LANGHORNE, Pa., Feb. 24, 2009 (GLOBE NEWSWIRE) -- eGames, Inc. (Pink Sheets:EGAM), a developer and publisher of games for the PC, game consoles and the Internet, today released financial results for its three and six months ended December 31, 2008.
COMMENTS:
"Our fiscal 2009 second quarter was perhaps the most challenging in the history of eGames," commented Jerry Klein, President and CEO of eGames. "During the two previous quarters we were witnessing signs that we could reasonably expect to see our business opportunities improving by now, but instead the worsening economy and its affect on retailers and consumers alike have created a situation that has severely impacted eGames and its future prospects. As a result, we have reduced our current and future development commitments and focused our resources and efforts to minimize all expenditures while attempting to increase revenues. Our goal is to structure our business so that we can sustain our operations at current and ongoing revenue levels. Our priority is to remain a viable video game business that can continue to seek, obtain, and serve customers so that we are positioned to benefit when the economy ceases to worsen and begins improving. Hopefully, we will begin to see that happening in the weeks and months ahead."
"During the second quarter, we released two newly-developed PC games, Satisfashion and Burger Island 2: The Missing Ingredient, on several of the leading Internet game portals. We also released Burger Island and Puzzle City on the Nintendo DS (Germany only for Puzzle City) during the second quarter. None of these releases occurred early enough in the second quarter to enjoy any substantial revenues during the second quarter. We are still awaiting the launch of a variety of Burger Island mini-games for the Apple iPhone which should occur during our fiscal third quarter," Klein continued.
"The challenges that today's economic situation present are persistent challenges that we constantly face in business. What is different today is the breadth and depth of the challenges -- the demise of the credit markets, high and rising unemployment, the precipitous decline in home values and savings, and the trickle down effect on retail traffic and consumer spending. Prior economic slowdowns have typically left the videogame industry virtually unscathed. This time our business and many other companies in the videogame industry are being battered with only a few individual exceptions. Our goal is to survive while doing our best to demonstrate our capability to create and publish great top selling games so we can sell more products, increase revenues, and then ultimately achieve profitability and positive cash flows. Those remain our challenges and expectations," Klein said.
FINANCIAL DISCUSSION:
Three Months ended December 31, 2008:
Net revenues decreased by $229,000, or 19.1%, to $967,000 for the quarter ended December 31, 2008, compared to $1,196,000 for the comparative quarter a year ago. The $229,000 decrease in net revenues resulted from decreases in North American traditional product revenues and in worldwide licensing revenues which were both related to the challenging retail markets along with weaker consumer demand for our PC games relative to our competitors' products. Internet revenues continued to increase due to growth in consumer installations of the eGames toolbar (now available on all eGames published PC games) along with increased PC game sales on www.egames.com.
Net loss was $394,000, or $0.03 per diluted share, for the quarter ended December 31, 2008, compared to net income of $58,000, or nil per diluted share, for the comparative quarter a year earlier. This $452,000 decrease in profitability for the quarter ended December 31, 2008 was comprised of a $256,000 decrease in gross profit (related to lower net revenues and an 11.0% decline in the gross profit margin), and a $197,000 increase in operating expenses.
The 11.0% gross profit margin decline related to cost increases, as a
percentage of net revenues, of:
* 5.3% in royalty costs traceable to higher royalty rates
associated with our better selling third-party PC games at North
American retail stores and online at www.egames.com;
* 2.4% in product costs due to an increase in liquidation product
shipments; and
* 3.3% in other cost of revenues related to return processing fees
and additional packaging costs.
The $197,000 increase in operating expenses related to:
* $180,000 in product development and quality assurance costs
incurred to develop company owned proprietary games for the PC,
iPhone, Nintendo DS and Wii game platforms; and
* $17,000 in other operating expenses related to various employment
costs.
Six Months ended December 31, 2008:
Net revenues decreased by $46,000, or 2.4%, to $1,851,000 for the six months ended December 31, 2008, compared to $1,897,000 for the similar six-month period a year earlier. This $46,000 decrease in net revenues resulted from a decrease of $244,000 in North American traditional product revenues, which was partially offset by net revenue increases of: $109,000 in Internet revenues; $31,000 in licensing revenues; and $58,000 in liquidation product revenues.
