Gross Profit Margin Increases by 18.9% to 60.4%
Internet Revenues Increase by 220%
LANGHORNE, Pa., Nov. 14, 2007 (PRIME NEWSWIRE) -- eGames, Inc. (Pink Sheets:EGAM), a developer and publisher of games for the PC and the Internet, today released financial results for its fiscal first quarter ended September 30, 2007.
Fiscal First Quarter ended September 30, 2007:
Net revenues decreased by $357,000, or 34%, to $701,000 for the fiscal quarter ended September 30, 2007, compared to $1,058,000 for the comparative fiscal quarter a year earlier. The $357,000 decrease in net revenues resulted from decreases of $369,000 in traditional product revenues, $70,000 in licensing revenues and $8,000 in liquidation product revenues, which net revenue decreases were partially offset by a $90,000 increase in Internet revenues.
Net loss was $328,000, or $0.03 per diluted share, for the fiscal quarter ended September 30, 2007, compared to a net loss of $345,000, or $0.03 per diluted share, for the similar fiscal quarter a year ago. This $17,000 decrease in the quarterly net loss resulted from a $38,000 decline in operating expenses partially offset by a $15,000 decrease in gross profit and a $6,000 reduction in net interest income compared to the similar quarter a year earlier.
The Company's gross profit margin improved to 60.4% for the quarter ended September 30, 2007, compared to 41.5% for the quarter ended September 30, 2006 and 41.1% for the year ended June 30, 2007. The 18.9% improvement in the Company's quarterly gross profit margin almost offset the entire unfavorable gross profit impact caused by the decline in quarterly net revenues. The gross profit margin improvement resulted from product and royalty cost savings traceable to changes in our business model that now focuses more on developing and distributing Company owned titles through the major Internet game portals, along with licensing these titles to major international game publishers.
The $38,000 decrease in operating expenses resulted from $131,000 in selling, general and administrative cost savings, which were partially offset by a $93K increase in product development costs related to growing our portfolio of Company owned game titles and improving our game portal www.egames.com.
The following table represents the Company's net revenues by distribution channel for the fiscal quarters ended September 30, 2007 and 2006, respectively:
Net Revenues by Distribution Channel
------------------------------------
(rounded to the nearest thousand)
---------------------------------
Quarters Ended
September 30,
Distribution ---------------------------------- Increase %
Channel 2007 % 2006 % (Decrease) Change
-------- --- ---------- --- --------- ------
Traditional
product
revenues $496,000 71% $ 865,000 82% ($369,000) (43%)
Licensing
revenues 59,000 8% 129,000 12% (70,000) (54%)
Internet
revenues 131,000 19% 41,000 4% 90,000 220%
Liquidation
product
revenues 15,000 2% 23,000 2% (8,000) (35%)
----------- -------- --- ---------- --- --------- ---
Totals $701,000 100% $1,058,000 100% ($357,000) (34%)
======== === ========== === ======== ===
Liquidity Condition:
At September 30, 2007, the Company had $350,000 in cash compared to $645,000 in cash at June 30, 2007. Additionally, the Company's net working capital (current assets minus current liabilities) decreased to $641,000 at September 30, 2007 compared to $938,000 at June 30, 2007. The Company is in the process of seeking financing to bolster its product development plans and to maintain its business operations, but there is no guarantee that the Company will be successful in securing such funding.
Comments:
Jerry Klein, President and CEO of eGames, commented, "While I'm pleased to report with confidence the successful transition of our business model, with the exception of the dramatic improvement in our gross profit margin, I'm unable to report the transition is yet reflected in our financial results. The financial results, specifically revenue and earnings growth leading to positive cash flows, typically lag the business model transition and that remains our situation for now. We are very encouraged with the improvement in the gross profit margin because the majority of our operating expenses are relatively fixed and a higher gross profit margin results in a lower break-even point which is the first step to achieving profitability."
"During the final months of fiscal 2007, we launched our first two internally developed titles, 'Defender of the Crown' and 'Burger Island'. While Defender of the Crown was a PC and Internet remake of the Hall of Fame classic Cinemaware title, Burger Island was our first original title designed and developed by eGames. Both titles have been well received and Burger Island has performed especially well in the casual game segment on just about all of the large Internet game portals," Klein continued.
