Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 53

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          comfortable that with the investment we were making at least we             
          had assets worth as much as we were investing and that it could             
          be considerably more if managed properly.”                                  
               Other than Mr. Lerner’s testimony, we have no basis for                
          gauging Mr. Lerner’s reliance on this appraisal.  Although Mr.              
          Kutner’s appraisal report would seem to form a critical part of             
          his case, petitioner did not call Mr. Kutner as a witness.                  
          Consequently, Mr. Kutner’s appraisal report has not been received           
          into evidence and cannot be relied upon for establishing the                
          value of the film library.                                                  
               The appraisal report itself indicates that it is limited to            
          a financial analysis of the film library and its potential                  
          earnings.  The report states that Mr. Kutner did not physically             
          inspect the materials for the various film titles, and he assumed           
          that the legal and physical status of the EBD film library “is in           
          good condition”.  The report does not provide any analysis of the           
          rights that SMHC acquired in the film titles (except for the                
          general reference to “U.S. Video Film Rights”) and appears to               
          assume that SMHC actually owned the full bundle of rights                   
          associated with the EBD film titles.  The report also appraised             
          the EBD film library “as if it was free and clear of debt and               
          under responsible ownership and competent management”.                      
          Presumably, however, when the EBD film library was assigned to              
          SMHC, it became subject to the $1 billion debt that SMHC owed.              






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