Rainmaker Income Fund
TSX : RNK.UN

Rainmaker Income Fund

November 30, 2007 09:15 ET

Rainmaker Income Fund Provides an Update of Corporate Developments and Reports Results for the Quarter and Nine Months Ended September 30, 2007

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 30, 2007) - Rainmaker Income Fund (the "Fund" or "Rainmaker") (TSX:RNK.UN), a leading provider of services to the entertainment industry, provides an update of corporate developments and reports its results for the quarter and nine months ended September 30, 2007.

Corporate Developments

Sale Transaction

We have entered into a definitive agreement with Deluxe Entertainment Services Group Inc. and Deluxe Vancouver Ltd. (collectively "Deluxe") whereby Deluxe has agreed to purchase the net assets of Rainmaker's post production and visual effects operations in Vancouver, British Columbia and the shares of Rainmaker Animation and Visual Effects UK Limited, the visual effects operation in London, England.

The total purchase consideration will be payable as follows:

- $14.0 million in cash on closing;

- $2.5 million by way of a promissory note due one year after closing;

- $6.0 million earn-out based on revenue targets;

- $3.5 million assumption of capital leases; and

- $5.0 million Deluxe service credits available to Rainmaker Animation operations.

Closing is subject to the approval of Heritage Canada and to certain other customary closing conditions. The transaction is expected to be completed on December 31, 2007.

The proceeds from the sale will be used to retire bank debt and to provide working capital for the continued growth and expansion of Rainmaker's animation platform.

Business Strategy

As mentioned in the second quarter report Rainmaker is focusing its resources on computer generated animation for a number of reasons, principally as it is an area with strong growth potential. There are a limited number of qualified computer animation studios worldwide and a growing demand for animated content throughout the world. Vancouver has a good talent pool, excellent training facilities and strong industry incentives. Further, Rainmaker has been able to build its infrastructure on a work-for-hire basis to the point where it can now develop and own its own content, thereby reducing our reliance on third party production decisions and stabilizing our production work flow.

Rainmaker's goal is to build a world class computer animation studio producing family oriented entertainment projects, which historically have been the strongest performing segment of the entertainment business. To date only a handful of companies worldwide are capable of producing animated feature films. Production on Escape From Planet Earth, our first animated theatrical feature film for The Weinstein Company is now well underway and delivery is scheduled for the fall of 2009. We are also in the process of developing Reboot, Rainmaker's classic television series (which was the first computer generated TV show in the world), as a series of feature length films. Rainmaker's animation group is continuing to aggressively pursue its growth strategy through further investments in systems, processes, infrastructure, personnel and projects.

Results of Operations

Highlights

- Revenue for the third quarter of 2007 was $8.4 million, an increase of $2.5 million or 42% from the $5.8 million in the third quarter of 2006.

- EBITDA from continuing operations for the third quarter increased $0.2 million to $1.3 million as compared to $1.1 million for the third quarter of 2006.

- Revenue for the year to date was $23.6 million, an increase of $12.5 million or 112% from the $11.1 million in 2006.

- EBITDA from continuing operations year to date increased $1.3 million to $1.8 million as compared to $0.5 million for 2006.

Revenue for the third quarter ended September 30, 2007 was higher then the same period in 2006 due to the acquisition of Rainmaker Animation on July 31, 2006. During the quarter the animation group was in production on four direct to DVD projects, a television series and our first animated feature film, Escape From Planet Earth. We are building out the animation facility and infrastructure for the feature film, which will continue throughout the balance of 2007 and into 2008, with the production being completed in the fall of 2009. We are also looking at a number of opportunities to expand the animation business, including the revival of Reboot, the classic animated episodic television series, as a trilogy of feature length films.

Selected Financial Information

The following information is derived from the unaudited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles.

As Rainmaker has entered into an agreement to sell its visual effects and post production operations they are disclosed as discontinued operations in the selected financial information below.



