LOS ANGELES--(BUSINESS WIRE)--Jul. 23, 2009-- EMAK Worldwide, Inc. (OTC: EMAK), a leading marketing services firm, today announced its financial results for the second quarter and six months ended June 30, 2009.

Due to the Company’s closure of its operations in Europe, results presented in this news release reflect European operations as discontinued operations for all periods and, unless stated otherwise, all financial results reflect continuing operations only.

Recent Highlights

• Second quarter net income from continuing operations was $2.8 million compared with net loss of $781,000 in the year-ago quarter
• Agency Services continued to show growth in revenues and gross profit dollars; Promotional Products revenues have stabilized with much-improved gross profit margins
• Operating expenses were reduced 16 percent for both the three- and six-month periods ended June 30, 2009
• EBITDA before charges and non-cash expenses was $3.8 million in the second quarter of 2009, compared to $283,000 in the year-ago quarter, and was higher primarily due to the improvements in gross profit margin as well as lower operating expenses
• EMAK generated $3.0 million of cash from operations in the first half of 2009, versus generating $2.6 million of cash in the year-ago period
• The Company reported $8.5 million in cash and cash equivalents; no debt

“We have fine-tuned our business model to reflect the needs of our clients, paring where necessary and upgrading proactively, because our first priority is to deliver promotional products and programs that drive revenues and build brands for our clients,” said Jim Holbrook, EMAK’s Chief Executive Officer. “Every business unit is concentrated on driving profitability through superior, effective promotional products and services, and the results are evident. Our efforts toward achieving the right size for our operations, growing profitably and generating cash helped us deliver EMAK’s highest level of profitability since the fourth quarter of 2003.

“Maintaining our focus on cash generation has helped drive our cash balance, giving us flexibility in our balance sheet to make investments in our agencies for our future. We’ve also been able to improve our gross profit margin as a result of good pricing discipline and a better mix of higher-margin products and services.”

The following table presents reconciliation of net income from continuing operations to EBITDA for the quarter, six months and trailing twelve months ended June 30, 2009. Management views EBITDA before charges and non-cash expenses as the best indicator of the Company’s ongoing performance.

In the six- and twelve-month periods ended June 30, 2009, EBITDA before charges and non-cash expenses was $3.9 million and $7.4 million respectively, compared to $1.1 million and $5.2 million in the corresponding year-ago periods. As stated previously, EMAK’s European operations have been accounted for as discontinued operations. To assist readers in understanding the overall results of the Company, the trajectory of improvements over the past few years and the full drag of European operations on EMAK’s historical results, EBITDA information representing the results of the total Company follows at the end of this release and includes both continuing and discontinued operations of the Company.

Agency Services

In the second quarter of 2009, Agency Services revenues increased 24.3 percent versus the year-ago quarter, reflecting incremental revenues at Neighbor offset by slightly lower revenues at Upshot.

In the Agency Services segment, fluctuations in low-margin, direct-cost billings make comparisons of the gross profit percentages difficult. Thus, management views the overall gross profit dollars, rather than the percentage, to be a more meaningful measure of performance in this segment. Gross profit dollars increased 47.1 percent in the second quarter reflecting growing margins at both agencies.

Promotional Products

Promotional Products revenues were 3.0 percent lower in the second quarter of 2009, due primarily to lower revenues at Logistix. The decline was expected due to the timing of promotions versus the prior year quarter and the Company’s decision not to pursue low-margin business.

As a result, Promotional Products gross profit margin was five full percentage points higher than the prior-year period due to more favorable commodity pricing, an improved competitive environment in the production chain, and the shedding of unprofitable business at its Logistix agency.

Balance Sheet and Financial Condition

The balance of cash and cash equivalents at June 30, 2009 was $8.5 million, an increase of $2.7 million versus the end of last year. The Company had no debt at the end of either period.

The Company generated $3.0 million of cash from operations during the first six months of 2009, versus generating $2.6 million in the same period in 2008. Following the exit of its consumer products business and other low-margin products business, the Company has less cash tied up in working capital.

Working capital was $10.3 million and the current ratio was 1.5, versus working capital of $7.2 million and a current ratio of 1.3 at the end of 2008.

EMAK’s unused $7.5 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 22 months.

