,538)</td><td>(238,352)</td><td>2,359,713</td><td>990,249</td><td>6,772,158</td></tr><tr><td>Selling &amp; Distribution</td><td>000</td><td>000</td><td>0</td><td>(66,419)</td><td><u>(256,410)</u></td><td><u>(101,279)</u></td><td>(51,577)</td><td>(2,596)</td><td>2,410</td><td>30,986</td><td>(306,763)</td><td><u>(128,732)</u></td><td><u>(880,381)</u></td></tr><tr><td></td><td></td><td></td><td>0</td><td>444,497</td><td>1,715,972</td><td>677,790</td><td>345,172</td><td>17,372</td><td>(16,128)</td><td>(207,367)</td><td>2,052,951</td><td>861,517</td><td>5,891,777</td></tr><tr><td><u>Cash Outflow</u></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Royalties - Advances (14)*</td><td>141,000</td><td>91,250</td><td>295,000</td><td>205,000</td><td>1,250</td><td>0</td><td>0</td><td>33,750</td><td>368,750</td><td>230,000</td><td>10,000</td><td>65,000</td><td>1,441,000</td></tr><tr><td>Royalty Advances (15)</td><td>250,000</td><td>250,000</td><td>250,000</td><td>250,000</td><td>250,000</td><td>250,000</td><td>83,333</td><td>83,333</td><td>83,333</td><td>83,333</td><td>83,333</td><td>83,333</td><td>2,000,000</td></tr><tr><td>PPB</td><td>0</td><td>100,000</td><td>473,350</td><td>123,700</td><td>116,725</td><td>158,700</td><td>44,775</td><td>17,000</td><td>456,920</td><td>526,305</td><td>0</td><td>0</td><td>2,017,475</td></tr><tr><td>Plant Expense</td><td>0</td><td>26,820</td><td>133,546</td><td>65,080</td><td>73,347</td><td>92,903</td><td>46,644</td><td>14,500</td><td>108,424</td><td>185,000</td><td>0</td><td>0</td><td>746,264</td></tr><tr><td>Salaries &amp; Fringe Benefits</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>2,317,680</td></tr><tr><td>Other Overhead</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>78,300</td><td>67,300</td><td>67,300</td><td>818,600</td></tr><tr><td>M&amp;P</td><td>0</td><td>50,000</td><td>285,000</td><td>58,000</td><td>73,000</td><td>62,500</td><td>27,500</td><td>5,000</td><td>246,000</td><td>153,000</td><td>0</td><td>0</td><td>960,000</td></tr><tr><td>Freight</td><td>0</td><td>11,791</td><td>64,464</td><td>12,926</td><td>16,412</td><td>16,085</td><td>6,266</td><td>2,433</td><td>59,087</td><td>50,764</td><td>0</td><td>3,537</td><td>243,765</td></tr><tr><td>Capex (LHI &amp; Computers)</td><td><u>70,000</u></td><td>70,000</td><td>70,000</td><td>10,000</td><td><u>0</u></td><td>0</td><td>10,000</td><td>0</td><td>0</td><td>10,000</td><td>0</td><td>0</td><td><u>240,000</u></td></tr><tr><td></td><td>721,440</td><td>860,301</td><td>1,831,800</td><td>985,146</td><td>791,174</td><td>840,628</td><td>478,958</td><td>416,456</td><td>1,582,954</td><td>1,509,842</td><td>353,773</td><td>412,310</td><td>10,784,784</td></tr><tr><td>Net Cash Flow</td><td><u>(721,440)</u></td><td><u>(860,301)</u></td><td><u>(1,831,800)</u></td><td><u>(540,649)</u></td><td>924,798</td><td>(162,838)</td><td>(133,786)</td><td>(399,084)</td><td>(1,599,082)</td><td>(1,717,209)</td><td>1,699,177</td><td>449,207</td><td><u>(4,893,007)</u></td></tr></table>

• Commitments made in 2014 for titles publishedin 2015. This does not reflect payments made in 2014.