All amounts are in 000's of dollars, except per unit figures

Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
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Revenue
Rainmaker Entertainment $ 4,337 $ 1,691 $ 15,396 $ 1,691
EP Canada 3,488 3,494 6,624 7,188
Canada Film Capital 468 647 1,653 2,278
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8,293 5,832 23,673 11,157
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Expenses
Operating 6,443 4,265 19,997 9,142
General and administration 585 444 1,847 1,462
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7,028 4,709 21,844 10,604
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Earnings before undernoted items -
EBITDA 1,265 1,123 1,829 553
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Depreciation and amortization of
property, plant and equipment 797 477 2,309 942
Amortization of intangible assets 654 293 2,559 881
Interest expense 329 210 953 218
Restructuring costs - 795 - 795
Other (23) (204) (145) (387)
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1,757 1,571 5,676 2,449
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Loss before non-controlling interest (492) (448) (3,847) (1,896)

Non-controlling interest 5 258 118 244
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Loss from continuing operations (487) (190) (3,729) (1,652)

Earnings (loss) from discontinued
operations 173 488 (3,066) 2,718
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Net (loss) earnings for the period $ (314) $ 298 $ (6,795) $ 1,066
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EBITDA is not a term defined under generally accepted accounting principles. The Fund defines EBITDA as earnings from operations before interest expense, interest income, income taxes, depreciation and amortization on property, plant and equipment, amortization of intangible assets, loss on sale of property, plant and equipment, restructuring costs and compensation costs related to unit options.

Results of Operations

Three months ended September 30, 2007 compared to 2006

Revenue

Revenue increased $2.5 million to $8.3 million in 2007 from $5.8 million in 2006. The increase in 2007 is attributable to Rainmaker Animation, which was acquired on July 31, 2006 and increased revenue by $2.7 million. EP Canada reported revenues of $3.5 million, which was similar to 2006 while revenue from Canada Film Capital decreased $0.2 million in 2006.

Operating and general and administration expenses

Operating expenses increased $2.2 million to $6.5 million in 2007 from $4.3 million in 2006 with the acquisition of Rainmaker Animation accounting for an increase of $2.2 million, reflecting the expanded operations and higher revenues. Operating expenses in EP Canada were similar to 2006 at $1.5 million and Canada Film Capital were down $0.2 million from 2006 due to lower costs for financing tax credits and lower compensation costs. Operating expenses which do not relate directly to the operating segments increased $0.2 million to $0.3 million in 2007 compared to $0.1 million in 2006.

General and administration expenses have increased $0.1 million to $0.6 million in 2007 from $0.5 million in 2006 due to the acquisition of Rainmaker Animation in July 2006.

Depreciation and Amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.3 million in 2007 to $0.8 million as compared to $0.5 million in 2006. The increase is attributable to the acquisition of Rainmaker Animation in 2006.

Amortization of intangible assets

Amortization of intangible assets increased $0.4 million in 2007 to $0.7 million as compared to $0.3 million in 2006. The increase is attributable to the acquisition of Rainmaker Animation in July 2006.

Interest expense

Interest expense increased $0.1 million in 2007 to $0.3 million as compared to $0.2 million in 2006. The increase relates to interest on the debentures, which were acquired as part of the acquisition of Rainmaker Animation and the interest on the term loan arising from the acquisition.

Loss from continuing operations

The loss from continuing operations increased $0.3 million in 2007 to $0.5 million from $0.2 million in 2006. The increase was due to the share of the loss attributed to the non-controlling interest as in 2006 the Fund only owned approximately 62% of Rainmaker Animation.

Earnings from discontinued operations

Earnings from discontinued operations decreased $0.3 million in the third quarter of 2007 due to a decrease in post production revenue and a resulting earnings decrease of $1.1 million offset by higher visual effects revenue and related earnings of $0.8 million.

Net earnings for the period

Net earnings for the three months ended September 30, 2007 decreased $0.6 million to a net loss of $0.3 million from net earnings of $0.3 million in 2006.
Nine months ended September 30, 2007 compared to 2006

Revenue

Revenue increased $12.5 million to $23.7 million in 2007 from $11.2 million in 2006. The acquisition of Rainmaker Animation in July 2006 resulted in an additional $13.7 million in revenue in 2007. Offsetting this increase, EP Canada reported a decrease in revenue of $0.6 million as compared to 2006 as they were impacted by the effects of the strike and contract negotiations of Canadian actors and performers for the first six moths of 2007. Revenue from Canada Film Capital decreased $0.6 million to $1.7 million in 2007 from $2.3 million in 2006.

