ESI Entertainment announces Fiscal 2013 First Quarter Financial Results

BURNABY, BC, July 30, 2012 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX: ESY) reported today its financial results (unaudited) for fiscal Q1 2013 ended May 31, 2012. (All dollar amounts reported in Canadian funds).

Consolidated financial highlights for the quarter include (Q1 2013 compared to Q1 2012):

  • Revenues increased by 85% to $1,741,000 from $943,000
  • Gross profit increased by 416%, to $691,000 from $134,000
  • Operating Expenses increased by 6% to $372,000 from $352,000
  • Gain on the asset sale of ESI Integrity  was $1,177,000
  • Net comprehensive income before income taxes was $1,449,000 compared to a loss of  $391,000 in the period year

These increases were due to the one time recognition of the deferred revenue, deferred contract and capitalized development costs and the gain made from the asset sale of ESI Integrity.

"With the asset sale of ESI Integrity completed, a significant amount of the Loan Payable reduced in June and revenue continuing to grow within Citadel, we are excited about the coming year. Our main operating subsidiary, Citadel Commerce, continues to closely govern expenditures while focusing on our pipeline of payment processing opportunities and new initiatives."

"Michael Meeks"
President & CEO

Selected Financial Information

  Period ended
  May 31,
2012
  May 31,
2011
($ 000) except for EPS      
Revenue 1,741   943
Gross Profit 691   134
Total operating expenses 372   352
Net Loss 1,449   (391)
Earnings (loss) per share      
   Basic and Diluted 0.10   (0.03)
Total Assets 8,323   5,505
Total long-term liabilities -   486
       

Results of Operations

Consolidated Revenues

The following table provides a breakdown of the Company's revenues from its subsidiaries for the three months ended May 31, 2012 and May 31, 2011.  All amounts are in Canadian dollars unless otherwise specified:

           
           Three months ended    
($ 000)     May 31/12 May 31/11   % change
             
Integrity     1,016 417   144%
Citadel     725 526   38%
Total revenue   1,741 943   85%
           

Total revenue increased by 85% to $1,741,000 for the three months ended May 31, 2012 from $943,000 for the three months ended May 31, 2011. This is mainly due to the one time recognition of the ESI Integrity deferred revenue upon closing of the asset sale.

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.

ESI 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 58% of ESI's revenues were generated by ESI Integrity during the three months ended May 31, 2012 compared to 44% for the same period in the prior year.

The increase in revenue is due to the one time recognition of the ESI Integrity deferred revenue upon closing of the asset sale.  

As a consequence the disposal of ESI Integrity business effective May 31, 2012, revenue and expense of ESI Integrity will no longer impact the results of operations for future periods.

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 42% of ESI's revenues were generated by Citadel during the three months ended May 31, 2012 compared to 56% 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.

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 31/12   May 31/11
             
Revenues       1741   943
Direct Costs       1,050   809
Gross profit       691   134
Gross profit margin (%)   40%   14%
           

The increase of Gross Profit in the First Quarter to May 31, 2012, compared to May 31, 2011, is primarily attributable to the one time recognition of ESI Integrity deferred revenue upon closing of the asset sale.

Sales, Marketing and Customer Service

Sales, marketing and customer service expenses were $30,000 during the three months ended May 31, 2012, a decrease of 6% compared to $32,000 for the three months ended May 31, 2011.

General and Administrative

General and administrative expenses were $372,000 during the three months ended May 31, 2012, an increase of 6% compared to $352,000 for the three months ended May 31, 2011. This change is due partly to the Company's ongoing efforts to minimize its operating expenses and partly to the recognition of ESI Integrity capitalized development costs.

Amortization

Amortization expenses were $16,000 during the three months ended May 31, 2012, a decrease of 27% compared to $22,000 for the three months ended May 31, 2011.  The amortization is reducing on older equipment.

Net Earnings

Net comprehensive income for the quarter ended May 31, 2012 was $1,449,000 ($0.10 earnings per share) compared to a loss of $391,000 ($0.03 loss per share) for the quarter ended May 31, 2011. This change is primarily due to the one time recognition of the deferred revenue and the gain made from the asset sale of ESI Integrity.

Citadel Processing Accounts and Liabilities

Citadel processing accounts as at May 31, 2012 totaled $6.4 million compared to $4.3 million as at May 31, 2011.  The accounts are comprised of cash and accounts receivables arising from the processing of deposits and payments for Citadel merchants and consumers.

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, 2012, cashflow used from operating activities was $111,000 compared to $12,000 generated during the quarter ended May 31, 2011.

