ESI Entertainment announces fiscal 2008 third quarter financial results



    BURNABY, BC, Feb. 4 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the
"Company") (TSX: ESY) reported today its financial results for fiscal Q3 2008
ended November 30, 2007. (All dollar amounts reported in Canadian funds)

    Financial highlights for the quarter included (Q3 2008 compared to
    Q3 2007):

    
    Consolidated basis:
    -   Revenue for the three months to November 30, 2007, decreased from
        $6.3 million to $0.76 million - negative 88% - over the comparative
        period in the prior year;
    -   Revenue for the nine months to November 30, 2007 decreased from
        $17.5 million to $2.2 million - negative 87% - over the comparative
        period in the prior year;
    -   Gross Profit for the three months to November 30, 2007, decreased
        from $3.97 million to $0.06 million - negative 98% - over the
        comparative period in the prior year;
    -   Gross Profit for the nine months to November 30, 2007, decreased from
        $11.04 million to $0.37 million - negative 97% - over the comparative
        period in the prior year;
    -   Net loss for the three months to November 30, 2007, decreased to
        $2,250,753 from net loss of $5,256,916 - positive 57.2% - in the
        comparative period in the prior year;
    -   Net loss for the nine months to November 30, 2007, increased to
        $7,423,989 from net loss of $4,535,662 - negative 63.7% - over the
        comparative period in the prior year;
    

    Our financial results were mainly driven by the decline in Citadel
Commerce Corp., our payment processing service to the on-line gaming and
e-commerce industries, due to the cessation of the financial processing
business for non-domestic internet gaming merchants for US consumers and for
domestic gaming merchants. We have seen a significant decrease in our
financial performance for the three and nine months ended November 30, 2007
compared to the three and nine months ended November 30, 2006.
    We continued to build on our Internet Banking payment service and look
forward to providing another update during the following quarters as we
continue to develop new and additional markets for our products.

    Financial Review

    Total revenue decreased by 88% to $0.76 million for the three months
ended November 30, 2007 from $6.26 million for the three months ended
November 30, 2006. This decrease was mainly because of the decline in Citadel
revenues due to the cessation of the financial processing business for
non-domestic internet gaming merchants for US consumers and for domestic
gaming merchants.
    Gross profit was $0.06 million and $0.37 million for the three and nine
months ended November 30, 2007 compared to $3.97 million and $11.04 million
for the same periods in 2006. Gross margin as a percentage of revenues was 8%
compared to 63% for the same quarter in prior year, a decrease of 558%.
Margins decreased because revenues dropped from payment processing business
due to the cessation of the financial processing business for non-domestic
internet gaming merchants for US consumers and for domestic gaming merchants
while direct costs of sales such as call centre, merchant support and other
operations related wages remained relatively fixed as transaction revenues
declined.
    Product development expenses were $253,197 and $1,108,153 during the
three and nine months ended November 30, 2007 respectively, a decrease of 10%
and increase of 31% respectively compared to $282,892 and $846,333 for the
three and nine months ended November 30, 2006. The increase is mainly related
to additional software development work on Citadel's new products for the
European and general e-commerce markets as well as expensing of product
development costs which were being deferred and written off in Q3 of fiscal
2007.
    Sales, marketing and customer service expenses were $503,545 and
$1,312,001 during the three and nine months ended November 30, 2007
respectively, a decrease of 32% and 46% respectively compared to $748,877 and
$2,418,444 for the three and nine months ended November 30, 2006. The decrease
is primarily related to the reduction of staff in sales and marketing and
customer service due to the cessation of the financial processing business for
non-domestic internet gaming merchants for US consumers and for domestic
gaming merchants.
    General and administrative expenses were $1,571,751 and $4,040,688 during
the three and nine months ended November 30, 2007 respectively, representing a
decrease of 25% and 23% compared to $2,104,147 and $5,253,212 for the three
months and nine months ended November 30, 2006. This decrease resulted from a
reduction of staff due to the cessation of the financial processing business
for non-domestic internet gaming merchants for US consumers in Q4 2007 and for
domestic gaming merchants in Q1 2008. Included in general and administrative
expenses was non-cash stock compensation expense of approximately $53,517 for
the three months ended November 30, 2007 compared to $27,764 for three months
ending November 30, 2006.
    Net loss for the three and nine month periods ended November 30, 2007
were $2,250,752 ($0.13 net loss per share - basic and diluted) and $7,423,939
($0.41 net loss per share - basic and diluted) compared to net loss of
$5,256,916 ($0.28 net loss per share - basic and fully diluted) and $4,535,662
($0.25 net loss per share- basic and fully diluted) for the prior comparative
periods. The fully diluted loss per share has not been computed, as the effect
would be anti-dilutive (meaning that the loss per share would decrease on a
fully diluted basis). Therefore, in accordance with GAAP, fully diluted loss
per share is not provided. The fully diluted calculation would have otherwise
included Common Shares underlying outstanding securities, such as options and
warrants exercisable to acquire Common Shares.
    As at November 30, 2007, the Company had cash and cash equivalents of
$2,194,883, compared to $10,988,753 on November 30, 2006.