Operating and general and administration expenses

Operating expenses increased $10.9 million to $20.0 million in 2007 from $9.1 million in 2006. The acquisition of Rainmaker Animation resulted in an increase in operating expenses of $11.5 million to $13.6 million in 2007 from $2.1 million in 2006. Operating expenses in EP Canada have decreased $0.2 million to $4.5 million from $4.7 million in 2006 as compensation costs were down reflecting the lower revenue. Operating expenses in Canada Film Capital decreased $0.6 million in 2007 to $1.1 million from $1.7 million in 2006 reflecting the lower level of revenues, especially the financing of tax credits. Operating expenses, which do not relate directly to the operating segments increased $0.2 million to $0.8 million in 2007 compared to $0.6 million in 2006 due mainly to higher compensation costs.

General and administration expenses have increased $0.4 million to $1.8 million in 2007 from $1.4 million in 2006 due to the acquisition of Rainmaker Animation in 2006.

Depreciation and Amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $1.3 million in 2007 to $2.3 million as compared to $1.0 million in 2006. The increase is attributable to the acquisition of Rainmaker Animation in 2006.

Amortization of intangible assets

Amortization of intangible assets increased $1.7 million in 2007 to $2.6 million as compared to $0.9 million in 2006. The increase is attributable to the acquisition of Rainmaker Animation in 2006.

Interest expense

Interest expense increased $0.8 million in 2007 to $1.0 million as compared to $0.2 million in 2006. The increase relates to interest on the debentures, which were acquired as part of the acquisition of Rainmaker Animation in 2006 and the interest on the term loan arising from the acquisition.

Loss from continuing operations

The loss from continuing operations increased $2.0 million in 2007 to $3.7 million from $1.7 million in 2006. The increased loss was due principally to Rainmaker Animation which had increased EBITDA of $1.8 million offset by higher non-cash depreciation and amortization expenses of $3.0 million and higher interest expenses of $0.4 million. The balance of the increase in the loss from continuing operations of $0.4 million was due to the lower earnings of EP Canada resulting from a decrease in revenue.

Earnings from discontinued operations

Earnings from discontinued operations decreased $5.7 million to a loss of $3.0 million for the nine months ended September 30, 2007 from earnings of $2.7 million in 2006. The decrease was due to a lower revenue in post production resulting in a decrease in earnings of $2.8 million and higher operating costs in visual effects resulting in a decrease in earnings of $2.9 million.

Net earnings for the period

Net earnings for the nine months ended September 30, 2007 decreased $7.9 million to a loss of $6.8 million from net earnings of $1.1 million in 2006.

Other

Additional information and other publicly filed documents relating to the Fund, including the interim financial statements and management discussion and analysis are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval ("SEDAR"), which can be accessed at www.sedar.com.

The Fund is an unincorporated open-ended limited purpose trust located in Vancouver, British Columbia. The Fund indirectly owns 100% of Rainmaker Entertainment Inc. ("REI"), EP Canada Limited Partnership ("EP") and Canada Film Capital Limited Partnership ("CFC"). REI is an award-winning computer generated animation company providing superior service, innovative technology and world-class talent to produce animated feature films, television, direct to DVD, games and commercials. EP is a leading provider of payroll services for the film and television industry across Canada. CFC provides tax credit administration services and financing of tax credits through factoring for film and television productions across Canada.

This press release and any related attachments may contain forward-looking statements that involve a number of risks and uncertainty. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are difficulties, delays or the inability to obtain the approval of Heritage Canada or the failure of the parties to satisfy customary closing conditions, market and general economic conditions and the risk factors detailed from time to time in the periodic reports and documents filed by the Fund with The Toronto Stock Exchange and other regulatory authorities. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made, and the Fund undertakes no obligation to update the forward-looking statements should there be a change in conditions, or in management's estimates or opinions.

The contents of this press release have neither been approved nor disapproved by any regulatory authority.

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