Rainmaker Entertainment Announces December 31st, 2011 Year-End Results

VANCOUVER, BRITISH COLUMBIA, Mar 30, 2012Rainmaker Entertainment Inc. announced today its results for the year ended December 31, 2011.

Highlights for the year ended December 31, 2011:

        --  Loss from operations was $2,844,956 an increase of $1,988,012 compared
            to 2010
        --  Earnings for the year were $3,347,738, an improvement of $2,416,600
            compared to 2010.
        --  Revenues decreased $644,859 compared to 2010 to $18,827,454.
        --  The disposition of Rainmaker's 30% interest in Base 10 Group Inc. ("Base
            10") for proceeds of $5,600,000 and resulted in a gain of $4,855,224.

During the year, Rainmaker completed three DVD films as well as Luna, an animated short film. Luna has been selected for screening at a wide range of festivals all over North America and has won two awards including Best Animated Short at the California International Shorts Festival and the Silver Award Best Animated Short at the Spokane Animation Festival. Production on the feature film Escape from Planet Earth continued during the year with an all-star voice cast which includes: Brendan Fraser, Sarah Jessica Parker, Jessica Alba, Rob Corddry, James Gandolfini.

During 2011 a significant portion of the production capacity at the studio was related to production on the feature film Escape from Planet Earth. This project is currently scheduled to come to an end in Q2 with only minor services provided for the remainder of the year. The revenues from the film in 2011 were $8,298,480 and are anticipated to be approximately 50% of that for 2012. The Company needs to generate additional revenue from its feature film work for hire business. In the meantime, the Company is actively reducing operating costs. If the Company is not able to accomplish these goals, further losses from operations are anticipated in 2012. Management is working with its board of directors to improve company performance on a go forward basis.

Selected Annual Information

The selected annual information provided below has been derived from Rainmaker’s audited annual financial statements which were prepared under IFRS for 2011 and 2010 and under previous Canadian GAAP for 2009.

                                             Years ended December 31,
                                                 2011           2010           2009
                                         ------------------------------------------
                                                (IFRS)         (IFRS)     (CDN GAAP)
        Revenue                          $ 18,827,454   $ 19,472,313   $ 15,136,947
        ---------------------------------------------------------------------------
        Expenses
          Operating                        17,302,827     16,055,810     16,786,332
          Depreciation and
           amortization                     1,576,589      2,730,211      3,407,618
          General and administration        1,265,924        987,390        246,344
          Impairment of investment in
           film and television
           properties                       1,178,422        250,000              -
          Gain on sale of property,
           plant and equipment                 (8,781)        (1,071)           183
          Interest expense                    421,440        364,823        684,655
          Interest income                     (64,011)       (57,906)      (135,865)
        ---------------------------------------------------------------------------
                                           21,672,410     20,329,257     20,989,267
        ---------------------------------------------------------------------------
        Loss from operations               (2,844,956)      (856,944)    (5,852,320)
        ---------------------------------------------------------------------------
          Gain on sale of investment
           in Base 10 Group Inc.            4,855,224        571,481        297,507
          Share of income from
           investment in Base 10 Group
           Inc.                               864,117        352,226        565,035
        ---------------------------------------------------------------------------
        Earnings (loss) from
         continuing operations              2,874,385         66,763     (4,989,778)
        Gain on sale of discontinued
         operations                           473,353        864,375         97,632
        ---------------------------------------------------------------------------
        Earnings and comprehensive
         income (loss) for the year      $  3,347,738   $    931,138   $ (4,892,146)
        ---------------------------------------------------------------------------
        Earnings (loss) from
         continuing operations per
         share
          - basic and diluted            $       0.16   $       0.00   $      (0.29)
        ---------------------------------------------------------------------------
        Earnings (loss) per share
          - basic and diluted            $       0.19   $       0.05   $      (0.28)
        ---------------------------------------------------------------------------
        Weighted average number of
         shares outstanding
          Basic and diluted                17,485,175     17,485,175     17,485,175
        ---------------------------------------------------------------------------

Overall Performance

The $7,294,714 increase in total assets is due to a $6,179,613 increase in tax credits receivable and a $4,933,455 increase in cash as a result of the sale of the Base 10 investment, which was offset by a $2,678,728 reduction in the investment and note receivable. These amounts were offset by an impairment of investment in film and television properties of $1,178,422 and various other items.

