ESI ENTERTAINMENT SYSTEMS INC ANNOUNCES FISCAL 2011 SECOND QUARTER FINANCIAL
RESULTS
BURNABY, BC, Oct. 29 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX: ESY) reported today its financial results (unaudited) for fiscal Q2 2011 ended August 31, 2010. (All dollar amounts reported in Canadian funds)
Consolidated financial highlights for the quarter include (Q2 2011 compared to Q2 2010):
- Revenues decreased by 14% to $822,000 from $952,000
- Gross profit decreased by 4% to $340,000 from $355,000
- Operating Expenses decreased by 3% to $728,000 from $752,000
- Net loss decreased by 47% to $283,000 from $535,000
During the Second Quarter we continued to reduce direct and operating expenses whilst at the same time are working to expand the business base of ESI Integrity and grow the business of Citadel Commerce.
Despite these global financially turbulent times, which bring uncertainty to many businesses, we are pleased that the ESI group is able to keep its costs to a minimum and continue to reduce its net loss. Each of the two operating subsidiaries has closely governed expenditures while remaining focused on building its business. The summer months of June, July and August typically show a decrease or flattening in our revenues usually presaging a renewed surge in the Fall.
Financial Review
Consolidated Revenues
The following table provides a breakdown of the Company's revenues from its subsidiaries for the reported periods:
Three months ended Aug 31 Six months ended Aug 31
($ 000) 2010 2009 % Change 2010 2009 % Change
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Integrity 440 706 (38%) 874 1,286 (32%)
Citadel 382 246 55% 691 500 38%
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Total Revenue 822 952 (14%) 1,565 1,786 (12%)
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Total revenue decreased by 14% to $822,000 for the three months ended August 31, 2010 from $952,000 for the three months ended August 31, 2009.
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.
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 54% of ESI's revenues were generated by ESI Integrity during the three months ended August 31, 2010 compared to 74% for the same period in the prior year.
The decrease in revenue is due to a reduction in work plan and consulting revenues combined with the adverse effect of the weakened US dollar and Euro currencies relative to the Canadian dollar. The majority of Integrity's revenues are contracted in US dollars or Euros.
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 46% of ESI's revenues were generated by Citadel during the three months ended August 31, 2010 compared to 26% 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.
Product Development
All Product Development expenses are now being capitalized.
Sales, Marketing and Customer Service
Sales, marketing and customer service expenses were $29,035 and $60,419 during the three and six months ended August 31, 2010 respectively, a decrease of 24% and 23% respectively compared to $37,954 and $78,279 for the three and six months ended August 31, 2009.
General and Administrative
General and administrative expenses were $687,397 and $1,346,436 during the three and six months ended August 31, 2010 respectively, representing an increase of 15% and 6% compared to $594,803 and $1,270,538 for the three months and six months ended August 31, 2009.
Amortization of Property and Equipment
Amortization expenses were $12,370 and $26,345 during the three month and six month periods ended August 31, 2010, respectively, a decrease of 79% and 80% compared to $59,276 and $131,502 for the corresponding periods ended August 31, 2009. The decrease in amortization expense mainly relates to very few new assets being purchased and amortization being reduced on older equipment.
Net Loss
Net loss for the three and six month periods ended August 31, 2010 was $283,424 ($0.02 net loss per share) and $698,224 ($0.05 net loss per share), respectively, compared to net loss of $535,677 ($0.04 net loss per share) and $1,057,800 ($0.07 net loss per share) for the prior comparative periods.
Citadel Processing Accounts
Citadel processing accounts as at August 31, 2010 totaled $5.7 million compared to $5.6 million as at February 28, 2010. These accounts are comprised of cash, which are segregated bank funds arising from the processing of deposits and payments for Citadel merchants and consumers, and accounts receivable relating to Citadel processing accounts for funds in transit from merchants and consumers.
Consolidated Balance Sheets
(expressed in Canadian dollars)
(unaudited) August 31, February 28,
2010 2010
(unaudited) (audited)
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Assets
Cash and cash equivalents $ 94,794 $ 89,208
Accounts receivable 1,274,650 1,073,580
Citadel processing accounts (Note 3) 4,648,617 4,937,401
Prepaids 103,990 65,658
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6,122,051 6,165,847
Capitalzed development costs 119,333 47,532
Property and equipment (Note 4) 147,372 170,499
Deferred contract costs 466,915 550,362
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$ 6,855,671 $ 6,934,240
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Liabilities
Accounts payable and accrued liabilities
(Note 8) $ 2,928,692 $ 2,227,935
Loan Payable (Note 9) 2,247,948 2,174,733
Citadel processing liabilities (Note 3) 5,720,798 5,649,239
Deferred revenue 495,288 582,230
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11,392,726 10,634,137
Deferred revenue 774,681 913,605
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12,167,407 11,547,742
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Shareholders' Equity
Capital stock (Note 5) 9,957,959 9,957,959
Contributed surplus 4,467,539 4,467,539
Deficit (19,737,234) (19,039,010)
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(5,311,736) (4,613,502)
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$ 6,855,671 $ 6,934,240
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These unaudited financial statements have not been reviewed by the
Company's auditors.