Net loss was $854,000, or $0.07 per diluted share, for the six months ended December 31, 2008, compared to a net loss of $271,000, or $0.02 per diluted share, for the six months ended December 31, 2007. This $583,000 increase in the net loss resulted from a $190,000 decrease in gross profit and a $393,000 increase in operating expenses, both due to similar factors that impacted the three month results.
The following tables represent eGames' net revenues by distribution channel for the three and six months ended December 31, 2008 and 2007, respectively:
Net Revenues by Distribution Channel
------------------------------------
(rounded to the nearest thousand)
---------------------------------
Three Months Ended
December 31,
----------------------------------
Distribution Increase %
Channel 2008 % 2007 % (Decrease) Change
---------------------------------------------------------------------
Traditional
product
revenues $ 524,000 54% $ 743,000 62% ($ 219,000) (29%)
Licensing
revenues 142,000 15% 206,000 17% (64,000) (31%)
Internet
revenues 246,000 25% 229,000 19% 17,000 7%
Liquidation
product
revenues 55,000 6% 18,000 2% 37,000 206%
---------------------------------------------------------------------
Totals $ 967,000 100% $1,196,000 100% ($ 229,000) (19%)
========== ==== ========== ==== ========== ====
Six Months Ended
December 31,
----------------------------------
Distribution Increase %
Channel 2008 % 2007 % (Decrease) Change
---------------------------------------------------------------------
Traditional
product
revenues $ 995,000 54% $1,239,000 65% ($ 244,000) (20%)
Licensing
revenues 296,000 16% 265,000 14% 31,000 12%
Internet
revenues 469,000 25% 360,000 19% 109,000 30%
Liquidation
product
revenues 91,000 5% 33,000 2% 58,000 176%
---------------------------------------------------------------------
Totals $1,851,000 100% $1,897,000 100% ($ 46,000) (2%)
========== ==== ========== ==== ========== ====
Liquidity Condition:
At December 31, 2008, eGames had $460,000 in cash compared to $874,000 in cash at June 30, 2008. Additionally, our net working capital (current assets minus current liabilities) decreased to $106,000 compared to $938,000 at June 30, 2008. Considering our net losses for the most recent quarters and for fiscal years 2008, 2007 and 2006, and the fact that we do not currently have access to a credit facility, we are continuing to evaluate our options to fund future operations if eGames does not become cash flow positive from operations in the very near future.
eGames, Inc.
Balance Sheets
As of As of
December 31, June 30,
ASSETS 2008 2008
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 460,206 $ 874,188
Accounts receivable, net 425,323 467,506
Inventory, net 557,247 590,601
Prepaid and other expenses 191,851 284,380
------------ ------------
Total current assets 1,634,627 2,216,675
Furniture and equipment, net 30,718 27,548
Intangible assets 444,089 444,089
------------ ------------
Total assets $ 2,109,434 $ 2,688,312
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 663,795 $ 591,494
Unearned revenues 482,824 248,454
Accrued expenses 382,080 439,208
------------ ------------
Total current liabilities 1,528,699 1,279,156
------------ ------------
Stockholders' equity:
Convertible preferred stock 704,568 704,568
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,509,930 2,462,406
Accumulated deficit (11,260,653) (10,384,708)
Treasury stock, at cost (552,937) (552,937)
------------ ------------
Total stockholders' equity 580,735 1,409,156
------------ ------------
Total liabilities and
stockholders' equity $ 2,109,434 $ 2,688,312
============ ============
eGames, Inc.
