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                                       the studio




Annual Report 2005
DAS STUDIO
 I   N     D     E    X          O     F          C      O      N   T   E   N   T   S



 Preambles

     Preamble of the Management Board                                                   01
     Report of the Supervisory Board                                                    02

 About Studio Babelsberg

     Business Fields                                                                    05
     Organization Chart                                                                 07
     Market Survey                                                                      08
     Environment                                                                        09
     Growth Strategy                                                                    10
     Time Frame                                                                         11
     The Studio Babelsberg Share                                                        12


 Management Report

     Presentation of the Business Development                                           14
     Presentation of the Assets, Finance and Income Situation                           17
     Essential Opportunities and Risks of Future Development                            19
     Incidents after the End of the Fiscal Year                                         21
     Conclusion according to Sec. 312 (3) AktG                                          21



 Consolidated Financial Statements

     Consolidated Balance Sheet                                                         23
     Consolidated Income Statement                                                      25
     Statement of Changes in Fixed Assets of the Group                                  26
     Statement of Changes in Group Equity                                               27
     Consolidated Cash Flow Statement                                                   28
     Notes to the Consolidated Financial Statements                                     29
     Audit Opinion (Group)                                                              36


 Annual Financial Statements of Studio Babelsberg AG

     Balance Sheet of Studio Babelsberg AG                                              38
     Income Statement                                                                   40
     Statement of Changes in Fixed Assets                                               41
     Notes to the Financial Statements                                                  42
     Audit Opinion                                                                      49


 Masthead
                        www.studiobabelsberg.com              .......................................    Studio Babelsberg




                    And the winner is….




                    … You, dear shareholder of the corporation Studio Babelsberg AG.

                    A brilliant achievement marks the end of our successful fiscal year. The most longed for award world
                    wide, the Oscar, again goes to a film which was made with the participation of Studio Babelsberg.
                    Rachel Weisz was honored for her role as best supporting actress in The Constant Gardener, three
                    years earlier Roman Polanski’s The Pianist received the award for best direction. No marketing budget
                    in the world leads to more attention than these awards and no acquisition tool is more powerful than the
                    positive appraisal of our work, coming from prominent film-makers. For international productions, the
                    main evaluation is references and the industry’s feedback. Praise by Jean-Jacques Annaud, Roman
                    Polanski, Nathalie Portman and Matt Damon for the excellent shooting conditions here in the studios
                    is evidence of this.
                    Following the growing demand, we tripled our studio capacity in the past year. We are now in the
The Preambles



                    exceptional position to serve two large scale productions on the site at the same time. At present, we
                    are in negotiation with US majors for comprehensive production service in connection with two big
                    budget productions in our studios. Furthermore, probably two German and two or three European
                    feature films will take advantage of our production service.
                    As announced, we broadened our scale in television production as well. We converted the entire House 2/
                    Tonkreuz with four soundstages into an ultra-modern studio complex. Thanks to the conversion, we created
                    a perfect site, unique in Germany, for the production of the highly successful new TV format telenovela. Two
                    of these daily formats are being produced on site by the market leader in the television series production          -1-
                    segment, Grundy-UFA GmbH, therefore guaranteeing full utilization of the soundstages until the 3rd quarter
                    of 2006. A prolongation until 2007 is very likely.
                    In order to meet the cyclicality of the film business, we further intensified our activities in the field of
                    TV advert production. The big budgets and comparably short production periods concerning shooting
                    prove these productions to be the perfect supplement to the classic film and television trade.
                    Due to the strategic co-operation with Elektrofilm reached at the beginning of the year, we could also
                    whip the division post production into good shape: with this strong and internationally linked partner
                    of the Medici group, our targets are fortification, modernization and extension of our post production
                    facilities for national and international productions.
                    I wish to express my gratitude for the excellent co-operation to my colleagues on the management
                    board, the supervisory board as well as the management and all employees of Studio Babelsberg AG.
                    Together, we worked for “Babelsberg’s dream career”, as Berliner Zeitung put it recently.
                    I especially thank all shareholders for their confidence and wish you and also us good fortune for the forth-
                    coming years.




                        Dr. Carl L. Woebcken
                        Chairman of the Board of Directors




                               - About Studio       - Management         - Consolidated Financial     - Annual Financial Statments of
        - Preambles -
                                Babelsberg -           Report -                Statement -                Studio Babelsberg AG -
      www.studiobabelsberg.com            .......................................    Studio Babelsberg




      Chairman of the Supervisory Board
      Report of the Supervisory Board


      On April 1, 2005, the supervisory board took over its duties when Studio Babelsberg GmbH transformed
      into Studio Babelsberg AG. In the remaining nine months of the fiscal year 2005, the supervisory board
      performed its duties according to law and statute. It continuously caught up on the business develop-
      ment and on the state of the Company and its subsidiaries and it controlled and advised the manage-
      ment board. At least once a month, the management board reported in writing about the general state
      and current business development of the Studio Babelsberg Group, of its different divisions as well as
      of important projects.

      No committees were appointed by the supervisory board, as it was considered little effective with only
      three supervisory board members.

      In 2005, the supervisory board held five meetings.

      In the meetings, the supervisory board discussed the Company’s business and results development as
      well as the liquidity situation. The strategic orientation of the post production division was an important
      issue on the agenda of all 2005 meetings, resulting in the co-operation agreement with Elektrofilm at
      the end of 2005/beginning of 2006. In due form and time, for the May 9, 2005 meeting, the supervisory
      board member Tuwiah Neustadt was appointed to replace Dr. Bertrand Malmendier. The such altered
      supervisory board gave its approval to the mandate agreement between Studio Babelsberg AG and the
      law office Malmendier.

      Moreover, the supervisory board chairman was briefed regularly when meeting with the chairman of the
      management board.

      The consolidated financial statements and annual financial statements according to HGB [“Handels-
      gesetzbuch”: German Commercial Code] and the management report for Group and Company for the
      fiscal year 2005, as well as the dependency report were audited by the annual auditor Ernst & Young
-2-   AG, Wirtschaftsprüfungsgesellschaft, Berlin, authorized and appointed by the supervisory board,
      according to statutory rules, and were given unrestricted audit opinion. The audit reports were made
      available to the supervisory board before its March 14, 2006 meeting. The approval of annual fiscal
      statements for the fiscal year 2005 was granted with the annual auditor being present, for him to report
      on essential audit results and give additional details in the course of the discussion.

      After final conclusion of its survey, with the decision of March 14, 2006, the supervisory board approves
      the annual fiscal statements and the management report for Studio Babelsberg AG for the fiscal year
      2005. Accordingly, the annual fiscal statements 2005 are determined in line with Sec. 172 AktG [“Aktien-
      gesetz”: German Stock Corporation Act]. The supervisory board follows the management board’s propo-
      sal regarding the use of the net result for the year. Furthermore, it approves the consolidated financial
      statements of Studio Babelsberg AG for the fiscal year 2005.

      The supervisory board thanks all contributors who took part in the positive business development with their
      effort and motivation.




        Stefan v. Moers
        Chairman of the Supervisory Board
                www.studiobabelsberg.com          .......................................   Studio Babelsberg




            Studio Babelsberg AG, Potsdam




                                                                                                                         -3-




                      - About Studio       - Management     - Consolidated Financial   - Annual Financial Statments of
- Preambles -
                       Babelsberg -           Report -            Statement -              Studio Babelsberg AG -
      www.studiobabelsberg.com                     .......................................              Studio Babelsberg




      „When I first came to Babelsberg, I saw these studios and thought, Wow! Here you will get everything you need!“
                                                                                                                         Gene Gutowski,

                                                                                                                 Co-Producer The Pianist




      About Studio Babelsberg

      Studio Babelsberg the world´s oldest major filmstudio, situated just outside Berlin and one of the
      leading full service providers for film and television production in Europe. With its comprehensive fa-
      cilities, the studio covers all phases and divisions of film production at one site and offers unique con-
      ditions to national and international film and television producers. There is a wide range of services:
      from location scouting, production supervising and a broad offer of stages, extensive set construction
      and decoration to comprehensive post production services. Due to the combination of personnel
      know-how and the constantly high technical standards, the company offers safe and at the sometime
      cost effective production conditions. Studio Babelsberg’s credo is:

      „High Quality. In Budget and in Time“

      The planned expansion of the facility, not only in terms of services available but also the extension of
      the site beyond Potsdam, further offers unique growth potential compared to other facilities
      in Europe.




-4-
                 www.studiobabelsberg.com               .......................................    Studio Babelsberg




            Business Fields

            Stages & Studios
            „Many people who looked at         Studio Babelsberg offers a unique studio situation for producers and
            the pictures could not believe     directors throughout Europe: altogether sixteen soundstages with a total
            what they saw and asked me,
                                               surface of 270,000 sq.ft. as well as a backlot of 183,000 sq.ft. are availa-
            ‚Where did you find this? Is it
            computer-generated?‘ And I         ble for film and television productions at one location. Indeed, Studio
            said, ‚No, this is real, sort of   Babelsberg AG is endued with the biggest European studio complex
            hand-made ruins, just close
                                               at a single location. There are two ultra modern studios with adjoining
            to Studio Babelsberg!“
                                               offices specifically for the production of long-term TV series, making
                          Gene Gutowski,       Studio Babelsberg the leading service provider for TV series production
                 Co-Producer The Pianist       in Germany.




            Production Service
            „I could not be more enthusi-      Babelsberg’s production service provides service throughout the
            astic of this location“
                                               whole production period as an executive producer, ranging from initial
                            Kevin Spacey,
                                               location scouting and filming to post production. Furthermore, Studio
                         „Beyond the Sea“
                                               Babelsberg Motion Pictures offers support in all financing, legal, fiscal,
                                               and accounting issues and provides complete production controlling
                                               of a project. Studio Babelsberg Motion Pictures is accepted worldwide
                                               as a service provider for film production. Films like Oscar-winning The
                                               Constant Gardener, Roman Polanski’s The Pianist, V for Vendetta,
                                               The Bourne Supremacy as well as Aeon Flux with Charlize Theron
                                               could be made thanks to the production service of Studio Babelsberg.
                                                                                                                                  -5-



            Set Construction and Decoration

            „Studio Babelsberg is
                                               The art department is an essential and unique selling point of the com-
            capable to realise large and
            outstanding films!“
                                               pany. Its creativity and craftsmanship establishes the heart of the
                                               studios, transforming the production design of film projects from initial
                                Ken Adam,
                                               ideas to the actual realization. Meanwhile, also non-film related clients,
                     Production Designer
                                               such as museums, fairs, media agencies, hotels and banks, take ad-
                                               vantage of the art department services and the expertise of the studio’s
                                               various divisions. Revenue from non-film related commissions in 2004
                                               and 2005 accounted for nearly 50 percent, providing the studios with a
                                               large degree of independence from the cyclical film business.
                                               With more than one million props, 250,000 costumes, an abundant
                                               variety of wigs and hairpieces as well as first-class workshops, Studio
                                               Babelsberg’s art department enjoys reputation worldwide.




                          - About Studio       - Management        - Consolidated Financial     - Annual Financial Statments of
- Preambles -
                           Babelsberg -           Report -               Statement -                Studio Babelsberg AG -
      www.studiobabelsberg.com                .......................................   Studio Babelsberg




      Business Fields

      Post Production
                                          Reflecting international standards, the studio also places emphasis on
      „„... That was one of the-
      se experiences, where you           an integrated concept for its post production services: In the begin-
      think,   man,    great   location   ning of February this year, Studio Babelsberg Postproduction GmbH
      they found here!‘ Later on
                                          established a strategic alliance with ELEKTROFILM Postproduction
      you realize that everything,
      absolutely      everything   was    Facilities GmbH, a company of the Medici group. This strategic coo-
      planned up to the smallest          peration gives Studio Babelsberg the possibility not only of upgrading
      details. The studio guys real-
                                          and extending the production location in Potsdam-Babelsberg, but to
      ly did an amazing job!“
                                          obtain an outstanding national and international market position by lin-
        Jude Law, Hauptdarsteller         king the sites of the Medici group in London, Los Angeles, Berlin, Stutt-
                 Enemy at the Gates
                                          gart and Cologne. Consequently, the Group has a unique full service to
                                          offer, ranging from film development, image editing and the complete
                                          sound post production to mixing, visual effects and dubbing.




