- Gross Profit Margin Increases 17.3% to 58.1%
- Internet Revenues Increase 345%
LANGHORNE, Pa., May 21, 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 nine months ended March 31, 2008.
Comments:
"We are pleased with the continued improvement in our gross profit margin and increased Internet-related revenues, as this further evidences a positive transition to fully exploiting the game properties we have developed and own, both on the Internet and in retail markets around the world," commented Jerry Klein, President and CEO of eGames.
Klein continued, "We are very optimistic about the new opportunities available to us with the completion of additional PC game titles we own and the achieved success of the titles we have already launched. The recent interest in some of our soon to be released titles - Satisfashion and The Three Stooges - bolsters already solid performances both online and at retail of our titles Burger Island and Purrfect Pet Shop as well as top-selling titles we have licensed from other developers. The increased revenues attributed to Internet sales of games we own and incremental revenues generated from the eGames toolbar are relatively new and growing sources of revenue that are now contributing more substantially to our net revenues and gross profit. We are continuing to look for additional ways to capitalize on these new revenue opportunities while maintaining our focused business strategy of building a portfolio of game properties we own that appeal to a wide gaming audience and can potentially transition to other gaming platforms. Soon we expect to announce the first development agreements for some of our titles on other popular casual gaming platforms in time for the upcoming holiday selling season."
"Furthermore, the success that our top selling game titles like Burger Island, GHOST Hunters, Jane's Hotel and Hidden Relics have enjoyed online has enabled us to expand our overall product distribution at the major North American retailers. It is a winning formula, as we are now beginning to build a success story which appears to be resonating with our retail partners and with our targeted consumer - the casual gamer - looking for an addictively enjoyable gaming experience," Klein said.
Financial Summary
Three Months ended March 31, 2008:
Net revenues increased by $296,000, or 37.6%, to $1,084,000 for the fiscal quarter ended March 31, 2008, compared to $788,000 for the quarter ended March 31, 2007. The $296,000 increase in net revenues resulted from a $214,000 increase in Internet revenues resulting from increased sales of top selling casual games on the www.egames.com website, Company owned casual games sold on major Internet gaming portals, and greater revenues generated from consumer installations of our eGames toolbar, which is now available on all eGames published game titles. Additionally, traditional product revenues increased by $99,000 due to improved distribution with various North American retailers.
Net loss was $165,000, or $0.01 per diluted share, for the quarter ended March 31, 2008, compared to a net loss of $434,000, or $0.04 per diluted share, for the quarter ended March 31, 2007. This $269,000 decrease in the quarterly net loss resulted from a $308,000 increase in gross profit generated from a 17.3% improvement in the gross profit margin on higher net revenues, partially offset by a $34,000 increase in operating expenses related to the Company's product development efforts to build its own portfolio of high quality casual games for the PC and Internet.
The 17.3% improvement in gross profit margin resulted from a combination of a decline in the provision for inventory obsolescence, additional product cost savings related to increased Internet revenues (which have no product costs), and higher average selling prices associated with North American retail product distribution.
Nine Months ended March 31, 2008:
Net revenues increased by $39,000, or 1.3%, to $2,981,000 for the nine months ended March 31, 2008, compared to $2,942,000 for the nine-month period a year earlier. The $39,000 increase in net revenues resulted from a $486,000 increase in Internet revenues, which was partially offset by decreases of $353,000 in traditional product revenues and $93,000 in licensing revenues.
Net loss was $436,000, or $0.04 per diluted share, for the nine months ended March 31, 2008, compared to a net loss of $1,015,000, or $0.09 per diluted share, for the nine months ended March 31, 2007. This $579,000 reduction in the nine-month period's net loss resulted from a $554,000 increase in gross profit generated from an 18.0% improvement in the gross profit margin.
The following table represents the Company's net revenues by distribution channel for the three and nine months ended March 31, 2008 and 2007, respectively:
Net Revenues by Distribution Channel
------------------------------------
(rounded to the nearest thousand)
-------------------------------
Three Months Ended
March 31,
---------------------------- Increase %
Distribution Channel 2008 % 2007 % (Decrease) Chg
---------------------------------------------------------------------
Traditional product
revenues $630,000 58% $531,000 67% $ 99,000 19%
Internet revenues 276,000 26% 62,000 8% 214,000 345%
Licensing revenues 122,000 11% 147,000 19% (25,000) (17%)
Liquidation product
revenues 56,000 5% 48,000 6% 8,000 17%
---------------------------------------------------------------------
Totals $1,084,000 100% $788,000 100% $296,000 38%
========== ==== ======== ==== ======== ====
Nine Months Ended
March 31,
------------------------------ Increase %
Distribution Channel 2008 % 2007 % (Decrease) Chg
---------------------------------------------------------------------
Traditional product
revenues $1,869,000 63% $2,222,000 76% ($353,000) (16%)
Internet revenues 636,000 21% 150,000 5% 486,000 324%
Licensing revenues 387,000 13% 480,000 16% (93,000) (19%)
Liquidation product
revenues 89,000 3% 90,000 3% (1,000) (1%)
---------------------------------------------------------------------
Totals $2,981,000 100% $2,942,000 100% $ 39,000 1%
========== ==== ========== ==== ======== ====
Liquidity Condition:
At March 31, 2008, the Company had $943,000 in cash compared to $645,000 in cash at June 30, 2007. Additionally, the Company's net working capital (current assets minus current liabilities) increased to $1,337,000 at March 31, 2008 compared to $938,000 at June 30, 2007.
