LANGHORNE, Pa., April 28, 2003 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of Family Friendly(TM), value-priced consumer entertainment PC software games, today announced its financial results for the three and nine months ended March 31, 2003.
Three Months Ended March 31, 2003
For the three months ended March 31, 2003, net sales decreased by $2,095,000, or 58%, to $1,531,000 compared to $3,626,000 for the same quarter a year earlier. Net income was $296,000, or $0.03 per diluted share, compared to $911,000, or $0.09 per diluted share, for the same quarter a year ago. The $2,095,000 decrease in net sales resulted from a $2,281,000 net product sales decrease to North American non-traditional software retailers and distributors, which decrease was partially offset by a $167,000 increase in net product sales to North American traditional software retailers and distributors and a $19,000 increase in worldwide licensing revenues.
Nine Months Ended March 31, 2003
For the nine months ended March 31, 2003, net sales decreased by $2,552,000, or 32%, to $5,336,000 compared to $7,888,000 for the same period a year earlier. Net income was $951,000, or $0.10 per diluted share, compared to $1,009,000, or $0.10 per diluted share, for the same nine-month period last year. The $2,552,000 decrease in net sales resulted from a $3,965,000 net product sales decrease to North American non-traditional software retailers and distributors, combined with a $105,000 decrease in net product sales to international distributors, which decreases were partially offset by a $1,410,000 increase in net product sales to North American traditional software retailers and distributors and a $108,000 increase in worldwide licensing revenues.
Impact From Agreements with Various Retailers and Distributors
During the three and nine month periods ended March 31, 2002, the Company had entered into an agreement with one of its largest drug store retail customers, which among other things, had eliminated any right of product return and allowed the Company to recognize net product sales of approximately $2.1 million and net income of approximately $1.1 million. During fiscal 2003, the Company entered into similar agreements with other retailers and distributors, which allowed it to recognize net product sales of $39,000 and net income of $27,000 in the three months ended March 31, 2003, and net product sales of $120,000 and net income of $108,000 in the nine months ended March 31, 2003. Most of these amounts had been deferred in accordance with the Company's revenue recognition policy requiring the Company to recognize sales relating to product shipments to food and drug store retailers based on reported product sell-through to consumers.
Excluding the impact from these agreements, the Company would have recognized net sales of approximately $1.5 million for each of the three month periods ended March 31, 2003 and 2002, and net sales of approximately $5.2 million and $5.8 million for the nine months ended March 31, 2003 and 2002, respectively.
Excluding the impact from these agreements, the Company would have recognized net income of $269,000 or $0.03 per diluted share and a net loss of ($211,000) or ($0.02) per diluted share for the three months ended March 31, 2003 and 2002, respectively, and net income of $843,000 or $0.08 per diluted share and a net loss of ($113,000) or ($0.01) per diluted share for the nine months ended March 31, 2003 and 2002, respectively.
The following table presents the net sales, net income (loss), and net income (loss) per diluted share for the three and nine month periods ended March 31, 2003 and 2002, respectively, as reported and then excluding the benefit recognized as a result of the agreements with various retailers and distributors discussed above:
(amounts in thousands, except per share amounts)
Three Months ended Nine Months ended
March 31, March 31,
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Increase Increase
2003 2002 (Decrease) 2003 2002 (Decrease)
------------------------- ------------------------
As reported:
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Net sales $1,531 $3,626 ($2,095) $5,336 $7,888 ($2,552)
====== ====== ====== ====== ====== ======
Net income
(loss) $ 296 $ 911 ($ 615) $ 951 $1,009 ($ 58)
====== ====== ====== ====== ====== ======
Net income
(loss)
per
diluted
share $ 0.03 $ 0.09 ($ 0.06) $ 0.10 $ 0.10 $ 0
====== ====== ====== ====== ====== ======
Excluding
agreements
with
retailers
and
distributors:
-------------
Net sales $1,492 $1,511 ($ 19) $5,216 $5,773 ($ 557)
====== ====== ====== ====== ====== ======
Net income
(loss) $ 269 ($ 211) $ 480 $ 843 ($ 113) $ 956
====== ====== ====== ====== ====== ======
Net income
(loss)
per
diluted
share $ 0.03 ($ 0.02) $ 0.05 $ 0.08 ($ 0.01) $ 0.09
====== ====== ====== ====== ====== ======
Financial Highlights
The Company's fiscal 2003 third quarter financial results benefited from continuing improvements in the Company's gross profit margin, combined with reductions in operating expenses due to cost saving initiatives and reduced interest costs. The Company repaid all of its bank debt on January 16, 2003. The following items represent certain key financial highlights:
-- Quarterly net product sales to North American traditional software
retailers and distributors increased by $167,000 or 13%,
-- Quarterly worldwide licensing revenues increased by $19,000 or
44%,
-- Quarterly gross profit margin increased to 62% from 47%,
-- Quarterly operating expenses decreased by $73,000 or 9%,
-- Quarterly interest expense decreased by $25,000 or 80%,
-- Stockholders' equity increased by more than $2.2 million compared
to the year ago period, and
-- Working capital increased by more than $2.0 million compared to
the same period a year earlier.
