Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

November 14, 2008 19:58 ET

Rainmaker Reports Results for the Three and Nine Months Ended September 30, 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 14, 2008) - Rainmaker Entertainment Inc. (formerly Rainmaker Income Fund) (TSX:RNK) announces its results for the three and nine months ended September 30, 2008.

Results of Operations

Highlights

- Revenue for the third quarter of 2008 was $10.0 million, an increase of $1.7 million or 20% from $8.3 million in the third quarter of 2007. Revenue for the nine months ended September 30, 2008 increased $6.2 million or 26% from the same period in 2007.

- EBITDA from continuing operations for the nine months ended September 30, 2008 increased $0.3 million or 17% from the same period in 2007.

- Gain on the sale of discontinued operations to Deluxe for the nine months ended September 30, 2008 was $7.6 million compared to a loss from discontinued operations of $3.0 million in 2007.

- Net earning for the nine months ended September 30, 2008 increased $11.8 million from the same period in 2007.

Strategic Asset Sale

As previously announced, on November 13, 2008, Rainmaker completed the sale of the net assets of EP Canada and Canada Film Capital. Consideration for the sale was $11.2 million cash paid on closing, a subordinated debenture with a five year maximum term of $0.5 million, a further contingent cash payment of up to $2.75 million based on revenue targets. The estimated gain on sale from the transaction is approximately $5.0 million. Rainmaker will also retain a 30% equity interest in a newly formed entity created to facilitate the acquisition and have representation on the board of directors. This new entity includes minority interests by former directors of Rainmaker and certain senior management of EP Canada and Canada Film Capital.

Economic Outlook

The uncertainty of the current economic conditions has begun to affect the entertainment industry as a whole. The company has the ability to meet all its financial requirements including repayment of its debt facilities and retains a strong working capital base to facilitate operations. Subsequent to the end of the quarter Rainmaker signed agreements for two new DVD release projects. Production funding and credit facilities have not been directly impacted by the global credit crisis. The recent strengthening of the US dollar is expected to create opportunities for new projects and increase revenues on any new contracts.

Selected Financial Information

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



All amounts are in 000's of dollars
Three months Nine months
ended September 30, ended September 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Revenue
Rainmaker Entertainment
- Animation 7,036 4,337 23,016 15,396
EP Canada - Payroll processing 2,535 3,488 5,535 6,624
Canada Film Capital - Tax
credit services 415 468 1,318 1,653
---------------------------------------------------- --------------------

9,986 8,293 29,869 23,673
---------------------------------------------------- --------------------

Expenses
Operating 8,829 6,443 26,357 19,997
General and administration 296 585 1,393 1,847
---------------------------------------------------- --------------------

9,125 7,028 27,750 21,844
---------------------------------------------------- --------------------

EBITDA (Note 1) 861 1,265 2,119 1,829
---------------------------------------------------- --------------------

Depreciation and amortization 1,041 797 3,211 2,309
Amortization of intangible
assets 293 654 881 2,559
Restructuring costs 216 - 448 -
Compensation expense
(recoveries) related to
stock options 8 - (58) -
Gain on settlement of
accounts payable - - (315) -
Gain on sale of property,
plant and equipment - - - (2)
Interest expense 310 329 748 953
Interest income (104) (23) (214) (143)
---------------------------------------------------- --------------------

1,764 1,757 4,701 5,676
---------------------------------------------------- --------------------

Loss before non-controlling
interest and discontinued
operations (903) (492) (2,582) (3,847)

Non-controlling interest (5) 5 (45) 118
---------------------------------------------------- --------------------

Net loss from continuing
operations (908) (487) (2,627) (3,729)

Gain on sale of discontinued
operations 5 - 7,633 -
Earnings (loss) from
discontinued operations - 173 - (3,066)
---------------------------------------------------- --------------------

Net (loss) earnings and
comprehensive income (loss)
for the period (903) (314) 5,006 (6,795)
---------------------------------------------------- --------------------
---------------------------------------------------- --------------------

Loss from continuing operations
per unit / share
- basic and diluted ($0.05) ($0.02) ($0.15) ($0.22)
Net (loss) earnings per
unit / share - basic ($0.05) ($0.02) $ 0.29 ($0.40)
Net (loss) earnings per
unit / share - diluted ($0.05) ($0.02) $ 0.28 ($0.40)
--------------------------------------------------------------------------
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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 and write-down
of intangible assets, loss on sale of property, plant and equipment,
restructuring costs and non-cash compensation costs.


