ESI Entertainment announces Fiscal 2010 Financial Results
BURNABY, BC, June 30 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX : ESY) reported today its financial and operational results for the fiscal year ended February 28, 2010 ("fiscal 2010"). All amounts are in Canadian dollars unless otherwise stated.
Fiscal 2010 Financial Highlights
The highlights for ESI, on a consolidated basis, are:
- Consolidated revenue decreased by 9% to $3.6 million in 2010 compared
to $3.9 million in 2009;
- Consolidated gross profit increased by 5% to $1.023 million for
fiscal 2010 from $0.971 million for fiscal 2009;
- Consolidated operating expenses decreased by 41% to $3.3 million for
fiscal 2010 from $5.5 million for fiscal 2009.
- 54% decrease in consolidated net loss before income taxes to a loss
of $2.34 million for fiscal 2010 from a loss of $5.07 million for
fiscal 2009.
- Renegotiated terms of the US $2 million loan so that it is no longer
payable on a fixed date.
Selected Financial Information
Consolidated Revenues
The following table provides a breakdown of the Company's revenues from its two principal subsidiaries for the reported periods:
Year ended
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February 28, February 28,
($ 000) 2010 2009 % change
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Integrity 2,453 3,253 (24.6%)
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Citadel 1,128 701 60.9%
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Total revenue 3,581 3,954 (9.4%)
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Total revenue decreased by 9.4% to $3.581 million in fiscal 2010 from $3.954 million in fiscal 2009. The decrease was due to the reduction in revenue earned by ESI Integrity.
Revenues from ESI Integrity decreased by 24% to $2.5 million in fiscal 2010 from $3.3 million in fiscal 2009. This is due to various favorable one-time adjustments in license fee revenue that benefited fiscal 2009 revenues, combined with a significant reduction in work plan and consulting revenues in fiscal 2010. ESI Integrity continues to increase sales and marketing efforts and expects to be awarded several new contracts during fiscal 2011.
Citadel's revenues have increased by 61% to $1.128 million in fiscal 2010 from $0.701 million in fiscal 2009. Citadel's growth has come from obtaining new merchants and has significantly increased its payment processing volume.
Consolidated Gross Profit
The following table provides a summary of the Company's gross profit for the reported periods:
Year ended
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February 28, February 28,
($ 000) 2010 2009
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Revenues 3,581 3,954
Direct costs 2,558 2,983
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Gross profit 1,023 971
Gross profit margin 29% 25%
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The increase in consolidated gross profit margin in fiscal 2010 was due to the additional revenue earned within the Citadel subsidiary and the reduction of direct costs for Citadel as well as the improved operating profitability of ESI Integrity.
The gross profit margin by dollar and as a percentage of revenues for each subsidiary is listed below:
Years ended
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February 28, February 28, February 29,
($ 000) 2010 2009 2008
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GP% GP% GP%
--- --- ---
Integrity 1,099 45% 1,129 35% 1,027 43%
Citadel (76) (7%) (158) (22%) (509) (58%)
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Total gross
profit 1,023 29% 971 25% 518 16%
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Consolidated gross profit increased from $0.971 million in fiscal 2009 to $1.023 million for fiscal 2010, a 5% increase. The profit margin for Citadel improved from (22%) in fiscal 2009 to (7%) in fiscal 2010 reflecting the significant increase in revenue earned from its payment processing over the prior years. The profit margin for ESI Integrity increased during fiscal 2010 to 45% from 35% in fiscal 2009. This was due to improved operating performance in the deployment and support of systems for ESI Integrity in fiscal 2010.
Results of Operations
Years ended
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February 28, February 28, February 29,
($ 000) except for EPS 2010 2009 2008
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Revenue 3,581 3,954 3,248
Gross Profit 1,023 971 518
Total operating expenses 3,294 5,560 7,045
Net Loss (2,340) (5,068) (7,200)
(Loss) earnings per share
Basic and Diluted (0.16) (0.36) (0.42)
Total Assets 6,934 6,052 7,653
Total long-term liabilities 913 1,324 3,485
Cash generated from operations (272) (4,467) (7,047)
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Product Development
Product development expenses were $0.175 million in fiscal 2010, a decrease of 71% compared to $0.604 million for the prior period. These expenditures are principally related to software development of the Citadel products. Integrity capitalizes product development costs.
