Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

March 31, 2010 19:00 ET

Rainmaker Reports Results for the Quarter and Year Ended December 31, 2009

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 31, 2010) - Rainmaker Entertainment Inc. (TSX:RNK) announces its results for the fourth quarter and year ended December 31, 2009.

Overall 2009 was a very challenging year for Rainmaker. External production delays and a weak production service market that was still recovering from the global recession resulted in lower than expected production volumes and new production starts.

The results for the fourth quarter did show improvement over the previous three quarters with four films in various stages of production; resulting in a positive EBITDA of $567,000 for the fourth quarter.

As we move into 2010 we will continue to diversify our work-for-hire business to an expanded client base and build our proprietary development slate.

Subsequent to the year-end, the provincial government announced increases to the existing production service tax credits and the existing digital and visual effects credit. The government also announced a new initiative that creates a similar credit system to be made available to the gaming industry in British Columbia. This represents a positive show of support for the digital production industry in British Columbia.

Selected Annual Information

Below is selected annual information derived from the audited consolidated financial statements which have been prepared in accordance with Canadian generally accepted accounting principles.

Years ended December 31,          
All amounts are in 000's of dollars, except per share / unit figures          
    2009   2008   2007
        Note 1    
Revenue          
  Rainmaker Entertainment - Animation        15,137          28,969          20,782
  EP Canada - Payroll processing (Note 1)                  -            7,149          10,562
  Canada Film Capital - Tax credit services (Note 1)                  -            1,605            2,152
           15,137          37,723          33,496
Expenses          
  Operating        16,707          32,566          28,538
  General and administration          1,069            1,811            2,214
           17,776          34,377          30,752
EBITDA (Note 2)       (2,639)           3,346           2,744
  Depreciation and amortization          2,539            3,385            2,893
  Amortization of intangible assets             868            1,769            3,662
  Write-down of intangible assets                  -                    -            5,750
  Gain on sale of EP Canada and Canada Film Capital                  -           (2,305)                    -
  Amortization of deferred gain on sale of business interests            (298)                (39)                    -
  Gain on settlement of accounts payable                  -              (903)                    -
  Interest expense             685               998            1,237
  Foreign exchange (gain) loss            (822)               482                 71
  Restructuring costs                  -               566                    -
  Equity investment earnings            (565)                (56)                    -
  Other (income) expense              (57)              (469)              (166)
             2,350            3,428          13,447
Loss before non-controlling interest          
and discontinued operations         (4,989)                (82)         (10,703)
  Non-controlling interest                  -                (45)               182
Net loss from continuing operations         (4,989)              (127)         (10,521)
Gain on sale of discontinued operations (Note 3)               97            7,602                    -
Loss from discontinued operations                  -                    -           (3,946)
Net earnings (loss) and comprehensive income (loss) for the year         (4,892)            7,475         (14,467)
Loss from continuing operations per unit / share          
- basic and diluted ($0.29)   ($0.01)   ($0.62)
Net earnings (loss) per share / unit - basic and diluted ($0.28)   $0.43   ($0.85)

Note 1: The 2008 results include the operations of EP and CFC up to November 12, 2008, as Rainmaker sold 70% of its interests in EP and CFC on November 13, 2008.

Note 2: EBITDA is not a term defined under generally accepted accounting principles. Rainmaker 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, foreign exchange gains and losses equity investment earnings and non-cash compensation costs.

Note 3: Sale of Post and Visual Effects, January 8, 2008

Results of Operations

Year ended December 31, 2009 compared to 2008

Revenue

Revenue decreased $22.6 million to $15.1 million in 2009 from $37.7 million in 2008. This decrease was due in part to the sale of Rainmaker's interests in EP Canada and Canada Film Capital (now operating as Base 10 Group Inc.) on November 13, 2008. No revenue was reported from either of these divisions in 2009. For 2008 EP Canada and Canada Film Capital reported revenues of $7.1 million and $1.6 million, respectively. In 2009 Rainmaker's 30% interest in Base 10 Group Inc. (formerly known as Canfilm Services Inc.) is reported on an equity basis.

Rainmaker's animation operations reported a decrease in revenue of $13.9 million to $15.1 million in 2009 from $29.0 million in 2008. The decrease in revenue was due to fewer projects in the DVD division and external production delays on a feature film.

Operating and general and administration expenses

Operating expenses decreased $15.9 million to $16.7 million in 2009 from $32.6 million in 2008. As a result of the sale of Rainmaker's interests in EP Canada and Canada Film Capital on November 13, 2008 there were no operating expenses reported from either of these divisions in 2009. For 2008 EP Canada and Canada Film Capital reported operating expenses of $5.0 million and $1.2 million, respectively.

The decrease in expenses for Rainmaker's animation operations was the result of lower production volumes caused by external production delays. Operating expenses which do not relate directly to the operating segments decreased $0.3 million to $1.2 million from $1.5 million in 2008.

General and administration expenses decreased $0.7 million to $1.1 million in 2009 from $1.8 million in 2008. This decrease was the result of the sale of EP Canada and Canada Film Capital on November 13, 2008.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment decreased $0.9 million in 2009 to $2.5 million as compared to $3.4 million in 2008. For 2008 EP Canada and Canada Film Capital reported depreciation expenses of $0.7 million and $0.01 million, respectively.

