EMAK Worldwide Reports Results for First Quarter of 2009

EMAK Worldwide, Inc. (OTC: EMAK), a leading marketing services firm, today announced its financial results for the first quarter ended March 31, 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

• Agency Services continued to show growth in revenues and margin stability
• EBITDA before charges and non-cash expenses was $114,000 in the first quarter of 2009, compared to $794,000 in the year-ago quarter, and was lower primarily due to the lower level of revenues
• Operating expenses were reduced 16 percent, or $1.2 million, for the three-month period ended March 31, 2009 as compared to the year-ago quarter
• EMAK generated $1.1 million of cash in the first quarter of 2009, versus $440,000 of cash used in the year-ago quarter. Following the exit of its consumer products business and other low-margin products business, the Company has less cash tied up in working capital
• The Company reported $6.7 million in cash and cash equivalents; no debt
• Following the merger of MillerCoors and subsequent agency consolidation, Upshot was notified that it will no longer service this client. Work is underway to secure new business to replace the MillerCoors revenue

“Our first quarter results reflect an overall stable operating environment for EMAK. The decline in products-based revenues was anticipated due to the promotional calendar of our largest client and our planned exit of consumer products. First quarter results typically reflect seasonably lower revenues,” said Jim Holbrook, EMAK’s Chief Executive Officer. “I am pleased we generated cash in the quarter. Cash generation is a key focus and has served us well by strengthening our balance sheet. We have flexibility that allows us to make investments for our future, such as the incubation of our Neighbor agency, which we built from the ground up to be profitable from its inception.”

The following table presents reconciliation of net loss from continuing operations to EBITDA for the quarters ended March 31, 2008 and 2009. Management views EBITDA before charges and non-cash expenses as the best indicator of the Company’s recent performance.

Agency Services

EMAK’s Agency Services businesses include its Upshot and Neighbor agencies. In the first quarter of 2009, Agency Services revenues increased nine percent versus the year-ago quarter, reflecting slightly lower revenues at Upshot offset by incremental revenues from Neighbor.

Gross profit dollars decreased one percent in the first quarter reflecting stable margins. As discussed in prior releases, 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.

Promotional Products

EMAK’s Promotional Products business, Equity Marketing, provides a platform for growth via its stable, visible revenue stream. Its other Promotional Products business, Logistix, has been upgraded in the U.S. and is delivering improved results and winning important new programs for existing clients.

In the first quarter of 2009, Promotional Products revenues were 27 percent lower primarily due to the lower volumes for its largest client. The decline was expected due to the timing of blockbuster promotions for EMAK’s largest client versus the prior-year quarter combined with only a small amount of consumer products sold at retail versus one year ago. EMAK’s single remaining consumer products license expired at the end of 2008.

Promotional Products gross profit margin was lower than the prior-year period due to the mix of promotional programs and lower gross margins for closeout consumer products sold at retail.

Balance Sheet and Financial Condition

The balance of cash and cash equivalents at March 31, 2009 was $6.7 million, an increase of $0.9 million versus the end of last year. The Company had no debt at the end of either period.

The Company generated $1.1 million of cash in the first quarter of 2009, versus using $440,000 in the year-ago quarter.

Working capital was $7.2 million and the current ratio was 1.3, 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 19 months.

First Quarter 2009 Results at a Glance

First Quarter 2009 Financial Summary

Revenues for the first quarter were $27.3 million, a 19 percent decrease from the $33.5 million posted in the year-ago period. Higher revenues at the Company’s Logistix agency and incremental revenues at Neighbor were offset by lower revenues at Equity Marketing and Upshot. The lower products-based revenues were fully-anticipated due to the timing of blockbuster promotions for EMAK’s largest client versus the prior year.

Gross profit margin for the first quarter of 2009 was 22 percent compared to 23 percent in the year-ago quarter and reflected decreases in both segments.

Operating expenses decreased 16 percent, or $1.2 million, to $6.4 million compared to $7.7 million in the first quarter of 2008 as a result of continued cost-cutting efforts. Operating expenses include $295,000 in non-cash expense related to grants of restricted stock, compared with $318,000 recognized in the same period in 2008. The first quarter net loss from continuing operations was $704,000 compared with net loss of $59,000 in the same period of the previous year. Lower revenues and gross profit contributed to the net loss.

Outlook for 2009

Holbrook commented on the outlook for 2009. “We are forecasting stability in our products-based businesses, with expectations for stable revenues for Equity Marketing when compared with 2008, and higher, more profitable revenues for Logistix with its recent program wins. Neighbor is adding more revenues and profits as it adds clients. The loss of Miller is Upshot’s only significant client loss in more than four years, and is counter to the strong growth trend that the agency has been experiencing. Between 2005 and 2008, Upshot doubled its net revenue by growing its business with existing clients and adding new clients in a wide range of categories, including communications and technology, as well as consumer goods. For the second year consecutively, the agency has been recognized by Crain’s Chicago Business as one of the Best Places to Work in Chicago.

“We are optimistic about our Equity Marketing, Logistix, Neighbor and Upshot businesses. Obviously we are disappointed to lose the relationship with Miller, but we are working to ensure a smooth transition over the coming months and to mitigate the downside for our business this year,” said Holbrook. “Aside from the loss, Upshot has an exceptional and growing client list and a strong new business pipeline with the potential to replace the lost Miller revenue quickly. The agency has reported five years of double-digit growth, largely based on the fact that is has resonant offerings – consumer insight-based, idea-driven with high tech/high touch execution.

“Our expectations for positive EBITDA before charges and positive cash flow for 2009 remain unchanged. As we stated last quarter, we do not expect any significant pullback by our clients, yet we are planning conservatively in these soft economic times. Tight cost controls are expected to offset any margin pressures. We have made excellent progress toward improving our long-term profitability by re-shaping our business, and we should benefit from our cost reduction plan and our growth efforts as we move forward,” concluded Holbrook.

Additional Information

Condensed consolidated statements of income for the first quarter of 2009 and the fiscal years ended December 31, 2007 and 2008 have been recast to reflect European operations as discontinued operations, and are included in this press release. For additional financial information, EMAK has posted first quarter 2009 financial statements to its website. Interested parties can access all of the aforementioned financial statements at www.emak.com by visiting the Investor Info section of the website under “Financial Reports.”

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.