Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

August 15, 2011 09:00 ET

Rainmaker Reports Results for the Three and Six Months Ended June 30, 2011

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 15, 2011) - Rainmaker Entertainment Inc. (TSX:RNK) announced today its results for the three and six months ended June 30, 2011.

During the quarter, Rainmaker was in various stages of production on three DVD films and continued in full production on the feature film Escape from Planet Earth. An all-star voice cast list was recently announced for the film which includes; Brendan Fraser, Sarah Jessica Parker, Jessica Alba, Rob Corddry, James Gandolfini and Craig Robinson.

Warren Franklin, CEO of the Company, is quoted, "We are continuing to evolve into a highly creative, multifaceted animation studio producing work-for-hire productions and developing several proprietary properties including; The Upgrade and two other theatrical movies Ogo and Ting & Juma: The Movie based on Rainmaker's proprietary characters."

The financial results for the three and six months ended June 30, 2011 reflected certain improvements from the same periods in 2010.

Highlights for the Three Months Ended June 30, 2011:

  • Total comprehensive earnings for the quarter improved by $0.4 million resulting in comprehensive earnings for the quarter of $0.1 million compared to a loss of $0.3 in 2010.
  • Revenues decreased $0.4 million over the same period in 2010; however these were offset by reduced operating costs related to increased tax credit filings.
  • Adjusted EBITDA for the quarter was $0.5 million a nominal $0.1 million reduction from 2010.
  • Adjusted EBITDA and Comprehensive earnings for the quarter included a one time reduction of operating costs of $0.4 million related to certain film tax credit filings.

Highlights for the Six Months Ended June 30, 2011:

  • Total comprehensive earnings for the quarter improved $1.3 million to $0.6 million from a loss of $0.7 million in 2010.
  • Revenues decreased $1.3 million over the same period in 2010; however these were offset by reduced operating costs and increased tax credit filings.
  • Adjusted EBITDA for the six months ended June 30, 2011 was $1.2 million an increase of $0.1 million from 2010.
  • Adjusted EBITDA and Comprehensive Earnings for the six months ended 2011 included a one time reduction of operating costs of $1.1 million related to certain film tax credit filings.

Selected Information

Below is selected information derived from the unaudited condensed consolidated interim financial statements which have been prepared in accordance with IFRS.

All amounts are in thousands of Canadian dollars, except per share figures


Three months ended June 30,


Six months ended June 30,
2011 2010 2011 2010
Revenue $ 4,774 $ 5,228 $ 9,047 $ 10,304
Expenses
Operating 3,936 4,303 7,308 8,719
Depreciation and amortization 450 725 954 1,597
General and administration 354 337 569 498
4,740 5,365 8,831 10,814
Earnings (loss) from operations 34 (137 ) 216 (510 )
Gain on sale to Base 10 Group Inc. - - (590 ) (274 )
Share of loss (income) from investment in Base 10 Group Inc. (131 ) 14 76 239
Gain on sale of property, plant and equipment - - - (1 )
Interest expense 108 93 198 185
Interest income - (14 ) (22 ) (28 )
(23 ) 93 (338 ) 121
Earnings (loss) from continuing operations 57 (230 ) 554 (631 )
Gain on sale of discontinued operations 22 (23 ) 65 (22 )
Total comprehensive earnings (loss) for the period $ 79 $ (253 ) $ 619 $ (653 )
Earnings (loss) from continuing operations per share
- basic and diluted $ 0.00 ($0.01 ) $ 0.03 ($0.04 )
Total comprehensive earnings (loss) per share
- basic and diluted $ 0.00 ($0.01 ) $ 0.04 ($0.04 )
Weighted average number of shares outstanding
Basic and diluted 17,485,175 17,485,175 17,485,175 17,485,175

Non-IFRS Financial Measure

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS. Rainmaker believes that adjusted EBITDA is a measure used by investors in assessing the performance of Rainmaker and its ability to generate sufficient cash flow. As adjusted EBITDA is a term not defined under IFRS it may not be comparable to a similar term used in documents of other public entities.

Rainmaker defines adjusted EBITDA as earnings from continuing operations before interest expense, interest income, income taxes, depreciation and amortization of property, plant and equipment, amortization of intangible assets, equity investment loss (earnings), gain on sale of property, plant and equipment and compensation costs related to stock options.

The following is a reconciliation of adjusted EBITDA to earnings for the period as calculated in accordance with IFRS:

All amounts in thousands of Canadian dollars
Three months Six months
ended June 30, ended June 30,
2011 2010 2011 2010
Earnings (loss) from continuing operations $ 57 $ (230 ) $ 554 $ (631 )
Add / (deduct):
Depreciation and amortization 349 501 740 1,129
Amortization of intangible assets 101 224 214 468
Interest expense 108 93 198 185
Interest income - (14 ) (22 ) (28 )
EBITDA $ 615 $ 574 $ 1,684 $ 1,123
Share of loss (gain) from Base 10 Group Inc. investment (131 ) 14 76 239
Gain on sale to Base 10 Group Inc. - - (590 ) (274 )
Stock-based compensation 5 3 8 6
Loss (gain) on sale of property, plant and equipment - 23 - 22
Adjusted EBITDA $ 489 $ 614 $ 1,178 $ 1,116

Results of Operations

Three months ended June 30, 2011 compared to 2010

Revenue

Revenue decreased $0.5 million to $4.7 million in 2011 from $5.2 million in 2010. The decrease in revenue was due to production timing differences and the delivery of one less short film completed in 2011.

