Mainframe Entertainment, Inc.
TSX : MFE

Mainframe Entertainment, Inc.

November 14, 2005 16:00 ET

Mainframe Entertainment Reports Second Quarter 2006 Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 14, 2005) - Mainframe Entertainment, Inc. ("Mainframe") (TSX:MFE) :

- Revenues grow by 46% to $7.2 million

- Net earnings increase to $0.6 million or EPS of $0.01

Mainframe Entertainment, Inc. ("Mainframe") (TSX:MFE), Canada's leading computer generated (CG) animation production company, today announced its second quarter financial results for the period ended September 30, 2005.

For the three-month period ended September 30, 2005, the Company reported a 46 percent increase in revenues to $7.2 million versus $4.9 million during the same period in fiscal 2005. Gross profit during the period amounted to $2.1 million, or 30 percent of revenues, compared to a gross profit of $1.6 million, or 32 percent of revenues, for the same period in fiscal 2005. Earnings before interest, taxation, depreciation and amortization (EBITDA) amounted to $1.6 million, compared to $0.3 million for the same period in fiscal 2005. Net earnings for the period was $0.6 million, or $0.01 per share compared to a net profit of $0.4 million , or $0.01 per share for the same period in ficsal 2005.

For the six-month period ended September 30, 2005, the Company reported a 31.3 percent increase in revenues to $12.0 million versus $9.1 million during the same period in fiscal 2005. Gross profit during the period amounted to $3.0 million, or 25 percent of revenues, compared to a gross profit of $2.8 million, or 30 percent of revenues, for the same period in fiscal 2005. EBITDA amounted to $1.9 million, compared to $1.6 million for the same period in fiscal 2005. Net earnings for the period was $0.3 million, or $0.00 per share compared to a net profit of $0.5 million, or $0.01 per share for the same period in fiscal 2005.

"The strong second quarter results are a reflection of some of the exciting projects that we have completed and delivered, as well as the mix of proprietary and service projects continuing in production," noted Rick Mischel, Chief Executive Officer of Mainframe Entertainment Inc. "We are very well positioned to continue our growth while maintaining our cost structure, thus increasing the earning power of Mainframe and shareholder value."

As at September 30, 2005, Mainframe's total number of common shares outstanding was 70,799,169, compared to 70,751,882 at March 31, 2005.

The Company will host a conference call on Tuesday, November 15, 2005 at 11:00 a.m. eastern standard time to further discuss the second 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) 695-6623 or 1-800-446-4498 at least 10 minutes prior to the conference time of 11:00 a.m. (EST).

For those unable to attend the call, a replay will be available after 1:00 p.m. (EST) at (416) 695-5275 or 1-888-509-0082 until midnight, November 29, 2005.



Consolidated Balance Sheet

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

(in thousands of Canadian dollars)

September 30, March 31,
2005 2005
(unaudited) (audited)
--------------------------------

Assets

Current assets
Cash and cash equivalents $ 196 $ -
Restricted cash and cash equivalents 2,158 2,158
Accounts receivable 11,276 9,405
Current portion of prepaid expenses 96 244
--------------------------------
13,726 11,807

Prepaid expenses 146 141
Investment in film and television 2,749 3,746
Property and equipment 7,505 8,094
Deferred finance costs 113 129
--------------------------------
$ 24,239 $ 23,917
--------------------------------
--------------------------------

Liabilities

Current liabilities
Bank indebtedness $ 2,831 $ 90
Accounts payable and accrued
liabilities 1,774 2,092
Minority interest 47 14
Deferred revenue 1,274 2,091
Production advances 2,312 4,415
Current portion of capital
lease obligations 608 501
--------------------------------
8,846 9,203
Capital lease obligations 674 653
--------------------------------
9,520 9,856
--------------------------------

Shareholders' Equity
Capital stock 62,406 62,394
Contributed surplus 2,702 2,629
Debentures 6,622 6,355
Deficit (57,011) (57,317)
--------------------------------
14,719 14,061
--------------------------------
$ 24,239 $ 23,917
--------------------------------
--------------------------------


Consolidated Statements of Operations and Deficit
(unaudited)

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

(in thousands of Canadian dollars)

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
------------------------------------------------

Revenue $ 7,288 $ 4,990 $ 12,040 $ 9,165
Production costs 5,092 3,369 9,017 6,328
------------------------------------------------

Gross profit 2,196 1,621 3,023 2,837
------------------------------------------------

Expenses
Selling, general
and administrative 587 677 1,117 1,173
Amortization 463 284 901 653
Writedown of
investment in
film and television 329 8 343 41
Foreign exchange
(gain) loss (172) 142 (205) 150
Minority interest 9 - 22 -
Interest on capital
leases 21 20 30 30
Interest on bank
indebtedness 34 - 40 -
------------------------------------------------
1,271 1,131 2,248 2,047
------------------------------------------------

Earnings before
the undernoted 925 490 775 790
Interest income (27) (29) (42) (53)

Interest and
accretion on
convertible
debentures 138 128 272 251
Loss on disposal
of equipment 233 6 238 14
------------------------------------------------

Net earnings for
the period 581 385 307 578
------------------------------------------------
Deficit - Beginning
of period
As previously
reported (57,592) (57,110) (57,318) (56,825)

Adjustment to
reflect change
in accounting
policy - - - 478
------------------------------------------------
As restated (57,592) (57,110) (57,318) (57,303)
------------------------------------------------
Deficit - End
of period $ (57,011) $ (56,725) $(57,011) $ (56,725)
------------------------------------------------
------------------------------------------------
Basic and diluted
earnings per share
attributable to
common shareholders $ 0.01 $ 0.01 $ 0.00 $ 0.01
------------------------------------------------
------------------------------------------------


Consolidated Statements of Cash Flows
(unaudited)

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

(in thousands of Canadian dollars)


Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
---------------------------------------------

Cash flows provided
by (used in)
operating activities
Loss for the year $ 581 $ 385 $ 307 $ 578
Items not affecting cash
Amortization of property
and equipment 455 276 885 637
Interest and accretion
on convertible
debentures 52 127 85 251
Writedown of investment
in film and television
(note 12) 329 8 343 41
Stock compensation costs 50 64 73 66
Other amortization 8 7 16 16
Loss (gain) on disposal
of equipment 233 16 238 14
Investment in film and
television 767 (108) 851 (128)
Changes in non cash
operating items (4,935) 1,378 (5,144) 220
---------------------------------------------
(2,460) 2,153 (2,346) 1,695
---------------------------------------------

Cash flows provided
by (used in)
financing activities
Increase in bank
indebtedness 1,135 - 2,831 -
Net proceeds from
exercise of stock
options - - 13 -
Capital lease
repayments (186) (270) (355) (636)
Capital lease proceeds 483 - 483 796
Repayment of debentures - - 182 156
---------------------------------------------
1,432 (270) 3,154 316
---------------------------------------------
Cash flows provided
by (used in)
investing
activities
Purchase of property
and equipment (273) (393) (521) (995)
---------------------------------------------
(273) (393) (521) (995)
---------------------------------------------
(Decrease) increase
in cash and cash
equivalents (1,301) 1,490 287 1,016
Cash and cash
equivalents
- Beginning of year 1,497 3,956 (90) 4,430
---------------------------------------------
Cash and cash
equivalents
- End of year $ 196 $ 5,446 $ 197 $ 5,446
---------------------------------------------
---------------------------------------------
Interest paid $ 21 $ 20 $ 34 $ 31
---------------------------------------------
---------------------------------------------
Taxes paid $ - $ - $ - $ -
---------------------------------------------
---------------------------------------------


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.

Contact Information