Series A 5% Cumulative Convertible Preferred Stock Offering Completed on April 25th, 2008:
On April 25th, 2008, the Company completed a private offering of its Series A 5% Cumulative Convertible Preferred Stock (the "Preferred Stock") in which it received a total of $875,000 in gross cash proceeds. As of March 31, 2008, the Company had received $805,000 of the gross cash proceeds from this offering. The shares of Preferred Stock are convertible into the Company's Common Stock at a current conversion ratio of two shares of Common Stock for each share of Preferred Stock. The dividends on the Preferred Stock, when and if declared by the Company's Board of Directors, are payable quarterly and are cumulative. On April 29, 2008, the Company's Board of Directors declared a dividend to holders of Preferred Stock as of March 31, 2008 in the amount of $4,515, which was paid on May 2, 2008.
The Company is relying on the exemption from registration provided by Rule 506 of Regulation D under the Securities Act of 1933, as amended ("Regulation D"), for sales to "accredited investors" (as such term is defined in Rule 501 of Regulation D). Each purchaser in the offering has represented that it is an "accredited investor."
The Company retained the services of First Global Securities, Inc. ("First Global") as a non-exclusive placement agent to secure a portion of this Preferred Stock offering. As a result, the Company has compensated First Global by issuing 124,000 shares of the Company's Common Stock; issuing a five year Common Stock Warrant to purchase 62,000 shares of the Company's Common Stock; and reimbursing $9,300 in marketing expenses. The shares and warrant issued to First Global were issued pursuant to an exemption under Section 4(2) of the Securities Act of 1933, as amended.
The Company intends to use the net cash proceeds from the Preferred Stock offering to fund product development of future game titles for the PC and other gaming platforms and for general working capital requirements.
eGames, Inc.
Balance Sheets
(Unaudited) (Audited)
As of As of
March 31, June 30,
2008 2007
ASSETS ----------- -----------
------
Current assets:
Cash and cash equivalents $ 943,420 $ 644,524
Accounts receivable, net 399,963 326,005
Inventory, net 562,888 596,976
Prepaid and other expenses 310,299 253,626
----------- -----------
Total current assets 2,216,570 1,821,131
Furniture and equipment, net 29,297 33,995
Goodwill 420,000 420,000
Intangible assets 24,089 24,089
----------- -----------
Total assets $ 2,689,956 $ 2,299,215
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 358,070 $ 226,020
Unearned revenues 91,688 42,500
Accrued expenses 429,691 614,277
----------- -----------
Total current liabilities 879,449 882,797
----------- -----------
Stockholders' equity:
Common stock 9,179,827 9,179,827
Additional paid-in capital 2,430,885 2,205,242
Preferred stock 660,093 -0-
Accumulated deficit (9,907,361) (9,467,234)
Treasury stock (552,937) (501,417)
----------- -----------
Total stockholders' equity 1,810,507 1,416,418
----------- -----------
Total liabilities and
stockholders' equity $ 2,689,956 $ 2,299,215
=========== ===========
eGames, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- -----------------------
2008 2007 2008 2007
---------- ---------- ---------- -----------
Net revenues $1,083,795 $ 787,641 $2,980,862 $ 2,941,771
Cost of revenues 454,579 466,496 1,149,189 1,664,066
---------- ---------- ---------- -----------
Gross profit 629,216 321,145 1,831,673 1,277,705
Operating expenses:
Product development 394,494 303,810 998,097 800,946
Selling, general and
administrative 400,991 457,572 1,271,743 1,510,384
---------- ---------- ---------- -----------
Total operating
expenses 795,485 761,382 2,269,840 2,311,330
---------- ---------- ---------- -----------
Operating loss (166,269) (440,237) (438,167) (1,033,625)
Interest income, net 1,233 5,940 2,555 18,852
---------- ---------- ---------- -----------
Loss before income
taxes (165,036) (434,297) (435,612) (1,014,773)
Provision for income
taxes -0- -0- -0- -0-
---------- ---------- ---------- -----------
Net loss ($ 165,036) ($ 434,297) ($ 435,612) ($1,014,773)
========== ========== ========== ===========
Net loss per common
share:
- Basic ($ 0.01) ($ 0.04) ($ 0.04) ($ 0.09)
========== ========== ========== ===========
- Diluted ($ 0.01) ($ 0.04) ($ 0.04) ($ 0.09)
========== ========== ========== ===========
Weighted average
common shares out-
standing - Basic 11,833,193 11,724,193 11,793,143 11,724,193
Dilutive effect of
common share
equivalents -0- -0- -0- -0-
---------- ---------- ---------- -----------
Weighted average
common shares out-
standing - Diluted 11,833,193 11,724,193 11,793,143 11,724,193
========== ========== ========== ===========
eGames, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
--------------------------
2008 2007
OPERATING ACTIVITIES: ----------- -----------
---------------------