    
    ESI Entertainment Systems Inc.

    Consolidated Balance Sheets
    (expressed in Canadian dollars)
    (unaudited)                                    November 30,  February 28,
                                                          2007          2007
    -------------------------------------------------------------------------

    Assets
    Current
      Cash and cash equivalents                   $  2,194,883  $  9,453,701
      Accounts receivable                            1,097,498       558,291
      Prepaids                                         457,694       472,910
                                                  ------------- -------------

                                                     3,750,075    10,484,902
    Restricted cash (Note 4)                                 -     1,100,903
    Citadel processing accounts (Note 4)            12,418,932    16,075,768
    Property and equipment (Note 5)                    895,251     1,391,764
    Deferred contract costs                          1,039,000       502,596
                                                  ------------- -------------

                                                  $ 18,103,258  $ 29,555,933
                                                  ------------- -------------
                                                  ------------- -------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current
      Accounts payable and accrued liabilities    $    700,045  $  1,237,547
      Capital lease obligations                         91,116       348,671
      Software license obligation                            -         9,917
      Deferred revenue                                 497,915       539,198
                                                  ------------- -------------

                                                     1,289,076     2,135,333
    Citadel processing liabilities (Note 4)         12,691,820    16,883,268
    Deferred revenue                                 1,860,580     1,080,247
    Capital lease obligations                          245,399       245,399
                                                  ------------- -------------

                                                    16,086,875    20,344,247
                                                  ------------- -------------

    Shareholders' Equity
    Capital stock (Note 6)                           9,963,885    13,226,702
    Warrants (Note 7)                                    5,926        84,634
    Contributed surplus                              3,900,345       330,134
    (Deficit)                                      (11,853,773)   (4,429,784)
                                                  ------------- -------------

                                                     2,016,383     9,211,686
                                                  ------------- -------------

                                                  $ 18,103,258  $ 29,555,933
                                                  ------------- -------------
                                                  ------------- -------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ESI Entertainment Systems Inc.

    Consolidated Statements of Operations and (Deficit) Retained Earnings
    (expressed in Canadian dollars)

                              Three Months Ended          Nine Months Ended
                                 November 30,                November 30,
    (unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------

    Revenues (Note 5) $    761,688  $  6,256,549  $  2,219,453  $ 17,537,387

    Direct costs
     (Note 5)              697,512     2,290,053     1,846,402     6,500,573
                      ------------- ------------- ------------- -------------

    Gross profit            64,176     3,966,496       373,051    11,036,814
                      ------------- ------------- ------------- -------------

    Operating expenses
      Product development  253,197       282,892     1,108,153       846,833
      Sales, marketing
       and customer
       service             503,545       748,877     1,312,001     2,418,444
      General and
       administrative
       (Note 10)         1,571,751     2,104,147     4,040,688     5,253,212
      Amortization of
       property and
       equipment           184,821       235,620       597,523       677,652
                      ------------- ------------- ------------- -------------

                         2,513,314     3,371,536     7,058,365     9,196,141
                      ------------- ------------- ------------- -------------

    Earnings before
     under noted items  (2,449,138)      594,960    (6,685,314)    1,840,673

    Other expenses
     (income)
      Impairment of
       intangibles and
       other assets              -     6,211,465             -     6,211,465
      Foreign exchange
       loss (gain)        (162,612)     (233,012)      938,300       (69,804)
      Interest income      (43,094)     (105,482)     (268,868)     (391,485)
      Interest expense      (4,354)       19,944        40,508       106,354
                      ------------- ------------- ------------- -------------

    Earnings before
     income taxes and
     non-controlling
     interest           (2,239,078)   (5,297,955)   (7,395,254)   (4,015,857)

    Provision for
     income taxes
      Current               11,674        13,961        28,735        45,805
      Future                     -       (55,000)            -       474,000
                      ------------- ------------- ------------- -------------

                            11,674       (41,039)       28,735       519,805
                      ------------- ------------- ------------- -------------

    Net loss          $ (2,250,752) $ (5,256,916) $ (7,423,989) $ (4,535,662)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Earnings per share
     (Note 9)
      Basic           $      (0.13) $      (0.28) $      (0.41) $      (0.25)
      Diluted                (0.13)        (0.27)        (0.41)        (0.23)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings
     (deficit),
     beginning of
     period           $ (9,603,021) $  1,282,311  $ (4,429,784) $    561,057

    Net loss            (2,250,752)       88,687    (7,423,989)   (4,535,662)
                      ------------- ------------- ------------- -------------

    Retained earnings
     (deficit), end
     of period        $(11,853,773) $ (3,974,605) $(11,853,773) $ (3,974,605)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ESI Entertainment Systems Inc.

