LANGHORNE, Pa., Feb. 1, 2005 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of Family Friendly(tm), affordable consumer entertainment PC software games, today announced financial results for the three and six months ended December 31, 2004. The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.015 per share to be paid on February 22, 2005 to shareholders of record on February 15, 2005.
Financial Results:
For the three months ended December 31, 2004, net sales decreased by $203,000, or 10%, to $1,913,000, compared to $2,116,000 in net sales for the three months ended December 31, 2003. For the quarter ended December 31, 2004, the Company earned net income of $295,000, or $0.03 per diluted share, compared to net income of $471,000, or $0.04 per diluted share, for the quarter ended December 31, 2003.
For the six months ended December 31, 2004, net sales decreased by $1,078,000, or 26%, to $3,090,000 compared to $4,168,000 for the same year ago period. For the six months ended December 31, 2004, net income was $111,000, or $0.01 per diluted share, compared to $950,000, or $0.09 per diluted share, for the same six-month period a year earlier.
Quarterly Cash Dividend:
The Company's Board of Directors has authorized the payment of a quarterly cash dividend of $0.015 per common share, in lieu of pursuing the Company's previously announced stock repurchase program. The quarterly cash dividend is payable on February 22, 2005 to shareholders of record on February 15, 2005. It is the Company's intention to continue paying a comparable quarterly cash dividend to shareholders of its common stock. However, the payment of any further cash dividends depends entirely upon the discretion of the Company's Board of Directors and may be discontinued at any time, for any reason.
Second Quarter Fiscal 2005 - Summary:
The $203,000 decrease in overall net sales was caused primarily by a $214,000 decline in net sales to software distributors that serve North American mass-merchants and other major retailers, driven by a $422,000 decrease in net sales to the Company's primary software distributor within the United States. This software distributor's reduced purchasing requirements during the current quarter were impacted by a major retailer's reduction in its retail shelf space allotment for PC software games at the $9.99 retail price point. This decrease in net sales to software distributors was partially offset by a $194,000 increase in net sales to Canadian software distributors due to increased product distribution of the Company's titles at various Canadian retailers during this period.
Additionally, net sales decreased to certain smaller retailers by $58,000 and to Internet customers by $17,000. These net sales decreases were partially offset by a $36,000 increase in licensing revenues and a $50,000 increase in inventory liquidation sales.
The Company earned net income of $295,000 during the quarter ended December 31, 2004 compared to the year ago quarter in which the Company earned $471,000 in net income. This $176,000 decrease in profitability for the quarter ended December 31, 2004 compared to the year ago quarter was a result of the following factors:
-- A $150,000 decline in gross profit resulting from a 10%
decrease in net sales, combined with a 1.7% reduction in the
gross profit margin largely driven by cost increases, as a
percentage of net sales, of:
-- 1.3% in royalty expense due to the accelerated expensing
of advance royalty payments related to various game and
productivity titles; and
-- 0.9% in freight expense resulting primarily from
increased product shipments to Canadian distributors.
-- A $21,000 increase in operating expenses, resulting primarily
from increased legal expenses incurred in enforcing the
Company's intellectual property rights; and
-- A $5,000 increase in state income tax expense due to a higher
effective state income tax rate.
The following table represents the Company's net sales by distribution channel for the three and six months ended December 31, 2004 and 2003, respectively:
Net Sales by Distribution Channel
---------------------------------
(rounded to the nearest thousand)
-------------------------------
Three Months Ended
December 31,
---------------------------------
Distribution Increase %
Channel 2004 % 2003 % (Decrease) Change
--------------------------------------------------------------------
Software
Distributors $1,443,000 76% $1,657,000 78% ($ 214,000) (13%)
Software
Retailers 138,000 7% 196,000 9% (58,000) (30%)
Licensing 156,000 8% 120,000 6% 36,000 30%
Internet 72,000 4% 89,000 4% (17,000) (19%)
Inventory
Liquidators 104,000 5% 54,000 3% 50,000 93%
---------------------------------------------------------------------
Totals $1,913,000 100% $2,116,000 100% ($ 203,000) (10%)
========== === ========== === ========== ===
Six Months Ended
December 31,
---------------------------------
Distribution Increase %
Channel 2004 % 2003 % (Decrease) Change
---------------------------------------------------------------------
Software
Distributors $2,257,000 73% $3,400,000 82% ($1,143,000) (34%)
Software
Retailers 298,000 10% 366,000 9% (68,000) (19%)
Licensing 249,000 8% 217,000 5% 32,000 15%
Internet 144,000 5% 131,000 3% 13,000 10%
Inventory
Liquidators 142,000 4% 54,000 1% 88,000 163%
---------------------------------------------------------------------
Totals $3,090,000 100% $4,168,000 100% ($1,078,000) (26%)
========== === ========== === ========== ===
Comments:
"The second quarter of fiscal 2005 reflected our organization's ability to respond positively to the challenges of reduced product distribution in parts of the retail market place that occurred during the first quarter of this fiscal year," said Jerry Klein, President and Chief Executive Officer. "Our efforts have resulted in rebounding to profitability during the current quarter, as well as for the first six months of this fiscal year. Although we did not achieve the levels of profitability that we had during the comparable periods last year, we are committed to recouping any previously lost momentum in the retail marketplace by continuing to bring out more of our fun, familiar, easy-to-play, Family Friendly games at the affordable prices consumers have shown they want, and seeking to expand our share of the North American retail shelf space allocated to affordably priced PC software games," Mr. Klein continued.
