Internet Revenues Increase 387%
Gross Profit Margin Increases 17.9% to 65.1%
Profitability is Achieved
LANGHORNE, Pa., Feb. 4, 2008 (PRIME NEWSWIRE) -- eGames, Inc. (Pink Sheets:EGAM), a developer and publisher of games for the PC and Internet, today released financial results for the three and six months ended December 31, 2007.
Three Months ended December 31, 2007:
Net revenues increased $100,000, or 9.1%, to $1,196,000 for the fiscal quarter ended December 31, 2007, compared to $1,096,000 for the fiscal quarter a year earlier. The $100,000 increase in net revenues resulted from a $182,000 increase in Internet related revenues generated by: increased sales of internally developed titles distributed at major Internet gaming portals; increased unit sales on www.egames.com; and higher revenues related to our newly designed eGames toolbar, which installations are driven from sales of all new eGames published titles. Partially offsetting this increase in Internet revenues was an $82,000 decrease in other net revenues related to a decline in traditional North American retail product distribution.
Net income was $58,000, or $0.00 per diluted share, for the fiscal quarter ended December 31, 2007, compared to a net loss of $236,000, or $0.02 per diluted share, for the comparable fiscal quarter a year ago. This $294,000 increase in the quarter's profitability resulted from a $262,000 increase in gross profit generated from a 17.9% improvement in the gross profit margin on higher net revenues, in addition to $38,000 in operating expense savings.
The Company's gross profit margin improved to 65.1% for the quarter ended December 31, 2007, compared to 47.2% for the quarter ended December 31, 2006. This 17.9% gross profit margin improvement resulted from savings in product and royalty costs traceable to increased revenues generated from the Company's internally developed titles being distributed at major Internet gaming portals including www.egames.com, as well as through international licensing distributors and product distribution to North American retailers.
The $38,000 decrease in operating expenses resulted from a $52,000 savings in various selling, general and administrative expenses, which were partially offset by a $14,000 increase in product development costs related to improvements made to www.egames.com, along with the development of additional Company owned titles.
Six Months ended December 31, 2007:
Net revenues decreased $257,000, or 11.9%, to $1,897,000 for the six months ended December 31, 2007, compared to $2,154,000 for the comparative six-month period a year earlier. This $257,000 decrease in net revenues resulted from decreases of: $452,000 in North American traditional product revenues; $68,000 in licensing revenues; and $9,000 in liquidation product revenues. These decreases were partially offset by a $272,000 increase in Internet related revenues due to similar factors impacting the quarterly results.
Net loss was $271,000, or $0.02 per diluted share, for the six months ended December 31, 2007, compared to a net loss of $580,000, or $0.05 per diluted share, for the comparable six-month period a year earlier. This $309,000 reduction in the net loss resulted from a $245,000 increase in gross profit generated from a 19.0% improvement in the gross profit margin on lower net revenues. Additionally, operating expenses for this six month period decreased by $76,000 due to $182,000 in savings across various selling, general and administrative expenses, which were partially offset by a $106,000 increase in product development costs related to additions to our growing portfolio of Company developed game titles and improvements made to www.egames.com.
The following table represents the Company's net revenues by distribution channel for the three and six months ended December 31, 2007 and 2006, respectively:
Net Revenues by Distribution Channel
------------------------------------
(rounded to the nearest thousand)
---------------------------------
Three Months Ended
December 31,
----------------------------------
Distribution Increase %
Channel 2007 % 2006 % (Decrease) Change
----------------------------------------------------------------------
Traditional
product
revenues $ 743,000 62% $ 826,000 75% ($ 83,000) (10%)
Licensing
revenues 206,000 17% 204,000 19% 2,000 1%
Internet
revenues 229,000 19% 47,000 4% 182,000 387%
Liquidation
product
revenues 18,000 2% 19,000 2% (1,000) (5%)
----------------------------------------------------------------------
Totals $1,196,000 100% $1,096,000 100% $ 100,000 9%
========== ==== ========== ==== ========= ==
Six Months Ended
December 31,
----------------------------------
Distribution Increase %
Channel 2007 % 2006 % (Decrease) Change
----------------------------------------------------------------------
Traditional
product
revenues $1,239,000 65% $1,691,000 79% ($452,000) (27%)
Licensing
revenues 265,000 14% 333,000 15% (68,000) (20%)
Internet
revenues 360,000 19% 88,000 4% 272,000 309%
Liquidation
product
revenues 33,000 2% 42,000 2% (9,000) (21%)
----------------------------------------------------------------------
Totals $1,897,000 100% $2,154,000 100% ($257,000) (12%)
========== ==== ========== ==== ========== =====
Liquidity Condition:
At December 31, 2007, the Company had $284,000 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 $751,000 at December 31, 2007 compared to $938,000 at June 30, 2007.
