Guest-Tek announces results for the year ended March 31, 2007



    CALGARY, Aug. 20 /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 today that
the Company will file its financial statements for the year ended March 31,
2007 with SEDAR on August 21st, 2007. Once filed, the financial statements,
related management's discussion and analysis, and annual information form can
be viewed on SEDAR at www.sedar.com.
    Arnon Levy commented, "I believe that with the filing of the Fiscal 2007
financials and the anticipated filing of the first quarter 2008 financials,
that the Company's restatement issues are mostly behind us. We look forward to
resuming normal disclosure time lines. On the business front, we are
continuing to see installation interest in our OneView Internet product
offering with both new installations, such as Hyatt Place, and upgrades of
previously installed equipment. We have also signed significant new
installation contracts for OneView Media (digital video-on-demand) and expect
more traction in Fiscal 2008. We will continue to focus on improving gross
margin, reducing operating expenses where possible, and managing our cash
flow. I would like to personally thank all of our shareholders for their
support over this difficult period."
    The year ended March 31, 2007 ("Fiscal 2007") was a year of significant
change for Guest-Tek. Revenue decreased to $35.28 million for Fiscal 2007,
compared to $41.24 million for the fiscal year ended March 31, 2006 ("Fiscal
2006"). HSIA installation revenue declined significantly over Fiscal 2006,
while HSIA recurring revenue, VOD revenue, and VoIP product revenue reached
new highs. The decline in new installation revenue (to $11.17 million in
Fiscal 2007 compared to $22.71 million in Fiscal 2006) was due principally to
the absence of several multi-property installation contracts that were
completed in Fiscal 2006. HSIA recurring revenue increased to $22.23 million
in Fiscal 2007 from $18.52 million in Fiscal 2006, due to the net increase in
the average number of rooms supported during Fiscal 2007 compared to Fiscal
2006. The Company acquired all of the outstanding membership units of Sigpro,
LLC ("Sigpro") on July 7, 2006. As a result, VoIP product revenue increased
from zero in Fiscal 2006 to $1.19 million in Fiscal 2007. The Company began
installing VOD networks during Fiscal 2006, however no material amount of
revenue was recorded in Fiscal 2006. In Fiscal 2007, VOD revenue was
$682 thousand.
    Net loss for Fiscal 2007 was $13.90 million compared to $4.37 million for
Fiscal 2006. The increase in net loss was due to several factors. A
significant factor in the net loss was a valuation allowance recorded against
the Company's future income tax asset. Management has determined, based on
historical taxable income trends and current forecasts, that it is uncertain
when the Company's future tax assets can be realized. As a result, the total
tax expense was $2.92 million in Fiscal 2007. The net loss before income tax
was $10.98 million in Fiscal 2007 compared to $4.63 million in Fiscal 2006,
the increase is due to two factors. Firstly, the Company has determined that
certain intangible assets and goodwill acquired in the Sigpro acquisition have
become impaired and has consequently written down the value of those
intangible assets and goodwill as at March 31, 2007. The write-down totaled
$3.05 million. Secondly, gross margin decreased to $10.82 million in Fiscal
2007 from $14.53 million in Fiscal 2006. The reduction is due to the reduction
in revenue and an increase in cost of revenue as a percentage of revenue. Cost
of revenue as a percentage of revenue was 69.3% in Fiscal 2007 compared to
64.8% in Fiscal 2006. The increase is due to higher call centre costs, pricing
pressures, appreciation of the Canadian dollar relative to the US dollar, and
losses associated with VOD contracts. Operating expenses, excluding the
write-down of Sigpro assets decreased to $18.79 million in Fiscal 2007 from
$19.48 million in Fiscal 2006. Adjusted EBITDA1 was negative $2.92 million for
Fiscal 2007, down from $73 thousand recorded in Fiscal 2006

