ESI Entertainment Systems Inc Announces Fiscal 2011 First Quarter Financial
Results

BURNABY, BC, Aug. 19 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX: ESY) reported today its financial results (unaudited) for fiscal Q1 2011 ended May 31, 2010. (All dollar amounts reported in Canadian funds)

Consolidated financial highlights for the quarter include (Q1 2011 compared to Q1 2010):

    
    -   Revenues decreased by 11% to $743,000 from $834,000
    -   Gross profit increased by 54%, to $246,000 from $160,000
    -   Operating Expenses decreased by 17% to $704,000 from $851,000
    -   Net loss before income taxes decreased by 21% to $415,000 from
        $522,000.
    

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

"The first quarter of fiscal 2011 has continued to present us challenges but our experienced Management team and Board have worked well together to allow us to weather these difficult conditions," said Tony Greening, Chair and Chief Executive Officer. "Each of the two operating subsidiaries has closely governed expenditures while remaining focused on building its business, ESI Integrity has continued to provide the group with a solid business foundation while Citadel builds on the relationships it has developed for use of its products and services to re-build its revenues."

Financial Review

    
    Consolidated Revenues

                                            Three months ended
    ($ 000)                                May 31/10   May 31/09    % change
    -------------------------------------------------------------------------
    Integrity                                    434         581        -25%
    Citadel                                      309         253         22%
    -------------------------------------------------------------------------
    Total revenue                                743         834        -11%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Total revenue decreased by 11% to $743,000 for the three months ended May 31, 2010 from $834,000 for the three months ended May 31, 2009.

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.

Approximately 58% of ESI's revenues were generated by ESI Integrity during the three months ended May 31, 2010 compared to 70% for the same period in the prior year.

The decrease in revenue is due to a reduction in work plan and consulting revenues combined with the adverse effect of the weakened US dollar and Euro currencies relative to the Canadian dollar. The majority of Integrity's revenues are contracted in US dollars or Euros.

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, 2010 compared to 30% 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.

Sales, Marketing and Customer Service

Sales, marketing and customer service expenses were $31,000 during the three months ended May 31, 2010, a decrease of 23% compared to $40,000 for the three months ended May 31, 2009. The decrease is primarily related to the reduction of staff in sales and marketing and customer service.

General and Administrative

General and administrative expenses were $659,000 during the three months ended May 31, 2010, a decrease of 2% compared to $676,000 for the three months ended May 31, 2009. This reduction is due to the Company's ongoing efforts to minimize its operating expenses.

Amortization of Property and Equipment

Amortization expenses were $14,000 during the three months ended May 31, 2010, a decrease of 80% compared to $72,000 for the three months ended May 31, 2009. The decrease in amortization expense results from very few new assets being purchased and amortization being reduced on older equipment.

Net (loss) Earnings

Net loss for the quarter ended May 31, 2010 was $415,000 ($0.03 loss per share) compared to a loss of $522,000 ($0.04 loss per share) for the quarter ended May 31, 2009, a decrease of 21%.

Citadel Processing Accounts and Liabilities

Citadel processing accounts as at May 31, 2010 totaled $4.6 million compared to $5.6 million as at February 28, 2010. The accounts are comprised of cash and accounts receivables arising from the processing of deposits and payments for Citadel merchants and consumers.

    
    Consolidated Balance Sheets
    (expressed in Canadian dollars)

                                                      May 31,    February 28,
                                                        2010            2010
                                                  (unaudited)       (audited)
    -------------------------------------------------------------------------
    Assets

    Cash and cash equivalents                  $     175,776   $      89,208
    Accounts receivable                            1,125,154       1,073,580
    Prepaids                                          97,876          65,658
    Citadel processing accounts                    3,755,558       4,937,401
                                               --------------  --------------
                                                   5,154,364       6,165,847

    Capitalized development costs                     85,307          47,532
    Property and equipment                           156,524         170,499
    Deferred contract costs                          520,577         550,362
                                               --------------  --------------

                                               $   5,916,772   $   6,934,240
                                               --------------  --------------
                                               --------------  --------------

