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
    -------------------------------------------------------------------------
                                     February 28,  February 28,
    ($ 000)                                 2010          2009      % change
    -------------------------------------------------------------------------
    Integrity                              2,453         3,253        (24.6%)
    -------------------------------------------------------------------------
    Citadel                                1,128           701         60.9%
    -------------------------------------------------------------------------
    Total revenue                          3,581         3,954         (9.4%)
    -------------------------------------------------------------------------
    

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
    -------------------------------------------------------------------------
                                                   February 28,  February 28,
    ($ 000)                                               2010          2009
    -------------------------------------------------------------------------
    Revenues                                             3,581         3,954
    Direct costs                                         2,558         2,983
    -------------------------------------------------------------------------
    Gross profit                                         1,023           971
    Gross profit margin                                    29%           25%
    -------------------------------------------------------------------------
    

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
    -------------------------------------------------------------------------
                       February 28,        February 28,        February 29,
    ($ 000)                2010                2009                2008
    -------------------------------------------------------------------------
                                 GP%                 GP%                 GP%
                                 ---                 ---                 ---
    Integrity        1,099       45%     1,129       35%     1,027       43%
    Citadel            (76)      (7%)     (158)     (22%)     (509)     (58%)
    -------------------------------------------------------------------------
    Total gross
     profit          1,023       29%       971       25%       518       16%
    -------------------------------------------------------------------------
    

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
    -------------------------------------------------------------------------
                                     February 28,  February 28,  February 29,
    ($ 000) except for EPS                  2010          2009          2008
    -------------------------------------------------------------------------
    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)
    -------------------------------------------------------------------------
    

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

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.

    
    -------------------------------------------------------------------------
    Consolidated Balance Sheets
    (expressed in Canadian dollars)

                                                   February 28,  February 28,
    Years Ended                                           2010          2009
    -------------------------------------------------------------------------

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

                                                  $  6,934,240  $  6,051,845
                                                  ------------- -------------
                                                  ------------- -------------

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

    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
                                                  ------------- -------------
                                                    10,634,137     7,139,320


    Deferred revenue                                   913,605     1,324,392
                                                  ------------- -------------

                                                    11,547,742     8,463,712
                                                  ------------- -------------

    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)
                                                  ------------- -------------

                                                    (4,613,502)   (2,411,867)
                                                  ------------- -------------

                                                  $  6,934,240  $  6,051,845
                                                  ------------- -------------
                                                  ------------- -------------

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



    Consolidated Statements of Operations and Comprehensive Loss and Deficit
    (expressed in Canadian dollars)

                                                   February 28,  February 28,
    Years Ended                                           2010          2009
    -------------------------------------------------------------------------

    Revenues                                      $  3,581,478  $  3,954,820

    Direct costs                                     2,558,307     2,983,798
                                                  ------------- -------------

    Gross profit                                     1,023,171       971,022
                                                  ------------- -------------

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

                                                     3,294,903     5,560,001
                                                  ------------- -------------

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

    Loss  before income taxes                       (2,340,299)   (5,059,997)
                                                  ------------- -------------

    Provision for income taxes                               -         8,529
                                                  ------------- -------------

    Net loss and comprehensive loss               $ (2,340,299) $ (5,068,526)
                                                  ------------- -------------
                                                  ------------- -------------

    Loss per share
      Basic and diluted                           $      (0.16) $      (0.36)

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

    Deficit, beginning of year                    $(16,698,711) $(11,630,185)

    Net loss                                        (2,340,299)   (5,068,526)
                                                  ------------- -------------

    Deficit and accumulated other comprehensive
     deficit, end of year                         $(19,039,010) $(16,698,711)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

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

                                                      (272,112)   (4,467,606)
                                                  ------------- -------------

      Investing activities
        Acquisition of property and equipment          (90,778)      (15,061)
        Proceeds on disposal                            10,500             -
        Capitalized development costs                  (47,532)            -
                                                  ------------- -------------

                                                      (127,810)      (15,061)
                                                  ------------- -------------

      Financing activities
        Capital lease payments                         (30,684)     (214,715)
        Loan payable                                  (389,971)    2,564,704
                                                  ------------- -------------

                                                      (420,655)    2,349,989
                                                  ------------- -------------

    Decrease in cash and cash equivalents             (820,577)   (2,132,678)

    Cash and cash equivalents, beginning of year       909,785     3,042,463
                                                  ------------- -------------

    Cash and cash equivalents, end of year        $     89,208  $    909,785
                                                  ------------- -------------
                                                  ------------- -------------

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

    Supplemental information
      Interest received                           $     20,929  $     41,536
      Interest paid                               $    175,168  $    128,913
      Income taxes paid                           $          -  $      8,529



    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.

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