LANGHORNE, Pa., Nov. 14, 2006 (PRIMEZONE) -- eGames, Inc. (OTCBB:EGAM), a publisher of consumer entertainment PC software games, today announced financial results for its fiscal first quarter ended September 30, 2006.
Fiscal Quarter ended September 30, 2006:
Net sales decreased by $236,000, or 18%, to $1,058,000 for the fiscal quarter ended September 30, 2006, compared to $1,294,000 for the same fiscal quarter a year earlier. The $236,000 decrease in net sales for the fiscal quarter ended September 30, 2006 resulted primarily from net product sales decreases of $88,000 to software liquidators and $86,000 to traditional software distributors and retailers, along with declines in licensing and Internet revenues.
For the fiscal quarter ended September 30, 2006, the Company recognized a net loss of $345,000, or $0.03 per diluted share, compared to the fiscal quarter ended September 30, 2005 in which the Company reported a net loss of $54,000, or nil per diluted share. This $291,000 increase in the net loss for the fiscal quarter ended September 30, 2006 compared to the year ago period was traceable to a $151,000 decline in gross profit, combined with a $139,000 increase in operating expenses.
The $151,000 decline in gross profit resulted from the $236,000 decrease in net sales, combined with a 4.1% reduction in gross profit margin caused by cost increases, as a percentage of net sales, of:
-- 5.2% in royalty costs due to higher contractual royalty rates
on various box titles retail priced at $19.99, along with
higher effective royalty rates traceable to shorter product
lifecycles for various titles;
-- 4.5% in the provision for inventory obsolescence due to
writing off raw materials of certain box titles that were
at end of product lifecycles; and
-- 1.2% in other cost of sales related to increased tool and
die costs for recent titles.
Partially offsetting these cost increases, as a percentage of net sales, was a 6.8% decrease in product costs, as a percentage of net sales, resulting from a decrease in net product sales to software liquidators.
The $139,000 increase in operating expenses was due to increases in product development and advertising costs incurred to support our Cinemaware and Cinemaware Marquee box titles, which cost increases were partially offset by salary related cost savings achieved from the reduction-in-force that was effected in July 2006.
The following table represents the Company's net sales by distribution channel for the fiscal quarters ended September 30, 2006 and 2005, respectively:
Net Sales by Distribution Channel
(rounded to the nearest thousand)
Quarters Ended
September 30,
---------------------------------
Distribution Increase %
Channel 2006 % 2005 % (Decrease) Change
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Traditional
product
sales $ 865,000 82% $ 951,000 73% ($ 86,000) (9%)
Licensing
revenues 129,000 12% 158,000 12% (29,000) (18%)
Internet
revenues 41,000 4% 74,000 6% (33,000) (45%)
Liquidation
product
sales 23,000 2% 111,000 9% (88,000) (79%)
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Totals $1,058,000 100% $1,294,000 100% ($ 236,000) (18%)
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Comments:
Jerry Klein, President and CEO of eGames, commented, "Our first quarter results reflect our continuing investment in the transition of our business model to adapt to the significant shifts in the retail markets we have served in the past. As we complete the development of own game titles, expected to be released in our third fiscal quarter at the same time that we unveil our new game portal website, we are hopeful that our new business model will allow us to reach and better serve the constantly evolving PC game market." Mr. Klein continued, "As we have also recently announced, yesterday we deregistered our common stock in an effort to devote all of our resources, both our financial resources and human capital, towards the development of a new, stronger business model that focuses entirely on our goal of seeking, obtaining and serving our customers."
eGames, Inc.
Balance Sheets
(Unaudited) (Audited)
As of As of
September 30, June 30,
------------- -------------
ASSETS 2006 2006
------------- -------------
Current assets:
Cash and cash equivalents $ 1,012,670 $ 1,526,629
Accounts receivable, net
of allowances of $630,143
and $654,076 509,597 521,086
Inventory, net 904,632 973,735
Prepaid and other expenses 318,684 299,661
------------- -------------
Total current assets 2,745,583 3,321,111
Furniture and equipment, net 44,930 49,595
Goodwill 420,000 420,000
Intangible assets 24,089 24,089
------------- -------------
Total assets $ 3,234,602 $ 3,814,795
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 299,860 $ 343,283
Accrued expenses 405,286 614,668
------------- -------------
Total current liabilities 705,146 957,951
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Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,152,732 2,135,168
Accumulated deficit (8,301,686) (7,956,734)
Treasury stock (501,417) (501,417)
------------- -------------
Total stockholders' equity 2,529,456 2,856,844
------------- -------------
Total liabilities and
stockholders' equity $ 3,234,602 $ 3,814,795
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eGames, Inc.
Statements of Operations
(Unaudited)
Quarters Ended
September 30,
---------------------------
2006 2005
----------- -----------
Net sales $ 1,058,324 $ 1,294,012
Cost of sales 618,906 703,806
----------- -----------
Gross profit 439,418 590,206
Operating expenses:
Product development 217,649 84,028
Selling, general and
administrative 573,449 568,228
----------- -----------
Total operating expenses 791,098 652,256
----------- -----------
Operating loss (351,680) (62,050)
Interest income, net 6,727 8,077
----------- -----------
Loss before income taxes (344,953) (53,973)
Provision for income taxes 0 0
----------- -----------
Net loss ($ 344,953) ($ 53,973)
----------- -----------
Net loss per common share:
- Basic ($ 0.03) ($ 0.00)
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- Diluted ($ 0.03) ($ 0.00)
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Weighted average common shares
outstanding - Basic 11,724,193 10,906,754
Dilutive effect of common share
equivalents 0 0
----------- -----------
Weighted average common shares
outstanding - Diluted 11,724,193 10,906,754
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About eGames, Inc.
eGames, Inc., headquartered in Langhorne, Pennsylvania, publishes and markets a diversified line of consumer entertainment titles which now include the eGames(tm), Cinemaware(r) and Cinemaware Marquee(tm) brands. Additional information regarding eGames, Inc. can be found at www.egames.com.
Forward-Looking Statement Safe Harbor:
This press release contains certain forward-looking statements, including without limitation, statements regarding: the transition of our business model; the completion of the development of our own game titles for release in our third fiscal quarter; the launch of our new game portal website in our third fiscal quarter; our expectation that our new business model will allow us to reach and better serve the PC game market; and our expectation that the deregistration of our common stock will allow us to devote all of our resources towards the development of a new, stronger business model. 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, delays in the development of future titles and the new game portal; inability to fund continued development of future titles and the new game portal; technical and other issues that may delay or halt development of future titles and the new game portal; as well as the risks and uncertainties 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, 2006 as filed with the Securities and Exchange Commission.