LOS ANGELES--(BUSINESS WIRE)--Mar. 5, 2009-- EMAK Worldwide, Inc. (OTC: EMAK), a leading marketing services firm, today announced its financial results for the fourth quarter and full year ended December 31, 2008.

Recent Highlights

• The 2008 fiscal year was profitable before charges. With net income before charges near breakeven, 2008 represents EMAK’s first profitable year since 2004 and a substantial improvement over the $3.7 million comparable net loss in 2007
• EMAK’s U.S. operations posted their second consecutive year of profitability
• EBITDA before charges and non-cash expenses was $2.9 million in 2008, versus an EBITDA loss of $560,000 in 2007
• Operating expenses before charges were reduced by 20 percent for the twelve-month period ended December 31, 2008 compared to the same period in 2007
• Agency Services continued to show strong growth in revenue and profitability
• Upshot and Neighbor agencies added six new clients in the fourth quarter 2008
• EMAK generated $4.7 million of cash from operations during 2008, versus $5.0 million of cash used in fiscal year 2007
• Reported $6.2 million in cash and cash equivalents
• EMAK ended the year debt-free

“EMAK’s turnaround efforts, namely our focus on 1) growing our higher-margin, fee-based services businesses, 2) stabilizing our products-based business, and 3) containing costs are evident in our fourth quarter and fiscal year 2008 results,” said Jim Holbrook, EMAK’s Chief Executive Officer. “Further I am pleased that our 2008 adjusted EBITDA of $2.9 million exceeded our original projection of $2.0 million set forth in January 2008.”

The following table presents reconciliations of net income to EBITDA and to non-GAAP net income for the fourth quarter and twelve months ended December 31, 2008. Management views EBITDA before charges and non-cash expenses as the best indicator of the Company’s performance.

U.S. Profitability

EMAK’s U.S. operations posted their second consecutive year of profitability. Net income before charges in fiscal year 2008 was $1.9 million, compared with net income before charges of $427,000 in the previous year.

European Exit

In February 2009 EMAK commenced voluntary liquidation proceedings for its remaining operations in France, Germany and Holland, as fiscal 2008 represented the fourth consecutive year that the region produced losses. For the twelve months ended December 31, 2008, the full financial impact of EMAK’s European operations on its overall profitability is evident, as outlined in the following table.

Agency Services

EMAK’s Agency Services businesses, Upshot and Neighbor, again showed strong growth through increasing revenues from current clients as well as the addition of major new clients. Neighbor recently won three new clients, including a wireless services provider, a blended beverage brand and an organic advocacy group. Upshot added new clients in the fields of communications and technology, as well as a major consumer goods brand.

For the fiscal year 2008, revenues from the Upshot and Neighbor agencies combined increased 28 percent, representing significant growth from Upshot’s new and existing clients and incremental revenues from Neighbor.

Agency Services gross profit dollars increased 20 percent for the fiscal year 2008 as a result of a higher contribution of gross profit dollars from Upshot, which had higher fee-based revenues from both new and existing clients.

Promotional Products

As anticipated Promotional Products revenues were 13 percent lower for the fiscal year 2008; 42 percent of this decrease was due to the decline in European revenues.

For the fiscal year 2008, Promotional Products gross profit margin was lower than the prior year period due to a lower level of creative fees, which carry higher margins, and increased product costs due to rising costs in Asia and increased costs for raw materials and freight.

Cost Controls

EMAK’s return to profitability is a demonstration of its efforts to control costs, with operating expenses before charges down by 20 percent, or $9.0 million, in fiscal year 2008 as compared to the same period in the previous year. The annualized reduction in operating expenses far exceeds EMAK’s original cost reduction target of $6.0 million.

Balance Sheet and Financial Condition

The balance of cash and cash equivalents at December 31, 2008 was $6.2 million, an increase of $3.2 million versus the end of last year. The Company had no debt at the end of either period.

The Company generated $4.7 million of cash from operations during 2008, versus $5.0 million of cash used in fiscal year 2007.

Working capital was $6.6 million and the current ratio was 1.3, versus working capital of $6.4 million and a current ratio of 1.2 at the end of 2007.

EMAK’s unused $25 million credit facility provides the Company with adequate liquidity. Aside from letters of credit securing long-term lease obligations and commercial letters of credit to vendors, EMAK has not borrowed against the facility in the last 17 months.

Fourth Quarter 2008 Financial Summary

Revenues for the fourth quarter were $38.8 million, a 15 percent decrease from the $45.9 million posted in the year-ago period. Higher revenues at the Company’s Upshot agency and incremental revenues at Neighbor were offset by lower revenues at Equity Marketing and the Logistix agency in the U.S. and in Europe.

Gross profit margin for the fourth quarter of 2008 was 24.7 percent compared to 27.5 percent in the prior-year fourth quarter and reflected an increase in Agency Services margins offset by a decline in Promotional Products margins.

