Guest-tek(TM) announces results for the three months ended September 30, 2009

CALGARY, Nov. 12 /CNW/ - Guest-Tek Interactive Entertainment Ltd., ("Guest-Tek" or the "Company") (TSX:GTK), a leader in providing broadband technology solutions to the global hospitality industry, announced results today for the three months ended September 30, 2009, the Company's second quarter of fiscal 2010 ("second quarter, Fiscal 2010", "Q2, 2010" or "Q2, Fiscal 2010"). The Company has recorded a net loss of $541 thousand and recorded a negative adjusted EBITDA(1). Adjusted EBITDA decreased to $(321) thousand in Q1, 2010 from $160 thousand in Q2, 2009. The Company's interim consolidated financial statements for Q2, Fiscal 2010, along with the related notes and Management's Discussion and Analysis can be found on www.sedar.com.

Arnon Levy commented, "I am very disappointed that we have had our first negative EBITDA quarter in seven quarters, the Company is working hard to rectify this in the next quarter."

The Company's performance for the three months ended September 30, 2009 ("second quarter, Fiscal 2010," "Q2, 2010" or "Q2, Fiscal 2010") showed significant improvement over the three months ended September 30, 2008 ("second quarter, Fiscal 2009," "Q2, 2009" or "Q2, Fiscal 2009"). Revenue for Q2, 2010 was $9.12 million compared to $9.14 million for Q2, 2009. In spite of slightly lower revenue, the Company saw an increase in gross margin in Q2, 2010 compared to Q2, 2009 due to a reduced cost of revenue. Operating expenses increased in Q2, 2010 compared to Q2, 2009. Gross margin as a percentage of sales increased to 41.94% in Q2, Fiscal 2010 compared to 32.2% in Q2, Fiscal 2009. Operating expenses increased to $4.66 million in Q2, Fiscal 2010 compared to $3.43 million in Q2, 2009. Net loss decreased to $541 thousand for Q2, 2010 compared to a net loss of $1.14 million for Q2, 2009. Adjusted EBITDA decreased to $(321) thousand in Q2, 2010 from $160 thousand in Q2, 2009. Significant events for the quarter include:

    
    -   Installation of OneView Media and OneView Internet at the Marriott
        Bogota;

    -   New contracts signed to provide OneView Media and Internet to the
        Planet Hollywood Towers by Westgate Resorts and the Viceroy Snowmass;

    -   New contract signed to provide OneView Media to the Northern Quest
        Resort and Casino;

    -   New contracts signed to provide the TownePlace Suites Charlotte
        Mooresville, Aava Whistler Hotel, and Courtyard by Marriott and
        Fairfield Inn Phoenix Chandler a high definition in-room
        entertainment system over coax lines;

    -   Addition of OneView Internet in 4,839 rooms, with a total supported
        base of 427,889 rooms;

    -   Addition of 1,279 OneView Media rooms, with a total service base of
        9,585 rooms;

    -   Revenue totaling $9.12 million during the quarter;

    -   Net loss of $541 thousand; and

    -   Adjusted EBITDA of $(321) thousand.

    (1) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization, gain or loss on sale of assets and stock based
        compensation expense and is provided to assist investors in assessing
        the Company's performance. Adjusted EBITDA has no standardized
        definition in Canadian GAAP and therefore may not be comparable to
        similar measures presented by other companies. Management believes
        that Adjusted EBITDA, in addition to net income, is a useful
        indication of performance and the Company's ability to generate cash
        from operations. Please see the reconciliation of Adjusted EBITDA to
        net income included in the Company's MD&A for the period ended
        September 30, 2008.
    

Revenue

Overall, revenue decreased 0.3% to $9.12 million for Q2, Fiscal 2010 from $9.14 million for Q2, 2009. Revenue decreased 10.1% from $10.14 million recorded in Q1, 2009. The decrease in revenue compared to the same quarter a year ago is due to a decrease in HSIA installations revenue, partly offset by increases in HSIA recurring revenue and VOD revenue. The decrease in revenue compared to Q1, 2009 is due to decreases in HSIA installation revenue, HSIA recurring revenue, and VOD revenue.

Gross Margin

Gross margin increased 30.0% to $3.82 million in Q2, Fiscal 2010 compared with $2.94 million in Q2, Fiscal 2009, due to a decrease in cost of revenue as a percentage of revenue. Gross margin decreased 3.80% from $3.97 million in Q1, 2010, due to decreased revenue. Key components of cost of revenue include hardware costs, personnel costs for the professional installations team and call centre costs such as personnel and telecommunications.

Operating expenses

Total operating expenses increased 18.4% to $4.66 million for Q2, Fiscal 2010, compared to $3.94 million for Q2, Fiscal 2009, and increased 22.6% from $3.80 million for Q1, 2010. The increase in operating expenses compared to Q2, 2009 is due to a provision for contingency accrued by Management for legal costs defending a potential patent lawsuit, partially set off by a loss on disposal of capital assets in Q2, 2009 of $505 thousand. Net of these 2 amounts, operating expense for Q2, 2010 would be $3.66 million, representing an increase of 2.4% over Q2, 2009 of $3.43 million. The increase in foreign exchange loss from Q2, 2009 to Q2, 2010 was $304 thousand. The increase in operating costs compared to Q1, 2010, was due to the contingency accrual of $1 million. Operating expenses as a percentage of revenue were 51.1% for Q2, Fiscal 2010 compared to 43.0% for Q2, Fiscal 2009 and compared to 37.5% for Q1, 2010. Net of the provision for contingency, operating expenses as a percentage of revenue were 40.1%.