Consolidated Statements of Operations and Comprehensive Income (Deficit)
and Retained Earnings
(expressed in Canadian dollars)
Three Months Ended August 31, Six Months Ended August 31,
(unaudited) 2010 2009 2010 2009
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Revenues (Note 4) $ 822,029 $ 952,271 $ 1,565,294 $ 1,786,262
Direct costs 482,599 597,289 980,012 1,271,526
------------ ------------ ------------ ------------
Gross profit 339,430 354,982 585,282 514,736
------------ ------------ ------------ ------------
Operating expenses
Product
development - 59,580 - 122,888
Sales, marketing
and customer
service 29,035 37,954 60,419 78,279
General and
administrative 687,397 594,803 1,346,436 1,270,538
Amortization of
property and
equipment 12,370 59,276 26,345 131,502
------------ ------------ ------------ ------------
728,802 751,613 1,433,200 1,603,207
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(Loss) Earnings
before under
noted items (389,372) (396,631) (847,918) (1,088,471)
Other expenses
(income)
Foreign exchange
loss (gain) (158,526) 118,671 (250,935) (96,674)
Interest income (645) (19,510) (689) (20,200)
Interest expense 53,223 39,885 101,930 86,203
------------ ------------ ------------ ------------
Net (Loss)
Earnings $ (283,424) $ (535,677) $ (698,224) $(1,057,800)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(Loss) Earnings
per share
Basic $ (0.02) $ (0.04) $ (0.05) $ (0.07)
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Retained earnings
(deficit),
beginning of
period $(19,453,810) $(17,220,834) $(19,039,010) $(16,698,711)
Net (Loss)
Earnings (283,424) (535,677) (698,224) (1,057,800)
------------ ------------ ------------ ------------
Retained earnings
(deficit), end
of period $(19,737,234) $(17,756,511) $(19,737,234) $(17,756,511)
------------ ------------ ------------ ------------
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These unaudited financial statements have not been reviewed by the
Company's auditors.
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
Three Months Ended August 31, Six Months Ended August 31,
(unaudited) 2010 2009 2010 2009
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Cash flows
provided by
(used in)
Operating
activities
Net (Loss)
Earnings $ (283,424) $ (535,677) $ (698,224) $ (1,057,800)
Items not
affecting cash:
Amortization
of property
and equipment 12,370 59,276 26,345 131,502
Net changes in
non-cash
operating items:
Accounts
receivable (149,495) 852,300 (201,069) 563,803
Prepaids (6,114) (89,828) (38,332) (65,280)
Accounts payable
and accrued
liabilities 546,693 (194,807) 1,061,088 29,462
Deferred
revenue (251,903) (80,058) (225,866) (63,399)
Deferred
contract
costs 53,663 55,636 83,448 63,444
------------ ------------ ------------ ------------
(78,210) 66,842 7,390 (398,268)
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Investing
activities
Capitalized
development
costs (71,801) - (71,801) -
Acquisition of
property and
equipment (3,218) 12,854 (3,218) 5,202
------------ ------------ ------------ ------------
(75,019) 12,854 (75,019) 5,202
------------ ------------ ------------ ------------
Financing
activities
Loan payable 72,247 (24,992) 73,215 (355,596)
Capital lease
payments - (13,279) - (26,169)
------------ ------------ ------------ ------------
72,247 (38,271) 73,215 (381,765)
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Increase (decrease)
in cash and cash
equivalents (80,982) 41,425 5,586 (774,831)
Cash and cash
equivalents,
beginning of
period 175,776 93,529 89,208 909,785
------------ ------------ ------------ ------------
Cash and cash
equivalents, end
of period $ 94,794 $ 134,954 $ 94,794 $ 134,954
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Supplemental
information
Interest
received $ 645 $ 19,510 $ 689 $ 20,200
Interest paid 53,223 39,885 101,930 86,203
These unaudited financial statements have not been reviewed by the
Company's auditors.
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, e-commerce 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.
Forward looking Statements
This news release may contain 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 discussed more fully in the Company's Final Prospectus dated March 22, 2006, Annual Information Form and elsewhere in other filings on www.sedar.com. 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.
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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