" 'Puzzle City', our second original eGames title, was recently launched as a Yahoo! games exclusive and is now being widely distributed on the major Internet game portals. Puzzle City is being well received and garnering excellent reviews. 'Rubik's Cube Challenge,' another original eGames property with a highly recognized license, was recently shipped to several North American retailers and the Internet version will likely be released after the holiday season. Our next original title is scheduled for release later this month and we hope to release one original eGames title every six to eight weeks after that. By the end of the second quarter of fiscal 2008 we will be nearing achievement of the first major milestone we established for our new business model, which we called 'filling the pipeline.' Filling the pipeline was defined as having at least five original eGames titles in distribution on the large Internet game portals and at various stages of distribution among the North American retailers while achieving break-even cash flows and operating results. Today we're confident our first milestone is within sight," Klein said.
"Our second major milestone is to have one or more of our original eGames titles achieve sufficient market place success to be considered an appropriate title for development on one or more of the dominant alternative casual gaming platforms. We may reach this second milestone at the same time as the first milestone as we are currently negotiating licensing agreements with large international publishers for developing Burger Island, Puzzle City, and Rubik's Cube Challenge for alternative gaming platforms other than the PC and the Internet," noted Klein.
"We are developing our games in a region of the world that offers compelling technical competence and a significant economic competitive advantage. This brings us to the third milestone of our new business model, and that is to develop new relationships and ways of doing business enabling us to leverage the competitive advantages of our development capacity. We have recently launched initiatives that we believe will result in successfully achieving our third milestone during this fiscal year. Our new business model now enables us to seek revenue growth from opportunities previously unavailable to the Company. Fortunately these opportunities represent segments of the gaming market enjoying faster growth today such as the Internet, hand-held and mobile gaming devices, and new game consoles and services popular with today's casual gamers. During the remainder of fiscal 2008, we intend to continue filling our new product pipeline, create more top-performing games, and achieve the development opportunities we now enjoy for today's popular handheld, mobile, and console platforms. We're very optimistic about our future and our recent achievements support our optimism."
eGames, Inc.
Balance Sheets
(Unaudited) (Audited)
As of As of
September 30, June 30,
2007 2007
----------- -----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 349,794 $ 644,524
Accounts receivable, net 375,896 326,005
Inventory, net 584,293 596,976
Prepaid and other expenses 279,253 253,626
----------- -----------
Total current assets 1,589,236 1,821,131
Furniture and equipment, net 29,609 33,995
Goodwill 420,000 420,000
Intangible assets 24,089 24,089
----------- -----------
Total assets $ 2,062,934 $ 2,299,215
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 291,070 $ 226,020
Unearned revenues 67,500 42,500
Accrued expenses 590,062 614,277
----------- -----------
Total current liabilities 948,632 882,797
----------- -----------
Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,283,084 2,205,242
Accumulated deficit (9,795,672) (9,467,234)
Treasury stock (552,937) (501,417)
----------- -----------
Total stockholders' equity 1,114,302 1,416,418
----------- -----------
Total liabilities and
stockholders' equity $ 2,062,934 $ 2,299,215
=========== ===========
eGames, Inc.
Statements of Operations
(Unaudited)
Quarters Ended
September 30,
----------------------------
2007 2006
------------ ------------
Net revenues $ 701,333 $ 1,058,324
Cost of revenues 277,625 618,906
------------ ------------
Gross profit 423,708 439,418
Operating expenses:
Product development 310,810 217,649
Selling, general and administrative 442,541 573,449
------------ ------------
Total operating expenses 753,351 791,098
------------ ------------
Operating loss (329,643) (351,680)
Interest income, net 1,205 6,727
------------ ------------
Loss before income taxes (328,438) (344,953)
------------ ------------
Benefit for income taxes 0 0
------------ ------------
Net loss ($ 328,438) ($ 344,953)
============ ============
Net loss per common share:
- Basic ($0.03) ($0.03)
============ ============
- Diluted ($0.03) ($0.03)
============ ============
Weighted average common shares
outstanding - Basic 11,759,494 11,724,193
Dilutive effect of common
share equivalents 0 0
------------ ------------
Weighted average common shares
outstanding - Diluted 11,759,494 11,724,193
============ ============
eGames, Inc.
Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-----------------------
2007 2006
---------- ----------
OPERATING ACTIVITIES:
Net loss ($ 328,438) ($ 344,953)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 19,092 17,565
Depreciation and amortization 4,386 7,488
Changes in operating assets and liabilities:
Accounts receivable, net (49,891) 11,489
Inventory, net 12,683 69,103
Prepaid and other expenses (25,627) (19,023)
Accounts payable 65,050 (43,423)
Unearned revenues 25,000 0
Accrued expenses (24,215) (209,382)
---------- ----------
Net cash used in operating activities (301,960) (511,136)
INVESTING ACTIVITIES:
Purchase of furniture and equipment 0 (2,823)
---------- ----------
Net cash used in investing activities 0 (2,823)
FINANCING ACTIVITIES:
Proceeds from stock option exercises 7,230 0
---------- ----------
Net cash provided by financing activities 7,230 0
---------- ----------
Net decrease in cash and cash equivalents (294,730) (513,959)
Cash and cash equivalents:
Beginning of period 644,524 1,526,629
---------- ----------
End of period $ 349,794 $1,012,670
========== ==========
Supplemental cash flow information: 2007 2006
----------------------------------- ---------- ----------
Cash paid (refunds received) for
income taxes $ 0 ($ 31,315)
========== ==========
eGames, Inc.
Statements of Stockholders' Equity
(Unaudited)
Common Stock Additional
----------------------- Paid-in Accumulated
Shares Amount Capital Deficit
---------------- ---------- ---------- ---------- -----------
Balances as of
June 30, 2006 11,956,093 $9,179,827 $2,135,168 ($ 7,956,734)
========== ========== ========== ===========
Net loss (1,510,501)
Common stock
options issued
to employees
and directors 70,074
Rounding 1
---------------- ---------- ---------- ---------- -----------
Balances as of
June 30, 2007 11,956,093 $9,179,827 $2,205,242 ($ 9,467,234)
========== ========== ========== ===========
Net loss (328,438)
Shares issued and
retired in
connection with
stock option
exercises 95,000 58,750
Common stock
options issued
to employees
and directors 19,092
---------------- ---------- ---------- ---------- -----------
Balances as of
September 30,
2007 12,051,093 $9,179,827 $2,283,084 ($ 9,795,672)
========== ========== ========== ===========
Treasury Stock
------------------------ Stockholders'
Shares Amount Equity
---------------------------- ---------- ---------- ----------
Balances as of June 30, 2006 (231,900) ($ 501,417) $2,856,844
========== ========== ==========
Net loss (1,510,501)
Common stock options issued
to employees and directors 70,074
Rounding 1
---------------------------- ---------- ---------- ----------
Balances as of June 30, 2007 (231,900) ($ 501,417) $1,416,418
========== ========== ==========
Net loss (328,438)
Shares issued and retired in
connection with stock option
exercises (46,000) (51,520) 7,230
Common stock options issued
to employees and directors 19,092
---------------------------- ---------- ---------- ----------
Balances as of September
30, 2007 (277,900) ($ 552,937) $1,114,302
========== ========== ==========
About eGames, Inc.
eGames, Inc., headquartered in Langhorne, Pennsylvania, develops and publishes games for the PC and the Internet which now include the eGames(tm), Cinemaware(r) and Cinemaware Marquee(r) brands. Additional information regarding eGames, Inc. can be found at http://www.egames.com.
Accessing Our Financial Information
Shareholders have three ways to access the Company's financial and other information: by going to the Investor Relations page of the Company's website at www.egames.com, where the Company's fiscal 2007 financial statements, as well as press releases containing quarterly financial information, can be accessed; by going to the Pink Sheets website at www.pinksheets.com and typing in the Company's symbol "EGAM"; or by requesting a paper copy of financial information by contacting the Company by mail at eGames, Inc. 2000 Cabot Boulevard, Suite 110, Langhorne, Pennsylvania 19047 to the attention of the Chief Financial Officer. Shareholders can also be placed on a list to receive press releases, as they are issued, via email by going to the following link on the eGames investor relations webpage: http://www.egamesonline.com/egames/investors/alert.asp.
Forward-Looking Statement Safe Harbor
This press release contains certain forward-looking statements, including without limitation, statements regarding: the fact that the Company is currently seeking outside financing; the Company's expectation that, during the remainder of fiscal 2008, the Company plans to release one original eGames title every six to eight weeks; the timing of the release of the Internet version of the Company's new title "Rubik's Cube Challenge"; the Company's plans to achieve profitability and to reach certain milestones in its business strategy including the release of newly developed titles, achieving commercial success to enable the Company to release titles on alternative gaming platforms such as hand-held devices and consoles, and developing new relationships and ways of doing business enabling the Company to leverage the competitive advantages of its development capacity. 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; inability to fund continued development of future titles; technical and other issues that may delay or halt development of future titles; the failure of new titles to sell well or achieve retail placement; as well as the risks and uncertainties discussed under the heading "Factors Affecting Future Performance" in the Company's Annual Report for the fiscal year ended June 30, 2007 as posted on the Company's website and on www.pinksheets.com.