Province gave Fatkat thousands in film credits

Sept. 9, 2009

This is part 4 of our look at documents obtained from the provincial government under the Right to Information Act regarding its dealings with Fatkat Animation.

As Fatkat requested more help from the province, Business New Brunswick required them to submit several years' worth of financial statements.

For the year ending June 30, 2004, Fatkat's unaudited statements of earnings and retained earnings showed revenue of $209,199 over 217 days.

Fatkat posted a gross profit of $96,673, $128,210 in wages and salaries, $16, 355 in salaries and retained earnings of $38,343.

On the company's balance sheet they listed $48,618 under "payable to shareholder, non-interest bearing, no set terms of repayment" which is the same amount listed under "advances from shareholder."

Fatkat only had one shareholder, whose name is not known because it was blacked out in the documents from the province.

Under the New Brunswick film tax credit, the province gave Fatkat a tax credit up to a maximum of 40 per cent of eligible salaries, which reduced the production costs for a project called "And Yet I Blame Hollywood" by $28,298.

By 2005, Fatkat posted revenues of $349,549 with a gross profit of $151,454, but took a net loss of $20,563 and only stayed in the black because of earnings from the previous year, which brought 2005's retained earnings down to $17,880.

Salaries for 2005 increased to $90,600 while wages and benefits rose to $202, 355.

The company listed long-term debt of $36,265 in the form of an interest free loan from the Atlantic Canada Opportunities Agency with a five-year repayment schedule.

Fatkat also had a $10,000 line of credit, of which they borrowed the total amount and pledged a NB Film Tax Credit for security.

For 2005 the province provided a film tax credit that reduced production costs for projects called "Horseback Salad" and "Odd Job Jack" by $44,409.

By 2006 Fatkat's revenue was up to $613,532 for a gross profit of $392,819 after expenses, such as $166,566 for wages and benefits.

Salaries in 2006 jumped to $217,918 and after general and administration costs, under which Fatkat listed bad debts of $14,377, the company posted net earnings of $82,122.

With the earnings from 2005, Fatkat posted retained earnings of $99,902 for 2006, which included $20,000 listed under "loan forgiveness."

Fatkat still maintained a $10,000 line of credit, but it was unused at year end, although the company's loan from ACOA increased to $94,628, along with an $8,000 interest free NB Film Development Loan.

Another source of Fatkat's funding in 2005 was Business New Brunswick under their Technology Adoption and Commercialization Program under which they received $9,000 for equipment and software costs in July 2005 and $6,000 in September 2005.

In January 2005, the Miramichi Regional Economic Development Fund sent a letter to Fatkat to inform them of approval of up to $15,350 in funding for marketing activities, which they listed as a laptop, materials, promotions, an LCD projector, a Blackberry, tradeshow booth, tradeshows and travel.

Later that year, the economic development fund sent another letter dated June 8 to confirm approval of up to $32,000 in further funding for a portion of costs associated with marketing activities, such as travel, accommodations and food and entertainment on sales trips, along with $14,000 for event sponsorship, $20,000 for signage and billboards, $4,000 in "disposable giveaways", $15,000 in "high-end giveaways" such as jerseys and $5,000 in miscellaneous costs, such as business cards and brochures.

In July 2006, the Business New Brunswick Minister, whose name was blacked out, sent a letter to Gene Fowler, whose name was blacked out, to congratulate them on their nomination as the Ernst and Young Entrepreneur of the Year award.

"You are one of a select group of business people. You have proven leadership in challenging and prosperous times, and commitment to your industry and community," the letter said.

On Aug. 25, 2006, the Community Economic Development Fund sent a letter to Fatkat stating they would issue a $1,612 cheque to cover 50 per cent of the costs for a growth potential assessment.

The documents provided by Business New Brunswick also included a direction of payment letter to the department's project executive from Fatkat that authorized Business New Brunswick to pay out of an unspecified loan of $125,000 to the Business Development Bank of Canada on Oct. 24, 2006.

Fatkat also provided the province with receipts from suppliers during their renovations, as well as statements from credit card companies showing where they were spending money.

Invoices listed where Fatkat was spending thousands of dollars, with money going to many local businesses, including Downeast Mobility, Lounsbury Furniture, Allison's Manufacturing and Miramichi Bolt and Screw.

Visa statements also listed purchases, such as at Boston Pizza in Miramichi and O'Briens Irish Pub in New York, with notations of either a P, check mark or X next to each purchase, with no indication of what the notations meant.