      Attractive site for big budget film productions
      „For Enemy at the Gates we
      calculated    the   budget   and
                                          Having realized a number of big-budget national and international pro-
      realized that we could save         ductions, Studio Babelsberg has obtained a solid reputation as a studio
      about 20 per cent by shooting       complex with excellent services compared to its European competitors. In
      in Babelsberg instead of in
      the US.“
                                          addition to the studio’s excellent basic conditions, US majors like Warner
                                          Brothers, Paramount and Universal have been especially attracted by the
                   Roland Pellegrino,     region of Berlin and Brandenburg because of the vast possibilities for lo-
                          Co-Producer
                                          cation shooting. In addition, the majors know that accommodation costs
-6-              Enemy at the Gates
                                          for big project crews (up to 500 laborers) are considerably low compared
                                          to London, Rome or Eastern Europe due to a great many 4 and 5-star
                                          hotels in Berlin.
                  www.studiobabelsberg.com              .......................................     Studio Babelsberg




            Organization Chart




                   100%               100%             100%            100%                  49%                 50%




                   Art              Studio          Babelsberg         Studio                ZFF              Nefzer
                Department        Babelsberg           Film         Babelsberg             Zentrum          Babelsberg
                  Studio            Motion            GmbH         Postproduction             für             GmbH
                Babelsberg         Pictures                            GmbH                  Film-
                  GmbH              GmbH                                                     und
                                                                                           Fernseh-
                                                                                         produzenten
                                                                                            GmbH


                                      50%           100%                                     100%


                                                                                                                                 -7-


                               TPPS-Talent Pool         100%
                                                                 Zweite Babelsberg          ZFF
                              Production Services                   Film GmbH              Facility
                                    GmbH                                                 Management
                                                                 Dritte Babelsberg         GmbH
                                                        100%
                                                                    Film GmbH

                                                                 Vierte Babelsberg
                                                        100%
                                                                    Film GmbH

                                                                 Fünfte Babelsberg
                                                        100%
                                                                    Film GmbH




                          - About Studio       - Management       - Consolidated Financial     - Annual Financial Statments of
- Preambles -
                           Babelsberg -           Report -              Statement -                Studio Babelsberg AG -
      www.studiobabelsberg.com                .......................................     Studio Babelsberg




      Market Survey

      There are two major factors dominating the market development of production service providers
      specializing in big budget film productions: On the one hand, there is a growing number of highly
      successful commercial feature films, so-called blockbusters, currently in production. On the other
      hand, there is a migration tendency among US majors to produce outside of Hollywood. US majors
      dominate the film industry worldwide. In Europe, the average box office market share of US majors is
      67.5 percent. Blockbusters are still a growing domain, as shown in the diagram below.

      Number of films with a US box office over USD 50 million:


        60                                                                                               58
                                                                                                52 50
                                                                                          49 51
                                                                                     44
        45
                                                                      37        38
                                                         32                33
        30                                                    28 29
                                            25 23 24
                                  20 18
              14 12 12 13
        15


         0




                             04
                            02
                            03
                            90




                            01
         83




                            89




                            94
                            88




                            92




                            95
              84
                   85




                            91


                            93




                            96
                            97
                            98
                            99
                            00
                        19 7
                           86
                            8




                          20
                         20
                         20
                         19




                         20
       19




                         19




                         19
                         19




                         19




                         19
             19
                  19




                         19


                         19




                         19
                         19
                         19
                         19
                         20
                       19




      Source: European Audiovisual Observatory 2004
-8-


      While US majors tend to minimize their risks and generate scale benefits, there is an increasing
      annual output of blockbusters in sequels (series of the same origin). At present, 60 films comply with the
      specifications as laid out in the diagram above. These films are in the strategic market focus of Studio
      Babelsberg.

      Beside the migration tendency that is to the benefit of all European film studios, there is a tendency
      towards shorter production periods. While a few years ago, the average production period of block-
      buster films was more than one year, today production periods of less than one year down to eight
      months are aimed for. This leads to post production starting already during shooting of the film. As a
      consequence, film studios offering not only production service for shooting but also for post production,
      will be favored in the future. The so-called “one stop shop” suits the director perfectly in supervising the
      start of post production whilst shooting his film.
                www.studiobabelsberg.com              .......................................    Studio Babelsberg




            Environment

            In Europe, there is a number of film studios focussed on national and partly international film and televi-
            sion production. Among these studios, at their respective locations, only four are in the position to host
            big budget international feature films and to offer all the services required for the shooting of a film, due
            to their extensive sound stages and their long history of film production:

            Studio Owner                Country        Founded in                Largest sound
                                                                                 stage in qm

            Studio Babelsberg           Germany        1912                       7.335
            Pinewood Shepperton         UK             1930s                      4.300
            Cinecittà Studios           Italy          1930s                      3.000
            Barrandov                   Czech Rep.     1930s                      2.000

            Source for the non-German studios: Cazenove Media Research Pinewood Shepperton, March 31, 2004, page 20.
            No responsibility is taken for the correctness of Cazenove.




                                                                                                                                -9-
            Studio Babelsberg AG is in a good starting position regarding its core business. The Company is free
            of debts and, after having realized important international big budget productions, in the US majors’
            focus. The board of the former owner Vivendi Deutschland GmbH managed the site also with a real
            estate perspective, thus creating an excellent infrastructure with abundant reserves for premises. An
            investment of EUR 250 million led to the successful transformation from a national film studio to a
            media city of international reputation. Today, the site hosts an extensive variety of service providers,
            such as a television center with four large stages, substantial capacity for editorial and production of-
            fices, a modern center for digital high-end post production as well as parts of the Berlin-Brandenburg
            public broadcaster, rbb.

            Geographical prerequisites are equally ideal: Studio Babelsberg is in the center of Europe, perfectly
            situated to benefit from European Community initiatives for the enhancement of audio-visual
            coproductions. The booming city of Berlin is only 20 minutes away and nearby there are inexhaustible
            possibilities for fresh locations, which are for US majors an especially important factor in choosing a
            production site. Last but not least, Studio Babelsberg has access to an experienced team, providing
            their know-how during the whole production process. Highly skilled laborers committed to the company,
            combined with a huge number of freelance specialists guarantee high quality and at the same time
            flexible cost structures, thus for years conferring on Studio Babelsberg the reputation of a reliable and
            efficient service provider.

            The combination of technical development, high capital investment during the past 12 years, geographical
            advantage and production specific know-how contribute to Studio Babelsberg being one of Europe’s most
            attractive production sites for many film producers.




                       - About Studio        - Management        - Consolidated Financial     - Annual Financial Statments of
- Preambles -
                        Babelsberg -            Report -               Statement -                Studio Babelsberg AG -
       www.studiobabelsberg.com           .......................................   Studio Babelsberg




       Growth Strategy
       The initial implementation of our new strategy has already shown the growth potential of the Studio
       Babelsberg Group:



       Extension of the core business and development of new businesses

       Following the trend to modern television formats such as telenovelas, Studio Babelsberg accelerated
       the construction of a production area for long term television production. It is now possible at Studio
       Babelsberg to host two long term formats simultaneously, thus guaranteeing a continuous occupancy
       of Studio Babelsberg’s capacities. By adding large soundstages, the studio could meet the increa-
       sed requirements of US majors, thus providing the possibility to host two big budget productions at
       the same time on the site and therefore guaranteeing growth and independence of the cyclicality of
       the business. The studios’ production service and set construction divisions also benefit from these
       expansions. The improved coordination of the services offered in the post production division further
       opens up not yet used potentials in the national and international film and television market.

       In the future, Studio Babelsberg will further develop its commercial film production division. The first
       successful high budget commercials were already realized, being the ideal addition to the cyclic busi-
       ness of international film production.




-10-
                www.studiobabelsberg.com          .......................................   Studio Babelsberg




            Time frame

            1911       Construction of the first film studio by film company Deutsche Bioscop in Babelsberg

            1912       First shooting in Babelsberg

            1917       Foundation of Universum Film AG (Ufa) by the German Reich, Deutsche Bank and
                       several major companies (AEG, Hapag Lloyd), Amalgamation of the most important
                       film production and distribution companies under one umbrella after the end of the
                       war: merger of Bioscop and Decla into Decla Bioscop AG

            1921       Merger of Decla-Bioscop and Universum Film AG

            1929       Construction of the first German soundstage complex, the Tonkreuz, in Babelsberg

            1930       World premiere of „Der Blaue Engel“, produced at Studio Babelsberg

            1946       Foundation of Deutsche Film G.m.b.H. in Babelsberg, with registered offices in
                       Berlin Start of shooting for Wolfgang Staudte’s „Die Mörder sind unter uns“

            1947       Transformation in a German-Soviet public company as Deutsche Film AG (DEFA),
                       relocation of registered offices to Babelsberg and resumption of shooting activities
                       in the sound stages there

            1990       Change of name to DEFA Studio für Spielfilme GmbH, start of privatization by Trust
                       Agency (Treuhandanstalt)

            1991       Change of name to DEFA Studio Babelsberg GmbH
                                                                                                                          -11-
            1992       Sale to Compagnie Immobilière Phénix Deutschland GmbH (today Vivendi
                       Deutschland GmbH), a subsidiary to Compagnie Générale des Eaux (today
                       Vivendi Universal S.A.)

            1994       Change of name to Studio Babelsberg GmbH

            2004       Takeover by Filmbetriebe Berlin Brandenburg GmbH (FBB), owned by Dr. Carl L. Woebcken
                       and Christoph Fisser, and RMS Unternehmens-Service GmbH


            2005       Transformation into an Aktiengesellschaft (stock corporation) and listing on Open Market;
                       Acquisition of the „film processing” business of TaurusMedia Technik GmbH


            2006       Studio Babelsberg AG forms a strategic alliance with ELEKTROFILM Postproduction
                       Facilities GmbH




                      - About Studio       - Management      - Consolidated Financial   - Annual Financial Statments of
- Preambles -
                       Babelsberg -           Report -             Statement -              Studio Babelsberg AG -
       www.studiobabelsberg.com                   .......................................       Studio Babelsberg




       The Studio Babelsberg Share

       After a long recovery of the German stock market, the stock exchange was again very successful in
       2005. Not only the Blue Chips from the DAX and the MDAX, but also the second-line stocks performed
       above-average in the course of the year. After a genuine second-line stocks boom in the first term, this
       area dropped slightly in the second term.

       In comparison, the Prime Media Performance index, relevant for the media industry, could not compete
       with the charts of the S-DAX and Studio Babelsberg’s share performance. In the same period from April
       29, 2005 until the end of the year, the index lost 10.36% or 17.79 points, finishing at 153.90 points. The
       S-DAX however gained 22.73% or 786.89 points in the same period.

       Since its opening on April 29, 2005 on the floor in Frankfurt, Studio Babelsberg shares performed much
       better than comparable indexes by the end of the year. The shares opened on the first trading day in
       Frankfurt with a stock exchange price of EUR 1.65 and closed at the end of the year with EUR 2.83,
       thus giving a performance of 71.51%. In the Xetra trade, the share closed even slightly higher than in
       Frankfurt with a value of EUR 3.00 by the end of the year. This corresponds to a yearly performance
       of 81.81%. After the October 14, 2005 boost to EUR 3.45, shares again lost ground by the end of the
       year.

       The shares have been very liquid since commencement of trade, trading about 18,000 shares daily in the
       Xetra trade. Due to enhanced press activities, the volume of trade increased in October 2005. In the first
       two months of 2006, the trade activities again increased conspicuously with an average of 19,977 shares
       daily.




