ESI Entertainment announces Fiscal 2012 First Quarter Financial Results

BURNABY, BC, Sept. 2, 2011 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX : ESY) reported today its financial results (unaudited) for fiscal Q1 2012 ended May 31, 2011. (All dollar amounts reported in Canadian funds).

Consolidated financial highlights for the quarter include (Q1 2012 compared to Q1 2011):

  • Revenues increased by 27% to $943,000 from $743,000
  • Cost of Sales increased by 62% to $809,000 from $497,000
  • Operating Expenses decreased by 51% to $352,000 from $715,000
  • Net comprehensive loss before income taxes decreased by 8% to $391,000 from $425,000.

"First Quarter Fiscal 2012 was a good Quarter for us.  Not only did we restructure our internal accounting process, we also converted to a new accounting system and have adopted the new IFRS. These changes have allowed us to more effectively monitor our financial position.  Throughout the significant change over, we continued to integrate new customers, build volume and increase revenue. All our subsidiary companies continued to operate efficiently within a lower cost base and increased profitability.   ESI Integrity maintained its operations at a profitable level and Citadel Commerce has increased its revenues while holding down its costs. Although our struggle to grow both Integrity and Citadel back to and beyond their former revenues and profitability are not over, we are pleased to report that the Company continues to grow back and recover market share". - Tony Greening, CEO

Selected Financial Information

  Period ended
  May 31,
2011
May 31,
2010
($ 000) except for EPS    
Revenue 943 743
Gross Profit 134 246
Total operating expenses 352 715
Net Loss (391) (425)
(Loss) earnings per share    
   Basic and Diluted (0.03) (0.03)
Total Assets 5,505 5,238
Total long-term liabilities 486 515
Cash generated from operations 12 (24)

Results of Operations

The Company's May 31, 2011 reporting is the first period using IFRS.  Figures for the three months ended May 31, 2010 have been restated from those previously reported under GAAP to IFRS.  Details regarding the transition to IFRS can be found in the condensed consolidated interim financial statements (note 20) which can be found on www.sedar.com.

Consolidated Revenues

The following table provides a breakdown of the Company's revenues from its subsidiaries for the three months ended May 31, 2011 and 2010:

  Three months ended  
($ 000) May 31/11 May 31/10 % change
       
Integrity 417 434 -4%
Citadel 526 309 70%
Total revenue 943 743 27%

Total revenue increased by 27% to $943,000 for the three months ended May 31, 2011 from $743,000 for the three months ended May 31, 2010.

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.

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.

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 31/11 May 31/10
     
Revenues 943 743
Direct Costs 809 497
Gross profit 134 246
Gross profit margin (%) 14% 33%

The reduction of Gross Profit in the First Quarter to May 31, 2011, compared to May 31, 2010, is primarily attributable to reallocation during fiscal 2012 of direct and indirect operating costs among subsidiaries which has not affected overall group cash flow.  All indirect costs in the Citadel subsidiaries are now allocated to Citadel Malta as Direct Costs

Product Development

All Product Development expenses for ESI Integrity are being capitalized.

Sales, Marketing and Customer Service

Sales, marketing and customer service expenses were $32,000 during the three months ended May 31, 2011, an increase of 3% compared to $31,000 for the three months ended May 31, 2010.  The increase is primarily related to the additional sales and marketing activities.

General and Administrative

General and administrative expenses were $352,000 during the three months ended May 31, 2011, a decrease of 51% compared to $715,000 for the three months ended May 31, 2010. This reduction is due partly to the Company's ongoing efforts to minimize its operating expenses and partly to reallocation of direct and indirect costs.

Amortization

Amortization expenses were $22,000 during the three months ended May 31, 2011, an increase of 57% compared to $14,000 for the three months ended May 31, 2010.  The amortization being reduced on older equipment is offset by amortization being recorded on newly incurred capitalized product development costs in Integrity.

Net (loss) Earnings

Net comprehensive loss for the quarter ended May 31, 2011 was $391,000 ($0.03 loss per share) compared to a loss of $425,000 ($0.03 loss per share) for the quarter ended May 31, 2010, a decrease of 8%.

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, 2011, cash flow generated from operating activities was $12,300 compared to $24,000 used during the quarter ended May 31, 2010.

Cash from financing activities totaled $382,000 during the quarter ended May 31, 2011 compared to $148,000 during the quarter ended May 31, 2010.