Some of the more sizeable purchases included $134.95 spent at Friday's Roast Beef in Ottawa, which had an X next to it and $907.50 for a company called Elite Limousine Inc. in Ottawa, which also had an X next to it on the statement.

A few of the purchases had hand written notes with the words "no receipt" scribbled next to them, while a charge for $47.91 at the Chatham Subway had "personal expense" written next to it with both a check mark and X.

A statement from July 14 to Aug. 14, 2006 showed a $353.40 charge from a business called Bejewel in Fredericton, $116.77 at a 7-11 in Flushing, N.Y., $146.41 at a Barnes and Noble in New Jersey, $120 at Boston Pizza in Miramichi and $116.77 in cash advances.

A November 2006 statement showed a $360 at Choo Choo's, along with a $60 charge from GTA Airport Limousine in Georgetown, Ont., $60 from Gill Limo in Lasalle, Que. and four charges of $36.95 each NB Liquor in Miramichi.

Each charge had an X next to it on the copy of the statement.

Another statement included a $3.66 cash advance interest charge, although no statements showed when the cash advance was withdrawn or how much was taken.

Fatkat requested money before coming to Miramichi

Sept. 7, 2009

This is part 3 of our look at documents obtained from the provincial government iunder the Right to Information Act regarding it's dealings with Fatkat Animation.

On April 4, 2003 a Fatkat representative whose name was blacked out sent an e-mail to Business New Brunswick in which they talked about the possibility of relocating the studio to New Brunswick from Nova Scotia.

The e-mailer called two Business New Brunswick representatives, whose names were blacked out, "honourable and sincere people" and said how excited they were about moving to New Brunswick.

But the e-mail also said there were a few things standing in their way and they wanted to be open and honest about them.

One of the issues was a lease on an apartment until December, which the e- mailer couldn't break, but they were looking for someone to take it over and asked if any funding was available for moving.

A note scribbled after the request had a simple no for an answer, while other hand written notes said "ACOA EI program" and "tax issue."

The e-mailer also said they were looking to buy a house in Chatham, but the bank wouldn't approve a mortgage without a signed contract.

"I'm sure secured government funding or a big production contract would persuade them. Or is there something else that the government could do to help us?"

The e-mail went on to say there was concern about selling a big production contract and although there seemed to be a lot of potential business headed their way, the e-mailer said they were clearing out room in their apartment so they could work in the same location with an associate whose name was blacked out.

"But if something big does come in, say a production gig to produce 16 episodes of a animated series. We'll have to set up shop really quick. This is where I ask how fast can funding come through if a contract is on the line?"

The Fatkat representative mentioned the possibility of someone whose name was blacked out becoming a partner in the company and had several questions about the implications of being based in Halifax.

"NB wage subsidies obviously wouldn't apply but ACOA funding is maritime based is it not? So I can't see a problem. Or am I incorrect?"

The writer also asked if there were any programs they could apply for as soon as possible to keep the potential partner around until government funding kicked in.

"If things keep going at the pace they are we should be fine. These are just the variables we're looking at and I like being completely honest about my situations especially with the two people that will be playing a part in the Fatkat's future."

A second e-mail later that day asked if the unknown Business New Brunswick representatives could connect them with some of the companies they were talking about over the previous few days because Fatkat always had room for more projects.

"Things are very exciting for us right now. All we need is a long term contract to help push us in the right direction. Anything you could do to help would be most appreciated and never forgotten."

It went on to say they would send letters of interest as they receive them and asked if they would be of use to the representatives.

On April 9, 2003 a Business New Brunswick representative sent Fatkat an e- mail in which they said they spoke with someone from the Training, Employment and Development Department who provided details about the Self-Employment Benefit (SEB) program.

The e-mail told Fatkat to talk to someone whose name was blacked out, but the company representative had met during a visit to New Brunswick.

The Business New Brunswick representative thought it would be worth calling to let them know how far the Fatkat representative was in the employment insurance process.

"That way, he will be able to provide the guidance and information necessary so you can take advantage of the SEB program when you relocate to New Brunswick. "

An e-mail from a Business New Brunswick project executive, which was undated but spoke of being out of the office April 30, thanked Fatkat for sharing their comments and suggestions regarding the Fatkat Animation business plan.

The improvements listed by the executive were a letter from NBCC Miramichi outlining where the students are going for employment opportunities, a greater outline of animation firms in New Brunswick and Atlantic Canada, and letters of intent from potential clients.

