Rainmaker Income Fund
TSX : RNK.UN

Rainmaker Income Fund

May 13, 2008 19:56 ET

Rainmaker Successfully Completes Restructuring and Reports Results for the Quarter Ended March 31, 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 13, 2008) - Rainmaker Income Fund (the "Fund") (TSX:RNK.UN) completes its restructuring and reports its results for the first quarter ended March 31, 2008.

Results of Operations

Highlights

- Revenue for the first quarter of 2008 was $8.9 million, an increase of $2.3 million or 35% from $6.6 million in the first quarter of 2007.

- EBITDA from continuing operations for the first quarter increased $2.2 million to $0.8 million as compared to loss of $1.4 million for the first quarter of 2007.

- Gain on the sale of discontinued operations in the first quarter of 2008 was $7.6 million compared to a loss from discontinued operations of $1.0 million in the first quarter of 2007.

- Net earnings for the first quarter of 2008 increased $11.6 million to $7.2 million from a loss of $4.4 million in the first quarter of 2007.

Corporate Developments

Deluxe Sale Transaction

As part of the strategy to focus on animation, Rainmaker completed the sale of certain net assets of Rainmaker's post production and visual effects operations to Deluxe Vancouver Ltd. and Deluxe Entertainment Services Group Inc. (collectively "Deluxe") for a cash payment of $14.0 million paid on January 8, 2008, a promissory note for $2.5 million due on January 8, 2009, a further contingent cash payment of up to $6.0 million to be earned-out based on revenue targets, and up to $5.0 million in Deluxe service credits available to Rainmaker for its ongoing animation projects. The proceeds from the sale were 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 Annual Report, Rainmaker is focusing its resources on computer generated animation. Production on "Escape From Planet Earth", Rainmaker's first animated theatrical feature film for The Weinstein Company is now well underway and delivery is scheduled for the fall of 2009. Rainmaker is also in the process of developing "ReBoot", Rainmaker's classic television series (the first computer generated TV show in the world), as a series of feature length films. Rainmaker has also acquired the film rights and started development of "AT-43", one of the largest role playing games in Europe.

Rainmaker has also signed a letter of agreement with comic book legend Stan Lee and his company POW! Entertainment. The agreement is to develop and produce a new series of animated films based on Lee's latest creation Legion of 5. Rainmaker is currently working with its finance partners to secure production financing, and begin preliminary development. This project focuses on Rainmakers plan to produce proprietary projects that provide a share in all revenue streams of the project. Rainmaker's animation group is continuing to aggressively pursue its growth strategy through further investments in systems, processes, infrastructure, personnel and projects.

The Fund is also continuing to pursue the growth of EP Canada's payroll processing business having recently gained a number of new clients following the cessation of the operations of a competitor in January 2008.

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.



Three months ended March 31,
All amounts are in 000's of dollars

2008 2007
------------- -------------

Revenue
Rainmaker Entertainment - Animation 7,240 4,879
EP Canada - Payroll processing 1,104 1,175
Canada Film Capital - Tax credit services 511 526
------------------------------------------------------------------------
8,855 6,580
------------------------------------------------------------------------

Expenses
Operating 7,464 7,330
General and administration 591 682
------------------------------------------------------------------------

8,055 8,012
------------------------------------------------------------------------

EBITDA 800 (1,432)
------------------------------------------------------------------------

Depreciation and amortization 1,048 700
Amortization of intangible assets 294 1,088
Gain on settlement of accounts payable (311) -
Interest expense 204 287
Interest income (62) (43)
------------------------------------------------------------------------

1,173 2,032
------------------------------------------------------------------------

Loss before non-controlling interest
and discontinued operations (373) (3,464)

Non-controlling interest (59) 76
------------------------------------------------------------------------

Loss from continuing operations (432) (3,388)

Gain on sale of discontinued operations 7,628 -
Loss from discontinued operations - (1,044)
------------------------------------------------------------------------

Net earnings (loss) for the period 7,196 (4,432)
------------------------------------------------------------------------
------------------------------------------------------------------------

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

Quarter ended March 31, 2008 compared to March 31, 2007

Revenue

Revenue increased $2.3 million to $8.9 million in 2008 from $6.6 million in 2007. Rainmaker Animation reported an increase in revenue of $2.4 million to $7.2 million in 2008 from $4.8 million in 2007. The increase in revenue was mainly due to increased animation production work in 2008 on the feature film. EP Canada reported a slight decrease in revenue of $0.1 million to $1.1 million in 2008 as compared to $1.2 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 for 2008 was unchanged at $0.5 million.

Operating and general and administration expenses

Operating expenses increased $0.2 million to $7.5 million in 2008 from $7.3 million in 2007, reflecting the expanded animation operations and higher revenues. Operating expenses in EP Canada were similar to 2007 at $1.5 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 decreased $0.1 million to $0.2 million in 2008 compared to $0.3 million in 2007.

General and administration expenses decreased $0.1 million to $0.6 million in 2008 from $0.7 million in 2007. The decrease is related general and administrative expenses not directly attributed 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 $1.0 million as compared to $0.7 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 $0.8 million in 2008 to $0.3 million as compared to $1.1 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 as 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.

Loss from continuing operations

The loss from continuing operations decreased $3.0 million in 2008 to $0.4 million from $3.4 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 $1.0 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 $1.0 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 $11.6 million to $7.2 million from a loss of $4.4 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.

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 company producing computer generated animated feature films, television, direct to DVD films, 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 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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