-12-

       200,00%
       180,00%
       160,00%

       140,00%
       120,00%
       100,00%
       80,00%
              29.04.05




                                 03.06.05




                                             08.07.05




                                                                         16.09.05




                                                                                     21.10.05




                                                                                                      25.11.05




                                                                                                                 30.12.05




                                                                                                                            03.02.06



                                                                                                                                       28.02.06
                                                            12.08.05




                         Studio Babelsberg
                         Prime Media Performance
                         SDAX Performance
                www.studiobabelsberg.com          .......................................   Studio Babelsberg




            Studio Babelsberg AG, Potsdam
            Management Report




                                                                                                                         -13-




                      - About Studio       - Management     - Consolidated Financial   - Annual Financial Statments of
- Preambles -
                       Babelsberg -           Report -            Statement -              Studio Babelsberg AG -
       www.studiobabelsberg.com            .......................................    Studio Babelsberg




       Presentation of the Business Development

       1.   Business Field

       Studio Babelsberg, situated in Potsdam-Babelsberg, is the oldest large soundstage film studio world-
       wide and one of the leading full-service-providers for film and television production in Europe. With its
       comprehensive range, the studio covers all phases and areas of film production on one site, therefore
       offering national and international producers very good conditions. The scale of services reaches from
       initial location scouting, production organization and production supervision to a vast availability of
       stages, from extensive set construction and decoration possibilities to comprehensive post production
       facilities. Due to the know-how of personnel connected to the studio and constantly high technical stan-
       dards, the Company offers safe and cost-effective production conditions.

       In the future, an expansion of the service specter is planned not only towards a broader range of offers,
       but also towards an extension of the site beyond Potsdam in other parts of Germany and eventually
       in primarily more cost-saving countries in Eastern Europe. This aim could be achieved especially with
       investment purchases. For this purpose, at the shareholders’ meeting 2006, an approval is requested
       for expansion of the corporate subject towards investment management.


       2.   Major Changes

       With the partners’ resolution on March 4, 2005 and by transformation of revenue reserves, Studio
       Babelsberg GmbH was transformed into an Aktiengesellschaft (stock corporation) with a common stock
       of EUR 15M. The listing at the Frankfurt stock exchange open market took place on April 29, 2005.

       In line with the authorized capital of EUR 7,500,000, with the management board’s resolution of
       October 13, 2005, approved by the supervisory board, the common stock was increased by 1,499,990
       shares at par of EUR 1 each. The issuance price was EUR 3 per share, resulting in new funds for the
-14-   Company of almost EUR 4.5M. The entry of the capital increase in the register of commerce was made
       on December 7, 2005.

       With effect of July 1, 2005, the divisions sound department and laboratory with a combined number of
       approximately 30 employees were transferred into the subsidiary Studio Fünf Gesellschaft für Fernseh-
       produktion und –service. At this moment, this company was mainly inactive and the company’s name
       was changed into Studio Babelsberg Postproduction GmbH.

       In order to strengthen Studio Babelsberg AG’s post production segment as a whole, another subsidiary
       (TMT Studio Babelsberg Postproduction GmbH, Munich-Unterföhring), was acquired in form of a shell
       company purchase.

       On November 1, 2005, TMT SBPP GmbH purchased the audio and video film processing department
       of TaurusMedia Technik GmbH, Unterföhring, together with its entire technical fixed assets. The selling
       company had once been the central post production entity of the Kirch group.

       At the end of 2005, id est in the first six weeks of the year 2006, after long lasting negotiations, a coo-
       peration agreement was signed with the post production department of ELEKTROFILM Postproduction
       Facilities GmbH, Berlin, a Medici group company. Core of the agreement is a strategic co-operation with
       the mutual aim of strengthening, modernizing and expanding the post production site Potsdam-Babels-
       berg, by networking with Medici group’s other sites in Stuttgart, Los Angeles, Berlin and Cologne.
                 www.studiobabelsberg.com           .......................................    Studio Babelsberg




            Presentation of the Business Development

            As of December 31, 2005, EuroArts, also a company of the Medici group, took over TMT Studio Babels-
            berg Postproduction GmbH in Munich-Unterföhring. The operational responsibility for the entire post
            production activity is with ELEKTROFILM.


            3.   Market Position

            By transferring the post production management to the Medici group, in the future Studio Babelsberg
            AG can focus more effectively on its core business, the production service during shooting. Excluding
            the four stages in Medienhaus, leased long term and operated by Studio Berlin, Studio Babelsberg AG
            has 16 soundstages with a combined soundstage area of more than 270,000 sq.ft. at its disposal, the-
            refore providing the largest studio in Germany. Compared to other film studios in the world with similar
            technical standards, Studio Babelsberg AG takes up a leading position.

            For the enhancement of the facilities, in 2005 almost EUR 2M were invested in the expansion, id est
            conversion of House 2/Tonkreuz’s four stages and the adjacent former canteen building.

            After the conversion, this area as well as both soundstages of House 3 could be rented long term for
            television series production (telenovelas), therefore leaving almost no available soundstages for fea-
            ture film production on the site. Consequently, Studio Babelsberg AG rented on a long term basis two
            factory halls with a total area of 158,285 sq.ft. on an industrial site close by. Meanwhile, these sounds-
            tages have been converted for more than EUR 1M in order to meet US majors’ high standards. For this
            purpose, insulation material imported from the US was fitted to walls and ceilings of the soundstages.

            For Studio Babelsberg AG’s market position, the following factors turn out to be essential for the order
            situation:

            As Studio Babelsberg AG has no bank liabilities, no borrowing costs need to be earned. This is a                  -15-
            major advantage to competitors especially in Eastern European countries. However, these pro-
            viders normally have lower wages, so preferably highly efficient production structures make the
            difference. Apart from the actual direct costs, often factors that cannot be influenced play a role
            in the decision to shoot an international big budget feature film (EUR 20M – 150M) on site, such
            as tax incentives for production costs spent in the respective countries, but also general location
            advantages (hotel costs, boomtown Berlin, variety of locations).

            From today’s perspective, in 2006 presumably two feature films from US majors will be produced enti-
            rely or in part in Babelsberg.




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       www.studiobabelsberg.com           .......................................   Studio Babelsberg




       Presentation of the Business Development

       4.   Investment

       In 2005, Studio Babelsberg AG focussed its investment in the following areas:

                                                                                                      2005
                                                                                                    EUR k
        Conversion of the four stages in House 2/Tonkreuz and the
        adjacent former casino (canteen)                                                             1,978
        Conversion into soundstages of two factory halls rented in
        March 2005 (not yet accomplished)                                                            1,156
        Investment in the sound department (the entire fixtures in this
        area were meanwhile sold at book value to a company of the
        Medici group, effective as of January 1, 2006)                                                 329
        Art department (Art Department Studio Babelsberg GmbH)                                         329
        Others                                                                                         208
        Studio Babelsberg AG (total)                                                                 4,000

       It is abstained from a comparison with the entire Group, as the subsidiary companies have a small
       investment volume.


       5.   Employees

       As of December 31, 2005, Studio Babelsberg AG and its subsidiaries had the following headcount:
-16-
                                                                          Dec. 31, 2005               Plus
                                                                                     Total       Aprentices
        Studio Babelsberg AG                                                            50
        - studio operations                                                             10
        - costume/props department                                                      19
        - dubbing department                                                             3
        - administration                                                                18
        Studio Babelsberg Motion Pictures GmbH                                           7
        Art Department Studio Babelsberg GmbH                                           73               18
        Studio Babelsberg Postproduction GmbH                                           29                6
        Studio Babelsberg Group (total)                                                159               24

       The figures cited above do not include the temporary project-related employment contracts.

       It is abstained from a comparison with the subsidiaries’ figures of the previous year, as the planned
       and effected restructuring shifted a number of employees.

       The entire group’s decline compared to 2004, from 169 to 159 employees, is based essentially on more
       effective workflows in the administration and the restructuring in the sound department.

       Two employees have, beyond a basic monthly salary, further income according to results.
                 www.studiobabelsberg.com           .......................................   Studio Babelsberg




            Presentation of the Assets, Finance and
            Income Situation

            1.   Balance Sheet

            Compared to Studio Babelsberg AG’s first-time consolidated financial statements as of December 31,
            2004 with a balance sheet total of EUR 89.1M, the Group had a declining balance sheet total of EUR
            54.2M in consolidated financial statements on December 31, 2005.

            The decline is due basically to tax liabilities and interest thereof amounting to EUR 17.5M that have
            been paid by the former partner.

            By the end of 2005, Studio Babelsberg AG and its subsidiaries disposed of cash and cash equivalents
            (including securities at short term availability) of EUR 13,139 k (AG EUR 10,442 k), which will increase
            for a short time in the beginning of 2006 due to funds amounting to EUR 3M deriving of the sale of TMT
            Studio Babelsberg Postproduction GmbH. Out of these cash and cash equivalents, at present EUR
            3,753 k are pledged to Investitionsbank des Landes Brandenburg. However, this pledge will be redu-
            ced by investments carried out in Potsdam in 2005 amounting to EUR 4,000 k. Furthermore, there is a
            pledge for coverage of a lease amounting to EUR 195 k that will also be returned in the first term 2006.
            Studio Babelsberg AG as well as the entire group have no bank liabilities and could finance the 2005
            investments of EUR 4,000 k (AG) out of its own resources.

            By December 31, 2005, the fixed assets of Studio Babelsberg AG as well as of the entire Group
            consisted essentially of land (EUR 14,633 k), buildings (EUR 4,801 k) as well as of technical
            equipment, production facilities, and furniture and fixtures (EUR 4,364 k). The assets under con-
            struction (EUR 1,288 k) are almost completely the stage areas rented recently, the conversion of
            which will be finished in the course of February 2006. Studio Babelsberg AG’s subsidiary compa-
            nies mainly do not dispose of own fixed assets. The other assets (group EUR 8,986 k, AG EUR
            7,865 k) consist of outstanding loans as well as of the payment due to the sale of TMT Studio
                                                                                                                            -17-
            Babelsberg Postproduction GmbH amounting to a total of EUR 6,046 k, out of which EUR 3,000
            k are to be returned for a short time by mid-March 2006. Regarding the remainder, a redemption
            by December 31, 2008 is planned, however the repayment of a part of it of up to EUR 2,000 k will
            depend on the result development of TMT Studio Babelsberg Postproduction GmbH in the years
            2007 and 2008. From today’s planning and in the management board’s opinion, there is no doubt
            about an entire redemption of the loan balanced to the key date.




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       Presentation of the Assets, Finance and
       Income Situation

       2.   Income Statement

       The range of companies included in the 2005 consolidation has changed considerably compared
       to 2004, so that it is abstained from a comparison of the 2005 figures with those of the previous
       year. In 2005, the total turnover, with disregard of internal revenues, amounted to EUR 43,214 k.

       The net income of the Group amounting to EUR 2,649 k comprises as follows:

                                                                                        Group            AG
                                                                                       EUR k       EUR k
        Operating loss from ongoing activities                                          -2,093
        Thereof amortization and depreciation of goodwill                                -555
        Dissolution of negative difference                                                    86
        Operating loss from activities in 2005                                          -1,624


        Operating loss from ongoing activities                                          -2,093     -1,297
        Extraordinary result                                                            5,091       4,148
        Net income before taxes                                                         2,998       2,851
        Taxes                                                                            -349        -348
        Net income after taxes                                                          2,649       2,503

       The extraordinary result comprises as follows:
-18-                                                                                   Group       AG
                                                                                       EUR k       EUR k
        Sale of TMT Studio Babelsberg Postproduction GmbH (net of costs and
        write-down of receivables connected thereto)                                   1,911       1,834
        Dissolution of the accruals for restructuring costs mainly disclosed for
        re-organization of the post production department (laboratory, sound
        department)                                                                    2,467       2,467
        Costs in connection with initial public offer and the capital increase         -275        -275
        Other extraordinary income/expenses, balanced                                  988         122
                                                                                       5,091       4,148
                www.studiobabelsberg.com             .......................................    Studio Babelsberg




            Essential Opportunities and Risks for the Future
            Development

            At publishing time of this management report, there were no signs that Studio Babelsberg AG’s
            production service would be in less demand during shooting due to changes in the production
            market.

            On the contrary, the utilization of the soundstages rented for television series production is secured by
            signed contracts until the 3rd quarter of 2006. On the basis of oral agreements, a prolongation until
            2007 seems likely. From today’s perspective, it is unpredictable whether audience ratings for television
            formats, such as telenovelas, produced on a long-term basis in soundstages and therefore cost-effec-
            tive, will remain as high as today. However, trends in recent years have shown that television broad-
            casters are increasingly forging links with their audience with daily formats. Therefore it is expected that
            after expiration, the current contracts for two soundstage complexes will be renewed by Grundy-UFA
            GmbH, which is producing two telenovelas (“Julia” and “Tessa”) for public broadcaster ZDF.