About Guest-tek(TM)

Guest-tek(TM) is the world's largest provider of IP based technology solutions for the hospitality industry. Guest-tek's(TM) OneView(TM) platform provides hotels with converged data, video and telephony services. Guest-tek(TM) is a preferred vendor to major hotel brands, providing services including network design, procurement, implementation, and post sales customer support to 2,668 properties and over 450,000 rooms. Guest-tek's(TM) common shares trade on The Toronto Stock Exchange under the trading symbol "GTK".

The Company's head offices are in Calgary, Alberta, and it has major support facilities in Irvine, California, and Warsaw, Poland as well as Sales offices located throughout North America and Europe. For more information about Guest-tek(TM), go to www.guest-tek.com.

    
                   GUEST-TEK INTERACTIVE ENTERTAINMENT LTD.
                   Consolidated Balance Sheets (Unaudited)

    September 30, 2009 and March 31, 2009
    -------------------------------------------------------------------------
                                                 September 30,      March 31,
                                                         2009           2009

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

    Assets

    Current assets:
      Cash and cash equivalents                  $  3,914,413   $  2,155,523
      Accounts receivable                           5,172,561      7,763,457
      Installations in progress                     1,960,300      1,526,987
      Inventory                                     1,245,691      1,005,453
      Prepaid expenses and deposits                   737,906      1,024,083
      -----------------------------------------------------------------------
                                                   13,030,871     13,475,503

    Property and equipment                          3,035,276      3,461,605
    Deferred costs                                  7,002,256      6,686,554
    Intangible assets                               3,663,947      3,807,750

    -------------------------------------------------------------------------
                                                 $ 26,732,350   $ 27,431,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities   $  5,057,482   $  5,125,927
      Customer deposits                             2,520,513      2,474,822
      Deferred revenue                              2,306,238      2,121,226
      Current portion of notes payable              1,485,822      1,771,644
      -----------------------------------------------------------------------
                                                   11,370,055     11,493,619

    Deferred leasehold inducement                      29,128          5,932
    Deferred revenue                                5,341,734      5,391,314
    Future income tax liability                       795,119      1,066,815
    -------------------------------------------------------------------------
                                                    6,165,981      6,464,061
    -------------------------------------------------------------------------
                                                   17,536,036     17,957,680
    -------------------------------------------------------------------------
    Shareholders' equity:
      Share capital                                53,779,555     53,779,555
      Contributed surplus                           3,172,508      3,081,968
      Deficit                                     (47,755,749)   (47,387,791)
      -----------------------------------------------------------------------
                                                    9,196,314      9,473,732
      -----------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                 $ 26,732,350   $ 27,431,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    GUEST-TEK INTERACTIVE ENTERTAINMENT LTD.
    Consolidated Statements of Operations, Comprehensive loss and Deficit
    (Unaudited)

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

                            Three months ended            Six months ended
                               September 30                  September 30
                   ----------------------------  ----------------------------
                           2009           2008           2009           2008
    -------------------------------------------------------------------------

    Revenue (Note 6)  9,116,930      9,144,090     19,256,695     19,037,344

    Cost of revenue   5,293,099      6,201,984     11,458,043     12,076,851
    -------------------------------------------------------------------------
    Gross margin      3,823,831      2,942,106      7,798,652      6,960,493

    Operating expenses:
      Selling, general
       and
       administrative 2,665,308      2,558,519      5,437,711      6,297,605
      Provision for
       contingency
       (Note 7)       1,000,000              -      1,000,000              -
      Research and
       development      162,474        247,345        409,950        448,500
      Amortization of
       property and
       equipment        101,869        158,145        277,783        324,089
      Amortization of
       intangible
       assets           131,512        169,185        275,443        339,471
      Amortization of
       internally
       developed
       software          89,334         85,471        182,737        160,798
      Loss on disposal
       of assets              -        504,614              -        504,614
      Stock based
       compensation      45,270         46,451         90,540        103,941
      Interest expense   39,085         47,061         76,794         92,585
      Foreign currency
       loss             422,342        118,214        704,643        188,911
      -----------------------------------------------------------------------
                      4,657,194      3,935,005      8,455,601      8,460,514

    -------------------------------------------------------------------------
    Loss from
     operations        (833,363)      (992,899)      (655,949)    (1,500,021)

    Interest income         169          1,835            633          4,399
    -------------------------------------------------------------------------
    Loss before income
     taxes             (833,194)      (991,064)      (656,316)    (1,495,622)

    Income tax expense
     (recovery)        (292,672)       148,309       (288,357)        32,400
    -------------------------------------------------------------------------
    Net loss and
     comprehensive
     loss              (540,522)    (1,139,373)      (367,959)    (1,528,022)

    Deficit, beginning
     of period      (47,215,227)   (34,530,668)   (47,387,790)   (34,142,021)
    -------------------------------------------------------------------------
    Deficit, end of
     period        $(47,755,749)  $(35,670,041)  $(47,755,749)  $(35,670,043)
    -------------------------------------------------------------------------

    Net loss per
     share:
      Basic        $      (0.03)  $      (0.07)  $      (0.02)  $      (0.10)
      Diluted      $      (0.03)  $      (0.07)  $      (0.02)  $      (0.10)

    Weighted average
     number of
     shares:
      Basic          15,825,852     15,825,852     15,825,852     15,825,852
      Diluted        15,825,852     15,825,852     15,825,852     15,825,852
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE GUEST-TEK INTERACTIVE ENTERTAINMENT LTD.

For further information: For further information: Mr. Arnon Levy, President & Chief Executive Officer, Guest-tek(TM), Telephone: (403) 444-8488, email: arnon.levy@guest-tek.com

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GUEST-TEK INTERACTIVE ENTERTAINMENT LTD.

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