Mr. Klein further commented that, "our business strategy remains concentrated on executing viable profit and cash generating opportunities at retail and online through the Internet, while continuing to evaluate potentially profitable business development and licensing alternatives in untapped and traditional distribution channels. Our financial condition continues to be strong, as reflected by our healthy balance sheet and our return to profitability. At December 31, 2004, we had net working capital of $3.6 million, no borrowings and we continued to have full access to the $750,000 credit facility with Hudson United Bank."
"As a further indication of confidence in our business plan and to provide a direct return on capital to the Company's shareholders, our Board of Directors has recently approved a quarterly cash dividend. After careful consideration of alternative uses for these funds, our Board of Directors decided that beginning to pay a quarterly cash dividend is currently the best use of this available cash. We hope this decision will increase our shareholders' value more than the previously announced stock repurchase program that we have decided not to pursue," remarked Mr. Klein.
eGames, Inc.
Balance Sheet
(Unaudited)
As of As of
December 31, June 30,
ASSETS 2004 2004
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 1,691,909 $ 1,742,224
Accounts receivable, net 1,287,316 1,533,859
Inventory, net 916,742 814,286
Prepaid and other expenses 436,319 440,131
----------- -----------
Total current assets 4,332,286 4,530,500
Furniture and equipment, net 67,438 74,859
Intangible assets 24,089 24,089
----------- -----------
Total assets $ 4,423,813 $ 4,629,448
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 375,615 $ 441,016
Accrued expenses 309,763 616,794
----------- -----------
Total current liabilities 685,378 1,057,810
----------- -----------
Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 1,385,026 1,329,164
Accumulated deficit (6,325,001) (6,435,936)
Treasury stock (501,417) (501,417)
----------- -----------
Total stockholders' equity 3,738,435 3,571,638
----------- -----------
Total liabilities and stockholders'
equity $ 4,423,813 $ 4,629,448
=========== ===========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales $ 1,912,630 $ 2,115,561 $ 3,090,459 $ 4,168,033
Cost of
sales 839,234 892,630 1,410,392 1,710,815
------- ------- --------- ---------
Gross
profit 1,073,396 1,222,931 1,680,067 2,457,218
Operating
expenses:
Product
development 103,878 140,696 342,993 267,086
Selling,
general and
administrative 647,533 589,534 1,218,665 1,191,818
------- ------- --------- ---------
Total
operating
expenses 751,411 730,230 1,561,658 1,458,904
------- ------- --------- ---------
Operating
income 321,985 492,701 118,409 998,314
Interest
(income)
expense,
net (1,597) (1,466) (2,827) 3,517
----- ----- ----- -----
Income
before
income
taxes 323,582 494,167 121,236 994,797
Provision
for
income
taxes 28,324 22,913 10,301 45,197
------ ------ ------ ------
Net income $ 295,258 $ 471,254 $ 110,935 $ 949,600
=========== =========== =========== ===========
Net income
per common
share:
- Basic $ 0.03 $ 0.05 $ 0.01 $ 0.10
=========== =========== =========== ===========
- Diluted $ 0.03 $ 0.04 $ 0.01 $ 0.09
=========== =========== =========== ===========
Weighted
average
common
shares
outstanding
- Basic 10,116,329 9,989,337 10,109,501 9,989,337
Dilutive
effect of
common
share
equivalents 502,459 831,090 869,972 684,845
------- ------- ------- -------
Weighted
average
common
shares
outstanding
- Diluted 10,618,788 10,820,427 10,979,473 10,674,182
=========== =========== =========== ===========
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. 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 payment of a cash dividend on February 22, 2005 and the Company's intention to continue to pay a comparable quarterly cash dividend in future periods; recouping previously lost momentum in the retail marketplace by continuing to bring out more PC games at affordable prices; seeking to expand the Company's share of North American retail shelf space allocated to affordably priced PC software games; the Company's business strategy remaining concentrated on executing viable profit and cash generating opportunities at retail and online through the Internet, while continuing to evaluate potentially profitable business development and licensing alternatives in untapped and traditional distribution channels; the Company's hope that issuing a quarterly cash dividend will increase shareholder value more than the previously announced stock repurchase program that the Company has decided not to pursue; the Company's continued access to a $750,000 credit facility 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 "Factors Affecting Future Performance" in the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004 and Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, both filed with the Securities and Exchange Commission.