LANGHORNE, Pa., Feb. 13, 2006 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of consumer entertainment PC software games, today announced financial results for the three and six months ended December 31, 2005.
Three Months ended December 31, 2005:
Net sales decreased by $759,000, or 40%, to $1,154,000, for the quarter ended December 31, 2005, compared to $1,913,000 for the year ago quarter. Net loss was $233,000, or $0.02 per diluted share, for the quarter ended December 31, 2005, compared to net income of $295,000, or $0.03 per diluted share, for the same quarter a year earlier.
Six Months ended December 31, 2005:
Net sales decreased by $642,000, or 21%, to $2,448,000, for the six months ended December 31, 2005, compared to $3,090,000 for the six months ended December 31, 2004. Net loss was $287,000, or $0.03 per diluted share, for the six months ended December 31, 2005, compared to net income of $111,000, or $0.01 per diluted share, for the similar six month period a year ago.
Financial Summary - Quarter ended December 31, 2005:
The $759,000 decrease in net sales for the quarter ended December 31, 2005 resulted from a $752,000 decrease in net sales to North American software distributors, primarily related to reduced distribution of eGames software titles to mass-merchant retailers. Contributing to the decline in sales has been the increasing number of competitors' titles vying for shelf slots within a reduced amount of retail shelf space offering PC software games at the $9.99 retail price point.
For the quarter ended December 31, 2005, the Company realized a net loss of $233,000 compared to net income of $295,000 for the similar quarter a year earlier. The decrease in profitability resulted from a $598,000 reduction in gross profit associated with the $759,000 decrease in comparative net sales combined with a 14.9% reduction in gross profit margin. The decline in gross profit margin was largely due to higher product costs per unit related to sales of holiday promotional packs, combined with increased pricing pressures on titles in certain traditional software retailers and incremental sales of last generation titles to various discount retailers. Partially offsetting the decline in gross profit were small comparative improvements in operating expenses, net interest income and income tax expense.
The following table represents the Company's net sales by distribution channel for the three and six months ended December 31, 2005 and 2004, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
---------------------------------
Three Months Ended
December 31,
--------------------------------
Distribution Increase %
Channel 2005 % 2004 % (Decrease) Change
----------------------------------------------------------------------
Software
Distributors $ 691,000 60% $1,443,000 76% ($752,000) (52%)
Software
Retailers 167,000 14% 138,000 7% 29,000 21%
Licensing 179,000 16% 156,000 8% 23,000 15%
Internet 70,000 6% 72,000 4% (2,000) (3%)
Inventory
Liquidators 47,000 4% 104,000 5% (57,000) (55%)
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Totals $1,154,000 100% $1,913,000 100% ($759,000) (40%)
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Six Months Ended
December 31,
--------------------------------
Distribution Increase %
Channel 2005 % 2004 % (Decrease) Change
----------------------------------------------------------------------
Software
Distributors $1,461,000 60% $2,257,000 73% ($ 796,000) (35%)
Software
Retailers 348,000 14% 298,000 10% 50,000 17%
Licensing 337,000 14% 249,000 8% 88,000 35%
Internet 144,000 6% 144,000 5% -0- 0%
Inventory
Liquidators 158,000 6% 142,000 4% 16,000 11%
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Totals $2,448,000 100% $3,090,000 100% ($642,000) (21%)
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Comments:
Jerry Klein, President and CEO of eGames, commented "The second quarter of fiscal 2006 was a challenging period that represented a transitional phase for our business as we began reallocating our resources to increase our product distribution at retail. We continue our aggressive search to secure rights to higher quality gaming content from third-party software developers, which we plan to release for retail distribution at higher price points during the second half of this fiscal year. These titles include our recently announced Space Rangers 2: Rise of the Dominators, Buccaneers Bounty, and Neighbors From Hell: On Vacation, all to be released under the newly introduced Cinemaware Marquee brand. Our recent acquisition of the Cinemaware intellectual properties, including its well recognized gaming brand, represents an important step toward improving the quality and brand recognition of our portfolio of consumer games.
