Excellent update and thanks to the team for being upfront and honest with the challenges ahead. I felt how difficult that information was for y'all to put out, but it needed to be said. That's why I feel "I'm in good hands with y'all". The care, the attention to detail, the fine tuning is what needs to happen in order for us to be successful. In the words of Confucius: "The will to win, the desire to succeed, the urge to reach our full potential... these are the keys that will unlock the door to excellence." Thank you again for the update, I'm proud to be apart of this venture. 💯💯💯
That's who we are. As Confucius said, “Choose a job you love, and you will never have to work a day in your life.” Marc Anthony, “If you do what you love, you’ll never work a day in your life.” and King David, "Delight yourself in the LORD, and he will give you the desires of your heart." Thanks for standing with us!
Thank you for the updates as always. Though I have several questions: Why would the bank only potentially offer 60-70% of the original 45-50M production funding target especially when the Bonding company is supposed to guarantee the production loan? From what Paul mentioned, this isn't simply a delay of return based on production financing. It's now based on return of profit. This is an escalation of risk and definitely a dilution of return due to the time factor being the opportunity cost. This change is also a violation of the investment contract. The investors' first return should be added into the guarantee under the coverage of the bonding company. If 60-70% of production cost is being covered by the bank loan, where is the remaining 30-40% equity coming from and what are the terms being offered to them?
Thank you for your characteristically smart questions, Justin. We created some confusion because we mixed/merged two different issues that have two different impacts. Issue 1: Bank vs. private equity. Shifting from bank financing (debt) to investment financing (equity) DILUTES our investors’ equity because there are now other investors sharing the pie. This is the case with ANY company as it develops. New investors dilute the pie. Where before we thought we could avoid that by only using debt financing, now it’s likely we will need to include new equity. More on this down below. As far as his question about why would the bank only fund 60% of the production budget now, the answer is we rely on pre-sales/MGs to collateralize the bank funding, and we don’t think it’s likely we’ll be able to get those pre-sales/MGs in this market, especially with possibly losing China altogether. We received this recent information from the horse's mouth…that is, from the agent at one of the entertainment banks we would be working with who explained the current dynamics to us. Pre-sales are dependent upon global market dynamics and include such things as the frigid relationship between the US and China at present and the wars in Israel and Ukraine. China and the US together make up half of the entire global market. These are the kinds of things that agents at the bank have to consider when projecting how much of the budget they will likely be able to collateralize. The key point to understand here is that we did not need to bring up this issue at all, except to inform you that it is looking like the marketplace may likely require us to bring in 30-40% private investment as part of the funding for the production budget. This is not new to our business model. It has always been part of the plan, but now we are now just aligning ourselves with the current situation in the marketplace. These are all “above-the-line” costs, and the “below-the-line” split between our investors and ourselves as producers will of course never change. You may not be properly understanding the nature of a guarantee provided by the bonding company. The bonding company guarantees the bank two things: that the film will be completed 1) on time, and 2) on budget. That's it. Although to my knowledge they have not had to exercise these rights for decades, the bonding company has the right to come in if the producers are getting off budget or extending the production time longer than planned, and they can take over the production and finish the film using their own production team. I hope that helps you understand what the bond company can do, and more importantly what they can't do. They cannot guarantee that the bank and/or private financier of the production fund agree to pay our line item of $2.4m for development costs. While this was standard procedure back in 2021 when we offered the terms for Calculated, times have changed. We don't know for sure...it could work out better than we anticipate...but we wanted to be transparent about this potential issue. Issue 2: Repayment of development funds/investors out of production financing. This is a completely separate issue from the one above. The challenge here applies to ANY way we end up funding the movie. In ALL cases, based on post-strike changes in the film financing industry, we now believe the production funding sources (whether debt or equity) are going to push back on our development fund line item ($2.4m), and only be willing to cover a portion of that (probably more like $1.5m) out of the production funding. This is particularly true due to the tightening of budgets due to all the factors we mentioned in the update. Summary: Issue 1 dilutes investors (which is not new information, just more current; it is part of the negotiations we always anticipated for production financing). Issue 2 pushes repayment of a portion of the development funds to later, out of profits.
Great update! It is great to hear about the progress. Fingers crossed for plan A.
