ESI Entertainment Systems Inc announces fiscal 2010 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 2010 ended August 31, 2009. (All dollar amounts reported in Canadian funds)

    
    Consolidated financial highlights for the quarter include:

    -   Revenues increased by 14% to $952,000 from $834,000 during the last
        quarter.

    -   Gross profit margin increased to 37% from 19% during the prior three
        month period.

    -   Operating expenses decreased by $100,000 from the last quarter.

    -   Net loss before income taxes decreased by 65% to $535,000 from a net
        loss before income tax of $1.5 million during the same period in
        fiscal 2009.
    

Our financial results were mainly driven by efforts being made during the Second Quarter to reduce direct and operating expenses whilst at the same time working to expand the business base of ESI Integrity and rebuild the business of Citadel Commerce.

During the second quarter of fiscal 2010 we maintained a steady growth while holding our costs to a minimum and building our customer base to allow us to work for future accelerated growth. Our team of employees and our Board continued to work well together with skill and dedication and many have accepted additional workloads to accommodate the growing business while holding down our costs.

Our second quarter occurs during the off-peak summer season and we traditionally can experience a slowing of revenues. However both subsidiaries have improved their performance over the previous year and both have invested in future opportunities that we will work to fulfill during the coming months.

Financial Review

Total revenue increased by 28% to $952,000 for the three months ended August 31, 2009 from $742,000 for the three months ended August 31, 2008.

Product development expenses were $59,580 and $122,888 during the three and six months ended August 31, 2009 respectively, a decrease of 34% and 41% respectively compared to $91,129 and $207,778 for the three and six months ended August 31, 2008.

Sales, marketing and customer service expenses were $37,954 and $78,279 during the three and six months ended August 31, 2009 respectively, a decrease of 82% and 84% respectively compared to $211,243 and $476,843 for the three and six months ended August 31, 2008.

General and administrative expenses were $594,803 and $1,270,538 during the three and six months ended August 31, 2009 respectively, representing a decrease of 43% and 36% compared to $1,047,170 and $1,972,218 for the three months and six months ended August 31, 2008. This reduction is due to the Company's ongoing efforts to minimize its operating expenses.

Amortization expenses were $59,276 and $131,502 during the three month and six month periods ended August 31, 2009, respectively, a decrease of 52% and 55% compared to $124,742 and $294,127 for the corresponding periods ended August 31, 2008. The decrease in amortization expense mainly relates to very few new assets being purchased and amortization being reduced on older equipment.

Net loss for the three and six month periods ended August 31, 2009 were $535,677 ($0.04 net loss per share) and $1,057,800 ($0.07 net loss per share), respectively, compared to net loss of $1,546,737 ($0.08 net loss per share) and $2,859,097 ($0.15 net loss per share) for the prior comparative periods.

Citadel processing accounts as at August 31, 2009 totaled $5.6 million compared to $2.9 million as at February 28, 2009. 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,
                                                          2009          2009
                                                    (unaudited)     (audited)
    -------------------------------------------------------------------------

    Assets

    Cash and cash equivalents                     $    134,954  $    909,785
    Accounts receivable                                536,220     1,100,023
    Prepaids                                           171,793       106,513
                                                  ------------- -------------
                                                       842,967     2,116,321

    Citadel processing accounts (Note 3)             5,596,527     2,958,565
    Property and equipment (Note 4)                    144,021       280,725
    Deferred contract costs                            632,790       696,234
                                                  ------------- -------------

                                                  $  7,216,305  $  6,051,845
                                                  ------------- -------------
                                                  ------------- -------------
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Accounts payable and accrued liabilities
     (Note 8)                                     $  1,079,162  $  1,049,700
    Loan Payable (Note 9)                            2,209,108     2,564,704
    Capital lease obligations                            4,515        30,684
    Deferred revenue                                   700,697       535,667
                                                  ------------- -------------
                                                     3,993,482     4,180,755

    Citadel processing liabilities (Note 3)          5,596,527     2,958,565
    Deferred revenue                                 1,095,963     1,324,392
                                                  ------------- -------------
                                                    10,685,972     8,463,712
                                                  ------------- -------------

    Shareholders' Equity
    Capital stock (Note 5)                           9,957,959     9,957,959
    Contributed surplus                              4,328,885     4,328,885
    Deficit                                        (17,756,511)  (16,698,711)
                                                  ------------- -------------

                                                    (3,469,667)   (2,411,867)
                                                  ------------- -------------

                                                  $  7,216,305  $  6,051,845
                                                  ------------- -------------
                                                  ------------- -------------
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                              Three Months Ended           Six Months Ended
                                  August 31,                  August 31,
    (unaudited)               2009          2008          2009          2008
    -------------------------------------------------------------------------
    Revenues (Note 4) $    952,271  $    742,294  $  1,786,262  $  1,611,682

