ESI Entertainment announces Fiscal 2014 Second Quarter Financial Results

BURNABY, BC, Oct. 23, 2013 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX : ESY) reported today its financial results (unaudited) for fiscal Q2 2014 ended August 31, 2013. (All dollar amounts reported in Canadian funds).

Consolidated financial highlights for the quarter include (Q2 2014 compared to Q2 2013):

• Revenue for the three months to August 31, 2013, increased from $648,000 to $723,000, 11% increase over the comparative period in the prior year;
  
  
• Revenue for the six months to August 31, 2013 increased from $1,372,000 to $1,530,000, 11% increase over the comparative period in the prior year;
  
  
• Gross profit for the three months to August 31, 2013 decreased from $74,000 to $70,000, 5% decrease over the comparative period in the prior year;
  
  
• Gross profit for the six months to August 31, 2013, increased from $205,000 to $255,000, 24% increase over the comparative period in the prior year;
  
  
• Net income for the three months to August 31, 2013 increased to $87,000 from a net loss of  $10,000 in the comparative period in the prior year;
  
  
• Net income for the six months to August 31, 2013 increased to $193,000 from a net loss of $131,000 in the comparative period in the prior year;

These results, for both comparative periods, represent the Citadel business unit alone as the Integrity business unit was disposed of  in the period ending May 31, 2012.  The Integrity business units results are recorded as discontinued operations in the prior period.

As we continue to face a significant Shareholders' Deficit, our main operating subsidiary, Citadel Commerce, continues to closely govern expenditures while focusing on opportunities and new initiatives.

The Company is sad to report the passing of William L. Koyle, a director who served on the Board since 2007 and who brought his considerable experience to assist the Company though some of its hardest times.  His place on the Board has been temporarily filled by Mary Betts, who will be proposed for election to the Board at the forthcoming AGM.

At the forthcoming Annual and Special General Meeting, scheduled for October 28, 2013, shareholders will be voting on a proposed "going private" transaction; more details of this proposed transaction are set out in the Company's documents filed on SEDAR at www.sedar.com.

"Michael Meeks"   President &CEO

Selected Financial Information

		Quarter Ended
		Aug 31,	Aug 31,	Aug 31,
		2013	2012	2011
($ 000) except for EPS
Revenue		723	648	550
Gross Profit		70	74	715
Total operating expenses		106	123	67
Income (loss) from continuing operations		87	(10)	677
Income (loss) attributable to equity holders		133	31	589
Earnings (loss) per share
	Basic and Diluted	0.01	0.01	0.06
Total Assets		8,357	7,091	5,863
Shareholders' deficit		(2,672)	(2,999)	(4,939)

Results of Operations

Citadel Revenue

		Three months ended August 31					Six months ended August 31
($ 000)		2013	2012	% Change			2013	2012	% Change
Revenue		723	648	11%			1,530	1,372	11%

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

100% of ESI's revenues are now generated solely by Citadel.

Consolidated Gross Profit

The following table provides a summary of the Company's gross profit for the reported periods:

		Three months ended Aug 31			Six months ended Aug 31
($ 000)		2013		2012	2013		2012
Revenues		723		648	1,530		1,372
Direct Costs		653		574	1,275		1,167
Gross profit		70		74	255		205
Gross profit margin (%)		10%		11%	16%		15%

General and Administrative

General and administrative expenses were $106,000 and $170,000 during the three and six months ended August 31, 2013 respectively, compared to $123,000 and $235,000 for the three months and six months ended August 31, 2012.

Net Income/Loss

Net income for the three months ended August 31, 2013 was $87,000 ($0.01 net earnings per share) and for the six months ended August 31, 2013 was $193,000 ($0.01 net earnings per share),  respectively, compared to net loss of $10,000 ($0.001 net loss per share) and $131,000 ($0.01 net loss per share) for the prior comparative periods.  The increase in net income from continuing operations is primarily attributable to the increased revenue and reductions of operating costs in the current period and the foreign exchange gain in the current period.

Citadel Processing Accounts and Liabilities

Citadel processing accounts represent the bank accounts maintained by the Company for the purpose of payment processing for Citadel merchants and clients. These accounts are recorded separately from the Company's operating bank accounts.

Citadel processing liabilities represent balances due to Citadel clients, merchants and their clients from funds held in trust, pending transaction cancellation periods and processing times. These amounts are funds held with Citadel on behalf of the merchants and are available on demand.

Liquidity and Capital Resources

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

During the three and six month ended August 31, 2013, cash flow generated in operating activities was $36,000 and $193,000 respectively, compared to $1,383,000 and $1,195,000 during the comparative periods ended August 31, 2012, respectively.

Cash used in financing activities totaled $49,000 and $176,000 during the three months and six months ended August 31, 2013 respectively. These activities related mainly to the loan payable.  Cash used in financing activities for the comparative periods for the three and six months ending August 31, 2012, were $1,488,000 and $1,498,000 respectively.

As at August 31, 2013, the Company had cash and cash equivalents of $98,000, compared to $82,000 on August 31, 2012.

For the three month period ending August 31, 2013 the Company recorded an income from operations of $87,000 with a decrease of operating cash flow of $13,000.  The Company has incurred operating losses and net utilization of cash in operations in prior periods.  Accordingly, the Company will require continued financial support from its shareholders and creditors and/or new debt or equity financing until it is able to generate sufficient cash flow from operations on a sustained basis.