The balance is due to decreased capital expenditures for 2009.

Amortization of intangible assets

Amortization of intangible assets decreased $0.9 million in 2009 to $0.9 million as compared to $1.8 million in 2008. The decrease in amortization is the result of the sale of Rainmaker's interests in EP Canada and Canada Film Capital on November 13, 2008.

Interest expense

Interest expense decreased $0.3 million in 2009 to $0.7 million from $1.0 million in 2008. The interest on long-term debt decreased $0.2 million as the outstanding debentures were paid off in August 2009.

Foreign Exchange Gain

There was an increase in the foreign exchange gain of $1.3 million to $0.8 million in 2009 from a loss of $0.5 million in 2008. Included in the 2009 exchange gain is a $0.2 million unrealized gain from the revaluation of derivative contracts that expire in 2010.

Equity Earnings

Rainmaker's 30% interest in Base 10 Group Inc. (formerly known as Canfilm Solutions Inc.) is reported on an equity basis. For 2009 Rainmaker reported equity earnings of $0.6 million from this investment.

Loss from continuing operations

The loss from continuing operations increased $4.9 million in 2009 to $5.0 million from $0.1 million in 2008. As a result of the sale of Rainmaker's interests in EP Canada and Canada Film Capital on November 13, 2008 there were no earnings from either of these divisions in 2009. For 2008 EP Canada reported earnings of $0.3 million and Canada Film Capital reported earnings of $0.3 million.

The loss from Rainmaker Animation increased $3.1 million to $3.5 million in 2009 from $0.4 million in 2008. The decrease in earnings from animation was the result of fewer projects in the DVD division and external production delays on the feature film. In 2008 there was also a one time gain on the settlement of accounts payable of $0.3 million. Earnings not related to a specific segment decreased $1.2 million to a loss of $1.5 million in 2009 from a loss of $0.3 million in 2008. This was due to a number of factors, the most significant being the gain on the sale of EP Canada and Canada Film Capital of $2.3 million and a gain on settlement of accounts payable of $0.6 million in 2008.

Gain on sale of discontinued operations

The gain on sale of discontinued operations for 2009 was $0.1 million. This represents the use of service credits from Deluxe more fully described in Note 4 of the accompanying financial statements. The gain on sale of discontinued operations for 2008 was $7.6 million.

Net earnings (loss) for the year

The net earnings for 2009 decreased $12.4 million for a loss of $4.9 million from earnings of $7.5 million in 2008. The reasons for the decrease were mainly due to non-recurring events that happened in 2008 such as the gain on sale of discontinued operations of $7.6 million, the gain on sale of EP Canada LP and Canada Film Capital LP of $2.3 million and the gain on settlement of accounts payable of $0.9 million.

Selected Fourth Quarter Information

Three months ended December 31,        
All amounts are in 000's of dollars, except per share /unit figures    
               
          2009   2008
              Note 2
Revenue        
  Rainmaker Entertainment           4,557           5,953
  EP Canada                  -           1,614
  Canada Film Capital                  -              287
               
                  4,557           7,854
               
Expenses        
  Operating           3,661           6,209
  General and administration              329              446
               
                  3,990           6,655
               
EBITDA (Note 1)              567           1,199
               
  Depreciation and amortization              588              728
  Amortization of intangible assets              237              334
  Write-down of intangibles                  -                  -
  Gain on sale of EP Canada and Canada Film Capital                  -          (2,305)
  Amortization of deferred gain on sale of business interests              (75)              (39)
  Gain on settlement of accounts payable                  -            (588)
  Equity investment earnings            (520)              (56)
  Interest expense              121              250
  Foreign exchange loss (gain)            (138)              454
  Restructuring costs                  -              118
  Other income                (4)            (197)
               
                     209          (1,301)
               
               
Earnings from continuing operations              358           2,500
               
Loss on sale of discontinued operations                  -              (31)
               
Net earnings for the period              358           2,469
               
Net earnings per share - basic and diluted             0.02             0.14
               

Note 1: EBITDA is not a term defined under generally accepted accounting principles. Rainmaker 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, foreign exchange gains and losses equity investment earnings and non-cash compensation costs.

Note 2: Revenue and expenses for EP Canada and Canada Film Capital are for the period October 1 to November 12, 2008. On November 13, 2008 Rainmaker sold 70% of its interest in these entities.

Results of Operations

Three months ended December 31, 2009 compared to 2008

Revenue and operating expenses were lower in the fourth quarter of 2009 principally because EP Canada and Canada Film Capital are not included in the 2009 numbers but for 2008 are included up to November 12, 2008. Operating expenses for Rainmaker Animation were lower by $1.7 million due to the lower production volumes. Earnings from continuing operations decreased by $2.1 million principally due to the gain on sale of EP Canada and Canada Film Capital and the gain on settlement of accounts payable in 2008.

Consolidated Balance Sheet Data      
  December 31,   December 31,
  2009   2008
Cash                2,800                  6,886
Total assets               18,742                35,266
Total liabilities               13,065                24,780
Shareholder equity                5,677                10,486

Other

Additional information and other publicly filed documents relating to Rainmaker, including the annual audited consolidated financial statements and related management discussion and analysis plus the Annual Information Form 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.

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 market and general economic conditions and the risk factors detailed from time to time in the periodic reports and documents filed by the Company 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 Company 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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