Operating activities used cash of $5,685,262 in 2011 compared to $763,429 in 2010; however, cash flow from operations before changes in working capital was $545,719 in 2011 compared to $2,314,897 in 2010. Financing activities provided cash of $2,870,104 as an additional $4,725,119 was drawn on the production loan credit facility, net of $1,855,015 of capital leases payments. Investing activities provided cash of $7,748,613 compared to requiring cash of $106,702 in 2010 due primarily to cash distributions of $1,650,000 from Base 10 and proceeds of $5,600,000 from the subsequent sale of the investment in Base 10 on December 16, 2011.

Earnings from continuing operations increased $2,807,622 to $2,874,385 in 2011 from $66,763 in 2010. The increase is primarily due to the sale of the investment in Base 10 which resulted in a gain of $4,855,224. A more detailed analysis of the other components of earnings from continuing operations is provided below under the title Results of Operations.

The gain on sale of discontinued operations for 2011 was $473,353 compared to $864,375 in 2010. This represents the use of $123,353 of service credits as well as a cash payment due that relates to certain earn-out targets.

On March 31, 2011, Base 10 paid the Company a distribution of $1,650,000 of which $1,320,000 was paid in cash with the remaining $330,000 paid on December 16, 2011. The share of income from the equity investment in Base 10 was $864,117 in 2011 (2010 – $352,226) and earn-out consideration received from Base 10 was $592,196.

Results of Operations

Year ended December 31, 2011 compared to 2010

Revenue

Revenue decreased by $644,859 to $18,827,454 in 2011 from $19,472,313 in 2010. The decrease in revenue was due primarily to a $1,290,877 decrease in gaming revenues as no gaming properties were produced in 2011. In addition, revenue from production of DVD’s and other special projects decreased $1,902,944 from $11,664,357 in 2010 to $9,761,413 in 2011 and revenue from licensing contracts of the Company’s film library decreased $257,117. These decreases were somewhat offset by increased production on feature films, primarily being Escape from Planet Earth, resulting in a $2,736,025 increase in revenue from $6,010,462 in 2010 to $8,746,486 in 2011.

Operating expenses

Operating expenses increased by $1,247,017 to $17,302,827 in 2011 compared to $16,055,810 in 2010. Operating expenses are net of tax credits of $11,919,307 compared to $9,205,837 in 2010. Employee compensation costs increased $3,824,810 in 2011 from $18,979,697 in 2010 to $22,804,507 in 2011. This was primarily due to increase employee costs related to production of the feature film Escape from Planet Earth. Rainmaker had 97 full-time regular employees and 239 term employees at December 31, 2011 compared to 91 full-time and 133 term employees at December 31, 2010. The remainder of the increase in operating expenses in 2011 is largely due to a $298,928 increase in indirect production expenses to $841,323, a $122,549 increase in meals and entertainment to $314,267 and a $103,872 increase in repairs and maintenance to $864,830.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment decreased $1,153,622 in 2011 to $1,576,589 as compared to $2,730,211 in 2010 due to decreasing carrying value of the assets from 2010 to 2011.

General and administration expense

General and administration expenses increased $278,534 to $1,265,924 in 2011 from $987,390 in 2010. This increase is primarily due to a $196,601 increase in legal costs and a $95,081 decrease in foreign exchange gain.

Impairment of investment in film and television properties

Rainmaker recorded impairment of film and television properties of $1,178,422 in 2011 compared to $250,000 in 2010. This impairment is the result of managements’ decision to cease further development of certain projects, which resulted in the write-off of the projects carrying values, which were estimated higher than their estimated value.

Interest expense

Total interest expense increased $56,617 in 2011 to $421,440 as compared to $364,823 in 2010. This is primarily due to the increase in the amount drawn on the production loans from $1,524,027 at December 31, 2010 to $6,249,146 at December 31, 2011.

Equity earnings

Rainmaker’s 30% interest in Base 10 Group Inc. was reported on an equity basis until it was disposed of in December 2011. Rainmaker reported equity earnings of $864,117 from this investment in 2011 as compared to $352,226 in 2010.