    Consolidated Statements of Cash Flows
    (expressed in Canadian dollars)

                              Three Months Ended          Nine Months Ended
                                 November 30,                November 30,
    (unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------

    Cash flows provided
     by (used in)

    Operating
     activities
      Net loss        $ (2,250,752) $ (5,256,916) $ (7,423,989) $ (4,535,662)
      Items not
       affecting cash:
        Stock-based
         compensation
         (Note 8)           53,517        27,764       231,687       110,976
        Amortization
         of property
         and equipment     184,821       235,620       597,523       677,652
        Future income
         taxes                   -       (55,000)            -       474,000

      Net changes in
       non-cash
       operating items:
        Accounts
         receivable       (154,636)     (643,986)     (539,207)     (839,513)
        Inventory                -        32,002             -      (205,250)
        Prepaids            88,593      (324,510)       15,216      (380,528)
        Allowance for
         bad debts         272,888             -      (534,612)
        Accounts payable
         and accrued
         liabilities       (57,173)      558,374      (537,503)      726,934
        Deferred revenue   (30,622)      333,820       739,050       556,861
        Deferred
         contract costs   (132,296)       65,219      (536,404)       60,401
                      ------------- ------------- ------------- -------------

                        (2,025,660)    1,183,852    (7,988,239)    2,857,336
                      ------------- ------------- ------------- -------------

    Investing activities
      Acquisition of
       property and
       equipment            (6,745)     (112,888)     (101,010)     (314,418)
      Capitalized
       development cost          -      (258,727)            -      (398,685)
      Restricted cash            -             -     1,100,903             -
      Deferred start
       up cost                   -      (259,991)            -    (1,253,151)
                      ------------- ------------- ------------- -------------

                            (6,745)     (631,606)      999,893    (1,966,254)
                      ------------- ------------- ------------- -------------

    Financing activities
      Loan payable               -             -             -    (1,000,000)
      Capital lease
       payments            (88,218)      (82,234)     (257,555)     (214,039)
      Software license
       obligation                -       (29,261)       (9,917)      (79,946)
      Share cancellation
       costs                (3,000)            -        (3,000)            -
      Issuance of common
       shares, net of
       issue costs               -             -             -     8,893,388
                      ------------- ------------- ------------- -------------

                           (91,218)    (111,,495)     (270,472)    7,599,403
                      ------------- ------------- ------------- -------------

    Increase in cash
     and cash
     equivalents        (2,123,623)      440,751    (7,258,818)    8,490,485

    Cash and cash
     equivalents,
     beginning of
     period              4,318,506    10,548,002     9,453,701     2,498,268
                      ------------- ------------- ------------- -------------

    Cash and cash
     equivalents,
     end of period    $  2,194,883  $ 10,988,753  $  2,194,883  $ 10,988,753
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Non-cash investing
     and financing
     transactions not
     included in cash
     flows
      Conversion of
       preferred
       shares into
       common shares  $          -  $          -  $          -  $  2,706,941
      Share issue
       costs incurred
       in prior fiscal
       year                      -             -             -       936,987
      Future income
       tax on share
       issue costs               -             -             -       732,500
      Fair value of
       options
       exercised                 -             -             -           519
      Agents' warrants
       included in
       share issue
       costs                     -             -             -        78,708

    Cash and cash
     equivalents
     comprises
      Cash                                        $  2,194,883  $  8,478,645
      Cash equivalents                                       -     2,510,108
                      	                        ------------- -------------

                                                  $  2,194,883  $ 10,988,753
                      	                        ------------- -------------
                      	                        ------------- -------------

    Supplemental
     information
      Interest
       received       $     43,094  $    144,457  $    160,279  $    367,011
      Interest paid         16,096        19,944        68,790       106,354
      Income taxes paid          -        50,763             -        50,763

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    About ESI Entertainment Systems Inc.

    ESI Entertainment Systems Inc. ("ESI") (TSX: ESY) provides products and
services to the international gaming and e-commerce industries through its
three principal subsidiaries, Citadel Commerce Corp., ESI Integrity Inc. and
PlayLine Inc. ESI's products and services, which primarily consist of payment
processing, transaction monitoring and turnkey gaming platforms, are deployed
in the on-line and land based gaming and e-commerce markets.

    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 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 Toronto Stock Exchange does not accept responsibility for this press
    release.

    %SEDAR: 00023260E




For further information:

For further information: ESI Entertainment Systems Inc., Tony Greening,
Chief Executive Officer, Telephone: (604) 299-6922, email: tgreening@esi.ca,
Web: www.esi.ca

Organization Profile

ESI Entertainment Systems Inc.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890