They also said once the improvements were completed and a marketing plan drawn together, Business New Brunswick would re-engage Fatkat in the evaluation process.

The project executive addressed Fatkat's concerns about ACOA's history with information technology startups and said one of their colleagues had dealt with information technology files in the past and might have been able to move things along.

The documents included Fatkat Animation's one-time expenses for the first month as $60,498 for items such as computers, animation tables and leasehold improvements.

A separate note on the same page listed $42,098 for equipment, $5,400 for furniture and $27,680 for software.

Fatkat listed $2,779 for supplies including animation paper, tape and pencils.

One page with a heading called contract work listed monthly amounts next to six blacked out names for a total of $30,300.

Those contract amounts were included under payroll in the monthly expense figures, along with $2,500 for rent and $5,000 for possible travel costs.

Another page repeated the monthly expenses and had a typed side note titled "from balance sheet" and listed long-term debt as $17,100.

Under startup costs, Fatkat listed one-time expenses at $57,148, but the other figures remained the same.

A comment at the end of the financials said it would be more cost effective to switch to salaried employees once revenues reached $100,000.

On the company's starting balance sheet they listed a $17,100 shareholder loan, an $8,000 shareholder loan and $83,780 startup loan under liabilities and equity.

Under the company's profit and loss projection Fatkat listed a net loss of $2,211.30 for March 2003, but predicted the net profit would gradually increase every month up to $22,963.53 in March 2004, which was the last month listed.

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.

Province helped Fatkat attend conferences

Sept. 2, 2009

This is part 1 of our look at documents obtained from the provincial government regarding it's dealings with Fatkat Animation.

New details about Fatkat Animation's dealings with the province have come to light thanks to a Right to Information Request by the Miramichi Leader.

More than 1,300 pages of documents from Business New Brunswick show correspondence between the company and the government in their dealings with the province over financial support.

In the first part of a series, the Miramichi Leader will look at expenses incurred during trips to trade shows and conferences, a portion of which the province reimbursed Fatkat.

As part of their marketing strategty representatives from Fatkat took part in several animation trade shows and conferences around the world over a span of several years.

The goal of the trips was to meet potential clients, make connections and boost the company's sales by showcasing their product at the conventions.

Between 2004-2006 Fatkat got back from the provincial government $21.326.72 in costs from attending conferences and bringing in potential buyers.

Fatkat applied for and received the funding through Business New Brunswick's Trade Assistance Program and Rural Exporter Program.

The trips included conferences in London, UK, Ottawa, Dallas, three in New York City, two in Banff and two in Cannes, France.

In a letter from Business New Brunswick dated Sept. 1, 2005, the department's trade executive, whose name was blacked out, explained Business New Brunswick would share the conference's costs with Fatkat, up to 50 per cent of their total costs.

A handwritten note by someone whose name was also blacked out wished Fatkat luck.

"We wish you continued at this huge conference," the note said.

In a letter describing the conference in Cannes, a Fatkat representative whose name was blacked out on the letter, described it as a prestigious conference in their industry, which would allow them to reach world markets and meet with executives.

At the time, Fatkat listed their total sales as $345,710 for 2005 and $204, 686.29 for 2004.

In the case of the Oct. 17-21, 2005 conference in Cannes, Fatkat projected incremental sales from the project at $1.4 million in the first year and $1.5 million in the second.

As part of the cost sharing programs, Fatkat was able to claim part of the return airline tickets, the conference registration fees and per diems of $150 per day.

Several of the letters from Business New Brunswick to Fatkat confirming the department's approval of the submitted claims included hand written notes.

"Your on your way to success; keep up the good work!" said one note.

Another note on one of Fatkat's Trade Assistance Program and Services evaluation report had the word "wow" scribbled next to a comment about the potential for 30 new hires.

In an e-mail from Fatkat to Business New Brunswick from Feb. 1, 2005, they forwarded a message from the Canadian Consulate General, which invited Fatkat to co-host the Canada Networking Reception at the KidScreen Summit in New York and asked if the TAP program would cover 50 per cent of the costs.

Business New Brunswick's senior trade executive replied they would if there was room in Fatkat's $15,000 limit for the program.

"This looks like and [sic] Ideal opportunity to make contacts."

Another e-mail from Fatkat to Business New Brunswick dated July 6, 2005 outlined several projects they were working on with a total potential value of $9.8 million.