Factors contributing to the 15% gross profit margin improvement for the current quarter include cost savings, as a percentage of net sales, from:
-- Lower product costs resulting from the discontinuation of direct sales
of lower margin third-party publisher software titles to food and drug
store retailers, a reduction in lower margin inventory closeout sales,
and the continued distribution of higher-priced PC gaming software
titles,
-- Lower inventory obsolescence provision due to improved inventory cost
recoverability, and
-- Lower freight costs due to a greater percentage of cost effective
product shipments to a concentrated group of distribution customers,
combined with more cost effective direct-to-store order fulfillment.
In addition to these improvements in the gross profit margin, the Company's financial results benefited from operating expense savings for the three and nine months ended March 31, 2003 of $73,000 and $330,000, respectively. The largest operating expense reductions were in marketing promotion costs and professional service fees, as well as depreciation and amortization expense, which decreases were partially offset by increases in insurance and stock compensation costs. The Company's financial results continue to benefit from the strategic decision to transition both of its direct retail drug store distribution and international distribution to licensing relationships. This decision has allowed the Company to focus its business plan on serving its core customer (the value conscious consumer of PC gaming software) by increasing product distribution at mass-merchant, specialty and software retailers where these consumers shop for this type of entertainment product.
Additional Net Sales Information:
(amounts in thousands)
Three Months ended
------------------
March 31, March 31, Increase
Distribution Channel 2003 2002 (Decrease)
---------------------------------------------------------------------
North American traditional
software retailers and
distributors $1,425 $1,258 $ 167
North American non-traditional
software retailers and
distributors 44 2,325 ( 2,281)
International software
distributors 0 0 0
Worldwide licensing revenues 62 43 19
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Three Months Net Sales $1,531 $3,626 ($2,095)
====== ====== ======
Nine Months ended
-----------------
March 31, March 31, Increase
Distribution Channel 2003 2002 (Decrease)
---------------------------------------------------------------------
North American traditional
software retailers and
distributors $4,901 $3,491 $1,410
North American non-traditional
software retailers and
distributors 117 4,082 (3,965)
International software
distributors 5 110 (105)
Worldwide licensing revenues 313 205 108
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Nine Months Net Sales $5,336 $7,888 ($2,552)
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Comments
Jerry Klein, President and CEO of eGames, stated: "Our third quarter fiscal 2003 financial results represent the continuing progress of our business plan implemented more than a year ago to improve our financial condition. We have successfully aligned our limited resources to satisfy an increasing number of retail consumers through a concentrated group of cost effective distribution relationships. While doing so, we have made significant progress in strengthening our financial condition by: converting accounts receivable balances and certain slow-moving software titles into cash, reducing trade debt, eliminating bank debt, and improving our gross profit margin by controlling costs. Continuing to improve our Company's financial strength remains the dominant objective of our focused business plan."
About the Company
eGames, Inc., headquartered in Langhorne, PA, develops, publishes and markets a diversified line of Family Friendly(TM), value-priced consumer entertainment PC software games. The Company promotes the eGames(TM), Game Master Series(TM), and Outerbound(TM) brands in order to generate customer loyalty, encourage repeat purchases and differentiate eGames software products to retailers and consumers. eGames -- Where the "e" is for Everybody!(R) Additional information regarding eGames, Inc. can be found on the Company's Web site at www.egames.com.
Forward-Looking Statement Safe Harbor
This press release contains certain forward-looking statements, including without limitation, statements regarding the Company's intention to continue to improve its financial condition; 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 following important factors, among others, could cause the Company's actual results to differ materially from those expressed in this press release: the market acceptance and successful sell-through results for the Company's products at retail stores, particularly new titles that are priced higher than those that the Company has historically sold; the market acceptance of increased pricing of the Company's products; the amount of unsold product that is returned to the Company by retail stores; the Company's ability to accurately predict the amount of product returns that will occur and the adequacy of the reserves established for such returns; the continued allocation of adequate shelf space for the Company's products in major retail chain stores; the Company's ability to collect outstanding accounts receivable and establish adequate reserves for uncollectible receivables; the ability to deliver products in response to orders within a commercially acceptable time frame; downward pricing pressure; fluctuating costs of developing, producing and marketing the Company's products; the Company's ability to license or develop quality content for its products; consumers' continued demand for value-priced software; increased competition in the value-priced software category; and various other factors, many of which are beyond the Company's control. Risks and uncertainties that may affect the Company's future results and performance also include, but are not limited to, those discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 and Quarterly Report on Form 10-QSB for the quarter ended December 31, 2002 filed with the Securities and Exchange Commission.