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Rainmaker Entertainment Announces March 31st, 2012 First Quarter Results and Appointment of Chief Financial Officer

(May 11, 2012)

VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 05/11/12 -- Rainmaker Entertainment Inc. (TSX:RNK) announced today its results for the three months ended March 31, 2012 and the appointment of Darren Battersby as Chief Financial Officer.

First Quarter Highlights

Highlights for the period ended March 31, 2012:

-- Revenues increased $908,104 to $5,181,227 in the first quarter of 2012 compared to $4,273,123 in the first quarter of 2011 -- Loss from operations was $973,936 compared to earnings from operations of $113,429 in the first quarter of 2011 -- Loss for the quarter was $958,291 compared to earnings of $619,425 in 2011


During the first quarter, Rainmaker continued production on two DVD's and its feature film Escape from Planet Earth; all of these projects are on course for scheduled deliveries in the second quarter of 2012. The quality of these projects continues to improve both artistically and technically. The studio also commenced pre-production on a third DVD for Mattel scheduled for delivery the first quarter of 2013.

During the first quarter a significant portion of the production capacity at the studio was related to production on Escape from Planet Earth. As this project is scheduled to come to an end in Q2 with only minor services provided for the remainder of the year, the Company is currently pursuing other opportunities and bidding on new projects in a highly competitive marketplace in order to generate additional revenue from its work for hire business. In the meantime, the Company continues to work on restructuring the business model in order to reduce operating costs in all areas of the studio including staffing, overhead and facilities. Management is working with its board of directors to improve the Company's performance on a go forward basis.

Appointment of Chief Financial Officer

Rainmaker is pleased to announce the appointment of Darren Battersby as CFO effective April 30, 2012. Mr. Battersby, a Chartered Accountant, is an experienced CFO with film animation experience who has served in this capacity with both public and private companies.

Selected Financial Information

The selected financial information provided below has been derived from Rainmaker's condensed interim consolidated financial statements which were prepared under IFRS.

Three months ended March 31, 2012 2011 ------------------------------ Revenue $ 5,181,227 $ 4,273,123 --------------------------------------------------------------------------- Expenses Operating 5,355,363 3,372,599 Depreciation and amortization 363,395 504,703 General and administration 331,148 214,696 Gain on sale of property, plant and equipment (1,226) - Interest expense 129,040 89,581 Interest income (22,557) (21,885) --------------------------------------------------------------------------- 6,155,163 4,159,694 --------------------------------------------------------------------------- Earnings (loss) from operations (973,936) 113,429 --------------------------------------------------------------------------- Gain on sale of investment in Base 10 Group Inc. - 664,670 Share of income from investment in Base 10 Group Inc. - (202,174) --------------------------------------------------------------------------- Earnings (loss) from continuing operations (973,936) 575,925 Gain on sale of discontinued operations 15,645 43,500 --------------------------------------------------------------------------- Earnings (loss) and comprehensive income (loss) for the period $ (958,291) $ 619,425 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Earnings (loss) from continuing operations per share - basic and diluted ($0.06) $0.03 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Comprehensive income (loss) per share - basic and diluted ($0.05) $0.04 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Weighted average number of shares outstanding Basic and diluted 17,485,175 17,485,175 --------------------------------------------------------------------------- ---------------------------------------------------------------------------

Overall Performance

The $ 2,867,283 decrease in total assets is due primarily to a $2,693,528 decrease in tax credits receivable.

Operating activities provided cash of $365,241 in the first quarter of 2012 compared to requiring cash of $3,859,536 in the first quarter of 2011. This improvement is due to changes in non-cash working capital which provided cash of $956,550 in 2012 compared to requiring cash of $4,480,842 in 2011. Financing activities used cash of $113,761 in 2012 compared to providing cash of $1,479,489 in 2011 as $534,652 of capital lease payments were incurred while the amount drawn on the production loan credit facilities increased by only $420,891. Investing activities used cash of $235,622 in the first quarter compared to providing cash of $2,264,323 in 2011. In 2012 $237,622 was spent on additions to investment in film and television and property, plant and equipment compared to $145,970 in 2011; however, in the first quarter of 2011 cash distributions of $1,320,000, a revenue target earn-out of $590,293 and repayment of a $500,000 note receivable were received in relation to the investment in Base 10. The investment in Base 10 was disposed of at the end of 2011; therefore, no cash flows were received in relation to this investment in 2012.