Results of Operations

Three months ended September 30, 2008 compared to 2007

Revenue

Revenue increased $1.7 million to $10.0 million in 2008 from $8.3 million in 2007. Rainmaker Animation reported an increase in revenue of $2.7 million to $7.0 million in 2008 from $4.3 million in 2007. The increase in revenue was due to increased animation production work in 2008 in both the DVD division and on a feature film. EP Canada reported a decrease in revenue of $1.0 million to $2.5 million in 2008 as compared to $3.5 million in 2007 as operations were impacted by the effects of the Writers Guild of America strike, the Screen Actors Guild contract negotiations and the strong Canadian dollar. Canada Film Capital reported revenue of $0.4 million for both periods.

Operating and general and administration expenses

Operating expenses increased $2.4 million to $8.8 million in 2008 from $6.4 million in 2007. Rainmaker Animation had an increase of $2.4 million to $6.7 million from $4.3 million in 2007. The increase in expenses was a combination of increased production volumes and some production delays. Operating expenses in EP Canada were similar to 2007 at $1.5 million and Canada Film Capital was also similar to 2007 at $0.3 million. Operating expenses which do not relate directly to the operating segments was also similar to 2007 at $0.3 million.

General and administration expenses decreased $0.3 million to $0.3 million in 2008 from $0.6 million in 2007. The decrease is related to general and administration expenses in Rainmaker Animation of $0.2 million and EP Canada of $0.1 million.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.2 million in 2008 to $1.0 million as compared to $0.8 million in 2007. The increase is attributable to the acquisition of additional equipment and infrastructure relating to the increased animation production.

Amortization of intangible assets

Amortization of intangible assets decreased $0.4 million in 2008 to $0.3 million as compared to $0.7 million in 2007. Following the acquisition of Rainmaker in July 2006, an intangible asset representing existing customer relationships was recorded at the estimated fair value based on independent third party valuation work. At December 31, 2007, Rainmaker completed an assessment of the carrying value and determined that the remaining balance of $5.7 million should be written off as it will not be recovered through future cash flows since it is the intention of Rainmaker to move towards proprietary production work. The decrease in amortization is the result of decreased carrying value of intangibles during 2008 compared to 2007.

Interest expense

Interest expense for both 2008 and 2007 was $0.3 million. While the interest on long-term debt decreased $0.2 million, interest on capital lease obligations and bank indebtedness increased a corresponding amount.

Earnings (Loss) from continuing operations

The loss from continuing operations increased $0.4 million in 2008 to $0.9 million from $0.5 million in 2007. The loss from Rainmaker Animation decreased $0.5 million to $0.8 million in 2008 from $1.3 million in 2007. EP Canada reported a decrease in earnings of $0.7 million to $0.6 million in 2008 from $1.3 million in 2007. The earnings from CFC were similar to 2007 at $0.1 million. Restructuring costs to convert from an income trust accounted for the remaining decrease of $0.2 million.

Earnings from discontinued operations and gain on sale of discontinued operations

There was no loss from discontinued operations in 2008, as the post production and visual effects operations were sold at the beginning of the reporting period. For the three months ending September 30, 2007 earnings from discontinued operations was $0.2 million.

Net loss for the period

The net loss for 2008 increased $0.6 million for a loss of $0.9 million from $0.3 million in 2007.