Sales, Marketing and Customer Service
Sales, marketing and customer service expenses were $0.135 million for fiscal 2010, a decrease of 82% compared to $0.741 million for the prior period. The decrease primarily related to the contraction of Citadel's sales and marketing forces, reduced travel, and reduction of marketing activities relating to trade shows and promotional activities.
General and Administrative
General and administrative expenses were $2.80 million for fiscal 2010, a decrease of 25% compared to $3.76 million for the prior period. This decrease resulted from reductions in the financial, human resources and information systems departments to manage the decreased activity within the Citadel division in particular.
Included in general and administrative expenses was non-cash stock compensation expense of approximately $138,655 for fiscal 2010, compared to approximately $230,712 for fiscal 2009. Stock compensation expense decreased during fiscal 2010 as a result of minimum stock grants to the Company's employee base.
Amortization of Property and Equipment
Amortization expenses were $187,298 for fiscal 2010, a decrease of 59% compared to $453,205 for the prior period. The decrease is accounted for by the cut back in purchases of computer hardware and software, furniture and fixtures and leasehold improvements, consequent on the contraction of the Company's employee base.
Net Loss
Net loss for fiscal 2010 was $2.34 million ($0.16 loss per share - basic and diluted) compared to net loss of $5.1 million ($0.36 earnings per share; basic and diluted) for fiscal 2009. This decrease was largely driven by the restructuring of the Citadel business unit with the reductions in staffing and rented premises as well as the legal and auditing costs associated with the significant reduction of that portion of the Company's business.
Total operating expenses decreased by 41% during fiscal 2010 from $5.56 million in 2009 to $3.29 million in fiscal 2010. The company has restructured to account for the reduction in consolidated revenues.
ESI Integrity continues to provide reliable, profitable revenue and has a contracted backlog of $1.525 million revenue extending forward over many years, as well as new customers and projects forecasted.
Citadel has managed its operational costs in order to implement its strategy to maintain a sufficiently comprehensive base of personnel and facilities to enable it to develop new products, access new markets and to support the growing business.
Liquidity and Capital Resources
ESI has historically financed its operations through the sale of equity and through cash generated by its operations.
During fiscal 2010, cash used in operating activities was ($0.272) million compared to ($4.467) million during fiscal 2009.
Cash used by financing activities totaled ($0.420) million during fiscal 2010 compared to cash provided by financing activities of $2.349 million in fiscal 2009. The financing activities in fiscal 2009 include the Company's US$2 million loan obtained in June 2008.
Overall, the net cash used in fiscal 2010 was $0.821 million compared to net cash used of $2.133 million in fiscal 2009.
Consolidated Financial Statements
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NOTE TO READER: The following financial statements are extracted from the complete audited financial statements of the Company which have been filed with the Management's Discussion and Analysis. The Company's documents can be found on www.sedar.com to which the reader is referred.
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Consolidated Balance Sheets
(expressed in Canadian dollars)
February 28, February 28,
Years Ended 2010 2009
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Assets
Cash and cash equivalents $ 89,208 $ 909,785
Accounts receivable 1,073,580 1,100,023
Prepaids and other 65,658 106,513
Citadel processing accounts 4,937,401 2,958,565
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6,165,847 5,074,886
Property and equipment 170,499 280,725
Deferred contract costs 550,362 696,234
Capitalized development costs 47,532 -
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$ 6,934,240 $ 6,051,845
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Liabilities
Accounts payable and accrued liabilities $ 2,227,935 $ 1,049,700
Loan Payable 2,174,733 2,564,704
Capital lease obligations - 30,684
Deferred revenue 582,230 535,667
Citadel processing liabilities 5,649,239 2,958,565
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10,634,137 7,139,320
Deferred revenue 913,605 1,324,392
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11,547,742 8,463,712
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Shareholders' Equity (Deficiency)
Capital stock 9,957,969 9,957,959
Contributed surplus 4,467,539 4,328,885
Deficit (19,039,010) (16,698,711)
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(4,613,502) (2,411,867)
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$ 6,934,240 $ 6,051,845
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Consolidated Statements of Operations and Comprehensive Loss and Deficit
(expressed in Canadian dollars)
February 28, February 28,
Years Ended 2010 2009
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Revenues $ 3,581,478 $ 3,954,820
Direct costs 2,558,307 2,983,798
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Gross profit 1,023,171 971,022
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Operating expenses
Product development 175,463 604,070
Sales, marketing and customer service 135,043 741,212
General and administrative 2,797,099 3,761,514