    Direct costs           597,289       801,870     1,271,526     1,509,562
                      ------------- ------------- ------------- -------------

    Gross profit           354,982       (59,576)      514,736       102,120
                      ------------- ------------- ------------- -------------

    Operating expenses
      Product
       development          59,580        91,129       122,888       207,778
      Sales, marketing
       and customer
       service              37,954       211,243        78,279       476,843
      General and
       administrative      594,803     1,047,170     1,270,538     1,972,218
      Amortization of
       property and
       equipment            59,276       124,742       131,502       294,127
                      ------------- ------------- ------------- -------------

                           751,613     1,474,284     1,603,207     2,950,966
                      ------------- ------------- ------------- -------------

    (Loss) Earnings
     before under
     noted items          (396,631)   (1,533,860)   (1,088,471)   (2,848,846)

    Other expenses
     (income)
      Foreign exchange
       loss (gain)         118,671           123       (96,674)        5,883
      Interest income      (19,510)      (13,254)      (20,200)      (28,205)
      Interest expense      39,885        24,301        86,203        30,866
                      ------------- ------------- ------------- -------------

    (Loss) Earnings
     before income
     taxes and
     non-controlling
     interest             (535,677)   (1,545,030)   (1,057,800)   (2,857,390)
                      ------------- ------------- ------------- -------------

    Provision for
     income taxes
      Current                    -         1,707             -         1,707
                      ------------- ------------- ------------- -------------

                                 -         1,707             -         1,707
                      ------------- ------------- ------------- -------------

    Net (Loss)
     Earnings and
     comprehensive
     (Loss) Earnings  $   (535,677) $ (1,546,737) $ (1,057,800) $ (2,859,097)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (Loss) Earnings
     per share
     (Note 7)
      Basic           $      (0.04) $      (0.08) $      (0.07) $      (0.15)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings
     (deficit),
     beginning  of
     period           $(17,220,834) $(12,942,545) $(16,698,711) $(11,630,185)

    Net (Loss)
     Earnings             (535,677)   (1,546,737)   (1,057,800)   (2,859,097)
                      ------------- ------------- ------------- -------------

    Retained earnings
     (deficit), end
     of period        $(17,756,511) $(14,489,282) $(17,756,511) $(14,489,282)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------



    Consolidated Statements of Cash Flows
    (expressed in Canadian dollars)

                              Three Months Ended           Six Months Ended
                                  August 31,                  August 31,
    (unaudited)               2009          2008          2009          2008
    -------------------------------------------------------------------------

    Cash flows
     provided by
     (used in)

      Operating
       activities
        Net (Loss)
         Earnings     $   (535,677) $ (1,546,737) $ (1,057,800) $ (2,859,098)
        Items not
         affecting
         cash:
          Amortization
           of property
           and
           equipment        59,276       124,742       131,502       294,127
          Impairment of
           intangibles
           and other
           assets                -       (34,746)            -       (34,746)
          Future income
           taxes                 -         1,707             -         1,707

        Net changes in
         non-cash
         operating
         items:
          Accounts
           receivable      852,300        72,514       563,803       294,462
          Prepaids         (89,828)      (96,219)      (65,280)     (228,835)
          Allowance for
           bad debts             -             -             -      (310,608)
          Accounts
           payable
           and accrued
           liabilities    (194,807)      (38,730)       29,462      (103,107)
          Deferred
           revenue         (80,058)      (12,430)      (63,399)       33,425
          Deferred
           contract
           costs            55,636        34,775        63,444       (60,796)
                      ------------- ------------- ------------- -------------

                            66,842    (1,495,124)     (398,268)   (2,973,469)
                      ------------- ------------- ------------- -------------

    Investing
     activities
      Acquisition of
       property and
       equipment            12,854             -         5,202             -
                      ------------- ------------- ------------- -------------

                            12,854             -         5,202             -
                      ------------- ------------- ------------- -------------

    Financing
     activities
      Loan payable         (24,992)    2,068,480      (355,596)    2,068,480
      Capital lease
       payments            (13,279)      (55,044)      (26,169)     (148,931)
                      ------------- ------------- ------------- -------------

                           (38,271)    2,013,436      (381,765)    1,919,549
                      ------------- ------------- ------------- -------------

    Increase
     (decrease) in
     cash and cash
     equivalents            41,425       518,311      (774,831)   (1,053,920)

    Cash and cash
     equivalents,
     beginning of
     period                 93,529     1,470,232       909,785     3,042,463
                      ------------- ------------- ------------- -------------

    Cash and cash
     equivalents,
     end of period    $    134,954  $  1,988,543  $    134,954  $  1,988,543
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental
     information
      Interest
       received       $     19,510  $     13,254  $     20,200  $     28,204
      Interest paid         39,885        24,301        86,203        30,515
    

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.
    

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

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