Comments:
Jerry Klein, President and CEO of eGames, commented, "I'm pleased to report the successful transition of our business model is now being reflected in our financial results, specifically the improvement in our gross profit margin, as we report our first quarter of profitability after ten consecutive quarters of losses. Revenue and earnings growth leading to positive cash flows remain our primary objective for now. We are now benefiting from the results of our efforts to fully distribute game properties we have developed and own, both on the Internet and in retail markets around the world."
Klein continued, "We hope this marks the beginning of a trend of improved profitability and increased revenues attributed to Internet sales of games we own as well as revenue growth generated from retail distribution of third-party titles that enjoy top-selling Internet success such as 'Cake Mania', 'Ghost Hunters', and 'Jane's Hotel'. Our primary goal is to continue building the portfolio of game properties we own and offer to Internet game portals and retailers on a worldwide basis. Our recent partnerships with some of the largest Internet game portals and retail distributors, both domestically and abroad, are evidence that our family-friendly, familiar, fun, easy-to-play, and addictive games appeal to a wide audience and will serve as the basis for our growing portfolio of intellectual game properties."
"We recently launched our newest game title, 'Purrfect Pet Shop,' on a major Internet game portal, and we are very pleased with how it has performed in its first few weeks after launch. This title, together with previously-released titles including 'Puzzle City,' 'Defender of the Crown' and 'Burger Island,' have been well received and are now in the process of being localized for distribution on international game portals in several local languages. Additionally, the Internet versions of 'Rubik's Cube Challenge,' 'Satisfashion', and 'The Three Stooges', each original eGames properties, two boasting a highly recognized license, are scheduled for release during the second half of fiscal 2008", continued Mr. Klein.
"In my comments about the results for the first quarter of fiscal 2008, I talked about the major milestones we established for our new business model. The first major milestone we called 'filling the pipeline,' which we define 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. 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. And the third milestone is to develop new relationships and ways of doing business enabling us to leverage the competitive advantages of our development capacity. Today we're confident these milestones are within sight," Klein said.
eGames, Inc.
Balance Sheets
(Unaudited) (Audited)
As of As of
December 31, June 30,
ASSETS 2007 2007
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 283,768 $ 644,524
Accounts receivable, net 521,345 326,005
Inventory, net 592,075 596,976
Prepaid and other expenses 357,394 253,626
----------- -----------
Total current assets 1,754,582 1,821,131
Furniture and equipment, net 34,991 33,995
Goodwill 420,000 420,000
Intangible assets 24,089 24,089
----------- -----------
Total assets $ 2,233,662 $ 2,299,215
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 487,747 $ 226,020
Unearned revenues 76,040 42,500
Accrued expenses 439,828 614,277
----------- -----------
Total current liabilities 1,003,615 882,797
----------- -----------
Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,340,967 2,205,242
Accumulated deficit (9,737,810) (9,467,234)
Treasury stock (552,937) (501,417)
----------- -----------
Total stockholders' equity 1,230,047 1,416,418
----------- -----------
Total liabilities and stockholders'
equity $ 2,233,662 $ 2,299,215
=========== ===========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Net revenues $1,195,735 $1,095,806 $1,897,067 $2,154,130
Cost of revenues 416,986 578,664 694,610 1,197,570
---------- ---------- ---------- ----------
Gross profit 778,749 517,142 1,202,457 956,560
Operating expenses:
Product development 292,793 279,487 603,603 497,136
Selling, general and
administrative 428,212 479,364 870,753 1,052,812
---------- ---------- ---------- ----------
Total operating
expenses 721,005 758,851 1,474,356 1,549,948
---------- ---------- ---------- ----------
