ESI Entertainment Systems Inc. announces Fiscal 2013 Financial Results

BURNABY, BC, June 26, 2013 /CNW/ - ESI Entertainment Systems Inc. ("ESI" or the "Company") (CNSX : ESY) reported today its financial and operational results for the fiscal year ended February 28, 2013 ("fiscal 2013"). All amounts are in Canadian dollars unless otherwise stated.

Financial Highlights for the year ended February 28, 2013

The highlights for ESI, on a consolidated basis, compared to the prior year, are:

  • Revenues from continuing operations increased by 10% to $2.55 million from $2.32 million.

  • Loan Payable decreased by 65% to $0.737 million from $2.145 million.

  • Income from continuing operations increased to $219,264 from a loss of $554,279 (excluding the effect of the gain on forgiveness of deferred salaries in the prior year).

  • Net comprehensive income before income taxes increased to $1.567 million from $857,000, an increase of 83%.

A key achievement during Fiscal 2013 was the closing of the sale of ESI Integrity to Spectra Systems for USD$ 1.425 million in an all-cash transaction.  While ESI Integrity was a successful company with long term contracts and a proven track record, it was determined that opportunities and strengths in the payments processing industry provided the best path for ESI's future growth.  The net proceeds from the closing were used to reduce indebtedness to the Company's Lender thereby reducing our outstanding liabilities.

Citadel Commerce achieved a number of  milestones.  This included obtaining regulatory authorization as a Payments Institute from the UK Financial Conduct Authority.  The group also launched a new Software as a Service (SaaS) payment services business. We incorporated a new subsidiary in Nevada and began the steps toward becoming a regulated money services business in the USA.  Also during Fiscal 2013 we commenced development of a new mobile payments interface which we expect will be launched in Fiscal 2014 with existing strategic merchants.

Through hard work, dedication, and maintaining the ability to quickly respond to new opportunities we have transitioned through some very challenging situations.  We have made significant progress toward our goals, but we can only grow organically within our current financial resource constraints while servicing our outstanding debt.  We will continue to seek and evaluate opportunities that will allow us to move closer to achieving our goals.

"Michael Meeks" - President & CEO

Selected Consolidated Financial Information

  February 28,
  February 29,
($ 000)      
Revenue from continuing operations 2,550   2,318
Gross Profit (loss) from continuing operations 205   (300)
General and administration expenses 430   616
Gain on forgiveness of deferred salaries -   1,121
Profit from discontinued operations 1,418   280
Operating Income from continuing operations 219   567
Comprehensive Income 1,567   857
Total Assets 9,525   7,454
Total long-term liabilities -   355
Cash used in operations 468   433

Results of Operations

Citadel Revenues

      Years ended    
($ 000)                                            Feb 28/13            Feb 29/12             % change     
Citadel     2,550 2,318   10%

Revenues increased by 10% to $2.550 million for the year ended February 28, 2013 from $2.318 million in the prior year.

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.

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 gross profit from continuing operations for the years ended:

($ 000)     Feb 28/13   Feb 29/12
Revenues     2.550   2.318
Direct Costs     2.345   2.618
Gross profit     205   (300)
Gross profit margin (%)          8%   (13%)

General and Administrative

General and administrative expenses were $430,000 for the year ended February 28, 2013, a decrease of 30% compared to $616,000 for the prior year.  This reduction is primarily attributable to the Company's ongoing efforts to minimize its operating expenses.

Net Comprehensive income

Net comprehensive income for the year ended February 28, 2013 was $219,000 ($0.02 earnings per share) compared to $567,000 ($0.04 earnings per share) for the prior year. The decrease in net comprehensive income from continuing operations is primarily attributable to the gain of the forgiveness of the deferred salaries during the prior year ending February 29, 2012.

Citadel Processing Accounts and Liabilities

Citadel processing accounts represent the bank accounts maintained by the Company for the purpose of payment processing for Citadel merchants and clients. These accounts are recorded separately from the Company's operating bank accounts.

Citadel processing liabilities represent balances due to Citadel clients, merchants and their clients from funds held in trust, pending transaction cancellation periods and processing times. These amounts are funds held with Citadel on behalf of the merchants and are available on demand.

Liquidity and Capital Resources

ESI has historically financed its operations through the sale of equity and through cash generated by its operations.

During the year ended February 28, 2013, cash used in operating activities was $452,000 compared to $433,000 used during the prior year.

Cash provided in investing activities totaled $1.456 million during the year ended February 28, 2013 compared to $44,000 used in the prior year.  The change is attributable to the proceeds on disposal of the ESI Integrity assets.

Cash used in financing activities totaled $1.531 million during the year ended February 28, 2013 compared to $222,000 provided during the prior year.  The change is due to the repayment of the Loan Payable from the proceeds received from the disposal of the ESI Integrity assets.

Overall, the decrease in cash totaled $148,000 for the year ended February 28, 2013 compared to an increase of $214,000 for the prior year.

For the year ended February 28, 2013 the Company earned income from continuing operations of $219,264 (2012: $567,273) with an increase in cash used in operations to $452,029 (2012: $433,195) In addition, there is a working capital deficit of $2,876,024 (2012: $4,488,729).

Discontinued Operations - ESI Integrity Inc.

As of May 31, 2012, the board of directors entered into a sale agreement to dispose of certain assets of ESI Integrity Inc. which carried out the Company's software solutions for real-time auditing, fraud control and risk management systems operations.  The proceeds of sale substantially exceeded the carrying amount of the related net assets and accordingly, no impairment losses were recognized on the reclassification of these operations as held for sale.  The disposal of the real-time auditing, fraud control and risk management systems operations is consistent with the Company's long-term policy to focus its activities in the on-line payment processing services provided by its Citadel operations.  The disposal was effective May 31, 2012 on which date control of the real-time auditing, fraud control and risk management systems operations passed to the acquiror.  Under the terms of the agreement, the acquiror purchased certain assets of ESI Integrity, including the name "ESI Integrity Inc." and its contracts and resources.