Klein continued, "As we have stated previously, we realize that for eGames to grow we must expand our business beyond the value-priced PC software market and penetrate other retail gaming markets, such as higher-priced PC and other gaming platforms. These markets continue to represent greater growth and profit potential compared to the value-priced PC software market segment we have primarily focused on in the past. As we continue to implement this more aggressive business strategy, we will also search for alternative ways to increase the distribution of our software titles to the major North American retailers. To accomplish this specific objective we recently began shifting our primary North American retail distribution accounts to Take-Two Interactive, a company that we've had an excellent secondary distribution relationship with for several years. We must successfully continue to implement a more aggressive and opportunistic growth strategy in an effort to realize improved financial results during the second half of our fiscal 2006. While our financial condition remains relatively strong we are committed to executing a plan that will result in a return to profitability and positive cash flow."
eGames, Inc.
Balance Sheet
(Unaudited)
December 31,
ASSETS 2005
------ ------------
Current assets:
Cash and cash equivalents $ 1,742,396
Accounts receivable, net 824,810
Inventory, net 848,417
Prepaid and other expenses 348,191
------------
Total current assets 3,763,814
Furniture and equipment, net 36,804
Goodwill 420,000
Intangible assets 24,089
-----------
Total assets $ 4,244,707
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 384,419
Accrued expenses 293,909
----------
Total current liabilities 678,328
----------
Stockholders' equity:
Common stock 9,179,827
Additional paid-in capital 2,093,378
Accumulated deficit (7,205,409)
Treasury stock (501,417)
------------
Total stockholders' equity 3,566,379
------------
Total liabilities and
stockholders' equity $ 4,244,707
===========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 1,154,053 $ 1,912,630 $ 2,448,064 $ 3,090,459
Cost of sales 678,619 839,234 1,382,424 1,410,392
-------- ------- --------- ---------
Gross profit 475,434 1,073,396 1,065,640 1,680,067
Operating expenses:
Product
development 127,492 103,878 211,520 342,993
Selling, general
and
administrative 593,674 647,533 1,161,901 1,218,665
-------- ------- --------- ---------
Total operating
expenses 721,166 751,411 1,373,421 1,561,658
-------- ------- --------- ---------
Operating
income (loss) (245,732) 321,985 (307,781) 118,409
Interest
income, net 12,331 1,597 20,408 2,827
-------- ------- --------- ---------
Income (loss)
before income
taxes (233,401) 323,582 (287,373) 121,236
Provision for
income taxes -0- 28,324 -0- 10,301
-------- ------- --------- ---------
Net income
(loss) ($ 233,401) $ 295,258 ($287,373) $ 110,935
=========== ========= ========== =========
Net income
(loss) per
common share:
-Basic ($ 0.02) $ 0.03 ($ 0.03) $ 0.01
=========== ========= =========== =========
-Diluted ($ 0.02) $ 0.03 ($ 0.03) $ 0.01
=========== ========= =========== =========
Weighted average
common shares
outstanding
- Basic 11,618,717 10,116,329 11,262,736 10,109,501
Dilutive effect
of common share
equivalents -0- 502,459 -0- 869,972
---------- ---------- ---------- ----------
Weighted average
common shares
outstanding
- Diluted 11,618,717 10,618,788 11,262,736 10,979,473
========== ========== ========== ==========
About eGames, Inc.
eGames, Inc., headquartered in Langhorne, PA, publishes and markets a diversified line of Family Friendly(tm), affordably priced consumer entertainment PC software games. The Company promotes the eGames(tm) and Cinemaware(tm) brands in order to generate customer loyalty, encourage repeat purchases and differentiate eGames software products to retailers and consumers. Additional information regarding eGames, Inc. can be found at www.egames.com and www.cinemaware.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 reallocation of resources to increase product distribution at retail; the Company's strategy of searching for and securing rights to higher quality gaming content for release at retail at higher price points during the second half of fiscal 2006; the Company's intention to expand its business beyond the value-priced PC software market and into other retail gaming markets, such as higher-priced PC and other gaming platforms; the expectation that higher-priced PC and other gaming platforms represent greater growth and profit potential compared to the value-priced PC market segment; the Company's implementation of more aggressive and opportunistic growth strategies and its commitment to returning to profitability and positive cash flow; the Company's efforts to increase the distribution of its software titles to the major North American retailers; 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 Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005, as filed with the Securities and Exchange Commission.