Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

August 13, 2008 20:15 ET

Rainmaker Reports Results for the Three And Six Months Ended June 30, 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 13, 2008) - Rainmaker Entertainment Inc. (formerly Rainmaker Income Fund) (TSX:RNK) announces its results for the three and six months ended June 30, 2008.

Results of Operations

Highlights

- Revenue for the second quarter of 2008 was $11.0 million, an increase of $2.2 million or 20% from $8.8 million in the second quarter of 2007. Revenue for the six months ended June 2008 increased $4.5 million or 29% from the same period in 2007.

- EBITDA from continuing operations for the six months ended June increased $0.7 million or 123% from the same period in 2007.

- Gain on the sale of discontinued operations to Deluxe for the six months ended 2008 was $7.6 million compared to a loss from discontinued operations of $3.2 million in 2007.

- Net earnings for the six months ended June 2008 increased $12.4 million from the same period in 2007. Net loss for the second quarter of 2008 decreased $0.7 million to $1.3 million from a loss of $2.0 million in the second quarter of 2007.

- Subsequent to June 30, 2008 Rainmaker Entertainment Inc. signed a non-binding letter of intent to sell the net assets of EP Canada and Canada Film Capital. The proposed transaction, which is headed by senior management of EP Canada and Canada Film Capital, is expected to provide net cash proceeds of $14.75 million. The estimated gain on sale is approximately $8.0 million, which will be fully offset for tax purposes by loss carry-forwards. Rainmaker would retain a twenty-five percent interest in the newly formed entity and would have representation on the board of directors. Rainmaker will retain significant influence over the new entity and as such the assets, liabilities and operations have not been reclassified as held for sale or discontinued operations on the quarterly financial statements as prescribed by CICA EIC-153. The proposed transaction is expected to close by August 31, 2008 subject to signing a definitive long form agreement and certain other customary closing conditions.

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.



All amounts are in 000's of dollars

Three months Six months
ended June 30, ended June 30,
2008 2007 2008 2007
------ ------ ------ ------
Revenue
Rainmaker Entertainment - Animation 8,740 6,180 15,980 11,059
EP Canada - Payroll processing 1,896 1,961 3,000 3,136
Canada Film Capital - Tax credit services 392 659 903 1,185
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11,028 8,800 19,883 15,380
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Expenses
Operating 10,064 6,224 17,528 13,554
General and administration 506 580 1,097 1,262
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10,570 6,804 18,625 14,816
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EBITDA (Note 1) 458 1,996 1,258 564
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Depreciation and amortization 1,122 812 2,170 1,512
Amortization of intangible assets 294 817 588 1,905
Restructuring costs 232 - 232 -
Compensation recoveries related to
unit options (66) - (66) -
Gain on settlement of accounts payable (4) - (315) -
Gain on sale of property, plant and
equipment - (2) - (2)
Interest expense 234 337 438 624
Interest income (48) (77) (110) (120)
---------------------------------------------------------- --------------

1,764 1,887 2,937 3,919
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Earnings (loss) before non-controlling
interest and discontinued operations (1,306) 109 (1,679) (3,355)

Non-controlling interest 19 37 (40) 113
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Earnings (loss) from continuing operations (1,287) 146 (1,719) (3,242)

Gain on sale of discontinued operations - - 7,628 -
Loss from discontinued operations - (2,195) - (3,239)
---------------------------------------------------------- --------------

Net and comprehensive earnings (loss)
for the period (1,287) (2,049) 5,909 (6,481)
---------------------------------------------------------- --------------
---------------------------------------------------------- --------------


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 and write-down of intangible assets, loss on sale of property, plant and equipment, restructuring costs and non-cash compensation costs.

At the beginning of the first quarter 2008 Rainmaker sold certain net assets of its post production and visual effects operations and as such they are disclosed as discontinued operations in the selected comparative financial information above.