The results of the discontinued operations are included in the consolidated statements of income and comprehensive income.  The comparative profit and cash flows from discontinued operations have been re-presented to include those operations as discontinued in the current period.

Related Party Transactions

Key management compensation includes the Company's directors and members of the Executive.  Compensation awarded to key management from continuing operations included:

    Year ended
February 28,
  Year ended
February 29,
Salaries, fees and
short term
  $282,288   $505,312

Comparative figures

Certain comparative figures have been reclassified to conform with current year presentation.  Amounts historically disclosed as revenue and expenses related to 362889-2 Canada Inc. (formerly ESI Integrity Inc.) have been reclassified to discontinued operations.

Consolidated Financial Statements

NOTE TO READER: The following financial statements are extracted from the complete audited financial statements of the Company which have been filed with the Management's Discussion and Analysis. The Company's documents can be found on to which the reader is referred.

Consolidated Statements of Financial Position
As at February 28, 2013 and February 29, 2012
(Expressed in Canadian dollars)
28, 2013
29, 2012
  Cash and cash equivalents     $ 83,351   $   231,570
  Accounts receivable       68,665       173,695
  Prepaids and other       75,916       133,410
  Citadel processing accounts       9,236,421       6,340,666
  Deferred contract costs       -       114,495
          9,464,353       6,993,836
  Capitalized development costs       -       127,940
  Property and equipment       61,168       116,509
  Deferred contract costs       -       216,263
Total assets         9,525,521       7,454,548
  Accounts payable and accrued liabilities     $ 1,287,312   $   1,368,350
  Loan payable       736,556       2,145,232
  Citadel processing liabilities       10,316,509       7,542,821
  Deferred revenue       -       426,162
          12,340,377       11,482,565
  Deferred revenue       -       354,818
Total Liabilities         12,340,377       11,837,383
Shareholders' deficit                  
  Share capital       9,957,959       9,957,959
  Contributed surplus       4,591,829       4,590,868
  Accumulated other comprehensive
      291,977       362,048
  Deficit       (17,656,621)       (19,293,710)
Total deficit         (2,814,856)       (4,382,835)
Total liabilities and shareholders' deficit         9,525,521       7,454,548

Consolidated Statements of Income and Comprehensive Income
For the years ended February 28, 2013 and February 29, 2012
(Expressed in Canadian dollars) 
                 2013         2012
Continuing operations                  
  Revenues     $   2,550,747   $   2,318,639
  Direct costs         2,344,916       2,618,900
Gross profit (loss)         205,831       (300,261)
General and administration expenses         430,253       615,708
Loss before other income and expenses
from continuing operations
        (224,422)       (915,969)
  Foreign exchange gain         427,962       457,202
  Other income         85,050       33,718
  Finance Income         2,046       269
  Finance expense         (71,372)       (129,499)
  Gain on forgiveness of deferred salaries         -       1,121,552
Income for the year attributable to equity
holders from continuing operations
        219,264       567,273
Discontinued Operations                  
Profit for the year from discontinued operations         1,417,825       279,565
Income for the year attributable to equity holders         1,637,089       846,838
Other comprehensive income                  
Foreign currency translation (loss) gain         (70,071)       9,835
Total comprehensive income for the year
attributable to equity holders
        1,567,018       856,673
Basic and diluted income per share from
continuing operations
        .02       .04
Basic and diluted income per share from
discontinued operations
        .10       .02

Consolidated Statements of Cash Flows
For the year ended February 28, 2013
(Expressed in Canadian dollars)
          For the year ended Feb 28 & 29
          2013     2012
Cash flows provided by (used for) the
following activities
Operating activities                
Comprehensive income for the year       $ 1,567,018   $ 856,673
Add (deduct)                
  Depreciation               30,703     26,847
  Other         -     28
  Foreign exchange gain         (378,103)     (469,511)
  Gain on disposal of subsidiary assets         (1,631,196)     -
  Stock-based compensation         961     15,095
            (404,448)     485,483
Changes in non-cash working capital:                
  Accounts receivable         8,364     8,094
  Prepaids and other         (71,008)     (118,133)
  Accounts payable and accrued liabilities         40,379     (634,360)
  Operating activity from discontinued
        (19,147)     (117,928)
Cash used in operations         (452,029)     (433,195)
Investment activities                
  Purchase of property and equipment         (17,973)     (31,616)
  Proceeds on disposal of subsidiary assets         1,483,853     -
  Investing activity from discontinued
        (9,427)     (12,802)
Cash used in investing activities         1,456,453     (44,418)
Financing activities                
  Loan payable         (1,408,676)     63,665
  Change in Citadel processing liabilities         2,773,685     2,221,679
  Change in Citadel processing assets         (2,895,755)     (2,063,414)
Cash from financing activities         (1,530,746)     221,930
Gain on translation of foreign
denominated assets and liabilities
        378,103     469,511
Increase (decrease) in cash and cash
        (148,219)     213,828
Cash and cash equivalents,
beginning of year
        231,570     17,742
Cash and cash equivalents, end of
      $ 83,351   $ 231,570

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 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 and ESI Integrity Inc assets were sold in fiscal 2013.

SOURCE: ESI Entertainment Systems Inc.

For further information:

ESI Entertainment Systems Inc.
Michael Meeks
President and CEO
Telephone: (604) 299-6922

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ESI Entertainment Systems Inc.

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