Operating and general and administration expenses

Operating expenses decreased $0.4 million to $3.9 million in 2011 from $4.3 million in 2010. The decrease in operating costs is the result of a one time reduction related to a successful application of production tax credits for a single production from a prior period that was previously thought to be unavailable.

General and administration expenses for both 2011 and 2010 were $0.3 million. Included in general and administration expenses is a foreign exchange gain of $0.03 million in 2011 and a foreign exchange loss of $0.08 million in 2010.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment decreased $0.2 million in 2011 to $0.3 million as compared to $0.5 million in 2010 due to decreasing book value of tangible assets in 2011 from 2010.

Amortization of intangible assets

Amortization of intangible assets decreased $0.1 million in 2011 to $0.1 million as compared to $0.2 million in 2010. This decrease was due to decreasing book value of depreciating assets in 2011 from 2010.

Interest expense

Interest expense for both 2011 and 2010 was $0.1 million.

Foreign exchange gain

There was an increase in the foreign exchange gain to $0.03 million in 2011 from a loss of $0.08 million in 2010. Foreign exchange gains and losses are grouped with general and administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Gain from investment in Base 10 Group Inc.

Rainmaker's interest in Base 10 Group Inc. ("Base 10") is reported using the equity method. For the three months ended June 30, 2011, Rainmaker reported an equity gain of $0.1 million from this investment compared to nil for 2010. Base 10 reported net income of $0.5 million for the quarter.

Gain on sale to Base 10 Group Inc.

The gain on sale to Base 10 was nil for 2011 and 2010. These gains are the result of certain revenue targets being met resulting in an earn-out for Rainmaker. Details of the earn-outs are more fully described in Note 6 of the accompanying financial statements.

Earnings from continuing operations

Earnings from continuing operations increased $0.3 million in 2011 to $0.1 million from a loss of $0.2 million in 2010. This increase was the result of the Company's reduced operating expenses during the quarter and the Company's share of income from Base 10.

Gain (loss) on sale of discontinued operations

The gain on sale of discontinued operations increased $0.04 million in 2011 to a gain of $0.02 million from a loss of $0.02 million in 2010. This represents the use of service credits more fully described in Note 5 of the accompanying financial statements.

Total comprehensive earnings for the period

The total comprehensive earnings for the three months ended June 30, 2011 increased $0.4 million to $0.1 million from a loss of $0.3 million in 2010.

Six months ended June 30, 2011 compared to 2010

Revenue

Revenue decreased $1.3 million to $9.0 million in 2011 from $10.3 million in 2010. The decrease in revenue was due to lower exchange rates on contracts denominated in US currency and one less short film produced in 2011.

Operating and general and administration expenses

Operating expenses decreased $1.4 million to $7.3 million in 2011 from $8.7 million in 2010. A one time reduction of $1.1 million of operating costs was recognized in the first quarter of 2011. This reduction was related to a successful application of production tax credits relating to productions from prior periods that were previously thought to be unavailable.

General and administration expenses increased $0.1 million to $0.6 million in 2011 from $0.5 million in 2010. Included in general and administration expenses is a foreign exchange gain of $0.07 million in 2011 and $0.03 million in 2010.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment decreased $0.4 million in 2011 to $0.7 million as compared to $1.1 million in 2010 due to decreasing book value of the assets in 2011 from 2010.

Amortization of intangible assets

Amortization of intangible assets decreased $0.3 million in 2011 to $0.2 million as compared to $0.5 million in 2010. This decrease was due to decreasing book value of depreciating assets in 2011 from 2010.

Interest expense

Interest expense for both 2011 and 2010 was $0.2 million.

Foreign exchange gain

There was an increase in the foreign exchange gain of $0.02 million to $0.07 million in 2011 from $0.03 million in 2010. Foreign exchange gains and losses are grouped with general and administrative expenses on the consolidated statements of operations and comprehensive income (loss).

Loss from investment in Base 10 Group Inc.

Rainmaker's interest in Base 10 is reported on an equity basis. For the six months ended June 30, 2011, Rainmaker reported an equity loss of $0.08 million from this investment compared to $0.3 million for 2010.

In February 2011 Base 10 repurchased 130,000 shares from one of its shareholders. On March 31, 2011 Base 10 issued 919,500 new common shares under option agreements reducing Rainmaker's investment to 29.07%. These two equity adjustments resulted in an equity loss of $0.1 million being charged to the consolidated statements of operations. Base 10 reported net income of $0.5 million for the quarter.

Gain on sale to Base 10 Group Inc.

The gain on sale to Base 10 increased $0.3 million to $0.6 million in 2011 from $0.3 million in 2010. These gains are the result of certain revenue targets being met resulting in an earn-out for Rainmaker. Details of the earn-outs are more fully described in Note 6 of the accompanying financial statements.

Earnings from continuing operations

Earnings from continuing operations increased $1.2 million in 2011 to $0.6 million from a loss of $0.6 million in 2010. This increase was the result of the Company's reduced operating expenses during the quarter and the increase in the gain on sale as a result of the earn-out from Base 10.

Gain (loss) on sale of discontinued operations

The gain on sale of discontinued operations increased $0.08 million to a gain of $0.06 million in 2011 from a loss of $0.02 million in 2010. This represents the use of service credits more fully described in Note 5 of the accompanying financial statements.

Total comprehensive earnings for the period

The total comprehensive earnings for the six months ended June 30, 2011 increased $1.2 million to $0.6 million from a loss of $0.6 million in 2010.

Other

Additional information and other publicly filed documents relating to Rainmaker, including 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.

Further information available at: www.rainmaker.com.

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

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