            Studio Babelsberg AG enjoys an outstanding position in Germany regarding production service for big-
            budget international feature films, in both production organization and the range of soundstage area
            and set design.

            Yet further enhancement of these services and the therefore the studio’s resulting development also depend
            on decisions by US majors (such as Paramount, Warner Bros., Disney, New Line) to produce their films in
            Germany. Apart from suitable locations (original locations, soundstages), cost issues are of essential im-
            portance. Here, Studio Babelsberg AG has to compensate cost disadvantages with quality and efficiency,
            especially when competing with Eastern European providers.

            Especially tax incentives play a vital role when it comes to deciding where a production has its ser-
            vice done. In the coalition agreement between the CDU/CSU and SPD parties, which forms the basis
            of the ruling government’s Grand Coalition in Berlin, the federal government agreed that conditions
            comparable to those in the UK and other EC countries should be implemented for the enhancement of
            private capital investment in films made in Germany. The deadline for this implementation is already               -19-
            June 30, 2006. A much stronger competitive position in Germany would result from the implementation
            of the new tax initiatives, which were personally introduced by Culture Minister Bernd Neumann and
            are presently in discussion. Such an initiative would result in a decrease of production costs in Germany.
            Should this regulation, especially aimed at the German film industry, contrary to expectations, not
            be introduced, the competitive position towards other production service providers in Europe would
            further deteriorate. Should less or no big budget films of more than USD 50M each be produced on
            Studio Babelsberg AG’s site, other orders would have to be accepted, resulting in an inferior utilization
            and thus inferior margins.

            Due to the relatively high personnel costs compared to the total costs, and due to the very long duration
            of employment, Studio Babelsberg AG and Art Department Studio Babelsberg GmbH can react to order
            variation especially in the art department sector only with a certain delay. Therefore, the enhancement
            of non-film related activities (like construction for trade fairs and events) is pushed forward. In the past
            two years, these activities have already contributed almost half of Art Department Studio Babelsberg
            GmbH’s total turnover. Here, ADSB is increasingly attempting to realize its own projects, designs and
            concepts, as these allow not only a better utilization of the existing resources, but also higher margins.
            The future volume and the possibility to expand these business activities depend also ultimately on
            public financing incentives, the general economic development and of course on the competitiveness
            in price and creative potential.

            At present, there are negotiations with US majors for the production service of two big budget feature
            films on site in Potsdam-Babelsberg. Furthermore, it is expected that two German and two or three
            European feature film projects will be produced at the studio or with Studio Babelsberg’s participation.




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       Essential Opportunities and Risks for the Future
       Development

       The service provided for these projects by Studio Babelsberg AG and its subsidiaries would lead to an
       even better utilization of all divisions (especially studio operations and art department) compared to
       2005. Moreover, the transfer of Studio Babelsberg Postproductions GmbH into a co-operation agree-
       ment with ELEKTROFILM will lead to a better utilization of these facilities, resulting in no more losses
       in this division.

       The restructuring measures implemented since the majority take-over of Studio Babelsberg AG by a
       company controlled by the current management board’s members, Dr. Carl Woebcken and Christoph
       Fisser, will show their effect over an entire fiscal year for the first time in 2006.




-20-
                www.studiobabelsberg.com           .......................................      Studio Babelsberg




            Incidents after the End of the Fiscal year

            At the moment of preparing this management report, the owner Filmpark Babelsberg GmbH & Co. KG
            gave notice of cancellation for the buildings used by the props and costume storage per December
            31, 2006. Negotiations regarding a prolongation of the lease contracts have not yet been closed suc-
            cessfully. From an economic and momentary perspective, a relocation of the entire storage in other
            buildings would make little sense.




                                                                                                                            -21-

            Conclusion according to Sec. 312 (3) AktG
            [“Aktiengesetz”: German Stock Corporation Act]

            Our group Studio Babelsberg AG received at each legal transaction with affiliated companies cited in
            this report an equivalent consideration and was not discriminated by measures refrained or cited in this
            report. This conclusion is based on the circumstances that we knew of at the moment of the measures
            under obligation to report.


            Potsdam, February 2006
            Studio Babelsberg AG




            Dr. Carl L. Woebcken               Christoph Fisser              Marius Schwarz
              Chairman of the                Deputy Chairman of               Chief Financial
            Management Board               the Management Board                  Officer




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                  Studio Babelsberg AG, Potsdam

                  Financial Statements




-22-
                       www.studiobabelsberg.com               .......................................         Studio Babelsberg




            Consolidated Blance Sheet

            Studio Babelsberg AG, Potsdam
            Consolidated Balance Sheet as of December 31, 2005

                ASSETS                                                                                                 Dec.31, 2004
                                                                                                     EUR k    EUR k          EUR k
                A.      FIXED ASSETS


                I.      Intangible assets
                1.      Franchises, industrial rights and similar rights and assets and licenses
                        in such rights and assets                                                       68                      89
                2.      Goodwill                                                                      1,664                  2,255

                                                                                                               1,732         2,344
                II.     Property, plant and equipment
                1.      Land, land rights and buildings including buildings on third-party land      19,434                 15,816
                2.      Technical equipment and machines                                              4,116                  3,874
                3.      Other equipment, furniture and fixtures                                        248                     264
                4.      Payments on account and assets under construction                             1,288                    161

                                                                                                              25,086        20,115
                III.    Financial assets
                1.      Equity investments in associated companies                                     331                     319
                2.      Other loans                                                                      0                  10,359

                                                                                                                331         10,678
                                                                                                              27,149        33,137
                B.      CURRENT ASSETS                                                                                                     -23-


                I.      Properties intended for sale                                                            467          2,926
                II.     Inventories
                1.      Raw materials, consumables and supplies                                         21                      24
                2.      Work in process                                                                391                     935
                3.      Payments on account                                                             39                      92

                                                                                                                451          1,051
                III.    Receivables and other assets
                1.      Trade receivables                                                             3,960                 10,837
                2.      Receivables from companies in which equity investments are held                  4                      14
                3.      Other assets                                                                  8,987                 28,613

                                                                                                              12,951        39,464
                IV.     Securities
                        Other securities                                                                       3,085              0
                V.      Cash on hand and bank balances                                                        10,054        12,492

                                                                                                              27,008        55,933


                C.      PREPAID EXPENSES                                                                          3             17


                                                                                                              54,160        89,087




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       Consolidated Blance Sheet

       Studio Babelsberg AG, Potsdam
       Consolidated Balance Sheet as of December 31, 2005

        EQUITY AND LIABILITIES                                                                                Dec.31, 2004
                                                                                          EUR k      EUR k          EUR k
        A.     EQUITY


        I.     Subscribed capital                                                                    16,500           102


        II.    Capital reserve                                                                        6,138         3,138


        III.   Revenue reserves
        1.     Legal reserve                                                               9,256                        0
        2.     Other revenue reserves                                                            0                 24,153
                                                                                                      9,256
        IV.    Difference from capital consolidation                                                     0            123


        V.     Retained earnings                                                                      6,854         4,205
               thereof profit brought forward from the prior year: EUR 4,205 k (prior
               year: EUR 4,282 k)
                                                                                                     38,748        31,721


        B.     SPECIAL ITEM FOR INVESTMENT SUBSIDIES                                                     0            162
-24-
        C.     ACCRUALS
        1.     Tax accruals                                                                    333                 13,975
        2.     Other accruals                                                              8,285                   15,794
                                                                                                      8,618        29,769
        D.     LIABILITIES
        1.     Payments received on account of orders                                      1,857                   13,118
        2.     Trade payables                                                                  811                   2,211
        3.     Liabilities to affiliated companies                                         1,155                    1,863
        4.     Liabilities to companies in which equity investments are held                     1                      0
        5.     Other liabilities                                                           2,830                   10,102
               thereof for taxes: EUR 1,248 k (prior year: EUR 4,614 k)
               thereof related to social security: EUR 262 k (prior year: EUR 612 k)
                                                                                                      6,654        27,294


        E.     DEFERRED INCOME                                                                         140            141
                                                                                                     54,160        89,087
                      www.studiobabelsberg.com               .......................................      Studio Babelsberg




            Consolidated Income Statement

            Studio Babelsberg AG, Potsdam
            Consolidated Income Statement for Fiscal Year 2005

                                                                                                                            2004
                                                                                                       EUR k     EUR k    EUR k
                1.     Sales                                                                           43,214             17,265
                2.     Increase or decrease in finished goods and work in process                        -510                 83
                3.     Own work capitalized                                                               762                   0
                4.     Other operating income                                                           2,347              1,597
                                                                                                                 45,813   18,945
                5.     Cost of materials
                       a) Cost of raw materials, consumables and supplies and of purchased
                          merchandise                                                                  15,575              2,567
                       b) Cost of purchased services                                                   17,154              5,849
                6.     Personnel expenses
                       a) Wages and salaries                                                            7,157              7,259
                       b) Social security contributions                                                 1,440              1,497
                7.     Amortization and depreciation
                       a) of goodwill                                                                     555                   0
                       b) on intangible assets and property, plant and equipment                        1,781              1,534
                8.     Other operating expenses                                                         4,602              6,381
                                                                                                                 48,264   25,087
                9.     Results from equity investments in associated companies                               0                60
                10.    Other interest and similar income thereof from affiliated companies: EUR 0 k                                      -25-
                       (prior year: EUR 813 k)                                                            517              1,082
                11.    Write-down of securities classified as current assets                               71                   0
                12.    Expenses from losses absorbed from associated companies                               1                  0
                13.    Interest and similar expenses thereof to affiliated companies: EUR 0 k (prior       87                131
                       year: EUR 0 k)
                                                                                                                   358      1,011
                14.    Result from ordinary activities                                                           -2,093    -5,131
                15.    Extraordinary income                                                             5,961              4,276
                16.    Extraordinary expenses                                                             870             11,418


                17.    Extraordinary result                                                                       5,091    -7,142


                18.    Income taxes                                                                        94              1,634
                19.    Other taxes                                                                        255               -169
                                                                                                                   349     1,465


                20.    Net income / loss of the Group for the year before loss absorption                         2,649 -13,738


                21     Income from loss absorption                                                                    0   13,661

                22.    Net income / loss of the Group for the year after loss absorption                          2,649       -77
                23.    Profit carryforward from prior year                                                        4,205    4,282
                24.    Retained earnings                                                                          6,854    4,205




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                                                                                   -26-
Statement of Changes in Fixed Assets of the Group 2005
                                                                 Acquisition and production cost                                Accumulated write-downs            Net book values
                                               Jan. 1,     Changes     Additions    Disposals      Reclassifi-    Dec.    Jan. 1, Additions   Disposals    Dec.     Dec.     Dec.
                                                2005          in the                                 cations        31,    2005                              31,      31,      31,
                                                         consolida-                                               2005                                     2005     2005     2004
                                                                                                                                                                                     www.studiobabelsberg.com




                                                          ted group
                                               EUR k         EUR k       EUR k            EUR k        EUR k     EUR k    EUR k     EUR k        EUR k    EUR k    EUR k    EUR k
I.    Intangible assets
1.    Franchises, industrial rights and
      similar rights and assets as well as
      licenses in such rights and assets        6.859                        36              26                   6,869    6,770        43          12     6,801       68       89
2.    Goodwill                                  2,255           -36                                               2,219        0       555          12      555     1,664    2,255
                                                9,114           -36          36              26             0     9,088    6770        598                 7,356    1,732    2,344
II.   Property, plant and equipment
1.    Land, land rights and buildings inclu-
      ding buildings on third-party land       50.894                     4,114               0             0    55,008   35,078       496           0    35,574   19,434   15,816
2.    Technical equipment and machines         16.517                     4,489            3,823          152    17,335   12,643     1,137         561    13,219    4,116    3,874
3.    Other equipment, furniture and fix-
      tures                                     3.379                       180             200             9     3,368    3,115       105         100     3,120      248     264
4.    Payments on account and assets
      under construction                          161                     1,288               0          -161     1,288        0         0           0        0     1,288     161
                                               70.951             0      10,071            4,023            0    76,999   50,836     1,738         661    51,913   25,086   20,115
                                                                                                                                                                                     .......................................