One project involved a one minute animation test and another was moving ahead toward production, while the rest were still in the negotiation phase.

Fatkat projected total staff requirements of 210 people if all the projects moved into production.

The response from Business New Brunswick asked Fatkat to keep them updated on their success with the TAP program and other Business New Brunswick trade related service for the department's weekly report to the minister and senior management.

"It consists 'entirely' trade success stories from companies like yours," the e-mail said.

Fatkat's evaluation reports detailed the products or services promoted during the projects, estimates of new sales and the number of potential customers contacted, whether or not participation will lead to increased sales or new job opportunities and outlined activities the company planned to undertake to follow-up on the project.

On their Trade Assistance Programs and Services evaluation reports Fatkat provided the province with estimated sales figures stemming from the conferences.

They also included estimated sales figures on their funding applications forms.

The numbers did not always match up, like in the case of a conference in July 2004 for which they estimated on their evaluation report potential sales of $60,000 in the first six months after the conference and $100,000 in the 12 months following.

For the same conference, the application stated estimated sales of $30,000 for the first year, $60,000 for the second and $40,000 for the third and fourth.

A similar sitatuation occured with the report for a June 2004 conference, which saw estimated sales of $10,000 for the first six months and $50,000 for the first year, while the application had estimates of $70,000 for the first year, $200,000 for the second, $350,000 for the third and $500,000 for the fourth.

The company predicted the conferences and incoming potential sales would generate about $22 million in possible sales between 2004 and 2010, although the totals vary depending on which of Fatkat's figures are used.

Fatkat equipment on auction block

Aug. 28, 2009

Fatkat's assets got a little skinnier yesterday at an auction of the animation studio's equipment.

Computers, monitors, bookshelves, filing cabinets, a barbecue, pool table and foosball table were just some of the items on the auction block.

Fatkat owner Gene Fowler said he knew the sale was coming for a few months, but it wasn't a big deal to him and the equipment served him well over the years.

"Great stuff. I'm sure the Royal Bank will get all their money back."

Although the company received millions of dollars in support from various government agencies, the company was not able to find enough contracts to repay its debts and folded in May.

At the time Fowler said the company would need six to eight years of consistent revenues of $5 million to $6 million to repay all outstanding debts.

Prior to Fatkat's demise, Fowler announced he was forming a new animation studio called Loogaroo, which would use a different business model than the previous studio.

Although he said Loogaroo is just getting started up, he said they bought some of the Fatkat gear from a private sale with the auctioneer prior to yesterday's auction for the rest of the equipment.

"I'm sure it will go to a happy home. There's still a lot of good stuff over there. If there's any animators I'm sure they'll get some good stuff."

As for what he thought of the last remnants of his company being sold off at auction, Fowler said it was just a business.

"I've already moved on. I moved on a long time ago. Businesses come and go. It's the nature of it. No business lasts forever, of course there are a few businesses that have lasted a long time, but no businesses last forever."

Fowler said Fatkat owed a lot of people money and although he didn't know the exact amount, it was well over $1 million.

In June he declared personal bankruptcy to help expedite the proceedings, he said.

"I'm absolved of all the debt."

Fowler said there are still some people in the Miramichi he feels connected to that the company owed money, and he plans to repay them, despite his bankruptcy.

"It's going to take me a while, but I'm still going to do it. That's just my personal obligation, my moral obligation."

But he won't be able to repay the money owed to different organizations like the Atlantic Canada Opportunities Agency because of the large amount owing, he said.

"ACOA knew what they were getting into when they gave me all that cash and everybody else did too. I used that money for exactly what it was intended for and that was buying capital equipment or marketing or putting people to work and I did that for a very long time without interruption."

Fowler said it's not the first business that has folded after receiving funding, and he is still friends with the people at ACOA.

"They hold no grudges and nobody else does either."

Business New Brunswick was one of the government departments to help Fatkat and had a $500,000 loan guarantee with Fatkat.

Department spokesperson Ashley Bursey said she wasn't sure if they were going to get any money out of the sale.

"It's really too early to tell right now."

The bank is in the process of liquidating Fatkat's assets and Business New Brunswick won't know if they will get any money until they are done.

"We really won't know until that's all finished."

Money wasn't the goal, says Fatkat owner

May 15, 2009

A few weeks after news of layoffs, Fatkat Animation Studio's owner has announced the company will declare bankruptcy.

