Fatkat received millions for expansion

Sept. 4, 2009

This is part 2 of our look at documents obtained from the provincial government iunder the Right to Information Act regarding it's dealings with Fatkat Animation.

As Fatkat continued to expand, the company needed to move so they could keep up with the staffing and space requirements needed as a result of the rapid growth.

In June 2006, Business New Brunswick sent the first disbursement of $18,000 out of $36,000 contributed by the Miramichi Economic Development Fund for new equipment, software and renovations at the company's studio on Duke Street.

The funding represented 20 per cent of the project's total eligible costs and before they could receive any funding Fatkat had to submit proof of funding from other sources.

Those sources included $72,000 from the Atlantic Canada Opportunities Agency with the possibility of more, a $36,385 term loan from the Community Business Development Corporation and $15,000 in assistance from Business New Brunswick's Technology Adoption and Commercialization Program.

Advances came as Fatkat provided the province with documentation showing the company incurred eligible costs.

With each advance, Business New Brunswick set out a list of conditions, including one that prohibited Fatkat from making any announcements related to the funding without prior consent of the department's representatives.

It also stipulated Fatkat could not sell or transfer any assets related to the project for 36 months without the department's approval.

On July 25, 2006 Fatkat sent a letter to Business New Brunswick in which they informed the department of plans to buy the former Legion building on Pleasant Street at a total cost of $482,500 for the project, which included the purchase price and the cost of renovations.

Fatkat requested $125,000 from RDC for the project.

In a letter dated Sept. 13, 2006 and accepted by Fatkat Sept. 27, Business New Brunswick confirmed they increased funding to $161,000, including the original $36,000 for the Duke Street studio.

The company also included their income statement for the year ending June 30, 2006 in which they posted $172,169 in earnings retained by the company after expenses.

Some of the conditions were amended to show changes in funding from other sources, including ACOA's contribution of $72,000, CBDC's contribution of $31, 500 and $319,000 from the Business Development Bank of Canada.

In November 2006 Fatkat sent a letter to then Business New Brunswick Minister Greg Byrne to request additional assistance for further expansion.

The letter, signed by a Fatkat representative whose name was blacked out, said the company employed 55 full-time, salaried employees and had outgrown their 3,500 square foot space.

"Due to the rapid growth of Fatkat Animation Studios, management anticipates that Fatkat will outgrow the new building within a year. If the company was to turn down projects due to limited capacity, it would be a crushing blow to Fatkat, a hot commodity in the domestic animation market."

The letter went on to say the company was on the eve of having their own properties green lit, which would require between 50 to 100 new employees who would relocate to the Miramichi, but the company didn't have enough room for the expected new staff.

Fatkat's plan called for the addition of a third floor and a restructured floor plan to handle the overflow of work, with Miramichi Engineering drafting the plans.

In the letter, the company representative said typical Fatkat employees were under 30-years-old, single and from western or central Canda, and added the company was also able to draw New Brunswickers back to the province.

"The Miramichi community has been able to enjoy the presence of young people around town, spreading their disposable income accordingly and volunteering with numerous local organizations."

Fatkat requested $350,000 in assistance from the Regional Development Corporation's Miramichi Prosperity Fund and New Northern Initiative.

The company listed the total cost for the expansion at $1 million, including $239,000 for the building's purchase price, $366,000 for renovations to the existing structure, $150,000 for the addition, $100,000 for air conditioning and heat upgrades, and $145,000 for computers, software and desks.

Fatkat planned to contribute $500,000 on top of $125,000 RDC already contributed for renovations.

Business New Brunswick responded to the letter by telling Fatkat Business New Brunswick would need a business plan before department staff could review and identify possible funding sources.

A Business New Brunswick project executive whose name was blacked out responded to the submitted business plan and said three years of financial statements prepared by an outside accountant, three years of forecasted financial statements on annual basis with cash flow forecasts on a monthly basis, resumes for the company's senior management and a completed application, which the company provided.

In a letter dated Jan. 2, 2007, an unknown Business New Brunswick project executive wrote to Fatkat to acknowledge receipt of a request for an additional $136,279 in assistance to purchase new computers and software.

The letter said the department had not yet addressed the previous request for funding on the $1 million project and requested a revised business plan in order to proceed with the evaluation.

Business New Brunswick sent Fatkat two letters, the first dated Dec. 6, 2006 and the second dated April 24, 2007, with both stating the company would need to qualify for funding from other government programs before they considered the request for money under the Miramichi Economic Development Fund.

Neither letter referenced which funding request they were referring to.

In a June 12, 2007 letter Fatkat said they had a lot of new projects coming with the potential to double their employee needs.

Fatkat requested more funding for expansion to help them accommodate the new employees they planned to hire.

"As the new projects are due to begin shortly, it is urgent we begin expansion as soon as possible in order to be prepared to meet the required start dates and employee needs."

The letter listed the expected cost of expansion at $504,190.81, with funds from an ACOA loan of $250,000, $129,190.81 from Fatkat and $125,000 from the Miramichi Economic Development Fund.

Another undated letter with 2008 projections referred to an application for an extension to the project to buy $435,000 worth of equipment, including servers, software and computers.

A scribbled note on the page said the application was "not yet approved."

Another letter dated June 25, 2007 requested financial assistance to help accommodate new employees they would need to hire as the company expanded.

The total value of the equipment and software Fatkat said they needed was $578,539.87, which they planned to finance through a $289,269.93 ACOA loan, $144,634.97 from the Regional Development Corporation and $144,634.97 from Fatkat.

A letter dated Aug. 29, 2008 informed Fatkat Business New Brunswick had approved a non-repayable contribution of $107,500 under the Miramichi Economic Development Fund to help the company buy equipment and carry out improvements to the building.

As with other expansion financing, Business New Brunswick required proof of financing from other sources, including $190,750 from ACOA, $32,500 from the Regional Development Corporation and a line of credit worth $92,693.02.