LANGHORNE, Pa., Nov. 1, 2004 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of Family Friendly(tm), affordable consumer entertainment PC software games, today announced financial results for the three months ended September 30, 2004.
Net sales decreased by $874,000, or 43%, to $1,178,000 for the three months ended September 30, 2004, compared to $2,052,000 in net sales for the three months ended September 30, 2003. For the quarter ended September 30, 2004, the Company experienced a net loss of $184,000, or $0.02 per diluted share, compared to net income of $478,000, or $0.05 per diluted share, for the quarter ended September 30, 2003.
The $874,000 decrease in net sales was caused by a $927,000 decrease in net sales to software distributors that serve North American mass-merchants and other major retailers. The primary factors contributing to this decrease in net sales were:
-- A significant retailer changed its marketing emphasis to featuring
higher retail price point ($19.99 and above) game and productivity
titles, thereby reducing its retail shelf space allocated to PC
game software titles at the $9.99 retail price point. This
decision had a negative impact on replenishment and initial
product orders for the quarter;
-- Increased competition in the overall consumer entertainment
marketplace from a growing number of alternative game-playing
technologies available to consumers, including game consoles,
hand-held game devices, mobile phones and online game websites,
and the impact this competition has had on the PC game software
market; and
-- No sales during the quarter ended September 30, 2004 of certain
promotional box titles retail priced at $19.99, which in the year
ago quarter had represented approximately $280,000 in net sales.
Partially offsetting the decrease in net sales was a $25,000 increase in net sales on the Internet and a $38,000 increase in inventory liquidation sales.
The Company recognized a net loss of $184,000 during the September 30, 2004 quarter compared to the year ago quarter in which the Company earned $478,000 in net income. The $662,000 decline in profitability for the quarter ended September 30, 2004 compared to the year ago quarter was a result of the following factors:
-- a $627,000 decline in gross profit resulting from a 43% decrease
in overall net sales and the 8.6% decrease in the gross profit
margin that resulted from:
-- a 4.1% increase in royalty costs due to product mix changes
and the write-off of advance royalty payments related to
various game titles removed from retail distribution;
-- a 2.3% increase in freight costs due to a greater proportion
of sales to non-distributors; and
-- a 2.2% increase in other costs related primarily to increased
sales of liquidated inventory; and
-- an $81,000 increase in operating expenses, resulting from writing
off $122,000 in capitalized licensing and inventory costs related
to the RealAge Games & Skills project due to the Company's
determination during the quarter that the recovery of these costs
in future periods is unlikely. Partially offsetting the impact of
this write off expense was a $40,000 decrease in public relations
expenses compared to the quarter ended September 30, 2003.
During the quarter ended September 30, 2004, there were reductions of $6,000 in net interest expense and $40,000 in state income tax expense compared to the three months ended September 30, 2003, that partially offset the overall decrease in profitability for the current quarter.
The following table represents the Company's net sales by distribution channel for the quarters ended September 30, 2004 and 2003, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
---------------------------------
Quarters ended
September 30,
-------------------------------
Distribution Increase %
Channel 2004 % 2003 % (Decrease) Change
---------------------------------------------------------------------
Software
Distributors $ 815,000 69% $ 1,742,000 85% ($927,000) (53%)
Software
Retailers 160,000 14% 170,000 8% (10,000) (6%)
Licensing 101,000 9% 101,000 5% 0 n/m
Internet 64,000 5% 39,000 2% 25,000 64%
Inventory
Liquidators 38,000 3% 0 n/m 38,000 n/m
---------------------------------------------------------------------
Totals $1,178,000 100% $ 2,052,000 100% ($874,000) (43%)
========== ==== =========== ==== ======== ===
Comments:
"The first quarter of fiscal 2005 has been a very challenging period for our organization," said Jerry Klein, President and Chief Executive Officer. "We, and the PC games software market in general, are in a significant transitional phase within the overall consumer entertainment arena. Consumers are dividing up their entertainment dollars among a growing array of electronic gaming alternatives, such as: multiple game console platforms, online game portals through increasing availability to high-speed internet access, hand-held game devices and mobile phones. Today the PC is the most ubiquitous and robust gaming platform in existence and we need to find ways to communicate the many benefits of playing PC games more effectively to more consumers. We now know that playing PC games is excellent therapy for helping people maintain mental sharpness as they age and reducing stress while having fun. We think these are good benefits and more PC users should be playing fun, familiar, easy-to-play games like all of our Family Friendly eGames products. Perhaps this is our greatest challenge as we strive to increase our business."