About two weeks ago, Fatkat laid off all but three of its employees as they struggled to find enough contracts to keep people working.

On Wednesday, Fatkat founder Gene Fowler said some of the company's government supporters were willing to hold off as long as necessary, but creditors weren't.

"The talks with the creditors didn't go as we had hoped."

Since 2003 Fatkat received more than $2 million in aid from both the provincial and federal governments, including a $500,000 loan guarantee from Business New Brunswick and another $500,000 loan from the Atlantic Canada Opportunities Agency, of which $479,879 is still owing.

In 2006 the province gave Fatkat $125,00 for new equipment and in 2007 the Post Secondary Education, Training and Labour Department gave them $370,000 to expand staff.

The company also received an unknown amount in New Brunswick film tax credits, with at least $405,842 in 2007. The Finance Department will not release the rest of the figures because of privacy reasons.

Both Fowler and provincial representatives have cited the current economic downturn, which lead to a lack of contracts for the company as reasons for the financial problems.

Fowler said the company would need six to eight years of consistent $5 million to $6 million in revenues to pay off all the outstanding debt.

"It just didn't seem worth it. We were tired. We have been going full steam some of us for 10 years and we are tired so we felt that if we were going to continue to work together as a team, and we do want to, that it would be best to do it with a fresh start."

During a meeting of business leaders in Fredericton Tuesday, Fowler told the crowd the company reached all its goals, but forgot to set a goal to make money.

When asked how a company could overlook the goal of making money, Fowler said it was an important aspect of business if money is what you want.

"Money has never been a goal of mine. It just hasn't."

Fowler said he wanted to do something different for the animation industry to create a place where artists could go to work, live as slow paced life and not worry about paycheques, which is different from what most studios have to offer.

But the company had to make sure they had work for the staff and money to pay them, which they did for five years, he said.

"The fact of the matter is we spent it as quickly or if not quicker than it came in to keep people employed."

Fowler said they knew something was wrong with the business model in 2007 because they were moving too fast. That was when they brought in an external consultant to give management and executive training to try and fix the problems at Fatkat.

But things were moving too fast to fix things while they were still working on contracts and by January 2008 he realized they would have to stop everything to fix the business model they were using, Fowler said.

"I couldn't just halt in the middle of a production to fix the business model."

Despite the problems within the company, Premier Shawn Graham announced a $500,000 loan guarantee for Fatkat when he was in Miramichi in August 2008.

Fowler said the executives all know how to move the business forward to make it profitable and create a good working environment that caters to artists.

"We just can't do it with Fakat. Fatkat, it's taken on too much water."

The company made some mistakes along the way, one of which was retaining staff even when there wasn't work, he said.

"That was a huge no-no, but you don't see that when you're doing, you know $8 million a year and you have 120 people working for you. Things are going so fast you just don't see that it's a really silly mistake."

Fowler said that model would only work if they had a client that went in with a long-term multi-year contract to give them steady work.

"Before we would retain staff, whether we had the agreements or not, and just hope for the best and we did a damn good job of keeping everybody employed, but it was a failed model if there wasn't any work at the exact right time."

Once he emerges from bankruptcy, Fowler said he wants to start a new animation studio and there is not doubt he could maintain one in the Miramichi.

There are a lot of ex-Fatkat animators still living in the Miramichi with more than enough for projects he would bring in to the new studio, he said.

"Whether they're all going to stay, I doubt it. If there's work they're probably going to stay."

Fowler said his team was meeting Wednesday to decide what to do to get the new company going and put the details together for the new business.

"My first goal is to get work in as fast as possible to establish a new studio and put the great, amazing team that I had here at Fatkat to work as fast as possible."

Despite his plans to move fast on a new business, Fowler said he didn't know how long it will take him to get it up and running.

"I have no idea what's going to be happening with Fatkat at the moment. I have some inclination what might be taking place in the next few weeks, but I don't know how occupying it's going to be on my time."

Fowler said the company brought a lot of people back to Miramichi and spent about $7.5 million in payroll in the last three or four years in downtown Miramichi.

"I know people want to know where their tax money went. Guaranteed we used it for exactly what it was meant for and that was to create jobs and we did that. We did a very good job of that."

But the new studio probably won't see staff levels as high as Fatkat had at its peak of 120 in 2007, he said.

"If I'm running the shop, which I probably will be with my executive team, we all agreed that that kind of staff, it's just too hard to recruit and it's too hard to maintain so what we'll probably do, and I mean maximum size that we'll get, is probably 50 and that's just peachy by us."