III. Financial assets
1.    Shares in affiliated companies                0                        28              28                      0         0                              0         0        0
2.    Equity investments in associated
      companies                                   319                        12                                    331         0                              0       331     319
3.    Other loans                              10,359                                     10,359                     0         0                              0         0   10,359


                                               10.678             0          40           10,387            0      331         0         0           0        0       331   10,678
                                                                                                                                                                                     Studio Babelsberg




                                               90,743           -36      10,147           14,436            0    86,418   57,606     2,336         673    59,269   27,149   33,137
                   www.studiobabelsberg.com              .......................................        Studio Babelsberg




            Statement of Changes in Group Equity

            Studio Babelsberg AG, Potsdam
            Statement of Changes in Group Equity for Fiscal Year 2005

                                                                 Subscribed     Capital    Group         Difference     Group
                                                                     capital   reserve     equity              from     equity
                                                                                          earned             capital
                                                                                                       consolidation
                                                                     EUR k      EUR k      EUR k              EUR k      EUR k
                December 31, 2003                                       102          0    76,935                   0    77,037


                Profit distribution                                                       -48,500                      -48,500
                Contribution to the capital reserve                             3,138                                    3,138
                Changes in consolidated group                                                                   123        123
                                                                          0     3,138     -48,500               123    -45,239
                Net loss of the Group for the year                                             -77                          -77
                Total recognized results for the Group                    0          0         -77                 0        -77


                December 31, 2004                                       102     3,138     28,358                123     31,721
                Cash contribution/share issue                         1,501     3,000                                    4,501
                Capital increase from company funds                  14,897               -14,897                             0
                Other changes                                                                                   -123       -123
                                                                     16,398     3,000     -14,897               -123     4,378
                Net income of the Group for the year                                       2,649                         2,649
                Total recognized results for the Group                    0          0     2,649                   0     2,649
                December 31, 2005                                    16,500     6,138     16,110                   0    38,748
                                                                                                                                       -27-




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       Consolidated Cash Flow Statement

       Studio Babelsberg AG, Potsdam
       Consolidated Cash Flow Statement 2005

                                                                                                            2004
                                                                                                  EUR k    EUR k
        1.   Cash flow from operating activities
             Net income/loss (before loss transfer)                                               2,649    13,738
             Write-downs (+)/write-ups (–) on fixed assets                                        2,372     1,532
             Increase (+)/decrease (–) in accruals                                               -21,077   10,715
             Decrease in the special item for investment subsidies                                 -162      -274
             Other non-cash expenses (+)/income (–)                                                  -50         0
             Roll forward of the carrying value of associated companies                               0         -10
             Gain (–)/loss (+) on disposals of fixed assets                                          14          1
             Increase (–)/decrease (+) in inventories, trade receivables and other assets        26,317     3,946
             Increase (+)/decrease (–) in trade payables and other liabilities                    -5,973     677
             Cash flow from operating activities                                                  4,090     2,849


        2.   Cash flow from investing activities
             Cash received (+) from disposals of property, plant and equipment                        0          3
             Cash paid (–) for investments in property, plant and equipment                       -7,612     -586
             Cash received (+) from disposals of intangible assets                                    0          2
             Cash paid (–) for investments in intangible assets                                      -36        -37
             Cash paid (–) for investments in financial assets                                       -12         0
-28-         Cash paid (–) for the acquisition of consolidated companies and other business
             units                                                                                   -28     -684
             Cash flow from investing activities                                                  -7,688   -1,302


        3.   Cash flow from financing activities
             Cash received (+) from equity contributions                                          4,501     3,139
             Cash flow from financing activities                                                  4,501     3,139


        4.   Cash and cash equivalents at the end of the period
             Change in cash and cash equivalents (subtotal of 1 to 3)                               903     4,686
             Changes in cash and cash equivalents due to changes in the consolidated               -256     3,612
             group
             Cash and cash equivalents at the beginning of the period                            12,492     4,194
             Cash and cash equivalents at the end of the period                                  13,139    12,492


        5.   Composition of cash and cash equivalents
             Cash and cash equivalents                                                           10,054    12,492
             Securities                                                                           3,085          0
             Cash and cash equivalents at the end of the period                                  13,139    12,492
                  www.studiobabelsberg.com          .......................................   Studio Babelsberg




            Notes to the Consolidated Financial Statements for
            Fiscal Year 2005

            General

            These consolidated financial statements have been prepared in accordance with Secs. 290 et seq.
            HGB [“Handelsgesetzbuch”: German Commercial Code]. The consolidated income statement has been
            prepared using the cost-summary method.



            Consolidated Group

            Full Consolidation

            The consolidated financial statements include Studio Babelsberg AG and the following companies in which
            Studio Babelsberg AG holds the majority of the voting rights, either directly or indirectly:

                Company, location                                                           Share      held via
                1. Art Department Studio Babelsberg GmbH, Potsdam                           100%
                2. Studio Babelsberg Motion Pictures GmbH, Potsdam                          100%
                3. Babelsberg Film GmbH, Potsdam                                            100%
                4. Zweite Babelsberg Film GmbH, Potsdam                                     100%              3.
                5. Dritte Babelsberg Film GmbH, Potsdam                                     100%              3.
                6. Vierte Babelsberg Film GmbH, Potsdam                                     100%              3.
                7. Fünfte Babelsberg Film GmbH, Potsdam                                     100%              3.
                8. Studio Babelsberg Postproduction GmbH, Potsdam                           100%
                                                                                                                             -29-
                9. TMT Studio Babelsberg Postproduction GmbH, Potsdam                       100%

            With the exception of ADSB GmbH, Fünfte Babelsberg Film GmbH and TMT GmbH, all subsidiaries
            were consolidated for the first time as of December 31, 2004. The group of fully consolidated compa-
            nies is thus identical with the companies included in the consolidated financial statements in the prior
            year. There were changes resulting from the first-time consolidation of Fünfte Babelsberg Film GmbH
            as well as of TMT GmbH in the fiscal year 2005.

            In the fiscal year 2004, Babelsberg Film GmbH founded Fünfte Babelsberg Film GmbH. The first-time
            inclusion was carried out as of January 1, 2005. The capital stock of the Company is EUR 25 k.

            Studio Babelsberg AG purchased all shares in TMT GmbH (formerly: heptus 66. GmbH, Munich) per
            share purchase agreement dated September 20, 2005. The first-time inclusion was performed on the
            date of acquisition of the equity investment. The acquisition costs of EUR 28 k were equal to the portion
            of equity of the Company at the time of the purchase of the shares.

            Having taken over the capital shares of the only limited partner of the company, Studio Babelsberg
            AG, the general partner SBPP GmbH merged TVP KG with SBPP GmbH.

            Per agreement dated December 30, 2005 / February 7, 2006, effective December 31, 2005, all shares
            in TMT GmbH were sold to EuroArts Medien GmbH, Stuttgart, for a price of EUR 2,000 k; payment of
            the purchase price will be effected in 2006. TMT GmbH left the consolidated group as of December 31,
            2005, and was deconsolidated.




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       Notes to the Consolidated Financial Statements for
       Fiscal Year 2005

       Equity Accounting

       Investments in associated companies were included at equity using the book value method. This
       concerns the following companies:

        Company, location                                                                                     share
        Nefzer Babelsberg GmbH, Potsdam                                                                        50%
        TPPS-Talent Pool Production Services GmbH, Potsdam                                                     50%
        Zentrum für Film- und Fernsehproduzenten GmbH, Potsdam                                                 49%

       SBMP GmbH purchased 50% of shares in TPPS GmbH (formerly: aptus 122. GmbH, Munich) per
       share purchase agreement dated November 2, 2005. The first-time inclusion was performed as of the
       day of the acquisition of the equity investment. The acquisition costs of EUR 13 k were equal to the
       portion of equity of the Company at the time of the purchase of the shares.


       Accounting and Valuation Principles

       The financial statements of the companies included in the consolidated financial statements of the
       parent company have been prepared in accordance with uniform accounting and valuation princip-
       les.

       The realization and imparity principles were observed; assets are not valued higher than historical
       cost.
-30-
       Intangible assets including goodwill from the first-time consolidation of shares as well as property, plant and
       equipment and financial assets were capitalized at acquisition or production cost less amortization and
       depreciation. Scheduled amortization and depreciation is calculated using the straight-line method.
       Low-value assets were fully expensed in the year of acquisition. Goodwill is amortized over a period of four
       years.

       The additions to equity investments in associated companies include the respective share in profits
       of these companies in addition to shares acquired in the period. Disposals include the Group’s share of
       net losses for the year and shares in dividends.

       Inventories were recorded at the lower of cost or market. Production costs include direct costs plus an
       appropriate portion of overheads.

       Receivables and other assets were stated at their nominal value less allowances for specific risks
       and for the general credit risk.

       Securities classified as current assets were valued at the lower of cost or market.

       The credit difference resulting from capital consolidation was assigned to equity. The difference is rever-
       sed upon occurrence of the expected unfavorable development of the future earnings situation or when
       expected expenses are incurred or if it is certain on the cut-off date that it is equivalent to a realized pro-
       fit.

       All identifiable risks were considered in the calculation of accruals.

       Liabilities were recorded at the amount repayable.
                    www.studiobabelsberg.com                  .......................................           Studio Babelsberg




            Notes to the Consolidated Financial Statements for
            Fiscal Year 2005

            Consolidation Principles

            Capital consolidation for companies or purchased capital shares consolidated for the first time was per-
            formed using the book value method at the time of the first-time consolidation.

            Where possible, the amounts capitalized were allocated to the related asset items; the remainder was
            disclosed as goodwill. Credit differences from capital consolidation were disclosed under equity.

            Intercompany receivables and liabilities, sales, income and expenses and any intercompany profits and
            losses were eliminated.


            Notes to the Consolidated Balance Sheet

            Fixed Assets

            The development of the individual fixed asset items, including depreciation and amortization for the
            fiscal year, is shown in the statement of changes in fixed assets.

            The increase in property, plant and equipment is essentially due to investments made in the expansion
            and the technical equipment of House 2/Tonkreuz (EUR 1,978 k) as well as the conversion of the rented
            factory halls (EUR 1,156 k). Furthermore, two land parcels originally intended for sale were reclassified
            as fixed assets (EUR 2,459 k).


            Information on Shareholdings                                                                                                               -31-

            As of December 31, 2005, Studio Babelsberg AG had shares in the following companies:
                                                                                                                                 Net income
                                                                                                               Equity              / loss for
                                                                                                                Dec.                the year
                                                                                                      held
                 Company, location                                                         Share       via     31, 05                  2005
                 1. Art Department Studio Babelsberg GmbH, Potsdam                         100 %                 -164                   -253
                                                                                                                          3)                    3)




                 2. Studio Babelsberg Motion Pictures GmbH, Potsdam                        100 %               -5,630                    982
                                                                                                                          1,6)                  1,6)




                 3. Babelsberg Film GmbH                                                   100 %               -6,039                    931
                                                                                                                          2,6)                  2,6)




                 4. Zweite Babelsberg Film GmbH, Potsdam                                   100 %        3.          26                    -5
                                                                                                                          2)                    2)




                 5. Dritte Babelsberg Film GmbH, Potsdam                                   100 %        3.          14                    -1
                                                                                                                          2)                    2)




                 6. Vierte Babelsberg Film GmbH, Potsdam                                   100 %        3.          16                    -1
                                                                                                                          2)                    2)




                 7. Fünfte Babelsberg Film GmbH, Potsdam                                   100 %        3.          23                    -1
                                                                                                                          3)                    3)




                 8. Studio Babelsberg Postproduction GmbH, Potsdam                         100 %                 -749                   -847
                                                                                                                          3)                    3)




                 9. Nefzer Babelsberg GmbH, Potsdam                                         50 %                    79                    46
                                                                                                                          4)                    4)




                 10. TPPS-Talent Pool Production Services GmbH, Potsdam                     50 %        2.            -   5)
                                                                                                                                            -   5)




                 11. Zentrum für Film- und Fernsehproduzenten GmbH, Potsdam                 49 %                  617                    123
                 12. ZFF Facility Management GmbH                                           49 %       11.            -                     -
            1)   Financing of negative equity is ensured via loans from Studio Babelsberg AG and FBB GmbH.
            2)   Non-audited financial statements as of December 31, 2005
            3)   Review as of December 31, 2005
            4)   Non-audited financial statements as of December 31, 2004
            5)   statements audited by KPMG as of December 31, 2004
            6)   Therein contained is income from a waiver of receivables of Studio Babelsberg AG amounting to EUR 800 k each.