Mr. Klein continued, "Going forward, our strategy remains focused on executing viable profit generating opportunities at retail, validating potentially profitable business development options, maximizing Internet sales by expanding our online gaming site offering, and increasing licensing revenues by doing more profitable business with our current licensees, while finding incremental opportunities with new licensees. In particular, the Internet and licensing revenue channels represent relatively strong margins and lower working capital requirements, compared to traditional PC software distribution. While we strive to maximize all profitable revenue alternatives within this new and evolving business model, we will also need to realign our resources and adjust expense levels to amounts matched with expected sales while at the same time striving to increase our business."
Mr. Klein further commented that, "Despite the difficult trends we are experiencing, our current financial condition as measured by our balance sheet remains strong. As of September 30, 2004, we had net working capital of $3.3 million, no borrowings and continued to have full access to the $500,000 credit facility with Hudson United Bank."
eGames, Inc.
Balance Sheet
(Unaudited)
As of As of
September 30, June 30,
ASSETS 2004 2004
------------ ------------
Current assets:
Cash and cash
equivalents $1,553,840 $1,742,224
Accounts receivable,
net 1,121,740 1,533,859
Inventory, net 842,114 814,286
Prepaid and other
expenses 473,896 440,131
--------- ---------
Total current assets 3,991,590 4,530,500
Furniture and
equipment, net 74,969 74,859
Intangible assets 24,089 24,089
---------- ----------
Total assets $4,090,648 $4,629,448
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
---------------------
Current liabilities:
Accounts payable $ 359,575 $ 441,016
Accrued expenses 312,952 616,794
---------- ----------
Total current
liabilities 672,527 1,057,810
---------- ----------
Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in
capital 1,359,970 1,329,164
Accumulated deficit (6,620,259) (6,435,936)
Treasury stock (501,417) (501,417)
--------- ---------
Total stockholders'
equity 3,418,121 3,571,638
---------- ----------
Total liabilities
and stockholders'
equity $4,090,648 $4,629,448
========== ==========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended
September 30,
---------------------------
2004 2003
------------ ------------
Net sales $ 1,177,829 $ 2,052,472
Cost of sales 571,158 818,185
----------- -----------
Gross profit 606,671 1,234,287
Operating expenses:
Product development 239,115 126,390
Selling, general and
administrative 571,132 602,284
----------- -----------
Total operating expenses 810,247 728,674
----------- -----------
Operating income (loss) (203,576) 505,613
Interest (income)
expense, net (1,230) 4,983
----------- -----------
Income (loss) before
income taxes (202,346) 500,630
Provision (benefit)
for income taxes (18,024) 22,284
----------- -----------
Net income (loss) $ (184,322) $ 478,346
=========== ===========
Net income (loss) per common
share:
- Basic $ (0.02) $ 0.05
=========== ===========
- Diluted $ (0.02) $ 0.05
=========== ===========
Weighted average common
shares outstanding -
Basic 10,102,673 9,989,337
Dilutive effect of
common share equivalents 0 483,761
---------- ----------
Weighted average common
shares and common share
equivalents outstanding
- Diluted 10,102,673 10,473,098
========== ==========
About eGames, Inc.
eGames, Inc., headquartered in Langhorne, PA, publishes and markets a diversified line of Family Friendly(tm), affordable consumer entertainment PC software games. The Company promotes the eGames(tm) brand in order to generate customer loyalty, encourage repeat purchases and differentiate eGames software products to retailers and consumers. eGames also publishes and markets RealAge(r) Games & Skills, a collection of PC software activities and games designed to help build and maintain mental sharpness. RealAge Games & Skills provides information and knowledge about aging gathered from over twenty-five years of research funded by the National Institute on Aging. Additional information regarding eGames, Inc. and RealAge Games & Skills can be found at www.egames.com and www.realagegames.com. eGames -- Where the "e" is for Everybody!(r)
Forward-Looking Statement Safe Harbor: --------------------------------------
This press release contains certain forward-looking statements, including without limitation, statements regarding: the Company's strategy of executing viable profit generating opportunities at retail, validating potentially profitable business development options, maximizing Internet sales by expanding the Company's online gaming site offering, and increasing licensing revenues by doing more profitable business with the Company's current licensees, while finding incremental opportunities with new licensees; the Company's plans to maximize all profitable revenue alternatives and to realign its resources and adjust expense levels to amounts supportable by expected sales; and the Company's continued access to a $500,000 credit line with Hudson United Bank; and other statements that contain the words "believes," "expects," "may," "should," or "anticipates". The actual results achieved by the Company and the factors that could cause actual results to differ materially from those indicated by the forward-looking statements are in many ways beyond the Company's control. The Company cautions readers that the risks and uncertainties that may affect the Company's future results and performance include, but are not limited to, those discussed under the heading "Factor Affecting Future Performance" in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004 filed with the Securities and Exchange Commission.
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Contact Information at eGames, Inc.
-----------------------------------
Jerry Klein, President & CEO
(215) 750-6606 (Ext. 118)
Tom Murphy, Vice President & CFO
(215) 750-6606 (Ext. 113)