Second Quarter 2009 Results at a Glance

Second Quarter 2009 Financial Summary

Revenues for the second quarter were $37.5 million, an increase of 2.4 percent from the $36.7 million posted in the year-ago quarter. Higher revenues at the Company’s Equity Marketing agency and incremental revenues at Neighbor were offset by lower revenues at Logistix and Upshot. The lower products-based revenues were fully-anticipated due to the timing of promotions and the Company’s decision to forego low-margin revenues.

Gross profit margin for the second quarter of 2009 was 25.8 percent compared to 20.0 percent in the year-ago quarter and reflected increases across all business units and segments.

Operating expenses decreased 15.8 percent, or $1.3 million, to $6.9 million compared to $8.1 million in the second quarter of 2008 as a result of continued cost-cutting efforts. Operating expenses include $236,000 in non-cash expense related to grants of restricted stock, compared with $266,000 recognized in the same period in 2008.

Second quarter net income from continuing operations was $2.8 million, or $0.29 per diluted share, compared with net loss of $781,000, or ($0.13) per diluted share, in the same period of the previous year. Stable revenues combined with higher gross profit and lower costs contributed to marked improvements to the bottom line.

Six-Month 2009 Results at a Glance

Six-Month 2009 Financial Summary

Revenues for the first half were $64.9 million, a decrease of 7.6 percent from the $70.2 million posted in the year-ago period.

Gross profit margin for the first half of 2009 was 24.0 percent compared to 21.4 percent in the year-ago period and reflected increases across all business units and segments.

Operating expenses decreased 15.9 percent, or $2.5 million, to $13.3 million compared to $15.8 million in the first half of 2008 as a result of continued cost-cutting efforts. Operating expenses include $531,000 in non-cash expense related to grants of restricted stock, compared with $584,000 recognized in the same period in 2008.

Net income from continuing operations for the first half of 2009 was $2.1 million, or $0.22 per diluted share, compared with net loss of $840,000, or ($0.14) per diluted share, in the same period of the previous year.

Annual Meeting of Stockholders

At its 2009 annual meeting, EMAK’s stockholders elected four members to its Board of Directors (Howard D. Bland, Jim Holbrook, Jordan H. Rednor and Stephen P. Robeck, Chairman), and ratified the appointment of J.H. Cohn, LLP as the Company’s independent public accounting firm for the current fiscal year. As reported previously, the Board appointed Donald Kurz to fill a vacancy until the 2010 annual meeting, and Crown Capital, the holder of the Company’s Series AA senior cumulative convertible preferred stock, appointed Jeffrey S. Deutschman as a member of the Board.

Outlook for 2009

“Our team has been steadily driving improvements in our operational performance, and we continue to make adjustments to position our agencies for the future and improve profitability,” said Holbrook. “For 2009 we are maintaining our forecast for stable revenues from our products-based businesses compared to 2008, with expectations for stable revenues at Equity Marketing, and higher, more profitable revenues for Logistix.

“For our services-based businesses, Neighbor is growing steadily with existing clients and adding new clients with its promise of better-for-all marketing. Upshot moved up in PROMO Magazine’s Top 100 annual agency ranking, from 46 a year ago to 38 in 2009. The agency’s new business pipeline is robust as they work diligently to replace revenues from MillerCoors. We have taken steps to mitigate any temporary revenue downside if the agency takes longer than expected to replace those revenues.

“Our expectations for positive EBITDA before charges and positive cash flow for 2009 remain unchanged. As a company, EMAK has what it takes to build a track record of achievement - a strengthening balance sheet, outstanding client relationships, in-demand products and services and an outstanding team. I am confident we are on the right path to build shareholder value.”

Additional Information

For additional financial information, EMAK has posted full second quarter and six-month 2009 financial statements to its website. Interested parties can access these financial statements, as well as historical statements previously posted, at www.emak.com, by visiting the Investor Info section of the website under “Financial Reports.” For highlights of in-market promotions from Equity Marketing, Logistix, Neighbor and Upshot, their individual go-to-market strategies and industry awards and accolades, interested parties can download a recently-updated presentation under “Investor Presentation.”

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, 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.
Michael Sanders
SVP and Chief Financial Officer
323-932-4324