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       Notes to the Consolidated Financial Statements for
       Fiscal Year 2005

       Receivables and Other Assets

                                                                                          Dec. 31,    Dec. 31,
                                                                                            2005        2004
                                                                                           EUR k        EUR k
        Trade receivables                                                                   3,960      10,837
          - thereof due in more than one year                                                    0           0


        Receivables from companies in which equity investments are held                          4          14
          - thereof due in more than one year                                                    0           0


        Other assets                                                                        8,987      28,613
          - thereof due in more than one year                                               3,030            0
                                                                                           12,951      39,464


       Deferred Taxes

       No deferred tax assets were recorded on tax loss carryforwards. The corporate income tax loss carry-
       forwards of the consolidated companies as of December 31, 2004 amount to EUR 36,766 k in total;
       the trade tax loss carryforwards amount to EUR 38,886 k. In these consolidated financial statements,
       no deferred taxes were recorded on differences from capital consolidation. Hidden reserves amounting
-32-   to EUR 12,592 k were disclosed in the course of the first-time consolidation of SBMP GmbH and BF
       GmbH as of December 31, 2004.


       Equity

       The subscribed capital of EUR 16,500 k and the capital reserve of EUR 6,138 k correspond to the
       balance sheet items disclosed by the parent company.

       Revenue reserves comprise the revenue reserves and retained earnings/accumulated loss of the affili-
       ated companies included in the Group.

       Of the credit differences of a total of EUR 123 k resulting from capital consolidation of Babelsberg Film
       GmbH, Zweite Babelsberg Film GmbH and SBPP GmbH disclosed in the prior year, an amount of EUR
       86 k was reversed in fiscal 2005 as other operating income due to the occurrence of expected losses;
       EUR 37 k was offset against the goodwill of TVP KG due to the merger of TVP KG with SBPP GmbH.


       Tax Accruals

       The tax accruals primarily pertain to the risk of VAT arrears in the course of a tax field audit for the
       assessment periods 1997 to 1999 amounting to EUR 240 k as well as the expected assessment for
       corporate income tax, solidarity surcharge and trade tax for the fiscal year 2005 amounting to EUR 93 k.
       EUR 13,967 k of the tax accruals as of December 31, 2004 for the tax risk from the tax field audit of the
       assessment periods 1990 to 1992 and 1993 to 1996 were utilized and compensated for by the former
       shareholder Vivendi Deutschland GmbH.
                   www.studiobabelsberg.com              .......................................    Studio Babelsberg




            Notes to the Consolidated Financial Statements for
            Fiscal Year 2005

            Other Accruals

            The other accruals were mainly disclosed for restructuring measures (EUR 5,141 k), interest in connection
            with tax back payments from tax field audits (EUR 1,447 k), demolition obligations (EUR 722 k), outstanding
            invoices (EUR 385 k), expenses for the preparation of financial statements and legal advice (EUR 146 k) as
            well as vacation accrued but not yet taken (EUR 132 k).


            Schedule of Liabilities in EUR k

                                                                          Dec.31, 2005                    Dec.31, 2004
                                                                 Due in            Secured Total        Due in       Total
                                                            up to more than              by               up to
                Type of liability                          1 year         5 year                         1 year
                1. Payments received on account of
                   orders                                   1,857              0          0     1,857    13,118       13,118
                2. Trade payables                              811             0          0      811      2,211        2,211
                3. Liabilities to affiliated companies      1,155              0          0     1,155     1,863        1,863
                4. Liabilities to companies in which
                   equity investments are held                  1              0          0         1            0           0
                5. Other liabilities                        2,830              0          0     2,830    10,101       10,101


            Contingent Liabilities                                                                                                 -33-

            As of the balance sheet date there were obligations from the provision of collateral for liabilities for the
            Zentrum für Film- und Fernseproduzenten GmbH amounting to EUR 1,894 k. Furthermore, as of the
            balance sheet date, there was a guarantee obligation of EUR 191 k in favor of TMT GmbH.


            Other Financial Obligations

                                                                                                             Dec.31,2005
                                                                                                                  EUR k
                Rental and lease agreements
                in the following year                                                                                    427
                in the 2nd to 5th year                                                                                 1,397
                from year 6 onwards                                                                                      324
                                                                                                                       2,148




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       Notes to the Consolidated Financial Statements for
       Fiscal Year 2005

       Notes to the Consolidated Income Statement

       The comparability of figures of the income statement is limited, due to the first-time inclusion in
       the consolidated financial statements as of December 31, 2004 of SBMP GmbH, SBPP GmbH as
       well as BF GmbH and their subsidiaries.

       All sales revenues were generated in Germany. Sales break down as follows:

                                                                                        2005      2004       +/-
                                                                                       EUR k     EUR k     EUR k
        Production services                                                            13,533         0 13,533
        Rights trade                                                                   10,359         0 10,359
        Decoration / props / costume dept.                                             10,308   10,774       -466
        Studio operation                                                                3,294     1,539    1,755
        Laboratory / sound dept. / post production                                      2,912     2,623      289
        Dubbing department                                                              1,803     1,233      570
        Other sales                                                                     1,005     1,096       -91
                                                                                       43,214   17,265 25,949

       The sales of the Studio Babelsberg Group are due to the provision of various services for the production
       of films. This essentially includes the provision of third-party production services, the procurement of
       services in the areas decoration, props and costumes as well as the renting of studio space, including
       necessary technical equipment, as well as the provision of services in the area of post production, in-
-34-   cluding dubbing.

       The increase in sales from production services and rights trade is due to the first-time inclusion into the
       consolidated financial statements as of December 31, 2004 of SBMP GmbH and BF GmbH which are
       active in these areas as well as their subsidiaries.


       Cost of Materials

       The significant increase in the ratio of cost of materials to sales in the fiscal year 2005 is primarily due
       to the first-time inclusion of business areas which are comparatively low-margin, production services
       and rights trade.


       Extraordinary Income

       The extraordinary income of EUR 5,961 k is primarily due to the reversal of the accrual for restructu-
       ring measures (EUR 2,467 k), to the sale of shares in TMT GmbH (EUR 2,050 k), to a compensation
       payment of the former shareholder Vivendi Deutschland GmbH in accordance with the additional
       agreement dated April 12, 2005 (EUR 1,050 k), to an insurance compensation for fire damage (EUR
       199 k) as well as the partial reversal of the accrual for tax arrears (EUR 195 k).
                  www.studiobabelsberg.com            .......................................   Studio Babelsberg




            Notes to the Consolidated Financial Statements for
            Fiscal Year 2005

            Extraordinary Expenses

            The extraordinary expenses of EUR 870 k are due to legal and consulting expenses in connection with
            the Company going public (EUR 275 k), expenses for the removal of fire damage (EUR 379 k), a waiver
            of receivables from former shareholder Vivendi Deutschland GmbH (EUR 195 k), as well as the sale of
            shares in TMT GmbH (EUR 138 k).


            Notes to the Consolidated Cash Flow Statement

            The cash flow from investing activities contains EUR 3,000 k payments for investments in proper-
            ty, plant and equipment from the purchase of the audio and video film processing department of
            Taurus Media Technik GmbH by TMT GmbH in the context of an asset deal.


            Other Notes

            Total Remuneration of Management / the Management Board

            The remuneration of the management board of the parent company since April 1, 2005 as well as the
            management of Studio Babelsberg GmbH until March 31, 2005 amounted to EUR 235 k.


            Total Remuneration of the Supervisory Board

            In accordance with the Company’s articles of incorporation and bylaws, the remuneration of the su-               -35-
            pervisory board amounted to EUR 36 k.


            Employees

            The average headcount during the fiscal year was as follows:

                Wage earners                                        121
                Salaried employees                                   52
                                                                    173
                Aprentices                                           21
                                                                    194

            Potsdam, February 2006
            Studio Babelsberg AG, Potsdam




            Dr. Carl L. Woebcken                 Christoph Fisser             Marius Schwarz
               Chairman of the                 Deputy Chairman of             Chief Financial
            Management Board                 the Management Board                 Officer




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       Audit Opinion (Group)

       We have audited the consolidated financial statements, comprising the balance sheet, the income
       statement, statement of changes in equity, cash flow statement and the notes to the consolidated fi-
       nancial statements, together with the group management report of Studio Babelsberg AG, Potsdam,
       for the fiscal year from January 1, 2005 to December 31, 2005. The preparation of the consolidated
       financial statements and the group management report in accordance with German commercial law
       are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the
       consolidated financial statements and on the group management report based on our audit.

       We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB
       and German generally accepted standards for the audit of financial statements promulgated by the
       Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require
       that we plan and perform the audit such that misstatements materially affecting the presentation of
       the net assets, financial position and results of operations in the consolidated financial statements in
       accordance with the applicable financial reporting frame-work and in the group management report
       are detected with reasonable assurance. Knowledge of the business activities and the economic and
       legal environment of the Group and expectations as to possible misstatements are taken into account
       in the determination of audit procedures. The effectiveness of the accountingrelated internal control
       system and the evidence supporting the disclosures in the consolidated financial statements and the
       group management report are examined primarily on a test basis within the framework of the audit. The
       audit includes assessing the annual financial statements of those entities included in consolidation, the
       determination of entities to be included in consolidation, the accounting and consolidation principles
       used and significant estimates made by management, as well as evaluating the overall presentation
       of the consolidated financial statements and the group management report. We believe that our audit
       provides a reasonable basis for our opinion.

       Our audit has not led to any reservations.

-36-   In our opinion, based on the findings of our audit, the consolidated financial statements comply
       with the legal requirements and give a true and fair view of the net assets, financial position and
       results of operations of the Group in accordance with [German] principles of proper accounting.
       The group management report is consistent with the consolidated financial statements and as a
       whole provides a suitable view of the Group‘s position and suitably presents the opportunities and
       risks of future development.


       Berlin, February 28, 2006

       Ernst & Young AG
       Wirtschaftsprüfungsgesellschaft




       Selter                             Franke
       Wirtschaftsprüfer                  Wirtschaftsprüfer
       [German Public Auditor]            [German Public Auditor]
                www.studiobabelsberg.com          .......................................   Studio Babelsberg




            Studio Babelsberg AG, Potsdam

            Annual Financial Statements of Studio Babelsberg AG




                                                                                                                         -37-




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       Balance Sheet of Studio Babelsberg AG

       Studio Babelsberg AG, Potsdam
       Balance Sheet as of December 31, 2005

        ASSETS                                                                                         Dec.31, 2004
                                                                             EUR               EUR           EUR k
        A.     FIXED ASSETS
        I.     Intangible assets
               Software and film rights                                                    67,464.00            89


        II.    Property, plant and equipment
        1.     Land and buildings                                   19,433,998.90                           15,816
        2.     Technical equipment and machines                      4,116,059.00                            3,870
        3.     Other equipment, furniture and fixtures                 238,603.00                              249
        4.     Payments on account and assets under construction     1,183,372.20                              160
                                                                                    24,972,033.10           20,095
        III.   Financial assets
        1.     Shares in affiliated companies                          671,713.00                              783
        2.     Equity investments                                       25,308.95                               28
                                                                                          697,021.95           811
                                                                                    25,736,519.05           20,995
        B.     CURRENT ASSETS
        I.     Properties intended for sale                                               466,786.24         2,926
-38-

        II.    Inventories
        1.     Work in process                                          21,862.38                               14
        2.     Payments on account                                      39,351.00                               80
                                                                                           61,213.38            94
        III.   Receivables and other assets
        1.     Trade receivables                                     1,678,674.98                            1,520
        2.     Receivables from affiliated companies                 1,844,689.24                            1,400
        3.     Receivables from companies in which equity
               investments are held                                      4,122.31                               15
        4.     Other assets                                          7,865,041.36                           26,687
                                                                                    11,392,527.89           29,622
        IV.    Securities
               Other securities                                                      3,084,739.10                0