    Highlights for the Quarter

    In the three months ended March 31, 2007 (the Company's fourth quarter of
Fiscal 2007, or "Q4 2007") Guest-Tek suffered reduced revenue compared to Q4,
Fiscal 2006 and compared to the quarter ended December 31, 2006 (the Company's
third quarter of Fiscal 2007, or "Q3 2007"). Due to the write-down of the
Sigpro intangible assets and impairment of Sigpro goodwill, net loss increased
to $5.04 million in Q4, Fiscal 2007 from $3.13 million in Q4, Fiscal 2006. Net
loss decreased in the fourth quarter of Fiscal 2007 compared to the
$6.19 million recorded in Q3, Fiscal 2007. The decrease in net loss is due to
the valuation allowance taken against future income tax assets in Q3, less the
write-downs and impairments associated with Sigpro. Adjusted EBITDA increased
as gross margin increased and cash operating expenses decreased relative to
the quarter ended December 31, 2006. In addition, Adjusted EBITDA increased
significantly over Q4, 2006 due to higher gross margin and reduced cash
operating expenses. Adjusted EBITDA for the fourth quarter was negative
$439 thousand compared to negative $673 thousand in Q3, 2007 and compared to
negative $1.74 million in Q4, 2006.
    Key highlights from the quarter included:

    
    -   $9.10 million in revenue;
    -   HSIA recurring revenue of $5.34 million;
    -   Net loss of $5.04 million;
    -   Adjusted EBITDA of negative $439 thousand for the quarter
    -   Write-down of Sigpro intangible assets and impairment of goodwill;
    -   Agreement to provide OneView Internet to all corporately owned Hyatt
        Place hotels, with the installation to be substantially completed in
        Fiscal 2008;
    -   Total supported HSIA room base of over 508,000 rooms in over 3,300
        hotels;
    -   Total supported VOD room base of over 2,253 rooms in 14 hotels;
    

    During the quarter, Management continued to focus on cash flow and
profitability of the operations. However, certain unusual expenses reduced the
impact of these efforts. As discussed previously the Company wrote down the
intangible assets and goodwill of Sigpro, increasing the pre-tax loss by
$3.05 million. Cost of revenue for Q4, 2007 included a $185 thousand charge to
adjust the carrying value of certain VOD equipment inventory to market value.
    Gross margin increased to 30.9% of revenue in Q4, 2007 compared to 28.0%
of revenue in Q3, 2007 despite the inventory write down which represented 2.0%
of revenue. Operating expenses as a percentage of revenue increased to 83.9%
from 49.7% in Q3, 2007 and 54.2% in Q4, 2006 due to the Sigpro write-downs.
Excluding the write-downs, operating expenses were $4.59 million (50.4% of
revenue) in Q4, 2007 compared to $4.70 million (49.7% of revenue) in Q3, 2007,
and $5.36 million (54.2% of revenue) in Q4, 2006. Management remains focused
on improving the profit that each room generates. Gross margin on HSIA
recurring revenue has increased as a result of these efforts. Also, Management
has reduced the Company's overhead and net R&D expenditures.

    About Guest-Tek

    Guest-Tek is the world's largest provider of IP based technology
solutions for the hospitality industry. Guest-Tek's OneView platform provides
hotels with converged data, video and telephony services. Guest-Tek is a
preferred vendor to major hotel brands, providing services including network
design, procurement, implementation, and post sales customer support to 3,365
properties and over 508,000 rooms. Guest-Tek's 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, go
to www.guest-tek.com.
    The above disclosure contains certain forward-looking statements that
involve substantial known and unknown risks and uncertainties. These
forward-looking statements are subject to numerous risks and uncertainties,
certain of which are beyond Guest-Tek's control, including: the impact of
general economic conditions, industry conditions, increased competition, the
lack of availability of qualified personnel or management, fluctuations in
foreign exchange or interest rates, stock market volatility and market
valuations of companies with respect to the announced transactions and the
final valuations thereof, and obtaining required approvals of regulatory
authorities. Guest-Tek's actual results, performance or achievement could
differ materially from those expressed in, or implied by these forward-looking
statements and, accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what benefits, including the amount of proceeds, that
Guest-Tek will derive therefrom.



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

    March 31, 2007 and 2006
    -------------------------------------------------------------------------
                                                       2007             2006
    -------------------------------------------------------------------------
    Assets

    Current assets:
      Cash and cash equivalents              $    1,977,327   $    4,443,445
      Accounts receivable                         8,637,068        8,581,571
      Installations in progress                     380,749          129,227
      Inventory                                   1,840,810        3,099,782
      Prepaid expenses and deposits                 603,158        1,043,893
      Future income tax asset                             -        1,385,288
      -----------------------------------------------------------------------
                                                 13,439,112       18,683,206

    Property and equipment                        5,197,564        5,465,275
    Deferred compensation                                 -          381,067
    Advance to Sigpro LLC                                 -        3,503,562
    Deferred costs                                3,003,785          985,133
    Future income tax asset                               -        1,424,094
    Intangible assets                             6,580,193        5,593,280
    Goodwill                                     11,768,224       11,768,224
    -------------------------------------------------------------------------
                                              $  39,988,878    $  47,803,841
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:

      Operating line of credit                $     926,028    $           -
      Accounts payable and accrued liabilities    5,303,520        2,756,013
      Customer deposits                           1,720,163        1,047,747
      Deferred revenue                              281,288                -
      Current portion of capital
       lease obligations                             49,729          204,647
      Current portion of notes payable              167,027                -
      -----------------------------------------------------------------------
                                                  8,447,755        4,008,407
      -----------------------------------------------------------------------
    Capital lease obligations                        12,505           48,615
    Deferred leasehold inducement                   243,641          365,440
    Notes payable                                   150,325                -
    Deferred Revenue                              1,803,822                -
    Future tax liability                          1,716,270        2,402,336
    -------------------------------------------------------------------------
                                                  3,926,563        2,816,391
    -------------------------------------------------------------------------

    Shareholders' equity:
      Share capital                              53,761,394       53,539,301
      Contributed surplus                         2,714,892        2,399,567
      Deficit                                   (28,861,726)     (14,959,825)
      -----------------------------------------------------------------------
                                                 27,614,560       40,979,043
      -----------------------------------------------------------------------
    Commitments
    Contingencies
    -------------------------------------------------------------------------
                                              $  39,988,878    $  47,803,841
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

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

                          Three months ended
                               March 31,              Year ended March 31,
                         ------------------------  --------------------------
                              2007          2006          2007          2006
    -------------------------------------------------------------------------

    Revenue              9,096,528     9,900,306    35,277,493    41,236,819

    Cost of revenue      6,286,050     7,968,554    24,456,078    26,703,311
    -------------------------------------------------------------------------

    Gross margin         2,810,478     1,931,752    10,821,415    14,533,508

    Operating expenses:
      Selling,
      general and
      administrative     3,303,083     3,814,173    13,190,910    14,066,441
      Research and
       development         286,518       247,923     1,482,309       954,597
      Amortization of
       property
       and equipment       817,224       396,506     2,113,547     1,939,771
      Amortization of
       intangible assets   255,501       494,948     1,649,541       850,563
      Write down of
       intangible
       assets            2,178,676             -     2,178,676             -
      Write down
       of goodwill         867,325             -       867,325             -
      Amortization of
       deferred
       compensation         38,812       114,085       381,067       567,329
      Amortization of
       internally
       developed
       software             84,525        88,769       304,488       126,180
      Foreign currency
       (gain) loss        (340,527)      (81,361)     (582,226)      131,609
      Stock based
       compensation        131,573       655,303       565,886     1,516,038
      Interest expense       8,629        12,582        27,794        37,620
      Gain on disposal
       of assets                 -          (272)            -       (15,912)
      Research and
       development
       tax credits               -      (328,112)     (346,306)     (692,612)
      -----------------------------------------------------------------------
                         7,631,339     5,414,544    21,833,011    19,481,624
    -------------------------------------------------------------------------

    Loss from
     operations         (4,820,861)   (3,482,792)  (11,011,596)   (4,948,116)

    Interest income        (10,550)       62,789        28,731       316,361

    -------------------------------------------------------------------------
    Loss before
     income taxes       (4,831,411)   (3,420,003)  (10,982,865)   (4,631,755)

    Income tax (recovery)  203,871      (285,125)    2,919,036      (265,019)

    -------------------------------------------------------------------------
    Net loss            (5,035,282)   (3,134,878)  (13,901,901)   (4,366,736)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Deficit, beginning
     of period         (23,826,444)  (11,824,946)  (14,959,825)   (2,064,839)
    -------------------------------------------------------------------------

                       (28,861,726)  (14,959,825)  (28,861,726)   (6,431,575)
    -------------------------------------------------------------------------

    Cost of repurchased
     common shares for
     cancellation in
     excess of their
     stated capital              -             -             -    (8,528,250)

    -------------------------------------------------------------------------
    Deficit,
     end of period    $(28,861,726) $(14,959,825) $(28,861,726) $(14,959,825)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss per share
     basic and diluted       (0.32)        (0.20)        (0.88)        (0.29)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00020221E




For further information:

For further information: Arnon Levy, President & CEO, Guest-Tek, (403)
444-8488, arnon.levy@guest-tek.com; Geoff Clark, CFO, Guest-Tek, (403)
444-8427, geoff.clark@guest-tek.com

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