ESI Entertainment announces Fiscal 2013 First Quarter Financial Results

BURNABY, BC, July 30, 2012 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX: ESY) reported today its financial results (unaudited) for fiscal Q1 2013 ended May 31, 2012. (All dollar amounts reported in Canadian funds).

Consolidated financial highlights for the quarter include (Q1 2013 compared to Q1 2012):

• Revenues increased by 85% to $1,741,000 from $943,000
• Gross profit increased by 416%, to $691,000 from $134,000
• Operating Expenses increased by 6% to $372,000 from $352,000
• Gain on the asset sale of ESI Integrity  was $1,177,000
• Net comprehensive income before income taxes was $1,449,000 compared to a loss of  $391,000 in the period year

These increases were due to the one time recognition of the deferred revenue, deferred contract and capitalized development costs and the gain made from the asset sale of ESI Integrity.

"With the asset sale of ESI Integrity completed, a significant amount of the Loan Payable reduced in June and revenue continuing to grow within Citadel, we are excited about the coming year. Our main operating subsidiary, Citadel Commerce, continues to closely govern expenditures while focusing on our pipeline of payment processing opportunities and new initiatives."

"Michael Meeks"
President & CEO

Selected Financial Information

		Period ended
		May 31, 2012		May 31, 2011
($ 000) except for EPS
Revenue		1,741		943
Gross Profit		691		134
Total operating expenses		372		352
Net Loss		1,449		(391)
Earnings (loss) per share
	Basic and Diluted	0.10		(0.03)
Total Assets		8,323		5,505
Total long-term liabilities		-		486

Results of Operations

Consolidated Revenues

The following table provides a breakdown of the Company's revenues from its subsidiaries for the three months ended May 31, 2012 and May 31, 2011.  All amounts are in Canadian dollars unless otherwise specified:

			Three months ended
($ 000)			May 31/12	May 31/11		% change
Integrity			1,016	417		144%
Citadel			725	526		38%
Total revenue			1,741	943		85%

Total revenue increased by 85% to $1,741,000 for the three months ended May 31, 2012 from $943,000 for the three months ended May 31, 2011. This is mainly due to the one time recognition of the ESI Integrity deferred revenue upon closing of the asset sale.

Integrity Revenues

ESI Integrity provides software solutions for real-time auditing of transaction processing systems to businesses requiring high levels of security, integrity, and trust, including government regulated lotteries and pari-mutuel (horse tracks) organizations.

ESI Integrity Revenues are generated from long term customer license and support contracts where it charges a fixed license fee for the use of its audit and risk management software, as well as an annual support fee. Revenue is typically earned over a two to five year period, depending on a contract's respective term.

Approximately 58% of ESI's revenues were generated by ESI Integrity during the three months ended May 31, 2012 compared to 44% for the same period in the prior year.

The increase in revenue is due to the one time recognition of the ESI Integrity deferred revenue upon closing of the asset sale.  

As a consequence the disposal of ESI Integrity business effective May 31, 2012, revenue and expense of ESI Integrity will no longer impact the results of operations for future periods.

Citadel Revenues

Citadel revenues are generated from its on-line payment processing which include electronic cheques and paper cheques but its main focus is its Instant Bank Transfer service.  All of Citadel's services are charged on a fee per transaction charged to its merchants.

Approximately 42% of ESI's revenues were generated by Citadel during the three months ended May 31, 2012 compared to 56% for the same period in the prior year.

The increase in revenue is due to new merchants implementing Citadel's Instant Bank Transfer service as well as additional volume from existing customers.

Consolidated Gross Profit

The following table provides a summary of the Company's gross profit as prepared in accordance with IFRS for the three months ended:

($ 000)				May 31/12		May 31/11
Revenues				1741		943
Direct Costs				1,050		809
Gross profit				691		134
Gross profit margin (%)				40%		14%

The increase of Gross Profit in the First Quarter to May 31, 2012, compared to May 31, 2011, is primarily attributable to the one time recognition of ESI Integrity deferred revenue upon closing of the asset sale.

Sales, Marketing and Customer Service

Sales, marketing and customer service expenses were $30,000 during the three months ended May 31, 2012, a decrease of 6% compared to $32,000 for the three months ended May 31, 2011.

General and Administrative

General and administrative expenses were $372,000 during the three months ended May 31, 2012, an increase of 6% compared to $352,000 for the three months ended May 31, 2011. This change is due partly to the Company's ongoing efforts to minimize its operating expenses and partly to the recognition of ESI Integrity capitalized development costs.

Amortization

Amortization expenses were $16,000 during the three months ended May 31, 2012, a decrease of 27% compared to $22,000 for the three months ended May 31, 2011.  The amortization is reducing on older equipment.

Net Earnings

Net comprehensive income for the quarter ended May 31, 2012 was $1,449,000 ($0.10 earnings per share) compared to a loss of $391,000 ($0.03 loss per share) for the quarter ended May 31, 2011. This change is primarily due to the one time recognition of the deferred revenue and the gain made from the asset sale of ESI Integrity.

