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Gold/Mining/Energy : Mainframe Entertainment (ReBoot/Beasties) -- Ignore unavailable to you. Want to Upgrade?

To: Sleeperz who wrote (205)	12/2/1997 5:59:00 PM
From: D.E. Shetland	Read Replies (2) \| Respond to of 459

Re-read the quarterly, your numbers are incorrect. They delivered 11 episodes of BeastWars in the first 6 months of 97FY with revenue of 7mil vs. 9 Reboot at 4.6mil. That would be around 640-500/episode, except for the fact that not all revenue booked is attributable to these projects. There is ancilliary licensing and some Imax I would bet. As for profits, as past posts have noted, they put all the expenses associated with the development up front. One could show earnings by smoothing the expenses (capitalizing them and writing them off) but it's not very conservative. But the benefit to this policy is seen over time, not immediately, in that the future "residual" streams --foreign sales, re-broadcast, licensing etc... --drop to the bottom line. They are only now packaging ReBoot's full episodes for sydication. These are the things that build as you get season 3,4,5,... Also, as one get's bigger, you can use the same equipment for all the shows (and include it in the price), yet you don't have to buy more. You still have to pay animators/computer programmers, but you don't have to buy more equip. That is also something that builds up. If you want to see what sort of gross profits the shows produce, you'd have to look at the EBITDA line, not net income. As for contract work vs. library. I have used the term library incorrectly. What I have meant is some form of ownership, be it certain distribution rights, licensing rights, profit splits etc... As a small, fast growing company, they have sought to create partnerships that will pay for the production work and leave some form of ownership for them. Very few animation firms have 100% ownership of 100% of the world. Most pull in foreign broadcasters/programmers to sell Euro rights, or Asian rights or even US rights. So the key is to negotiate something down the line which can spin-off income. As you can see with MFE, the more they develop as a company and get high ratings for shows and interest in the product, the better you can negotiate. So, for instance, you're right that although ReBoot is very creative, MFE only owns the US rights and the licensing. For BeastWars, they have some Canadian and split others. I think Hasbro has Japan and US though. They also get some sort of toy royalty. If Hasbro wants season 3, and the ratings keep up, MFE should be able to get a good deal. If not, I guess they can add another show. If you have 20 projects in the works, something will pop up. As for the design of the characters and stuff, I think their guys still do a lot of the creative brainstorming with their partners such as Shiny/Playmates. Also, I think the newest show, Closing Time, is an innovative use of 3D/2D that their programmers figured out. My take on the share is that markets are nervous, small selling has dropped most prices lately, but that most shareholders are looking at the examples of Cinar and such. As these companies develop and keep filling the backlog, they generate good earnings and cash flow over time. They've only been public less than 6 months and already bagged 2 new shows with 2 new partners (Playmates/Shiny and Millesceme/Decode), had one series renewed (BW), finished a 3rd season of ReBoot, and are clearly working on all sorts of other projects which I suspect we will hear about soon. Those are what will interest folks and the market. I guess you're a bear on this one, but I would think it'd be dangerous to short something that could pop on a moment's notice. These are the kind of stocks you have to hold and be patient with. They're usually pretty good ones for volatile times.