Statements of Operations
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Net revenues $ 967,061 $ 1,195,735 $ 1,850,793 $ 1,897,067
Cost of revenues 443,829 416,986 838,699 694,610
----------- ----------- ----------- -----------
Gross profit 523,232 778,749 1,012,094 1,202,457
Operating expenses:
Product
development 472,673 292,793 928,417 603,603
Selling, general
and administrative 445,354 428,212 939,138 870,753
----------- ----------- ----------- -----------
Total operating
expenses 918,027 721,005 1,867,555 1,474,356
----------- ----------- ----------- -----------
Operating income
(loss) (394,795) 57,744 (855,461) (271,899)
Interest income,
net 586 118 1,392 1,323
----------- ----------- ----------- -----------
Income (loss)
before income
taxes (394,209) 57,862 (854,069) (270,576)
Provision for
income taxes - 0 - - 0 - - 0 - - 0 -
----------- ----------- ----------- -----------
Net income (loss) ($394,209) $57,862 ($854,069) ($270,576)
======== ======= ======== ========
Net income (loss)
per common share:
- Basic ($0.03) $0.00 ($0.07) ($0.02)
=========== =========== =========== ===========
- Diluted ($0.03) $0.00 ($0.07) ($0.02)
=========== =========== =========== ===========
Weighted average
common shares
outstanding
- Basic 11,957,193 11,786,741 11,957,193 11,773,118
Dilutive effect of
common share
equivalents - 0 - 379,971 - 0 - - 0 -
----------- ----------- ----------- -----------
Weighted average
common shares
outstanding
- Diluted 11,957,193 12,166,712 11,957,193 11,773,118
=========== =========== =========== ===========
eGames, Inc.
Statements of Cash Flows
Six Months Ended
December 31,
------------------------
2008 2007
----------- -----------
OPERATING ACTIVITIES:
---------------------
Net loss ($ 854,069)($ 270,576)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 63,685 41,417
Depreciation and amortization 11,470 9,644
Changes in operating assets and liabilities:
Accounts receivable, net 42,183 (195,340)
Inventory, net 33,354 4,901
Prepaid and other expenses 76,367 (31,054)
Accounts payable 109,647 224,571
Unearned revenues 234,370 33,540
Accrued expenses (68,066) (174,449)
----------- -----------
Net cash used in operating activities (351,059) (357,346)
INVESTING ACTIVITIES:
---------------------
Purchase of furniture and equipment (14,639) (10,640)
----------- -----------
Net cash used in investing activities (14,639) (10,640)
FINANCING ACTIVITIES:
---------------------
Net disbursements from issuance of
preferred stock (26,638) - 0 -
Dividend payments to preferred stockholders (21,646) - 0 -
Proceeds from stock option exercises - 0 - 7,230
----------- -----------
Net cash (used in) provided by
financing activities (48,284) 7,230
----------- -----------
Net decrease in cash and cash equivalents (413,982) (360,756)
Cash and cash equivalents:
Beginning of period 874,188 644,524
----------- -----------
End of period $ 460,206 $ 283,768
=========== ===========
eGames, Inc.
Statements of Stockholders' Equity
Convertible
Preferred Stock Common Stock Additional
----------------------------------------- Paid-in
Shares Amount Shares Amount Capital
=====================================================================
Balances at
June 30, 2007 - 0 - $ - 0 - 11,956,093 $ 9,179,827 $ 2,205,242
======== ======== =========== =========== ===========
Net loss - 0 - - 0 - - 0 - - 0 - - 0 -
Shares issued
and retired in
connection with
stock option
exercises - 0 - - 0 - 95,000 - 0 - 58,750
Common stock
options issued
to employees
and directors - 0 - - 0 - - 0 - - 0 - 79,585
Shares issued in
connection with
consulting
agreement - 0 - - 0 - 60,000 - 0 - 38,792
Shares issued in
connection with
preferred stock
offering 875,000 875,000 - 0 - - 0 - - 0 -
Costs incurred
and common
stock shares
and warrant
issued in
connection with
preferred stock
offering - 0 - (170,432) 124,000 - 0 - 80,037
Dividends
declared on
preferred stock - 0 - - 0 - - 0 - - 0 - - 0 -
Rounding - 0 - - 0 - - 0 - - 0 - - 0 -
---------------------------------------------------------------------
Balances at
June 30, 2008 875,000 $704,568 12,235,093 $ 9,179,827 $ 2,462,406
======== ======== =========== =========== ===========
Net loss - 0 - - 0 - - 0 - - 0 - - 0 -
Common stock
options issued
to employees
and directors - 0 - - 0 - - 0 - - 0 - 47,524
Dividends
declared on
preferred stock - 0 - - 0 - - 0 - - 0 - - 0 -
---------------------------------------------------------------------
Balances at
December 31,
2008 875,000 $704,568 12,235,093 $ 9,179,827 $ 2,509,930
======== ======== =========== =========== ===========
Treasury Stock
Accumulated ------------------- Stockholders'
