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ESI Entertainment announces Fiscal 2012 Third Quarter Financial Results
(Canada Newswire Via Acquire Media NewsEdge)
BURNABY, BC, Feb. 13, 2012 /CNW/ - ESI Entertainment Systems Inc. ("ESI"
or the "Company") (CNSX : ESY) reported today its financial results
(unaudited) for fiscal Q3 2012 ending November 30, 2011. (All dollar
amounts reported in Canadian funds).
Consolidated financial highlights for the quarter include (Q3 2012
compared to Q3 2011):
Revenues increased by 17% to $1,094,000 from $937,000
Gross profit decreased by 36%, to $310,000 from $488,000
Operating Expenses decreased by 54% to $304,000 from $659,000
Net comprehensive income was ($198,000) compared to $255,000.
During the three month period ending November 30, 2011, the Company has
continued to grow revenues and obtain new customers.
The Third Quarter Results, particularly in relation to Gross Profit,
were influenced by two factors that affect comparison with the prior
comparative period. Firstly, the temporary weakness of the Canadian
Dollar against the US Dollar in November 2011 triggered an unrealized
foreign exchange loss compared to a foreign exchange gain in the prior
comparative period; the subsequent return of strength of the Canadian
Dollar has now virtually eliminated that unrealized loss. Secondly, in
the current period the Company reclassified certain expenses from
General and Administrative to Direct Costs; this has reduced the Gross
Profit but has had no effect on the Net Income. The difference in Net
Income over the prior period mainly relates to the change in foreign
exchange rates
Each of the two operating subsidiaries is closely governing expenditures
while building its business. ESI Integrity has continued to provide
the group with a solid business foundation and Citadel's customers,
revenues and transaction volumes have continued to grow.
Michael Meeks - President & CEO
Selected Financial Information
Three months ending
Nine months ending
November 30
2011
November 30
2010
November 30
2011
November 30
2010
($ 000) except for EPS
Revenue
1,094
937
3,213
2,502
Gross Profit
310
488
1,676
1,074
Total operating expenses
304
659
708
2,087
Net Income (Loss)
(198)
255
711
(438)
(Loss) earnings per share
Basic and Diluted
(0.01)
0.02
0.05
(0.03)
Total Assets
7,003
6,691
7,003
6,691
Total long-term liabilities
395
520
395
520
Results of Operations
The Company's three and nine months ending November 30, 2011 reporting
is using IFRS. Figures for the three and nine months ended November
30, 2010 have been restated from those previously reported under GAAP
to IFRS. Details regarding the transition to IFRS can be found in the
condensed consolidated interim financial statements (note 19) which can
be found on www.sedar.com.
Consolidated Revenues
The following table provides a breakdown of the Company's total revenues
from its subsidiaries for the three and nine months ending November 30,
2011 and 2010.
Three months ending Nov 30
Nine months ending Nov 30
($ 000)
2011
2010
% change
2011
2010
% change
Integrity
351
401
(12%)
1,113
1,275
(13%)
Citadel
743
536
39%
2,100
1,227
71%
1,094
937
17%
3,213
2,502
28%
Total revenue increased by 17% to $1,094,000 for the three months ended
November 30, 2011 from $937,000 for the same period in the prior year.
Total revenue increased by 28% to $3,213,000 for the nine months ending
November 30, 2011 from $2,502,000 for the nine months ending November
30, 2010.
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 32% of ESI's revenues were generated by ESI Integrity
during the three months ending November 30, 2011 compared to 43% for
the same period in the prior year. Approximately 35% of ESI's revenues
were generated by ESI Integrity during the nine months ending November
30, 2011 compared to 51% 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 68% of ESI's revenues were generated by Citadel during the
three months ended November 30, 2011 compared to 57% for the same
period in the prior year.
Approximately 65% of ESI's revenues were generated by Citadel during the
nine months ended November 30, 2011 compared to 49% 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.
Consolidated Gross Profit
The following table provides a summary of the Company's gross profit as
prepared in accordance with IFRS for the three and nine months ending
November 30, 2011 and 2010:
Three months ending Nov 30
Nine months ending Nov 30
($ 000)
2011
2010
2011
2010
Revenues
1,094
937
3,213
2,502
Direct Costs
784
449
1,537
1,429
Gross profit
310
488
1,676
1,073
Gross profit margin (%)
28%
52%
52%
43%
Certain expenses have been reclassified from General and Administrative
to Direct Costs, this has reduced the Gross Profit but has had no
effect on the Net Income.
Product Development
All Product Development expenses for ESI Integrity are being
capitalized.