## Regan Arts (cont.)

<table><tr><th rowspan="2">Expense
7k14</th><th rowspan="2">Yearly Salary </th><th>Jan-IS</th><th>Feb-15</th><th>Mar-I5</th><th>Apr-15</th><th>May-15</th><th>Jun-15</th><th>Jul-15</th><th>Aug-15</th><th>Sep-IS</th><th>Oct-15</th><th>Nov-I5</th><th>Dec-I5</th><th>FY 2015</th></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td><u>Existent Employees</u></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>CEO</td><td>450000</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37,500</td><td>37.500</td><td>37.500</td><td>37.500</td><td>450,000</td></tr><tr><td>Head of Production</td><td>140,000</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11,667</td><td>11.667</td><td>11,667</td><td>11.667</td><td>11.667</td><td>140,000</td></tr><tr><td>Editorial Intern</td><td>32,000</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>32,000</td></tr><tr><td>Editonal Intern</td><td>32,000</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2,667</td><td>2.667</td><td>2.667</td><td>2.667</td><td>32.000</td></tr><tr><td>Editor</td><td>50000</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>50,000</td></tr><tr><td>Senior Editor</td><td>100.000</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8.333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>100,000</td></tr><tr><td>Associate Editor</td><td>55,000</td><td>4,583</td><td>4,583</td><td>4,583</td><td>4,583</td><td>4,583</td><td>4.583</td><td>4,583</td><td>4,583</td><td>4,583</td><td>4.583</td><td>4.583</td><td>4.583</td><td>55,000</td></tr><tr><td>Managing Editor</td><td>50,000</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>4,167</td><td>50,000</td></tr><tr><td>Executive Editor and Associate Publisher</td><td>160000</td><td>13.333</td><td>13,333</td><td>13,333</td><td>13,333</td><td>13,333</td><td>13,333</td><td>13,333</td><td>13.333</td><td>13,333</td><td>13.333</td><td>13.333</td><td>13,333</td><td>160,000</td></tr><tr><td>Head of Marketing and Publicity</td><td>103000</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8,333</td><td>8.333</td><td>8.333</td><td>8.333</td><td>100,000</td></tr><tr><td>Head of Sales</td><td>90000</td><td>7,500</td><td>7,500</td><td>7,500</td><td>7,500</td><td>7,50D</td><td>7,500</td><td>7,50D</td><td>7,500</td><td>7,500</td><td>7,500</td><td>7,500</td><td>7,500</td><td>90,000</td></tr><tr><td>Creative Director</td><td>250,000</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20,833</td><td>20.833</td><td>20.833</td><td>20.833</td><td>20.833</td><td>250,000</td></tr><tr><td>Finance Manager (40% Allocation)</td><td>29)200</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>2,417</td><td>29,000</td></tr><tr><td>Total Salaries</td><td></td><td>128.167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>128,167</td><td>1,538.000</td></tr><tr><td>Fringe &amp; Benefits</td><td>11%</td><td>14,098</td><td>14,098</td><td>14,098</td><td>10,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>14,098</td><td>169,180</td></tr><tr><td>Total Salaries and Fringe Benefits-Existing Employees</td><td></td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142.265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>142,265</td><td>1,707,180</td></tr><tr><td><u>New Hires</u></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Director of Publicity</td><td>150,000</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>150,000</td></tr><tr><td>Junior Publicist</td><td>75,000</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6.250</td><td>6.250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>75.000</td></tr><tr><td>Executive Assistant</td><td>75.000</td><td>6,250</td><td>6.250</td><td>6,250</td><td>6,250</td><td>6.250</td><td>6.250</td><td>6.250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>6,250</td><td>75,000</td></tr><tr><td>Editorial Assistant</td><td>40,000</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>3,333</td><td>40,000</td></tr><tr><td>Senior Editor</td><td>150.000</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,500</td><td>12,503</td><td>12.500</td><td>12.500</td><td>12,500</td><td>12,500</td><td>12.500</td><td>12.500</td><td>12.500</td><td>150,000</td></tr><tr><td>Interior Designer</td><td>60,000</td><td>5,003</td><td>5000</td><td>5,000</td><td>5,030</td><td>5,000</td><td>5,000</td><td>5,000</td><td>5,000</td><td>5,000</td><td>5,000</td><td>5.000</td><td>5,000</td><td>60,000</td></tr><tr><td>Total Salaries</td><td></td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,833</td><td>45,633</td><td>45,833</td><td>45,1133</td><td>45,833</td><td>550,000</td></tr><tr><td>Fringe &amp; Benefits</td><td>11%</td><td>5.042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>5,042</td><td>60,500</td></tr><tr><td>Total Salaries and Fringe Benefits • New Hires</td><td></td><td>50,875</td><td>50,375</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50,875</td><td>50275</td><td>50,675</td><td>50,375</td><td>50,175</td><td>50,875</td><td><u>610,500</u></td></tr><tr><td>Total Salaries and Fringe Benefits for Existing and New</td><td></td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>193,140</td><td>2,317,680</td></tr></table>

## Regan Arts (cont.)

<table><tr><th colspan="3">Expense</th><th>Jan-15</th><th>Feb-15</th><th>Mar-15</th><th>Apr-15</th><th>May-15</th><th>Jun-15</th><th>Jul-15</th><th>Aug-15</th><th>Sep-15</th><th>Oct-15</th><th>Nov-15</th><th>Dec-15</th><th>FY 2015</th></tr><tr><td>Rent*</td><td></td><td>327,600</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>27,300</td><td>327,600</td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>0</td></tr><tr><td>Other Overheads</td><td></td><td></td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>25,000</td><td>300,000</td></tr><tr><td>Insurance</td><td></td><td></td><td>0</td><td></td><td>0</td><td>0</td><td>0</td><td>0</td><td>0</td><td></td><td>0</td><td>11,000</td><td>0</td><td>0</td><td>11,000</td></tr><tr><td>Legal Fees</td><td></td><td></td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>10,000</td><td>120,000</td></tr><tr><td>Travel and Entertainment</td><td></td><td></td><td>5,000</td><td>5,000</td><td>5,000</td><td><u>5,000</u></td><td>5,000</td><td>5,000</td><td>5,000</td><td><u>5,000</u></td><td>5,000</td><td><u>5,000</u></td><td>5,000</td><td>5,000</td><td>60,000</td></tr><tr><td></td><td>Total Overhead</td><td></td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>67,300</td><td>78,300</td><td>67,300</td><td>67,300</td><td>818,600</td></tr></table>

6,300 square feet at $52