Mainframe Entertainment, Inc.
TSX : MFE

Mainframe Entertainment, Inc.

August 11, 2005 16:30 ET

Mainframe Entertainment Reports First Quarter 2006 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 11, 2005) - Mainframe Entertainment, Inc. ("Mainframe") (TSX:MFE), Canada's leading computer generated (CG) animation production company, today announced its first quarter financial results for the period ended June 30, 2005.

For the three-month period ended June 30, 2005, the Company reported a 14 percent increase in revenues to $4.7 million versus $4.1 million during the same period in fiscal 2005. Gross profit during the period amounted to $827,000, or 17.5 percent of revenues, compared to a gross profit of $1.4 million, or 34.4 percent of revenues, for the same period in fiscal 2005. Earnings before interest, taxation, depreciation and amortization amounted to $269,000, compared to $710,000 for the same period in fiscal 2005. Net loss for the period was $274,000, or $0.00 per share compared to a net profit of $193,000, or $0.00 per share for the same period in fiscal 2005.

During the quarter, gross profit decreased primarily as a result of higher production costs associated with the active productions during the period. The increase in production costs is directly attributable to a greater number of active productions in the three months ended June 30, 2005 compared to the three months ended June 30, 2004. The benefits of these active productions will be evident in following quarters as the Company completes and enters into new distribution contracts on proprietary projects.

"We are pleased with the increased level of proprietary production activity during the quarter and are well positioned to continue our path towards growth and profitability in fiscal 2006," noted Rick Mischel, Chief Executive Officer of Mainframe Entertainment Inc.

As at March 31, 2005, Mainframe's total number of common shares outstanding was 70,799,169, compared to 70,751,882 at March 31, 2004.

The Company will host a conference call on Friday, August 12, 2005 at 11:00 a.m. eastern standard time to further discuss the first quarter financial results. Scheduled speakers for the call include Rick Mischel, President and Chief Executive Officer and Ian Fodie, Chief Financial Officer and Vice President, Operations.

Participants should dial (416) 640-3406 or 1-866-848-5070 at least 10 minutes prior to the conference time of 11:00 a.m.

For those unable to attend the call, a replay will be available after 1:00 p.m. at (402) 220-0607 or 1-800-695-9442 passcode 8493176 until midnight, Friday,
August 26, 2005.



June 30, March 31,
2005 2005
(unaudited) (audited)
Assets

Current assets
Cash and cash equivalents $ 1,497 $ -
Restricted cash and cash equivalents (note 5) 2,158 2,158
Accounts receivable (note 6) 9,784 9,405
Current portion of prepaid expenses 93 244
----------------------

13,532 11,807

Prepaid expenses 141 141

Investment in film and television (note 7) 4,642 3,746

Property and equipment (note 8) 7,907 8,094

Deferred finance costs 121 129
----------------------

$ 26,343 $ 23,917
----------------------
----------------------

Liabilities

Current liabilities
Bank indebtedness (note 9) $ 1,696 $ 90
Accounts payable and accrued liabilities 1,882 2,092
Minority interest (note 3) 15 14
Deferred revenue 3,313 2,091
Production advances (note 16) 4,415 4,415
Current portion of capital lease obligations 451 501
----------------------

11,772 9,203

Capital lease obligations 535 653
----------------------

12,307 9,856
----------------------

Shareholders' Equity

Capital stock (note 10) 62,406 62,394

Contributed surplus (note 11) 2,652 2,629

Debentures (note 12) 6,570 6,355

Deficit (57,592) (57,317)
----------------------

14,036 14,061
----------------------

$ 26,343 $ 23,917
----------------------
----------------------

Nature of operations and going concern (note 1)


Three Three
Months Months
Ended June Ended June
30, 2005 30, 2004

----------------------

Revenue $ 4,752 $ 4,166

Production costs 3,925 2,731
----------------------

Gross profit 827 1,435
----------------------

Expenses
Selling, general and administrative 530 497
Amortization 438 369
Writedown of investment in film and
television (note 4) 14 33
Foreign exchange (gain) loss (33) 8
Minority interest 13 228
Interest on capital leases 9 10
Interest on bank indebtedness 6 -
----------------------

977 1,145
----------------------

Earnings (loss) before the undernoted (150) 290

Interest income 15 25
Interest and accretion on convertible
debentures (note 12) (134) (123)
Loss on disposal of equipment (5) (1)
----------------------

Loss for the period (274) 193
----------------------

Deficit - Beginning of period
As previously reported (57,318) (56,825)
Adjustment to reflect change in accounting
policy (note 3) - 434
----------------------

As restated (57,318) (57,259)
----------------------

Deficit - End of period $ (57,592) $ (57,066)
----------------------
----------------------

Basic and diluted loss per share attributable
to common shareholders $ 0.00 $ 0.00
----------------------
----------------------



Three Three
Months Months
Ended Ended
June 30, June 30,
2005 2004
------------------
Cash flows provided by (used in)
operating activities
Loss for the year $ (274) $ 193
Items not affecting cash
Amortization of property and equipment 430 361
Interest and accretion on convertible
debentures 33 45
Writedown of investment in film and
television (note 4) 14 33
Stock compensation costs 23 2
Other amortization 8 8
Loss (gain) on disposal of equipment 5 (1)
Investment in film and television 84 (20)
Changes in non-cash operating items (569) (1,104)
------------------

300 (483)
------------------

Cash flows provided by (used in) financing
activities
Increase in bank indebtedness 1,606 -
Net proceeds from exercise of stock options 13 -
Capital lease repayments (169) (365)
Capital lease proceeds - 796
------------------

1,450 431
------------------

Cash flows provided by (used in) investing
activities
Purchase of property and equipment (253) (602)
------------------

(253) (602)
------------------

(Decrease) increase in cash and cash
equivalents 1,497 (654)

Cash and cash equivalents - Beginning of year - 7,228
------------------

Cash and cash equivalents - End of year $ 1,497 $ 6,574
------------------
------------------

Interest paid $ 13 $ 11
------------------
------------------

Taxes paid $ - $ -
------------------
------------------

Supplemental cash flow information (note 14)


About Mainframe

Mainframe Entertainment Inc. is the industry leader in computer generated (CG) animation for television and direct-to-video/DVD family entertainment. Mainframe has produced over 256 half hours of CG animated television as well as ten CG animated direct-to-video/DVD feature films and two one-hour CG animated television specials. Mainframe's CG animation expertise is also being used in the production of theatrical feature films, interactive games and commercials. Established in 1993, Mainframe continues to grow its library of proprietary productions, and has received many prestigious awards for its work on such international brands as "Barbie"(winner of VSDA Award for Children's title of the Year), "Hot Wheels", "Spider-Man", "Casper" and "Popeye". The Company is recognized as a CG animation pioneer having developed the groundbreaking internationally distributed television series "ReBoot". Mainframe clients include Sony, Mattel, Lions Gate Home Entertainment, Electronic Arts (Canada) and MTV. Mainframe's majority shareholder, IDT Corporation, is a NYSE-listed multinational telecommunications and entertainment company.

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