Excellent update and thanks to the team for being upfront and honest with the challenges ahead. I felt how difficult that information was for y'all to put out, but it needed to be said. That's why I feel "I'm in good hands with y'all". The care, the attention to detail, the fine tuning is what needs to happen in order for us to be successful. In the words of Confucius: "The will to win, the desire to succeed, the urge to reach our full potential... these are the keys that will unlock the door to excellence." Thank you again for the update, I'm proud to be apart of this venture. 💯💯💯
That's who we are. As Confucius said, “Choose a job you love, and you will never have to work a day in your life.” Marc Anthony, “If you do what you love, you’ll never work a day in your life.” and King David, "Delight yourself in the LORD, and he will give you the desires of your heart." Thanks for standing with us!
Every great story must include obstacles and setbacks, and I am confident that the end result will be the better for them.
Thank you for the updates as always. Though I have several questions: Why would the bank only potentially offer 60-70% of the original 45-50M production funding target especially when the Bonding company is supposed to guarantee the production loan? From what Paul mentioned, this isn't simply a delay of return based on production financing. It's now based on return of profit. This is an escalation of risk and definitely a dilution of return due to the time factor being the opportunity cost. This change is also a violation of the investment contract. The investors' first return should be added into the guarantee under the coverage of the bonding company. If 60-70% of production cost is being covered by the bank loan, where is the remaining 30-40% equity coming from and what are the terms being offered to them?
Thank you for your characteristically smart questions, Justin.
We created some confusion because we mixed/merged two different issues that have two different impacts.
Issue 1: Bank vs. private equity. Shifting from bank financing (debt) to investment financing (equity) DILUTES our investors’ equity because there are now other investors sharing the pie. This is the case with ANY company as it develops. New investors dilute the pie. Where before we thought we could avoid that by only using debt financing, now it’s likely we will need to include new equity. More on this down below.
As far as his question about why would the bank only fund 60% of the production budget now, the answer is we rely on pre-sales/MGs to collateralize the bank funding, and we don’t think it’s likely we’ll be able to get those pre-sales/MGs in this market, especially with possibly losing China altogether. We received this recent information from the horse's mouth…that is, from the agent at one of the entertainment banks we would be working with who explained the current dynamics to us. Pre-sales are dependent upon global market dynamics and include such things as the frigid relationship between the US and China at present and the wars in Israel and Ukraine. China and the US together make up half of the entire global market. These are the kinds of things that agents at the bank have to consider when projecting how much of the budget they will likely be able to collateralize.
The key point to understand here is that we did not need to bring up this issue at all, except to inform you that it is looking like the marketplace may likely require us to bring in 30-40% private investment as part of the funding for the production budget. This is not new to our business model. It has always been part of the plan, but now we are now just aligning ourselves with the current situation in the marketplace. These are all “above-the-line” costs, and the “below-the-line” split between our investors and ourselves as producers will of course never change.
You may not be properly understanding the nature of a guarantee provided by the bonding company. The bonding company guarantees the bank two things: that the film will be completed 1) on time, and 2) on budget. That's it. Although to my knowledge they have not had to exercise these rights for decades, the bonding company has the right to come in if the producers are getting off budget or extending the production time longer than planned, and they can take over the production and finish the film using their own production team. I hope that helps you understand what the bond company can do, and more importantly what they can't do. They cannot guarantee that the bank and/or private financier of the production fund agree to pay our line item of $2.4m for development costs. While this was standard procedure back in 2021 when we offered the terms for Calculated, times have changed. We don't know for sure...it could work out better than we anticipate...but we wanted to be transparent about this potential issue.
Issue 2: Repayment of development funds/investors out of production financing. This is a completely separate issue from the one above. The challenge here applies to ANY way we end up funding the movie. In ALL cases, based on post-strike changes in the film financing industry, we now believe the production funding sources (whether debt or equity) are going to push back on our development fund line item ($2.4m), and only be willing to cover a portion of that (probably more like $1.5m) out of the production funding. This is particularly true due to the tightening of budgets due to all the factors we mentioned in the update.
Summary:
Issue 1 dilutes investors (which is not new information, just more current; it is part of the negotiations we always anticipated for production financing).
Issue 2 pushes repayment of a portion of the development funds to later, out of profits.