Net loss ($ 435,612) ($1,014,773)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation 70,208 52,695
Depreciation and amortization 15,338 24,039
Changes in operating assets and
liabilities:
Accounts receivable, net (73,958) 165,030
Inventory, net 34,088 191,636
Prepaid and other expenses (30,813) 85,056
Accounts payable 93,082 (138,963)
Unearned revenues 49,188 -0-
Accrued expenses (197,651) 120,011
----------- -----------
Net cash used in operating activities (476,130) (515,269)
INVESTING ACTIVITIES:
---------------------
Purchase of furniture and equipment (10,640) (17,246)
----------- -----------
Net cash used in investing activities (10,640) (17,246)
FINANCING ACTIVITIES:
---------------------
Net proceeds from issuance of
preferred stock 778,436 -0-
Net proceeds from stock option exercises 7,230 -0-
----------- -----------
Net cash provided by financing activities 785,666 -0-
----------- -----------
Net increase (decrease) in cash and
cash equivalents 298,896 (532,515)
Cash and cash equivalents:
Beginning of period 644,524 1,526,629
----------- -----------
End of period $ 943,420 $ 994,114
=========== ===========
Supplemental cash flow information:
Cash paid (refunds received) for
income taxes $ -0- $ 21,862
=========== ===========
eGames, Inc.
Statements of Stockholders' Equity
(Unaudited)
Convertible
Common Stock Additional Preferred Stock
---------------------- Paid-in -----------------
Shares Amount Capital Shares Amount
-------------------------- ---------- ---------- ------- --------
Balances at
June 30, 2006 11,956,093 $9,179,827 $2,135,168 -0- $ -0-
========== ========== ========== ======= ========
Net loss
Common stock
options issued
to employees
and directors 70,074
Rounding
-------------------------- ---------- ---------- ------- --------
Balances at
June 30, 2007 11,956,093 $9,179,827 $2,205,242 -0- $ -0-
========== ========== ========== ======= ========
Net loss
Shares issued
and retired in
connection with
stock option
exercises 95,000 58,750
Common stock
options issued
to employees and
directors 57,276
Shares issued in
connection with
consulting
agreement 60,000 38,792
Shares issued in
connection with
preferred stock
offering 805,000 805,000
Valuation of
shares to be
issued in
connection with
preferred stock
offering 57,000 (57,000)
Valuation of
warrant to be
issued in
connection with
preferred stock
offering 13,825 (13,825)
Costs related to
preferred stock
offering (74,082)
Dividends declared
on preferred
stock
-------------------------- ---------- ---------- ------- --------
Balances at
March 31, 2008 12,111,093 $9,179,827 $2,430,885 805,000 $660,093
========== ========== ========== ======= ========
Treasury Stock
Accumulated -------------------- Stockholders'
Deficit Shares Amount Equity
--------------------------------- -------- --------- ----------
Balances at
June 30, 2006 ($7,956,734) (231,900) ($501,417) $2,856,844
=========== ======== ========= ==========
Net loss (1,510,501) (1,510,501)
Common stock options
issued to employees
and directors 70,074
Rounding 1 1
--------------------------------- -------- --------- ----------
Balances at
June 30, 2007 ($9,467,234) (231,900) ($501,417) $1,416,418
=========== ======== ========= ==========
Net loss (435,612) (435,612)
Shares issued and
retired in connection
with stock option
exercises (46,000) (51,520) 7,230
Common stock options issued
to employees and directors 57,276
Shares issued in connection
with consulting agreement 38,792
Shares issued in connection
with preferred stock offering 805,000
Valuation of shares to be
issued in connection with
preferred stock offering -0-
Valuation of warrant to be
issued in connection with
preferred stock offering -0-
Costs related to preferred
stock offering (74,082)
Dividends declared on
preferred stock (4,515) (4,515)
--------------------------------- -------- --------- ----------
Balances at
March 31, 2008 ($9,907,361) (277,900) ($552,937) $1,810,507
=========== ======== ========= ==========
About eGames, Inc.
eGames, Inc., headquartered in Langhorne, Pennsylvania, develops and publishes games for the PC and the Internet which 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: recent interest in our soon to be released titles, Satisfashion and The Three Stooges; looking for additional ways to capitalize on new Internet and toolbar-related revenue opportunities while continuing to build a portfolio of game properties we own; potentially transitioning our game titles to other gaming platforms; and the anticipated announcement of the first development agreements for some of our titles on other popular casual gaming platforms in time for the upcoming holiday selling season; our intention to use the net cash proceeds from the Preferred Stock offering to fund product development of future game titles for the PC and other gaming platforms and for general working capital requirements. 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 commercially successful publishing, licensing and 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.