Earnings from continuing operations decreased $1,549,861 from $575,925 in the first quarter of 2011 to a loss of $973,936 in 2012. The decrease is primarily due to a 59% increase in operating costs with only a 21% increase in revenue. A more detailed analysis of the other components of earnings from continuing operations is provided below under the title Results of Operations.

Results of Operations

Three months ended March 31, 2012 compared to 2011

Revenue

Revenue increased by $908,104 to $5,181,227 in the first quarter of 2012 from $4,273,123 in the first quarter of 2011. The increase in revenue was due primarily to increased production on the feature film Escape from Planet Earth, resulting in a $1,191,131 increase in revenue from $1,235,075 in the first quarter of 2011 to $2,426,206 in 2012. This increase was somewhat offset by a $450,107 decrease in other feature film revenue as no other feature films were ongoing during the first quarter of 2012.

Revenue from production of DVD's and other special projects increased $255,223 from $2,495,310 in the first quarter of 2011 to $2,750,533 in the first quarter of 2012, while motion capture revenue decreased by $85,723 from $90,823 in 2011 to $5,100 in 2012.

Operating expenses

Operating expenses increased by $1,982,764 to $5,355,363 in the first quarter of 2012 compared to $3,372,599 in 2011. Operating expenses are net of tax credits of $2,907,204 compared to $3,163,346 in the first quarter of 2011; the decrease in tax credits of $256,143 is due to $652,000 of tax credits received in the first quarter of 2011 as a result of a successful application for production tax credits relating to productions from periods that were previously thought to be unavailable.

Employee compensation costs increased $1,603,324 in 2012 from $5,145,855 in 2011 to $6,749,179 in 2012. This was primarily due to increased employee costs related to production of the feature film Escape from Planet Earth. In addition, severance costs of $550,000 were recorded in relation to a formal termination plan that was implemented in the period as part of management's overall cost reduction measures. Rainmaker had 91 full-time regular employees and 209 term employees at March 31, 2012 compared to 95 full-time and 175 term employees at March 31, 2011 and to 97 full-time and 239 term employees at December 31, 2011.

The remainder of the increase in operating expenses in 2012 is largely due to a $62,700 increase in equipment rental, a $37,500 increase in user licenses, a $54,100 increase in system maintenance and a $46,000 increase in staff benefits; these increases were expected given the stage of completion of the feature film Escape from Planet Earth and the increase in head count over the same period in the prior year.

These increases were somewhat offset by a $53,981 decrease in travel costs and a $57,381 decrease in rent and occupancy costs as a result of subletting excess space.

Depreciation and amortization of property, plant and equipment

Depreciation and amortization of property, plant and equipment decreased $141,308 in 2012 to $363,395 as compared to $504,703 in 2011 due to decreasing carrying value of the assets from 2011 to 2012.

General and administration expense

General and administration expenses increased $116,452 to $331,148 in 2012 from $214,696 in the first quarter of 2011. This increase is due to a $34,700 increase in business advisory fees, a $58,000 increase in bank fees and a $53,258 decrease in foreign exchange gain, offset by a $48,400 decrease in legal fees.

Interest expense

Total interest expense increased $39,459 in 2012 to $129,040 primarily due to the increase in the amount drawn on the production loans from $3,472,715 at March 31, 2011 to $6,670,037 at March 31, 2012.

Equity earnings and gain on sale of Base 10

Rainmaker's 30% interest in Base 10 Group Inc. was reported on an equity basis until it was disposed of in December 2011.

Gain on sale of discontinued operations

The gain on sale of discontinued operations for the first quarter of 2012 was $15,645 compared to $43,500 in 2011. This represents the use of available service credits from Deluxe.

Earnings for the quarter

Earnings for the first quarter of 2012 decreased $1,577,716 to a loss of $958,291 compared to earnings of $619,425 in the first quarter of 2011.

Other

Rainmaker Entertainment Inc. is one of Canada's largest producers of computer generated animation for all media. The studio is currently in production on its first feature film Escape from Planet Earth which will be distributed by The Weinstein Company in February 2013. It is also producing several DVD films for Mattel and developing its own properties. Rainmaker is currently represented by Hollywood management firm, Circle of Confusion. For more information, go to www.rainmaker.com.

Contacts:
Rainmaker Entertainment Inc.
Darren Battersby
(604) 714-2600
(604) 714-5990 (FAX)
investor@rainmaker.com
www.rainmaker.com


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