Fowler said there are different ways to fund a company and he doesn't expect to borrow money when he starts the new studio.

"I doubt that I'll be starting it with any credit because I'll be going personally bankrupt as well, but I can start it with a project. All I need is one project to start a company and I can't see that being a problem at all. It's just a matter of time."

The government money Fatkat received helped and brought cash in quickly to help them grow faster, but they won't look for government money for a new studio, he said.

"I don't think we need to. There's smarter ways to fund a company."

As for the animators that are still in the Miramichi, Fowler said they will only stay here for so long, although he talked to some who said they are willing to wait.

"I've got to do my part to look for work. I'm sure they're looking for work too."

Acting Business New Brunswick Minister Jack Keir said he doesn't know if all or part of the loan guarantee will be called in and the department will follow the process as it goes forward.

"We'll let the process unfold through bankruptcy and play it out from there. I guess what I'd want to just emphasize is it's a good company. It was very innovative. It's the type of company that we'd certainly like to do business with in New Brunswick and the economy caught up with them."

Although he said he didn't want to speculate on whether or not the province would give a new company under Fowler any money, they will talk to anybody who has a good business plan or makes a good business case.

"We'd always talk to them about what those opportunities will be and frankly if it's good for New Brunswick and if it's a good business case and it's good for New Brunswick then Business New Brunswick will always be willing to look at it."

Miramichi Centre MLA John Foran said he was disappointed to hear Fatkat was filing for bankruptcy and was surprised to hear it happened so quickly since he first heard about their layoffs.

"It's no surprises there are companies that are failing, although Fatkat, the last information I had on them was that they were restructuring and downsizing and because of that I actually had no reason to believe they would go to the step of declaring bankruptcy."

Miramichi-Bay du Vin MLA Bill Fraser said he was also disappointed to hear about the bankruptcy and it was bad for the city to see a company close.

"It's bad for the community and the people that worked there and the businesses that also did business with them and the people that worked there. You know, it's just bad all around."

Financial woes force Fatkat move

April 29, 2009

Despite extensive government funding the well has been running low at Fatkat Animation Studios.

Business New Brunswick spokesman Ryan Donaghy confirmed yesterday Fatkat's financial situation has forced it to reduce its number of staff.

"It's my understanding that they've reduced staff levels to control costs and stuff. It is my understanding that at this point they are still in operation and have not vacated the building."

Despite initial reports the business had closed, Fatkat owner Gene Fowler said the animation studio hasn't shut down.

"We're still there."

The company has moved out of its location at the Legion hall in Newcastle and is switching locations because it can no longer afford to stay in the building, he said.

"It's just hard times at the moment. We're between projects and I can't afford to retain that type of facility."

A call to Fatkat's office went unanswered Tuesday and an automated recording gave no indication of any changes, but when asked when the decision was made to move to a new location Fowler said the company has not moved in yet.

"We're just in between. We can no longer afford that building."

Over the years Fatkat has received substantial amounts of money from the province through grants and loan guarantees.

During the Bernard Lord era, they received $83,000 in 2007 and an additional $77,000 from the Atlantic Canada Opportunities Agency.

Under the Shawn Graham Liberals, $125,000 went to Fatkat in 2006 for new equipment at its Newcastle office and another $370,000 to help expand staff in 2007.

On top of that, the Miramichi Regional Economic Development Fund gave Fatkat $410,130 for seven projects. In total the province gave over $1.06 million, plus a $500,000 loan guarantee from Business New Brunswick.

Business New Brunswick would work with the company and their bank in the event Fatkat is unable to repay money owed to lenders, Donaghy said.

"Certainly we'll be working with those proponents to identify the status of that guarantee and look at what portion of that guarantee might need to be accessed by the bank."

But the money hasn't always been coming in, with the Business Software Alliance levying a $36,000 fine against Fatkat for using unlicensed software.

Initially Business New Brunswick had reported Fatkat was closed, but Donaghy later confirmed the studio is still in business, but with a reduced staff.

"It's our understanding they are basically down to a skeleton staff, but they are still operating now. The specifics and detailed information would obviously have to come from the company."

Public Safety Minister John Foran said he had heard rumours about the company moving, but as of Tuesday morning he hadn't seen any official documentation.

He did say the company provided a lot of employment and brought a lot of new people to the region.

"Let's just hope they're going through a rough time and they're going to be able to survive it."