Deficit Shares Amount Equity
=====================================================================
Balances at
June 30, 2007 ($9,467,234) (231,900) ($501,417) $1,416,418
========== ======= ======== ==========
Net loss (902,250) - 0 - - 0 - (902,250)
Shares issued and retired
in connection with stock
option exercises - 0 - (46,000) (51,520) 7,230
Common stock options
issued to employees
and directors - 0 - - 0 - - 0 - 79,585
Shares issued in
connection with
consulting agreement - 0 - - 0 - - 0 - 38,792
Shares issued in
connection with preferred
stock offering - 0 - - 0 - - 0 - 875,000
Costs incurred and common
stock shares and warrant
issued in connection with
preferred stock offering - 0 - - 0 - - 0 - (90,395)
Dividends declared
on preferred stock (15,223) - 0 - - 0 - (15,223)
Rounding (1) - 0 - - 0 - (1)
---------------------------------------------------------------------
Balances at
June 30, 2008 ($10,384,708) (277,900) ($552,937) $1,409,156
=========== ======= ======== ==========
Net loss (854,069) - 0 - - 0 - (854,069)
Common stock options
issued to employees
and directors - 0 - - 0 - - 0 - 47,524
Dividends declared
on preferred stock (21,876) - 0 - - 0 - (21,876)
---------------------------------------------------------------------
Balances at
December 31, 2008 ($11,260,653) (277,900) ($552,937) $580,735
=========== ======= ======== ========
About eGames, Inc.
eGames, Inc., headquartered in Langhorne, Pennsylvania, develops and publishes games for the PC, game consoles and the Internet which include the eGames(tm), Cinemaware(r) and Cinemaware Marquee(r) brands. Additional information regarding eGames, Inc. can be found at http://www.egames.com.
Accessing Our Financial Information
Shareholders have three ways to access our financial and other information: by going to the Investor Relations page of the eGames website at www.egames.com, where shareholders can access our annual reports for fiscal 2008 and 2007, as well as press releases containing quarterly financial information for fiscal 2009, 2008 and 2007; by going to the Pink Sheets website at www.pinksheets.com and typing in our symbol "EGAM"; or by requesting a paper copy of financial information by contacting us by mail at eGames, Inc., 2000 Cabot Boulevard West, Suite 110, Langhorne, Pennsylvania 19047 to the attention of the Chief Financial Officer. Shareholders can also be placed on a list to receive press releases, as they are issued, via email by going to the following link on the eGames investor relations webpage: http://www.egamesonline.com/egames/investors/alert.asp.
Forward-Looking Statement Safe Harbor
This press release contains certain forward-looking statements, including without limitation, statements regarding: reductions in our current and future development commitments; our efforts to minimize all expenditures while attempting to increase revenues; our goal of sustaining our operations at current and ongoing revenue levels and remaining a viable video game business; positioning our business to benefit when the economy ceases to worsen and begins improving, with the expectation that this may occur in the weeks and months ahead; the anticipated launch of a variety of Burger Island mini-games for the Apple iPhone during our fiscal third quarter; the challenges presented to our business and the viability of our company during this economic downturn; and our goal to survive and demonstrate our capability to create and publish top selling games so we can sell more products, increase revenues, and ultimately achieve profitability and positive cash flows. eGames cautions readers that the risks and uncertainties that may affect our future results and performance include, but are not limited to: continued overall economic problems in the United States and around the world that negatively affect consumer spending and retail markets; the potential failure of business partners with which we do business, including distributors, retailers, licensees and publishers; delays in the development and release of future titles; inability to fund continued development of future titles; technical and other issues that may delay or halt development of future titles; the failure of new titles to sell well or achieve retail placement; our inability to enter into and maintain commercially successful publishing, licensing and distribution relationships; and an increase in competition; as well as the risks and uncertainties discussed under the heading "Factors Affecting Future Performance" in our Annual Report for the fiscal year ended June 30, 2008 as posted on the Company's website and on www.pinksheets.com.