Both domestically and abroad, the film and entertainment industry shows continues to grow and shows no signs of slowing down. Worldwide, box office receipts reached another all-time high in 2007 with $26.7 billion, a 4.9% increase from 2006 (Source: Motion Picture Association of America). Partly due to the tremendous capabilities offered by the digital movement, independent film production has surged in recent years. From 2001 to 2007, the percentage of total films release in the U.S. by "independent" studios has increased from 59% to 70% (Source: Motion Picture Association of America). Large studios have devoted their efforts to chasing the next blockbuster and spent ever greater sums of money in production and distribution. The average cost to make and market a major MPAA member company film was $106.6 million in 2007. This includes $70.8 million in negative costs and $35.9 million in marketing costs. (Source: Motion Picture Association of America). This shift in the industry has created significant openings for emerging companies who have developed strategies designed in accordance with the new realities of the film industry.

Seven Arts Pictures (OTCBB: SAPXF) is actively engaged in developing the worldwide licensing of motion pictures directly with source distributors for theatrical, video and television. The Company has developed a strategic plan to acquire for distribution and to distribute product with substantial DVD and home video potential even if there is limited or no theatrical release. Such "straight to DVD" films frequently produce the most substantial ROI with minimal risk, particularly in the horror and family entertainment genres, both of which Seven Arts intends to pursue aggressively in the future. The Company will assist in the production of two to four pictures each year to provide additional product for its distribution system, but is more focused on pursuing projects that allow the Company to limit its own capital expenditure. With such a strategy in place, Seven Arts Pictures anticipates that it will be able to increase its library of more than twenty films to between seventy and eighty films within the next five years. With projected revenues of $16.5 Million in 2008 and profits of approximately $5 Million, Seven Arts Pictures is proving the viability of its business model.

Seven Arts Pictures is making substantial progress in capturing market share in the film industry. In FY '07, the Company generated approximately $10 Million in revenues and took in $2.2 Million in profits. For 2008, the Company projects estimated revenues of $16.5 Million and profits of $5 Million. With such a pace of growth, Seven Arts Pictures has a forward P/E of 3.8, a fraction of the industry P/E of 29.4. By adopting a strategy designed to reduce capital expenditures, Seven Arts Pictures intends to participate in a highly profitable market niche within the film and entertainment industry, and capitalize on developing trends in this dynamic industry.

The increasing digitization of all media types is fundamentally altering the way that people listen to music and watch movies. Following the lead of independent film makers, even major motion picture studios like Sony Pictures, Paramount, and Universal have seen the writing on the wall and partnered with digital distributors. According to Benjamin Feingold, Sony's president of worldwide home entertainment, digital distribution and acquisition, "This is a landmark development in the evolution of home entertainment," and movie theatres appear to be poised to turn completely into digital cinemas within the next 10 years if not sooner, says John Fithian, president of the National Association of Theatre Owners (Source: United Press International). This paradigm shift in the film industry presents unique opportunities for enterprising and agile companies like Seven Arts Pictures that are capable of adjusting to the changing face of the industry.