Operating expenses before charges decreased 29 percent, or $3.3 million, to $8.2 million compared to $11.5 million in the fourth quarter of 2007 as a result of cost-cutting efforts initiated in 2007. Operating expenses in the 2008 period also include non-cash occupancy costs of approximately $200,000 at Upshot related to lease accounting, masking the full impact of the Company’s cost reduction efforts.

Fourth-quarter net income before charges was $1.6 million compared with net income of $1.1 million in the same period of the previous year.

Full Year 2008 Financial Summary

Revenues for the fiscal year 2008 were $150.4 million, an eight percent decrease from the $164.2 million posted in 2007.

Gross profit margin for fiscal year 2008 was 24.0 percent compared to 25.2 percent in the prior period and reflected an increase in Agency Services margins and a decrease in Promotional Products margins.

Operating expenses before charges decreased 20 percent, or $9.0 million, to $36.2 million compared to $45.2 million in 2007 as a result of cost-cutting efforts initiated in 2007. Included in operating expenses are higher non-cash occupancy costs of approximately $1.0 million at Upshot related to lease accounting, masking the full impact of the Company’s cost reduction efforts.

Operating loss before charges was $124,000 as compared to an operating loss of $3.9 million in 2007.

Full year 2008 net income before charges was $67,000 compared with net loss of $3.7 million in 2007.

Outlook 2009

Holbrook commented on the outlook for 2009, “Our team continues to deliver improved operational performance. While our U.S.-based businesses are not currently experiencing any significant recession-based pullback from our clients, we are planning prudently in light of the current economic environment.”

Looking ahead, the Company is forecasting the 2009 fiscal year with the following assumptions:

• Agency Services - Solid organic and new revenue growth and stable-to-growing gross margin dollars from its fee-based businesses, as Neighbor and Upshot’s clients continue to demand innovative marketing solutions;
• Promotional Products - Stability in its U.S.-based agencies Equity Marketing and Logistix to be offset by the exit of European operations. Combined the expectation is for somewhat lower revenues and gross margins in this segment;
• Exited European operations will be presented as discontinued operations in future periods; and
• Continuing cost reductions are expected to offset margin pressures.

Holbrook continued, “These factors contribute to our projection of positive EBITDA before charges in 2009, approximately flat when compared to 2008, and we should have positive net cash flow for the year. Further, our review of strategic alternatives with Barrington Associates is ongoing as we continue in our pursuit to take the Company along the right path to maximize value for all of EMAK’s stakeholders.”

Additional Information

In accordance with the Company’s practice of voluntarily providing its financials on a timely basis to support the over-the-counter trading of its common stock following deregistration, EMAK’s audited financials for the fiscal year ending December 31, 2008 will be furnished on its website in the coming weeks. Interested parties will be able to access the financial statements at www.emak.com by visiting the Investor Info section of the website under “Recent News.” EMAK will issue a public announcement when its audited financials are posted.

About EMAK Worldwide, Inc.

EMAK Worldwide, Inc. is the parent company of a family of marketing services agencies including Equity Marketing, Logistix, Neighbor and Upshot. Its agencies are experts in “consumer activation” by offering strategy-based marketing programs that directly impact consumer behavior. The agencies provide strategic planning and research, consumer insight development, entertainment marketing, design and manufacturing of custom promotional products, kids marketing, event marketing, shopper marketing and environmental branding. The Company’s blue-chip clients include Burger King Corporation, Kellogg, Kohl’s, Kraft, Macy’s, Miller Brewing Company, Procter & Gamble and Safeway, among others. Headquartered in Los Angeles, EMAK has offices in Chicago and Hong Kong. More information about EMAK Worldwide is available on the Company’s website at www.emak.com.

Certain expectations and projections regarding the future performance of EMAK Worldwide, Inc. discussed in this news release are forward-looking and are made under the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These expectations and projections are based on currently available competitive, financial and economic data along with the Company’s operating plans and are subject to future events and uncertainties. Management cautions the reader that the following factors, among others, could cause the Company’s actual consolidated results of operations and financial position in 2009 and thereafter to differ significantly from those expressed in forward-looking statements: the Company’s dependence on a single customer; the significant quarter-to-quarter variability in the Company’s revenues and net income; the Company’s dependence on the popularity of licensed entertainment properties and the ability to license, develop and market new products; the Company’s dependence on foreign manufacturers; the Company’s need for additional working capital; the negative results of litigation, governmental proceedings or environmental matters; and the potential negative impact of past or future acquisitions. The Company undertakes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The risks highlighted herein should not be assumed to be the only items that could affect the future performance of the Company.

Source: EMAK Worldwide, Inc.

EMAK Worldwide, Inc.:
Media and investor inquiries:
Michael Sanders
SVP and Chief Financial Officer
323-932-4324