Amortization of property and equipment 187,298 453,205
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3,294,903 5,560,001
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Loss before under noted items (2,271,732) (4,588,979)
Other expenses (income)
Foreign exchange (gain) loss (109,597) 383,641
Interest income (20,974) (41,536)
Interest expense 175,170 128,913
Other 23,968 -
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Loss before income taxes (2,340,299) (5,059,997)
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Provision for income taxes - 8,529
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Net loss and comprehensive loss $ (2,340,299) $ (5,068,526)
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Loss per share
Basic and diluted $ (0.16) $ (0.36)
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Deficit, beginning of year $(16,698,711) $(11,630,185)
Net loss (2,340,299) (5,068,526)
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Deficit and accumulated other comprehensive
deficit, end of year $(19,039,010) $(16,698,711)
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Weighted average basic and diluted common
shares outstanding No.14,234,727 No.14,234,727
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
February 28, February 28,
Years Ended 2010 2009
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Cash flows provided by (used in)
Operating activities
Net loss $ (2,340,299) $ (5,068,526)
Items not affecting cash:
Stock-based compensation 138,655 230,712
Amortization of property and equipment 187,298 453,205
Other (13,395) -
Net changes in non-cash operating items
Accounts receivable 26,443 11,192
Prepaids and other 40,855 338,062
Accounts payable and accrued liabilities 1,178,235 229,208
Allowance for bad debts - (311,500)
Deferred revenue 364,224 (770,186)
Deferred contract costs 145,872 420,227
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(272,112) (4,467,606)
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Investing activities
Acquisition of property and equipment (90,778) (15,061)
Proceeds on disposal 10,500 -
Capitalized development costs (47,532) -
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(127,810) (15,061)
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Financing activities
Capital lease payments (30,684) (214,715)
Loan payable (389,971) 2,564,704
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(420,655) 2,349,989
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Decrease in cash and cash equivalents (820,577) (2,132,678)
Cash and cash equivalents, beginning of year 909,785 3,042,463
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Cash and cash equivalents, end of year $ 89,208 $ 909,785
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Supplemental information
Interest received $ 20,929 $ 41,536
Interest paid $ 175,168 $ 128,913
Income taxes paid $ - $ 8,529
Forward- looking Statements
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This news release contains forward-looking statements concerning ESI Entertainment Systems Inc, which statements can be identified by the use of forward-looking terminology such as "expect", "proposed", "may", "plan", "intend", "will", "would" or the negative thereof or any other variations thereon or comparable terminology referring to future events or results. Forward-looking statements are statements about the future and are inherently uncertain, and the actual events or results could be materially different than those anticipated in those forward-looking statements as a result of numerous factors. These risks include risks related to revenue growth, operating results, industry growth, changes in regulation and legislation, products, technology, financing, competition, personnel and other factors affecting the Company and its business, any of which could cause actual events or results to vary materially from ESI's anticipated future results. Forward-looking statements are based on beliefs, opinions and expectations of ESI's management at the time they are made, and ESI does not assume any obligation to update its forward-looking statements if those beliefs, opinions or expectations, or other circumstances should change. The Canadian National Stock Exchange does not accept responsibility for this press release.
About ESI Entertainment Systems Inc.
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ESI Entertainment Systems Inc (CNSX: ESY) is an idea generation and software development company. We develop concepts, create prototypes, establish partnerships and validate potential markets. When we have proven a product and its opportunities we create subsidiaries with a dedicated team, infrastructure, and resources to allow it to focus on building and selling the product to its market niche. Our team of experienced and dedicated people have led us to be revolutionary market leaders in many industries, including e-commerce payment technologies, hardware based input devices, real time auditing systems, transaction processing systems, graphical 3D displays, ecommerce web services, and payment fraud and risk mitigation. Since formation in 1999 ESI Entertainment Systems Inc has created three independently operated and controlled subsidiaries based on validated and proven products: Citadel Commerce Corp., ESI Integrity Inc., and PlayLine Inc. PlayLine Inc. is presently dormant.
For further information: ESI Entertainment Systems Inc., Tony Greening, Chief Executive Officer, Telephone: (604) 299-6922, email: [email protected], Web: www.esi.ca
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