Consolidated Interim Financial Statements (Unaudited)

NOTE TO READER: The following financial statements (unaudited) are extracted from the complete unaudited interim financial statements of the Company which have been filed together with the Management's Discussion and Analysis. The Company's documents can be found on www.sedar.com to which the reader is referred.

ESI ENTERTAINMENT SYSTEMS INC. Condensed Consolidated Interim Statements of Financial Position As at August 31, 2013 and February 28, 2013 (Unaudited - expressed in Canadian dollars)
								August  31, 2013		February 28, 2013
Assets
Current
	Cash and cash equivalents						$	97,784	$	83,351
	Accounts receivable							1,860		68,665
	Prepaids and other							66,861		75,916
	Citadel processing accounts							8,139,743		9,236,421
								8,306,248		9,464,353
Non-current
	Property and equipment							50,603		61,168
Total Assets							$	8,356,851	$	9,525,521
Liabilities
Current
	Accounts payable and accrued liabilities						$	1,248,442	$	1,287,312
	Loan Payable							610,928		736,556
	Citadel Processing Liabilities							9,169,857		10,316,509
Total Liabilities							$	11,029,227	$	12,340,377
Shareholders' deficit
	Share Capital						$	9,957,959	$	9,957,959
	Contributed Surplus							4,591,829		4,591,829
	Other Comprehensive Income							241,507		291,977
	Deficit							(17,463,671)		(17,656,621)
Total deficit								(2,672,376)		(2,814,856)
Total liabilities and shareholders' deficit							$	8,356,851	$	9,525,521

NOTICE TO READER: These unaudited interim financial statements have not been reviewed by the Company's Auditors.

ESI ENTERTAINMENT SYSTEMS INC. Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) For The Three and Six Months Ending August 31, 2013 and 2012. (Unaudited - expressed in Canadian dollars)
								Three Months Ended August 31,							Six Months Ended August 31,
								2013			2012				2013		2012
Continuing Operations
	Revenues					$		722,647	$		647,615			$	1,530,214	$	1,372,392
	Direct Costs							652,499			573,624				1,274,722		1,167,321
Gross Profit								70,148			73,991				255,492		205,071
General and administration expenses								105,827			122,766				170,039		234,923
Income (loss) before under noted items								(35,679)			(48,775)				85,453		(29,852)
Other expenses (income)
	Foreign exchange (gain) loss							(132,863)			(43,137)				(127,431)		95,725
	Tax expense							305			(28,143)				763		(28,133)
	Other Income							-			15,601				(546)		(13,576)
	Interest  income							-			(1)				-		(2,029)
	Interest expense							9,419			16,801				19,717		49,330
	(Gain) Loss on asset sale							-			-				-		-
Income (loss) for period attributable to equity holders								87,460			(9,896)				192,950		(131,169)
Discontinued operations								-			-				-		1,417,825
Other comprehensive income
Foreign currency translation gain (loss)								45,091			40,989				50,470		92,472
Total Comprehensive income for the period attributable to equity holders						$		132,551	$		31,093			$	243,420	$	1,379,128
Basic and diluted income per share						$		0.01	$		0.01			$	0.02	$	0.10

NOTICE TO READER: These unaudited interim financial statements have not been reviewed by the Company's Auditors.

ESI ENTERTAINMENT SYSTEMS INC. Condensed Consolidated Interim Statements of Cash Flows For the Three and Six Months Ending August 31, 2013 and 2012. (Unaudited - expressed in Canadian dollars)
			Three Months Ending August 31				Six Months Ending August  31
			2013		2012		2013		2012
Cash provided by (used for) the following activities
Operating activities
Income for the period		$	87,460	$	5,810	$	192,950	$	1,455,025
Add (deduct)
	Depreciation		7,118		6,016		13,887		22,453
	Other		(45,091)		-		(50,470)		-
	Stock-based compensation		-		980		-		4,362
			49,487		12,806		156,367		1,481,840
Changes in non-cash working capital:
	Accounts receivable		869		1,534,214		66,805		145,057
	Prepaids		2,103		21,059		9,055		69,613
	Accounts payable and accrued liabilities		(16,582)		(185,474)		(38,870)		(51,062)
	Deferred revenue		-		-		-		(780,980)
	Deferred contract costs		-		-		-		330,758
Cash flow (used in) from operations			35,877		1,382,605		193,357		1,195,226
Investment activities
	Capitalized development costs		-		-		-		127,940
	Acquisition of property and equipment		(61)		(3,943)		(3,322)		26,171
Cash from (used in) investing activities			(61)		(3,943)		(3,322)		154,111
Financing activities
	Loan payable		(52,048)		(1,376,756)		(125,628)		(1,330,007)
	Change in Citadel processing liabilities		47,608		323,537		(1,146,652)		338,749
	Change in Citadel processing assets		(44,925)		(434,563)		1,096,678		(507,108)
Cash from (used in) financing activities			(49,365)		(1,487,782)		(175,602)		(1,498,366)
Increase (decrease) in cash and cash equivalents			(13,549)		(109,120)		14,433		(149,029)
Cash and cash equivalents, beginning of period			111,333		191,661		83,351		231,570
Cash and cash equivalents, end of period		$	97,784	$	82,541	$	97,784	$	82,541

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 and ESI Integrity Inc assets were sold in fiscal 2013.

SOURCE: ESI Entertainment Systems Inc.

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