Cash from financing activities totaled $11,000 during the quarter ended May 31, 2012 compared to $382,000 during the quarter ended May 31, 2011.

Overall, the decrease in cash totaled $40,000 for the quarter ended May 31, 2012 compared to an increase of $389,000 for the quarter ended May 31, 2011.

For the three month period ending May 31, 2012 the Company recorded a comprehensive income from operations of $1,449,000 and a decrease in operating cash flow of $40,000.

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, 2012 and February 29, 2012
(Unaudited - expressed in Canadian dollars)

             
        May  31,
2012
  February 29,
2012
Assets    
Current    
  Cash and cash equivalents $ 191,661 $ 231,570
  Accounts receivable   1,562,852   173,695
  Prepaids and other   84,856   133,410
  Citadel processing accounts   6,413,211   6,340,666
      Deferred contract costs     -   114,495
      8,252,580   6,993,836
Non-current      
  Capitalized Development Costs   -   127,940
  Property and equipment   69,988   116,509
  Deferred contract costs   -   216,263
Total Assets   $ 8,322,568 $ 7,454,548
           
Liabilities        
Current        
  Accounts payable and accrued liabilities $ 1,502,762 $ 1,368,350
  Loan Payable   2,191,981   2,145,232
  Citadel Processing Liabilities   7,558,033   7,542,821
  Deferred Revenue   -   426,162
      11,252,776   11,482,565
Non-current          
  Deferred Revenue   -   354,818
Total Liabilities   $ 11,252,776 $ 11,837,383
         
Equity        
  Share Capital $ 9,957,959 $ 9,957,959
  Contributed Surplus    4,594,250   4,590,868
  Other Comprehensive Income (Loss)   413,531   362,048
  Deficit   (17,895,948)   (19,293,710)
Total Equity     (2,930,208)   (4,382,835)
Total liabilities and equity   $ 8,322,568 $ 7,454,548
         
         
         

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
Three months ended May 31, 2012 and May 31, 2011
(Unaudited - expressed in Canadian dollars)

 
  For the three months ended May 31
          2012   2011
Continuing operations              
  Revenues     $ 1,740,861 $ 942,861
  Direct Costs     1,049,684   809,189
Gross Profit       691,177   133,672
General and administration expenses       371,916   351,666
                             
Operating income (loss)          319,261   (217,994)
               
  Foreign exchange (gain) loss       97,371   138,123
  Finance Income       (2,028)   (10)
  Finance expense       32,522   31,265
      Other Income       (29,177)   -
      Gain on asset sale       (1,177,189)   -
Income (Loss) for the period attributable to equity holders       1,397,762   (387,372)
             
Other comprehensive income (loss)            
Foreign currency translation gain (loss)       51,483   (3,913)
Total comprehensive income (loss) for the period attributable to the equity holders     $ 1,449,245 $ (391,285)
             
Basic and diluted earnings (loss) per share       0.10   (0.03)

ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Cash Flows
Three months ended May 31, 2012 and May 31, 2011
(Unaudited - expressed in Canadian dollars)

 
    Three months ended May 31
          2012   2011
Cash flows provided by (used for) the following activities              
               
Operating activities              
Income (loss) for the period       $ 1,397,762 $ (387,372)
Add (deduct)              
  Depreciation       16,437   22,086
  Other       51,483   (3,913)
  Stock-based compensation       3,382   20,002
          1,469,064   (349,197)
               
Changes in non-cash working capital:              
  Accounts receivable       (1,312,552)   127,449
  Prepaids       48,554   (23,613)
  Accounts payable and accrued liabilities       134,412   214,587
  Deferred revenue       (780,980)   38,882
  Deferred contract costs       330,758   4,219
Cash flow (used in) from operations         (110,744)   12,327
                 
Investment activities                  
  Capitalized development costs       127,940   -
  Acquisition of property and equipment       (46,521)   (5,427)
Cash from (used in) investing activities         81,419      (5,427)
               
Financing activities              
  Loan payable       46,749   24,455
  Change in Citadel processing liabilities       15,212   360,459
  Change in Citadel processing assets       (72,545)   (3,183)
Cash from (used in) financing activities         (10,584)   381,731
               
Increase (decrease) in cash and cash equivalents         (39,909)   388,631
Cash and cash equivalents, beginning of period         231,570   17,742
Cash and cash equivalents, end of period       $ 191,661 $ 406,373
         
         
         

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.
Michael Meeks
President and CEO
Telephone: (604) 299-6922
email: mmeeks@esi.ca
Web: www.esi.ca

Organization Profile

ESI Entertainment Systems Inc.

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