        V.     Cash on hand, Bundesbank balances, bank
               balances and checks                                                   7,357,352.81            8,277
                                                                                    22,362,619.42           40,919
        C.     PREPAID EXPENSES                                                             3,217.00             2
                                                                                    48,102,355.47           61,916
                       www.studiobabelsberg.com                 .......................................        Studio Babelsberg




            Balance Sheet of Studio Babelsberg AG

            Studio Babelsberg AG, Potsdam
            Balance Sheet as of December 31, 2005

                EQUITY AND LIABILITIE                                                                                   Dec31 , 2004
                                                                                            EUR                EUR             EUR k
                A.      EQUITY


                I.      Subscribed capital                                                             16,499,990.00              102


                II.     Capital reserve                                                                 6,138,494.76            3,138


                III.    Revenue reserves                                           9,255,793.09                                     0
                1.      Legal reserve                                                       0,00                               24,153
                2.      Other revenue reserves                                                          9,255,793.09


                IV.     Retained earnings                                                               6,422,126.76            3,920
                        thereof profit brought forward from the prior year: EUR
                        3,919,387.55 (prior year: EUR 3,999 k)
                                                                                                       38,316,404.16           31,313
                B.      SPECIAL ITEM FOR INVESTMENT SUBSIDIES                                                   0.00              158


                C.      ACCRUALS
                                                                                                                                              -39-
                1.      Tax accruals                                                 333,203.00                                13,967
                2.      Other accruals                                             7,894,439.21                                14,872
                                                                                                        8,227,642.21           28,839
                D.      LIABILITIES


                1.      Trade payables                                               517,441.20                                   565
                2.      Liabilities to affiliated companies                          453,894.78                                   382
                3.      Liabilities to companies in which equity investments
                        are held                                                         598.24                                     0
                4.      Other liabilities                                            446,148.03                                   519
                        thereof for taxes: EUR 257,965.99 (prior year: EUR
                        306 k)
                        thereof related to social security EUR 80,754.38
                        (prior year: EUR 123 k)
                                                                                                        1.418.082,25            1.466


                E       DEFERRED INCOME                                                                  140,226.40               140


                                                                                                       48,102,355.47           61,916




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       Income Statement

       Studio Babelsberg AG, Potsdam
       Income statement 2005

                                                                                                    Sept.1 to
                                                                                                 Dec.31.2004
                                                                       EUR k             EUR k        EUR k
        1.   Sales                                              8,999,733.43                           2,897
        2.   Increase or decrease in finished goods and
             work in process                                         7,635.11                              -44
        3.   Own work capitalized                                  15,310.09                                0
        4.   Other operating income                             1,045,718.68                               99
             thereof income from reversal of special items
             with an equity portion: EUR 158,203.22 (prior
             year: EUR 274 k)
                                                                                10,068,397.31          3,762
             Cost of materials
             a) Cost of raw materials, consumables and
             supplies and of purchased merchandise                438,752.31                             162
             b) Cost of purchased services                      2.631,972.19                             997
        6.   Personnel expenses
             a) Wages and salaries                              2,912,107.17                           1,224
             b) Social security, pension and other benefit
             costs                                                552,256.42                             235
-40-    7.   Amortization and depreciation
             a) on intangible assets and property, plant
             and equipment                                      1,589,013.68                             493
        8.   Other operating expenses                           3,525,724.55                           1,647
                                                                                11,649,826.32          4,758
        9.   Other interest and similar income thereof from
             affiliated companies EUR 38,013.41 (prior
             year: EUR 8 k)                                       541,456.93                             242
        10. Write-downs of financial assets and securities
            classified as current assets                          183,539.20                                0
        11. Interest and similar expenses                          73,360.96                                0
                                                                                   284,556.77            242
        12. Result from ordinary activities                                      -1,296,872.24          -754
        13. Extraordinary income                                5,911,364.69                           4,276
        14. Extraordinary expenses                              1,763,802.27                           2,204
        15. Extraordinary result                                                 4,147,562.42          2,072
        16. Income taxes                                           92,750.00                           1,634
        17. Other taxes                                           255,200.97                            -237
                                                                                   347,950.97          1,397
        18. Net income/net loss for the year                                     2,502,739.21              -79
        19. Profit carryforward from prior year                                  3,919,387.55          3,999
        20. Retained earnings                                                    6,422,126.76          3,920
       - Preambles -
                                  Statement of Changes in Fixed Assets for Fiscal Year 2005



                                                                                         Acquisition and production cost                                            Accumulated write-downs                        Net book values




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- About Studio
                                                                                                                    Reclassi-                                                                                                   Dec.31
                                                                       Jan.1, 2005      Additions    Disposals       fications      Dec. 31, 2005     Jan.1, 2005      Additions    Disposals   Dec.31, 2005    Dec.31, 2005     2004
                                                                                                                                                                                                                                           www.studiobabelsberg.com




                                                                             EUR            EUR           EUR              EUR              EUR             EUR            EUR          EUR             EUR             EUR       EUR
                                  I.     Intangible assets
                                         Software and film rights      340,900.82      21,992.16     10,195.77             0.00       352,697.21      252,119.82      43,309.16     10,195.77     285,233.21       67,464.00          89




   Report -
                                  II.    Property, plant and
                                         equipment




- Management
                                  1.     Land and buildings          50,893,810.72   4,114,129.64         0.00             0.00     55,007,940.36   35,078,256.93    495,684.53          0.00   35,573,941.46   19,433,998.90   15,816
                                  2.     Technical equipment and
                                         machines                    16,306,639.41   1,064,251.49   397,514.06    151,627.44        17,125,004.28   12,436,440.41    958,181.89    385,677.02   13,008,945.28    4,116,059.00    3.870
                                  3.     Other equipment, furni-
                                         ture and fixtures            3,284,946.69     74,812.23     95,288.97      8,800.00         3,273,269.95    3,036,086.69     91,838.10     93,257.84    3,034,666.95     238,603.00         249
                                  4.     Payments on account
                                         and assets under cons-
                                         truction                      160,427.44    1,183,372.20         0.00   -160,427.44         1,183,372.20            0.00           0.00         0.00            0.00    1,183,372.20        160




      Statement -
                                                                     70,645,824.26   6,436,565.56   492,803.03             0.00     76,589,586.79   50,550,784.03   1,545,704.52   478,934.86   51,617,553.69   24,972,033.10   20,095




- Consolidated Financial
                                  III.   Financial assets
                                  1.     Shares in affiliated com-
                                                                                                                                                                                                                                           .......................................




                                         panies                        783,712.00      27,500.00     27,500.00             0.00       783,712.00             0.00     111,999.00         0.00      111,999.00     671,713.00         783
                                  2.     Equity investments             30,308.95            0.00     5,000.00             0.00        25,308.95         2,500.00           0.00     2,500.00            0.00      25,308.95          28
                                                                       814,020.95      27,500.00     32,500.00             0.00       809,020.95         2,500.00     111,999.00     2,500.00      111,999.00     697,021.95         811


                                                                     71,800,746.03   6,486,057.72   535,498.80             0.00     77,751,304.95   50,805,403.85   1,701,012.68   491,630.63   52,014,785.90   25,736,519.05   20,995




    Studio Babelsberg AG -
                                                                                                                                                                                                                                           Studio Babelsberg




- Annual Financial Statments of
                                                                                                                             -41-
       www.studiobabelsberg.com             .......................................     Studio Babelsberg




       Studio Babelsberg AG, Potsdam
       Notes to the Financial Statements for Fiscal Year 2005

       General

       These financial statements have been prepared in accordance with Secs. 242 et seq. and Secs. 264 et seq.
       HGB [“Handelsgesetzbuch”: German Commercial Code] as well as in accordance with the relevant provisi-
       ons of the AktG [“Aktiengesetz”: German Stock Corporation Act]. The Company is subject to the requirements
       for medium-sized corporations. The fiscal year is the calendar year. The prior period is an abbreviated fiscal
       year and covers the period from September 1, 2004 to December 31, 2004.
       The income statement has been prepared using the cost-summary method.


       Accounting and Valuation Methods

       The following accounting and valuation methods, which remained unchanged in comparison to the prior
       year, have been used to prepare the financial statements.

       Purchased intangible assets are capitalized at acquisition cost and, if they have a limited life, are redu-
       ced by systematic amortization in accordance with their useful lives. Amortization is carried out pro rata
       temporis using the straight-line method and on the basis of a useful life of five years.

       Property, plant and equipment are capitalized at acquisition or production cost and, if they have a
       limited life, are reduced by systematic depreciation. The cost of self-constructed assets includes direct
       costs as well as a proportionate share of overheads. Depreciation is carried out pro rata temporis using
       the straight-line method and on the basis of the ordinary useful life. Impairment losses are recorded
       if necessary in order to disclose assets at net realizable value. Low-value assets not exceeding EUR
       410.00 in value are fully expensed in the year of acquisition with their immediate disposal being assu-
-42-   med. Investment subsidies are recorded under the special item for investment subsidies.

       With respect to financial assets, shares in affiliated companies and equity, investments are recorded
       at the lower of cost or market.

       Properties intended for sale are recorded under current assets. They are valued at their acquisition
       cost. Planning costs and development measures are also recorded in addition to the value of the land.
       Impairment losses are recorded if necessary in order to disclose properties at net realizable value.

       Inventories are recorded at the lower of cost or market. Work in process is basically valued at pro-
       duction cost. Production cost comprises direct labor and materials costs as well as special production
       costs, and a share of production and materials overheads. When necessary, appropriate write-downs
       to the lower fair value are recorded in the course of valuation at net realizable value.

       Receivables and other assets are stated at their nominal value. Specific bad debt allowances are
       recognized on all items subject to risk. The general credit risk is provided for by a general bad debt
       allowance of approximately 2%.

       Other securities are stated at the lower of cost or market value in accordance with Sec. 253 (3) HGB.

       Tax accruals and other accruals account for all contingent liabilities and potential losses from pending
       transactions. They are recorded at the amounts required according to prudent business judgment.

       Liabilities are recorded at the amount repayable.

       Foreign currencies were translated at the exchange rates prevailing on the balance sheet date or the
       rate valid at the time the payment is made.
                    www.studiobabelsberg.com                  .......................................             Studio Babelsberg




            Notes

            Notes to the Balance Sheet

            Fixed Assets

            The development of the individual fixed asset items, including depreciation and amortization for the
            fiscal year, is shown in the statement of changes in fixed assets.

            The increase in property, plant and equipment is essentially due to investments made in expansion and
            the technical equipment of House 2/Tonkreuz (EUR 1,978 k) as well as the conversion of the rented
            factory halls (EUR 1,156 k). Furthermore, two land parcels originally intended for sale were reclassified
            as fixed assets (EUR 2,459 k).

            Information on Shareholdings
            As of December 31, 2005, Studio Babelsberg AG had shares in the following companies:

                                                                                                  Book value     Equity Net income/
                                                                       Acquisition                   Dec.31,    Dec. 31,        loss
                                                          Shareholding      costs                      2005       2005         2005
                                                                        %          EUR K             EUR K        EUR K             EUR K
                 company b GmbH, Potsdam                                 -          2,399                 0              -              -
                                                                                             1)                              2)             2)




                 Art Department Studio Babels-
                                                                      100             100               100         -164             -253
                 berg GmbH, Potsdam
                 Studio Babelsberg Motion
                                                                      100             500               500       -5,630              982
                                                                                                                             3,8)           3,8)


                 Pictures GmbH, Potsdam
                 Babelsberg Film GmbH,
                                                                      100               72               72       -6,039              931
                                                                                                                             4,8)           4,8)


                 Potsdam
                                                                                                                                                   -43-
                 Studio Babelsberg Postproduc-
                                                                      100             112                 0         -749     5)
                                                                                                                                     -847   5)


                 tion GmbH, Potsdam
                 Nefzer Babelsberg GmbH,
                                                                       50               13               13            79              46
                                                                                                                             6)             6)


                 Potsdam
                 Zentrum für Film- und Fernseh-
                                                                       49               13               13          617     7)
                                                                                                                                      123   7)


                 produzenten GmbH, Potsdam



            1)   This is an equity investment (EUR 245 k) as well as a silent participation (EUR 2,154 k).
            2)   The company is under insolvency proceedings ; results are present not known.
            3)   Financing of negative equity is ensured via loans from Studio Babelsberg AG and FBB GmbH.
            4)   Non-audited financial statements as of December 31, 2005
            5)   Review as of December 31, 2005
            6)   Non-audited financial statements as of December 31, 2004
            7)   Financial statements audited by KPMG as of December 31, 2004
            8)   Therein contained is income from a waiver of receivables of Studio Babelsberg AG amounting to EUR 800 k.