Gain on sale of Base 10

The sale of Rainmaker’s 30% interest resulted in proceeds of $5,600,000 million. In addition the Company earned $592,196 of earn-out consideration during the year (2010 – $289,576). Upon final disposition and recognition of all deferred gains and earn-out consideration, the Company recognized a total gain $4,855,224 on sale of the asset.

Gain on sale of discontinued operations

The gain on sale of discontinued operations for 2011 was $473,353 (2010 – $864,375). This represents the use of service credits from Deluxe more fully described in Note 18 of the accompanying financial statements. The gain for the year is comprised of a $350,000 cash payment receivable ($2010 – Nil), and $123,353 in service credits used ($2010 – $864,375).

Earnings for the year

Earnings for the year ended December 31, 2011 increased $2,416,600 to $3,347,738 from $931,138 in 2010.

Selected Fourth Quarter Information

                                                          Quarter ended December 31,
                                                                2011           2010
                                                        ---------------------------
        Revenue                                         $  5,122,599   $  4,422,416
        ---------------------------------------------------------------------------
        Expenses
          Operating                                        5,822,597      3,486,852
          Depreciation and amortization                      340,322        600,331
          General and administration                         394,268        254,233
          Impairment of investment in film and
           television properties                           1,178,422        250,000
          Gain on sale of property, plant and
           equipment                                          (8,781)             -
          Interest expense                                   111,043         96,193
          Interest income                                    (22,690)       (20,573)
        ---------------------------------------------------------------------------
                                                           7,815,181      4,667,036
        ---------------------------------------------------------------------------
        Earnings (loss) from operations                   (2,692,582)      (244,620)
        ---------------------------------------------------------------------------
          Gain on sale of investment in Base 10 Group
           Inc.                                            4,039,898         74,376
          Share of income from investment in Base 10
           Group Inc.                                        427,914        197,371
        ---------------------------------------------------------------------------
        Earnings from continuing operations                1,775,230         27,127
        Gain on sale of discontinued operations              378,528        749,249
        ---------------------------------------------------------------------------
        Earnings and comprehensive income               $  2,153,758   $    776,376
        ---------------------------------------------------------------------------
        Earnings from continuing operations per share
          - basic and diluted                                 $ 0.10         $ 0.00
        ---------------------------------------------------------------------------
        Total comprehensive income per share
          - basic and diluted                                 $ 0.12         $ 0.04
        ---------------------------------------------------------------------------
        Weighted average number of shares outstanding
          Basic and diluted                               17,485,175     17,485,175
        ---------------------------------------------------------------------------

Loss from operations for the fourth quarter of 2011 increased $2,447,962 over the fourth quarter of 2010. The increase over the prior year is largely due to the $2,335,745 increase in the operating costs, a $140,035 and a $928,422 increase in impairment of investment in film and television properties, offset by a decrease in depreciation and amortization of $260,009 and an increase in revenue of $700,183.

The disposition of the Base 10 investment further described above, resulted in an increased gain on sale of the investment of $3,965,522 as compared to the fourth quarter of 2010. The equity income from Base 10 was recognized until the date of sale and was $230,543 higher than 2010.

Other

Rainmaker Entertainment Inc., a multifaceted animation studio, is one of Canada’s largest producers of CG animation. With an innovative history that spans over 18 years, Rainmaker today continues to tell engaging stories and create compelling characters for all media. The studio’s 200 creatively-inspired artists and storytellers are currently in development on the company’s first slate of proprietary projects and in production on the 3D animated family comedy Escape From Planet Earth, voiced by Brendan Fraser, Rob Corddry, Sarah Jessica Parker, Jessica Alba, James Gandolfini. The film, to be distributed by The Weinstein Company in 2013, is directed by Cal Brunker (Despicable Me). Rainmaker has also produced the award-winning short Luna. Originally established as Mainframe Entertainment, the company broke ground by producing the first ever CGI animation series ReBoot. In addition to developing its own properties, Rainmaker also produces feature length DVD’s for many top international brands including Barbie, Max Steel and Tony Hawk, and more. Rainmaker’s clients include Mattel, The Weinstein Company, Lionsgate, Sony, Ubisoft, Electronic Arts and MTV. Circle of Confusion, the leading management firm, is repping the company in Hollywood.