ESI COUNTS THE COST OF CITADEL ONLINE GAMBLING INVOLVEMENT

1 June 2007

Online gambling-industry payment service provider is looking at a $5 million annual loss

Canadian online gambling-industry payment service provider ESI Entertainment Systems Inc. is looking at a $5 million annual loss after a $6.2-million asset writedown caused by U.S. legislation against online gambling transactions, which has adversely impacted subsidiary Citadel.

Canadian Press reported that ESI revealed this week that its net loss for the year ended February 28 was worth 27 cents per share, compared with prior-year earnings of $1.3 million or eight cents per share.

Revenue increased 19 percent to $22 million from $18.5 million, and gross profit rose 41 percent to $13.5 million.

"These results before the write-off of the deferred assets truly demonstrate the strength of ESI's business model," the company declared. "Revenues had grown substantially over the prior year and net income had increased even while considerable investments were made in infrastructure and in expanding the company's employee base. The company looks to expand in Europe and other e-commerce markets."

The company recorded the $6.2-million non-cash impairment of deferred start-up costs, capitalised development costs and capital assets at its Citadel and Playline segments.

Citadel, which generates more than 90 percent of ESI's revenue, provides an electronic cheque service, primarily to online gambling operators, and was hit by the U.S. Unlawful Internet Gambling Enforcement Act, which quashed the business of processing online payments for American gamblers.

ESI ceased its Citadel Commerce gambling payment processing business late in the financial year "due to uncertainty created by the actions taken by the U.S. authorities against other payment processors."

The company is now focusing on development of Secure Swipe, a proprietary device enabling consumers to conduct secure debit-and credit-card payments from home computers, and Citadel Switch, fund-monitoring software for merchants.

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