Operating income (loss) 57,744 (241,709) (271,899) (593,388)
Interest income, net 118 6,185 1,323 12,912
---------- ---------- ---------- ----------
Income (loss) before
income taxes 57,862 (235,524) (270,576) (580,476)
Provision for income
taxes - 0 - - 0 - - 0 - - 0 -
---------- ---------- ---------- ----------
Net income (loss) $ 57,862 ($235,524) ( $270,576) ($580,476)
========== ========== ========== ==========
Net income (loss) per
common share:
- Basic $0.00 ($0.02) ($0.02) ($0.05)
===== ======= ======= =======
- Diluted $0.00 ($0.02) ($0.02) ($0.05)
===== ======= ======= =======
Weighted average common
shares outstanding -
Basic 11,786,741 11,724,193 11,773,118 11,724,193
Dilutive effect of
common share
equivalents 379,971 - 0 - - 0 - - 0 -
---------- ---------- ---------- ----------
Weighted average
common shares
outstanding -
Diluted 12,166,712 11,724,193 11,773,118 11,724,193
========== ========== ========== ==========
eGames, Inc.
Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
----------- -----------
2007 2006
----------- -----------
OPERATING ACTIVITIES:
Net loss ($ 270,576) ($ 580,476)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 41,417 35,130
Depreciation and amortization 9,644 15,298
Changes in operating assets and
liabilities:
Accounts receivable, net (195,340) 91,727
Inventory, net 4,901 143,899
Prepaid and other expenses (31,054) 51,142
Accounts payable 224,571 (81,775)
Unearned revenues 33,540 - 0 -
Accrued expenses (174,449) (79,147)
----------- -----------
Net cash used in operating activities (357,346) (404,202)
INVESTING ACTIVITIES:
Purchase of furniture and equipment (10,640) (8,516)
----------- -----------
Net cash used in investing activities (10,640) (8,516)
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 (360,756) (412,718)
Cash and cash equivalents:
Beginning of period 644,524 1,526,629
----------- -----------
End of period $ 283,768 $ 1,113,911
=========== ===========
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 (270,576)
Shares issued and
retired in connection
with stock option
exercises 95,000 58,750
Common stock options
issued to employees
and directors 38,183
Shares issued in
connection with
consulting agreement 60,000 38,792
----------------------------------------------------------------------
Balances as of
December 31, 2007 12,111,093 $9,179,827 $2,340,967 ($9,737,810)
========== ========== ========== ============
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 (270,576)
Shares issued and retired in
connection with stock option
exercises (46,000) (51,520) 7,230
Common stock options issued
to employees and
directors 38,183
Shares issued in connection with
consulting agreement 38,792
----------------------------------------------------------------------
Balances as of December 31, 2007 (277,900) ($552,937) $ 1,230,047
======= ======== ===========
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 annual report, as well as fiscal 2007 and 2008 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 West, 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: Our primary objectives of revenue and earnings growth leading to positive cash flows; the trend of improved profitability and increased revenues attributed to Internet sales of our own titles and retail distribution of third-party titles; our goal of building the portfolio of game properties we own and offer to Internet game portals and retailers on a worldwide basis; our recent partnerships with some of the largest Internet game portals and retail distributors serving as the basis for our growing portfolio of intellectual game properties; the future localization of some of our titles for distribution on international game portals in several local languages; the scheduled release date in the second half of fiscal 2008 of the Internet versions of 'Rubik's Cube Challenge,' 'Satisfashion', and 'The Three Stooges'; and the business strategy milestones of developing game titles, the success of one or more game titles warranting the development of such titles for another game platform, and developing key relationships to leverage development capacity, being within sight. 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; our inability to enter into and maintain distribution relationships; and an increase in competition; 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.