Results of Operations

Three months ended June 30, 2008 compared to June 30, 2007

Revenue

Revenue increased $2.2 million to $11 million in 2008 from $8.8 million in 2007. Rainmaker Animation reported an increase in revenue of $2.5 million to $8.7 million in 2008 from $6.2 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 slight decrease in revenue of $0.1 million to $1.9 million in 2008 as compared to $2.0 million in 2007 as operations were impacted by the effects of the Writers Guild of America strike in 2008 and the Canadian actors strike and related contract negotiations in 2007. Canada Film Capital reported a decrease in revenue of $0.2 to $0.4 million in 2008 from $0.6 million in 2007.

Operating and general and administration expenses

Operating expenses increased $3.9 million to $10.1 million in 2008 from $6.2 million in 2007. Rainmaker Animation had an increase of $3.4 million to $7.6 million from $4.2 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 increased $0.5 million to $0.8 million in 2008 compared to $0.3 million in 2007 because of severance paid to a former employee.

General and administration expenses decreased $0.1 million to $0.5 million in 2008 from $0.6 million in 2007. The decrease is related to general and administration expenses not directly attributable to the operating segments.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.3 million in 2008 to $1.1 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 $0.5 million in 2008 to $0.3 million as compared to $0.8 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, the Fund 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 $0.1 million in 2008 to $0.2 million as compared to $0.3 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.

Earnings (Loss) from continuing operations

The earnings from continuing operations decreased $1.4 million in 2008 to a loss of $1.3 million from earnings of $0.1 million in 2007. The increased loss was mainly attributable to production delays in Rainmaker Animation and severance costs of $0.7 million. EP Canada reported an increased loss of $0.1 million to $1.0 million in 2008 from $0.9 million in 2007. The earnings from CFC increased $0.1 million in 2008 from $Nil earnings in 2007.

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 $2.2 million.

Net loss for the period

The net loss for 2008 decreased $0.7 million for a loss of $1.3 million from $2.0 million in 2007.

Six months ended June 30, 2008 compared to 2007

Revenue

Revenue increased $4.5 million to $19.9 million in 2008 from $15.4 million in 2007. Rainmaker Animation reported an increase in revenue of $4.9 million to $16.0 million in 2008 from $11.1 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 slight decrease in revenue of $0.1 million to $3.0 million in 2008 as compared to $3.1 million in 2007 as operations were impacted by the effects of the Writers Guild of America strike in 2008 and the Canadian actors strike and related contract negotiations in 2007. Revenue from Canada Film Capital decreased $0.3 million to $0.9 million from $1.2 million in 2007.

Operating and general and administration expenses

Operating expenses increased $3.9 million to $17.5 million in 2008 from $13.6 million in 2007. Rainmaker Animation had an increase of $3.5 million to $12.9 million from $9.3 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 $3.0 million and Canada Film Capital was down $0.1 million from 2007 due to lower costs for financing tax credits and lower compensation costs. Operating expenses which do not relate directly to the operating segments increased $0.5 million to $1.0 million in 2008 compared to $0.5 million in 2007 due to severance costs paid to a former employee.

General and administration expenses decreased $0.2 million to $1.1 million in 2008 from $1.3 million in 2007. The decrease is related to general and administration expenses not directly attributable to the operating segments.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment increased $0.7 million in 2008 to $2.2 million as compared to $1.5 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 $1.3 million in 2008 to $0.6 million as compared to $1.9 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, the Fund 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 $0.4 million as compared to $0.6 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 $1.5 million in 2008 to $1.7 million from $3.2 million in 2007. The decrease in loss was attributable to increased production volume in the animation operations. EP Canada reported an increased loss of $0.1 million to $1.2 million in 2008 from $1.1 million in 2007. The earnings from CFC decreased $0.1 million to $0.2 in 2008 from $0.3 million in 2007.

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 $3.2 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 $12.4 million to $5.9 million from a loss of $6.5 million in 2007.

Other

Additional information and other publicly filed documents relating to the Fund, 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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