LANGHORNE, Pa., May 15, 2006 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of consumer entertainment PC software games, today announced financial results for the three and nine months ended March 31, 2006.
Quarter ended March 31, 2006:
Net sales decreased by $195,000, or 13%, to $1,265,000, for the quarter ended March 31, 2006, compared to $1,460,000 for the year ago quarter. The $195,000 decrease in net sales resulted from a $172,000 decrease in net sales to North American software distributors and related primarily to declining distribution of eGames' value-priced line of PC games due to substantial reductions in retail shelf space allocated to PC games at the $9.99 price point compared to the year ago period.
Net loss was $248,000, or $0.02 per diluted share, for the quarter ended March 31, 2006, compared to net income of $46,000, or nil per diluted share, for the comparable quarter a year earlier. This decline in profitability resulted from a $260,000 reduction in gross profit due to the impact from the $195,000 decrease in net sales and an 11.9% decline in gross profit margin compared to last year's comparative quarter. The decline in gross profit margin was due to continued downward pricing pressures on value priced titles distributed to certain mass merchant retailers, along with incremental sales of end-of-life titles to various discount retailers. The gross profit margin was also reduced by higher product costs per unit on sales of titles containing multiple CD's and other value-added materials such as posters, manuals and novelty items relating to themes of individual games. We also experienced a $50,000 increase in operating expenses due to greater product development and promotional efforts related to our new higher priced Cinemaware Marquee titles.
Nine Months ended March 31, 2006:
Net sales decreased by $837,000, or 18%, to $3,713,000, for the nine months ended March 31, 2006, compared to $4,550,000 for the nine months ended March 31, 2005. Net loss was $535,000, or $0.05 per diluted share, for the nine months ended March 31, 2006, compared to net income of $157,000, or $0.01 per diluted share, for the similar nine month period a year earlier.
The following table represents the Company's net sales by distribution channel for the three and nine months ended March 31, 2006, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
Three Months Ended
March 31,
--------------------------------
Distribution Increase %
Channel 2006 % 2005 % (Decrease) Change
---------------------------------------------------------------------
Software
Distributors $ 845,000 67% $1,017,000 70% ($ 172,000) (17%)
Software
Retailers 162,000 13% 135,000 9% 27,000 20%
Licensing 157,000 12% 176,000 12% (19,000) (11%)
Internet 68,000 5% 96,000 7% (28,000) (29%)
Inventory
Liquidators 33,000 3% 36,000 2% (3,000) (8%)
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Totals $1,265,000 100% $1,460,000 100% ($ 195,000) (13%)
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Nine Months Ended
March 31,
--------------------------------
Distribution Increase %
Channel 2006 % 2005 % (Decrease) Change
---------------------------------------------------------------------
Software
Distributors $2,306,000 62% $3,274,000 72% ($ 968,000) (30%)
Software
Retailers 510,000 14% 433,000 10% 77,000 18%
Licensing 494,000 13% 423,000 9% 71,000 17%
Internet 212,000 6% 242,000 5% (30,000) (12%)
Inventory
Liquidators 191,000 5% 178,000 4% 13,000 7%
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Totals $3,713,000 100% $4,550,000 100% ($ 837,000) (18%)
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Comments:
Jerry Klein, President and CEO of eGames, commented, "During the third quarter of fiscal 2006, we experienced continuing unfavorable sales trends from the effects of retail shelf space erosion for our core line of value-priced PC games at the $9.99 retail price point, compared to the same period last year. To combat these trends for value-priced PC games, during this quarter we released three premium quality PC games under our new brand "Cinemaware Marquee." These higher-priced titles included: "Space Rangers 2: Rise of the Dominators" priced at $29.99, a game that has garnered significant media acclaim and received critical praise in the crowded space combat genre; "Buccaneers Bounty" and "Neighbors From Hell: On Vacation;" both priced at $19.99. We are committed to growing the Cinemaware Marquee brand of high quality games for PC gamers looking for innovative games at great values. As we proceed with this new higher-priced strategy, we will support these new titles with both traditional and Internet advertising to help generate consumer awareness and future demand for this brand of titles."
