To: The Shareholders of Canyon Cinema, Inc.

From: Larry Kless, President, Board of Directors

CC: Canyon Cinema, Inc. Board of Directors

Date: March 17, 1999


Re: The State of Canyon Cinema, Inc.


I have been a member of Canyon Cinema for the past ten years and have served on the Board of Directors since 1995. I have been happy to serve as President of the Board for the last two years through some turbulent and insightful times for Canyon. I would like to thank each of our shareholders who over the years have served as members of the Board and as committee members. Our combined efforts have helped guide and strengthen Canyon's future as a successful and creative force in the worldwide film market. It has been a great experience serving on the Board overseeing our parlimentary process as President. We accomplished a great deal over the last two years and developed a strong work group to explore new areas for Canyon. As I complete my term and decline to seek re-election, I wish my colleagues on the Board continued spirit and resolve for the future. I will, however, continue to chair the web committee and assist Canyon in the area of computers and interactive technology.

I send a big thanks and round of applause to Dominic Angerame, our Executive Director, and, David Sherman, our Administrative Director who are responsible for managing the day to day operations of the corporation. They both have been instrumental in the ongoing progress and expansion of Canyon's business. Their time, energy and commitment to Canyon is a value and benefit to us all.

As shareholders of Canyon Cinema, Inc., we all contribute to Canyon's success and continued solvency. We are a unique entity which will continue to change and grow. The product of our 30 plus year history is the most eclectic collection of experimental films in the world -- unavailable from any other source. The Canyon Directors and Board continue to focus on the area of education as value added service provided by Canyon Cinema. We have redefined ourselves as an organization which supports the local and international filmmaking communities.

Although things are looking up for Canyon Cinema, the cost of running our business also increases. We have most recently been hit with a $360 a month rent increase for our office space. Without other immediate options to increase revenue, the Board of Directors recently voted by majority to increase our annual filmmaker distribution fees from $40 to $60. This may seem to be a drastic measure, but in the scheme of things it is a basic rate hike. Way back in 1966, dues were $5 and then raised to $15 in 1978, $25 in 1984, $40 in 1994. Now in 1999, this is the first increase in five years and it will help offset the rent increase and the ongoing expansion of Canyon Cinema's business plans. The Board agreed made the commitment to finding other sources of revenue and not encumber our shareholders with the growing costs of the business.

The Board of Director continues to grapple with the financial issues of our organization. The Board along with our Executive and Administrative Directors have made much progress in terms of setting long and short term organization goals and objectives. Many projects like film packages, study guides, on-line catalog, marketing materials, fundraising have been identiied. Every discucssion leads to the same conclusion, we need to increase our revenue. Within the last two years we have lost $12,000 of fiscal support for our operations from the NEA and Calif. Arts Counsel. Yet we are surviving without these losses. In addition, local funding sources in San Francisco like the SF Arts Commission, thanks to their award of $11,000, has enabled Canyon to proceed with a massive effort to publish our new catalog. This mammoth task was guided by the committee process, our Executive and Administrative Directors, and coordinated by catalog Production manager and former Board member, Alfonso Alvarez.

In summary, the state of Canyon Cinema is good. Business is at an all time high and Although we've had to increase our filmmaker fees, our shareholders will see that increased costs realized in increased services in office support staff and as we roll out our catalog to the web. I'm happy to be a part of the most enduring and successful artists' collective, distributor and access facility of avant garde and experimental films since 1969.

I look forward to the work of the next Board and I support Canyon's ongoing efforts.


My kindest regards, Larry