Nine months ended September 30, 2008 compared to 2007

Revenue

Revenue increased $6.2 million to $29.9 million in 2008 from $23.7 million in 2007. Rainmaker Animation reported an increase in revenue of $7.6 million to $23.0 million in 2008 from $15.4 million in 2007. The increase in revenue was due to increased animation production work in 2008 in both the DVD division and on the feature film. EP Canada reported a decrease in revenue of $1.1 million to $5.5 million in 2008 as compared to $6.6 million in 2007 as operations were impacted by the effects of the Writers Guild of America strike, the Screen Actors Guild contract negotiations and the strong Canadian dollar. Revenue from Canada Film Capital decreased $0.3 million to $1.3 million from $1.6 million in 2007.

Operating and general and administration expenses

Operating expenses increased $6.4 million to $26.4 million in 2008 from $20.0 million in 2007. Rainmaker Animation had an increase of $6.1 million to $19.7 million from $13.6 million in 2007. The increase in expenses was a combination of increased production volumes and some production delays. Operating expenses in EP Canada decreased $0.1 million to $4.4 million from $4.5 million in 2007. Canada Film Capital had a decrease in operating costs of $0.1 million to $1.0 million from $1.1 million in 2007. Operating expenses which do not relate directly to the operating segments increased $0.5 million to $1.3 million in 2008 compared to $0.8 million in 2007 due to severance costs paid to a former employee.

General and administration expenses decreased $0.4 million to $1.4 million in 2008 from $1.8 million in 2007. Rainmaker Animation had a decrease of $0.1 million to $0.4 million in 2008 from $0.5 in 2007. EP Canada had a decrease of $0.1 million to $0.3 million in 2008 from $0.4 million in 2007. Canada Film Capital remained the same at $0.1 million. General and administration expenses not directly attributable to the operating segments decreased $0.2 million to $0.7 million in 2008 from $0.9 million in 2007.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.9 million in 2008 to $3.2 million as compared to $2.3 million in 2007. The increase is attributable to the acquisition of additional equipment and infrastructure relating to the increased animation production.

Amortization of intangible assets

Amortization of intangible assets decreased $1.7 million in 2008 to $0.9 million as compared to $2.6 million in 2007. Following the acquisition of Rainmaker in July 2006, an intangible asset representing existing customer relationships was recorded at the estimated fair value based on independent third party valuation work. At December 31, 2007, Rainmaker completed an assessment of the carrying value and determined that the remaining balance of $5.7 million should be written off as it will not be recovered through future cash flows since it is the intention of Rainmaker to move towards proprietary production work. The decrease in amortization is the result of decreased carrying value of intangibles during 2008 compared to 2007.

Interest expense

Interest expense decreased $0.2 million in 2008 to $0.8 million as compared to $1.0 million in 2007. Interest on capital lease obligation increased $0.2 million to $0.3 million in 2008 from $0.1 million in 2007. Interest on bank indebtedness increased $0.1 million to $0.2 million in 2008 from $0.1 million in 2007. Interest on longer term debt decreased $0.5 million to $0.3 million in 2008 from $0.8 million in 2007. The decrease relates to the repayment of the $9.0 million term loan associated with the acquisition of Rainmaker Animation in 2006.

Loss from continuing operations

The loss from continuing operations decreased $1.1 million in 2008 to $2.6 million from $3.7 million in 2007. Rainmaker Animation reported an increase in its earnings of $2.5 million to $0.4 from a loss of $2.1 in 2007. EP Canada reported a decrease in earnings of $0.8 million for a loss of $0.6 million in 2008 from earnings of $0.2 million in 2007. The earnings from CFC decreased $0.2 million to $0.2 million in 2008 from $0.4 million in 2007. Expenses not directly attributable to operating segments increased $0.4 million.

Loss from discontinued operations and gain on sale of discontinued operations

There was no loss from discontinued operations in 2008, as the post production and visual effects operations were sold at the beginning of the reporting period. In 2007 the loss from discontinued operations was $3.1 million. The sale resulted in a net gain on sale of discontinued operations for 2008 of $7.6 million.

Net earnings for the period

Net earnings for 2008 increased $11.8 million to $5.0 million from a loss of $6.8 million in 2007.

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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