            Per agreement dated July 1, 2005, on the takeover by SBPP GmbH of TVP KG’s trading business,
            Studio Babelsberg AG left TVP KG as limited partner; TVP KG was merged into SBPP GmbH. The
            equity investment in SBPP GmbH was written down by EUR 112 k in the fiscal year 2005.




                            - About Studio          - Management             - Consolidated Financial          - Annual Financial Statments of
- Preambles -
                             Babelsberg -              Report -                    Statement -                     Studio Babelsberg AG -
       www.studiobabelsberg.com             .......................................   Studio Babelsberg




       Notes

       Receivables and Other Assets

       All receivables and other assets are due within less than one year. The loan to SBPP GmbH disclosed
       under receivables from affiliated companies with a remaining term of more than one year was written
       down by EUR 749 k. Of the loan to TMT GmbH disclosed under other assets, an amount of EUR 3,030
       k has a remaining term of more than one year.

       Receivables from affiliated companies comprise trade receivables of EUR 381 k, loan receivables of
       EUR 660 k as well as receivables from fiscal unity for VAT of EUR 804 k.

       The receivables to companies in which equity investments are held relate exclusively to trade recei-
       vables.

       Other assets primarily comprise loans to TMT GmbH of EUR 4,030 k as well as the purchase price
       receivable of EUR 2,000 k from the sale of the shares in TMT GmbH.


       Equity

       Per resolution of the shareholder meeting of Studio Babelsberg GmbH dated March 4, 2005, subscri-
       bed capital was increased by EUR 1 k to EUR 103 k in return for cash contributions and from company
       funds by EUR 14,897 k to EUR 15,000 k. Furthermore, a resolution was passed to change the legal form
       of Studio Babelsberg GmbH into an Aktiengesellschaft (stock corporation). The capital stock amounting
       to EUR 15,000 k prior to the legal conversion of Studio Babelsberg AG becomes the common stock of
       Studio Babelsberg AG and is divided into 15,000,000 no-par value shares with a pro-rata share in the
       common stock of EUR 1.00 each.

-44-   Per resolution of the management board and with the consent of the supervisory board dated Octo-
       ber 13, 2005, there was an additional capital increase partially utilizing the authorized capital by EUR
       1,499,990.00 to EUR 16,499,990.00. The new shares were issued at an issue price of EUR 3.00 per
       share.


       Other Accruals

       The other accruals were mainly disclosed for restructuring measures (EUR 5,141 k), interest in connec-
       tion with tax arrears from tax field audits (EUR 1,447 k), demolition obligations (EUR 22 k), outstanding
       invoices (EUR 268 k), expenses for the preparation of financial statements and legal advice (EUR 102 k)
       as well as vacation accrued but not taken (EUR 61 k).


       Liabilities

       All liabilities are due within less than one year.

       The liabilities to affiliated companies are exclusively trade payables.

       The liabilities are not secured.
                   www.studiobabelsberg.com              .......................................        Studio Babelsberg




            Notes

            Schedule of Liabilities in EUR k

                                                                         Dec.31, 2005                      Dec.31, 2004
                                                                  Due in           Secured/ Total            Due in    Total
                                                            up to more than               by                  up to
                Type of liability                          1 Year        5 Year                              1 Year


                1. Trade payables                            518               0           0     517           565      565
                2. Liabilities to affiliated companies       454               0           0     454           382      382
                3. Liabilities to companies in which
                   equity investments are held                    1                                 1             0        0
                4. Other liabilities                         446               0           0     446           519      519
                  - thereof for taxes                        258               0           0     258           306      306
                  - thereof for social security                  81            0           0      81           123      123


            Contingent Liabilities

            As of the balance sheet date, there were obligations of EUR 1,894 k from the provision of collateral for
            liabilities for Zentrum für Film- und Fernsehproduzenten GmbH. Furthermore, as of the balance sheet
            date there was a guarantee obligation of EUR 191 k in favor of TMT GmbH.


            Other Financial Obligations
                                                                                                                                    -45-
                                                                                                              Dec.31, 2005
                                                                                                                      EUR k
                Rental and lease agreements
                in the following year                                                                                   427
                in the 2nd to 5th year                                                                                1,397
                from year 6 onwards                                                                                     324
                                                                                                                      2,148




                           - About Studio         - Management        - Consolidated Financial    - Annual Financial Statments of
- Preambles -
                            Babelsberg -             Report -               Statement -               Studio Babelsberg AG -
       www.studiobabelsberg.com           .......................................   Studio Babelsberg




       Notes

       Notes to the Income Statement

       Sales

       All sales revenues were generated in Germany. Sales break down as follows:

                                                                                2005        2004          +/-
                                                                              EUR k       EUR k        EUR k
        Studio operation                                                       3,294       1,539       1,755
        Dubbing department                                                     1,803       1,233         570
        Copy dept. / sound dept. / postproduction                              1,411       2,623       -1,212
        Props                                                                    634         641           -7
        Costume studio                                                           557         572          -15
        Art Department                                                           345       4,249       3,904
        Other sales                                                              956       1,096         140
                                                                               9,000      11,953       -2,953

       The drop in sales for the Art Department, laboratory, sound and postproduction departments is primarily
       due to their spin-off as independent legal units. The art department was spun off to ADSB GmbH as of
       April 1, 2004; the laboratory, sound and postproduction departments were spun off to SBPP GmbH as
       of July 1, 2005.

       The increase in sales by EUR 1,755 k generated by the studio operation is essentially due to the
       significantly improved utilization of the studio areas compared to the prior period which is also due to
       investments in the casino area.
-46-


       Reversal of Special Items for Investment Subsidies

       The public investment subsidies from the joint federal and state program “Improvement of the regional
       economic structure” were posted to a special item. This special item is reversed in line with the depre-
       ciation of the subsidized asset. In the fiscal year this led to other operating income of EUR 158 k.


       Extraordinary Income

       The extraordinary income of EUR 5,911 k is due to the reversal of the accrual for restructuring measures
       (EUR 2,467 k), to the sale of shares in TMT GmbH (EUR 2,000 k), to a compensation payment of the
       former shareholder Vivendi Deutschland GmbH in accordance with the additional agreement dated
       April 12, 2005 (EUR 1,050 k), to insurance compensation for fire damage (EUR 199 k) as well as to the
       partial reversal of the accrual for tax arrears (EUR 195 k).


       Extraordinary Expenses

       The extraordinary expenses of EUR 1,764 k are due to expenses in connection with the sale of
       shares in TMT GmbH and SBPP GmbH (EUR 915 k), particularly specific bad debt allowances from
       loans, to expenses for the restoration work after fire damage (EUR 379 k), to legal and consulting ex-
       penses in connection with the Company going public (EUR 275 k) as well as a waiver of receivables
       towards former shareholder Vivendi Deutschland GmbH (EUR 195 k).
                www.studiobabelsberg.com             .......................................   Studio Babelsberg




            Notes

            Income Taxes

            Taxes on income are due to the addition to tax accruals for income taxes of the current fiscal year. The
            expected assessment of corporate income tax, solidarity surcharge and trade tax for the current fiscal
            year is EUR 93 k.


            Other Notes

            Management Board

                •Dr. Carl L. Woebcken, Chairman of the Management Board
                 (up to March 31, 2005, General Manager of Studio Babelsberg GmbH)

                •Christoph Fisser, Deputy Chairman of the Management Board
                 (up to March 31, 2005, General Manager of Studio Babelsberg GmbH)

                •Marius Schwarz, CFO since April 1, 2005


            Supervisory Board

                •Stefan v. Moers, attorney
                 Chairman of the Supervisory Board

                •Dr. Christian Franckenstein, CFO
                 Deputy Chairman of the Supervisory Board
                                                                                                                            -47-
                •Dr. Bertrand Malmendier, attorney


            Total Remuneration of the Management / the Management Board

            The remuneration of the Management Board since April 1, 2005 and of the management of Studio
            Babelsberg GmbH up to March 31, 2005 amounted to EUR 235 k.


            Total Remuneration of the Supervisory Board

            The remuneration of the Supervisory Board amounted to EUR 36 k.




                      - About Studio       - Management        - Consolidated Financial   - Annual Financial Statments of
- Preambles -
                       Babelsberg -           Report -               Statement -              Studio Babelsberg AG -
       www.studiobabelsberg.com          .......................................    Studio Babelsberg




       Notes

       Employees

       The average headcount during the fiscal year was as follows:

        Wage earners                              39
        Salaried employees                        35
                                                  74
        Aprentices                                 1
                                                  75




       The above-mentioned figures do not comprise the temporary project-related employment contracts.




       Potsdam, February 2006
       Studio Babelsberg AG, Potsdam




-48-
       Dr. Carl L. Woebcken           Christoph Fisser                   Marius Schwarz
        Chairman of the             Deputy Chairman of the            Chief Financial Officer
       Management Board               Management Board
                www.studiobabelsberg.com            .......................................   Studio Babelsberg




            AUDIT OPINION

            We have audited the annual financial statements, comprising the balance sheet, the income statement
            and the notes to the financial statements, together with the bookkeeping system, and the management
            report of Studio Babelsberg AG, Potsdam, for the fiscal year from January 1, 2005 to December 31,
            2005. The maintenance of the books and records and the preparation of the annual financial state-
            ments and management report in accordance with German commer-cial law are the responsibility of
            the Company‘s management. Our responsibility is to express an opinion on the annual financial state-
            ments, together with the bookkeeping system, and the management report based on our audit.

            We conducted our audit of the annual financial statements in accordance with Sec. 317 HGB [„Han-
            delsgesetzbuch“: „German Commercial Code“] and German generally accepted standards for the
            audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public
            Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that
            misstatements materially affecting the presentation of the net assets, financial position and results
            of operations in the annual financial statements in accordance with [German] principles of proper
            accounting and in the management report are detected with reasonable assurance. Knowledge of
            the business activities and the economic and legal environment of the Company and expectations
            as to possible misstatements are taken into account in the determination of audit procedures. The
            effectiveness of the accounting-related internal control system and the evidence supporting the disc-
            losures in the books and records, the annual financial statements and the management report are
            examined primarily on a test basis within the framework of the audit. The audit includes assessing the
            accounting principles used and significant estimates made by management, as well as evaluating the
            overall presentation of the annual financial statements and management report. We believe that our
            audit provides a reasonable basis for our opinion.

            Our audit has not led to any reservations.

            In our opinion, based on the findings of our audit, the annual financial statements comply with the
            legal requirements and give a true and fair view of the net assets, financial position and results             -49-
            of operations of the Company in accordance with [German] principles of proper accounting. The
            management report is consistent with the annual financial statements and as a whole provides
            a suitable view of the Company‘s position and suitably presents the opportuni-ties and risks of
            future development.


            Berlin, February 28, 2006

            Ernst & Young AG
            Wirtschaftsprüfungsgesellschaft



            Selter                            Franke
            Wirtschaftsprüfer                 Wirtschaftsprüfer
            [German Public Auditor]           [German Public Auditor]




                      - About Studio       - Management       - Consolidated Financial   - Annual Financial Statments of
- Preambles -
                       Babelsberg -           Report -              Statement -              Studio Babelsberg AG -
THE STUDIO

      Imprint

      Copyright:
      Studio Babelsberg AG
      August-Bebel-Straße 26-53
      14482 Potsdam

      Tel:   +49 (0)331 / 721 20 66
      Fax:   +49 (0)331 / 721 20 52

      E-Mail: info@studiobabelsberg.com



      Conception and Design:

      CdC Capital AG, München
      info@cdc-capital.com



      Project management:
      Studio Babelsberg AG
      Dr. Carl L. Woebcken
      Marius Schwarz
      Michaela Niemeyer
Studio Babelsberg AG
August-Bebel-Straße 26-53
14482 Potsdam

Tel:    +49 (0)331 / 721 20 66
Fax: +49 (0)331 / 721 20 52
E-Mail: info@studiobabelsberg.com

				
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