Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 125

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          gaps; for instance, he fails to explain certain important                   
          assumptions and conclusions.  Mr. Medress’ methodology appears              
          highly subjective.  On the other hand, Mr. Wagner’s methodology             
          offers an objective basis for estimating the initial gross units            
          shipped for the EBD film titles; however, his income projections            
          are highly overstated.  Importantly, Mr. Wagner did not account             
          for any previous distribution of the EBD film titles.                       
               Despite our misgivings about Mr. Medress’ methodology, we              
          are persuaded that his income projections for the EBD film titles           
          are more realistic than Mr. Wagner’s highly overstated                      
          projections.  If we were relying solely on the expert opinions,             
          we would conclude that the EBD film rights had a value as of                
          December 11, 1996, which did not exceed the value Mr. Medress               
          determined in his scenario 2; i.e., $1.5 million.  Nonetheless,             
          we find that certain additional factors, which the experts did              
          not consider, indicate a much lower value.                                  
               In making their respective valuations, both experts were               
          hampered by the lack, or inconsistency, of information relating             
          to the EBD film titles.  Neither expert inspected the physical              
          materials for the EBD film titles.  Neither expert considered               
          whether the existing physical materials were capable of                     
          reproduction.  Neither expert considered the impact of chain-of-            
          title and copyright issues relating to the EBD film titles.  The            
          record demonstrates, however, that there were significant gaps in           






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