Klein continued, "Last week we announced the launch of Cinemaware Classics, a brand of games to be developed based on the original Cinemaware properties employing the 'Cinemaware experience' of melding a captivating storyline with the grand cinematic experience that differentiated the original Cinemaware game properties in the late 1980's and early 1990's. Cinemaware Classics will be revamped for the enjoyment of long-time fans and today's large and growing audience of new casual game players. Cinemaware Classics will be developed from the ground up, incorporating many of the most popular genres within each game such as strategy, action, and role-playing and will employ the latest features in animation and graphics presentation. The goal is to build upon these legendary game properties by developing an almost endless catalog of new episodes, adding logical extensions where appropriate. Developed for the Internet and PC initially, Cinemaware Classics will each be stand-alone experiences providing hours of enjoyment. The first two titles are planned to be released in early 2007, and will include "Defender of the Crown" and one other yet-to-be-named game from the Cinemaware catalog. The launch of these titles will coincide with the introduction of our new gaming destination 'portal'."
"We will continue searching for profitable ways to increase the distribution of our software titles at all price points to the major North American retailers. To accomplish this goal, during this quarter we continued to successfully transition our primary North American retail distribution accounts to Take-Two Interactive, a company with whom we continue to have a strong distribution relationship. We believe that Take-Two Interactive's sales and marketing force will give us a needed improvement to our distribution to North American retailers."
eGames, Inc.
Balance Sheet
(Unaudited)
ASSETS March 31,
------ 2006
-----------
Current assets:
Cash and cash equivalents $ 1,483,306
Accounts receivable, net 1,009,662
Inventory, net 956,348
Prepaid and other expenses 339,068
-----------
Total current assets 3,788,384
Furniture and equipment, net 30,375
Goodwill 420,000
Intangible assets 24,089
-----------
Total assets $ 4,262,848
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 474,367
Accrued expenses 448,621
-----------
Total current liabilities 922,988
-----------
Stockholders' equity:
Common stock 9,179,827
Additional paid-in capital 2,114,477
Accumulated deficit (7,453,027)
Treasury stock (501,417)
-----------
Total stockholders' equity 3,339,860
-----------
Total liabilities and stockholders' equity $ 4,262,848
===========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $ 1,264,898 $ 1,459,623 $ 3,712,963 $ 4,550,082
Cost of sales 711,223 646,116 2,093,648 2,056,508
----------- ----------- ----------- -----------
Gross profit 553,675 813,507 1,619,315 2,493,574
Operating expenses:
Product development 164,788 101,894 376,308 444,887
Selling, general
and administrative 647,875 660,969 1,809,777 1,879,634
----------- ----------- ----------- -----------
Total operating
expenses 812,663 762,863 2,186,085 2,324,521
----------- ----------- ----------- -----------
Operating income
(loss) (258,988) 50,644 (566,770) 169,053
Interest income, net 11,370 2,007 31,778 4,834
----------- ----------- ----------- -----------
Income (loss) before
income taxes (247,618) 52,651 (534,992) 173,887
Provision for income
taxes --- 6,483 --- 16,784
----------- ----------- ----------- -----------
Net income (loss) ($ 247,618) $ 46,168 ($ 534,992) $ 157,103
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Net income (loss)
per common share:
-- Basic ($ 0.02) $ 0.00 ($ 0.05) $ 0.02
========== =========== =========== ===========
-- Diluted ($ 0.02) $ 0.00 ($ 0.05) $ 0.01
========== =========== =========== ===========
Weighted average
common shares
outstanding
-- Basic 11,724,193 10,655,108 11,416,555 10,291,370
Dilutive effect of
common share
equivalents --- 375,041 --- 700,962
---------- ---------- ---------- ----------
Weighted average
common shares
outstanding
-- Diluted 11,724,193 11,030,149 11,416,555 10,992,332
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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: our plans to continue to introduce new higher-priced PC game titles under our Cinemaware Marquee brand, and to support these new titles with both traditional and Internet advertising to help generate consumer awareness and future demand; our plans to launch a Cinemaware Classics brand of games based on the original Cinemaware properties, with the first two titles planned for release in early 2007; our expectation that the first two Cinemaware Classics titles will be Defender of the Crown and one other yet-to-be-named game from the Cinemaware catalog; the launch of our new gaming destination 'portal' to coincide with the release of the first two Cinemaware Classics titles; our efforts to profitably increase the distribution of our 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.