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

    Liabilities

    Accounts payable and accrued liabilities   $   2,684,546   $   2,227,935
    Loan Payable                                   2,175,700       2,174,733
    Citadel processing liabilities                 4,614,603       5,649,239
    Deferred revenue                                 573,392         582,667
                                               --------------  --------------
                                                  10,048,241      10,634,137

    Deferred revenue                                 896,843         913,605
                                               --------------  --------------

                                                  10,945,084      11,547,742
                                               --------------  --------------

    Shareholders' Deficit
    Capital stock                                  9,957,959       9,957,959
    Contributed surplus                            4,467,539       4,467,539
    (Deficit)                                    (19,453,810)    (19,039,010)
                                               --------------  --------------

                                                  (5,028,312)     (4,613,502)
                                               --------------  --------------

                                               $   5,916,772   $   6,934,240
                                               --------------  --------------
                                               --------------  --------------

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



    Consolidated Statements of Operations and Comprehensive
    Loss and Deficit
    (expressed in Canadian dollars)
    (unaudited)                                   Three Months Ended May 31,
                                                        2010            2009
    -------------------------------------------------------------------------
    Revenues                                   $     743,265   $     833,991

    Direct costs                                     497,413         674,237
                                               --------------  --------------

    Gross profit                                     245,852         159,754
                                               --------------  --------------

    Operating expenses
      Product development                                  -          63,308
      Sales, marketing and customer service           31,384          40,325
      General and administrative                     659,039         675,735
      Amortization of property and equipment          13,975          72,226
                                               --------------  --------------

                                                     704,398         851,594
                                               --------------  --------------
    (Loss) Earnings before under noted items        (458,546)       (691,840)

    Other expenses (income)

      Foreign exchange (gain) loss                   (92,409)       (215,345)
      Interest income                                    (44)           (690)
      Interest expense                                48,707          46,318
                                               --------------  --------------

    Net (loss) earnings                        $    (414,800)  $    (522,123)
                                               --------------  --------------
                                               --------------  --------------

    (Loss) Earnings per share
      Basic                                    $       (0.03)  $       (0.04)
      Diluted                                          (0.03)          (0.04)

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

    Retained earnings (deficit), beginning of
     period                                    $ (19,039,010)  $ (16,698,711)

    Net (loss) earnings                             (414,800)       (522,123)
                                               --------------  --------------

    (Deficit) retained earnings, end of
     period                                    $ (19,453,810)  $ (17,220,834)
                                               --------------  --------------
                                               --------------  --------------

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



    Consolidated Statements of Cash Flows
    (expressed in Canadian dollars)
    (unaudited)                                   Three Months Ended May 31,
                                                        2010            2009
    -------------------------------------------------------------------------

    Cash flows provided by (used in)

      Operating activities
        Net (loss) earnings                    $    (414,800)  $    (522,123)
        Items not affecting cash:
          Amortization of property and
           equipment                                  13,975          72,226

        Net changes in non-cash operating items
          Accounts receivable                        (51,574)       (288,497)
          Prepaids                                   (32,218)         24,548
          Accounts payable and accrued
           liabilities                               514,396         224,268
          Deferred revenue                            26,037          16,658
          Deferred contract costs                     29,785           7,809
                                               --------------  --------------

                                                      85,601        (465,111)
                                               --------------  --------------

      Investing activities
        Acquisition of property and equipment              -          (7,652)
                                               --------------  --------------

                                                           -          (7,652)
                                               --------------  --------------

      Financing activities
        Capital lease payments                             -         (12,890)
        Loan Payable                                     967        (330,603)
                                               --------------  --------------

                                                         967        (343,493)
                                               --------------  --------------

    Increase (decrease) in cash and cash
     equivalents                                      86,568        (816,256)

    Cash and cash equivalents, beginning of
     period                                           89,208         909,785
                                               --------------  --------------

    Cash and cash equivalents, end of period   $     175,776   $      93,529
                                               --------------  --------------
                                               --------------  --------------

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

    Supplemental information
      Interest received                        $          44   $         690
      Interest paid                                   48,707          46,318
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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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