Sales, Marketing and Customer Service
Sales, marketing and customer service expenses were $27,440 and $84,664
during the three and nine months ended November 30, 2011 respectively,
a decrease of 5% and 24% respectively compared to $29,035 and $110,915
for the three and nine months ended November 30, 2010. The decrease in
cost is primarily related to the reduction of travel expenses
associated with the activity in sales, marketing and customer service
General and Administrative
General and administrative expenses were $303,642 and $707,879 during
the three and nine months ended November 30, 2011 respectively, a
decrease of 217% and 295% respectively compared to $659,422 and
$2,087,304 for the three months and nine months ended November 30,
2010. This reduction is due to reclassification of certain expenses to
Direct Costs and to the reversal of the salary expenses relating to the
forgiveness of the majority of deferred salaries and accrued interest
by certain Executives, Directors and Officers for a total of $ 1.1
million during the period ending August 31, 2011
Depreciation of Property and Equipment and Capitalized Development Costs
Depreciation expenses were $16,296 and $48,213 during the three month
and nine month periods ended November 30, 2011, respectively, an
increase of 78% and 81% compared to $12,915 and $39,260 for the
corresponding periods ended November 30, 2010. The depreciation being
reduced on older equipment is offset by depreciation being recorded on
newly incurred capitalized development costs.
Net Income
Net income for the three and nine month periods ended November 30, 2011
was ($198,000) ($0.01 loss per share) and $710,795 ($0.05 earning per
share), respectively, compared to $255,210 ($0.02 earning per share)
and ($437,696) ($0.03 loss per share) for the prior comparative
periods. This change is due to the reversal of the salary expenses
relating to the forgiveness of the majority of deferred salaries and
accrued interest by certain Executives, Directors and Officers and
fluctuating Foreign Exchange rates.
Citadel Processing Accounts and Liabilities
Citadel processing accounts as at November 30, 2011 totaled $5.75
million compared to $4.28 million as at February 28, 2011. The
accounts are comprised of cash and accounts receivables arising from
the processing of deposits and payments for Citadel merchants and
consumers.
Liquidity and Capital Resources
ESI has historically financed its operations through the sale of equity
and through cash generated by its operations.
During the three month period ended November 30, 2011, cash provided in
operating activities was $114,122 and during the nine months ended
November 30, 2011, cash provided in operating activities was $358,806.
During the three month period ended November 30, 2010, cash used in
operating activities was $94,383 and during the nine months ended
November 30, 2010, cash used in operating activities was $101,803.
Cash used in financing activities totaled $135,358 and $476,439 during
the three and nine months ended November 30, 2011 respectively. These
activities relate mainly to the changes in Citadels processing assets.
Cash used by financing activities for the three months ending November
30, 2010 was $62,332 and for the nine months ending November 30, 2010,
cash provided by financing activities was $10,853. These activities
related mainly to the loan payable.
Certain employees have voluntarily deferred part of their compensation.
The unpaid deferred amounts are being accrued without interest and are
recorded in the Company's financial statements. The salary deferrals
are payable upon termination or when the Company's economic conditions
have strengthened to accommodate for the repayment
As at November 30, 2011, the Company had cash and cash equivalents of
$151,182 compared to $101,411 on November 30, 2010.
During the three months ending November 30, 2011, the increase in cash
totaled $37,680 compared to $6,617 for the quarter ended November 30,
2010. During the nine months ending November 30, 2011, the increase in
cash totaled $133,440 compared to $12,203 for the nine months ending
November 30, 2010
The Company has incurred significant operating losses and net
utilization of cash in operations in prior periods. Accordingly, the
Company will require continued financial support from its shareholders
and creditors and/or new debt or equity financing until it is able to
generate sufficient cash flow from operations on a sustained basis.
Consolidated Financial Statements (Unaudited)
NOTE TO READER: The following unaudited financial statements are extracted from the
complete financial statements of the Company which have been filed with
the Management's Discussion and Analysis. The Company's documents can
be found on www.sedar.com to which the reader is referred.
ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Financial Position
As at November 30, 2011, February 28, 2011, and March 1, 2010
(Unaudited - expressed in Canadian dollars)
November 30,
2011
February 28,
2011
March 1,
2010
Assets
Cash and cash equivalents
$
151,182
$
17,742
$
89,208
Accounts receivable
341,224
210,160
361,745
Prepaids and other
148,725
66,912
65,658
Citadel processing accounts
5,753,915
4,277,252
4,937,401
Current Assets
$
6,395,046
$
4,572,066
$
5,454,012
Capitalized Development Costs
136,033
160,255
47,532
Property and equipment
110,915
123,002
170,499
Deferred contract costs
360,664
382,682
550,362
Total Assets$7,002,658
$5,238,005
$6,222,405
Liabilities
Accounts payable and accrued liabilities
$
1,319,580
$
2,085,038
$
1,516,110
Loan Payable
2,245,985
2,081,567
2,174,733
Citadel Processing Liabilities
7,109,826
5,321,142
5,649,239
Deferred Revenue
482,260
485,367
582,230
Current Liabilities
$
11,157,651
$
9,973,114
$
9,922,312
Deferred Revenue
394,958
519,494
913,605
Total Liabilities$11,552,609
$10,492,608
$10,835,917
Shareholders' Equity (Deficiency)
Share Capital
$
9,957,959
$
9,957,959
$
9,957,959
Contributed Surplus
4,592,947
4,575,772
4,506,304
Other Comprehensive Income (Loss)
(64,457)
23,318
-
Deficit
(19,036,400)
(19,811,652)
(19,077,775)
Total Equity
$
(4,549,951)
$(5,254,603)
$(4,613,512)Total liabilities and equity$7,002,658
$5,238,005
$6,222,405
.
ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
For The Three and Nine months ended November 30, 2011 and 2010
(Unaudited - expressed in Canadian dollars)
Three months ended
November 30,
Nine months ended
November 30,
2011
2010
2011
2010
Continuing Operations
Revenues
$
1,094,334
$
936,842
$
3,213,185
$
2,502,136
Direct Costs
783,856
448,585
1,537,422
1,428,597
Gross Profit
310,478
488,257
1,675,763
1,073,539
General and administration expenses
303,642
659,422
707,879
2,087,304
Income (loss) before under noted items
6,836
(171,165)
967,884
(1,013,765)
Other expenses (income)
Foreign exchange (gain) loss
175,983
(397,698)
97,456
(584,357)
Tax expense
-
-
(564)
-
Other income
-
(83,978)
-
(83,978)
Interest income
-
(57)
(10)
(746)
Interest expense
32,979
55,358
95,750
157,288
Income (loss) for period attributable to equity holders
(202,126)
255,210
775,252
(501,972)
Other comprehensive income (loss)
Foreign currency translation gain (loss)
4,567
-
(64,457)
64,276
Total Comprehensive income (loss) for the periodattributable to equity holders
$
(197,559)
$
255,210
$
710,795
$
(437,696)
Basic and diluted earnings (loss) per share
(0.01)
0.02
0.05
(0.03)
ESI ENTERTAINMENT SYSTEMS INC.
Condensed Consolidated Interim Statements of Cash Flows
For The Three and Nine months ended November 30, 2011 and 2010
(Unaudited - expressed in Canadian dollars)
Cash provided by (used for) thefollowing activities
Three months ending
November 30,
Nine months ending
November 30,
2011
2010
2011
2010
Operating activities
Income (Loss) for the period
$
(202,126)
$
255,210
$
775,252
$
(437,696)
Add (deduct)
Depreciation
16,296
12,915
48,213
39,260
Stock-based compensation
3,068
(4,860)
17,175
(10,178)
(182,762)
263,265
840,640
(408,614)
Changes in non-cash working capital:
Accounts receivable
35,319
262,045
(166,548)
60,976
Prepaids
(45,580)
40,411
(81,813)
2,109
Accounts payable and accrued liabilities
84,502
(471,581)
(845,460)
589,507
Deferred revenue
(13,083)
(42,506)
(127,643)
(268,372)
Deferred contract costs
7,482
42,749
22,018
126,197
Cash flow (used in) from operations
(114,122)
94,383
(358,806)
101,803
Investment activities
Capitalized development costs
(8,092)
(25,434)
24,222
(97,235)
Acquisition of property and equipment
(8,415)
-
(8,415)
(3,218)
Cash from (used in) investing activities
16,444
(25,434)
15,807
(100,453)
Financing activities
Loan payable
119,083
(62,332)
164,418
10,853
Change in Citadel processing liabilities
1,081,464
-
1,788,684
-
Change in Citadel processing assets
(1,065,189)
-
(1,476,663)
-
Cash from (used in) financing activities
135,358
(62,332)
476,439
10,853
Increase (decrease) in cash and cash equivalents
37,680
6,617
133,440
12,203
Cash and cash equivalents, beginning of period
113,502
94,794
17,742
89,208
Cash and cash equivalents, end of period
$
151,182
$
101,411
$
151,182
$
101,411
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 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.
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