Overall, the increase in cash totaled $389,000 for the quarter ended May 31, 2011 compared to $87,000 for the quarter ended May 31, 2010.

For the three month period ending May 31, 2011 the Company incurred a comprehensive loss from operations of $391,000 and an increase in operating cash flow of $389,000.  In addition, the Company has incurred significant 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 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.

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Financial Position
As at May 31, 2011, February 28, 2011 and March 1, 2011
(Unaudited - expressed in Canadian dollars)

             
      May  31, 2011   February 28, 2011
CDN GAAP
  March 1, 2011
IFRS
               
Assets            
Current            
  Cash and cash equivalents $ 406,373 $ 17,742 $ 17,742
  Accounts receivable   82,711   210,160   210,160
  Prepaids and other   90,525   66,912   66,912
  Citadel processing accounts   4,280,435   4,277,252   4,277,252
      4,860,004   4,572,066   4,572,066
Non-current              
  Capitalized Development Costs   152,307   160,255   160,255
  Property and equipment   114,291   123,002   123,002
  Deferred contract costs   378,463   382,682   382,682
Total Assets     5,505,105   5,238,005   5,238,005
               
Liabilities              
Current              
  Accounts payable and accrued liabilities $ 2,299,615 $ 2,085,028 $ 2,085,028
  Loan Payable   2,106,022   2,081,567   2,081,567
  Citadel Processing Liabilities   5,681,601   5,321,142   5,321,142
  Deferred Revenue   556,887   485,367   485,367
      10,644,125   9,973,104   9,973,104
Non-current              
  Deferred Revenue   486,856   519,494   514,494
Total Liabilities     11,130,981   10,492,598   10,492,598
               
Equity              
  Share Capital   9,957,969   9,957,969   9,957,969
  Contributed Surplus   4,619,298   4,560,531   4,599,296
  Other Comprehensive Income (Loss)   19,405   -   23,318
  Deficit   (20,222,548)   (19,773,093)   (19,835,176)
Total Equity     (5,625,876)   (5,254,593)   (5,254,593)
Total liabilities and equity     5,505,105   5,238,005   5,238,005

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
Three months ended May 31, 2011 and May 31, 2010
(Unaudited - expressed in Canadian dollars)

           
    For the three months ended May 31
    2011   2010
Continuing operations          
  Revenues $ 942,861 $ 743,265
  Direct Costs   809,189   497,413
Gross Profit     133,672   245,852
General and administration expenses     351,666   714,676
Operating loss     (217,994)   (468,824)
         
  Foreign exchange (gain) loss   138,123   (28,133)
  Finance Income   (10)   (44)
  Finance expense   31,265   48,707
Loss for the period attributable to equity holders     (387,372)   (489,354)
         
Other comprehensive income (loss)          
Foreign currency translation gain (loss)     (3,913)   64,276
Total comprehensive income (loss) for the period attributable to the equity holders   (391,285)   (425,078)
         
Basic and diluted loss per share     (0.03)   (0.03)

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Cash Flows
Three months ended May 31, 2011 and May 31, 2010
(Unaudited - expressed in Canadian dollars)

     
      Three months ended May 31
      2011   2010
Cash flows provided by (used for) the following activities          
           
Operating activities          
Loss for the period   $ (387,372) $ (489,354)
Add (deduct)          
  Depreciation   22,086   13,975
  Other   (3,913)   64,703
  Stock-based compensation   20,002   10,278
      (349,197)   (400,398)
           
Changes in non-cash working capital:          
  Accounts receivable   127,449   (51,574)
  Prepaids   (23,613)   (32,218)
  Accounts payable and accrued liabilities   214,587   456,611
  Deferred revenue   38,882   (26,037)
  Deferred contract costs   4,219   29,785
Cash flow (used in) from operations     12,327   (23,831)
           
Investment activities          
  Capitalized development costs   -   (37,775)
  Acquisition of property and equipment   (5,427)   -
Cash from (used in) investing activities     (5,427)      (37,775)
           
Financing activities          
  Loan payable   24,455   967
  Change in Citadel processing liabilities   360,459   (1,034,636)
  Change in Citadel processing assets   (3,183)   1,181,843
Cash from (used in) financing activities     381,731   148,174
           
Increase (decrease) in cash and cash equivalents     388,631   86,568
Cash and cash equivalents, beginning of period     17,742   89,208
Cash and cash equivalents, end of period   $ 406,373 $ 175,776

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:

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

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ESI Entertainment Systems Inc.

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