Citadel Processing Accounts and Liabilities

Citadel processing accounts as at May 31, 2012 totaled $6.4 million compared to $4.3 million as at May 31, 2011.  The accounts are comprised of cash and accounts receivables arising from the processing of deposits and payments for Citadel merchants and consumers.

Liquidity and Capital Resources

ESI has historically financed its operations through the sale of equity and through cash generated by its operations.

During the quarter ended May 31, 2012, cashflow used from operating activities was $111,000 compared to $12,000 generated during the quarter ended May 31, 2011.

Cash from financing activities totaled $11,000 during the quarter ended May 31, 2012 compared to $382,000 during the quarter ended May 31, 2011.

Overall, the decrease in cash totaled $40,000 for the quarter ended May 31, 2012 compared to an increase of $389,000 for the quarter ended May 31, 2011.

For the three month period ending May 31, 2012 the Company recorded a comprehensive income from operations of $1,449,000 and a decrease in operating cash flow of $40,000.

Consolidated Financial Statements (Unaudited)

NOTE TO READER: The following financial statements (unaudited) are extracted from the complete 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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ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Financial Position
As at May 31, 2012 and February 29, 2012
(Unaudited - expressed in Canadian dollars)

							May  31, 2012		February 29, 2012
Assets
Current
	Cash and cash equivalents					$	191,661	$	231,570
	Accounts receivable						1,562,852		173,695
	Prepaids and other						84,856		133,410
	Citadel processing accounts						6,413,211		6,340,666
Deferred contract costs							-		114,495
							8,252,580		6,993,836
Non-current
	Capitalized Development Costs						-		127,940
	Property and equipment						69,988		116,509
	Deferred contract costs						-		216,263
Total Assets						$	8,322,568	$	7,454,548
Liabilities
Current
	Accounts payable and accrued liabilities					$	1,502,762	$	1,368,350
	Loan Payable						2,191,981		2,145,232
	Citadel Processing Liabilities						7,558,033		7,542,821
	Deferred Revenue						-		426,162
							11,252,776		11,482,565
Non-current
	Deferred Revenue						-		354,818
Total Liabilities						$	11,252,776	$	11,837,383
Equity
	Share Capital					$	9,957,959	$	9,957,959
	Contributed Surplus						4,594,250		4,590,868
	Other Comprehensive Income (Loss)						413,531		362,048
	Deficit						(17,895,948)		(19,293,710)
Total Equity							(2,930,208)		(4,382,835)
Total liabilities and equity						$	8,322,568	$	7,454,548

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
Three months ended May 31, 2012 and May 31, 2011
(Unaudited - expressed in Canadian dollars)

								For the three months ended May 31
											2012			2011
Continuing operations
	Revenues									$	1,740,861	$		942,861
	Direct Costs										1,049,684			809,189
Gross Profit											691,177			133,672
General and administration expenses											371,916			351,666
Operating income (loss)											319,261			(217,994)
	Foreign exchange (gain) loss										97,371			138,123
	Finance Income										(2,028)			(10)
	Finance expense										32,522			31,265
		Other Income									(29,177)			-
		Gain on asset sale									(1,177,189)			-
Income (Loss) for the period attributable to equity holders											1,397,762			(387,372)
Other comprehensive income (loss)
Foreign currency translation gain (loss)											51,483			(3,913)
Total comprehensive income (loss) for the period attributable to the equity holders										$	1,449,245	$		(391,285)
Basic and diluted earnings (loss) per share										0.10				(0.03)

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Cash Flows
Three months ended May 31, 2012 and May 31, 2011
(Unaudited - expressed in Canadian dollars)

									Three months ended May 31
									2012						2011
Cash flows provided by (used for) the following activities
Operating activities
Income (loss) for the period									$		1,397,762			$	(387,372)
Add (deduct)
	Depreciation										16,437				22,086
	Other										51,483				(3,913)
	Stock-based compensation										3,382				20,002
											1,469,064				(349,197)
Changes in non-cash working capital:
	Accounts receivable										(1,312,552)				127,449
	Prepaids										48,554				(23,613)
	Accounts payable and accrued liabilities										134,412				214,587
	Deferred revenue										(780,980)				38,882
	Deferred contract costs										330,758				4,219
Cash flow (used in) from operations											(110,744)				12,327
Investment activities
	Capitalized development costs										127,940				-
	Acquisition of property and equipment										(46,521)				(5,427)
Cash from (used in) investing activities											81,419				(5,427)
Financing activities
	Loan payable										46,749				24,455
	Change in Citadel processing liabilities										15,212				360,459
	Change in Citadel processing assets										(72,545)				(3,183)
Cash from (used in) financing activities											(10,584)				381,731
Increase (decrease) in cash and cash equivalents											(39,909)				388,631
Cash and cash equivalents, beginning of period											231,570				17,742
Cash and cash equivalents, end of period									$		191,661			$	406,373

Forward- looking Statements

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.

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.

SOURCE: ESI Entertainment Systems Inc.

ESI Entertainment Systems Inc.
Michael Meeks
President and CEO
Telephone: [phone]
email: [email protected]
Web: www.esi.ca